the international lawyer

T H E I N T E R N AT I O N A L L AW Y E R A QUARTERLY PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW

WINTER 2010 • VOLUME 44 • NUMBER 4

ARTICLES The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . Paul M. McBride Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . John F. Murphy The American Assault on Tax Havens-Status Report . . . . . . . Alan S. Lederman & Bobbe Hirsh Private Antitrust Litigation in the European Union . . . . . . . . . . . . Till Schreiber I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eric Engle CASE NOTE Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . Craig C. Carpenter

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A QUARTERLY PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW THE INTERNATIONAL LAWYER BOARD OF PROFESSIONAL EDITORS JOHN B. ATTANASIO/MARC I. STEINBERG Co-Editors-in-Chief, SMU Dedman School of Law ´ BEVERLY CARO DUREUS Co-Executive Editor SMU Dedman School of Law

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THE INTERNATIONAL LAWYER THE INTERNATIONAL LAWYER (ISSN 0020-7810) is the quarterly publication of the American Bar Association’s Section of International Law and Practice. It has a worldwide circulation. Publication policy: The objectives of THE INTERNATIONAL LAWYER are to • publish high quality articles on international subjects; • inform its readers of significant current legal developments throughout the world; • foster and record the activities of the Section and its committees. The journal focuses on practical issues facing lawyers engaged in international practice. Thus, the editors are interested primarily in topics concerning trade, licensing, direct investment, finance, taxation, litigation and dispute resolution. They will, however, also consider public international law topics. Article Submissions: Articles submitted for publication should not exceed 10,000 words (including endnotes). Text and endnotes should be double-spaced. Endnotes must conform to the most recent edition of The Bluebook: A Uniform System of Citation (Harvard Law Review Association). The Journal does not accept unsolicited student-written submissions nor does it consider articles or reports that have been or are to be published elsewhere. All article submissions must be sent in an electronic Word format. Submit to [email protected] or send a hard copy with an electronic Word-formatted copy of the article to Editor-in-Chief, THE INTERNATIONAL LAWYER, Southern Methodist University, Dedman School of Law, P.O. Box 750116, Dallas, TX 75275-0116 [phone: 214-768-2061; fax: 214-768-1633]. Manuscripts receive peer review, which usually takes three to four weeks. Publication is normally nine to twelve months after a manuscript is accepted. The editors of THE INTERNATIONAL LAWYER reserve the right to move an accepted manuscript from the committed issue to a later issue. Manuscripts are submitted at the sender’s risk. The editors do not return unsolicited material. Material accepted for publication becomes the property of the Section, which pays no fee for any manuscript. Subscription Price: Section annual membership dues $55.00 (Free for law students) include a $12.00 subscription to THE INTERNATIONAL LAWYER. The current annual subscription rate for nonmembers is $60.00 ($75.00 if mailed outside the United States). Reprint Permissions: Except as stated on the first page of specific articles, requests to reproduce any portion of this issue should be addressed to Manager, Copyrights and Licensing, American Bar Association, 321 N. Clark Street, Chicago, IL 60610 [phone: 312-988-6102; fax: 312-988-6030; email: [email protected]]. Order Information: The special spring Year-in-Review issue is available for $30.00 per copy, and most other issues may be purchased for $10.00 each, plus $3.95-$5.95 for shipping and handling, from the American Bar Association, ABA Service Center, 321 N. Clark Street, Chicago, IL 60610 [phone: 800-285-2221; fax: 312-988-5568; e-mail: [email protected]]. Back issues three years ago and earlier may be purchased from William S. Hein & Co. Inc., 1285 Main Street, Buffalo, NY 142091987 [phone: 800-828-7571; fax: 716-883-8100; e-mail: [email protected]]. Back issues can be found in electronic format for all your research needs on HeinOnline [http://heinonline.org/]. Address Changes: Send all address changes to THE INTERNATIONAL LAWYER, American Bar Association, ABA Service Center, 321 N. Clark Street, Chicago, IL 60610. Advertising: Address all advertising orders, contracts and materials to: Manager, ABA Publishing Advertising, 321 N. Clark Street, Chicago, IL 60610 [phone: 312-988-6051; fax: 312-988-6030]. Postal Information: Periodicals postage paid at Chicago, Illinois, and additional mailing offices. POSTMASTER: Send all address changes to THE INTERNATIONAL LAWYER, American Bar Association, ABA Service Center, 321 N. Clark Street, Chicago, IL 60610 [phone: 312-988-5522; fax: 312-988-5568; e-mail: [email protected]]. Copyright 2010 American Bar Association. All rights reserved. Printed in the United States of America. Produced by Joe Christensen, Inc. *Disclaimer: Nothing appearing in this journal necessarily represents the opinions, views or actions of the American Bar Association unless the House of Delegates or the Board of Governors has first approved it. Nothing appearing in this journal necessarily represents the opinion, views, or actions of the Section or its Council unless the Section or its Council has approved it. Visit the ABA Website at www.abanet.org and the Section of International Law homepage at www.abanet.org/intlaw. on acid-free paper.

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Division Chairs: Africa/Eurasia, Victor S. Mroczka Americas/Middle East, Mark E. Wojcik Business Law I, Fiona Anne Schaeffer Business Law II, Paul M. Lalonde Business Regulation, Marcy Stras Constituent, Ingrid Busson Disputes, Robert F. Brodegaard Finance, Melida Hodgson Legal Practice, Albert Garrofe Public International Law I, Kevin Michael O’Gorman Public International Law II, Isabella Bunn Tax, Estate, & Individuals, Anders Etgen Reitz Year-in-Review Co-Editor, Mark E. Wojcik Year-in-Review Co-Editor, William B.T. Mock, Jr.

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Volume 44

Number 4

CONTENTS ARTICLES The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . Paul M. McBride

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Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . John F. Murphy

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The American Assault on Tax Havens-Status Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alan S. Lederman & Bobbe Hirsh

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Private Antitrust Litigation in the European Union . . . . Till Schreiber

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I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . . . . . . . . . . . . . . . . . . . . . . . . . . Eric Engle

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CASE NOTE Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . Craig C. Carpenter

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The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market PAUL M. MCBRIDE*

Abstract The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act represents a turning point in the regulation of the OTC derivatives markets. By subjecting OTC derivatives and the global markets in which they are traded to a variety of new requirements, the Act represents the first major attempt to regulate one of the most important components of the international financial system. The rules that regulatory agencies must implement in order to effectuate the intent of the Act, however, will inevitably have consequences on the market’s future development and utility that reach far beyond the United States. This article considers how the implementation of just one aspect of the Dodd-Frank Act, mandatory central clearing, may impact commercial endusers who routinely manage risk in the OTC derivatives market. Ultimately, through an analysis of OTC derivatives, risk management, and central clearing, this article warns that the potential negative unintended consequences associated with mandatory central clearing are likely to outweigh the possible benefits.

I. Introduction The recent financial crisis, which culminated in the collapse of Lehman Brothers and the government “bailout” of American International Group, propelled credit default swaps (CDS) and other derivatives into the public spotlight. Unfortunately, much of the information disseminated to the public regarding derivatives and their connection to financial instability portrayed the transactions in an unreasonably negative light.1 Journal* Paul McBride is an associate in the Finance and Power, Trading & Renewables groups of Bracewell & Giuliani LLP. Mr. McBride would like to thank the Securities Law Section of the Dallas Bar Association and Prof. Marc Steinberg of the SMU Dedman School of Law for their support during the development of this Article. The views and interpretations expressed in this Article are solely those of the author and are not necessarily shared or endorsed by Bracewell & Giuliani LLP or its partners. 1. See Boyd Erman, Secrecy’s the Real Scoundrel, Not Credit Default Swaps, GLOBE & MAIL (Can.), Mar. 2, 2010, at B2 (“[Credit default swaps] also killed American International Group, if the headlines following its $85-billion bailout by the U.S. government are to be believed. More realistically, AIG tried to kill itself in a

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ists even went so far as to describe derivatives as “instruments of mass destruction,” “financial weapons of mass destruction,” and “the most dangerous instrument yet.”2 Typically, these articles mentioned the positive attributes of derivatives only briefly, if at all.3 For example, a February 2010 front-page article in the New York Times dedicated just a single paragraph, introduced by the statement “[d]erivatives do not have to be sinister,” to the potential advantages associated with CDS contracts.4 While there undoubtedly was a strong relationship between derivatives markets and the financial crisis, the suggestion that derivatives themselves are per se “sinister” is incorrect.5 When used responsibly, derivatives serve vital liquidity and price discovery functions and permit market participants to hedge against unwanted risk.6 Nevertheless, the asserted connection between the financial crisis and derivatives spurred efforts to increase regulatory oversight over derivatives transactions, particularly those executed in the “over-thecounter” (OTC) market.7 Some individuals even argued in favor of severely restricting the market for OTC derivatives, championing proposals that would have forced all derivatives onto exchanges8 and completely outlawed CDS contracts.9 Fortunately, these draconian measures, which ignored the benefits provided by a robust market for OTC derivatives, failed to gain significant support.10 In general, the financial reform legislation actually enacted by Congress pursued a more balanced approach to the regulation of the OTC derivatives market.11 In fact, the proposals that shaped the final bill shared many common provisions, including requirements for central clearing of OTC derivatives contracts and post-trade reporting for non-centrally spectacular act of self-immolation, owing to brutally bad management.” Erman explains that “because we’re talking about derivatives . . . it’s easy to shift the blame from the real bad actors to the tools.”). 2. Gretchen Morgenson, It’s Time for Swaps to Lose Their Swagger, N.Y. TIMES, Feb. 27, 2010, at BU1 (quoting Martin Mayer, a Guest Scholar at The Brookings Institution, on credit derivatives); Paul Wiseman, Gensler Helps Lead the Charge to Expose OTC Derivatives, Resistance Looms From Wall Street, USA TODAY, Nov. 23, 2009, at B2 (quoting Warren Buffet). 3. See, e.g., Morgenson, supra note 2; but see Erman, supra note 1. 4. Louise Story, Landon Thomas Jr. & Nelson D. Schwartz, Wall Street Helped to Mask Debt Fueling Europe’s Crisis, N.Y. TIMES, Feb. 13, 2010, at A1. Consistent with the “sinister” theme, the same article described derivatives in general as “financial wizardry.” Id. 5. See Darrell Duffie, Ada Li & Theo Lubke, Policy Perspectives on OTC Derivatives Market Infrastructure, (FED. RES. BANK OF N.Y., Staff Report No. 424, 2010). 6. GARRY J. SCHINASI, SAFEGUARDING FINANCIAL STABILITY: THEORY AND PRACTICE 181 (2006); see Randall Dodd, Consequences of Liberalizing Derivatives Markets, in CAPITAL MARKET LIBERALIZATION AND DEVELOPMENT 288, 296-97 (Jose´ Antonio Ocampo & Joseph E. Stiglitz eds., 2008). 7. See, e.g., Hearing on OTC derivatives Reform and Addressing Systemic Risk: Hearing Before the S. Comm. on Agriculture, Nutrition, and Forestry, 111th Cong. 1 (2009) (written testimony of Timothy F. Geithner, Treasury Secretary of the United States). 8. Morgenson, supra note 2. 9. Credit Default Swap Prohibition Act of 2009, H.R. 3145, 111th Cong. (as introduced by Representative Maxine Waters, July 9, 2009); Press Release, Representative Maxine Waters, Congresswoman Waters Introduces Credit Default Swap Prohibition Act (July 10, 2009), http://waters.house.gov/News/Document Single.aspx?DocumentID=140685. 10. Duffie, Li & Lubke, supra note 5, at 9 (“From a na¨ıve viewpoint, it would be possible to cure the risks posed by simply mandating that all derivatives trading be conducted on organized exchanges . . . The elimination of the OTC market, however, would cause more harm than good.”). 11. See Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, Pub. L. No. 111203, §§ 701-74, 124 Stat. 1376, 1641-802 (2010); see also Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong. §§ 3001-3304 (as passed by H.R., Dec. 11, 2009).

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cleared contracts.12 Where the various suggestions tended to diverge however, was in the allocation of responsibility between the government and the private sector. While some people argued that too much or the wrong type of government control would unreasonably increase the cost of risk management by limiting the availability of OTC derivatives, others were fearful that without a strong role for government regulators, legislated reforms would not reduce systemic risk or promote financial stability.13 The tension between the role of private sector and the government in the future development of the OTC derivatives market was no more evident than in the debate regarding mandatory central clearing requirements.14 Despite the fact that legislators generally believed that central clearing was fundamental to any financial reform legislation, the appropriate scope of the requirement was subject to significant disagreement.15 Unfortunately, the passage of the Dodd-Frank Act did not end this argument. Instead of establishing clear guidelines, the Dodd-Frank Act gives the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) the unenviable task of defining the contours of mandatory central clearing.16 Furthermore, in their implementation of the Dodd-Frank Act’s requirements, the CFTC and SEC must work to ensure that any newly promulgated domestic regulations are compatible with the larger gradually emerging international framework for derivatives regulation and financial reform.17 By leaving the details of central clearing under the Dodd-Frank Act to the discretion of ad-

12. See, e.g., H.R. 4173; Duffie, Li & Lubke, supra note 5, at 20. 13. Compare Press Release, U.S. Dept. of the Treasury Press Room, Written Testimony of Treasury Secretary Timothy F. Geithner before the Sen. Comm. on Agriculture, Nutrition and Forestry Hearing on OTC Derivatives Reform and Addressing Systemic Risk (Dec. 2, 2009), https://ustreas.gov/press/releases/ tg425.htm (supporting significant government intervention), with Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 71-75 (2009) (statement and written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association) (opposing significant government intervention). 14. Compare Press Release, U.S. Dept. of the Treasury Press Room, supra note 13 (arguing in favor of mandatory clearing for OTC derivatives contracts accepted for clearing by a central counterparty and approved by the Commodity Futures Trading Commission or the Securities and Exchange Commission), with Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, supra note 13 (arguing against mandatory central clearing), and Darrell Duffie, Policy Issues Facing the Market for Credit Derivatives, in THE ROAD AHEAD FOR THE FED 107, 111-12 (John D. Ciorciari & John B. Taylor eds., 2009) (noting that central clearing has the potential to reduce net counterparty exposure and would not have prevented the collapse of AIG). 15. See 156 CONG. REC. H5245 (daily ed. June 30, 2010) (statements of Rep. Peterson and Rep. Lucas). 16. See, e.g., Dodd-Frank Act, § 723(a)(3) (to be codified at 7 U.S.C. § 2) (directing the CFTC to continuously “review each swap, or any group, category, type, or class of swaps to make a determination as to whether the swap or group, category, type, or class of swaps should be required to be cleared.”). 17. See generally Anthony Belchambers, OTC Derivatives and EU Regulatory Reform, FUTURES INDUSTRY, Jan. 2011, at 19-21; Steven Lofchie et al., No Crisis Wasted: Proposed EU and U.S. Regulation of OTC Derivatives (Part I), BLOOMBERG L. REP.: COMMODITIES & DERIVATIVES, Nov. 15, 2010, at 1 (identifying differences between the Dodd-Frank Act and proposed derivatives regulations published by the European Commission).

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ministrative agencies, Congress has ensured that central clearing will remain a contentious topic for the foreseeable future.18 This article evaluates the case for and against mandatory central clearing of OTC derivatives in order to determine the appropriate degree of government intervention. Ultimately, this article concludes that because of the importance and dynamic nature of the OTC derivatives market, the Dodd-Frank Act’s imposition of mandatory central clearing requirements is inappropriate for at least two reasons. First, by requiring central clearing, the government will force the creation of new systemically important institutions without ensuring the financial stability of existing systemically important institutions or the financial markets generally. Second, the regulatory uncertainty associated with determining which OTC derivatives will require central clearing and which counterparties will be subject to the Dodd-Frank Act clearing requirements will substantially increase the cost of risk management for commercial end-users of OTC derivative products. In order to understand the relationship between central clearing and the OTC derivatives market, Part I of this article reviews the fundamentals of derivatives and illustrates how end-users employ OTC derivatives in risk management programs. Part II then introduces the concept of central clearing and discusses the theoretical advantages associated with central clearing of OTC derivatives. Arguing against mandatory central clearing, Part III identifies how central clearing can actually increase systemic risk at the expense of risk management programs implemented by commercial end-users of derivatives. Finally, Part IV provides a brief conclusion and suggests that greater cooperation between government agencies and the private sector, rather than the heavy-handed government regulation possible, and arguably probable, under the Dodd-Frank Act, would more effectively advance the twin goals of reducing systemic risk and promoting effective risk management practices.

II. An Introduction to Derivatives and Their Application in Risk Management A.

WHAT

IS A

DERIVATIVE?

While widespread public awareness of the derivatives market is arguably a relatively recent phenomenon, derivatives are nearly as old as recorded history itself. As early as 1700 B.C., merchants and traders employed futures and options contracts in order to mitigate or capitalize on the uncertainty associated with the future.19 Given the historical underpinning of derivatives, the sudden urge to impose dramatic regulatory reform begs the question: Why now? One probable answer is that because derivatives “sound arcane and evil” and “are supposedly complicated. . ., it’s easy to shift the blame from the real bad 18. See Michael M. Phillips, Finance Overhaul Casts Long Shadow on the Plains, WALL ST. J., July 13, 2010, http://online.wsj.com/article/SB10001424052748704258604575361182317501188.html# (noting the uncertainty associated with the central clearing rule making process). 19. JOHN PETER CASTAGNINO, DERIVATIVES: THE KEY PRINCIPLES 6 (3d ed. 2009); Dodd, supra note 6, at 288. George Crawford and Bidyut Sen identify a 2,400-year-old work of Aristotle as the earliest reference to derivatives. Aristotle’s work told the story of the philosopher Thales who, in anticipation of a bumper olive crop, purchased options to buy the rights to local olive presses during the harvest. When the philosopher’s prediction proved correct, he exercised the options and then leased the rights to the presses at a significant profit. GEORGE CRAWFORD & BIDYUT SEN, DERIVATIVES FOR DECISION MAKERS 7-8 (1996).

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actors to the tools.”20 As terms like “derivatives” and “CDS” became synonymous with perceptions of Wall Street excess, the public pressure on legislators to implement sweeping reforms to “fix” the problem increased.21 Therefore, in order to understand whether specific regulatory changes are appropriate, it is first necessary to demystify what are, in many cases, relatively straightforward financial transactions. Essentially, a derivative is an agreement between counterparties that creates rights and obligations relative to some underlying asset (the “underlying”).22 The agreement consequently derives its value from the value of the underlying.23 When parties originate an OTC derivative contract, they effectively establish the value of the underlying, or the likelihood that an event related to the underlying will (or will not) occur, at some point in the future.24 As the market subsequently reassesses the value or probability associated with the underlying, the value of the related derivative contract fluctuates.25 The process of continual reassessment results in a projected balance of payments between the counterparties, along with the possibility that the balance will change over time.26 Interestingly, the underlying can be nearly anything that the parties agree to use, including “hard” commodities such as gold, “soft” commodities such as orange juice or pork bellies, equity or debt securities, interest rates, currencies, indices, energy commodities, emission credits, and even the weather.27 Taxonomically, derivatives fit within one of four fundamental types based on the structure of the transaction and the rights and obligations created. These four types are (1) forwards, (2) futures, (3) swaps, and (4) options.28 In the parlance of the industry, the term used to describe the most basic derivative structures is “vanilla.”29 Because of the relative simplicity of vanilla derivatives, they tend to be the most commonly traded varieties in the derivatives markets.30 As the rights and obligations created by the parties become more complex, the resulting derivatives assume the moniker “exotics.” Fundamentally, however, a derivative characterized as exotic is simply just a variation on the four basic derivative categories.31 For example, a “swaption” is nothing more than an option on a swap contract.32 20. Erman, supra note 1. 21. Cf. Morgenson, supra note 2. 22. CASTAGNINO, supra note 19, at 1-2. 23. 1 ANTHONY C. GOOCH & LINDA B. KLEIN, DOCUMENTATION FOR DERIVATIVES 2 (4th ed. 2002). 24. CASTAGNINO, supra note 19, at 2. 25. See 1 GOOCH & KLEIN, supra note 23. 26. See CASTAGNINO, supra note 19, at 2; 1 GOOCH & KLEIN, supra note 23. 27. CASTAGNINO, supra note 19, at 1-2. A party’s payments under a weather derivative are related to the occurrence of weather events “such as temperature or precipitation levels, storms, and even wind speed and sea wave size.” 1 GOOCH & KLEIN, supra note 23, at 756-60. For example, electric utilities frequently hedge business risks associated with the amount of energy used for heating and cooling by entering into weather derivatives based on the difference between the average temperature for the day and a reference temperature of 65°F. Id. at 758-60. 28. MICHAEL DURBIN, ALL ABOUT DERIVATIVES 2 (4th ed. 2006). 29. Id. 30. DCG Glossary, INT’L SWAPS AND DERIVATIVES ASS’N, http://www.isda.org/c_and_a/oper_commitdcg-glossary.html (last visited Jan. 19, 2011) (defining “vanilla” as “[a] derivative transaction which has a very basic structure, likely to be most commonly traded in the relevant market.”). 31. DURBIN, supra note 28. 32. CASTAGNINO, supra 19, at 269 (in a swaption, the swap contract is the underlying).

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The first two categories, forwards and futures, are closely related forms of derivatives. In a typical forward contract, one party agrees to purchase and another party agrees to sell a quantity of the underlying at a future date.33 At the origination of the transaction, both parties commit to a forward price, quantity, and delivery date for the underlying.34 As a result, the forward contract insulates the counterparties from fluctuations in the underlying’s spot price that are harmful to their ultimate economic objective, while at the same time denying the counterparties the opportunity to benefit from upside risk.35 The result is a “zero-sum game”– if the spot price of the commodity on the delivery date is above the forward price, the seller’s inability to take advantage of the higher spot price is offset by the buyer’s ability to purchase at the lower forward price.36 A futures contract is functionally the equivalent of a forward contract with one significant difference: regulatory treatment.37 Forward contracts are generally unregulated, while futures contracts are subject to the Commodity Exchange Act (CEA).38 Specifically, unless subject to an exemption granted by statute or the CFTC, it is unlawful to participate in “a contract for the purchase or sale of a commodity for future delivery” except through a designated contract market.39 This difference in regulatory treatment is largely a product of the difference between how forward and futures contracts are ultimately settled. In a forward contract the counterparties generally contemplate settling through the future physical delivery of the underlying, whereas futures contracts are typically settled financially without ever taking delivery of the underlying.40 As a practical matter, because many futures trade on organized exchanges like the Chicago Board of Trade, the contracts 33. Id. at 33. 34. Id. 35. Id. at 33-34. 36. Id. at 34-35. The same result occurs in the opposite situation where the spot price on the day of delivery is below the forward price: the buyer’s loss is equal to the seller’s gain. 37. See 1 PHILIP MCBRIDE JOHNSON & THOMAS LEE HAZEN, DERIVATIVES REGULATION § 1.02[3] (2004); see, e.g., Commodity Futures Trading Comm’n v. Co Petro Mktg. Group, 680 F.2d 573, 579-80 (9th Cir. 1982). 38. 1 JOHNSON & HAZEN, supra note 37. 39. 7 U.S.C. § 6(a) (2006). To determine if a contract is a futures contract, courts will typically evaluate the structure of the transaction. Characteristics such as standardized terms, customers without a business use for the commodity, and an expectation that the customer will not take delivery, suggest the existence of a futures contract. 1 JOHNSON & HAZEN, supra note 37, § 1.02[5]. In addition to specifically enumerated items, the definition of “commodity” for purposes of the CEA includes “all other goods and articles . . . and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.” 7 U.S.C. § 1a(4). As Johnson and Hazen explain, the definition “illustrates an important principle of commodities regulation: its interest is in a form of economic activity, rather than in the attributes or character of the underlying subject.” 1 JOHNSON & HAZEN, supra note 37, § 1.02[1]. 40. See 7 U.S.C. § 1a(19) (2006). The CEA provides that “future delivery”—a necessary condition for regulation as a futures contract under the CEA—“does not include any sale of any cash commodity for deferred shipment or delivery.” 7 U.S.C. § 1a(19). This definitional nuance, the “Forward Contract Exclusion,” exempts forward contracts from regulatory oversight by the CFTC. 1 GOOCH & KLEIN, supra note 23, at 76. See generally, Co Petro Mktg. Group, 680 F.2d at 576-80 (discussing the purpose of the Forward Contract Exclusion and its development prior to 1982). Through a provision in the definition of “swap,” the Dodd-Frank Act preserves the Forward Contract Exclusion; however, by adding a new element of intent to the exclusion, the Dodd-Frank Act arguably changes how the exclusion will apply. Dodd-Frank Act, Pub. L. No. 111-203, § 721(a)(21), 124 Stat. 1376, 1667 (2010) (to be codified at 7 U.S.C. § 1a(47)); 156 CONG. REC. H5246-47 (daily ed. June 30, 2010) (colloquy between Rep. Boswell and Rep. Peterson).

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typically include standard terms with only the contract price subject to negotiation.41 Additionally, the marketability and liquidity afforded by exchange trading permits parties to cancel their positions at any time by entering into offsetting transactions.42 With the ability to offset, parties can effectively avoid any obligations associated with taking physical delivery of the underlying commodity.43 In a swap transaction, the parties to the contract agree to exchange, or “swap,” future cash flows determined by reference to a notional amount of an underlying.44 Interest rate swaps, which represent over fifty-six percent of all OTC derivatives contracts by notional amount outstanding, are the simplest way to illustrate how swaps work.45 In an interest rate swap, counterparties commit to exchange payments equal to the interest accrued on a notional principle amount of an underlying currency at their respective agreed rates.46 For example, Figure 1 depicts an interest rate swap in which Party A commits to pay a fixed rate of five percent while Party B commits to pay one of the floating London InterBank Offered Rates (LIBOR) on a notional amount equal to $10 million.47 During the duration of the swap agreement, the payments between the parties will reflect the difference in the two rates applied to the notional amount, but the notional amount will never change hands.48 For example, if the relevant LIBOR equals seven percent when a swap payment is due, Party B will make a net “interest” payment of two percent to Party A. Likewise, if LIBOR decreases to four percent for a subsequent settlement period, Party A will make a net “interest” payment of one percent to Party B.49

41. 1 JOHNSON & HAZEN, supra note 37. For example, the contract size for live cattle futures traded on the Chicago Board of Trade is 40,000 pounds and the minimum fluctuation, or “tick size” is $.00025 per pound (ten dollars per contract). Live Cattle Futures, CME GROUP, http://www.cmegroup.com/trading/commodities/livestock/live-cattle_contract_specifications.html (last visited Jan. 19, 2011). Curiously, onions are the only commodity for which futures trading is completely prohibited. 7 U.S.C. § 13-1 (2006). 42. 1 GOOCH & KLEIN, supra note 23, at 3; R. STAFFORD JOHNSON, INTRODUCTION TO DERIVATIVES 324 (2009) (“Most futures contracts are closed prior to expiration. As a result, there are only a small number of contracts that are entered into that lead to actual delivery.”). 43. 1 GOOCH & KLEIN, supra note 23, at 3; JOHNSON, supra note 42. 44. JOHNSON, supra note 42, at 537. 45. CASTAGNINO, supra note 19, at 45. According to the Bank for International Settlements, of the nearly $605 trillion of OTC derivatives in notional amounts outstanding, $437 trillion are based on interest rates (72.3%), $342 trillion of which are interest rate swaps (56.5%). Statistical Annex, BIS Q. REV. Mar. 2010, at A121, tbl.19, available at http://www.bis.org/publ/qtrpdf/r_qa1003.pdf. The significance of the notional amount outstanding is discussed infra at notes 137 through 142 and accompanying text. 46. 1 GOOCH & KLEIN, supra note 23, at 421. Plain vanilla swaps typically provide for semiannual payments and have maturities between three and ten years. JOHNSON, supra note 42, at 537. 47. See 1 GOOCH & KLEIN, supra note 23, at 421. 48. On swap payment dates, the obligations of the parties are cancelled and replaced by an obligation of the party that owed the larger amount to pay the difference to the party that owed the smaller amount. In other words, the payments between Party A and Party B are “netted” when they come due. CASTAGNINO, supra note 19, at 58. 49. See INT’L SWAPS AND DERIVATIVES ASS’N, 1992 ISDA MASTER AGREEMENT (MULTICURRENCYCROSS BORDER) § 2(c) (1992); CASTAGNINO, supra note 19, at 56-57. Through the process of “netting,” the obligations of the parties arising under the same transaction and in the same currency are, on the settlement date, “automatically satisfied and discharged and . . . replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.” INT’L SWAPS AND DERIVATIVES ASS’N, supra.

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Figure 1. Interest Rate Swap

Fixed (5%) on $10 million

Party A

Party B Floating (LIBOR) on $10 million

An option contract, unlike a forward, future, or swap, imposes an obligation on only one of the contracting parties—the writer of the option.50 The party holding the option has the right, but not an obligation, to exercise the option at the agreed “strike price.”51 If the holder elects to exercise the option, then both parties become committed to perform under the contract.52 Two common forms of options are “call” and “put” options. A call option gives the option holder the right to purchase from the option writer a specified amount of the underlying at the strike price. Conversely, a put option gives the option holder the right to sell a specified quantity of the underlying to the option writer at the strike price.53 By purchasing an option, the holder minimizes the risk associated with any possible adverse change in the price of the underlying without eliminating the opportunity to benefit from favorable price movements.54 In other words, the holder will exercise the option only when it is profitable to do so.55 By understanding the structure of the four basic derivative contracts, the transactions themselves no longer seem per se sinister. Furthermore, by knowing how derivative contracts work, it becomes possible to appreciate how commercial end-users can creatively employ derivatives strategies as part of an effective risk management program. In order to maximize the advantages of derivatives as a risk management tool however, end-users must have the flexibility to tailor the contracts to suit their specific business needs.56 While existing exchange-traded derivatives provide some opportunities for mitigating generic risks, without the ability to achieve customization through private bilateral negotiations, end-users would be unable to protect themselves against risks particular to their business.57 It is in response to this demand for custom derivative instruments that the OTC derivatives market emerged.58 50. See 1 GOOCH & KLEIN, supra note 23, at 524. 51. Id. 52. CASTAGNINO, supra note 19, at 40-41. 53. Id. 54. See 1 GOOCH & KLEIN, supra note 23, at 524. 55. CASTAGNINO, supra note 19, at 45. 56. See Duffie, Li & Lubke, supra note 5, at 9. 57. Id. 58. Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 74 (2009) (statement and written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association) (“Customized products exist only because end-users find them useful, and indeed necessary, in their day-to-day operations. In fact, the privately negotiated derivatives business has grown because standardized contracts are only of limited use in hedging.”).

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B. DISTINGUISHING BETWEEN

THE

OTC

AND

1085

EXCHANGE-TRADED DERIVATIVE

MARKETS Despite the long history and relative simplicity of most derivatives, it was only within the last thirty years that a significant OTC derivatives market emerged.59 Perhaps surprisingly, the OTC market’s rapid explosion was in large part fueled by legal rather than economic considerations.60 While financial institutions and commercial end-users were undoubtedly aware of the theoretical benefits associated with employing OTC derivatives, legal uncertainty historically inhibited the growth of privately negotiated agreements.61 As the legal impediments to the development of OTC derivatives diminished though, the market expanded into its current position as a major component of modern finance.62 To appreciate the significance of this development and growth within the OTC derivatives market, however, it is necessary to understand how the OTC market is different from the exchange traded markets.63 Fundamentally, exchange trading is a rules-based endeavor. In order to trade on an exchange, market participants must either become members of the exchange or trade through a member of the exchange.64 In both situations, the membership requirement subjects the market’s participants to the exchange’s rules. Specifically, in addition to other rules, the exchange may impose capital requirements on its members, limit a member’s ability to take speculative positions, impose loss-sharing obligations in the event of a member default, and subject the members to reporting obligations.65 In turn, many of the market’s rules both directly and indirectly trickle down to the member’s clients (the endusers). For example, an exchange’s rules may limit the size of the positions that a member can maintain with a client, impose higher margin requirements to cover the positions of a member’s client, or subject a member trading on a client’s behalf to additional capital requirements.66 Perhaps the most significant implication of the rules-base system, however, is the fact that the exchanges determine which derivatives products to offer.67 Therefore, exchange trading limits the availability of derivative contracts to only those with enough trading volume to cover the cost of establishing and managing the product.68 In contrast to the exchanges, decentralization is the hallmark of the OTC derivatives market.69 In the OTC market, counterparties trade with one another directly using indi59. Garry J. Schinasi et al., Modern Banking and OTC Derivatives Markets: The Transformation of Global Finance and its Implications for Systemic Risk 3 (Int’l Monetary Fund, Occasional Paper No. 203, 2000); Duffie, supra note 14, at 123-24. 60. See Schinasi et al., supra note 59, at 36. 61. See REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, OVER-THECOUNTER DERIVATIVES MARKETS AND THE COMMODITY EXCHANGE ACT 6, 10 (1999), available at http:// www.treasury.gov/resource-center/fin-mkts/Documents/otcact.pdf. 62. See Schinasi et al., supra note 59, at 1. 63. Id. at 18. 64. CASTAGNINO, supra note 19, at 13-14. 65. Schinasi et al., supra note 59, at 18. 66. Id. 67. CASTAGNINO, supra note 19, at 12-13. 68. Duffie, Li & Lubke, supra note 5, at 9 (“Exchange trading relies on a relatively high order flow, due in part to the cost of setting up exchange trading for each new type of derivative. Without enough trading, these setup costs cannot be recovered from exchange and brokerage fees.”). 69. Schinasi et al., supra note 59, at 19.

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vidually negotiated agreements.70 Whereas exchanges provide for inflexible rules regarding membership and trading activities, the participants in the OTC market are free to make their own assessments regarding which parties to trade with, what types of margin requirements to impose, and how to structure a particular transaction.71 The increased flexibility of the OTC market though, is not without costs. In return for the greater latitude to structure transactions that meet individual needs, the parties forgo some of the benefits that exchange trading offers.72 In particular, the lack of standardization between OTC derivatives decreases their marketability, thereby making it more difficult to close out a position merely by purchasing an offsetting contract.73 Additionally, because the parties to the transaction individually negotiate each contract, they must ensure that the final agreement is both legally enforceable and an accurate reflection of what they expect to accomplish through the derivative.74 The need for individual negotiation in the OTC market, however, does not necessarily mean that counterparties start each OTC derivative transaction from scratch. In fact, trade organizations like the International Swaps and Derivatives Association (ISDA) assist contracting parties by establishing standardized documents and protocols, such as the 1992 ISDA Master Agreement and the various ISDA Definitions.75 By employing the derivatives documentation provided by ISDA and other similar organizations, counterparties to OTC derivatives transactions are able to minimize the expense associated with participation in the OTC market and, concurrently, benefit from the wealth of legal precedent regarding how various courts and attorneys have interpreted the agreements. For example, ISDA regularly collects and updates legal opinions regarding the international enforceability of netting and collateral provisions included in its derivatives documentation.76 ISDA members, by relying on such opinions, will gain some comfort regarding how a foreign court may interpret and enforce the OTC derivative contract should its counterparty become subject to an insolvency proceeding under the laws of another country.77 The emergence of the OTC derivatives market as an alternative to the exchange trading of derivatives was a significant development during the thirty years that preceded the financial collapse of 2008. Without the advances in legal certainty for individually negotiated derivatives transactions that occurred during that time, however, the OTC market would probably not be as robust as it presently is. Subsequent to 1974, the most significant legal barrier to the use and development of OTC derivatives was the uncertainty 70. 1 GOOCH & KLEIN, supra note 23, at 3-4. 71. Id.; see infra text accompanying notes 313-317. 72. See Henry T.C. Hu, Misunderstood Derivatives: The Causes of Informational Failure and the Promise of Regulatory Incrementalism, 102 YALE L.J. 1457, 1465 (1993). 73. 1 GOOCH & KLEIN, supra note 23, at 3. 74. Id. at 4-5. 75. See generally ALLEN & OVERY LLP, AN INTRODUCTION TO THE DOCUMENTATION OF OTC DERIVATIVES 3 (May 2002), http://www.isda.org/educat/pdf/documentation_of_derivatives.pdf (discussing the development and use of the 1992 ISDA Master Agreement and other associated documents). 76. See id. at 5-6. As of January 2011, ISDA has collected netting opinions from counsel in fifty-five countries and collateral opinions from counsel in forty-five countries. Status of Collateral Opinions, INT’L SWAPS & DERIVATIVES ASS’N, http://www.isda.org/docproj/stat_of_coll.html (last visited Jan. 13, 2011); Status of Netting Opinions, INT’L SWAPS & DERIVATIVES ASS’N, http://www.isda.org/docproj/stat_of_net_opin.html (last visited Jan. 13, 2011). 77. ALLEN & OVERY LLP, supra note 75, at 5-6.

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associated with the scope of the CEA.78 According to a 1999 report on OTC derivatives published by the President’s Working Group on Financial Markets, “uncertainty arises from concerns under current law as to whether some of these contracts could be construed to be subject to the CEA and whether certain types of mechanisms for executing and clearing OTC derivatives might be construed to alter the legal status of otherwise exempted or excluded instruments.”79 As Transnor (Bermuda) Limited v. BP North American Petroleum illustrates, the concerns of market participants regarding the legal treatment of OTC derivatives contracts under the CEA during the 1980s and 1990s were not merely theoretical.80 In Transnor, Shell Oil, Conoco, and Exxon, along with other defendants, argued that certain Brent blend crude oil contracts were exempt from regulation pursuant to the CEA’s Forward Contract Exclusion.81 According to the defendants, the absence of a contractual right to avoid the parties’ delivery obligations established their character as forward contracts.82 The court, however, disagreed and held that because they “were undertaken mainly to assume or shift price risk without transferring the underlying commodity,” the contracts were futures even though they “may represent binding commitments to buy or sell the physical oil.”83 By characterizing the contracts as futures rather than forwards, the court necessarily concluded that the contracts were subject to the CFTC’s regulatory authority and the requirements of the CEA.84 Along with uncertainty associated with the scope of the CEA, competition between regulatory authorities over the extent of their respective authority also served to stifle the growth of the OTC derivatives market.85 As previously identified, the CEA grants the CFTC the authority to regulate trading in commodity futures contracts.86 However, situations arose where it became difficult to determine whether a transaction at issue involved a commodity or a security.87 These types of definitional challenges placed contracting parties in the middle of conflicts between the CFTC and the SEC concerning the scope of each agency’s authority to regulate derivatives.88 Additionally, beyond merely being required to manage the jurisdictional challenges presented by SEC and CFTC conflicts, 78. REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra note 61, at 6; see 1 JOHNSON & HAZEN, supra note 37, § 1.02[1] (discussing the implications associated with Congress’s decision to expand the definition of commodity through the Commodity Futures Trading Commission Act of 1974). 79. REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra note 61, at 6. 80. Transnor (Berm.) Ltd. v. BP N. Am. Petroleum, 738 F. Supp. 1472, 1475 (S.D.N.Y. 1990). 81. Id. at 1489; see 1 JOHNSON & HAZEN, supra note 37, § 1.02[3] (discussing the Forward Contract Exclusion). 82. Transnor (Berm.) Ltd., 738 F. Supp. at 1491. 83. Id. at 1491, 1493. 84. Id. at 1491-93. In 1993, the CFTC used its newly acquired exemptive power to exclude the Brent blend crude oil contracts from regulation as futures contracts. See 7 U.S.C. § 6(c) (2006); Exemption for Certain Contracts Involving Energy Products, 58 Fed. Reg. 21,286, 21,294 (Apr. 20, 1993); REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra note 61, at 9. 85. Reade Everett, Deriving a Solution for Derivative Reform: Proposals to Reconstruct the Over-the-Counter Derivative Markets, 28 REV. BANKING & FIN. L. 479, 481 (2009). 86. See supra text accompanying notes 37 through 39. 87. REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra note 61, at 7-8. 88. Id.; Everett, supra note 85. The possibility for conflict between the SEC and CFTC arose from amendments to the CEA enacted in 1974 that (1) gave the CFTC exclusive jurisdiction over commodity futures contracts; (2) expanded the definition of commodity beyond tangible items; and (3) affirmed the existing jurisdiction of the SEC. REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra

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banking institutions were also obligated to cooperate with their various prudential regulators, such as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve.89 During the last thirty years, however, Congress, through amendments to the CEA, gradually removed the regulatory roadblocks that impeded the development of the OTC derivatives market. Initially, in 1982 and 1983, Congress enacted amendments designed to clarify the division of authority between the CFTC and the SEC and thereby reduce the tension between the two regulatory bodies.90 Subsequently, through the Futures Trading Practices Act of 1992, Congress gave the CFTC the authority to exempt certain transactions from the scope of the CEA.91 Pursuant to its new exemptive authority, the CFTC promulgated rules that excluded some swap agreements and energy-related contracts from most of the CEA’s requirements.92 These CFTC rules provided the additional legal certainty necessary for the continued development of the OTC derivatives market.93 However, because the exemptions enacted were administrative rather than statutory, they remained subject to revocation by the CFTC and were therefore less than ideal.94 Ultimately, by including sweeping statutory exemptions from the CEA in the Commodity Futures Modernization Act of 2000 (CFMA), Congress removed many of the remaining barriers to the development and use of OTC derivatives.95 Following the enactment of the CFMA, “eligible contract participants”96 could enter into most derivative transactions involving “excluded commodities”97 and “exempt commodities”98 and indinote 61, at 7-8. The amendments “created conflicts regarding each agency’s jurisdiction over novel financial instruments that have elements of securities and futures or commodity options contracts.” Id. 89. Schinasi et al., supra note 59, at 32. 90. REPORT OF THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS, supra note 61, at 7-8. The amendments essentially codified the “Shad-Johnson Accord” between the SEC and CFTC. The Accord attempted to clarify which financial instruments were subject to which agency’s jurisdiction. Eric J. Pan, Single Stock Futures and Cross-Border Access for U.S. Investors, 14 STAN. J.L. BUS. & FIN. 221, 245 (2008). As explained by the Seventh Circuit, however, Congress’s allocation of authority between the SEC and CFTC “appears to be a political compromise; no one has suggested an economic rationale for the distinction.” Bd. of Trade of Chicago v. SEC, 187 F.3d 713, 716 (7th Cir. 1999). 91. Futures Trading Practices Act of 1992, Pub. L. No. 102-546, § 504, 106 Stat. 3590, 3629-31 (codified at 7 U.S.C. § 6); Everett, supra note 85, at 482. 92. Exemption for Certain Contracts Involving Energy Products, 58 Fed. Reg. 21,286 (Apr. 20, 1993); Exemption for Certain Swap Agreements, 58 Fed. Reg. 5587 (Jan. 22, 1993); see supra note 84. 93. 1 GOOCH & KLEIN, supra note 23, at 79-81 (“From the perspective of legal certainty, the Swap Agreement Exemption and the Energy Contracts Exemption represented a significant improvement for the OTC derivatives market.”). 94. Id. at 81. 95. See id. at 67. 96. 7 U.S.C. § 1(a)(12) (2006) (defining “eligible contract participant.”). The definition of eligible contract participant is designed to capture individuals and entities that, by virtue of their status, assets, organizational structure, or wealth, are deemed to be sophisticated enough to not require the protection of the CEA. See id. 97. Id. § 2(d). The definition of excluded commodity generally includes “financial commodities as well as certain other commodities without a cash market.” Edward J. Rosen & Richard T. Kim, OTC Derivatives – The Existing Regulatory Landscape, in ABCS OF SWAPS & OTHER DERIVATIVES 2009, at 166-67; see 7 U.S.C. § 1a(13). 98. 7 U.S.C. § 2(h) (2006). Exempt commodities are commodities that are not excluded commodities or agricultural commodities. 7 U.S.C. § 1a(14). Exempt commodities would “include such commodities as metals (precious, semiprecious and nonprecious), electricity, nonagricultural energy products, telecommunications bandwidth, telecommunications minutes, and emissions credits.” Rosen & Kim, supra note 97, at 167.

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vidually negotiated transactions not involving agricultural commodities,99 without worrying that the derivative agreement would be subject to the requirements of the CEA.100 As legal certainty regarding the use of bilaterally negotiated derivative products emerged through legislative enactments and CFTC rulemaking, the market for OTC derivatives exploded. According to information compiled by the Bank for International Settlements, between the end of June 1998 and the end of June 2009, the total notional amount outstanding for all OTC derivatives grew from $72 trillion to nearly $605 trillion.101 By contrast, at the end of 2009, the total notional amount outstanding for exchange-traded derivatives was only $73 trillion.102 With the rapid development of the OTC derivatives market as an alternative to exchange trading, the scope of derivatives products available to end-users for risk management purposes increased.103 As the next section explains, this expansion, combined with the ability to create additional custom derivatives in the OTC market, permitted end-users to hedge risks that the traditional exchanges did not reflect. C.

OTC DERIVATIVES

AS

TOOLS

FOR

RISK MANAGEMENT

Although legal reform was necessary for the growth of the OTC derivatives market, it was not the only factor that accounted for the market’s rapid expansion. Ultimately, without substantial demand for customized derivatives, the OTC market would not have grown to over eight times the size of the exchange-traded derivatives market.104 As explained by Robert Pickel, ISDA’s Chief Executive Officer, “the need for these privately negotiated derivatives products was driven by the needs of end-users. Their growth was a direct function of their utility to end-users. If end-users did not want these products, they would not exist.”105 For many commercial end-users, the principal utility of OTC derivatives comes from their value as tools for managing risk.106 To illustrate this point, in testimony before the 99. 7 U.S.C. § 2(g). Significantly, in conjunction with the implementation of central clearing and other financial reforms, the Dodd-Frank Act repeals many of the exemptions established with the CFMA. Agricultural Commodity Definition, 75 Fed. Reg. 65,586 (proposed Oct. 26, 2010) (to be codified at 17 C.F.R. pt. 1). 100. For a more complete discussion of the nuances of the CFMA exemptions, see 1 GOOCH & KLEIN, supra note 23, at 82-101. 101. Semiannual OTC Derivatives Statistics at End-June 2009, BIS Q. REV., Dec. 2010, available at http:// www.bis.org/statistics/otcder/dt1920a.pdf; see infra text accompanying notes 137 through 142 (explaining the difference between total and net notional amounts outstanding). 102. Stefan Avdjiev & Christian Upper, Highlights of International Banking and Financial Market Activity, in BIS Q. REV., Mar. 2010, at 23, available at http://www.bis.org/publ/qtrpdf/r_qt1003.pdf. 103. Hearing on the Effective Regulation of the Over-the-Counter Derivatives Markets Before the H. Comm. on Fin. Servs. S. Comm. on Capital Mkts., Ins., and Gov’t Regulation, 111th Cong. 178 (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 104. See supra text accompanying notes 101 through 102. 105. Hearing on the Effective Regulation of the Over-the-Counter Derivatives Markets Before the H. Comm. on Financial Services Sub. Comm. on Capital Markets, Insurance, and Gov’t Regulation, 111th Cong. (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 106. See 1 JOHNSON & HAZEN, supra note 37, § 1.02[12A] (Supp. 2010) (“Nearly all of the over-the-counter derivatives arose out of the desire to moderate risk”); Hu, supra note 72, at 1465-66 (“[P]erhaps most important, derivatives enable end-users to transfer or modulate their market risks.”). It would be disingenuous, however, to suggest that end-users only employ OTC derivatives for hedging risks. In fact, many entities also enter into OTC derivatives for speculative purposes. See Bd. of Trade of Chicago, 187 F.3d at 716 (“[A] person

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House Agricultural Committee, Cargill’s Director of Federal Government Relations identified how Cargill, an “international provider of food, agricultural, and risk management products and services,” helped end-users manage risk through customized derivatives: We offer customized hedges to help bakeries manage the price volatility of their flour so that their retail prices for baked goods can be as stable as possible. We issue critical hedges to help regional New England heating oil distributors manage price spikes and volatility on their purchases so they can offer families stable prices throughout the winter season. And we offer customized hedges to help a restaurant chain maintain stable prices on chicken so the company can offer consistent prices and value to their retail customers when selling chicken sandwiches.107 Essentially, commercial end-users employ derivatives in order to minimize their exposure to undesirable fluctuations in market rates or prices.108 In some situations, an end-user can adequately accomplish its risk management objectives through the application of exchange-traded derivatives alone. However, the effectiveness of exchange-traded derivatives as hedges is limited when the asset hedged does not precisely match the underlying of the contract, the contract’s underlying amount is different from the amount that the end-user is attempting to hedge, or the timing of the contract does not match the timing needs of the end user.109 For example, a live cattle futures contract offered on the Chicago Board of Trade is an imperfect hedge for a steakhouse chain that sells “Prime” steaks. An example of “quality risk,” the underlying—“55% Choice, 45% Select, Yield Grade 3 live steers”—only serves as a rough proxy for the restaurant’s demand for grill-ready prime beef.110 As the quality, quantity, and timing risks associated with the available exchange traded products increase in significance, the utility of the derivative to the enduser breaks down.111 Through customization of the derivative contract, however, the end-user can avoid the quality, quantity, and timing risks presented by exchange-traded products.112 Returning who wants to obtain the returns (and take the risks) of particular market segments . . . could purchase an appropriate combination of futures contracts.”); Robert J. Aalberts & Percy S. Poon, Derivatives and the Modern Prudent Investor Rule: Too Risky or Too Necessary, 67 OHIO ST. L.J. 525, 552-556 (2006) (discussing the difference between speculating and hedging with derivatives and noting that a speculator is “a trader who enters the derivatives market with an intention to seek profit by willingly accepting increased risk” while “a hedger is a trader who enters the market with an intention to reduce or eliminate a preexisting risk.”); Hu, supra note 72, at 1466 (noting that “end users may be able to arbitrage differences between the price of the derivative and the price of the underlying asset, or between prices in different capital markets”). 107. Hearing To Review Proposed Legislation By the U.S. Department of the Treasury Regarding the Regulation of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 5 (2009) (testimony of Jon Hixson, Director of Federal Government Relations, Cargill, Inc.). 108. CASTAGNINO, supra note 19, at 2; Hu, supra note 72, at 1465-66. As explained by Professor Hu, “[d]erivatives can insulate end-users from exogenous risks—a derivative that rises in value if oil prices fall could protect a sheikdom, while one that rises along with oil prices will insulate an airline. End-users may prefer a world where their market risks have, in effect, gone away.” Hu, supra note 72, at 1466. 109. JOHNSON, supra note 42, at 320-21 (these three hedging risks are known as “quality risk,” “quantity risk,” and “timing risk”). 110. Live Cattle Futures, supra note 41; see JOHNSON, supra note 42, at 320. 111. See JOHNSON, supra note 42, at 319-21. 112. See Henry T.C. Hu, Hedging Expectations: “Derivative Reality” and the Law and Finance of the Corporate Objective, 73 TEX. L. REV. 985, 986 (1995). In a particularly eloquent passage, Professor Hu explains that “with the emergence of the modern derivative, corporations need no longer take the world as it is. . . . In

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to the steakhouse illustration, with an OTC derivative product the restaurant chain can contract for an underlying (or underlyings) that more accurately reflects the products it purchases, quantities that match its actual demand, and a timing schedule that corresponds to the frequency of its purchases.113 With the ability to negotiate regarding the provisions of the derivative product, the end-user can implement a near-perfect hedge or, alternatively, selectively expose itself to the amount and type of risk that it is willing to accept.114 Interest rate derivatives, which account for roughly seventy-two percent of the OTC market by notional amount outstanding, are one of the most important derivative products available to end-users and are a relatively straightforward vehicle for illustrating the benefits of customization.115 By employing a derivative tied to interest rates, an end-user can hedge against the risk that an interest rate of concern will move in a direction that is not to its advantage. To understand how the derivative would operate as hedge, assume that XYZ Company plans to borrow $15 million from a bank.116 Under the terms of the loan agreement, depicted in Figure 2, XYZ Company will be obligated to make annual interest payments to the bank at a floating rate equal to the one year LIBOR plus three percent for a period of ten years.

Figure 2. XYZ Company Loan

XYZ Company

Floating (LIBOR +3%) on $15 million

Bank

After completing the borrowing, one of XYZ Company’s major concerns will be its interest rate risk. Specifically, if the one-year LIBOR increases during the life of the loan, XYZ Company’s borrowing cost will grow significantly. To hedge this interest rate risk, the company may elect to enter into an interest rate swap with a derivatives dealer (Dealer).117 Effectively, the swap will insulate XYZ Company from changes to LIBOR by “converting” its floating rate obligation of LIBOR plus three percent into a fixed rate effect, corporations can increasingly determine the market and legal environment in which they will operate. If clever and careful enough, a corporation can avoid the chaos of the real world. A corporation can enter a private ‘derivative reality,’ a synthetic world purged of risks it deems undesirable.” Id. 113. See 1 GOOCH & KLEIN, supra note 23, at 4 (noting that “the buyer can design a transaction involving the amounts, settlement dates, and underlying instruments or commodities that it wishes without being constrained by the standardized terms of the exchange-traded products.”). 114. See CRAWFORD & SEN, supra note 19, at 100. By hedging only one-half of its beef requirement, our hypothetical steakhouse will lock-in the price for that fraction, but remain exposed to price fluctuations for the rest of the beef it purchases. 115. See supra notes 44 to 49. 116. For similar examples of interest rate swaps, see CASTAGNINO, supra note 19, at 54-57; 1 GOOCH & KLEIN, supra note 23, at 421-22; JOHNSON, supra note 42, at 537-38. 117. See JOHNSON, supra note 42, at 483. In fact, some credit agreements may require that the borrower enter into an interest rate derivative in order to hedge the interest rate risk associated with the loan. RICH-

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obligation.118 Assuming that XYZ Company would be comfortable paying a fixed rate of five percent on its loan, it will commit to annually exchange payments equal to two percent applied to a notional principal amount of $15 million with Dealer (the swap counterparty) in return for payments equal to one-year LIBOR applied to the $15 million notional amount. Figure 3 illustrates the payment exchanges between the swap counterparties.119 By negotiating for a notional amount equal to the actual amount of its loan, XYZ Company will fully hedge its interest rate risk.120

Figure 3. XYZ Company Interest Rate Swap

Fixed (2%) on notional $15 million

XYZ Company

Dealer Floating (LIBOR) on notional $15 million

If on the first payment date the one-year LIBOR has risen to five percent, then XYZ Company will owe the bank an interest payment of eight percent (LIBOR + three percent) on its $15 million loan. However, when XYZ Company and Dealer net their obligations under the interest rate swap, Dealer will owe XYZ Company three percent of the notional amount of $15 million.121 As Figure 4 indicates, Dealer’s payment of three percent on the notional amount compensates XYZ Company for the interest above five percent that it must pay to the bank pursuant to the terms of its loan agreement.122 Regardless of whether LIBOR increases or decreases, by evaluating the payments under the loan agreement and the swap together, XYZ Company effectively only ever pays an interest rate of five percent on its $15 million loan.

WRIGHT, WARREN COOK & RICHARD GRAY, THE LSTA’S COMPLETE CREDIT AGREEMENT GUIDE 332-34 (2009). 118. See 1 GOOCH & KLEIN, supra note 23, at 421. 119. Figure 3 is derived from a similar figure in 1 GOOCH & KLEIN, supra note 23, at 421. 120. This example assumes that the principle amount of the loan remains constant during the life of the loan. If the loan required principle payments prior to maturity, the interest rate swap agreement could provide for a decreasing notional amount so that the principle amount of the loan and the notional amount of the swap remained the same. See CASTAGNINO, supra note 19, at 56. 121. See INT’L SWAPS AND DERIVATIVES ASS’N, supra note 49. 122. Figure 4 is derived from a similar figure in 1 GOOCH & KLEIN, supra note 23, at 422. ARD

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Figure 4. XYZ Company Combined Interest Rate Swap and Loan Fixed = 2% on notional $15 million

XYZ Company

Dealer Floating (LIBOR) = 5% on notional $15 million

Floating (LIBOR +3%) = 8% on $15 million

Bank

In a CDS, another common swap transaction, the end-user hedges against the possibility that an entity will default on an obligation identified as the underlying for the CDS contract. In effect, the CDS operates like an insurance contract by transferring the default risk of the “reference entity” from the “protection buyer” to the “protection seller.”123 In structuring the terms of the CDS, the counterparties will identify a notional amount of an obligation of the reference entity as the underlying and the credit events that the agreement will cover.124 For example, a party that holds $10 million of a borrower’s unsecured debt may hedge against the risk that the borrower will default by purchasing a CDS with an equivalent notional amount of the borrower’s unsecured debt as its underlying.125 During the term of the CDS, the protection buyer agrees to make periodic payments equal to the contract’s “CDS rate” multiplied by the notional amount of the underly-

123. Duffie, supra note 14, at 124. A CDS contract however, is not true insurance. Generally, credit insurance is an indemnity contract that requires the insured to have an insurable interest and only pays out in the event of an actual loss. A CDS, on the other hand, does not include an insurable interest requirement and pays when the credit event occurs regardless of actual loss. See Christopher L. Culp, Credit Risk Management Lessons From Enron, in CORPORATE AFTERSHOCK: THE PUBLIC POLICY LESSONS FROM THE COLLAPSE OF ENRON AND OTHER MAJOR CORPORATIONS 211, 218-21 (Christopher L. Culp & William A. Niskanen eds., 2003); Andrea S. Kramer & Alton B. Harris, Credit Derivatives Post-Enron, in CORPORATE AFTERSHOCK: THE PUBLIC POLICY LESSONS FROM THE COLLAPSE OF ENRON AND OTHER MAJOR CORPORATIONS 236, 246-47 (Christopher L. Culp & William A. Niskanen eds., 2003). 124. Donald A. Bendernagel et al., Credit Derivatives: Usage, Practice and Issues, in ADVANCED SWAPS & OTHER DERIVATIVES 343 (2009). Credit events covered by the CDS contract may include, among others, principal shortfalls, principal write-downs, interest shortfalls, and rating downgrades. BRIAN P. LANCASTER ET AL., STRUCTURED PRODUCTS AND RELATED CREDIT DERIVATIVES: A COMPREHENSIVE GUIDE FOR INVESTORS 376 (2008); GARY L. GASTINEAU & MARK P. KRITZMAN, DICTIONARY OF FINANCIAL RISK MANAGEMENT 86 (1999). 125. See Duffie, supra note 14, at 124.

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ing.126 In return, the protection seller agrees that if the credit event occurs, it will pay the protection buyer either (1) the difference between the notional amount of the CDS and the market value of the debt or (2) the full notional amount of the CDS in return for equivalent amount of the borrower’s debt.127 As the interest rate swap and CDS contract examples suggest, customizable derivatives provide a vast array of opportunities for the mitigation of different types of risk. Furthermore, the availability of OTC derivatives ensures that decisions regarding the type and quantity of risk to mitigate rest with the end-user of the product.128 For example, in the interest rate swap illustration, XYZ Company may accept a portion of the risk that LIBOR will increase by negotiating for a notional amount less than the principal amount of its loan. The difference between the notional and principle amount would reflect the amount of the loan still subject to interest rate risk. Similarly, an entity entering into a CDS may elect to remain exposed to some types of credit risks by excluding them from the credit events covered by the swap.129 Ultimately, the importance of the OTC derivatives market stems from its value to endusers attempting to manage the risks associated with their respective lines of business.130 The expansion of the decentralized OTC derivatives market as an alternative to the formal and rules-based exchange-traded derivatives markets, provided end-users with the ability to structure agreements uniquely tailored to their own requirements and risk tolerances.131 But, the market would not have been possible without the improvements in regulatory certainty that permitted the development and growth of customizable derivative products.132 While the customized products that emerged were, at their core, fundamentally just variations of the four basic derivative types—forwards, futures, swaps, and options—the growth of OTC market itself resulted in an incredibly complex network of counterparty relationships.133 As the recent financial crisis demonstrated, without proper controls, the interconnectedness within the OTC market has the potential to produce systemic instability across the financial system.134 It is in response to this systemic instability that central clearing, to which this paper now turns, is offered as a solution.

III. Central Clearing in the OTC Derivatives Market A.

THE FRAMEWORK

OF

CENTRAL CLEARING

In conjunction with recognizing the significance of the role that OTC derivatives play in risk management, it is important to understand that the derivative transactions them126. equal 127. 128. 129. 130. 131. 132. 133. 134.

Id. For example, a CDS rate of 300 basis points would require that the protection buyer make payments to three-percent of the notional obligation. Bendernagel et al., supra note 124, at 347. SCHINASI, supra note 6, at 195-96. See LANCASTER ET AL., supra note 124, at 76-77. See supra notes 105 to 107. SCHINASI, supra note 6, at 195-96, 200-01. See supra notes 90 through 100. See SCHINASI, supra note 6, at 211. See Duffie, Li & Lubke, supra note 5, at 1.

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selves do not eliminate risk.135 Rather, the derivative product at the heart of the transaction merely transfers risks from one party to another.136 As entities continuously alter the distribution of risk across the market by entering into new derivatives, the total notional amount outstanding necessarily increases.137 Interestingly, this growth in the notional amount outstanding gives the appearance that the total risk is also increasing.138 Fortunately, the appearance is incorrect. Entities participating in the OTC derivatives market frequently enter into offsetting transactions in order to net their total exposure.139 By entering into an offsetting transaction, the entity doubles the notional amount outstanding but does not alter the total amount of risk within the system.140 To illustrate this point, according to Depository Trust and Clearing Corporation (DTCC) data for the week ending March 5, 2010, 3,524 CDS contracts identified Ford Motor Company as the reference entity—a total notional amount outstanding of $28.3 billion.141 After accounting for offsetting transactions, however, the net notional amount outstanding for the CDS contracts was under $1.9 billion—less than ten percent of the total.142 Although repeatedly transferring risk between parties does not increase the aggregate risk in the system, it certainly does increase the interconnectedness of the market place.143 Given the highly decentralized nature of the OTC derivatives market, the process of managing risk through customized derivatives has generated a complex network of relationships between entities.144 As explained by Professor Hu, “the price of contractual freedom is a greater risk of default.”145 By carefully selecting their counterparties however, participants in the OTC derivatives market seek to minimize the hazards associated with becoming part of this web.146 But individual efforts to minimize such “counterparty risk” are of only limited value if systemically important institutions threaten the stability of the entire system.147 To address the hazards stemming from the concentration of large derivative positions in systemically important institutions, many commentators suggested that Con135. See 1 JOHNSON & HAZEN, supra note 37, § 1.02[3] (describing how a hedging transaction produces opposite results for the transaction’s counterparties). 136. Dodd, supra note 6. 137. See The Effective Regulation of the Over-the-Counter Derivatives Markets Before the Subcomm. on Capital Markets, Insurance, and Government Sponsored Enterprises of the H. Comm. on Financial Services, 111th Cong. 1517 (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 138. Id. 139. Id. 140. Id. 141. Trade Information Warehouse Data, Top 1,000 Reference Entities (Gross and Net Notional) for Week Ending 2010-03-05, DEPOSITORY TRUST AND CLEARING CORPORATION (on file with author). 142. Id. 143. See SCHINASI, supra note 6, at 187. 144. Id. 145. Hu, supra note 72. 146. See CASTAGNINO, supra note 19, at 183. 147. See Implementing OTC Derivatives Market Reform, FIN. STABILITY BD., Oct. 25, 2010, at 9, available at http://www.financialstabilityboard.org/publications/r_101025.pdf (noting that a dealer’s default and the corresponding losses to such dealer’s counterparties “may lead to a situation in which other market participants become unable to perform on their own obligations to other counterparties[,]” which, in turn, “could trigger a chain of credit-related losses . . . and, in the worst scenarios, potentially cause a chain of defaults.”).

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gress enact legislation making central clearing mandatory in the OTC derivatives market.148 Central clearing in the OTC derivatives market involves inserting a central counterparty (CCP) between the original parties to the derivative transaction through the process of novation.149 Essentially, by becoming “a buyer to every seller and a seller to every buyer,” a CCP assumes the financial responsibility for the transaction.150 As Figure 5 illustrates,151 central clearing has the potential to simplify the interconnectedness of the OTC derivatives market by converting it into a “hub-and-spoke” system.152 Once the original counterparties clear the derivative through the CCP, they no longer face the risk that the other may default before settlement.153 Further, because the novation creates offsetting positions for the CCP—assuming that both parties satisfy their obligations to the CCP—the CCP does not incur any risk of losses or gains from fluctuations in the underlying.154 The CCP’s principal concern is that by accepting the novation of multiple derivatives contracts, it concentrates the counterparty risk associated with the transactions in itself; i.e., the CCP bears the burden of either counterparty’s default in every transaction it clears.155

148. See, e.g., Hearing on OTC Derivatives Reform and Addressing Systemic Risk: Hearing Before the S. Comm. on Agriculture, Nutrition, and Forestry, 111th Cong. 1 (2009) (written testimony of Timothy F. Geithner, Treasury Secretary of the United States); 1 JOHNSON & HAZEN, supra note 37, § 1.02[12A] (Supp. 2010); John D. Ciorciari, Key Principles and Recommendations, in THE ROAD AHEAD FOR THE FED 189, 201 (John D. Ciorciari & John B. Taylor eds., 2009). 149. See CASTAGNINO, supra note 19, at 15 (addressing central clearing in the context of exchange trading). 150. Philipp Haene & Andy Sturm, Optimal Central Counterparty Risk Management 3 (Swiss National Bank, Working Paper No. 2009-7, 2009), available at http://www.snb.ch/n/mmr/reference/working_paper_2009_07/source. Although often used interchangeably, there is a conceptual difference between a central counterparty and a clearinghouse. A clearinghouse can provide clearing services as an agent of the counterparties rather than as a principal to the transaction while a CCP by definition assumes the financial responsibility for the transaction through novation. TINA P. HASENPUSCH, CLEARING SERVICES FOR GLOBAL MARKETS § 2.1.3 (2009). 151. Figure 5 is based on a similar figure in Duffie, Li & Lubke, supra note 5, at 6. 152. Id. 153. CASTAGNINO, supra note 19, at 15; Richard Heffner, The Regulation of Multilateral Clearing in the United Kingdom and United States, in EXCHANGES AND ALTERNATIVE TRADING SYSTEMS 97, 98 (Dick Frase & Helen Parry eds., 2002) (noting that the counterparty risk shifts to the CCP only when the transactions become binding). 154. Duffie, Li & Lubke, supra note 5, at 7. That is, each novation generates an equivalent a long position and short position for the CCP. 155. Haene & Sturm, supra note 150.

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Figure 5. Counterparty Relationships Without and With a CCP

A

A

E

B

E

B CCP

D

C

D

C

To handle the increase in concentration of counterparty risk, a CCP will implement procedures intended to ensure its own stability in the event that any other entity with which it interacts defaults.156 A CCP accomplishes this counterparty risk management through the application of three related devices: membership, margin requirements, and guarantee funds.157 First, any party that desires to clear its OTC derivatives directly must become a clearing member (CM) of the CCP.158 By limiting membership to only the most creditworthy market participants, the CCP minimizes the risk that any counterparty will default on the obligations that it establishes with the CCP.159 For a market participant that is not a member of the CCP, central clearing requires finding a CM willing to interact with and clear trades through the CCP on such market participant’s behalf.160 While the purpose of the membership requirement is to minimize the chance that a CM will default, the objective of the margin requirements is to limit a CCP’s loss in the event that a CM does default.161 The margining requirements of CCPs are premised on the “defaulter-pays” principle: losses incurred by the CCP while unwinding the defaulting CM’s positions should be borne by the CM.162 When CMs submit a trade to a CCP for clearing, the CCP will require that the original parties provide two types of margin: initial margin and variation margin.163 The purpose of the initial margin is to facilitate the CCP’s efforts to unwind the position following a default by covering any losses sustained by the CCP during the unwinding process.164 Thus, the amount of initial margin that CMs must provide when they first submit a trade to the CCP for clearing depends on the 156. Duffie, Li & Lubke, supra note 5, at 6. 157. Id. 158. HASENPUSCH, supra note 150, § 2.3.1. 159. Id. 160. Id. 161. Id. § 2.1.2.2.1.3. 162. Haene & Sturm, supra note 150. 163. Duffie, Li & Lubke, supra note 5, at 7. 164. Id. at 7-8. Initial margin reflects the possibility that a defaulting CM may not post the variation margin necessary to cover the fluctuations in market value of the CM’s positions while the CCP liquidates such

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type of derivative and the size of the position.165 Ideally, the amount “should exceed, in most extreme scenarios, the change in [the position’s] market value” over the time that it would take the CCP to conduct the liquidation.166 In contrast to the initial margin, which the CCP calculates only once, the parties reassess their variation margin requirements on a daily basis.167 Effectively, the variation margin reflects the CM’s unrealized profit or loss with the CCP as the market value of the position changes.168 In contrast to the margin obligations, a CCP’s guarantee fund requirements reflect a “survivor-pays” principle.169 By requiring each CM to contribute to a collective guarantee fund, the CCP is able to distribute any losses that exceed the defaulting CM’s margin across all of the non-defaulting CMs.170 Guarantee funds essentially give CCPs an additional layer of resources with which to protect their financial stability while managing the consequences of a CM’s default.171 In theory, the margining requirements will be sufficient to allow the CCP to unwind a CM’s positions under normal market conditions while the guarantee fund stands ready to cover defaults that occur during more extreme situations.172 By creating a rigorous system for managing risk and successfully unwinding positions when necessary, CCPs establish themselves as stable and important components of the OTC derivatives market.173 Assuming that CCPs remain capable of managing their counterparty’s positions during the liquidation process, the hub and spoke system may insulate the remainder of the market from the collapse of any individual systemically important firm.174 As the next section explains, by simplifying the interconnectedness of the OTC derivatives market, financially secure CCPs may help reduce the systemic risk presented by institutions that maintain large OTC derivatives positions. positions. In such a situation, the losses incurred by the CCP during the liquidation will be absorbed by the initial margin of the CM. Id. 165. Id. For example, positions that are less liquid, larger in size, subject to greater daily variability, or likely to become illiquid in the event of a default will require larger initial margins than those that are small, capable of being liquidated quickly, and only experience minimal variations in market value. Id. 166. Id. 167. HASENPUSCH, supra note 150, § 2.1.2.2.1.3. 168. Id. 169. Haene & Sturm, supra note 150. 170. Id. 171. See Financial Resources Requirements for Derivatives Clearing Organizations, 75 Fed. Reg. 63,113 (proposed Oct. 14, 2010) (to be codified at 17 C.F.R. pts. 39 and 140). Under the rules proposed by the CFTC, a CCP would absorb any losses it sustains beyond the margin posted by the defaulting CM first through its own first-loss capital and then subsequently with guarantee funds submitted by non-defaulting CMs. Id. 172. HASENPUSCH, supra note 150, § 2.1.2.2.1.3. 173. See Financial Resources Requirements for Derivatives Clearing Organizations, 75 Fed. Reg. 63,113 (proposed Oct. 14, 2010) (to be codified at 17 C.F.R. pts. 39 and 140). The rule proposed by the CFTC would require a CCP to have financial resources sufficient “to meet its financial obligations to its clearing members notwithstanding a default by the clearing member creating the largest financial exposure for the [CCP] in extreme but plausible market conditions.” Id. 174. See Robert R. Bliss & Robert S. Steigerwald, Derivatives Clearing and Settlement: A Comparison of Central Counterparties and Alternative Structures, 30 ECON. PERSPECTIVES 22, 25-26 (2006) (explaining that “[s]ince the CCP is the only direct counterparty of a clearing member, it effectively acts on behalf of the other, nondefaulting clearing members in pursuing legal remedies against any clearing member that defaults.”).

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CENTRAL CLEARING

Proponents of central clearing argue that requiring central clearing for certain OTC derivatives contracts will promote the stability of the entire financial system.175 Specifically, by introducing a CCP between the original counterparties to derivative contracts, the parties no longer face the counterparty risk of the other. Instead, the counterparty risk shifts to the CCP—an entity designed to be more stable than either of the individual counterparties alone.176 Further, as additional market participants submit their trades to the CCP for clearing, the CCP’s ability to facilitate the reduction of counterparty exposures through the process of multilateral netting increases.177 To appreciate the benefits that these two aspects of central clearing provide though, it is first necessary to understand how reliance on bilateral clearing can promote instability in the financial system. In the OTC derivatives markets, derivatives dealers attempt to maintain neutral positions with respect to the market risk of the derivative contracts they sell.178 To accomplish this goal, dealers frequently enter into offsetting transactions with end-users or other derivatives dealers.179 For example, if a dealer is the floating rate payer in an interest rate swap with an end-user, it may attempt to offset its own exposure to the interest rate by positioning itself as the fixed rate payer in a similar transaction with a different end-user or another dealer.180 By maintaining the offsetting positions, the dealer reduces its exposure to the change in the market for the underlying. However, because the dealer is now exposed to two counterparties rather than one, the decreased market risk came at the cost of increased counterparty risk.181 The process whereby dealers continuously enter into offsetting transactions to mitigate market risk results in a precarious balance. To maintain market neutral positions, derivative dealers inevitably acquire large portfolios of offsetting derivatives.182 In return for the relatively neutral positions they achieve, however, each accumulates potentially significant exposures to other dealers.183 In such a market, the failure of a major participant can result in substantial losses for the counterparties of such market participant.184 This ag175. See, e.g., Hearing on OTC Derivatives Reform and Addressing Systemic Risk: Hearing Before the S. Comm. on Agriculture, Nutrition, and Forestry, 111th Cong. 1 (2009) (written testimony of Timothy F. Geithner, Treasury Sec’y of the United States). 176. See supra text accompanying notes 156 through 172. 177. Bliss & Steigerwald, supra note 174, at 26; Heffner, supra note 153, at 101. 178. Robert R. Bliss & George R. Kaufman, Derivatives and Systemic Risk: Netting, Collateral, and Closeout 910, n.14 (Fed. Reserve Bank of Chicago, Working Paper No. 2005-03, 2005) (although called “dealers,” financial intermediaries in the OTC derivatives markets do not truly buy and sell derivatives contracts. Rather, the dealers are “derivatives portfolio managers who dynamically manage large books, deriving income from bid-offer spreads, while seeking to remain ‘market neutral’ by appropriately controlling their exposures.”). 179. Hearing on The Effective Regulation of the Over-the-Counter Derivatives Markets Before the H. Comm. on Financial Servs. Subcomm. on Capital Markets, Insurance, and Government Regulation, 111th Cong. (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 180. Cf. CASTAGNINO, supra note 19, at 11-12. 181. See Bliss & Steigerwald, supra note 174, at 26. 182. Bliss & Kaufman, supra note 178, at 9-10; see Duffie, Li & Lubke, supra note 5, at 4 (noting that prior to 2007, “active market participants typically held large simultaneous long and short CDS positions referencing the same underlying borrower.”). 183. Bliss & Kaufman, supra note 178, at 10. 184. See Duffie, Li & Lubke, supra note 5, at 5.

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gregation of counterparty credit risk becomes a systemic risk issue when the losses counterparties may suffer because of a market participant’s failure would be sufficient to threaten their own stability.185 In fact, even the widespread belief that a counterparty will fail can generate conditions in the bilateral OTC derivatives market that contribute to such counterparty’s actual failure.186 Specifically, if parties believe that their counterparty will default, they may attempt to avoid losses by reducing their exposure to the failing firm.187 The sudden movement away from the counterparty can exacerbate the firm’s already threatened position and hasten its collapse.188 Central clearing of OTC derivatives promises to decrease the systemic risk that stems from the aggregation of counterparty risk in large institutions.189 By inserting the CCP as the “buyer to every seller and seller to every buyer,” the parties to a transaction no longer face the credit risk of their original counterparty.190 Rather, the parties become subject to the credit risk of the CCP alone.191 Effectively, the parties substitute the higher quality and homogenous credit risk of the CCP for the variable credit risk of the individual counterparties.192 In the event that an original counterparty defaults, the novation to the CCP protects the other counterparty from the consequences of the default.193 Furthermore, because the original counterparties rely on the CCP for performance, central clearing eliminates the need for market participants to avoid losses by distancing themselves from CMs that are apparently failing.194 If the CCP’s risk management practices are sufficient to ensure its own stability while it conducts an orderly resolution of a defaulting CM’s positions, other CMs will remain confident that any such default will not seriously threaten the creditworthiness of the CCP itself.195 Along with reducing the systemic risk presented by the aggregation of credit risk, proponents of central clearing also argue that the process will decrease the overall amount of outstanding obligations for the types of derivatives subject to central clearing.196 In a bilateral clearing market, counterparties managing their positions occasionally create sets of trades where the total obligations between multiple parties are offsetting.197 For example, if Dealer A has a $10 million exposure to Dealer B, Dealer B has a $10 million exposure to Dealer C, and Dealer C has a $10 million exposure to Dealer A through similar derivative transactions, the net of the obligations between the parties is $0. However, because these transactions involve three different counterparties, the redundant positions 185. See id.; GASTINEAU & KRITZMAN, supra note 124, at 307. Systemic risk is the “[r]isk associated with the general health or structure of the financial system” and is “[a]lmost invariably discussed in terms of the system’s inability to handle large quantities of market, credit, or (most likely) settlement risk.” Id. 186. See Duffie, Li & Lubke, supra note 5, at 5. 187. See id. 188. See id. at 11; Bliss & Kaufman, supra note 178, at 10. 189. See Duffie, supra note 14, at 126. 190. Haene & Sturm, supra note 150; HASENPUSCH, supra note 150, § 2.2.2.1. 191. Duffie, supra note 14, at 126. 192. HASENPUSCH, supra note 150, § 2.2.2.1; Bliss & Steigerwald, supra note 174, at 26; Heffner, supra note 153, at 101. 193. Haene & Sturm, supra note 150. 194. See Duffie, Li & Lubke, supra note 5, at 11-12. 195. Id. at 12. 196. Bliss & Steigerwald, supra note 174, at 26. 197. See Duffie, Li & Lubke, supra note 5, at 19-20.

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are difficult to identify and cancel.198 As a result, the payment obligations frequently remain active and contribute to the complexity of the marketplace while each participant remains subject to the counterparty risk of the others.199 Under a central clearing regime, the CCP is able to identify and address the opportunities for multilateral netting between the CMs.200 By netting transactions on a multilateral rather than bilateral basis, the CCP can reduce the total payment obligations of the derivatives while simultaneously reducing the counterparty risk from the trades.201 As Dealer A, Dealer B, and Dealer C submit their offsetting trades to the CCP for clearing, the obligations created between the CCP and each dealer through the novation of the trades cancel one another.202 Thus, the multilateral netting conducted by the CCP between the CMs eliminates both the payment obligations and the counterparty risk between the various dealers.203 Although significant, the reduction of systemic risk through effective counterparty credit risk management and multilateral netting are not the only benefits associated with central clearing. For example, proponents of central clearing often identify increased transparency and economies of scale as additional advantages of central clearing of OTC derivatives.204 But the alleged benefits of central clearing of OTC derivatives are, in large part, theoretical rather than proven.205 As the next part of this article will explain, in implementing the mandatory central clearing requirements of the Dodd-Frank Act, regulators must assess how the predicted benefits associated with central clearing will measure up against the potential costs.

IV. The Hazards of Central Clearing A.

STRUCTURE

OF

DODD-FRANK ACT PROVISIONS

FOR

CENTRAL CLEARING

In response to the financial collapse that occurred in late 2008, members of Congress introduced a myriad of bills designed to overhaul the financial services industry.206 Ulti198. See Bliss & Steigerwald, supra note 174, at 26 (“[T]he information needed to accomplish multilateral netting may include proprietary information that the traders involved may not wish to share with outsiders. That concern may inhibit the cooperation and disclosure needed in the bilateral markets to accomplish multilateral netting.”). 199. Id.; see 1 JOHNSON & HAZEN, supra note 37, § 1.02 [12A] (supp. 2010) (noting that “any interruption in the orderly flow of funds between the parties can result in actual or technical breaches.”). 200. Duffie, supra note 14, at 126. 201. HASENPUSCH, supra note 150, § 2.2.2.1. 202. See Working Paper on Exchanges and Post Trade Services: An Overview 9 (Competition Comm’n Working Paper, 2005), http://www.competition-commission.org.uk/inquiries/ref2005/lse/industry_background_paper. pdf. 203. See id.; Heffner, supra note 153, at 101. 204. See id.; Everett, supra note 85, at 486-87 (noting that communication between the CCP and regulators will allow regulators “to exercise full effectiveness in protecting the integrity of the markets”). 205. Cf. Duffie, supra note 14, at 130-31 (noting that recent research suggests that central clearing can actually increase systemic risk). 206. See, e.g., Restoring American Financial Stability Act of 2010, S. 3217, 111th Cong. (2010); Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong. (2009); Derivative Trading Accountability and Disclosure Act of 2009, H.R. 3300, 111th Cong. (2009); Credit Default Swap Prohibition Act, H.R. 3145, 111th Cong. (2009); Authorizing the Regulation of Swaps Act, S. 961, 111th Cong. (2009); Financial System Stabilization and Reform Act of 2009, H.R. 1754, 111th Cong. (2009).

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mately, many of these bills stood little chance of reaching a vote by the full Senate or House of Representatives.207 Other proposals, however, were eventually reconciled and merged into the enacted Dodd-Frank Act.208 To provide context necessary to evaluate the potential hazards of mandatory central clearing, this section will briefly outline the central clearing requirements of the Dodd-Frank Act.209 Considering the importance of the OTC derivatives, the Dodd-Frank Act provisions mandating central clearing have the potential to generate far-reaching consequences for financial stability and risk management strategies. Understanding the Dodd-Frank Act’s defined terms is the necessary starting point of any effort to determine the scope and application of the mandatory central clearing requirements. In particular, the applicability of the clearing provisions essentially turn on whether (1) the counterparties to the transaction are “Swap Dealer[s]” or “Major Swap Participant[s]” and (2) the transaction meets the definition of a “Swap.”210 Significantly, the Dodd-Frank Act (1) distinguishes between “Swaps” and “Security-Based Swaps” and (2) assigns regulatory authority over clearing requirements for each to the CFTC and SEC respectively.211 Thus, although the Dodd-Frank Act’s requirements are substantively identical, it addresses Swaps clearing through amendments to the CEA but introduces the provisions regarding Security-Based Swaps as amendments to Securities Exchange Act of 1934.212 By expansively defining the terms Swap and Security-Based Swap to include most options and swap transactions, along with any agreement that subsequently becomes commonly known as a swap, the Dodd-Frank Act ensures that the clearing requirements are broadly applicable and capture the different types of derivative products that currently exist or that may arise in the future.213 For derivative products that are a Swap—as the Dodd-Frank Act defines the term—the applicability of the clearing requirements first depends on whether the counterparties to the transactions are a “Swap Dealer” or “Major Swap Participant.” In general, the Act specifies that parties who, “as an ordinary course of business,” enter into swaps for such 207. For example, Representative Waters’ bill, the Credit Default Swap Prohibition Act of 2009, has languished in the House Committee on Financial Services since July 9, 2009. Credit Default Swap Prohibition Act, H.R. 3145, 111th Cong. (2009) (bill status available at http://thomas.loc.gov/cgi-bin/bdquery/ z?d111:HR03145:@@@X (last visited Jan. 2011)). 208. H.R. 4173 (as passed by House of Representatives, Dec. 11, 2009); S. 3217 (as passed by the Senate). 209. Dodd-Frank Act, Pub. L. No. 111-203, tit. VII, 124 Stat. 1376, 1601-802 (2010). 210. Id. § 723(a)(2) (to be codified at 7 U.S.C. § 2). 211. See id. § 721(a)(19), (21) (to be codified at 7 U.S.C. § 1a). A Security-Based Swap is a Swap, as defined under the Dodd-Frank Act, that is based on a narrow index of securities, the securities of a single issuer, or on events related to a single issuer or a narrow index of issuers. Id. § 761(a) (to be codified at 15 U.S.C. § 78c(a)). Included within Security-Based Swaps and Swaps is a subcategory known as “Mixed Swaps.” Id. A Mixed Swap is, essentially, a Security-Based Swap that includes attributes that would otherwise cause it to fit within the definition of Swap. See id. Because the transactions do not fit neatly within the jurisdiction of the CFTC or SEC alone, Congress elected to subject Mixed Swaps to the joint regulatory oversight of both agencies. Id. § 712(a)(8). 212. Compare id. § 713(a), with id. § 763(a). In addition to distinguishing between Security-Based Swaps and other Swaps, the Dodd-Frank Act likewise distinguishes between types of dealers and major participants by providing separate definitions for “Swap Dealer” and “Security-Based Swap Dealer” and “Major Swap Participant” and “Major Security-Based Swap Participant.” See Dodd-Frank Act § 721(a)(16), (19), (21) (to be codified at 7 U.S.C. § 1a). For simplicity, this section will concentrate on the provisions applicable to Swaps with the tacit understanding that the clearing requirements also apply to Security-Based Swaps. 213. Id. § 721(a)(21).

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party’s own account are Swap Dealers.214 Further, any party that makes a market in swaps, holds itself out as a swap dealer, or otherwise becomes commonly known as a dealer or market maker, is also included within the definition of a Swap Dealer.215 The Dodd-Frank Act, however, provides that the CFTC can exempt a party that engages in only a “de minimis quantity of swap dealing in connection with transactions with or on the behalf of its customers.”216 Even if a party is not a Swap Dealer, the Dodd-Frank Act’s provisions for mandatory central clearing may still apply if the party fits within the definition of a Major Swap Participant.217 A party is a Major Swap Participant if it is not a Swap Dealer and either (1) “maintains a substantial position in swaps for any of the major swap categories . . . excluding positions held for hedging or mitigating commercial risk” or (2) is an entity “whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on . . . financial stability.”218 Importantly, Congress declined to specify what constitutes a “substantial position” in swaps; instead, it assigned the task to the CFTC and directed it to establish the threshold at a level that is “prudent for the effective monitoring, management, and oversight of the entities that are systemically important or can significantly impact the financial stability of the United States.”219 With respect to when central clearing requirements would actually apply to market participants, the House and Senate adopted significantly different approaches in their initial versions of financial reform legislation. The Senate’s bill—which demonstrated a stronger preference in favor of clearing than the House’s bill—mandated that all parties must clear all Swaps unless an exception to the clearing requirement applied.220 In contrast, under the House bill clearing was mandatory only “if a clearing organization . . . will accept the swap for clearing, and the [CFTC] has determined . . . that the swap is required to be cleared.”221 Rather than presuming that clearing should always apply, the House’s bill directed the CFTC first to evaluate the various types of swaps in order to determine if mandatory clearing is appropriate.222 In the final Dodd-Frank Act, Congress elected to enact clearing requirements more closely aligned with the initial House proposal.223 Under the enacted legislation, central clearing will be mandatory for all swaps that the CFTC determines are required to be cleared.224 In support of this system, Congress instructed the CFTC to review swaps “on an ongoing basis” in order to determine if the “swap or group, category, type, or class of 214. Id. The term specifically excludes a party that enters into swaps for its own account “but not as a part of a regular business.” Id. 215. Id. 216. Id. 217. Id. § 721(a)(16) (to be codified at 7 U.S.C. § 1a). 218. Id. Significantly, the “substantial counterparty exposure” prong does not exclude swaps used for risk management purposes. This suggests that it is possible for an entity to be a Major Swap Participant even though it never trades derivatives for speculative purposes. See id. 219. Id. 220. Restoring American Financial Stability Act of 2010, S. 3217, 111th Cong., § 713(a)(3) (as introduced by Sen. Dodd, Mar. 15, 2010) (adding 7 U.S.C. § 2(j)(1)(A)). 221. Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong., § 3103(a)(3) (adding 7 U.S.C. § 2(j)(1)(A)) (as passed by House of Representatives, Dec. 11, 2009). 222. Id. 223. Compare id., with Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)). 224. Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(2)).

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swaps should be required to be cleared.”225 When assessing whether mandatory central clearing is appropriate, Congress directed that the CFTC consider a variety of factors including: notional exposures, liquidity, pricing data, clearing infrastructure, and effect on systemic risk.226 Additionally, the Dodd-Frank Act provides for a thirty-day public comment period to aid the CFTC in its determination.227 Finally, for those swaps that become subject to mandatory central clearing, the Dodd-Frank Act provides for a mechanism by which the CFTC can (1) stay the clearing requirement and (2) conduct an additional review in order to determine if clearing is truly appropriate for the Swap in question.228 Because Congress cast the general central clearing requirement of the Dodd-Frank Act in terms that are both broad and mandatory, the available exceptions to the requirements are very important. Most importantly, for swaps that are subject to mandatory clearing, the Dodd-Frank Act bases the applicability of an end-user exception on the status of the counterparties to the transaction.229 Specifically, the exemption applies only if one of the counterparties is (1) not a “financial entity,” (2) “is using the swaps to hedge or mitigate commercial risk,” and (3) informs the CFTC regarding how it satisfies its financial obligations for non-cleared swaps.230 The conjunctive nature of the exemption suggests that for swaps subject to mandatory central clearing, central clearing is always required for (1) Swap Dealers or Major Swap Participants, both of which are considered a “financial entity” for purposes of the exemption; or (2) parties that use the swap for purposes other than hedging or mitigating commercial risk.231 Ultimately, assuming that the exception applies in a given situation, the decision regarding whether to clear the swap otherwise subject to mandatory clearing rests with the end-user. Under the Dodd-Frank Act, the end-user counterparty eligible to take advantage of the exemption is granted sole discretion regarding whether to clear the swap and, if so, which CCP to clear through.232 For any swap that remains bilaterally cleared however, Congress gave the CFTC the ability to set capital and initial and variation margin requirements applicable to the counterparties to the swap.233 While it is apparent that the authority of the CFTC with respect to capital and margin requirements extends to counterparties that are Swap Dealers and Major Swap Participants, it is unclear how the CFTC’s newly granted authority might impact the end-user counterparties of Swap Dealers or Major Swap Participants.234 Furthermore, by allowing an entity to be a Swap 225. Id. 226. Id. (to be codified at 7 U.S.C. § 2(h)(2)(D)(ii)). 227. Id. (to be codified at 7 U.S.C. § 2(h)(2)(B)(iii)). 228. Id. (to be codified at 7 U.S.C. § 2(h)(3)). 229. See id. (to be codified at 7 U.S.C. § 2(h)(7)(A)). 230. Id. (to be codified at 7 U.S.C. § 2(h)(7)(A)). 231. Id. (to be codified at 7 U.S.C. § 2(h)(7)). The term “Financial Entity” includes swap dealers and major swap participants, in addition to entities such as private funds and banking institutions. Id. 232. Id. (to be codified at 7 U.S.C. § 2(h)(7)(B), (E)). 233. Id. (to be codified at 7 U.S.C. § 4s(e)). 234. Sen. Chambliss, Dodd-Frank Act Conference Committee Hearing, (June 29, 2010), http://financialserv.edgeboss.net/wmedia/financialserv/conference062910.wvx; Press Release, Int’l Swaps & Derivatives Ass’n, US Companies May Face US $1 Trillion in Additional Capital and Liquidity Requirements As a Result of Financial Regulatory Reform According to ISDA Research (June 29, 2010), available at http:// www.isda.org/media/press/2010/press062910.html. The initial version of the Dodd-Frank Act submitted to the conference committee included an explicit end-user exemption from capital and margin requirements;

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Dealer or Major Swap Participant with respect to some types of Swaps but not others, Congress created a situation where entities may be subject to substantially different regulatory requirements depending on the transaction at issue.235 Although the Dodd-Frank Act establishes the basic framework for mandatory central clearing, the precise contours of the regulations necessary for the full implementation of the framework are still unknown. In particular, the legislation specifically directs the CFTC and the SEC, along with other federal agencies, to engage in a myriad of rulemaking activities and studies.236 According to the CFTC, there are thirty areas related to swaps where the CFTC is required to promulgate rules.237 Undoubtedly, the exact scope of the requirements will turn on how the various regulatory agencies define vague phrases such as “substantial position,” what entities they include within the “de minimis” exception for Swap Dealers, and which swaps the CFTC determines are subject to mandatory central clearing.238 As explained by Senators Dodd and Lincoln however, “clearing is at the heart of reform.”239 Congress expects that “[i]ncreasing the use of central clearinghouses, exchanges, appropriate margining, capital requirements, and reporting will provide safeguards for American taxpayers and the financial system as a whole.”240 But, as the next two sections will explain, despite the opinions of Congress and central clearing supporters, central clearing is not necessarily a panacea for the challenges in the OTC derivatives market. Instead, mandatory central clearing for OTC derivatives and the rules promulgated to impose such requirements may increase systemic risk while reducing opportunities for prudent risk management by end-users. B. INCREASED SYSTEMIC RISK THROUGH MANDATORY CENTRAL CLEARING As previously discussed in Part II, by substituting a hub-and-spoke system in place of the existing web of bilateral transactions, central clearing through a CCP may reduce the risk associated with the interconnectedness of the OTC derivatives market.241 The concentration of counterparty risk in the CCP—if coupled with effective risk management practices—can promote the stability of the financial system by reducing the probability however, the conference committee removed the exemption. Despite efforts by Sen. Chambliss, the committee declined to reinsert the provision before the passage of the Act. See Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong., § 731 (adding 7 U.S.C. § 4s(e)(8)) (conference base text). 235. Dodd-Frank Act § 721(a)(16) (to be codified at 7 U.S.C. § 1a). 236. DAVIS POLK, SUMMARY OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT, ENACTED INTO LAW ON JULY 21, 2010 i (2010), http://www.davispolk.com/files/Publication/70 84f9fe-6580-413b-b870-b7c025ed2ecf/Presentation/PublicationAttachment/1d4495c7-0be0-4e9a-ba77-f786 fb90464a/070910_Financial_Reform_Summary.pdf. Davis Polk estimated that the full implementation of the Dodd-Frank Act would require a total of 243 rulemakings, 67 one-time studies or reports, and 22 new periodic reports. Id. 237. Dodd-Frank Act, U.S. COMMODITY FUTURES TRADING COMM’N [CFTC], http://www.cftc.gov/ LawRegulation/DoddFrankAct/index.htm (last visited Jan. 19, 2011). 238. Dodd-Frank Act § 721(a)(16) (to be codified at 7 U.S.C. § 1a); Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(1)(A); see Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act, 75 Fed. Reg. 51429 (advance notice of proposed rulemaking Aug. 20, 2010) (to be codified at 17 C.F.R. pt. 1 and pt. 240). 239. 156 CONG. REC. H5248 (June 30, 2010) (letter from Sen. Dodd and Sen. Lincoln to Rep. Frank and Rep. Peterson). 240. See S. Rep. No. 111-176, at 136 (2010). 241. See generally supra Section II.

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that, like dominos, the failure of one major market participant will bring about the failure of other major market participants and end-user counterparties.242 Through legislation mandating the use of CCPs in the OTC derivatives market, Congress seeks to take advantage of central clearing as a method of reducing systemic risk. But, because central clearing promotes the creation of new systemically important institutions and eliminates some opportunities for cross-product bilateral netting while only partially reducing the interconnectedness of the market, systemic risk may actually increase, rather than decrease, under mandatory central clearing. To effectively implement central clearing for any given derivative type, two conditions must be present: standard terms and high trading volume.243 These attributes are essential because each is necessary for the success of the CCP’s risk management policies.244 First, the derivative contracts cleared must have standard terms in order for the CCP to develop a valuation model for the derivative product.245 As standardization decreases and complexity increases, the derivative becomes more difficult and expensive for the CCP to model.246 Unless the CCP can develop an acceptable model for valuation, it will be unable to accurately manage its risk through margining requirements imposed on CMs.247 In addition to standardization, the derivative must have a sufficient volume of trading activity in order to support central clearing.248 Without a large trading volume, accepting the derivative for central clearing is unlikely to be cost effective for the CCP or the CM.249 Furthermore, without significant volume, the CCP cannot accurately plan for the liquidation of a defaulting CM’s position in the derivative.250 Because the CCP may only be able to liquidate a position in a lightly traded derivative at a significant discount, agreeing to clear the derivative may cause the CCP to suffer major losses if a CM defaults.251 Because central clearing is not a reasonable option for all derivatives, the requirements of the Dodd-Frank Act will force market participants to divide their OTC derivatives portfolios into bilateral and centrally cleared components.252 Central clearing can only eliminate the web of bilateral transactions for those derivatives amenable to central clearing. For any derivatives that continue to be bilaterally cleared by the counterparties rather than submitted to a CCP, potentially because of a lack of standard terms or insufficient volume, the interconnectivity of the market participants will remain. In other words, a 242. See generally supra Section II(B). 243. Heffner, supra note 153, at 99. 244. Comm. on Payments and Settlement Sys., New Developments in Settlement and Clearing Arrangements for OTC Derivatives, BIS, Mar. 2007, at 27, available at http://www.bis.org/publ/cpss77.pdf [hereinafter New Developments]. 245. Id. 246. Id.; see Duffie, Li & Lubke, supra note 5, at 8. 247. New Developments, supra note 244. 248. Heffner, supra note 153, at 99; Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 75 (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 249. Duffie, Li & Lubke, supra note 5, at 8. 250. Id.; New Developments, supra note 244. 251. Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 74 (2009) (written testimony of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association). 252. New Developments, supra note 244; supra Section III(A).

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properly implemented central clearing regime cannot itself eliminate the counterparty risk between trading partners. Furthermore, any counterparty risk that remains after market participants submit their eligible OTC derivatives to the CCP may still be systemically significant. According to one commentator, because the credit derivatives issued by AIG “would not have met any reasonable test of standardization,” central clearing “would not have prevented the AIG fiasco.”253 Depending on the circumstances, dividing derivatives portfolios into centrally cleared and bilaterally cleared components can have either positive or negative consequences. On the one hand, central clearing provides additional opportunities for multilateral netting between market participants.254 On the other hand, central clearing may reduce the opportunities for cross-product bilateral netting that exist between the parties to OTC derivatives transactions. For example, suppose that Dealer A and Dealer B are counterparties in two different types of derivative transactions. If Dealer A’s exposure to Dealer B under the first OTC derivative transaction is $10 million and Dealer B’s exposure to Dealer A under the second OTC derivative transaction is $20 million, the mutual obligations result in a net counterparty exposure of only $10 million. If the first OTC derivative is of a type subject to mandatory central clearing requirements though, the exposure between the counterparties doubles to $20 million.255 In other words, if central clearing is mandatory for some types of derivatives but not others, counterparties will lose opportunities to conduct bilateral netting across the different products. The repercussions from lost opportunities for bilateral netting, however, ultimately depend on the role that central clearing assumes in the OTC derivatives market.256 As explained in a report from the Financial Stability Board, “[t]o fully achieve the benefits of central clearing, a critical mass of OTC derivatives products must move to [the] CCPs.”257 Employing a CCP to clear a category of derivative is only effective if the gained opportunities for multilateral netting are substantially greater than the lost opportunities for bilateral netting across other categories of derivatives.258 If this condition is not satisfied, then clearing through the CCP may actually increase net counterparty exposure and thereby promote financial instability.259 Although the Dodd-Frank Act directs the CFTC and SEC to consider the impact on systemic risk in its determination of whether to require central clearing for a particular type of swap, it is uncertain whether the rules promulgated by the agencies will adequately address the relationship between multilateral and bilateral netting opportunities and its possible impact on net counterparty exposures.260 Furthermore, the actual impact of mandating central clearing on counterparty exposures will likely vary from market participant to market participant depending on the na253. Duffie, supra note 14, at 132. 254. See supra notes 196 through 203 and accompanying text. 255. For a similar illustration of bilateral netting opportunities lost through central clearing, see Darrell Duffie & Haoxiang Zhu, Does a Central Clearing Counterparty Reduce Counterparty Risk?, 3-4 (Rock Ctr. for Corporate Governance at Stanford Univ., Working Paper No. 46, 2010), available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1348343. 256. See Duffie, supra note 14, at 131. 257. Implementing OTC Derivatives Market Reform, supra note 147, at 10. 258. Duffie & Zhu, supra note 255, at 3. 259. Id. at 4; see Duffie, supra note 14, at 131. 260. See Dodd-Frank Act, Pub. L. No. 111-203, § 723(a)(3), 124 Stat. 1376, 1677 (2010) (to be codified at 7 U.S.C. § 2(h)(2)(D)); Dodd-Frank Act, § 763(a) (to be codified at 15 U.S.C. § 78c-3(b)(4)).

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ture of the entity in question and the structure of the CCP market as a whole. As the Bank for International Settlements explained in a 2007 report, the effect that splitting portfolios into centrally cleared and bilateral portions will have on the measurement of the credit exposure of the bilaterally cleared deals is unpredictable and will vary from dealer to dealer depending upon its type of business, the type of contracts cleared and the participants in the clearing house.261 If the CCPs that emerge in response to mandatory central clearing elect to clear only a few classes of derivatives or offer to clear the same classes of derivatives as other CCPs, potential opportunities for multilateral netting will decrease.262 By failing to operate in ways that maximize the availability of multilateral netting, CCPs in the post Dodd-Frank Act OTC derivatives market may inadvertently generate greater financial instability than would exist under a system of only bilaterally cleared transactions.263 Maximizing opportunities for multilateral netting, however, requires mandating widespread participation in the CCPs by the entities in the OTC derivatives market and the central clearing of multiple types of OTC derivatives through a limited number of CCPs.264 Merging central clearing activities into a single CCP, however, presents regulators with an interesting Catch-22 situation. According to a study conducted in 2009, “[c]learing a moderately large fraction of all classes of derivatives in the same CCP reduces average estimated exposures by 37%.”265 The reduction of systemic risk possible through the consolidation of central clearing activities into relatively few CCPs inevitably increases the systemic importance of the CCPs that remain.266 Tempering the systemic importance of large CCPs by distributing central clearing functions across a greater number of smaller CCPs though, eliminates the reduction in systemic risk that flows from additional multilateral netting.267 261. New Developments, supra note 244. 262. See Duffie & Zhu, supra note 255, at 22. For example, both the ICE Trust and the CME Group currently clear CDS contracts in the United States. Cleared OTC Credit Default Swaps, CME GROUP, http:// www.cmegroup.com/trading/cds/index.html (last visited Jan. 19, 2011). Because each of these CCPs clear only the single class of derivative and split the class between the two, there are lost opportunities for multilateral netting within the CDS market. Clearing: ICE Trust—Credit Default Swap Clearing, INTERCONTINENTAL EXCHANGE, https://www.theice.com/ice_trust.jhtml (last visited Jan. 19, 2011). 263. See Duffie & Zhu, supra note 255, at 18-19. Duffie and Zhu assert that relative to a market without central clearing, “the introduction of a CCP that clears 100% of credit derivatives actually increases marketwide expected exposures by about 5%.” Id. If the same CCP cleared only seventy-five percent of CDS contracts, expected exposures would increase by only three percent. Id. However, clearing seventy-five percent of CDS contracts and interest rate swaps together through a single CCP could reduce expected exposures by seventeen percent. Id. 264. Id. at 19-20. 265. Id. at 19. 266. HASENPUSCH, supra note 150, § 2.2.2.1. 267. Cf. id.; Duffie, Li & Lubke, supra note 5, at 9, 14-15. CCP interoperability may eventually mitigate the challenges associated with central clearing through multiple CCPs. However, as the Executive Chairman of the CME Group explained to the House Agricultural Committee, “interoperability among futures clearing houses was rejected by the industry, the CFTC and Congress because a fair examination of the proposal revealed that forced interoperability was complex, risky and not cost effective.” Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 68 (2009) (prepared statement of Terrence Duffy, Executive Chairman, CME Group Inc.).

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Undoubtedly, any CCPs established in response to the mandatory central clearing requirements of the Dodd-Frank Act will employ rigorous risk management policies. In fact, the Act directs that every CCP shall ensure that it “possesses the ability to manage the risks associated with discharging the responsibilities of the derivatives clearing organization through the use of appropriate tools and procedures.”268 The risk management policies implemented will inevitably include membership criteria for CMs, initial and variation margin requirements, and guarantee fund contributions.269 Concentrating counterparty risk in CCPs through mandatory central clearing however, makes it “all the more important that CCPs function flawlessly.”270 In fact, “the centrality of a CCP implies that its failure risk could be more toxic than that of other market participants.”271 Should a large CCP in the OTC derivatives market default on its obligations as a buyer to every seller and a seller to every buyer, the effect on the financial system could be catastrophic.272 By requiring central clearing for OTC derivatives, the government is in effect directing the creation of new systemically important institutions.273 While robust risk management policies and capitalization requirements are likely to reduce the risk that CCPs will fail, they cannot guarantee their stability.274 Yet, in some situations there is a lack of consensus 268. Dodd-Frank Act, Pub. L. No. 111-203, § 725(c), 124 Stat. 1376, 1687-92 (to be codified at 7 U.S.C. § 7a-1(c)(2)). Whether direct government supervision over CCP risk management policies is appropriate is subject to debate. Arguably, the self-interest of the CCP will provide sufficient incentive for it to respond adequately to the risks associated with central clearing. See The Role of Central Counterparties, EUROPEAN CTR. BANK & FED. RESERVE BANK OF CHICAGO, 16 (2007), available at http://www.ecb.europa.eu/pub/pdf/ other/rolecentralcounterparties200707en.pdf (noting that markets respond quickly to mitigate risk not because they are risk averse, “but rather because the inclination to manage risk results from an interest in increasing trading volumes.”). 269. See supra text accompanying notes 156 to 172. The Dodd-Frank Act specifically states that CCPs, “through margin requirements and other risk control mechanisms, shall limit the exposure of the [CCP] to potential losses from defaults by its members and participants . . . to ensure that—(I) the operations of the [CCP] would not be disrupted; and (II) nondefaulting members or participants would not be exposed to losses that nondefaulting members or participants cannot anticipate or control.” Dodd-Frank Act, § 725(c) (to be codified at 7 U.S.C. § 7a-1(c)(2)). 270. JOHN W. MCPARTLAND, CHI. FED. RESERVE, Clearing and Settlement of Exchange Traded Derivatives, 1, 3 (2009), available at http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2009/ cfloctober2009_267.pdf. 271. Duffie & Zhu, supra note 255, at 9. 272. See Duffie, Li & Lubke, supra note 5, at 5, 9 (“The failure of a CCP could suddenly expose many major market participants to losses.”); The Role of Central Counterparties, supra note 268, at 26 (“[T]he effectiveness of a CCP’s risk controls and the adequacy of its financial resources are critical aspects of the infrastructure of the market it serves.”); HASENPUSCH, supra note 150, § 2.2.2.1 (explaining “One potential threat associated with high risk concentration in markets is that an unsuitable system configuration or weak supervision will have a higher impact on the market than the deficiencies of any one participant. Faulty CCP risk management has the potential to severely disrupt the markets . . . . Consequently, a CCP’s ability to monitor and control the credit, liquidity, legal and operational risks it incurs as well as to absorb losses is essential for the sound functioning of the markets it serves.”). 273. See 155 CONG. REC. H14712 (daily ed. Dec. 10, 2009) (statement of Rep. Garrett) (“The amendment [concerning regulation of OTC derivatives] could very well exacerbate risk by forcing more derivative transactions . . . to fewer and to fewer and to fewer clearinghouses, basically concentrating risk and doing the opposite of what the American public wants, to avoid risk burdens and additional bailouts.”). 274. New Developments, supra note 244, at 3 (“The key question is whether the risk controls employed by CCPs for exchange traded derivatives would be equally effective when applied to OTC derivatives, which generally are less liquid and more difficult to value accurately than exchange-traded derivatives.”). Although

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concerning how regulations related to fundamental risk management practices should be implemented.275 For example, given the significant role that CMs will inevitably play in determining which derivatives a CCP clears, commentators have adopted opposing views on the extent to which CCPs should be permitted to limit membership.276 Furthermore, considering that the failure of a CCP will likely stem from the default of one or more major CMs, it is probable that any such failure will occur at a time when the markets are already under a significant degree of stress.277 Undoubtedly, if mandatory central clearing in the OTC derivatives market results in a significant reduction in net counterparty exposure, the probability of such CCP failure will decrease.278 However, if the reduction in net counterparty exposure is negligible (or increases) and existing systemically important participants in the OTC derivatives market remain systemically important, the contagion that could result from the failure of one CM may facilitate the collapse of the CCPs.279 As the forgoing section suggests, the imposition of mandatory central clearing requirements for dealers and other significant participants in the OTC derivatives markets presents two related challenges to financial stability. First, mandatory central clearing itself does not eliminate the interconnectedness of market participants and may actually increase net counterparty risk by reducing opportunities for bilateral netting.280 Second, because the CCPs that emerge to provide central clearing services will themselves be systemically important institutions, their failure may have a greater destabilizing effect on the financial markets than would occur in an OTC derivatives market without central clearing.281 The resulting threat to financial stability, however, is only one of the concerns associated with the Dodd-Frank Act’s mandatory central clearing provisions. As the next section explains, requiring market participants to clear certain OTC derivative transactions is likely to damage the ability of end-users to employ OTC derivatives products in their risk management programs. C.

REDUCED OPTIONS

FOR

RISK MANAGEMENT THROUGH CENTRAL CLEARING

From the perspective of an end-user, OTC derivatives provide an invaluable tool with which to manage risk. As discussed above, end-users can employ OTC derivatives to mitigate risks ranging from changes in interest rates and probability of default on an obliCCP defaults are unusual, they are not unheard of. Examples of clearing house failures include those of Caisse de Liquidation, Paris (1974), the Kuala Lumpur Commodity Clearing House (1983), and the Hong Kong Futures Guarantee Corporation (1987). Duffie & Zhu, supra note 255, at 10, n.6. 275. Requirements for Derivatives Clearing Organizations Regarding the Mitigation of Conflicts of Interest, 75 Fed. Reg. 63,732 (Oct. 18, 2010) (to be codified at 17 C.F.R. pt. 1, 37, 38, 39, & 40). 276. Id. The fact that the CMs, through margin and guarantee fund obligations, are ultimately responsible for the financial stability of the CCP suggests that limiting membership is appropriate from a risk management perspective. Some commentators are concerned, however, that unless CCPs have relaxed membership criteria, the CMs, which are likely to be major participants in the OTC derivatives market, will have both the ability and the incentive to prevent central clearing for derivatives that should otherwise be centrally cleared. Id. 277. Duffie, Li & Lubke, supra note 5, at 9. 278. See HASENPUSCH, supra note 150, § 2.2.2.1. 279. Cf. Duffie, Li & Lubke, supra note 5, at 9; HASENPUSCH, supra note 150, § 2.2.2.1; Duffie & Zhu, supra note 255, at 9. 280. See supra text accompanying notes 252 through 263. 281. See supra text accompanying notes 264 through 279.

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gation to the price of product inputs such as flour and chicken.282 These derivative transactions, which may include any combination of the four basic derivative types, enable companies to avoid unexpected losses and reduce the volatility of the prices they charge for their products and services.283 At least one court has even gone so far as to hold corporate directors liable for losses incurred as a result of their failure to implement and supervise an adequate hedging program.284 As the market for OTC derivatives grows, their role in risk management and importance to end-users increases in significance. Shortly after the Indiana Court of Appeals released its opinion in Brane v. Roth, former CFTC Chairman Philip McBride Johnson questioned whether “there might evolve a concept of per se, or automatic, liability whenever unwanted risks that can be avoided are not properly hedged.”285 Considering that nearly all of the Fortune 500 companies based in the United States and roughly sixty-five percent of all non-financial firms employ OTC derivatives in their risk management programs, it is not unreasonable to believe that Mr. Johnson’s assessment may eventually prove true.286 Nevertheless, the Dodd-Frank Act’s mandatory central clearing provisions may restrict the utility and availability of OTC derivatives by increasing the regulatory uncertainty and cost associated with their use, and thereby make it more difficult for corporate end-users to satisfy their hedging responsibilities. Just as the growth of a robust market for OTC derivatives was a byproduct of the increased regulatory certainty that emerged during the 1980s and 1990s, the imposition of new sources of legal uncertainty though the Dodd-Frank Act’s central clearing requirements may constrict the market’s future development.287 In particular, questions will undoubtedly arise concerning which counterparties and derivatives will be subject to mandatory central clearing and how capital and margin requirements will apply to uncleared transactions.288 If in addressing these questions, the CFTC and SEC produce 282. See supra Section I(C). 283. See Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 5 (2009) (testimony of Jon Hixson, Director of Federal Government Relations, Cargill, Inc.). 284. Brane v. Roth, 590 N.E.2d 587, 591-92 (Ind. Ct. App. 1992). Upon the advice of the rural grain cooperative’s accountant, its directors authorized the manager to engage in hedging transactions in order to mitigate the risk of future losses. Although grain sales comprised ninety percent of the cooperative’s business and totaled $7,300,000 for the year, the manager only entered into $20,050 worth of hedging contracts. The Indiana Court of Appeals affirmed the trial court’s conclusion that “the directors breached their duties by retaining a manager inexperienced in hedging; failing to maintain reasonable supervision over him; and failing to attain knowledge of the basic fundamentals of hedging to be able to direct the hedging activities and supervise the manager properly. . . .” Id. at 589-90. Whether the holding of Brane v. Roth stands for the proposition that failing to hedge is a breach of the duty of care is subject to some debate. See Carolyn H. Jackson, Note, Have You Hedged Today? The Inevitable Advent of Consumer Derivatives, 67 FORDHAM L. REV. 3205, 3258-59 (1999). 285. Philip McBride Johnson, Is Failing to Hedge a Legal Virus?, FUTURES, Nov. 1, 1993, at 18. 286. See Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 73 (2009) (statement of Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association); Johnson, supra note 285. 287. See supra text accompanying notes 90 through 103. 288. See, e.g., Proposed Agenda: Meeting with Commodity Futures Trading Commission Staff (Aug. 25, 2010), http://www.cftc.gov/ucm/groups/public/@swaps/documents/dfsubmission/dfsubmission2_082510agenda.pdf.

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rules that are overly broad or fail to adequately consider the potential for negative unintended consequences, their effect may be to limit the availability of existing OTC derivatives, discourage their use by end-users, and hinder the development of new derivatives products.289 The potential for increased legal uncertainty is evident in comments submitted in response to the CFTC and SEC’s Advance Notice of Proposed Rulemaking related to the definitions included in Title VII of the Dodd-Frank Act.290 For example, the Working Group of Commercial Energy Firms (the “Working Group”) suggested that CFTC and SEC rules should place the burden of identifying Major Swap Participants on the regulatory agencies rather than on the entities in the marketplace.291 As the comment explains, “in the absence of notification [by the SEC or CFTC], market participants will have the certainty necessary to operate with confidence that they are not . . . Major Swap Participants.”292 By suggesting such a rule, the Working Group is attempting to avoid the situation in which end-users, such as large energy companies or agricultural co-ops, are forced to either operate in the OTC derivatives market without knowing their classification or else “seek legal certainty that they are not a Major Swap Participant” through no-action requests.293 Submissions from other entities and associations suggest that there is support for the Working Group’s approach. A comment submitted by the Coalition for Derivatives End-Users stated that “there should not be a quota for end-users, nor a numerical threshold based on size or notional value alone over which end-users mechanically fall into the [Major Swap Participant] definition. . . . Moreover, there should be a presumption against imposing the panoply of bank-like regulations on end-users.”294 Considering that a party’s ability to rely on the end-user exception from central clearing first depends on it not being a Swap Dealer or Major Swap Participant, it is understandable that companies are focused on how the CFTC and SEC will structure rules related to 289. See Phillips, supra note 18. 290. See Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act, 75 Fed. Reg. 51,429 (to be codified at 17 C.F.R. pt. 1 and pt. 240) (advance notice of proposed rulemaking Aug. 20, 2010). 291. Letter from the Working Group of Commercial Energy Firms to David A. Stawick, Sec’y, U.S. CFTC 3 (Oct. 22, 2010), available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/dfsubmission/dfsubmission1_102210-email1.pdf. The Working Group of Commercial Energy Firms “is a diverse group of commercial firms in the energy industry whose primary business activity is the physical delivery of one or more energy commodities to others, including industrial, commercial and residential consumers. Members of the working group are energy producers, marketers and utilities.” Id. at 1. 292. Id. at 3. 293. Id. at 6. 294. Letter from the Coalition for Derivatives End-Users to David A. Stawick, Sec’y, U.S. CFTC, & Elizabeth Murphy, Sec’y, U.S. Sec. & Exch. Comm’n 5 (Sept. 20, 2010), available at http://www.nam.org/~/media/ 378B12D365024F60BFBD6BDC07284251/Coalition_for_Derivatives_End-Users_Comments_to_CFTC_ and_SEC.pdf. An alternative approach would insulate end-users from Major Swap Participant status by defining “substantial position” at a sufficiently high threshold. See Letter from Excelon to David A. Stanwick, Sec’y, U.S. CFTC, and Elizabeth Murphy, U.S. Sec’y, Sec. & Exch. Comm’n 7 (Sept. 20, 2010) available at http://www.sec.gov/comments/s7-16-10/s71610-41.pdf [hereinafter Letter from Excelon]. For example, Exelon, one of the country’s largest electric companies, suggested that the “substantial position” component of the Major Swap Participant definition “should not be set such that the amount of [Exelon’s] net uncleared swaps would be at or above the level associated with prudent monitoring, as required by the statute to constitute a ‘substantial’ position. Exelon suspects that the same is true of many similarly-situated entities in the markets in which it participates.” Id.

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the Dodd-Frank Act definitions.295 It appears, however, that the CFTC and SEC are poised to reject the flexible approaches suggested by the Coalition for Derivatives EndUsers and the Working Group.296 In their proposed rules governing the definitions for Swap Dealer and Major Swap Participation, the agencies instead expressed a preference for thresholds and other objective criteria.297 For example, under the proposed rule, any entity that entered into more than twenty swaps or swaps with an aggregate notional amount in excess of $100 million as a dealer during the previous twelve months would automatically be ineligible for the de minimis exception from the definition of Swap Dealer.298 As explained by the CFTC and SEC, the $100 million threshold, which reflects the aggregate notional amount of twenty small swaps, represents a level of activity that “would be sufficient to warrant dealer registration and bring about the benefits of such registration.”299 The CFTC and SEC understand, however, that such thresholds for Swap Dealers will inevitably capture certain end-users that rely on the OTC derivatives market, and as such, the end-user would become subject to the Act’s mandatory central clearing requirements.300 Along with the domestic implications of the regulations that they implement, the CFTC and SEC must also evaluate the international ramifications of any new rules. Specifically, considering the international nature of the OTC derivatives market, situations will inevitably arise in which non-U.S. entities engage in derivatives transactions with domestic entities. At present, such foreign entities are faced with uncertainty concerning when their derivatives activities with entities based in the United States will subject them to regulation under the Dodd-Frank Act.301 Already, the CFTC and SEC are aware of and are considering this issue. The CFTC’s proposed rule concerning Swap Dealer and Major Swap Participant registration indicate that a foreign swap dealer that “regularly enters into swaps with U.S. persons would likely be required to register as a Swap 295. See Dodd-Frank Act, Pub. L. No. 111-203, § 723(a)(3), 124 Stat. 1376, 1679-81 (2010) (to be codified at 7 U.S.C. § 2(h)(7)); Phillips, supra note 18 (noting that companies “aren’t changing the way they use derivatives, yet, hoping instead that exemptions for commercial users will insulate them.”). 296. Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” 75 Fed. Reg. 80,174, 80,188 (Dec. 21, 2010) (to be codified at 17 C.F.R. pt. 1 and 17 C.F.R. pt. 240). 297. Id. (“Objective criteria should permit regulators, market participants and entities that may be subject to the regulations to readily evaluate whether swap or security-based swap positions meet the thresholds, and should promote the predictable application and enforcement of the requirements governing major participants.”). 298. Id. at 80,180. 299. Id. at 80,180 n.37. Significantly, an entity can exceed the de minimis amount under one test without exceeding it for the other. In other words, a market participant would exceed the de minimis standard and likely require registration as a Swap Dealer if it entered into twenty swaps with a notional amount of $1 million or entered into one swap with a notional amount over $100 million. Id. at 75 Fed. Reg. 80,180 n.42. 300. 75 Fed. Reg. 80,178. While recognizing the importance and complexity of swaps in electricity generation and transmission operations, the CFTC and SEC note that “[n]evertheless, some participants [in the electricity market] engage in swap dealing activities . . . that are above the de minimis threshold set forth in the proposed rule.” Id. at 80,183. 301. See Dodd-Frank Act, Pub. L. No. 111-203, § 722(d), 124 Stat. 1376, 1673 (2010) (to be codified at 7 U.S.C. § 2(i)). The Act directs that the regulations pertaining to OTC derivatives only apply to activities outside the United States that “have a direct and significant connection with activities in, or effect on, commerce of the United States.” Id.

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Dealer.”302 Likewise, whether the CFTC would require a foreign entity to register as a Major Swap Participant would likely depend on its positions with U.S. counterparties, its use of U.S.-based CCPs and swap execution facilities, and its use of the instrumentalities of interstate commerce.303 In addition to the challenges regarding entity classification standards, the end-user exemption from central clearing itself provides a potential source of uncertainty for endusers. Specifically, under the Dodd-Frank Act, the end-user exemption is available only when one of the participants is not a “financial entity” and is using the derivative “to hedge or mitigate commercial risk.”304 Unfortunately for end-users, “the line between speculation, investing or trading, on the one hand, and hedging, on the other, can at times be difficult to discern;” however, as the CFTC stated, “the statute nonetheless requires such determinations.”305 Considering that the determination with respect to which side of the line a particular transaction falls on can fundamentally change the requirements associated with OTC derivative at issue, any ambiguity associated with rules promulgated to address this issue has the potential to significantly impact the hedging activities of commercial end-users.306 Likewise, without a clear understanding of what constitutes “commercial risk,” end-users otherwise eligible for the exception will potentially encounter situations in which they are unable to determine whether the exception is available.307 In addition to the requirements related to the status of the entity and the purpose of the swap, a market participant relying on the end-user exception must also notify the CFTC of how it generally meets its financial obligations for non-centrally cleared transactions.308 With respect to the notification requirement, the Dodd-Frank Act allows the CFTC to 302. Registration of Swap Dealers and Major Swap Participants, 75 Fed. Reg. 71,379 (Nov. 23, 2010) (to be codified at 17 C.F.R. pt. 3, 23, 170). 303. Id. at 71,382. 304. Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(7)). 305. 75 Fed. Reg. 80,174, 80,195. In the proposed rule, the CFTC and SEC indicate their intent to interpret the requirements related to hedging or mitigating commercial risk found in the Major Swap Participant definition and the end-user exception consistently. Id. at n.124. To help sharpen the line, the CFTC and SEC specifically requested that commenters provide comments regarding whether rules addressing “hedging or mitigating commercial risk” should include “swaps facilitating asset optimization” and “dynamic hedging.” Id. at 80,195. 306. See id. at 80,194. Rather than providing clarification, the proposed definition of “hedging or mitigating commercial risk” offered in connection with the Major Swap Participant definition, simply changes the focus of the inquiry in situations where the swap does not clearly fall on either side of the line between speculation and hedging. See id. Under the proposed definition, instead of wondering when a swap hedges or mitigates commercial risk, entities will wonder when the swap is “[n]ot held for a purpose that is in the nature of speculation, investing or trading.” Id. at 80,195. 307. See Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(7)). Many comments addressing the Major Swap Participant definition have stressed the importance of establishing a broad definition of the term “commercial risk” in order to ensure all of the risks for which the end-user may elect to employ derivatives are included. A proposal offered by Excelon would define commercial risk to include: [A]ny economic risk arising from financial, physical or any other attribute of a commercial enterprise including, but not limited to, commodity price volatility risk, commodity price basis risk, commodity supply volatility risk, commodity demand volatility risk, risk of failure of production, risk of loss of markets, weather risk, balance sheet risk, credit risk and currency exchange rate risk. Letter from Excelon, supra note 294. In the context of Major Swap Participant, the CFTC and SEC declined to separately define “commercial risk” and instead incorporated many of the ideas included in the suggestion offered by Excelon directly into the definition of “hedging or mitigating commercial risk.” Compare id. with 75 Fed. Reg. 80,214-15. 308. Dodd-Frank Act § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(7)).

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establish the manner of the submission, but does not address whether the CFTC can evaluate the adequacy of the end-user’s plan for meeting its financial obligations.309 Furthermore, entities have already expressed concern over the costs and benefits associated with how the CFTC and SEC implement the notification requirement.310 According to the Electric Power Supply Association, the “notification process could create an immense administrative burden on both end users and the [CFTC] if not structured appropriately.”311 Undoubtedly, end-users will either pass the costs associated with notification requirements on to consumers in the form of higher prices or, if the costs are substantial, may elect to accept the risk and not hedge at all.312 Ultimately, the impact of the uncertainty associated with the Dodd-Frank Act’s defined terms and end-user exception will depend on the rules implemented by the SEC and CFTC. If the rules written by the agencies are overly broad in scope and application, then many OTC derivatives transactions used for risk management purposes will become subject to mandatory central clearing requirements, either because the end-user is deemed a Swap Dealer or Major Swap Participant or because the hedging transaction itself does not clearly fit within the scope of the end-user exception.313 Likewise, should the rules promulgated fail to resolve the uncertainty present in the Act itself, some end-users may elect to avoid such uncertainty by either submitting swaps for central clearing “voluntarily” or by declining to participate in the OTC market at all.314 Regardless of whether the OTC derivatives employed by commercial end-users are more frequently submitted for central clearing as a result of the mandatory application of the Dodd-Frank Act requirements or voluntary submission in the face of uncertainty, the end result will be an increase in the cost managing risk through OTC derivatives. In the bilateral transactions that occur in the OTC derivatives market, counterparties must make determinations regarding credit support on an individualized basis based on their perception of the counterparty risk presented by the other party.315 While there was a growing trend towards the collateralization of these transactions even before the enactment of the 309. See id. 310. See Letter from Electric Power Supply Ass’n to David A. Stanwick, Sec’y, U.S. CFTC 2 (Aug. 23, 2010), available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative11sub082310espa.pdf. 311. Id. The Electric Power Supply Association (“EPSA”) explained in its comment that “[i]t is both not feasible and not beneficial for such a notification process to occur on a transaction-by-transaction basis, but rather the Commission should take a holistic approach to the financial wherewithal of an end user.” Id. EPSA proposed that the CFTC should rely on an “annual self-certification process through which an enduser’s board or governing body certifies that the end-user has the resources to ‘generally meet its financial obligations.’” Id. 312. Sam Peterson, There’s a Derivative in Your Cereal, ATLANTIC, July 29, 2010, http://www.theatlantic. com/business/archive/2010/07/theres-a-derivative-in-your-cereal/60582/. 313. See Dodd-Frank Act § 721(a)(16) (to be codified at 7 U.S.C. § 1(a)(33)); § 721(a)(21) (to be codified at 7 U.S.C. § 1(a)(49)); § 723(a)(3) (to be codified at 7 U.S.C. § 2(h)(7)). 314. Cf. Duffie, Li & Lubke, supra note 5, at 3-4 (noting that pressure from regulators related to trade confirmation backlogs and compression trades intended to reduce aggregate notional amounts outstanding was sufficient to produce a response from participants in the OTC derivatives market). 315. 2 ANTHONY C. GOOCH & LINDA B. KLEIN, DOCUMENTATION FOR DERIVATIVES 1057-58 (2002). ISDA identifies five methods counterparties can use to manage credit risk: (1) do not enter into the transaction; (2) possess sufficient financial strength to accept the risk of non-payment; (3) minimize the size of the risk through netting; (4) obtain protection against the risk from a third-party; and (5) collateralization. ISDA COLLATERAL STEERING COMM., MARKET REVIEW OF OTC DERIVATIVE BILATERAL COLLATERALIZATION

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Dodd-Frank Act, requiring corporate end-users to post collateral was still a relatively uncommon practice.316 Lending institutions, which typically function as dealers in the OTC derivatives market, generally “view the extension of credit through OTC transactions without collateral arrangements as another facet of their overall lending activities. . . .”317 Even in OTC derivatives transactions that are collateralized, counterparties often establish “Thresholds” that represent the amount of credit exposure one party is willing to accept to the other on an uncollateralized basis.318 As a result, many OTC derivatives transactions involving end-users, at least at inception, do not require any transfer of collateral between the parties.319 In contrast to the collateralization practices common in the bilateral market, CCPs routinely require counterparties to post initial and variation margin based on the size and volatility of the transaction cleared.320 For end-users subject to mandatory central clearing under the Dodd-Frank Act, the obligation to post collateral in order to satisfy margin requirements will represent a significant increase in the cost of using derivatives to manage risk.321 To illustrate the significance of the cost increase, an initial margin requirement equal to ten percent of the notional amount would force an entity to post $100,000 worth of collateral to cover a contract with a $1,000,000 notional amount.322 As Cargill explained in its testimony before the House Committee on Agriculture, a $100,000 initial PRACTICES 5 (2010), available at http://www.isda.org/c_and_a/pdf/Collateral-Market-Review.pdf [hereinafter Market Review]. 316. ISDA MARGIN SURVEY 2009 7-8 (2009), available at http://www.isda.org/c_and_a/pdf/ISDA-MarginSurvey-2009.pdf; Market Review, supra note 315, at 33-34. ISDA’s margin survey indicated that between 2003 and 2009, collateralization increased from thirty to sixty-five percent of all trades. ISDA MARGIN SURVEY 2009, supra at 7. Despite the increase in collateralization of OTC derivatives, however, the percentage of transactions with corporate counterparties that include collateral agreements remains relatively small. Id. at 8, chart 4.2. 317. Market Review, supra note 315, at 33. Parties may also elect not to implement collateral agreements because of (1) the “operational complexity associated with collateralization;” (2) the inability of a counterparty to post adequate forms of collateral due to liquidity constraints; (3) external constraints such as negative pledge provisions in other credit agreements, and (4) cost. Id. at 33-34. As explained by the European Association of Corporate Treasurers, non-financial companies using derivatives to hedge business risks “account for only a small portion of derivative[s] outstanding[ ]. Individually or collectively, they do not represent a systemic risk. Taking corporate credit is usually part of a bank’s business.” Corporate Concerns About OTC Derivative Regulation, EUR. ASS’N OF CORPORATE TREASURERS, Sept. 2009, at 3, http://www.treasurers.org/ system/files/otccorporateconcerns0909.pdf. 318. 2 GOOCH & KLEIN, supra note 315, at 1069. 319. See Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 27 (2009) (testimony of Mr. Richard B. Hirst, Senior Vice President and General Counsel, Delta Air Lines, on behalf of Air Transport Association). Mr. Hirst noted that “most fuel hedging that airlines do is done on the swaps market in nonstandardized ways under conditions in which it is not necessary to post initial margin.” Id. ISDA explains that a Threshold is “similar to the idea of extending a loan—both are forms of unsecured credit exposure.” Market Review, supra note 315, at 43. 320. See Market Review, supra note 315, at 43 (contrasting Threshold with Independent Amount); supra text accompanying notes 162 through 166. 321. See HASENPUSCH, supra note 150, § 2.1.2.2.1.3, n.83 (noting that “the challenge faced by CCPs is to set the initial margin at a level sufficient to provide protection against all but the most extreme and predictable price moves, but not so high as to damage market liquidity or discourage the use of the CCP.”). 322. Hearing To Review Proposed Legislation By the U.S. Department of the Treasury Regarding the Regulation of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 30 (2009) (testimony of Jon Hixson, Director of Federal Government Relations, Cargill, Inc.).

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margin requirement is “major change for a small player.”323 In addition to initial margin, commercial end-users subject to central clearing will also need to anticipate and be capable of satisfying any amount of variation margin that the CCP may demand.324 To accomplish this, it will be necessary for the end-user to either maintain lines of credit or hold large amounts of capital in reserve—both of which are costly propositions.325 Further exacerbating the potential impacts of the Dodd-Frank Act’s definitional provisions and the uncertain application of the end-user exception on the OTC derivatives market, are the costs associated with the Act’s capital and margin requirements for uncleared swaps.326 The possible negative consequences of the margin requirements on OTC derivatives and risk management are two-fold. First, the provisions will impose additional burdens on end-users captured by the Swap Dealer and Major Swap Participant definitions even when the derivative type is not subject to mandatory central clearing.327 Second, because the margining requirements, as enacted, apply to all uncleared swaps, end-users are likely to incur significant additional costs in all their OTC derivative transactions even when the end-user exemption from mandatory central clearing applies.328 Concerns related to the application of the Dodd-Frank Act’s margin provisions to endusers stem from the Conference Committee’s decision to eliminate the requirement’s express end-user exception from the final act.329 Had the provision remained in the enacted version of the legislation, initial and variation margin requirements established by the CFTC and applicable to Swap Dealers and Major Swap Participants would not have applied when one of the counterparties was not a Swap Dealer or Major Swap Participant.330 The legislative history that accompanied the passage of the Dodd-Frank Act explains that despite the absence of the exception, CFTC and SEC “rules may not be set in a way that requires the imposition of margin requirements on the end user side of a lawful transaction.”331 As enacted, however, the CFTC and SEC are free to impose initial and variation 323. Id. 324. Corporate Concerns About OTC Derivative Regulation, supra note 317, at 2; see A Trillion Unintended Consequences, WALL ST. J., July 6, 2010. ISDA notes that that an initial margin requirement equal to one percent of the notional amount of the contract is “a typical level.” Press Release, Int’l Swaps & Derivatives Ass’n, supra note 234. Although the percentage suggested by ISDA figure is substantially smaller than the initial margin figure stated by Mr. Hixon, the aggregate effect is still dramatic. According to ISDA, if a one percent initial margin requirement were applied to all derivatives contracts entered into by end-users, “US companies would face a $213 billion collateral requirement.” Id. 325. Hearing To Review Proposed Legislation by the U.S. Department of the Treasury Regarding the Regulation of Over-the-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. 34 (2009) (statement of Rep. Randy Neugebauer, H. Agriculture Comm.); Corporate Concerns About OTC Derivative Regulation, supra note 317. 326. See Peterson, supra note 312. 327. See Dodd-Frank Act, Pub. L. No. 111-203, § 731, 124 Stat. 1376, 1704-06 (to be codified at 7 U.S.C. § 4s(e)(1)). 328. See id.; Press Release, Int’l Swaps & Derivatives Ass’n, supra note 234. 329. A Trillion Unintended Consequences, supra note 324. 330. Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong. (adding 7 U.S.C. § 4s(e)(8)) (conference base text). 331. 156 CONG. REC. H5248 (June 30, 2010) (letter from Sen. Dodd & Sen. Lincoln to Rep. Frank & Rep. Peterson). Discussing the value of the legislative history, an article published in the Wall Street Journal stated: “So various Democrats have offered to write letters explaining to regulators that they never intended for these onerous rules to apply to commercial end users. As if a note on Congressional letterhead would

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margin requirements that apply to the Swap Dealers and Major Swap Participants even when their counterparty is an end-user.332 Effectively, the margin requirements of the Dodd-Frank Act may eliminate the ability of market participants to make independent determinations regarding when to require collateral for a transaction. Instead, just as if the counterparties submitted the contract for central clearing, each end-user may find itself subject to posting initial and variation margin to cover the OTC derivatives that it enters into.333 According to ISDA, these margining requirements could cost corporate end-users as much as $1 trillion.334 Even if the margin requirements do not apply directly to the end-users, imposing the requirements on Swap Dealers and Major Swap Participants even when the counterparty is an end-user will still increase the cost of the derivative for the end-user.335 As the Electric Power Supply Association (EPSA) explained in a letter to the CFTC, “[i]f the [CFTC] imposes a margin requirement on financial entities when they are counterparties to end user swap transactions, it would simply be a back-door way of imposing this cost on the end user.”336 Considering the importance of OTC derivatives in risk management programs, the increased uncertainty and cost that will result from mandatory central clearing and margining requirements will have significant negative repercussions on end-users, their customers, and the economy. Specifically, as the cost and uncertainty associated with entering into OTC derivatives transactions increases, it will become more expensive for endusers to manage risk. The increase in expense may “lead to higher costs for consumers and lead some end-users to question the value or benefit of these important risk management tools going forward.”337 If end-users elect not to hedge however, they will remain subject to the risks that they would otherwise avoid through OTC derivatives.338 Ultioverride a statute passed by Congress and signed by the President. Expect lawsuits galore.” A Trillion Unintended Consequences, supra note 324. 332. See Dodd-Frank Act § 731(to be codified at 7 U.S.C. § 4s(e)(2)). 333. Press Release, Int’l Swaps & Derivatives Ass’n, supra note 234; see supra text accompanying notes 161 through 168. 334. Press Release, Int’l Swaps & Derivatives Ass’n, supra note 234. According to ISDA, domestic companies would be required to post approximately $266 billion in initial margin and $140 billion in variation margin. The remainder of the $1 Trillion comes from the companies’ need to maintain additional liquidity in order to cover potential future exposure with their counterparties. Id. Addressing ISDA’s findings, Rep. Bachus argued that “[i]nstead of allocating precious resources to hire more people or increase wages, commercial companies will have to post capital every time they enter into a derivatives contract to hedge against legitimate business risk.” 156 CONG. REC. H5253 (June 30, 2010). 335. See 156 CONG. REC. H5248 (June 30, 2010) (statement of Rep. Peterson). Rep. Peterson noted that “regulators [have] no authority to impose margin requirements on anyone who is not a swap dealer or a major swap participants” and that while they “do have authority over the dealer or MSP side of a transaction, we expect the level of margin required will be minimal.” Id. Rep. Frank, agreeing with Rep. Peterson, stated that the margining requirements “are going to be done, I think, with an appropriate touch.” Id. (statement of Rep. Frank). 336. Comment from EPSA to David A. Stanwick, Sec’y, U.S. CFTC 2 (Aug. 23, 2010), available at https:// docs.google.com/leaf?id=1aDkt-lrPJaENefhD0-RYiDiFEGwFpI4czrA0u6kHvjFWIFPZsfh_mLG23ITH& hl=en. The National Council of Farmer Cooperatives echoed the position of the EPSA: “If initial and variable margin requirements are imposed in addition to capital requirements on uncleared swaps with dealers and [Major Swap Participants], higher transaction costs will be passed on to end-users.” Over-the-Counter Derivatives, Nat’l Council of Farmer Cooperatives to the U.S. CFTC 1, available at http://www.cftc.gov/ucm/ groups/public/@swaps/documents/dfsubmission/dfsubmission_091410_8_0.pdf. 337. Comment from EPSA to David A. Stanwick, Sec’y, supra note 336. 338. Corporate Concerns About OTC Derivative Regulation, supra note 317; Peterson, supra note 312.

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mately, as the utility of OTC derivatives decline because of uncertainty and higher costs, the parties likely to suffer the most are the customers.339 Companies that absorb the higher cost of risk management through OTC derivatives will pass at least part of the expense to the customer through higher prices for goods and services while covering the remainder by diverting resources away from other productive activities.340 Alternatively, end-users that decide to operate without hedging risk will subject their customers to greater and more frequent pricing volatility while seeking out other ways of eliminating risk.341

V. Conclusion During the legislative process, stakeholders and legislators largely agreed that regulatory reform in the OTC derivatives market was appropriate, but differed on the manner in which the reform should proceed.342 Government agencies, such as the Department of Treasury, the CFTC, and the SEC, generally favored proposals that gave government officials significant authority to intervene in the operation of the OTC derivatives market.343 In the legislation enacted, these administrative agencies largely prevailed—the final Dodd-Frank Act grants the CFTC and the SEC considerable discretion and authority to promulgate rules concerning the details of the mandatory central clearing and margining requirements.344 Whether the OTC derivatives provisions of the Dodd-Frank Act will achieve the goals of ensuring greater transparency and financial stability, however, is unclear. As Professor Hu explained to the Senate Committee on Banking, Housing and Urban Affairs, 339. See Over-the-Counter Derivatives, supra note 336. (“Furthermore, if the costs are prohibitively high, the ability of farmer cooperatives to provide their producers risk management tools, such as forward pricing, will be diminished.”); Phillips, supra note 18 (noting the Dodd-Frank Act may force agricultural cooperatives to stop offering hedging opportunities to customers and that they may be forced to change their operations if they are unable to hedge their own risks). 340. Peterson, supra note 312. 341. Id.; A Trillion Unintended Consequences, supra note 324. As an example, the Wall Street Journal suggests that a company could eliminate the risk associated with foreign exchange rates by moving jobs to the country where the purchases occur so that its revenues and expenses are in the same currency. Id. 342. See generally, e.g., Hearing To Review Proposed Legislation By The U.S. Department Of The Treasury Regarding The Regulation Of Over-The-Counter Derivatives Markets Before the H. Comm. on Agriculture, 111th Cong. (2009) (providing differing views on regulatory reform from members of the House Committee on Agriculture and a variety of market participants, including ISDA, the CME Group, Cargill Inc., the National Rural Electric Cooperatives Association, the Air Transport Association, and the Working Group of Commercial Energy Firms, among others). 343. See Hearing on OTC Derivatives Reform and Addressing Systemic Risk: Hearing Before the Sen. Comm. on Agriculture, Nutrition, and Forestry, 111th Cong. (2009) (written testimony of Timothy F. Geithner, Treasury Secretary of the United States); See also Over-The-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks, Hearing Before the S. Comm. on Securities, Insurance & Investment of the Sen. Comm. on Banking, Housing, & Urban Affairs, 111th Cong. (2009) (statement of Mary L. Schapiro, Chairman, SEC); Over-The-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks, Hearing Before the S. Comm. on Securities, Insurance & Investment of the Sen. Comm. on Banking, Housing, & Urban Affairs, 111th Cong. (2009) (statement of Gary Gensler, Chairman, CFTC). 344. See Gary Gensler, Chairman, U.S. CFTC, Remarks Before ISDA Regional Conference (Sept. 16, 2010), http://www.cftc.gov/PressRoom/SpeechesTestimony/ChairmanGaryGensler/opagensler-50.html.

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[I]n a financial crisis, especially one with deep derivatives roots, it is too easy to focus solely on the dark side of OTC derivatives. Directly encouraging regulated financial institutions to migrate to exchange-traded derivatives has benefits as well as costs. Similarly, the differing regulatory regimes for “standardized” and “customized” OTC derivatives will trigger differing burdens. As to these and other decisions, careful consideration of the net impact of regulatory efforts will be necessary.345 Unfortunately, as this article explains, the inclusion of mandatory central clearing provisions in the Dodd-Frank Act will not guarantee greater stability or transparency. On the contrary, the evidence suggests that the imposition of requirements that force counterparties to clear OTC derivatives transactions through a CCP may actually increase systemic risk and the cost of risk management opportunities for end-users. Arguably, the legislative process focused too heavily on the “Jurassic Park gone awry” vision of the OTC derivatives market without sufficiently considering the benefits that OTC derivatives provide.346 In their letter to Representatives Frank and Peterson, however, Senators Dodd and Lincoln asserted that “a consistent Congressional directive . . . has been to protect end users from burdensome costs associated with margin requirements and mandatory clearing.”347 As one analyst speculated though, “because lawmakers did not appreciate that the impact would reach far beyond Wall Street,” some parts of the law “afford[ ] regulators with no choice but to take a heavy-handed approach wherein negative unintended consequences are unavoidable.”348 As such, the ability of the CFTC and SEC to avoid imposing legal uncertainty and increased cost on end-users, and by extension harming the OTC derivatives market, seems doubtful. Furthermore, the vesting of authority under the Dodd-Frank Act with the CFTC and the SEC creates concerns of international proportion that the regulatory entities may be unable to adequately address. Clearly, as the G-20 nations indicated following the Toronto Summit, there is strong international support for mandatory central clearing of OTC Derivatives.349 In the G-20 Toronto Summit Declaration, the G-20 nations reaffirmed their “commitment to trade all standardized OTC derivatives contracts on exchanges or electronic trading platforms, where appropriate, and clear through central counterparties . . . by end-2012 at the latest.”350 The implementation of the Dodd-Frank 345. Over-the-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks, Hearing Before the S. Comm. on Securities, Insurance & Investment of the Sen. Comm. on Banking, Housing, & Urban Affairs, 111th Cong. (2009) (statement of Henry Hu, Allan Shivers Chair in the Law of Banking and Finance, University of Texas School of Law). 346. See id. Professor Hu indicates that two contrasting visions influence the debate over the regulation of derivatives. The first vision, “a financial Jurassic Park,” consists of “financial scientists” developing new derivatives products that “are invented, introduced, and then evolve and mutate.” Id. Eventually, the products “destroy their creators in the wholesale capital market” and then “escape and wreak havoc in the retail market and in economies worldwide.” Id. The second vision, which conjures images “of the soothing, perfect hedges found in a formal English or Oriental garden,” focuses on “order—the sanctuary from an otherwise chaotic universe—made possible by financial science.” Id. 347. 156 CONG. REC. H5248 (June 30, 2010) (letter from Sen. Dodd & Sen. Lincoln to Rep. Frank & Rep. Peterson). 348. Peterson, supra note 312. 349. The G-20 Toronto Summit Declaration, G-20, 19 (June 2010), http://www.g20.org/Documents/ g20_declaration_en.pdf. 350. Id.

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Act as a component of international financial regulatory reform, however, will require global coordination and consistency that may not be possible.351 As inconsistencies in the implementation of international regulation emerge, particularly with the scope of the entities and transactions subject to regulation, there exists the potential for regulatory arbitrage between the requirements imposed by different jurisdictions.352 If a system of mandatory central clearing is not the solution to the problems that the OTC derivatives market faces though, then what is? Even before the recent financial crisis and the ensuing uptick in pressure for legislative reform, industry and regulatory stakeholders were working to improve the stability of the OTC derivatives market.353 The changes that regulators and market participants implemented, both before and after the crisis, continue to foster greater stability within the financial system. For example, the DTCC Trade Information Warehouse, a data repository for credit derivative transactions, promotes transparency by permitting regulators, along with the public, to review the details of the CDS market.354 Likewise, the execution of portfolio compression trades dramatically reduces the total notional amount of CDS contracts outstanding and thereby decreases counterparty risk.355 In fact, even in the absence of a legislative mandate, major OTC derivatives dealers were committing to submit a greater portion of their eligible OTC derivatives transactions to CCPs for clearing.356 Through voluntary, rather than 351. See Jill Sommers, Comm’r, U.S. CFTC, Address at Georgetown University: Financial Reform, What’s Next? A U.S. and Global Perspective Examining the Opportunities and Challenges Ahead (Oct. 26, 2010), available at http://www.cftc.gov/PressRoom/SpeechesTestimony/opasommers-11.html. 352. Implementing OTC Derivatives Market Reform, supra note 147, at 28. 353. Duffie, Li & Lubke, supra note 5, at 2. Obviously, changes made before the financial crisis were insufficient to prevent the crisis. However, some changes were instrumental in mitigating the crisis’ severity. For example, because of pressure exerted by the Federal Reserve Bank of New York, dealers eliminated the backlog in unconfirmed trades before the failure of Lehman Brothers occurred. As a result, “of the over 900,000 OTC derivative trades on Lehman’s books, only one transaction has been challenged due to an open confirmation.” Id. 354. Id. The DTCC Trade Information Warehouse is a step toward the “informational clearinghouse” suggested by Professor Hu in a Yale Law Journal article published in 1993. See Over-The-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks, Hearing Before the S. Comm. on Securities, Insurance & Investment of the Sen. Comm. on Banking, Housing, & Urban Affairs, 111th Cong. (2009) (statement of Henry Hu, Allan Shivers Chair in the Law of Banking and Finance, University of Texas School of Law). In his article, Professor Hu argued that the establishment of a central, comprehensive, and continuously updated trade database of “OTC derivatives, broken down by genus, family, and species,” would “contribute to solving both regulator and banker information failures.” Hu, supra note 72, at 1505-07. Ultimately, the trade data repository concept was captured as a component of the Dodd-Frank Act: “Each swap (whether cleared or uncleared) shall be reported to a registered swap data repository.” Dodd-Frank Act, Pub. L. No. 111-203, § 727, 124 Stat. 1376, 1697 (2010) (to be codified at 7 U.S.C. § 2(a)(13(G)). 355. Duffie, Li & Lubke, supra note 5, at 2. In a compression trade, groups of counterparties identify and cancel redundant positions, replacing them with individual trades that reflect the net economic result of the original positions. See id. at 27. Between January 2008 and March 2010, compression trades reduced the notional amount outstanding in CDS market from over $60 trillion to around $26 trillion. Id. at 4. By shrinking the total notional amount outstanding, compression trades in the CDS market reduce the benefits that the central clearing of CDS transactions can achieve. Duffie & Zhu, supra note 255, at 3. 356. Press Release, Fed. Reserve Bank of N.Y., Market Participants Commit to Expand Central Clearing for OTC Derivatives (Sept. 8, 2009), available at http://www.newyorkfed.org/newsevents/news/markets/2009/ ma090908.html. In September 2009, the senior management of fifteen dealers committed to submit ninety percent of new eligible interest rate derivative trades and ninety-five percent of new eligible CDS trades for clearing by December of 2009. The commitment was made by Bank of America-Merrill Lynch; Barclays Capital; BNP Paribas; Citigroup; Commerzbank AG; Deutsche Bank AG; Goldman, Sachs & Co.; HSBC

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compulsory, clearing, market participants maintain the ability to exercise discretion in order to strike the optimal balance between the costs and benefits of clearing.357 While none of these pre-Dodd-Frank Act changes alone was likely to guarantee stability within the financial system, they do demonstrate the gains that regulators and key market participants could have achieved through collaboration. Perhaps through sustained cooperation—and gentle regulatory pressure when necessary—stakeholders could have found the right combination of tools that promoted financial stability, reduced systemic risk, and ensured the continued development and availability of OTC derivatives.358

Group; JP Morgan Chase; Morgan Stanley; The Royal Bank of Scotland Group; Societ ´ e´ Gen ´ erale; ´ UBS AG; and Wachovia Bank, N.A. Letter from Bank of America-Merrill Lynch et al., to Hon. William C. Dudley, President, Federal Reserve Bank of New York (Sept. 8, 2009), available at http://www.newyorkfed.org/newsevents/news/markets/2009/ma090908c.pdf. 357. Cf. Letter from Bank of America-Merrill Lynch et al., to Hon. William C. Dudley, President, Federal Reserve Bank of New York, supra note 356. 358. Sommers, supra note 351 (noting that one of the challenges associated with international regulatory reform of the OTC market is that some “jurisdictions seem to feel that this type of market evolution is better suited to incentives rather than prescriptive rules”).

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Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court JOHN F. MURPHY*

I. Introduction and Brief Background In the year 2000, I wrote an article titled “The Quivering Gulliver: U.S. Views on a Permanent International Criminal Court,” which appeared in this journal1 as part of a symposium on the International Criminal Court (ICC).2 My 2000 article examined, inter alia, U.S. concerns (fears) about the International Criminal Court and suggested that, at least to some extent, the U.S. concerns were exaggerated, although the article acknowledged the existence of some valid U.S. concerns.3 In light of developments over the last decade, especially the ICC’s Review Conference in Kampala, Uganda from May 31-June 11, 2010,4 it seems to be an appropriate time to reexamine U.S. views on the Court and the outlook for the future of the Court. Before doing so, however, we should briefly recall the environment that existed at the time my earlier article was written. Then, despite earlier strong statements by President Clinton and other members of his administration in support of a permanent international criminal court,5 the United States joined six other states in voting against the Rome Statute, as against 120 in favor and 21 abstentions.6 After the vote, Ambassador David Schef* Professor of Law, Villanova University and forthcoming recipient of the 2011 Louis B. Sohn Award for Public International Law from the American Bar Association International Law Section. I am grateful for the research assistance of Carolyn (Carly) Studer, a third-year student at the Villanova University School of Law, and of Lori Strickler, a reference librarian at the Villanova University School of Law. 1. See John F. Murphy, The Quivering Gulliver: U.S. Views on a Permanent International Criminal Court, 34 INT’L LAW. 45 (2000). 2. Michael Bachrach, The Protection and Rights of Victims Under International Criminal Law, 34 INT’L LAW. 7 (2000); Kenneth S. Gallant, The Role and Powers of Defense Counsel in the Rome Statute of the International Criminal Court, 34 INT’L LAW. 21 (2000); Jelena Pejic, The ICC Statute: An Appraisal of the Rome Package, 34 INT’L LAW. 65 (2000). 3. Murphy, supra note 1, at 45-46. 4. Press Release, ICC, Review Conference of Statute Concludes in Kampala (June 12, 2010), available at http://www.icc-cpi.int/Menus/ASP/ReviewConference/PressReleaseRC/Press+Releases+2010.htm. 5. See Murphy, supra note 1, at 45 n.2. 6. According to an excellent article by Stephen Eliot Smith, there is still some doubt as to who the other six dissenting states were because the vote itself was not recorded. Since they publically explained the reasons for their dissenting votes, there is no doubt that China, Israel, and the United States voted against the Statute. Otherwise, various authors and commentators have made inconsistent claims as to who the other dissenting

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fer, the lead American negotiator, declared that “the United States will not sign the treaty in its present form.”7 On December 31, 2000, the last day on which the Statute was open for signature, the lame duck Clinton administration signed the Rome Statute.8 President Clinton stated that being a signatory would provide the United States with a platform from which it could more effectively negotiate modifications to correct the “significant flaws” of the ICC.9 In hearings held following the Rome conference, many of the views expressed bordered on the apocalyptic.10 For example, Senator Jesse Helms, then chairman of the Senate Foreign Relations Committee, stated that the Rome Statute would empower the court “to sit in judgment of United States foreign policy” and would constitute “a very real threat to our military personnel and to our citizens and certainly to our national interests.”11 John R. Bolton, then Senior Vice President of the American Enterprise Institute, claimed that “the Administration’s own naive support for the concept of an ICC has now left the United States in a far weaker position internationally than if we had simply declared our principled opposition to the very concept in the first place.”12 He further contended that “[o]ur main concern should be for the President, the Cabinet officers who comprise the National Security Council, and other senior civilian and military leaders responsible for our defense and foreign policy. They are the real potential targets of the politically unaccountable prosecutor. . . .”13 Senator Rod Grams expressed the hope “that now the Administration will actively oppose this court to make sure that it shares the same fate as the League of Nations and collapses without U.S. support, for this court truly I believe is the monster and it is the monster that we need to slay.”14 Senator Grams’ hope that the George W. Bush administration would actively oppose the International Criminal Court was fully realized, but not his desire that the Court would suffer the same fate as that of the League of Nations because despite the active indeed fervent U.S. opposition to the Court, it did not collapse. Indeed, it is arguable that the many steps the United States took to undermine the Court caused its supporters to redouble their efforts to ensure that the Court would be operational and able to carry out its mandate. Time and space considerations preclude an extended discussion of the many steps taken by the Bush administration in opposition to the Court, but a brief summary of the primary steps may provide some context for discussion of later developments. Early on in President Bush’s first term, the United States withdrew from the ICC negotiations.15 On May states were. See Stephen Eliot Smith, Definitely Maybe: The Outlook for U.S. Relations with the International Criminal Court During the Obama Administration, 22 FLA. J. INT’L L. 155, 160 n.38 (2010). 7. See David J. Scheffer, The United States and the International Criminal Court, 93 AM. J. INT’L L. 12, 21 (1999). 8. Steven Lee Myers, U.S. Signs Treaty for World Court to Try Atrocities, N.Y. TIMES, Jan. 1, 2001, http:// www.nytimes.com/2001/01/01/world/us-signs-treaty-for-world-court-to-try-atrocities.html. 9. Id. 10. Is a U.N. International Criminal Court in the U.S. National Interest? Hearing Before the Subcomm. on Int’l Operations of the S. Comm. on Foreign Relations, 105th Cong. (1998). 11. Id. at 6. 12. Id. at 48. 13. Id. 14. Id. at 4. 15. See BRUCE BROOMHALL, INTERNATIONAL JUSTICE AND THE INTERNATIONAL CRIMINAL COURT 178 (2003).

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6, 2002, John R. Bolton, who had become the Undersecretary of State for Arms Control and International Security for the Bush administration, wrote to U.N. Secretary-General Kofi Annan by letter that the United States did not intend to ratify the Statute and that therefore “the United States has no legal obligations arising from its signature on December 31, 2000.”16 Perhaps the most openly hostile act toward the Court taken by the United States was the adoption in August 2002 of the American Servicemembers’ Protection Act (ASPA).17 The ASPA prohibited any U.S. government agency, including courts, from cooperating with or providing assistance to the ICC.18 The Act also prohibited the United States from providing military aid to ICC member states, subject to certain specified exceptions,19 and permitted the President to use “all means necessary and appropriate” to free any American national being detained by or on behalf of the ICC.20 The last provision was sarcastically dubbed the “Hague Invasion Act” by its critics, but it received broad bipartisan support in Congress.21 In addition to enacting domestic legislation designed to handicap the ICC in its operations, the United States sought a resolution in the U.N. Security Council that would permanently guarantee immunity from ICC prosecution for all U.N. peacekeepers. This effort faced fierce opposition from other member states of the Council, but after the United States vetoed a resolution that would have renewed the mandate of the U.N. mission in Bosnia and Herzegovina because it did not exempt peacekeepers from ICC jurisdiction, the Council adopted a resolution on July 12, 2002, that imposed a one-year exemption.22 A year later, the immunity was renewed for another twelve months.23 But U.S. efforts to renew the immunity in 2004 failed in the face of the outrage expressed over the photographs of American soldiers committing prisoner abuse in Abu Ghraib prison in Iraq.24 Also at the international level, the United States pursued the negotiation and conclusion of bilateral immunity agreements (BIAs), also known as “article 98 agreements” after article 98 of the Rome Statute. Article 98 of the Statute prohibits the ICC from demanding the extradition of a person if the request “would require the requested State to act inconsistently with its obligations under international agreements pursuant to which the con16. Letter from John R. Bolton, Undersec’y of State for Arms Control and Int’l Sec., U.S. State Dep’t, to Kofi Annan, U.N. Sec’y-Gen. (May 6, 2002), available at http://articles.cnn.com/2002-05-06/us/ court.letter.text_1_letter-treaty-rome-statute?_s=PM:US. 17. American Servicemembers’ Protection Act, 22 U.S.C. §§ 7421-33 (2002). 18. Id. §§ 7423, 7425. 19. Pub. L. No. 107-206, § 2007, 116 Stat. 820, 905 (2002) (repealed 2008). Exceptions were made for NATO member states, major non-NATO allies (including Argentina, Australia, Egypt, Israel, Japan, Jordan, New Zealand, and South Korea), and Taiwan. The President was also authorized to waive the prohibition if the country entered into a bilateral immunity agreement with the United States. 20. 22 U.S.C. § 7427. 21. See Smith, supra note 6, at 162-63. 22. Id. The resolution adopted was S.C. Res. 1422, U.N. Doc. S/RES/1422 (July 12, 2002). The Rome Statute, in Article 16, permits the Security Council to use its U.N. Charter Chapter VII powers to defer investigation or prosecution of any case for a renewable period of 12 months. Rome Statute of the International Criminal Court art. 16, July 17, 1998, U.N. Doc. A/CONF.183/9*, available at http://untreaty.un.org/ cod/icc/statute/romefra.htm. 23. S.C. Res. 1487, U.N. Doc. S/RES/1487 (June 12, 2003). 24. Smith, supra note 6, at 163.

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sent of a sending State is required to surrender a person of that State to the Court.”25 Under the typical BIA agreement negotiated by the United States, the other party to the agreement agrees never to arrest a U.S. national on an ICC warrant or extradite him or her to the ICC for trial without U.S. consent.26 By January 2010, ninety-six of these agreements were in force.27 Interestingly, the Bush administration’s policy toward the ICC moderated considerably near the end of its first term and “all but died out during the second Bush term.”28 Stephen Eliot Smith has aptly described this abrupt demarche in attitude and actions by the Bush administration: All three strategies in the administration’s three pronged attack were somewhat blunted during the second term. First, at no time during the second term did the United States request the S.C. to institute a permanent or temporary blanket ICC immunity for U.N. Peacekeepers. Second, the provision of ASPA that prohibited U.S. military aid from being provided to an ICC Member State was repealed in 2008. Finally, the State Department slowed, though did not cease, bilateral immunity negotiations: the vast majority of BIAs were negotiated and concluded during the first Bush term. The Administration’s more restrained approach was most evident in 2005, when the United States opted not to veto S.C. Resolution 1593, which referred the situation in Darfur, Sudan to the ICC Prosecutor in accordance with the procedure set out in article 13 (b) of the Rome Statute. (The United States agreed to abstain from voting on the resolution once a clause was inserted that guaranteed exclusive jurisdiction to the sending state if any non-Sudanese national committed ICC crimes while acting as a peacekeeper in Sudan). By 2006, senior U.S. military officials appeared to be engaging in a “fresh assessment” of the ICC and its potential.29 In the autumn of 2008, itself also believing in the desirability of a “fresh assessment” of the ICC, the American Society of International Law convened a task force to examine the U.S. relationship with the ICC.30 The task force’s report, U.S. Policy Toward the International Criminal Court: Furthering Positive Engagement, was published in March 2009 by the American Society of International Law (ASIL).31 As the Foreword to the Report by Lucy F. Reed, President of the American Society of International Law, noted: “The Task Force on U.S. Policy Toward the ICC studied the Court’s work to date, reviewed current U.S. policy on the Court and developed recommendations to inform that policy. The advent of the new administration in 2009 and the ICC Review Conference in 2010 gives the Task Force’s work added significance and timeliness.”32 25. Id. 26. Id. 27. Id. at 164. 28. Id. 29. Id. at 164-65. 30. The co-chairs of the task-force were William H. Taft, IV and Patricia Wald. The other members of the task-force were Mickey Edwards, Michael A. Newton, Sandra Day O’Connor, Stephen M. Schwebel, David Tolbert, and Ruth Wedgwood. See U.S. Policy Toward the International Criminal Court: Furthering Positive Engagement, AM. SOC’Y OF INT’L LAW, i (2009), http://www.asil.org/files/ASIL-08-DiscPaper2.pdf. 31. Id. 32. Id.

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There will be further references to the ASIL Report later in this article. Now, however, it is time to turn to the Review Conference of the Rome Statute of the ICC, and the implications of the extraordinary developments at that conference for U.S. policy toward the Court and for the future of the Court itself.

II. The Review Conference: U.S. Concerns Greatly Abated, the Future of the Court Made More Uncertain Article 5 (1) of the Rome Statute provides that the “jurisdiction of the Court shall be limited to the most serious crimes of concern to the international community as a whole.”33 These are listed as genocide, crimes against humanity, war crimes, and aggression.34 Paragraph 2 of article 5, however, puts limitations on the Court’s jurisdiction over aggression and states in pertinent part that “[t]he Court shall exercise jurisdiction over the crime of aggression once a provision is adopted in accordance with articles 121 and 123 defining the crime and setting out the conditions under which the Court shall exercise jurisdiction with respect to this crime.”35 For its part, article 123 (1) provides in pertinent part that “[s]even years after the entry into force of this Statute the Secretary-General of the United Nations shall convene a Review Conference to consider any amendments to this Statute. Such review may include, but is not limited to, the list of crimes contained in article 5.”36 In an ASIL Insight David Scheffer, who was U.S. Ambassador at Large for War Crimes Issues from 1997-2001 and currently is the Mayer Brown/Robert A. Helman Professor of Law, and Director of the Center for International Human Rights at Northwestern University School of Law, wrote that the Kampala Review Conference had “achieved a historic milestone in the development of international criminal law. For the first time since the Nuremberg and Tokyo military tribunals following World War II, the prospect now exists that individual leaders who plan and launch military aggression will be held accountable before an international court of law.”37 With the greatest respect for Ambassador Scheffer, I view the outcome of the developments at Kampala in an entirely different light. In my view, because of developments at Kampala, there now exists little if any prospect those individual leaders who plan and launch military aggression will be held accountable before an international court of law. The reason for this is that such leaders are likely to be outside the International Criminal Court’s jurisdiction, either because the states they represent are non-parties to the Rome Statute or even if their states are parties, they have opted out of the Court’s jurisdiction over the new crime of aggression. At the Kampala conference a major issue involved the different means of referring or initiating an investigation of the crime of aggression before the Court. As Scheffer notes, during the negotiations an important distinction arose between, “on the one hand, a State Party’s referral of a situation of aggression (Article 13 (a) or the Prosecutor’s initiation of an investigation of aggression (Article 13(c)) and, on the other hand, the Security Coun33. Rome Statute of the International Criminal Court, supra note 22, art. 5. 34. Id. 35. Id. 36. Id. art. 123. 37. See David Scheffer, States Parties Approve New Crimes for International Criminal Court, 14 AM. SOC’Y OF INT’L LAW 1 (June 22, 2010), available at http://www.asil.org/files/insight100622pdf.pdf.

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cil’s referral of a situation of aggression (Article 13(b))”.38 If the Security Council refers a situation of aggression to the Court pursuant to a United Nations Charter Chapter VII resolution, it does not matter whether a state is a party to the Rome Statute or not, nor whether it has opted out of the Court’s jurisdiction over the crime of aggression. Its nationals can be subject to investigation and prosecution for the crime of aggression.39 In sharp contrast, if a State Party refers a situation of aggression or the Prosecutor initiates an investigation of aggression, the Court must determine whether the crime of aggression arises from an act of aggression by a State Party that previously declared to the Registrar of the Court that it does not accept the Court’s jurisdiction on aggression.40 If the State Party issued such a declaration, the Court may not proceed against the nationals of that State Party. Similarly, and crucially, the Court cannot exercise jurisdiction over the crime of aggression when committed by a non-party State’s nationals or on a nonparty State’s territory.41 As previously noted in this article, the United States has consistently followed a policy of ensuring that no U.S. national will ever be tried before the International Criminal Court. Other key non-party States, such as China, India, Indonesia, Israel, and Russia have followed a similar policy. Hence, the provision excluding non-party States from the Court’s jurisdiction over the crime of aggression represents a major victory for these key non-party States. As Scheffer points out, this corrects “at least for the crime of aggression, the apparent drafting flaw in Article 121(5) [of the Rome Statute] in which only a State Party can declare its non-acceptance of a new crime to the Rome Statute.”42 It is important to note, however, that only those key non-party states that are permanent members of the U.N. Security Council can fully ensure that their nationals will never be subject to the Court’s jurisdiction over the crime of aggression.43 This is, of course, because only permanent members of the Council can veto a resolution that would refer a situation allegedly involving the crime of aggression to the Court. Other key non-party states would, at least theoretically, be vulnerable to such a Security Council resolution. To be sure, the adoption of such a resolution would be highly unlikely. One reason the adoption of such a Security Council resolution is highly unlikely is the highly complex and convoluted procedures adopted at Kampala governing the entry into force of the amendments on aggression. After a contentious debate over whether the amendments on aggression would enter into force in accordance with Article 121(5) of the 38. Id. 39. Review Conference of the Rome Statute, June 11, 2010, The Crime of Aggression, Resolution RC/Res.6, Annex III, (2) (June 28, 2010), available at http://www.icc-trialcompetition.org/cms/images/Crime%20of%20 Aggression%20Definition.pdf [hereinafter RC/Res. 6]. 40. Id. Annex I, art. 15 bis (4). 41. Id. Annex I, art. 15 bis (5). 42. Scheffer, supra note 37, at 2. Article 121(5) of the Rome Statute reads: “Any amendment to articles 5 of this Statute shall enter into force for those States Parties which have accepted the amendment one year after the deposit of their instruments of ratification or acceptance. In respect of a State Party which has not accepted the amendment, the Court shall not exercise its jurisdiction regarding a crime covered by the amendment when committed by that State Party’s nationals or on its territory.” Rome Statute, supra note 22, art. 121(5). 43. RC/Res. 6, Annex III, (2).

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Rome Statute or Article 121(4),44 delegations in the Review Conference agreed that the amendments on aggression would enter into force in accordance with Article 121(5) of the Rome Statute. They did so, however, with modifications to the normal procedures of Article 121(5). As David Scheffer explains, the procedures of Article 121(5) normally would have meant that the amendments on aggression would come into force for a State Party one year following the ratification or acceptance of the amendments by that State Party: However, the amendments for new Articles 15 bis and 15 ter modify the Article 121(5) procedures with two critical and unusual conditions: 1) the Court may exercise jurisdiction only over crimes of aggression committed one year after the ratification or acceptance of the amendments by thirty States Parties; and 2) the Court may exercise jurisdiction only following at least a two-third vote of the Assembly of States Parties after January 1, 2017, reconfirming the agreed procedures in the amendment to activate jurisdiction over the crime of aggression.45 In other words, at least two-thirds of the States Parties will have to agree in 2017 that the Court should exercise jurisdiction over the crime of aggression for the Court to be able to exercise such jurisdiction. As is well known, the United States has long opposed the inclusion of the crime of aggression within the jurisdiction of the Court. Both the United States and China were concerned that this would create a potential conflict between the ICC’s jurisdiction and the role of the Security Council. Another concern, one that I share, is that the term “aggression” is simply too ambiguous a concept to serve as the basis for criminal prosecution. In 1974, the U.N. General Assembly adopted a resolution46 that set forth a definition of aggression, but it was designed as guidance to the Security Council, not for the purposes of criminal prosecution. Moreover, this definition was subject to sharp criticism.47 In the seven years that lie between 2010 and 2017, the United States and other States’ opposition to the inclusion of the crime of aggression within the Court’s jurisdiction may finally prevail. As noted in the previous paragraph, the United States and other States were concerned that inclusion of the crime of aggression within the Court’s jurisdiction might undermine the role of the Security Council in maintaining international peace and security and deciding whether an act of aggression has occurred. It has not been the practice of the Security Council, however, to determine whether an act of aggression has occurred in cases involving the use of armed force. Although Article 39 of the U.N. Charter authorizes, indeed instructs, the Security Council to determine “the existence of any threat to the peace, breach of the peace, or act of aggression,”48 the practice of the Council has been to determine whether there has been a threat to the peace, or a breach of the peace, but not to 44. For a description of this debate, see Scheffer, supra note 37, at 3. 45. Id. at 3 (citing RC/Res. 6, at Annex I, art. 15 bis (3); Rome Statute, supra note 22, at art. 121(3)). 46. See generally G.A. Res. 3314 (XXIX), U.N. Doc. A/Res/3314 (Dec. 14, 1974), available at http://daccessdds-ny.un.org/doc/RESOLUTION/GEN/NR0/739/16/IMG/NR073916.pdf?OpenElement. 47. See Julius Stone, Hopes and Loopholes in the 1974 Definition of Aggression, 71 AM. J. INT’L L. 224, 224-25 (1977); INTERNATIONAL AND TRANSNATIONAL CRIMINAL LAW 782-85 (David Luban et al. eds., 2010). 48. U.N. Charter art. 39, http://www.un-documents.net/ch-07.htm (“The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security.”).

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address the issue of whether there has been an act of aggression. For example, although surely Iraq’s invasion of Kuwait in 1990 was an act of aggression, none of the many resolutions adopted by the Security Council made such a determination. Rather, the Council simply determined that “there exists a breach of international peace and security as regards the Iraqi invasion of Kuwait.”49 This would surely change, however, if the amendments activating the crime of aggression were to come into force. The relationship between the ICC and the Security Council under the amendments is complex. If there is either a State Party referral under Article 13(a) of the Rome Statute or an investigation by the Prosecutor under Article 13(c) of a situation or crime of aggression, new Article 15 bis requires that a particular procedure be followed to determine whether the matter will be investigated and prosecuted by the Court.50 The Prosecutor must first determine whether there is a reasonable basis to proceed with an investigation of a crime of aggression following an Article 13(a) or (c) action. Next, the Prosecutor must “ascertain whether the Security Council has made a determination of an act of aggression committed by the State concerned.”51 If the Council has made such a determination, the Prosecutor may proceed to investigate a crime of aggression.52 Another reason the ICC is highly unlikely ever to prosecute anyone for the crime of aggression is the definition of the “crime of aggression” as well as the definition of an “act of aggression” adopted by the Review Conference, both of which are unlikely to apply to the uses of armed force characteristic of the current environment. The definition of the crime of aggression states that, “[f]or the purpose of this Statute, ‘crime of aggression’ means the planning, preparation, initiation or execution, by a person in a position effectively to exercise control over or to direct the political or military action of a State, of an act of aggression which, by its character, gravity and scale, constitutes a manifest violation of the Charter of the United Nations.”53 For its part, the definition of an act of aggression54 states that “[f]or purposes of paragraph 1, ‘act of aggression’ means the use of armed force by a State against the sovereignty, territorial integrity or political independence of another State, or in any other manner inconsistent with the Charter of the United Nations. Any of the following acts, regardless of a declaration of war, shall in accordance with United Nations General Assembly resolution 3314 (XXIX) of 14 December 1974, qualify as an act of aggression. . . .”55 Both of these definitions are designed to cover an 49. 50. 51. 52. 53. 54. 55.

S.C. Res 660, preamble, U.N. Doc. S/RES/660 (Aug. 2, 1990). RC/Res. 6, supra note 39, Annex I, art. 15 bis (6). Id. Id. Annex I, art. 15 bis (7). Id. Annex I, art. 8 bis (1). Id. Annex I, art. 8 bis (2). Id. Examples of “acts of aggression,” taken directly from G.A. Res. 3314, include: a) The invasion or attack by the armed forces of a State of the territory of another State, or any military occupation, however temporary, resulting from such invasion or attack, or any annexation by the use of force of the territory of another State or part thereof; b) Bombardment by the armed forces of a State against the territory of another State or the use of any weapons by a State against the territory of another State; c) The blockade of the ports or coasts of a State by the armed forces of another State; d) An attack by the armed forces of a State on the land, sea or air forces, or marine and air fleets of another State; e) The use of armed forces of one State which are within the territory of another State with the agreement of the receiving State, in contravention of the conditions provided for in the agree-

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international armed conflict along the lines of Germany’s aggression in World War II. But the nature of armed conflict today has changed from the traditional model. Most armed conflict involves internal struggles in the form of civil wars or so-called asymmetrical warfare conducted by Al-Qaeda or other terrorist groups. These armed conflicts are simply not covered by the definitions of aggression or acts of aggression. As noted in the preceding paragraph, an “act of aggression” is one that “by its character, gravity and scale constitutes a manifest violation of the Charter of the United Nations.”56 In “[u]nderstandings regarding the amendments to the Rome Statute of the International Criminal Court on the crime of aggression,”57 there is an elaboration on the concept of a “manifest violation of the Charter of the United Nations.”58 Understanding 6 provides, in pertinent part, that “[i]t is understood . . . that a determination whether an act of aggression has been committed requires consideration of all the circumstances of each particular case, including the gravity of the acts concerned and their consequences, in accordance with the Charter of the United Nations.”59 Understanding 7 builds on Understanding 6 and provides, in pertinent part, “that in establishing whether an act of aggression constitutes a manifest violation of the Charter of the United Nations, the three components of character, gravity and scale must be sufficient to justify a ‘manifest’ determination. No one component can be significant enough to satisfy the manifest standard by itself.”60 In other words, the standard of proof required to fulfill the requirement of a “manifest violation” is likely to be difficult to meet. Still another barrier for the ICC to overcome before it can prosecute successfully the crime of aggression. It appears fairly certain that, although the United States now has no concern that U.S. nationals will ever be prosecuted before the ICC for the crime of aggression, it still would greatly prefer that the crime not be included as one of the crimes within the Court’s jurisdiction. In a briefing before the U.S. Department of State following the Review Conference, Harold H. Koh, the Legal Advisor of the Department of State, stated: I think one fundamental point is that the crime of aggression is different from the other three crimes in a couple of respects . . . there have been hundreds of prosecutions for genocide, war crimes, and crimes against humanity. There have only been two prosecutions for wars of aggression, namely Nuremberg and Tokyo. Both of those happened before there was a UN system. There’s been no successful prosecution for an act of aggression alone. And the question is, since we’re making internament or any extension of their presence in such territory beyond the termination of the agreement; f) The action of a State in allowing its territory, which it has placed at the disposal of another State, to be used by that other State for perpetrating an act of aggression against a third State; g) The sending by or on behalf of a State of armed bands, groups, irregulars or mercenaries, which carry out acts of armed force against another State of such gravity as to amount to the acts listed above, or its substantial involvement therein. G.A. Res. 3314 (XXIX), art. 3(a)-(g), U.N. Doc. A/Res/3314 (Dec. 14, 1974), available at http://daccess-ddsny.un.org/doc/RESOLUTION/GEN/NR0/739/16/IMG/NR073916.pdf?OpenElement. 56. RC/Res.6, supra note 39, Annex I, art. 8 bis (1). 57. Id. Annex III. 58. Id. Annex III, ¶ 7. 59. Id. Annex III, ¶ 6. 60. Id. Annex III, ¶ 7.

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tional criminal law for the real world, before you lock in the crime forever, you want to make sure that as a legal matter you’ve got it right.61 The reason there have been no prosecutions for wars of aggression since Nuremberg and Tokyo is that there has been no tribunal, at either the national or the international level, which has had jurisdiction over the crime of aggression, or to use the nomenclature of the Nuremberg and Tokyo tribunals, the crime against peace. There is a great irony here. For the Nuremberg trial in particular, the primary focus was on the criminalization of aggressive war through recognizing the crime against peace in its charter. The Nuremberg Judgment highlighted this reality when it stated: “The charges in the Indictment that the defendants planned and waged aggressive wars are charges of the utmost gravity. . . . To initiate a war of aggression, therefore, is not only an international crime; it is the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole.”62 As noted by Professor David Luban, however, the primary significance of the Nuremberg trial and Judgment to later generations is quite different from that of the trials’ framers or of the judges at Nuremberg: “For us Nuremberg is a judicial footnote to the Holocaust; it stands for the condemnation and punishment of genocide, and its central achievement lies in recognizing the category of crimes against humanity. . . .”63 This statement by Luban is supported by the adoption of the Convention on the Prevention and Punishment of Genocide by the U.N. General Assembly in 1948,64 and the total inaction with respect to the crime against peace at the national and the international levels since the Nuremberg and Tokyo trials. There seems little doubt that developments regarding the crime of aggression at the Review Conference are beneficial for the United States, as well as other key non-party states. Whether they are beneficial for the ICC itself is perhaps a closer question. If these developments result, as I suspect, in the Court never exercising jurisdiction over the crime of aggression, this will be a benefit for the Court only if the critics are right in their position that the crime of aggression should never have been listed in article 5 of the Rome Statute as a crime within the jurisdiction of the Court in the first place. In contrast, if the proponents of listing the crime of aggression within the jurisdiction of the Court are right, thereby reflecting the attitude dominant at Nuremberg, then the developments regarding the crime of aggression at the Review Conference have dealt the Court a severe blow. As things now stand, the status and future of the crime of aggression for the Court remain in limbo until 2017. In the meantime, there are serious questions as to the capability of the Court to deal effectively with the three generally accepted “core crimes”— genocide, war crimes, and crimes against humanity—within its jurisdiction. 61. Special Briefing, Harold Hongju Koh, Legal Advisor, U.S. Dep’t of State, US Engagement With The ICC and The Outcome Of The Recently Concluded Review Conference (June 15, 2010), available at http:// www.state.gov/s/wci/us_releases/remarks/143178.htm. 62. BETH VAN SCHAACK & RONALD SLYE, INTERNATIONAL CRIMINAL LAW AND ITS ENFORCEMENT 347 (2d ed. 2010). 63. Luban et al., supra note 47, at 86 (excerpt from DAVID LUBAN, LEGAL MODERNISM 336 (1994)). 64. See generally Convention on the Prevention and Punishment of the Crime of Genocide, Jan. 12, 1951, 78 U.N.T.S. 277, available at http://www1.umn.edu/humanrts/instree/x1cppcg.htm.

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III. The United States and the Future of the International Criminal Court When I consider the debate, especially in the United States, over the International Criminal Court, and the future of the Court, I am reminded of the debate surrounding the issue whether the United States should ratify the Genocide Convention. The opponents of ratification claimed that all sorts of disasters would befall the United States and allies of the United States, especially Israel, if ratification would occur. High ranking officials of the U.S. government, possibly including the President, as well as the commanders of U.S. armed forces, would allegedly be subject to trials for genocide in the courts of enemies of the United States, perhaps even in a not yet established international criminal court. The truth was that these allegations had no basis in reality.65 The reality was rather that the Convention was fatally flawed as an operative instrument for preventing and punishing genocide,66 and no trials for genocide took place until the International Criminal Tribunal for the Former Yugoslavia and the International Criminal Tribunal for Rwanda were established by the U.N. Security Council. To be sure, unlike under the Genocide Convention, there is, at least theoretically, some risk that U.S. civilian and military officials under the Rome Statute could face trial before the International Criminal Court, but for reasons we will consider below, the risk is extremely low. Rather, the real risk is that the Court will be unable effectively to carry out its responsibilities to prosecute and punish those individuals who commit the crimes of genocide, war crimes, and crimes against humanity, as defined under the Rome Statute. A.

THE RECORD SO FAR: THE ICC

AND THE

UNITED STATES

As indicated previously in this article, even the George W. Bush administration’s hostile policy toward the ICC moderated considerably near the end of its first term and disappeared during the Bush administration’s second term.67 Surely, this change in attitude and the Obama administration’s decision to move from “hostility to positive engagement”68 was based on the ICC’s professional approach that in no way threatened U.S. vital interests. As an example of the ICC’s professional approach, the ASIL Task Force on the U.S. Relationship with the ICC cited the Prosecutor’s handling of various allegations regarding the war in Iraq.69 As summarized by the task force’s report: The Prosecutor received over 240 communications on the situation in Iraq, expressing concern about the launching of military operations and civilian deaths. The Prosecutor declined to initiate an investigation and explained the strict criteria of the 65. For my views on some of these issues, see Constitutional Issues Relating to the Proposed Genocide Convention: Hearing before the Subcomm. on the Const. of the Comm. on the Judiciary, 99th Cong. 80-95 (1985) (statement of John F. Murphy, Professor of Law at Villanova University). 66. The main flaw of the Genocide Convention is that jurisdiction over the crime is limited by Article VI of the Convention, to “a competent tribunal of the State in the territory of which the act was committed . . .” Convention on the Prevention and Punishment of the Crime of Genocide, supra note 64, art. 6. Because genocide is a quintessential example of a crime authorized or committed by government officials, the prospect of trials in national courts was remote. 67. See supra text accompanying notes 24-29. 68. Special Briefing, supra note 61, at 1. 69. U.S. Policy Toward the International Criminal Court: Furthering Positive Engagement, supra note 30, at 19.

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Rome Statute that limit any decision to open an investigation: 1) available information must provide a reasonable basis to believe a crime within ICC jurisdiction has been or is being committed; 2) the matter must satisfy admissibility considerations relating to the gravity of the conduct and complementarity with national proceedings; and 3) considerations must be given to the interests of justice. The Prosecutor determined, for a variety of reasons, including jurisdictional limitations, that the “Statute requirements to seek authorization to initiate an investigation in the situation in Iraq have not been satisfied.” With respect to U.S. nationals, the Prosecutor determined that the ICC does not have jurisdiction over actions of nonparty States’ nationals on the territory of Iraq, itself a non-party State.70 Stephen Eliot Smith has also recounted the Prosecutor’s handling of a situation which would indicate the United States has nothing to fear from a “rogue prosecutor.” The United Kingdom has been a member of the ICC since its inception, and therefore British soldiers are subject to the ICC’s jurisdiction, regardless of where their actions take place.71 When he received complaints regarding the action of British nationals in Iraq, the Prosecutor determined in a preliminary investigation that “‘there was a reasonable basis to believe’ that the war crimes of wilful [sic] killing and inhuman treatment were committed by British military personnel against prisoners of war.”72 Nonetheless, after considering the gravity requirement of the Rome Statute, the Prosecutor concluded: The Office [of the Prosecutor] considers various factors in assessing gravity. A key consideration is the number of victims of particularly serious crimes, such as wilful [sic] killing or rape. The number of potential victims of crimes within the jurisdiction of the Court in this situation—4 to 12 victims of wilful killing and a limited number of victims of inhuman treatment—was of a different order than the number of victims of wilful killing found in other situations under investigation or analysis by the Office. It is worth bearing in mind that the OTP is currently investigating three situations involving long-running conflicts in Northern Uganda, the Democratic Republic of Congo and Darfur. Each of the three situations under investigation involves thousands of wilful killings as well as intentional and large-scale sexual violence and abductions. Collectively, they have resulted in the displacement of more than 5 million people. Other situations under analysis also feature hundreds or thousands of such crimes.73 As a result of his determination that the gravity threshold had not been satisfied, the Prosecutor declined to proceed with a formal investigation of the accused British nationals.74 70. Id. 71. Article 12(1) of the Rome Statute provides that “[a] State which becomes a Party to this Statute thereby accepts the jurisdiction of the Court with respect to the crimes referred to in article 5.” Rome Statute, supra note 22, art. 12(1). 72. Smith, supra note 6, at 169 (quoting Moreno-Ocampo, infra note 73, at 8). 73. Letter from Luis Moreno-Ocampo, Chief Prosecutor of the ICC 8-9 (Feb. 9, 2006), available at http:// www2.icc-cpi.int/NR/rdonlyres/F596D08D-D810-43A2-99BB-B899B9C5BCD2/277422/OTP_letter_to_ senders_re_Iraq_9_February_2006.pdf. 74. Id. at 9.

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One also suspects that the satisfaction of the U.S. government with the results of the Review Conference has also helped to greatly lessen any concern that the United States has had that its nationals might be subject to the jurisdiction of the Court.75 In short, although it remains theoretically possible that the Prosecutor and the ICC could launch a politically motivated prosecution of U.S. nationals, the current prospect of that happening is so slim as to have led the U.S. government to conclude that cooperation rather than conflict with the Court is the best policy. Moreover, it has decided that “positive engagement” with the Court is the best policy to serve both U.S. interests and those of the ICC. B. HOW MIGHT U.S. “POSITIVE ENGAGEMENT” ENHANCE PROSPECTS

FOR

FUTURE

ICC SUCCESS? As of October 12, 2010, 114 countries were States Parties to the Rome Statute.76 In their capacity as States Parties, these states are under various obligations to support the Court, including, most crucially, support in apprehending suspects.77 Since it is not a State Party, and there is little prospect of it becoming one, the United States has no obligation to render support to the Court, and any support it may give will be on a purely voluntary basis.78 Under the Rome Statute, the Prosecutor can initiate an investigation on the basis of a referral from any State Party79 or from the United Nations Security Council.80 In addition, the Prosecutor can initiate investigations proprio motu on the basis of information within the jurisdiction of the Court received from individuals or organizations.81 To date, three States Parties to the Rome Statute—Uganda, the Democratic Republic of the Congo, and the Central African Republic—have referred situations occurring on their territories to the Court.82 Also, the Security Council has referred the situation in Darfur, Sudan (a non-State Party).83 On March 31, 2010, Pre-Trial Chamber II granted the Prosecution authorization to open an investigation proprio motu in the situation of Kenya.84 75. Consider the comment of Harold Hongju Koh during the Special Briefing at the U.S. Department of State following the Review Conference: “After 12 years, I think we have reset the default on the U.S. relationship with the court from hostility to positive engagement. In this case, principled engagement worked to protect our interest, to improve the outcome, and to bring us renewed international goodwill. As one delegate put it to me, the U.S. was once again seen, with respect to the ICC, as part of the solution and not the problem. The outcome in Kampala demonstrates again principled engagement can protect and advance our interests, it can help the states parties to find better solutions, and make for a better court, better protection of our interests, and a better relationship going forward between the U.S. and the ICC.” Special Briefing, supra note 61, at 2. 76. The States Parties to the Rome Statute, INT’L CRIM. CT., http://www.icc-cpi.int/Menus/ASP/ states¶arties/ (last visited Jan. 15, 2011). 77. Rome Statute, supra note 22, art. 59(1). 78. See The States Parties to the Rome Statute, supra note 76. 79. Rome Statute, supra note 22, arts. 13(a), 14(1). 80. Id. art. 13(b). 81. Id. art. 15(1). 82. Referrals and Communications, INT’L CRIM. CT., http://www.icc-cpi.int/Menus/ICC/Situations+and+ Cases/Referals+and+communications/ (last visited Jan. 16, 2011). 83. Id. 84. See Press Release, ICC, Judges Grant Prosecutor’s Request to Launch Investigation on Crimes Against Humanity With Regard to the Situation in Kenya (Mar. 31, 2010), available at http://www.icc-cpi.int/NR/ exeres/D81AA5AF-CD76-4B3C-A4FC-AA7819569B44.htm.

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Two years ago, election related violence in Kenya left more than 1,200 people dead and half of a million people forced from their homes.85 On December 15, 2010, the Prosecutor announced he will pursue cases against six Kenyan leaders involved in the violence, three allies of the president and three from the main opposition party, for crimes against humanity.86 No trial has yet been completed. Fifteen people have been indicted, four people are in the custody of the Court, one other person is in French custody pending their consideration of an ICC request for surrender of the suspect, and nine cases are pending before the Court.87 These proceedings have faced various challenges. For example, in the very first case referred to the Court by a State Party (Uganda),88 the Court issued four arrest warrants against leaders of the rebel Lord’s Resistance Army (LRA), accusing them of crimes against humanity and other grave offenses, but these leaders remain at large, and the Ugandan government has sought withdrawal of the warrants if the accused will agree to undergo a traditional tribal justice ritual that requires a public confession and an apology without threat of incarceration.89 The Prosecutor has resisted withdrawal of the warrants, and no resolution of this issue appears imminent.90 In The Prosecutor v. Thomas Lubanga Dyilo, Trial Chamber I issued an oral decision on July 15, 2010, to release Mr. Lubanga Dyilo, but the Appeals Chamber, although agreeing with the Trial Chamber that there had been errors made in the proceedings below, reversed the decision to release Mr. Lubanga on October 8, 2010.91 By far the greatest challenge facing the ICC is its inability to bring fugitive defendants within its custody. In its sharpest form, this problem is illustrated by the inability of the Court to implement two arrest warrants issued by the Court against Omar Hassan AlBashir, the president of Sudan.92 The first, issued on March 4, 2009, was for five counts of crimes against humanity and two counts of war crimes, and the second, issued on July 12, 2010, for three counts of genocide.93 On August 27, 2010, Pre-Trial Chamber I issued two decisions informing the Security Council and the Assembly of States Parties to the Rome Statute about Mr. Bashir’s visits 85. See Parselelo Kantai, Top Kenyans Named in Election Violence Case, FIN. TIMES, Dec. 16, 2010, http:// www.ft.com/cms/s/0/162925f4-087b-11e0-80d9-00144feabdc0.html#axzz1BECWKeUx. 86. See Sarah Childress, Kenyan Violence Probed by Court, WALL ST. J., Dec. 16, 2010, at A17; see also Press Release, ICC, Kenya’s Post-Election Violence: ICC Prosecutor Presents Cases Against Six Individuals for Crimes Against Humanity (Dec. 15, 2010), available at http://www.icc-cpi.int/NR/exeres/BA2041D8-3F304531-8850-431B5B2F4416.htm. 87. See All Cases, INT’L CRIM. CT., http://www.icc-cpi.int/Menus/ICC/Situations+and+Cases/Cases/ (last visited Jan. 16, 2011). 88. See Uganda ICC-02/04-01/05 The Case Prosecutor v. Kony, Vincent Otti, Okot Odhiambo and Dominic Ongwen, http://www.icccpi.int/Menus/ICC/Situations+and+Cases/Situations/Situation+ICC+0204/ Related+Cases/ICC+0204+0105/Uganda.htm (last visited Feb. 4, 2011). 89. See Alexander K.A. Greenwalt, Complementarity in Crisis: Uganda, Alternative Justice, and the International Criminal Court, 50 VA. J. INT’L L. 107, 111-121 (2009). 90. See id. (for an extensive analysis of the Uganda case). 91. See Prosecutor v. Thomas Lubanga Dyilo, Case No. ICC-01/04-01/06, Appeals Hearing (Oct. 8, 2010), available at http://www.icc-cpi.int/iccdocs/doc/doc948677.pdf. 92. See ICC Weekly Update #58, INT’L CRIM. CT., 2 (Dec. 6, 2010), http://www.icc-cpi.int/NR/rdonlyres/ A9879553-10E7-4794-BD9D-6BE0AA390F36/282757/Ed58Eng.pdf. 93. Id.

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to the Republic of Kenya and the Republic of Chad, both States Parties to the Rome Statute, “in order for them to take any measure they may deem appropriate.”94 No such measure was taken by either the Security Council or the Assembly of States Parties. More significantly, the first arrest warrant issued against Mr. Bashir resulted in a firestorm of protest against the ICC by the Arab League and the African Union, as well as by individual African and Arab States.95 They have called on the ICC and the Security Council to delay implementation of the arrest warrants for at least a year to avoid jeopardizing the peace process.96 The Security Council could act under Article 16 of the Rome Statute to accede to this request, but the threat of a U.S. and British veto has so far blocked such an action.97 It is unclear whether the ICC’s issuance of an arrest warrant for three counts of genocide will bring the president of Sudan any closer to trial in the Court. Some have suggested that the crime-of-all-crimes status accorded to genocide may further complicate his international dealings and travels.98 Even before the ICC issued its arrest warrant for genocide, although many Arab and some African countries continued to meet with Bashir, others warded off visits by warning that as court members they are legally bound to arrest him.99 The result was that he avoided a number of conferences and celebrations in Africa, Europe, and the United States in the last two years.100 It is important to keep in mind that an “estimated 300,000 people have died and more than two million have been uprooted in Darfur by almost a decade of fighting between the government and the rebels.”101 Such monstrous atrocities call out for punishment of the perpetrators, and especially of the perpetrators in charge. Proposals for an alternative approach to prosecution by the ICC have emanated from various sources, including the African Union.102 None of these alternative approaches, however, provide any prospect that Mr. Bashir would suffer incarceration as a punishment, which the enormity of his crimes would seem to demand. Hence, one may hope that U.S. “positive engagement” with the ICC will include active diplomatic efforts to induce states, both states parties to the Rome Statute and non-states parties, to lend their support to efforts to apprehend Bashir and bring him to The Hague. Parenthetically, it should be noted that in Kenya, Kofi Annan, the former U.N. Secretary-General, brokered an agreement between the government and its opposition that ended the violence that followed the disputed election. In that agreement, both sides agreed that perpetrators of atrocities would face justice, either in Kenya, or, if this proved 94. Id. 95. See, e.g., David Charter, World Court Under Threat as President Al-Bashir of Sudan Defies Warrant, TIMES (U.K.), Apr. 2, 2009, http://www.timesonline.co.uk/tol/news/world/africa/article6018508.ece. 96. Id. 97. Article 16 of the Rome Statute provides: “No investigation or prosecution may be commenced or proceeded with under this Statute for a period of 12 months after the Security Council, in a resolution adopted under Chapter VII of the Charter of the United Nations, has requested the Court to that effect; that request may be renewed by the Council under the same conditions.” See Rome Statute, supra note 22, art. 16. 98. See, e.g., Marlise Simons, International Court Adds Genocide to Charges Against Leader, N.Y. TIMES, July 12, 2010, http://www.nytimes.com/2010/07/13/world/africa/13hague.html. 99. Id. 100. Id. 101. Id. 102. See, e.g., Richard Burchill, Regional Approaches to International Humanitarian Law, 41 VICTORIA U. WELLINGTON L. REV. 205, 206-07 (2010).

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impossible, at the ICC.103 Since the conclusion of the agreement there were many attempts to undermine it, but they all failed, including a last minute motion introduced in parliament to remove Kenya as a party to the Rome Statute.104 When Luis MorenoOcampo announced his intent to pursue prosecutions against the six Kenyan leaders, this prompted “hopes of a fundamental transformation in the country’s politics.”105 Several of the named defendants pledged to cooperate with the Court while pleading their innocence.106 Significantly, President Obama issued a statement praising the developments in Kenya and suggesting that “Kenya is turning a page in its history, moving away from impunity and divisionism toward an era of accountability and equal opportunity.”107 Perhaps what is needed is for the Obama administration to go beyond a policy of positive engagement with the ICC and adopt steps toward an active positive engagement with other actors whose support the ICC greatly needs. For instance, the Obama administration might sponsor legislation in the U.S. Congress that would allow the United States to prosecute the crimes covered by the Rome Statute to the extent they are not already covered by domestic legislation.108 The United States currently has federal legislation authorizing (in certain circumstances) the prosecution in U.S. federal courts of genocide109 and war crimes.110 But it has no legislation on the books authorizing the prosecution of crimes against humanity, although draft legislation to this end has been introduced.111 Since the United States has called for the strengthening of national legal systems so that they can prosecute genocide, war crimes, and crimes against humanity, in keeping with the principle of complementarity,112 it would seem to follow that the United States should set a good example. The Obama administration might also consider a major diplomatic demarche, directed especially, although not exclusively, at key countries in Africa and the Middle East, in an effort to enhance support for the ICC and its two arrest warrants issued against Bashir. As part of this effort, it should attempt to refute allegations that the Court is biased against African and perhaps Muslim countries. To this end it might note that in three of the situations before the Court—Uganda, the Democratic Republic of the Congo, and the Central African Republic—the cases were referred to the Court by African country governments. In the case of Kenya, the U.S. government should note that in the agreement mediated by Kofi Annan, the parties agreed to the jurisdiction of the ICC in the event that it proved impossible to deal with the atrocities committed in Kenya courts, a condition that came to pass. As to the referral of the situation in Darfur, the evidence is obvious that there is no other available forum that can render justice in that case. 103. See Kantai, supra note 85. 104. Id. 105. Id. 106. Id. 107. Id. 108. See Letter from Jennifer Trahan, Chairperson, Am. Branch of the Int’l L. Ass’n–Comm. on the ICC, to Stephen J. Rapp, War Crimes Ambassador, and Harold Koh, Legal Advisor (Mar. 12, 2010), available at http:/ /ila-americanbranch.org/reports/2010-03-12_ICC_Letter.pdf (setting forth this suggestion as well as other recommendations for future U.S. policy towards the ICC). 109. See 18 U.S.C. § 1091 (2006). 110. See War Crimes Act of 1996, 18 U.S.C. § 2441 (2006). 111. See Crimes Against Humanity Act, S. 1346, 111th Cong. (2009). 112. See Special Briefing, supra note 61, at 2 (remarks of Ambassador J. Rapp).

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Last, but by no means least, the Obama administration might positively engage more effectively with the U.N. Security Council and with the U.S. General Assembly to improve the United Nations record on maintaining international peace and security.113 Both the International Criminal Tribunal for the Former Yugoslavia and the International Criminal Tribunal were in part created because of failures of the United Nations and the world community to prevent the atrocities in Yugoslavia and Rwanda.114 Moreover, it is fair to speculate that a major reason the Security Council referred the situation in Darfur to the ICC is that other efforts to stop the slaughter in Darfur had proved fruitless.115 A major reason the Obama administration should consider an active positive engagement in the General Assembly as well as in the Security Council is that both of these bodies affirmed the so-called responsibility to protect. The U.N. Summit Declaration of 2005, adopted by the General Assembly, affirmed that the United Nations has the responsibility to protect populations from genocide, war crimes, ethnic cleansing, and crimes against humanity, stating: We are prepared to take collective action, in a timely and decisive manner, through the Security Council, in accordance with the Charter, including Chapter VII, on a case-by-case basis and in cooperation with relevant regional organizations as appropriate, should peaceful means be inadequate and national authorities are manifestly failing to protect their populations.116 For its part, the Security Council, on April 28, 2006, adopted Resolution 1674, which affirmed this statement.117 But the Council has yet to fulfill this responsibility by taking the necessary action in concrete cases. Worse yet, on July 23, 2009, the General Assembly engaged in a debate on the responsibility to protect that featured claims that the responsibility to protect was “redecorated colonialism” and “a Trojan horse for foreign meddling in . . . domestic affairs.”118 These claims are, of course, nonsense. But they nonetheless resonate well among too many member states of the General Assembly and need to be refuted. In closing, we should remember that the only reason for creating an international criminal court is that the crimes of genocide, war crimes, and crimes against humanity are not being prevented and punished in other forums. This is certainly the case at present. To be sure, Luis Moreno-Ocampo, the current Prosecutor of the ICC, and others have stated that the ICC, under its doctrine of complementarity jurisdiction, is a court of last resort,

113. See generally JOHN F. MURPHY, THE EVOLVING DIMENSIONS OF INTERNATIONAL LAW: HARD CHOICES FOR THE WORLD COMMUNITY 103-160 (2010) (for an extensive discussion of some of the challenges facing the United Nations in fulfilling its primary responsibility). 114. See id. at 78-80 (Yugoslavia); see also id. at 80-83 (Rwanda), for discussion. 115. See id. at 86, 133-135. 116. 2005 World Summit Outcome, G.A. Res. 60/1, ¶ 139, U.N. Doc. A/RES/60/1 (Sept. 16, 2005). 117. See S.C. Res. 1674, ¶ 4, U.N. Doc. S/RES/1674 (Apr. 28, 2006). 118. Neil MacFarquhar, When to Step in to Stop War Crimes Causes Fissures, N.Y. TIMES, July 29, 2009, http://www.nytimes.com/2009/07/23/world/23nation.html.

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designed to intervene only when national legal systems fail.119 But the record so far indicates that states are still reluctant to prosecute these crimes in domestic forums. Hence the need for U.S. “positive engagement” to strengthen the ICC’s capacity to fill the gap.

119. See, e.g., Luis Moreno-Ocampo, Prosecutor, Int’l Crim. Ct., Address at Nuremburg: Building a Future on Peace and Justice (June 24-25, 2007), available at http://www.iccnow.org/documents/LMO_nuremberg_ 26jun07_eng.pdf.

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The American Assault on Tax Havens–Status Report ALAN S. LEDERMAN*

AND

BOBBE HIRSH**

Abstract The White House, Internal Revenue Service (I.R.S.), U.S. Department of the Treasury (U.S. Treasury), and Department of Justice have mounted a crackdown on U.S. individuals and companies who improperly use foreign tax havens and bank secrecy jurisdictions to avoid tax. New procedures, legislation, international agreements, and enforcement initiatives have been adopted to deter the use of tax havens and bank secrecy jurisdictions. This U.S. effort is spearheaded by the 2010 Foreign Asset and Tax Compliance Act (FATCA), P.L. 111-147, which aims to force foreign financial institutions to report their U.S. account holders. This article will review FATCA and certain other U.S. initiatives, such as the expansion of the foreign bank and financial account reporting requirements. In addition, this article mentions certain other 2010 developments in U.S. cross-border tax enforcement.

I. FATCA Foreign Asset Reporting FATCA enacted Section 6038D, which generally requires individuals holding “specified foreign financial assets” in excess of $50,000 during a year to report these assets with their Form 1040.1 This reporting requirement takes effect with calendar year 2011 income tax returns (which are filed in 2012).2 This requirement applies in addition to the requirement to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), with the U.S. Treasury.3 Duplicate FBARs are not required to be filed with tax returns, and the section 6038D specified foreign financial asset returns are not to be filed with the FBAR unit.4 These reporting requirements also apply, to the extent provided in * Shareholder, Gunster, Yoakley & Stewart, P.A., Fort Lauderdale, Florida. ** Managing Member, Hirsh & Associates, LLC, Lake Forest, Illinois. 1. I.R.C. § 6038D (West 2011). 2. Id. 3. 31 C.F.R. § 103.24 (2011); see Report of Foreign Bank and Financial Accounts (FBAR), Internal Revenue Service (U.S.), Apr. 22, 2010, http://www.irs.gov/businesses/small/article/0,,id=148849,00.html. 4. I.R.C. § 6038D.

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Treasury Regulations, to U.S. entities formed or availed of for the purpose of investing in specified foreign financial assets.5 Specified financial assets include: (1) any account maintained by a foreign financial institution (FFI); and (2) any of the following assets that are not held in an account maintained by an FFI: (a) any stock or security issued by a foreign person (even stock in foreign hedge funds or equity funds for which FBAR reporting might not be required); (b) any financial instrument or contract held for investment where the issuer or counterparty is a foreign person; and (c) any interest in a foreign entity, whether or not that foreign entity owns foreign financial assets.6 The I.R.S. is authorized to make exceptions from the reporting requirements in order to avoid duplicative reporting.7 For example, it may create exceptions with respect to passive foreign investment company (PFIC) and controlled foreign corporation stockownership reporting. There is a $10,000 penalty for a failure to report that increases by $10,000 for each thirty-day period (or portion of such period), if the failure to file continues for more than ninety days after notification by the I.R.S.8 The penalty will be waived if the failure is due to reasonable cause and not due to willful neglect, although foreign secrecy laws do not constitute reasonable cause for non-reporting.9 If the I.R.S. discovers specified financial assets and the individual fails to produce sufficient information showing that the aggregate value of the individual’s specified financial assets is no more than $50,000, then the $50,000 threshold is deemed met so that the reporting requirement and $10,000 penalty can apply.10 A forty percent penalty applies to any understatement attributable to any transaction involving an undisclosed financial asset.11 The statute of limitations can be extended beyond three years for understatements triggered by omissions of more than $5,000 of gross income relating to specified financial assets or of required reports of specified financial assets.12 The FATCA withholding provisions, discussed below, may be viewed as an attempt to enforce this foreign asset reporting by putting pressure on foreign intermediaries that invest in U.S. assets to disclose their U.S.-owned accounts.

II. FATCA Withholding FATCA imposes thirty percent U.S. withholding on “withholdable payments” made to FFIs that fail to meet certain reporting and withholding requirements.13 FATCA also imposes a thirty percent U.S. withholding tax on withholdable payments made to certain foreign entities that are not FFIs.14 The withholding requirements generally commence 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

§ 6038D(f). § 6038D(b). § 6038D(h)(1). § 6038D(d)(1). § 6038D(g). § 6038D(e). § 6662. See § 6501; I.R.C. § 6038(d)(1). § 1471. § 1472.

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on January 1, 2013.15 An I.R.S. official has reportedly concluded that “if [the] IRS does not collect ‘a dollar of withholding tax,’ but the measure helps to establish taxpayer trust in the fairness of the system, ‘that will have satisfied a major goal.’”16 FFIs are defined in such a manner as to include foreign banks, foreign brokerage firms, foreign trust companies, foreign mutual funds, foreign hedge funds, foreign private equity funds, and other foreign funds engaged primarily in investing or trading in U.S. or foreign securities.17 In I.R.S. Notice 2010-60,18 however, the Service made exceptions from adverse FFI characterization for certain foreign companies, even though they may primarily be engaged in investing or trading in securities. Such non-FFIs include: foreign holding companies of a group of non-FFI companies (but private equity, venture capital, and similar funds that intend to hold their investment in their operating companies for a limited period of time are not excepted); foreign companies starting up a non-FFI business for their first twenty-four months after organizing; non-FFI foreign companies liquidating or reorganizing with the intent to restart a non-FFI business; and hedging and financing foreign subsidiaries of a corporate group primarily engaged in a non-FFI business that only do business with other members of that group.19 Also excepted from FFI characterization are foreign insurance or reinsurance companies that only offer policies with no cash value, and do not offer life insurance policies with cash surrender value or annuities.20 FFIs organized under the laws of Puerto Rico, the U.S. Virgin Islands, and other U.S. territories are exempt from FFI characterization as payees but are generally withholding agents as payors.21 Notice 2010-60 also indicates that certain small foreign family trusts or other small entities, all of whose owners supply information directly to the U.S. withholding agent, can avoid FFI characterization.22 Notice 2010-60 requests further comments on whether there should be an exception from FFI characterization for foreign investment funds not marketed to U.S. persons.23 Foreign pension plans are exempted by Notice 2010-60 from FATCA withholding if: (i) they qualify as a retirement plan under the laws of the country where established; (ii) are sponsored by a foreign employer; and (iii) do “not allow U.S. participants or beneficiaries other than employees who worked for the foreign employer in the country in which such retirement plan is established during the time in which benefits accrued.”24 Notice 2010-60 does not exempt from FATCA withholding an FFI that receives withholdable payments through a U.S. branch.25 Notice 2010-60 also does not exempt from FATCA withholding an FFI that is a U.S.-controlled foreign corporation.26 15. Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, § 501(d)(1), 124 Stat. 71 (2010). 16. Alison Bennett, Tax Havens: Musher Says IRS Focused on Timelines, Burden in Implementing FATCA Provisions, [2010] 79 Daily Tax Rep. (BNA) G-2 (Apr. 27, 2010). 17. § 1471(d)(4), (5). 18. I.R.S. Notice 2010-60, 2010-37 I.R.B. 329 § II.B.1. 19. Id. 20. Id. § II.B.2. 21. Id. § II.B.4. 22. Id. § II.B.3. 23. Id. § V.E. 24. Id. § II.C. 25. Id. § II.D.1. 26. Id. § II.D.2.

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“Withholdable payments” are generally defined to include U.S. source dividends, interest on obligations of U.S. corporate or non-corporate obligors (including bank deposit interest and portfolio interest), the gross selling price or proceeds of redemption of U.S. corporate stocks or obligations of U.S. obligors, and certain other U.S.-source investment income.27 Thus, income otherwise exempt from U.S. tax under the Internal Revenue Code or a tax treaty, such as capital gains, portfolio interest, and bank deposit interest, and other items that are not income at all to either the FFI or its U.S. or foreign clients, such as the recovery of cost of a U.S. stock or U.S. bond that is received when the stock or bond is sold, may be subject to FFI withholding. With respect to U.S. source fixed, determinable, and periodic income paid to FFIs and non-FFI foreign entities, FATCA applies in addition to the pre-existing withholding rules, subject to future rules coordinating the various withholding regimes.28 Under a special grandfather rule, payments on obligations issued before March 19, 2012, will not be withholdable payments subject to FATCA, even if those payments are made on or after the general January 1, 2013, FATCA effective date.29 Also, payments made to a class of persons identified by the Treasury as posing a low risk of tax evasion will not be withholdable payments.30 An FFI can avoid the thirty percent FATCA withholding by agreeing with the I.R.S.: (1) to determine which, if any, of its accounts is a U.S. account; (2) to comply with any U.S. due diligence and verification requirements regarding possible U.S. accounts; (3) to report information about such U.S. accounts annually to the I.R.S.; (4) to withhold the thirty percent FATCA tax, or be withheld upon, on certain pass-through payments to other FFIs which do not enter into such an agreement with the I.R.S. or on payments to “recalcitrant” account holders who fail to supply information as to U.S. ownership; (5) to comply with any I.R.S. requests for additional information about U.S. accounts; and (6) if foreign law would prevent disclosure, to seek a waiver of the foreign law, and, if a waiver cannot be obtained, to close the account.31 I.R.S. Notice 2010-60 outlines the expected reporting required by an FFI that seeks to avoid thirty percent FATCA withholding through an I.R.S. agreement.32 The I.R.S. will publish a draft FFI Agreement.33 Having a Qualified Intermediary (QI) agreement with the I.R.S., however, does not excuse an FFI from being subject to FATCA withholding. FATCA applies to payments to a QI FFI, in addition to the requirements imposed on the FFI under the QI agreement.34 An FFI can also avoid the FATCA thirty percent withholding if: (1) it complies with I.R.S. procedures designed to ensure that the FFI does not maintain U.S. accounts and meets such requirements as the I.R.S. may prescribe with respect to accounts of other FFIs;35 (2) it is a member of a class of FFIs for which the I.R.S. makes an exception;36 or (3) it has no withholdable payments because it invests only in non-U.S. assets.37 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

I.R.C. § 1473 (West 2011). § 1474. Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, § 501(d)(2), 124 Stat 71 (2010). I.R.C. § 1471(f)(4). § 1471(b)(1). § 1471(c); see I.R.S. Notice 2010-60, 2010-37 I.R.B. 329. I.R.S. Notice 2010-60, 2010-37 I.R.B. 329. I.R.C. § 1471(c)(3). § 1471(b)(2)(A). § 1471(b)(2)(B). § 1473(1).

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As noted, there is also a thirty percent U.S. withholding tax imposed by FATCA on withholdable payments made to certain foreign entities that are not FFIs.38 The withholding of a thirty percent U.S. tax is avoided if the non-FFI foreign entity provides the withholding agent information on any “substantial United States owner.”39 The withholding on non-FFIs is excused for: publicly traded foreign corporations and their majority owned subsidiaries; entities formed under the laws of and exclusively owned by residents of a U.S. possession; foreign governments and central banks; international organizations; and others to be specified by regulations, even if they do not provide a statement that there are no substantial U.S. owners.40 The Treasury is to provide a mechanism for refunding over-withholding where the foreign entity discloses its U.S. owners or in certain cases involving treaties.41 FATCA withholding only applies to payments to entities, and has no application to amounts paid to individuals.42 Only the pre-existing withholding rules apply to payments to individuals. “U.S. accounts,” which are the trigger for an FFI FATCA withholding, must be “financial accounts.”43 A “financial account” generally includes any depository account, any custodial account, and any non-publicly traded equity or debt interest in a financial institution.44 To be a “U.S. account,” the FFI financial account must be held by one or more “specified United States persons” or foreign entities with “one or more substantial United States owners.”45 A specified U.S. person, whose account must be reported, is generally any U.S. person other than: (1) a publicly traded U.S. corporation and its majority owned subsidiaries; (2) a U.S. tax-exempt U.S. charity, U.S. pension plan or IRA; (3) a U.S. governmental entity or agency; (4) a U.S. bank, U.S. REIT, or U.S. mutual fund; or (5) a common trust fund, a CRAT or CRUT, or certain special classes of nonexempt trusts.46 Certain individual accounts of less than $50,000 at a FFI may also be excluded.47 But the I.R.S. may require balances across the FFI affiliated group to be aggregated to determine whether the $50,000 threshold is exceeded;48 in that case, the cost of establishing affiliated-group-wide data collection programs to aggregate individual customer balances may dissuade FFI groups from seeking to apply this reporting exception. A substantial U.S. owner of a foreign entity, the accounts of which will then be U.S. accounts, is generally any U.S. owner of an FFI that is primarily engaged in investing or trading in securities, a more than ten percent (by vote or value) U.S shareholder of a foreign corporation, a more than ten percent (profits or capital interest) U.S. partner of a foreign partnership, a U.S. beneficiary with a more than ten percent interest in a non38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48.

See supra text accompanying note 13. I.R.C. § 1472(b). § 1472(c). § 1474(b)(2). See §§ 1471(d)(3), 1472(d). § 1471(d)(1). § 1471(d)(2). § 1471(d)(1), (3). § 1473(3). § 1471(d)(1)(B)(ii). Id.

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grantor foreign trust, or a U.S. owner of any portion of a grantor foreign trust.49 Percentage ownership is indirect or direct, requiring a look-through, and therefore presents due diligence challenges, particularly when tiers of foreign entities are present or there is a significant turnover of investors. As noted above, the I.R.S. will publish a draft FFI Agreement.50 Notice 2010-60 has due diligence requirements that are to be applied by an FFI that executes an FFI Agreement with the I.R.S. to determine whether an account is a U.S. account.51 Generally, more due diligence will be required for accounts opened after the execution of an FFI Agreement than those opened before the execution of an FFI Agreement, particularly accounts opened before the execution of the FFI Agreement that are not in electronically searchable form.52 This is evidently a partial concession to comments by such FFIs as Germany’s Allianz Insurance Company, which informed the Treasury that it has approximately thirty million pre-FATCA insureds, many of whose files do not contain non-U.S.status due diligence data.53 For new entity accounts, FFIs must incorporate all knowledge obtained by local antimoney-laundering and know-your-customer rules in determining whether an account is a U.S. account.54 Notice 2010-60 requests comments on a system whereby the I.R.S. can rely on certifications by FFI management or public accountants that the due diligence requirements have been met.55 Notice 2010-60 narrowly interprets the available FATCA grandfather rule that excuses withholding on payments made during and after 2013 on obligations issued before March 19, 2012.56 That an account was opened before March 19, 2012, does not grandfather all payments to that account.57 Payments on pre-March 19, 2012, accounts that can be withdrawn on demand are not grandfathered.58 A pre-March 19, 2012, obligation that is materially modified on or after March 19, 2012, is no longer grandfathered.59 Pre-March 19, 2012, royalty license agreements and other non-debt contractual obligations can qualify for the FATCA grandfather rule.60 But U.S. stocks owned before March 19, 2012 are not grandfathered obligations.61 There are a number of broad economic issues raised by FATCA withholding. For example, will FFIs and other foreign investors be deterred from investing in the United States? In this regard, will other countries argue that, in view of FATCA, the I.R.S. should dismantle its QI program? The QI rules intentionally have the effect of preventing the I.R.S. from readily obtaining, and thus exchanging, information on the identity of 49. I.R.C. § 1473(2) (West 2010). 50. See supra text accompanying note 33. 51. I.R.S. Notice 2010-60, § III.B. 52. Id. 53. Hans Guenter Mayr, Allianz SE Comments on FATCA Section of HIRE Act, Announcement 2010-22, 10 TaxCore (BNA) No. 130, at 114 (July 9, 2010). 54. I.R.S. Notice 2010-60, 2010-37 I.R.B. 329, § III.B.2.b. 55. Id. § V.A. 56. Id. § I. 57. Id. 58. Id. 59. Id. 60. Id. 61. Id.

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foreign portfolio investors in the United States,62 in complete opposition to FATCA, which requires disclosure to the I.R.S. of U.S. portfolio investors abroad. Dismantling the QI program could itself discourage foreign investment in the United States. Other questions remain. What will the cost level be to satisfy the FATCA due diligence requirements to determine indirect or direct U.S. ownership? Will other countries adopt and harmonize FATCA-type due diligence obligations and reporting requirements? For example, will U.S. financial institutions that invest in European securities be required by European governments to identify and report to European tax authorities their European account holders? I.R.S. officials have stated that the Organization for Economic Co-operation and Development’s (OECD) Tax Relief and Compliance Project is focusing on offshore compliance, that other countries around the world are looking at what the United States is doing to implement FATCA, and that harmonization of reporting to ensure residence-based taxation is likely.63 Many FFIs have criticized FATCA because of perceived high compliance costs relative to the U.S. tax avoidance potential.64 But groups besides FFIs, such as U.S. citizens living abroad, have also criticized FATCA.65 U.S. citizens living abroad have argued that they may face account closures by foreign banks that are not large enough to comply with FATCA, but are too large to completely avoid U.S. investments.66 Thus, some U.S. citizens living abroad may be forced to open accounts only at foreign banks that are smaller and do not hold U.S. portfolios.67 Depending on the eventual FATCA exclusions for foreign insurance companies and policies, these individuals may face similar issues when buying such items as cash value insurance policies.68 Some pension funds that are not excluded from FFI characterization may seek to deny U.S. citizens coverage or may no longer invest in U.S. stocks, U.S. securities, or other U.S.-based investments.69 Most U.S. citizens abroad, even if they are not wealthy, will likely have much more than $50,000 in foreign financial assets. Thus, as a result, they will be pushed into the Section 6038D specified financial asset reporting.70

III. FBAR–Proposed Regulations An FBAR (Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts) must be filed with the U.S. Treasury Department each year to report a U.S. person’s financial interest in, or signature or other authority over, financial accounts maintained outside of the United States when the aggregate balance in the account or accounts exceeds $10,000 62. Treas. Reg. § 1.1441-1(e)(5) (as amended in 2007). 63. Alison Bennett, International Taxes: OECD Shifting Focus to Residence-Based Tax, Looking at Reporting, Danilack Says, [2010] 124 Daily Tax Rep. (BNA) G-3 (June 30, 2010). 64. See e.g., Adrian Coles, Building Societies Association Comments on IRS Notice 2010-60 on Foreign Account Tax Compliance Act, 10 TaxCore (BNA) No. 220 (Nov. 17, 2010). 65. Marylouise Serrato & Jacqueline Bugnion, American Citizens Abroad Comments on FATCA Section of HIRE Act, Announcement 2010-22, 10 TaxCore (BNA) No. 130, at 113 (July 9, 2010). 66. Id. 67. Id. 68. Id. 69. Id. 70. Id.

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during the calendar year.71 Questions have been raised as to the efficacy of these requirements after the District Court’s 2010 decision in United States v. Williams.72 There the Court held that the taxpayer checking the “No” box on the question as to ownership over a foreign account on the I.R.S. Form 1040 and pleading guilty to tax evasion were insufficient to establish an FBAR willfulness-based penalty, where the taxpayer reasonably believed that the I.R.S. already knew of the accounts.73 FinCEN issued proposed regulations in 2010 to modify the FBAR reporting rules.74 But the proposed regulations do not address what the effective date will be of the new regulations if they become final. The current regulations do not define who is a U.S. person for purposes of being required to file an FBAR. In regard to what individuals are U.S. persons, Internal Revenue Manual Section 4.26.16.3.1.1 instructs I.R.S. agents that the plain meaning of the term “resident,” that is, someone who is living in the United States and not planning to leave the United States permanently, should be used for FBAR examination purposes. The proposed regulations would define an individual U.S. person required to file an FBAR as not only a U.S. citizen or generally a U.S. green card holder, but also a U.S. individual who is treated as income tax resident under the “substantial presence test” of the U.S. income tax law.75 By contrast, foreign persons (including entities), even if they are engaged in business in the United States, need not file an FBAR.76 The proposed regulations also provide that reportable accounts include not only bank accounts and securities brokerage accounts, but also such items as insurance policies with a cash value, annuities, accounts with a commodities broker, and shares in a mutual fund.77 The proposed regulations reserve giving guidance on private equity funds, venture capital funds, hedge funds, and other pooled investment vehicles not offered to the general public or not having regular redemptions at net asset value.78 By contrast, investments in these items are covered by the FATCA foreign asset tax reporting requirements unless excepted by the I.R.S.79 Similarly, I.R.S. Notice 2010-23, issued concurrently with the FBAR proposed regulations, provides that until further notice, no FBAR reporting is required for pre-2010 holdings of foreign hedge funds, foreign private equity funds, or other nonmutual-fund products.80 The proposed regulations treat a U.S. person as having a reportable financial interest if that person holds legal title for itself or as agent for another person or if another person holds legal title but is the taxpayer’s agent.81 A direct or indirect majority owner of a 71. 31 C.F.R. § 103.24, 103.27 (2011). 72. United States v. Williams, No. 1:09-CV-437, 2010 WL 3473311 (E.D. Va. Sept. 1, 2010). 73. Id. 74. Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations-Reports of Foreign Financial Accounts, 75 Fed. Reg. 8844 (Feb. 26, 2010). 75. Reports of Foreign Financial Accounts, 75 Fed. Reg. 8844 (proposed Feb. 26, 2010) (to be codified at 31 C.F.R. pt. 103). 76. Id. 77. Id. 78. Id. 79. Id. 80. I.R.S. Notice 2010-23, 2010-11 I.R.B. 441. 81. 75 Fed. Reg. 8844 (proposed Feb. 26, 2010) (to be codified at 31 C.F.R. pt. 103).

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corporation, partnership, or trust has a financial interest in the entity’s foreign accounts.82 A U.S. person who creates an entity to evade FBAR reporting is deemed to have a financial interest in any foreign account owned by the entity.83 Tax-disregarded single member U.S. limited liability companies and U.S. grantor trusts are nevertheless subject to FBAR filing requirements.84 A U.S. person has signature authority only if the U.S. person, “alone or in conjunction with another” person, can control the disposition of assets in the financial account by written, oral, or e-mail instructions directed to the institution maintaining the account.85 Officers and directors of publicly traded U.S. corporations and their foreign subsidiaries that file a consolidated FBAR with their parent, and officers and directors of certain regulated banks, broker-dealers, and investment advisers, need not file FBARs with respect to foreign accounts over which they have signature authority but no financial interest if certain requirements are met.86 I.R.S. Notice 2010-23 generally extends the FBAR filing deadline for U.S. persons with signature authority, but no financial interest, in a foreign financial account to June 30, 2011.87 Under the proposed regulations, U.S. federal, state, and local entities are not required to file FBARs.88 Participants in qualified retirement plans and IRA beneficiaries need not report foreign accounts over which they have no signature authority.89 But U.S. custodians of IRAs with signature authority over foreign accounts and U.S. trustees of qualified plans, other than governmental plans, must report the foreign accounts of the IRA or plan.90 In 2010, FinCEN proposed regulations for an annual report by banks of the accountholder’s U.S. tax identification number and account number for all accounts used to originate or receive cross-border electronic transfer of funds.91 The Director of FinCEN said that “[b]y establishing a centralized database, this regulatory plan will greatly assist law enforcement in detecting and ferreting out . . . international tax evasion.”92

IV. Other FATCA and non-FATCA Provisions A.

WITHHOLDING

ON

DIVIDEND-EQUIVALENT AMOUNTS

Beginning in September 2010, section 871(m), enacted by FATCA, imposed U.S. dividend withholding tax on swap payments to the extent they are directly or indirectly contingent upon, or determined by, U.S. corporate dividends on U.S. non-publicly traded 82. Id. 83. Id. 84. Id.; I.R.S. Notice 2010-60, 2010-37 I.R.B. 329, § III.B. 85. 75 Fed. Reg. 8844 (proposed Feb. 26, 2010) (to be codified at 31 C.F.R. pt. 103). 86. Id. 87. I.R.S. Notice 2010-23, 2010-11 I.R.B. 441. 88. 75 Fed. Reg. 8844 (proposed Feb. 26, 2010) (to be codified at 31 C.F.R. pt. 103). 89. Id. 90. See I.R.S. Notice 2010-60, 2010-37 I.R.B. 329, § III.B. 91. Reporting Related to Cross-border Electronic Transmittal of Funds, 75 Fed. Reg. 60,377 (proposed Sept. 30, 2010) (to be codified at 31 C.F.R. pt. 103). 92. Robert T. Zung & Aaron Lorenzo, Information Reporting: FinCEN Proposes Requirement to Report CrossBorder Electronic Fund Transmittals, [2010] 186 Daily Tax Rep. (BNA) G-3 (Sept. 28, 2010).

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stocks or on U.S. publicly-traded stocks where the underlying stock has been transferred or pledged as collateral between the parties.93 Beginning on March 19, 2012, section 871(m) will impose U.S. dividend withholding tax on the dividend equivalent element of all notional principal contracts, including those involving publicly traded stocks not involving transfers or collateralization of the underlying stock, unless the contract is excepted by the Treasury.94 B. EXPANSION

OF

U.S. PERSONS TREATED

AS

GRANTOR

OF

FOREIGN TRUSTS

Under section 679(a), a U.S. transferor to a foreign trust is treated as the owner of the portion of the trust attributable to the transferred property if there is a U.S. beneficiary of any portion of the foreign trust.95 FATCA expands the circumstances in which a foreign trust transferee will be viewed as having a U.S. beneficiary, thereby correspondingly expanding grantor trust treatment to the U.S. transferor.96 FATCA treats a foreign trust as having a U.S. beneficiary if a U.S. beneficiary’s interest in the trust is contingent on a future event.97 A foreign trust is also treated as having a U.S. beneficiary if any person has the discretion to distribute to or for the benefit of a person, unless the trust identifies the class of permissible distributees and none of these persons are U.S. persons during the taxable year.98 A trust is also treated as having a U.S. beneficiary if implementation of a letter of wishes or other arrangement would create a present or future U.S. beneficiary.99 New reporting requirements are imposed for U.S. transferors to foreign trusts. A U.S. transferor to a foreign trust is treated as a grantor unless the U.S. transferor satisfies I.R.S. reporting requirements and affirmatively demonstrates the absence of a present or contingent U.S. beneficiary.100 The U.S. grantor of a foreign grantor trust must supply information directly to the I.R.S. as well as ensure that the foreign trust itself supplies information to owners and distributees.101 There is a thirty-five percent penalty for failure to report transactions with foreign trusts without reasonable cause, with the minimum penalty generally being $10,000.102 C.

ANNUAL PFIC REPORTING

Before FATCA, a U.S. person was generally not required to report ownership of PFIC shares if that U.S. person merely held those PFIC shares and did not dispose of or receive distributions from those PFIC shares during the year and no special PFIC elections were made.103 Rather, I.R.S. Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) was generally required to be filed if there was 93. See I.R.S. Notice 2010-46, 1984-1 C.B.; I.R.C. § 871(m) (LexisNexis 2011). 94. Hiring Incentives to Restore Employment Act, H.R. 2847, 111th Cong. § 541(b) (2010). 95. I.R.C. § 679(a) (LexisNexis 2011). 96. See id. 97. § 679(c)(1). 98. § 679(c)(4). 99. § 679(c)(5). 100. § 679(d). 101. I.R.C. § 6048(b)(1) (LexisNexis 2011). 102. I.R.C. § 6677 (LexisNexis 2011). 103. I.R.C. § 1298, amended by 2010 Foreign Asset and Tax Compliance Act (FATCA), Pub. L. No. 111-147, § 501, 124 Stat. 71 (2010).

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a disposition of PFIC shares, a distribution from the PFIC was received, or certain PFIC elections were made.104 Under FATCA, the I.R.S. may require U.S. owners of stock of a PFIC to file a return with respect to the PFIC, even if one of these events has not occurred.105 I.R.S. Notice 2010-34106 states that for individuals owning PFIC stock for a calendar year, the first new PFIC reports to identify PFICs owned during the 2011 year will be due no sooner than 2012. D.

PORTFOLIO INTEREST EXEMPTION ELIMINATED

FOR

FOREIGN-TARGETED

BEARER BONDS For foreign-targeted bearer bonds issued on or after March 19, 2012, the U.S. issuer will no longer be entitled to a deduction for the interest, and the foreign bond owners will no longer qualify for the portfolio interest exemption.107 Clearstream Banking (Clearstream) acts as clearing agent for $12 trillion of bonds issued by U.S. corporations and others.108 Clearstream uses a “dematerialized book-entry system,” under which ownership of bearer bonds can only be transferred through Clearstream’s records.109 Clearstream has asked the I.R.S. to confirm that such registration of owners, coupled with certain I.R.S.-specified procedures to detect U.S. accounts, will permit foreign persons registered as owners with Clearstream to be viewed as receiving portfolio interest on or after March 19, 2012, even if they do not give Clearstream a W8BEN.110 E.

EDUCATION JOBS THE

AND

MEDICAID ASSISTANCE ACT

OF

2010111—CHANGES

TO

FOREIGN TAX CREDIT

Public Law 111-226, which is not part of FATCA, makes a variety of changes to the foreign tax credit.112 Among the changes is the creation of a separate foreign tax limitation applied to items resourced as foreign under U.S. income tax treaties, but lightly taxed by the treaty partner.113 Further, the “hopscotch” rule is replaced with a “hypothetical distribution rule” in connection with determining the amount of foreign tax credits that are deemed paid when a high-taxed foreign subsidiary, in a tier of ownership below more lightly taxed foreign subsidiaries, triggers an income inclusion to its U.S. parent under Section 956 because of such reasons as the high-taxed foreign subsidiary having effectively 104. Instructions for Form 8621, Internal Revenue Service (U.S.), http://www.irs.gov/instructions/i8621/ ch01.html (last visited Feb. 9, 2011). 105. 2010 Foreign Asset and Tax Compliance Act (FATCA), Pub. L. No. 111-147, § 501, 124 Stat. 71 (2010). 106. Notice 2010-34, 2010-1 C.B. 612. 107. I.R.C. §§ 163(f)(2), 871(h)(2) (LexisNexis 2011). 108. Clearstream Banking Comments on FATCA Section of HIRE Act, Announcement 2010-22, TaxCore Vol. 10, No. 137 (BNA) (July 20, 2010). 109. Id. 110. Id. 111. Pub. L. No. 111-226, 124 Stat. 2389 (2010). 112. See generally id. 113. I.R.C. § 904(d)(6) (LexisNexis 2010).

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repatriated its earnings and profits by means of loans to a U.S. parent or affiliate, or having its assets pledged to secure a loan to such U.S. related parties.114 F.

HEALTH CARE

AND

EDUCATION AFFORDABILITY RECONCILIATION ACT

2010115—CODIFICATION

OF THE

OF

ECONOMIC SUBSTANCE DOCTRINE

This legislation provides that a transaction, to be respected for tax purposes, must change the taxpayer’s economic position in a material way and that the taxpayer must have a substantial non-tax purpose for entering into the transaction.116 A new twenty percent penalty, increased to forty percent if there is inadequate disclosure, applies to transactions lacking economic substance.117 There is no reasonable cause exception, so, reliance on the opinion of counsel will not protect against the penalty.118 G.

ADMINISTRATIVE INITIATIVES

TO

PROMOTE DISCLOSURE

OF

HIDDEN U.S.-

OWNED FOREIGN ACCOUNTS The I.R.S. has been reorganizing to better achieve tax compliance with respect to U.S.owned foreign accounts.119 In October of 2010, I.R.S. reorganized its Large and MidSize Business Division (LMSB) into the Large Business and International Division (LB&I).120 About 875 specialists in international taxation are to be brought into the LB&I.121 This restructuring is meant to improve identification and auditing of international issues, including issues relating to unreported income and transfer pricing issues, and also to aid in implementing FATCA.122 An FBAR twenty percent civil penalty voluntary disclosure program, which was adopted in the context of the Union Bank of Switzerland (UBS) litigation, ended in 2009 and resulted in approximately 15,000 taxpayers making voluntary disclosures of unreported foreign bank and financial accounts.123 Another approximately 3,000 taxpayers made voluntary disclosures between November 2009 and December 2010 without a pre-established civil penalty structure.124 In 2010, the United States settled summons litigation against UBS, pursuant to which approximately 4,450 names of U.S. account holders at 114. I.R.C. § 960(c) (LexisNexis 2010); LOWELL YODER, Section 956 Inclusions: New Limit on Foreign Taxes Deemed Paid, [December 2010] Tax & Accounting (BNA) (Dec. 1, 2010). 115. Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010). 116. I.R.C. § 7701(o) (LexisNexis 2010), enacted by Pub. L. No. 111-152, § 1409 (2010); I.R.S. Notice 201062, 2010-40 I.R.B. 411. 117. I.R.C. § 6662(b)(6), (i) (LexisNexis 2010). 118. §§ 6664(c)(2), 6676(c). 119. Tamu N. Wright, LMSB Restructure Will More Than Double Staff Size, Adds Transfer Pricing Director, [2010] 149 Daily Tax Rep. (BNA) GG-1 (Aug. 5, 2010). 120. Id. 121. Id. 122. Id. 123. Alison Bennett, IRS Plans to Offer New Voluntary Disclosure Program for Offshore Assets, Shulman Says, [2010] 236 Daily Tax Rep. (BNA) G-3 (Dec. 10, 2010); Statement from IRS Commissioner Doug Shulman on Offshore Income, Internal Revenue Service (U.S.), Mar. 26, 2009, http://www.irs.gov/newsroom/article/ 0,,id=206014,00.html. 124. Bennett, supra note 123.

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UBS were to be delivered to the I.R.S.125 In February of 2011, the I.R.S. announced another voluntary disclosure program, available through August 31, 2011, with a civil penalty generally somewhat more costly (involving an FBAR twenty-five percent civil penalty) than that of the 2009 program.126 On the bi-lateral and multi-lateral front, in 2010, bi-lateral tax information exchange agreements entered into force between the United States and the traditional tax havens and secrecy jurisdictions of Gibraltar, Liechtenstein, and Monaco.127 In 2010, the United States, Denmark, Finland, Iceland, Italy, France, Mexico, Netherlands, Norway, Portugal, Slovenia, South Korea, Sweden, Ukraine, and the United Kingdom signed an update to the 1995 multi-party Convention on Mutual Administrative Assistance in Tax Matters (Convention).128 The 2010 Convention provides for cross-border exchange of information without regard to supplying state tax interest or bank secrecy; multilateral simultaneous tax examinations; and cross-border assistance in tax collection, while imposing safeguards to protect the confidentiality of the information exchanged.129 Moreover, nonOECD members, e.g., developing countries, can become parties to the Convention.130 The United States is active in the Joint International Tax Shelter Information Centre (JITSIC), whose membership includes the tax administrations of Australia, Canada, Japan, and the United Kingdom.131 In 2010, I.R.S. Commissioner Shulman stated that the JITSIC will focus on combating the “use of offshore arrangements to avoid tax.”132

H. DISCLOSURE

OF

UNCERTAIN TAX POSITIONS

In I.R.S. Announcement 2010-75, the I.R.S. released, for comment, a draft Uncertain Tax Positions Schedule UTP that would be required of C corporations, with assets of at least $100 million in 2010 (phasing down to $10 million in 2014), to file (with their Forms 1120) to report uncertain tax positions if they issue audited financial statements.133 Transfer price uncertainties under Section 482, for which there is a significant financial accounting tax liability reserve, are specifically mentioned in Announcement 2010-75 as subject to disclosure.134 125. Id. 126. Second Special Voluntary Disclosure Initiative Opens; Those Hiding Assets Offshore Face Aug. 31 Deadline, Feb. 8, 2011, http://www.irs.gov/newsroom/article/0,,id=235695,00.html. 127. Jason R. Connery, Steven R. Lainoff & Charles W. Cope, Current Status of U.S. Tax Treaties and International Tax Agreements, 39 TAX MGMT INT’L J. (BNA) No. 790 (Dec. 10, 2010). 128. Rick Mitchell, Fifteen Nations Sign OECD, Council of Europe Agreement on Cooperation in Tax Matters, [2010] 102 Daily Tax Rep. (BNA) I-3 (May 28, 2010). 129. Protocol to Convention on Mutual Administrative Assistance on Tax Matters, [2010] 10 TaxCore (BNA) 102 (May 28, 2010). 130. Id. 131. Alison Bennett, IRS Stressing Focus on Global Examinations, Seeks More Data on Taxpayers, KPMG Says, [2010] 54 Daily Tax Rep. (BNA) G-4 (Mar. 23, 2010) [hereinafter IRS Stressing Focus on Global Examinations]. 132. IRS Commissioner Shulman June 8, 2010, Prepared Remarks for USCIB, BIAC Conference on OECD Issues, 10 TaxCore (BNA) 109 (June 9, 2010). 133. I.R.S. Announcement 2010-75, 2010-41 I.R.B. 428. 134. Id.

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V. Fiscal Year 2011 Legislative Proposals A.

PROPOSALS

TO

REDUCE DEFERRAL THROUGH

THE

USE

OF

LOW-TAX

JURISDICTIONS One of the Obama Administration’s (Administration) proposals would include deferring a deduction for interest expenses related to deferred income from foreign corporations.135 Another would base the deemed paid foreign tax credit on the pooled weighted average foreign corporate tax rate of all foreign subsidiaries, thereby restricting the ability to use high-tax country dividends to shelter low-tax-country dividends from U.S. corporate income tax.136 The Administration has also proposed denying a deduction to U.S. insurance companies for reinsurance premiums paid to foreign affiliate reinsurers to the extent that those premiums (less ceding commissions) exceed fifty percent of the direct insurance premiums of the U.S. payor and its U.S. affiliates for a line of business if the related foreign entity was not subject to U.S. income tax with respect to those premiums.137 B. PROPOSALS

TO

ADDRESS TRANSFER “MISPRICING”

The Fiscal Year 2011 budget plan would add as items within the scope of Section 482 commensurate with income “super-royalty” provision: workforce in place, goodwill, and going concern value transferred by U.S. taxpayer to a new foreign corporation.138 Multiple related intangibles could be valued by the I.R.S. on an aggregate basis to create a premium.139 In addition, intangibles would be valued at their highest and best use.140 If a U.S. person were to transfer intangibles to a low-tax foreign subsidiary in circumstances that evidence excessive income shifting, the foreign subsidiary’s excessive return would be denied deferral and would not be able to be used to create foreign tax credit limitations to shelter the U.S. transferor’s higher taxed foreign income.141

VI. U.S. Proposals and Initiatives Aimed at Foreign Persons A.

PREVENTING FOREIGN PERSONS

FROM

AVOIDING U.S. WITHHOLDING TAX

The U.S. Treasury has been negotiating new limitations of benefits clauses to prevent treaty-shopping by foreign persons to obtain reduced U.S. tax withholding or exemptions from U.S. tax.142 An example is the new treaty with Hungary signed in 2010.143 The I.R.S. has also introduced a Tier I withholding tax initiative to audit companies for compliance with U.S. withholding rules, such as withholding upon fees paid to foreign persons 135. General Explanation of the Administration’s Fiscal Year 2011 Revenue Proposals, U.S. Dep’t of the Treasury, 39-40 (2010), http://www.treasury.gov/resource-center/tax-policy/Documents/greenbk10.pdf. 136. Id. at 41. 137. Id. at 45. 138. Id. at 44. 139. Id. 140. Id. 141. Id. at 43. 142. See Alison Bennett, United States Signs New Tax Treaties With Chile, Hungary in Two Ceremonies, 23 Daily Tax Rep. (BNA) GG-1 (Feb. 5, 2010) [hereinafter United States Signs New Tax Treaties]. 143. Id.

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for services performed in the United States.144 Such withholding rules also include Section 861(a)(9), enacted in 2010, which provides that fees for guarantees paid by a U.S. borrower to a foreign guarantor are treated as U.S. source income for U.S. withholding tax purposes.145 B. PREVENTING FOREIGN PERSONS

FROM

HIDING INCOME

IN THE

UNITED STATES

The U.S. Treasury’s expansion of tax information exchange agreements gives foreign countries more of a right to obtain information on their taxpayers.146 Senate Bill 569, the proposed “Incorporation Transparency and Law Enforcement Assistance Act,” would, effective in 2012, require all U.S. states to obtain a list of the beneficial owners of limited liability corporations (LLCs) and corporations formed under their laws.147 Various countries have designated certain U.S. states as tax-haven or secrecy jurisdictions or certain U.S. entities, such as Delaware LLCs, as tax-haven entities.148

144. IRS Stressing Focus on Global Examinations, supra note 131. 145. Id. 146. See United States Signs New Tax Treaties, supra note 142. 147. Incorporation Transparency and Law Enforcement Assistance Act, S. 569, 111th Cong. (2009). 148. See, e.g., Ed Taylor, Brazil’s Tax Department Releases New List Of Tax Havens and Privileged Tax Regimes, 115 Daily Tax Rep. (BNA) I-2 (June 17, 2010).

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Private Antitrust Litigation in the European Union TILL SCHREIBER*

Abstract The private enforcement of antitrust damage claims continues to be a top priority of the European Commission and national competition authorities. Considering the large scope of damages resulting from the violation of E.U. competition law, it is likely that the number of antitrust damage actions in the E.U. will continue to increase in the future. Although damage claims find their legal basis in E.U. law, they have to be enforced on the national level. Against this background, this article explains the key factors for the future development of private enforcement in the European Union (E.U.) and analyzes the measures and policy choices proposed by the European Commission in its White Paper, as well as relevant developments at Member State level. Finally, the article sets out practical solutions on how to overcome the still existing obstacles to private enforcement in the E.U.

I. Introduction When the “Ashurst Study on the Conditions of Claims for Damages in Case of Infringement of EC Competition Rules” was published in August 2004, it concluded that the state of private enforcement of competition law in the E.U. was characterized by “total underdevelopment” and an “astonishing diversity” in the approaches taken by different Member States.1 As a reaction to this gloomy picture for the prospects of private enforcement in the E.U., the European Commission published a White Paper on Damages ac* Dr. Till Schreiber is Legal Counsel and heads the Brussels office of CDC Cartel Damage Claims. He studied law at the universities of Bonn, Cologne, Barcelona, and London (University College) and published a doctoral thesis on international competition law. Before joining CDC, Till Schreiber has worked as attorney for six years in the antitrust and competition group of a leading international law firm in Brussels, Cologne, and Madrid. Since joining CDC in 2007, Dr Schreiber has been active in the preparation and management of several damage cases relating to pan-European antitrust infringements. He has spoken at numerous conferences and has published articles on the innovative business model of CDC as well as general developments in the field of private enforcement in Europe. Till Schreiber speaks German, English, Spanish, French, and Dutch. The views and opinions expressed in this article are strictly personal. 1. Emily Clark et al., Study on the Conditions of Claims for Damages in Case of Infringement of EC Competition Rules, Ashurst, (Aug. 31, 2004), available at http://ec.europa.eu/competition/antitrust/actionsdamages/ comparative_report_clean_en.pdf.

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tions for breach of EC antitrust rules on April 2, 2008.2 Together with its White Paper, the Commission published a detailed Staff Working Paper,3 which provides the legal background, as well as an Impact Assessment Report,4 which contains an economic analysis of different potential private enforcement scenarios. In addition, an extensive economic study on the welfare impact of more effective private damage actions5 and, on January 19, 2010, an economic study on the quantification of antitrust damages6 were published on the Commission’s website. This activity by the Commission clearly indicates that the legal and economic landscape of actions for damages resulting from the violation of E.U. antitrust law is currently changing to the benefit of victims of antitrust infringements. In addition to the activity at European level, national legislators have introduced important legislative changes at national level in order to facilitate the private enforcement of antitrust damage claims. In Germany for example, the legislator amended the German Act against Restraints of Competition (ARC) in 2005 with the aim to strengthen private antitrust enforcement.7 This article aims to provide an overview and contribute to the ongoing discussion in Europe from a practitioner’s point of view. The first part sets out some key factors for the future development of private enforcement in the E.U. (Part A). The second part analyzes some specific measures and policy choices proposed by the Commission in its White Paper and/or national legislators (Part B). The third part explains the still existing obstacles to private damage claims in the E.U. and the practical approach of the company Cartel Damage Claims (“CDC”) to overcome these obstacles (Part C).

II. Key Factors for the Development of Private Enforcement in the E.U. Over the last years, a number of key factors for the development of private enforcement have emerged from the case law of the Court of Justice of the E.U. (“CJ”), but also from the Commission’s White Paper and the accompanying documents. These elements are part of the acquis communautaire and are thus already today directly applicable in damage actions before national courts. They will have a positive impact on the development of a 2. White Paper on Damages Actions for Breach of EC Antitrust Rules, COMM’N ON THE EUROPEAN COMMU(Apr. 2, 2008), http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/whitepaper_en.pdf. 3. Commission Staff Working Paper Accompanying the White Paper on Damages Actions for Breach of the EC Antitrust Rules, COMM’N ON THE EUROPEAN COMMUNITIES, (Apr. 2, 2008), http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/working_paper.pdf [hereinafter Commission Staff Working Paper]. 4. Commission Staff Working Document-Accompanying Document to the White Paper on Damages Actions for Breach of the EC Antitrust Rules: Impact Assessment, COMM’N ON THE EUROPEAN COMMUNITIES, (Apr. 2, 2008), http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/impact_report.pdf [hereinafter Impact Assessment]. 5. Centre for European Policy Studies, et al., Making Antitrust Damages Actions More Effective in the EU: Welfare Impact and Potential Scenarios, Final Report, COM (2006) AS/012 final (Mar. 30, 2008), available at http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/impact_study.pdf. 6. Quantifying Antitrust Damages, Towards Non-Binding Guidance for Courts, OXERA, (Dec. 2009), http:// ec.europa.eu/competition/antitrust/actionsdamages/quantification_study.pdf. 7. Gesetz gegen Wettbewerbsbeschrankungen ¨ [German Act Against Restraints of Competition], July 15, 2005, BGBL. I at 2114 (F.R.G.). NITIES,

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more effective system of private enforcement in the E.U., independently of whether the proposals set out in the Commission’s White Paper will be adopted or not. A.

THE ECONOMIC IMPACT

OF THE

ANTITRUST INFRINGEMENTS

OVERALL DAMAGE RESULTING

IN THE

FROM

E.U.

The question of whether or not to launch a damage action is mainly driven by an economic evaluation of the costs, risks, and potential outcome implied in such action. The success of private enforcement will therefore ultimately depend on whether market participants consider antitrust damage claims as potentially valuable assets. The overall still limited number of antitrust damage actions in the E.U. shows that this is currently not yet the case. The Impact Assessment Report of the Commission, however, clearly indicates that the size of damages caused by infringements of competition law in the E.U., and thus the damage claims that victims currently forego, does not justify such a reserved approach. The Impact Assessment Report estimates that the total amount of compensation (single damages plus pre-judgment interest) that victims of anticompetitive infringements are currently foregoing amounts to approximately =C5.7 billion to =C23.3 billion each year across the E.U.8 According to the recent “Oxera Study on the Quantification of Antitrust Damages,” the average price overcharge caused by hardcore cartels in Europe amounts to between ten percent and twenty percent of the competitive price of the given product or service and the median overcharge amounts to eighteen percent.9 Given these impressive figures it seems likely that victims of anticompetitive conducts will in the future more often decide to pursue their potential damage claims. This is particularly true for larger, possibly listed companies, which are bound by corporate law and corporate governance obligations to pursue damage claims in order to safeguard the companys’ and the shareholders’ interests.10 B. THE LEGAL BASIS

FOR

DAMAGE CLAIMS

IS

ROOTED

IN

E.U. LAW

According to the case law of the CJ, the right of victims to damages is directly conferred by Community law. In the groundbreaking judgment Courage v. Crehan, the CJ laid down that “the practical effect of the prohibition laid down in Article 85 (1) EC (now, Art. 101 of the Treaty on the Functioning of the European Union (“TFEU”)) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition.”11 In Manfredi, the CJ further clarified the right of victims of infringements of E.U. competition rules to claim damages: “It follows that any individual can claim compensation for the harm suffered where there is a causal relationship between the harm and an agreement or practice prohibited under 8. See Impact Assessment, supra note 4, at 15. 9. See Quantifying Antitrust Damages, Towards Non-Binding Guidance for Courts, supra note 6, at 90. 10. See, e.g., Dr. Alexander Franz & David A. Juntgen, ¨ Die Pflicht von Managern zur Geltendmachung von Schadensersatzanspruchen ¨ aus Kartellverstoben ¨ [The Obligation of Managers to Claim Damages Resulting From Antitrust Infringements], 32 BETRIEBS-BERATER 1681, 1681-87 (2007) (regarding the corporate law obligation of managers under German law to pursue damage claims for the infringement of national and EC competition law). 11. Case C-453/99, Courage v. Crehan, 2001 E.C.R. I-6297.

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Article 81 EC (now, Art. 101 TFEU).”12 Neither the CJ, nor the Commission have, however, yet clarified whether the right to claim damages is directly enshrined in Articles 101 and 102 TFEU or in the general legal principles of Community law. A comparison with the case law of the CJ concerning the liability of the Member States to individuals for a breach of E.U. Law implies that the latter is more likely to be the case.13 From a practical point of view this does not, however, make any difference as it is clear from the foregoing that E.U. Law provides for the legal base on which any victim of an infringement of E.U. antitrust rules may directly claim damages before a competent national court if the following three conditions are fulfilled: (i) there is an infringement of Article 101 or 102 TFEU, (ii) the individual has suffered a damage, and (iii) there is a causal relationship between the damage suffered and the infringement. C.

NATIONAL LAW HAS PRINCIPLES

OF

TO BE

INTERPRETED

EQUIVALENCE

AND

IN

LINE

WITH THE

E.U. LAW

EFFECTIVENESS

Although damage claims for the violation of E.U. competition rules law are rooted in E.U. Law, in practice they have to be enforced before national courts in accordance with the procedural and substantive law provisions applicable in the respective Member State. However, due to the direct effect and the supremacy of European Law, the applicable national provisions are subject to two legal principles of significant practical importance: (i) the principle of equivalence and (ii) the principle of effectiveness. In Manfredi, the CJ held that: in the absence of Community rules, it is for the domestic legal system of each Member State to lay down the detailed material and procedural rules governing actions for safeguarding rights which individuals derive directly from Community law, provided that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness).14 In particular, the principle of effectiveness may require national judges to adopt a lenient interpretation or set aside national provisions in order to enable victims to effectively enforce their right to damages conferred by E.U. Law, even if this would a priori not be in line with the wording of the provision or established domestic case law. For example, this may be the case when overly severe limitation periods in national law do not take account of the specific circumstances of the often clandestine infringements of E.U. antitrust rules.15 12. Joined Cases C-295/04 & C-298/04, Manfredi v. Lloyd Adriatico Assicurazioni SpA, 2006 E.C.R. I6619. 13. According to the CJ in Francovich, “[t]he full effectiveness of Community rules would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of Community law for which a Member State can be held responsible.” See Joined Cases C-6/90 & C-9/90, Francovich, Bonifaci v. Italy, 1991 E.C.R. I-05357. 14. Manfredi, 2006 E.C.R., para. 62, 72, 81. 15. According to the CJ “it is for the domestic legal system of each Member State to prescribe the limitation period for seeking compensation for harm caused by an agreement or practice prohibited under Article

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PRINCIPLE

OF

FULL COMPENSATION

OF

1161

DAMAGES

Damage claims represent an economic value and are therefore protected by the right of property enshrined in the fundamental principles of E.U. law as set out in Art. 17 (1) of the Charter of Fundamental Rights of the E.U.16 In accordance with the case law of the CJ, the Commission therefore established the principle of full compensation as the foremost guiding principle in the context of damage claims for antitrust infringements.17 According to the CJ, the damage to be compensated under E.U. law encompasses three factors: (i) the actual loss, (ii) loss of profit, and (iii) the right to interest.18 The European approach thus significantly differs from the United States, where private damage actions are fundamentally designed to deter future infringements.19 In practice, the differences in the approach may, however, be less important than one presumes at the outset that: Given the long average duration of cartels in the E.U. combined with the right to claim interest as of the first day of infringement, damages easily amount to twice the actual damage so that any “gap” with the U.S. approach is in reality much smaller than perceived.20 E.

JURISDICTION

AND

APPLICABLE LAW

Any violation of E.U. antitrust law by definition affects the market in more than one Member State. This raises complex questions in relation to jurisdiction and the applicable procedural and substantive law. 1. Jurisdiction The international jurisdiction of courts in the E.U. is essentially governed by Regulation (EC) No 44/2001 (“Brussels I Regulation”).21 The general rule under Article 2(1) Brussels I Regulation is that any person has to be sued before the court at the defendant’s domicile or seat. However, in the context of tortuous liability and collective litigation, the Regulation contains specific heads of jurisdiction. Given the tortuous character of antitrust infringements, these specific jurisdictional rules are particularly relevant for antitrust damage actions. With regard to tortuous liability, Article 5(3) Brussels I Regulation designates as competent the “courts for the place where the harmful event occurred” (forum delicti).22 According to the case law of the CJ, this place can, in general, either be the 81 EC, provided that the principles of equivalence and effectiveness are observed.” Manfredi, 2006 E.C.R., para. 81. 16. Charter of Fundamental Rights of the European Union, 2000 O.J. (C 364) 1. This Charter became binding as a result of the Treaty of Lisbon, which amended the Treaty on European Union and the Treaty establishing the European Community. Treaty of Lisbon, 2007 O.J. (C 306) 1. 17. See Commission Staff Working Paper, supra note 3, at 3. 18. Manfredi, 2006 E.C.R., para. 95. 19. One example for the importance of deterrence in U.S. antitrust law is the automatic trebling of damages, which is nonexistent in the E.U. 20. Manfredi, 2006 E.C.R., para. 97. In Germany, Section 33 (3) ARC specifically clarifies that interests start to be calculated from the date on which the damage occurred. German Act Against Restraints of Competition–Seventh Amendment, July 1, 2005, BGBL. I at 19 (F.R.G.). 21. Council Regulation 44/2001, 2000 O.J. (L 12) 44 (E.U.). 22. Id. art. 5(3).

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place of the event giving rise to the damage or the place where the damage occurred.23 Accordingly, jurisdiction was established at the seat of a victim of the Vitamins cartel in Germany in relation to an antitrust damage action against a cartel member seated in Switzerland.24 Further, the regulation establishes a specific jurisdiction for collective litigation that is also suited for antitrust damage actions against two or more infringers having their seat in different Member States. Pursuant to Article 6(1) Brussels I Regulation, several co-defendants can be sued at the domicile or seat of one co-defendant (so called “anchor defendant”), provided the “claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”25 Such a factual and legal connection is typically established in cases concerning the enforcement of antitrust damage claims: (i) such claims result from the same anticompetitive conduct (e.g. price-fixing, allocation of markets) and (ii) the infringers are jointly and severally liable for the overall damage caused by their illicit activities. This provision therefore designates alternative, equally competent courts at the seat of each of the infringers. According to English case law, actions against a multitude of infringers can also be lodged on the basis of Art. 6 (1) Brussels I Regulation before the competent court at the seat of subsidiaries of the infringers (i.e. subsidiaries acting as anchor defendants), at least if the subsidiaries implemented the cartel agreements.26 2. Applicable law The court competent to hear and to adjudicate the case will as a general rule apply the procedural rules of the Member State in question (lex fori). In addition, it has to determine which substantive law will apply to claims for damages resulting from the violation of E.U. antitrust law. In this respect, Regulation (EC) No 864/2007 on the law applicable on extra-contractual obligations (“Rome II Regulation”) is relevant.27 The Rome II Regulation harmonized the private international law rules of the Member States concerning tortuous liability and entered into force on January 11, 2009. Article 6(3) provides for a special rule on the law applicable to non-contractual obligations arising out of antitrust infringements, covering violations of both European and national competition law. According to Article 6(3) lit. a Rome II Regulation, the law applicable on claims resulting from the violation of competition law “shall be the law of the country where the market is, or is likely to be, affected.”28 However, pursuant to Article 6(3) lit. b Rome II Regulation in cases where “the market is, or is likely to be, affected in more than one country . . . [the claimant] may instead choose to base his or her claim on the law of the court seized, provided that the market in that Member State is amongst those directly and significantly affected by the restriction of competition.”29 It results that following the choice of the 23. Case C-21/76, Handelsk wekerig G.J. Bier BV v. Mines de Potasse d’Alsace, 1976 E.C.R. 1735. 24. This decision concerned the corresponding provision of Article 5(3) Lugano Convention. Landgericht Dortmund Case 13 O 55/02, Landgericht [LG] [District Court], Apr. 1, 2004, IPRax 2005 (542) (F.R.G.). 25. Council Regulation 44/2001, art. 6(1), 2000 O.J. (L 12) 44 (E.U.). 26. Cooper Tire & Rubber Co. Europe Ltd. & Ors v. Dow Deutschland Inc. & Ors [2010] EWCA (Civ) 864, 2010; Provimi Ltd./Roche Products Ltd. [2003] EWHC (Comm) 961. 27. Regulation 864/2007, 2007 O.J. (L 199) 41 (EC). 28. Id. at 44. 29. Id.

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claimant, claims for damages sustained in different Member States will be adjudicated under application of one single law. In relation to antitrust infringements that took place prior to the entry into force of Article 6(3) Rome II Regulation, there are good arguments that in particular cases where the main infringement (e.g. the kick-off meeting of a cartel) took place in one Member State, the substantive law of that Member State is applicable to all damage claims, even if the economic effect (also) occurred in other Member States. In particular, the principle of effectiveness established by the CJ and mirrored in Article 6(3) lit. b Rome II Regulation implies the application of one coherent and set of procedural and substantive law to damage claims based on an infringement of E.U. antitrust law.

III. Specific Measures Proposed in the European Commission’s White Paper In its White Paper the Commission has identified nine areas that require legislative action in order to overcome the current ineffectiveness of antitrust damage actions.30 For each of these areas the Commission proposes specific measures and policy choices. Furthermore, the Commission set out the aquis communautaire that clarifies for each of the nine areas the rights conferred by E.U. Law on which victims of antitrust infringements can rely before national courts. This provides a significant improvement for potential claimants, in particular as it is still unclear whether the Commission will take the next step in the legislative process and submit a formal draft directive. But, already the proposals in the White Paper are overall not sufficient and are partly even detrimental to attain the objective of providing a framework for an effective enforcement of antitrust damage claims. In this respect the proposals in the White Paper relating to following areas merit a closer comment: (1) indirect purchasers and collective redress, (2) access to evidence and disclosure inter partes, and (3) the passing-on defense. A.

INDIRECT

PURCHASERS AND COLLECTIVE REDRESS

The Commission rightly acknowledges the general standing of indirect purchasers to bring damage claims. In Courage and Crehan, the CJ clearly stated that “the practical effect of the prohibition laid down in Article 81(1) EC would be put at risk if it were not open to any individual to claim damages for loss caused to him. . . .”31 But, in the event of small damage claims, typically on the end-consumer level, it is unlikely that the victims will actually make use of their right to claim damages on an individual level. For most end-consumers it is simply not worth going through the hassle and bearing the costs of legal proceedings, if the potential damage to be awarded is not substantial.32 The Commission wants to overcome this fundamental dilemma by combining collective redress 30. These areas are: (i) standing: indirect purchasers and collective redress, (ii) access to evidence: inter partes disclosure, (iii) binding effect of decisions adopted by competition authorities, (iv) fault requirements, (v) damages, (vi) the passing-on of overcharges, (vii) limitation periods, (viii) costs of damage actions, and (ix) interaction between leniency programmes and actions for damages. See Commission Staff Working Paper, supra note 3. 31. Courage, 2001 E.C.R., at para. 26. 32. According to a survey, more than fifty percent of European consumers stated they will not go to court to seek redress for claims of less than =C200. Katy Dowell, Proposal for EU-Wide Class Action Finds No Favour With UK Practitioners, LAW. (Eng.), Dec. 15, 2008, http://www.thelawyer.com/cgi-bin/item.cgi?id=136067.

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mechanisms with a general presumption that—in case the action is lodged by end-consumers or their representatives—cartel-related price overcharges are entirely passed on to the end-consumer level.33 However, the strong focus on and the favorable treatment of end-consumers implies a number of practical problems, which would not foster but hinder the development of an effective private enforcement system and full compensation of victims: • Low incentive to start damage actions: As a result of the cost- and time-intenseness of antitrust damage actions and the low average damage amount, the economic incentive to start damage actions at end-consumer level will be limited, despite the availability of collective redress. This is confirmed by experiences in jurisdictions that already provide for representative or opt-in collective redress at end-consumer level, such as the United Kingdom or Germany. In the U.K. for example, the consumer organization Which? was granted the right to bring collective actions against infringers of U.K. competition law in 2005.34 It was not until 2007 that Which? brought its first collective action against the sports retailer JJB Sports for price fixing of football replica shirts.35 Despite a large media campaign and significant internal and financial efforts, Which? was only able to name 500 individuals in its representative action.36 The total damage enforced at the end of the proceedings amounted to around £18,000, resulting in an individual payout of £20.37 The legal head of Which? concluded that the low value of the payout, combined with the hassle to provide court, prove evidence makes it very unlikely that the consumer organization would bring another action soon.38 In Germany, where associations and consumer organizations are allowed to recover illegal gains from the infringers of E.U. and domestic competition law, no such proceeding has ever been initiated.39 • Lack of court proof evidence: Any action for damages will only be successful if the claimant(s) can substantiate and evidence (i) the damage suffered and (ii) the causal link between the infringement and the damage.40 In the E.U., the burden of proof generally lies with the claimant and typically requires evidence on price overcharges relating to the purchase of the product or service subject to the anticompetitive conduct.41 But, end-consumers do not typically retain such evidence (e.g. purchase invoices), at least not for a long period of time.42 In view of the often long-lasting competition law infringements, this situation results in a lack of court-proof evidence at the end-con33. For details on the passing-on of overcharges see section B.3 infra. Commission Staff Working Paper, supra note 3. 34. Our Legal Powers, WHICH? WORKS FOR YOU, http://www.which.co.uk/about-which/what-we-do/campaign-with-you/our-legal-powers/ (last visited Jan. 2011). 35. Id. 36. Caroline Binham, JJB to pay out after football shirts claim, LAW. (Eng.), Jan. 9, 2008, http:// www.thelawyer.com/jjb-to-pay-out-after-football-shirts-claim/130660.article. 37. Id. 38. Katy Dowell, Class Action Is One Big Headache, Says Which?, LAW. (Eng.), Dec. 1, 2008, http:// www.thelawyer.com/class-action-is-one-big-headache-says-which?/135901.article. 39. German Act Against Restraints of Competition, July 15, 2005, BGBL. I at 2114, § 34a. 40. Comments on the European Commission’s White Paper on Damages Actions for Breach of EC Antitrust Rules, CDC CARTEL DAMAGE CLAIMS, at 4 (July 2008), http://ec.europa.eu/competition/antitrust/actionsdamages/ white_paper_comments/cdc_en.pdf. 41. Id. 42. Id.

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sumer level and thus a perpetuation of the unjust enrichment of the infringers, in particular in long-lasting hardcore cartels. This is confirmed by the above-mentioned experience of U.K. consumer organization Which? in the football replica shirt case. The potential availability of disclosure inter partes does not remedy this situation. Due to the existence of one or more market levels between the infringer and the endconsumer, the infringer is typically not in a position to provide the court-proof documentation and information required to evidence the damage and the causal link with the infringement at end-consumer level.43 As a result of these practical limitations and based on the principle of effectiveness established by the CJ, the Higher Regional Court of Karlsruhe in Germany has recently generally excluded the standing of indirect purchasers in antitrust damage actions.44 This German court has therefore reached a conclusion comparable to the “Illinois Brick” doctrine in the United States, according to which damage claims by indirect purchasers are generally excluded at federal level.45 Whether this far-reaching conclusion will be upheld, however, remains to be seen. B. ACCESS

TO

EVIDENCE: DISCLOSURE INTER PARTES

One of the key requirements to ensure the effectiveness of antitrust damage actions is the access of victims to relevant evidence held by the defendants or third parties. In order to overcome the currently asymmetric availability of evidence, the Commission proposes a minimum level of inter partes disclosure, based on fact pleading combined with judicial control of relevance and proportionality.46 1. Discovery before national courts According to the CJ in Laboratoires Boiron, national courts are already today required to use all procedures available under national law, including that of ordering the production of a particular document by one of the parties or a third party, in order to comply with the principles of equivalence and effectiveness.47 Jurisdictions that provide for broad discovery rules under national law may therefore be an interesting forum for bringing antitrust damage actions. However, should the passing-on defense be recognized in the jurisdiction of choice, both claimants and defendants can equally rely on disclosure rules. From a claimant’s perspective, discovery may therefore even have a negative effect as the use of discovery by the defendants may not only significantly prolong and complicate an already complex litigation, but can also result in a situation where defendants find proof that the 43. Id. 44. Oberlandesgericht [OLG] [Higher Regional Court] Karlsruhe June 11, 2010, RECHTSPRECHUNG DER OBERLANDESGERICHTE IN ZIVILSACHEN [OLGZ] 6 U 118/05 (F.R.G.). 45. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). 46. Impact Assessment, supra note 4, at 5. For a detailed explanation of the Commission proposal of inter partes disclosure, see Commission Staff Working Paper, supra note 3, at 30-31. The details of the right to interpartes disclosure is based on the approach developed by the Commission under Directive 2004/48/EC (IP Directive). Council Directive 2004/48/EC 2004 O.J. (L195/16). 47. Case C-526/04, Laboratoires Boiron SA v. Union, 2006 E.C.R. I-07529. The Commission echoes this ruling in the acquis communautaire relating to disclosure rights. See Commission Staff Working Paper, supra note 3.

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damage was de facto totally or partly passed on to subsequent market levels, making the damage action totally or partially unfounded. On the other hand, the direct effect of E.U. Law requires that domestic rules relating to the access to evidence that make the exercise of the right to compensation excessively difficult must not be applied to cases of damages for the infringement of E.U. competition rules.48 2. Detailed fining decisions by the Commission and access to the file The General Court of the E.U. specifically recognized the necessity “of persons harmed by the infringement [of] being informed of the details thereof so that they may, where appropriate, assert their rights against the undertakings punished.”49 Only detailed decisions setting out the precise facts of antitrust infringements will therefore allow victims to effectively assess the harm suffered. Under its current practice, the Commission does, however, exclude all substantial facts provided in the context of a leniency statement from its publicly available decision. This practice seems difficult to reconcile with the requirement of a high degree of transparency established by the European Courts. The requirement of a detailed and substantiated description of the infringement should also be taken into account by the Commission in the context of its new settlement procedure for cartels.50 The Commission is right to state that the protection of confidential information may not de facto preclude the exercise of the right to compensation.51 For the avoidance of discrepancies between the various E.U. jurisdictions, it would therefore be advantageous to introduce a uniform and clear definition of the information that can legitimately be regarded as “confidential.” With regard to evidence contained in the Commission’s case file, the Commission, as any other European institution, is under an obligation of sincere cooperation with the judicial authorities of the Member States. According to the CJ in Zwartveld, the Commission is therefore—within certain limits—obliged to produce relevant documents or authorize its officials to be examined as witnesses before national court proceedings concerning the infringement of E.U. competition law.52 In addition, Regulation 1049/ 2001 grants a right of access to European Parliament, Council, and Commission documents to any E.U. citizen and to any natural or legal person residing, or having its registered office, in a Member State.53 The European Parliament is therefore right to require that victims of antitrust infringements be allowed access to relevant documents in the Commission’s files, unless interests pressingly in need of protection are endangered in the process.54 48. See Commission Staff Working Paper, supra note 3, at 26. 49. Case T-198/03, Bank Austria Creditanstalt v. Comm’n, 2006 E.C.R. II-01429, para. 78. 50. See Commission Notice on the Conduct of Settlement Procedures in View of the Adoption of Decisions Pursuant to Article 7 and Article 23 of Council Regulation, 2008 O.J. (C 167) 1. 51. Commission Staff Working Paper, supra note 3, at 35. 52. Case C-2/88, Zwartveld, 1990 E.C.R. I-04405, paras. 25-26. 53. Commission Regulation 1049/2001, Public Access to European Parliament, Council, and Commission Documents, 2001 O.J. (L 145) 43. 54. European Parliament Resolution on the White Paper on Damages Actions for Breach of the EC Antitrust Rules, EUR. PARL. DOC. T6-0187/2009 (2009), available at http://www.europarl.europa.eu/sides/getDoc.do?pub Ref=-//EP//NONSGML+TA+P6-TA-2009-0187+0+DOC+PDF+V0//EN.

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PASSING-ON DEFENSE

According to economic theory and depending on a number of economic conditions, direct purchasers may “pass on” part or all of the illegal price overcharge to the next (indirect) purchaser in the chain, e.g. a retailer or end-consumer. In legal terms, the possibility of defendants in antitrust cases to invoke the alleged passing-on by the claimant in order to limit the liability for compensation is referred to as “passing-on defense.”55 From an economic point of view, the passing-on defense is not a viable means to improve the effectiveness of antitrust damage actions, as the incentive for such actions is essentially driven by the aim of direct purchasers to recover significant damage amounts. This economic presumption led to the adoption of the “Illinois Brick” doctrine in the United States.56 The principle of an effective and full recoupment of damages as postulated by the CJ implies that the application of the passing-on defense should be the exception and not the rule. It should be limited to concrete cases in which passing-on is likely to have occurred: for example market structures characterized by vertically integrated companies or industries which typically price on a “cost plus” basis.57 It also seems necessary to avoid situations where by relying on the passing-on defense, infringers could effectively block the enforcement of legitimate damage claims. At the national level, there are significant differences with respect to recognition of the passing-on defense in antitrust damage cases. In the U.K. for example, the Lords Justices of Appeal in Devenish Nutrition stated that damages should only be available for losses actually suffered, suggesting that the passing-on defense is likely to apply in antitrust damage cases.58 In Germany on the other hand, the German ARC explicitly clarifies that the resale of a cartelized good or service does not in itself preclude the existence of a damage of direct purchasers, and thus their standing, in a court procedure.59 Based on this provision and the general civil law principles on the balance of advantages (“Vorteilsausgleich”), German courts held that the passing-on defense is generally excluded in the context of antitrust damage claims.60 Besides the principle of effectiveness established by the CJ the courts based their argumentation on the fact that there is no causal link between the infringement and the (alleged) passing-on of the damage and that infringers should not benefit from the successful and economically justified efforts of direct purchasers, selling their products or services to the next market level at the highest price possible.61

IV. Existing Obstacles to Private Enforcement and the Approach of CDC to Overcome These Obstacles Despite recent legislative changes, victims of antitrust infringements still face significant obstacles when it comes to the enforcement of damage claims. The obstacles include (1) 55. BLACK’S LAW DICTIONARY 452 (8th ed. 2004). 56. See Illinois Brick, 431 U.S. 720. 57. See European Parliament Resolution on the White Paper on Damages Actions for Breach of the EC Antitrust Rules, supra note 54. 58. Devinish Nutrition Ltd. v. Sanofi-Aventis, S.A., [2007] EWHC 2394; see also Emerald Supplies, [2010] A.C. 1284. 59. German Act Against Restraints of Competition, July 15, 2005, BGBL. I at 2114, § 33(3). 60. Kammergericht [KG] Berlin, Oct. 1, 2009, OLGZ 2 U 10/03 (F.R.G.); OLG, supra note 44. 61. Id.

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the calculation and evidence of damages, (2) the economic risks involved, and (3) the unclear legal situation in many E.U. Member States, including the lack of collective redress mechanisms. Against this background the company Cartel Damage Claims (“CDC”) has developed solutions to practically overcome these obstacles. A.

CALCULATION

AND

EVIDENCE

OF

DAMAGES

Under the procedural law of virtually all E.U. Member States a claimant has to sufficiently demonstrate and prove the damage suffered as a result of a tortuous act. In order to comply with the burden of proof, a claimant in an antitrust damage action thus has to submit court-proof evidence in respect of the damage suffered and the causality between the infringement and the damage. In the field of antitrust law it is, however, often extremely difficult for a single victim to calculate and to evidence the damage, as marketwide effects have to be assessed. The key challenge is the determination of the “hypothetical competitive price” of the product or service in question. It is at least the difference between such hypothetical competitive price and the price effectively paid by the victim, multiplied by the unit volumes purchased in the cartel period, which results in the total damage sustained. In view of its hypothetical character it is widely accepted that the competitive price, and thus the individual damage, may finally be estimated by the court.62 The German ARC contains a specific provision in this respect, which significantly reduces the burden of proof.63 However, the claimant still has to provide full evidence of the complex factual and economic background (e.g. purchase and market data) on the basis of which the court can proceed to its estimation. The required data basis must in particular be sufficiently representative in order to serve as a sound basis for the estimation of the hypothetical market price.64 The economic models available to analyze cartel-related damages do not lighten the burden of proof of the claimant as any such analysis ideally presupposes the existence of sufficiently detailed data on the actual price development in the markets concerned.65 B. ECONOMIC

AND

FINANCIAL RISKS

Furthermore, the enforcement of antitrust damage claims may involve significant economic and financial risks. The preparation of claims for damages resulting from the violation of E.U. Competition Law is cost and time intensive. In addition to the collection and 62. According to the Commission, the principle of effectiveness excludes a national court that found that the claimant was harmed by the defendant’s infringement of the competition rules, from not awarding any damages simply because the claimant cannot prove sufficiently precisely the amount of the harm suffered. Commission Staff Working Paper, supra note 3, at 60. The Commission intends to issue non-binding guidance on the calculation of damages in 2011. As part of such guidance, the Commission will consider suggesting simplified rules for estimating the loss suffered as a result of a competition law infringement. See id. at 61. 63. German Act Against Restraints of Competition, July 15, 2005, BGBL. I at 2114, § 33(3). 64. In practice, particularly detailed purchase data from a multitude of victims allow the claimant to track and to analyze the real price development over years in the market concerned. Such precise data are quite difficult to obtain by the single victim, independent of the possibilities to additionally enforce claims for access to information against the infringers, or claims of access to file against the Commission or national competition authorities. 65. See Quantifying Antitrust Damages: Towards Non-Binding Guidance for Courts, OXERA, (Dec. 2009), http:// ec.europa.eu/competition/antitrust/actionsdamages/quantification_study.pdf.

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analysis of relevant evidence and purchase data, the preparation of antitrust damage actions generally requires support from external legal and economic experts. Depending on the jurisdiction where an action for damages is brought, the filing of damage actions may require the payment of considerable up-front court fees. The financial risk of claimants in antitrust damage cases may further increase as a result of the often long duration of legal proceedings. Finally, corporate victims of antitrust infringements may want to refrain from legal actions due to ongoing commercial relationships with their suppliers. C.

LACK

OF

LEGAL CERTAINTY

AND

LACK

OF

COLLECTIVE REDRESS MECHANISMS

Finally, antitrust damage claims in the E.U. are still in their infancy. Most Member States lack a clear legal framework in respect of damage actions for violation of E.U. competition law. This effectively prevents many victims from enforcing their claims. Although the CJ has formulated key principles, it is essentially for the Member States with their “procedural autonomy” to provide for the material and procedural rules governing such actions.66 The legal reforms undertaken so far on a national level are, however, still fragmentary across the E.U. Given that legal certainty and predictability are in most cases decisive for bringing a damage action, it is evident that currently many victims of antitrust infringements are still rather deterred from pursuing their claims. One fundamental aspect in the relative lack of private enforcement activity in the E.U. is the absence of collective redress mechanisms, in particular for direct purchasers. Effective forms of collective redress would in practice allow the victims to overcome the existing obstacles for bringing antitrust damage actions, as they would allow for the sharing of costs and risks inherent in such claims. While some Member States have introduced in recent years procedures of collective redress, (e.g. Portugal, Sweden, and Italy67), they are typically designed for end-consumer claims, i.e. cases with widely dispersed and individually low value claims. But such procedures have in most Member States not yet been applied in the context of competition law infringements. In England, the Court of Appeal in Emerald Supplies explicitly held that the claimants in an antitrust damage action did not have standing to represent other direct and indirect purchasers under the representative action provision in the Civil Procedural Rules.68 D.

THE APPROACH

OF

CDC

TO

OVERCOME EXISTING OBSTACLES

With a view to practically address the obstacles to the effective enforcement of antitrust damage claims in the E.U., CDC was founded in 2002.69 CDC is specialized in the purchase, the preparation, and the enforcement of such claims to CDC. The collective approach of CDC not only results in significant synergies, but also considerably strengthens the position of the victims in potential out-of-court/settlement discussions.70 66. See Courage, 2001 E.C.R.; Manfredi, 2006 E.C.R. 67. See Member State Fiches on Consumer Redress, E.U., Jan. 2011, http://ec.europa.edu/consumers/redress_cons/adr_en.htm#MS_fiches. 68. Emerald Supplies, [2010] A.C. 1284. 69. About CDC, CARTEL DAMAGE CLAIMS, http://www.carteldamageclaims.com/About%20CDC.shtml (last visited Jan. 2011). 70. Commission Staff Working Paper, supra note 3, at 16.

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1. Purchase of antitrust damage claims Without being limited to this approach, CDC bundles damage claims on a material law level. In this respect CDC purchases the damage claims from a multitude of companies damaged by a given antitrust infringement.71 The victims transfer their damage claims by way of assignment.72 After the preparation of the factual and economic background, CDC enforces the damage claims in its own name and on its own account in and out-of court.73 The enforcement encompasses the evaluation of settlement opportunities and litigation.74 In court, CDC is represented by external lawyers.75 In this way CDC aims to create an incentive for victims of antitrust infringements to start the enforcement of damage claims. In the absence of collective redress mechanisms, the bundling of claims is a trigger for antitrust damage actions, in particular as ongoing business relations are not affected by the enforcement process. In addition, the bundling of antitrust damage claims balances out the structural disadvantage of single victims vis-a-vis ` the infringers. Finally, given the often significant amount of such damages, the CDC approach of bundling antitrust claims across entire purchaser groups increases the possibilities to reach settlements and to attract third-party funding. 2. Centralized collection and analysis of relevant data on a market-wide level In addition to the bundling of claims, CDC centrally collects and analyzes representative purchase data (i.e. data on cartel-affected purchases), as well as relevant market data.76 The collection and analysis of large volumes of purchase data from a multitude of cartel victims allows CDC to precisely mirror the price developments prior, during, and after the infringement period. The collection and analysis of such representative data allows for well-founded conclusions on the market-wide effects of an infringement and the competitive “but-for” price. Therefore, CDC is in the position to precisely demonstrate and evidence the damage that each victim individually has sustained as a result of an infringement. 3. Business model confirmed by Federal Court of Justice In 2003, the German competition authority found that numerous cement producers had shared the German cement market, agreed on sales quotas and fixed prices since the early 1990s.77 Subsequently, CDC purchased the cartel-related damage claims of thirty-six cement-consuming companies and analyzed the cartel-related damage. CDC brought an 71. About CDC, supra note 69. 72. Approach, CARTEL DAMAGE CLAIMS, http://www.carteldamageclaims.com/Approach.shtml (last visited Jan. 2011). 73. Id. 74. Id. 75. Id. 76. Id. 77. By decision in April 2003, the Bundeskartellamt fined the six largest companies a record fine of =C660 million. One company had exposed the cartel and had applied for the German Leniency Program. See Press Release, the Bundeskartellamt, Bundeskartellamt imposes fines totalling 660 million Euro on companies in the cement sector on account of cartel agreements (of Apr. 14, 2003), available at http://www.bundeskartellamt.de/wEnglisch/News/Archiv/ArchivNews2003/2003_04_14.php.

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action for damages against six cartel members in August 2005 before the Regional Court 78 The Court by interim judgement on February 21, 2007, declared the of Dusseldorf. ¨ damage action admissible.79 Subsequently, both the Higher Regional Court of Dusseldorf ¨ and in April 2009 the German Federal Court of Justice confirmed this judgment.80 In the meantime, CDC has lodged a damage action before the Regional Court in Dortmund (Germany) against the members of the pan-European Hydrogen Peroxide Cartel, in which it bundled the damage claims purchased from thirty-two companies of the pulp and paper industry.81 4. Leniency PLUS+ concept In the E.U., most cartel decisions by the European Commission or national competition authorities are the result of the cooperation by cartel members under public leniency programs. While avoiding administrative fines, leniency applicants are nevertheless exposed to private damage actions. This is in particular the case in Europe, as all cartel members (including leniency applicants) are jointly and severally liable for the entire damage caused. Against this background, CDC has developed its Leniency PLUS+ concept, which provides effective solutions by creating incentives for cartel members to cooperate in the context of private damage claims.82 Under the concept cartel members have the possibility to minimize their risk exposure to private damage claims by providing evidence on the infringement and the damage caused by the infringement.83 Besides making private enforcement in the E.U. more effective, CDC is confident that its Leniency PLUS+ concept also contributes to a better reconciliation of public leniency programs and private damage claims.

V. Conclusion In view of the large scope of damages resulting from the violation of E.U. competition law, it is likely that the number of antitrust damage actions in the E.U. will continue to increase in the future. Although damage claims find their legal basis in E.U. law, they have to be enforced on the national level. In such cases the courts have, in the absence of European rules, to apply the material and procedural rules of national law, provided they do respect the E.U. principles of equivalence and effectiveness. The White Paper of the Commission and its accompanying documents will play an important role for the development of private enforcement of competition law, independently of whether there will be a E.U. Directive on this subject matter or not. In particular, the proposals in the White 78. German Cement, CARTEL DAMAGE CLAIMS, http://www.carteldamageclaims.com/German%20Cement.shtml (last visited Jan. 2011). 79. Landgericht [LG] [Regional Court] Dusseldorf, ¨ Feb. 21, 2007, Case No. 34 O (Kart) 147/05 (F.R.G). 80. Oberlandesgericht [OLG] [Higher Regional Court] Dusseldorf ¨ May 14, 2008, Case VI U (Kart) 14/07; Bundesgerichtshof [BGH] [German Federal Court of Justice] Apr. 7, 2009, Case KZR 42/08, Decision of 7 April 2009, Betriebs-Berater 2009, at 905. 81. The members of the European Hydrogen Peroxide Cartel were fined a total of =C388 million, see Commission Decision Case COMP/F/C.38.620, 2006 O.J. (L353) 54. 82. For more information, see CARTEL DAMAGE CLAIMS, http://www.carteldamageclaims.com/ LeniencyPlus+.shtml (last visited Jan. 10, 2011). 83. Id.

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Paper may serve as model rules for the adoption of respective measures on national level. However, the White Paper does not effectively address all existing obstacles for victims of anticompetitive practices to bring damage actions. In many cases a collective approach is required to successfully enforce antitrust damage claims.

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I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act ERIC ENGLE*

Abstract The U.K. Anti-Bribery Act (“the Act”) makes both bribery of a public official and private-toprivate commercial bribery illegal, and imposes a strict liability offense on commercial organizations that fail to prevent bribery by persons associated with them. The Act has extraterritorial effect and applies to transactions of British subjects or on British territory. “Commercial organizations” may raise the statutory defense of having “adequate procedures” in place to prevent bribery, which, if proven, exonerates the commercial organization from strict liability for bribery by their “associated persons.” Unlike the Foreign Corrupt Practices Act (FCPA), the U.K. Act does not exempt facilitation payments (“grease”) from coverage. The Act meets and exceeds Britain’s obligations under the Organization of Economic Cooperation and Development (OECD) Anti-Bribery Convention, itself too an outgrowth of the U.S. FCPA, seeks to raise international standards, and relies on “soft law” to do so in tandem with “hard law.” The British Act is often criticized for overreach and ambiguity. This article analyzes the genesis of the British Act, arguing that several of the criticisms of the British Act are valid but that the Act can be cured of many of its perceived flaws by reference to common law concepts (e.g., agency) or by reference to flanking international instruments as persuasive evidence of the British legislator’s intent and/or the goals of the Act. The Act is notable in that it represents the success of hard law crystallizing out of soft law. The Act is also notable in that it will inevitably generate more soft law (codes of conduct, contract terms, managerial guidelines) as companies scramble to set up adequate procedures. The development of best practices in business is an example of the use of private law norms to generate binding law. It could be seen as evidence of Professor Ralph Steinhardt’s Lex Mercatoria hypothesis.

* Dr.Jur. Eric Engle JD, DEA, LLM is a professor of law at Pericles-ABLE in Moscow, Russian Federation. The author may be contacted via email at: [email protected].

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I. Introduction Terrorist financing. Corrupted officials. Money laundering. The terms of trade in the black market are at times underwritten in blood. Most instances of corruption are not cases of blood money.1 There is an entire underground economy which is bloodless: undocumented workers; sex workers; penny-ante wagers; and at the riskier end, cigarette smuggling and drug dealing. What about corruption? Official/unofficial corruption is an invisible transaction cost to the expense of businesses; costs aside though, what’s wrong with “grease?”2 The problem with grease payments, even when oil and blood are not mixed, is that they represent a lack of transparency.3 We could of course (re)characterize facilitation payments as a simple “user fee,” a type of tax levied by impoverished states to finance their essential services. It would be better for the rule of law for developing and transition economies to legally transform the common practice of facilitation payments into overt user fees, e.g., expedited service fees or administrative fines. Essentially, we should see a large part of the battle of corruption as the transformation of illegal transactions into legal ones. From the prosecutorial side, amnesties for giving up evidence and deferrals of prosecution (DAPs) are two more tools. Amnesty is fairly straightforward for whatever reason and to whatever extent certain persons or transactions are immunized from prosecution. In a deferral of prosecution, a tool often permitted in the United States, the prosecutor holds off on prosecuting the illegal activity so as to give the company the chance to get its house in order. The logic of amnesties, DAPs, and plea bargaining is the preservation of scarce prosecutorial resources and the non-disruption of commerce. It is a matter of “winding down” the “dodgy deals” and restructuring them into above the board legality to attain transparency and accountability.4

1. “While there is no doubt that petty corruption in the form of bribes to obtain services such as a passport or a driving licence from government officials is prevalent in many developing countries and injurious to trust in the government and the rule of law, it is corruption at the grand level in the form of bribes by businesses to domestic and foreign public officials that is seen as causing the greatest harm to a country in terms of economic growth and high levels of poverty.” Indira Carr & Opi Outhwaite, The OECD AntiBribery Convention Ten Years On, 5 MANCHESTER J. OF INT’L ECON. L. 3, 4 (2008), available at http:// epubs.surrey.ac.uk/578/1/fulltext.pdf. 2. Facilitation payments are payments made to government officials not to influence a sovereign decision but to obtain execution of a right to which the payer is already entitled; they are also called “grease payments.” See generally, Christopher F. Dugan & Vladimir Lechtman, Current Development: The FCPA in Russia and Other Former Communist Countries, 91 AM. J. INT’L L. 378, 380 (1997). 3. “The House of Representative makes clear such activities ‘cast a shadow on all US companies. The exposure . . . can damage a company’s image, lead to costly lawsuits, cause the cancellation of contracts, and result in the appropriation of valuable assets overseas.’” Carr & Outhwaite, supra note 1, at 7. 4. “Although many commentators may find it unsurprising that some multinational firms vigorously pursue corruptly influenced contracts—or are at least complacent in accepting such contracts—another view holds that such an account is too cynical. These optimists claim that corruption is inefficient and argue that moral signals from the countries that have prohibited corruption by statute can also motivate firms. Under such a view, most multinational corporations should endeavor to comply with the law.” David C. Weiss, The Foreign Corrupt Practices Act, SEC Disgorgement Of Profits, and the Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, 30 MICH. J. INT’L. L. 471, 472-73 (2009).

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Corruption is a problem—a transnational problem.5 Corruption represents an increased transaction cost, a distortion of economic signals, a lack of transparency, an obstruction to free trade, and a source of inefficiencies such as nepotism and tax fraud. Thus, all states benefit from the suppression of corruption. Consequently, there is an ever-greater tendency to criminalize and prosecute bribery both internationally and domestically,6 as evidenced by the recent upswing in Foreign Corrupt Practices Act (FCPA) prosecutions7 and the passage of the British Anti-Bribery Act. There are numerous reasons speculated at to explain the increased prosecutions,8 but the fact of increased prosecution of a growing array of norms is there. The Organisation for Economic Co-operation and Development (OECD) Convention and the Council of Europe (COE) Convention seek to create a framework within which national legislation can and is developed to end corruption. Accordingly, the Act seeks to implement Britain’s normative and legal obligations under anti-corruption treaties promulgated by the OECD, the COE, and the E.U. The Act seeks not only to meet but also to exceed existing international standards, thereby raising the level of legal transparency and accountability internationally.9 But the Act’s own terms are vague, casting a broad net, which reaches actors and actions that might be better regulated through private law relations. This article proposes: (1) interpretations of the Act that would cure it of vagueness by presenting concepts around which to define the ambiguities (e.g., fiduciary duty, good faith and fair dealing) (2) to limit the Act’s scope to the types of actions and actors envisioned in existing international treaty law, while (3) enhancing the Act’s effectiveness by expanding remedies through equitable concepts such as forfeiture, procurement bars, and licensing restrictions. This paper exposes and critiques the British law in order to help make it more effective. To do so, it must first expose and compare the foreign laws that inspired the U.K. legislation. The rise of the norm against bribery under international law is an example of a soft law approach that succeeded to form and, over time, implemented a particular norm. The model of shaping and enforcing an international norm described here can be applied to other international governance issues. The experience of the anti-bribery convention could be applied to the fight against pollution, for example.

5. “The US recognised that bribery of foreign public officials was not simply a US problem but a universal one. In aggressively promoting the adoption of similar legislation in other industrialised countries the US sought to ensure a level playing field for competing businesses and to increase market integrity and stability. The FCPA is legislation that has economic interests at its heart. It took until 1997 for the US pressure to bear fruit and that came in the form of the OECD Convention.” Carr & Outhwaite, supra note 1, at 7. 6. See Weiss, supra note 4, at 473. 7. Id. 8. Id. at 483. 9. “Going beyond, for example, the US Foreign Corrupt Practices Act, it has been said to set a new ‘gold standard’ in anti bribery legislation.” Andrew Ottley & Chris Jefferis, Bribery Act 2010: Briefing and Guidance, INCE & CO., (Oct. 2010), http://www.incelaw.com/documents/pdf/Strands/Commercial-Disputes/ bribery-act-2010.pdf.

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II. Legislation A.

THE FOREIGN CORRUPT PRACTICES ACT (FCPA)

“Genetically,” i.e., historically, the most important legislation in the field of international bribery was a U.S. law: the Foreign Corrupt Practices Act. This law was enacted in the wake of the Watergate political scandal and intended to affirm the United States’ commitment to the rule of law and international human rights. It was not however merely a case of na¨ıve altruism or enlightened maintenance of U.S. hegemony: the U.S. leadership saw, correctly, that murky overseas illegality represents a hidden transaction cost and a source of inefficiencies,10 and that combating corruption would be of interest to key U.S. allies. This, however, put the United States at a competitive disadvantage against other countries that did not (then) outlaw the (overseas) transactions covered by the FCPA (bribery,11 essentially). Because commerce is often international and works as a potential competitive disadvantage to U.S. corporations, the FCPA was given what at that time was a revolutionary international scope of application: bribery at home and abroad would be sanctioned. However, it would take decades of lobbying for the U.S.-inspired vision to be translated into international treaty law, and from there, into the laws of other states.12 Ultimately, the FCPA “became the model for similar international initiatives, most notably the Organization for Economic Cooperation and Development (‘OECD’) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions,”13 which explains its interest here. 1. Bases of Liability under the FCPA The FCPA prohibits bribery of public officials,14 not commercial bribery, i.e. bribery of private law persons. Today, the FCPA also requires companies with securities listed on the U.S. stock market to comply with the accounting provisions of U.S. law.15 This “books and records” provision of the FCPA16 is particularly useful17 and could be taken up in other legislation (viz, the British Anti-Bribery Act). The books and records provisions are more useful than the bribery provisions because they do not require a proof of scien10. “U.S. trade officials clearly recognized that bribery and corruption can block and distort international economic transactions.” Kenneth W. Abbott, Rule-Making in the WTO: Lessons from the Case of Bribery and Corruption, 4 J. INT’L ECON. L. 275, 286 (2001). 11. See 15 U.S.C. §§ 78dd-1-78dd-3 (2010). 12. The United States introduced FCPA, then pressured OECD and the U.N., with little success, for 10 years. Abbott, supra note 10, at 283. 13. Thomas F. McInerney, The Regulation of Bribery in the United States, 73 INT’L R. OF PENAL L. 81, 82 (2002), available at http://www.cairn.info/revue-internationale-de-droit-penal-2002-1-page-81.htm. 14. See 15 U.S.C. §§ 78dd-1-78dd-3. 15. See § 78m. 16. § 78m(b)(2)(A). 17. “The accounting and internal controls provisions together constitute one of the most effective weapons regulators possess in enforcing the FCPA. While these provisions are only enforceable by the SEC on a civil basis, and apply only to companies with securities registered under the Exchange Act (rather than all persons’ as do the anti-bribery provisions), it is much easier for regulators to prove their case.” McInerney, supra note 13, at 87-88.

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ter18—the standard of proof is lower. Further, by tracking financial statements, wrongful acts are easier to trace and prove.19 Since its initial enactment, the FCPA has been amended20 and strengthened and given greater extraterritorial application; at the same time, defenses to FCPA liability also have been more clearly defined. 2. Exemptions from Liability under the FCPA Because of the wide reach of the law, defenses and exceptions were soon carved out.21 Payments for “routine governmental action,” in other words, the ministerial rather than sovereign acts of the foreign official22 such as “facilitating or expediting payment to a foreign official, political party or party official” intending to “secure the performance of a routine governmental action,” are exempt from the FCPA.23 This exception applies only to “ministerial” duties and not to discretionary decisions, such as whether “to award new business or to continue business with a particular party.”24 These are called “facilitation” payments or “grease” payments and merely expedite the execution of a right to which one is already entitled.25 Another exception was also found: payments, gifts, offers, or promises that are lawful under the laws of the recipient’s country,26 as well as sums paid in good faith—for example, travel or lodging expenses in connection with the “promotion, demonstration, or explanation” of products or services, or the “execution or performance” of a contract with a foreign government would be exempted from the FCPA.27 That is, the sanctioned act must be an instance of “dual criminality,” something illegal both in the United States and the country (or countries) where the transaction occurred. 3. Remedies under the FCPA There are several remedies under the FCPA. The Department of Justice can seek a permanent injunction of the wrongful activity,28 companies can be fined,29 and natural persons may be fined and/or imprisoned.30 May the bribe itself be recovered? Yes—to the United States Treasury. “[I]t is unclear whether Congress intended that the SEC pursue disgorgement in FCPA enforcement.”31 Disgorgement of wrongful profits is an 18. “The anti-bribery provisions of the FCPA, unlike the books and records provisions, require scienter for liability to attach. The definitions in the statute indicate that ‘knowing’ conduct exists if (i) a person is aware that they are engaging in certain conduct, that such circumstances exist, or that the result is substantially certain to occur, or (ii) the person has a ‘firm belief’ that such circumstance exists or is substantially certain to occur.” Id. at 84. 19. Id. at 87-88. 20. See The International Anti-Bribery and Fair Competition Act of 1998, 112 Stat. 3302 (1998) (amending the Foreign Corrupt Practices Act). 21. 15 U.S.C. § 78dd–1(c). 22. § 78dd–1(b). 23. Id. 24. 15 U.S.C. § 78dd-1(f)(3)(B). 25. See Dugan & Lechtman, supra note 2. 26. 15 U.S.C. § 78dd-1(c)( 1); 15 U.S.C. § 78dd-2(c)(1). 27. McInerney, supra note 13, at 85. 28. 15 U.S.C. § 78dd-2(d); 15 U.S.C. § 78dd-3(d). 29. § 78dd-2(g). 30. § 78dd-3(e). 31. Weiss, supra note 4, at 496.

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equitable remedy under the FCPA,32 available thanks to the Sarbanes-Oxley Act,33 even in cases of violation of the books and records provisions of the FCPA.34 Disgorgement of wrongful profits and their forfeiture to the state or even private parties is an unproblematic issue internationally.35 But the potential for jurisdictional conflict indicates why we must be cautious regarding disgorgement as an international remedy: aside from the difficulty of estimating profits that arise directly from a bribe,36 there is the risk of international conflicts over spoliation of the proceeds of corporate wrongdoing. B. THE OECD CONVENTION Following the enactment of the FCPA, U.S. pressure led the OECD to draft an antibribery convention.37 The OECD Convention “in large part tracked the normative aspects of the FCPA.”38 Bribery of foreign public officials is prohibited under the OECD Convention39 and bribes paid to foreign officials are subject to seizure and confiscation.40 Corporations may be liable under the Convention.41 The OECD Convention permits extraterritorial jurisdiction42 (extraterritorial application of national anti-bribery laws is unproblematic internationally),43 provides for extradition,44 and mandates mutual legal 32. “The SEC can support its pursuit of disgorgement under broad equitable principles or statutory authorization. Disgorgement is an equitable concept that has existed in Exchange Act jurisprudence for decades. The first case using the word ‘disgorgement’ for violations of Rule 10b-5 stated: ‘[I]t is simple equity that a wrongdoer should disgorge his fraudulent enrichment.’ While disgorgement can serve deterrence purposes, it is intended not to compensate the wronged party or to serve as a complete stand-in for the deterrent effects of fining, but to recover the benefits of a wrongful act. Although a longstanding equitable tool, disgorgement was used relatively sparingly by the SEC until the passage of SOX, which is also, now, a part of the Exchange Act.” Id. at 485. 33. See Sarbanes-Oxley Act of 2002, 116 Stat. 745 (2002) (codified in scattered sections of 11, 15, 18, 28 and 29 U.S.C. (2000 & Supp. IV 2004)). 34. Weiss, supra note 4, at 474. 35. Id. at 492. 36. Id. at 499. 37. “The prime mover for the OECD to take steps to combat corruption of foreign public officials was pressure applied by the United States . . . which took almost two decades to bring about the intended result.” Carr & Outhwaite, supra note 1, at 6. 38. McInerney, supra note 13, at 89. 39. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and Related Documents, Nov. 21, 1997, 37 I.L.M. 1 (1998), available at http://www.oecd.org/dataoecd/4/18/ 38028044.pdf [hereinafter Convention on Combating Bribery]. 40. “Each implementing State must also ‘take such measures as may be necessary to provide that the bribe and the proceeds of the bribery of a foreign official, or property the value of which corresponds to that of such proceeds, are subject to seizure and confiscation or that monetary sanctions of comparable effect are applicable.’” Weiss, supra note 4, at 480. 41. Art. 2 artificial persons liability states: “Each Party shall take such measures as may be necessary, in accordance with its legal principles, to establish the liability of legal persons for the bribery of a foreign public official.” Convention on Combating Bribery, supra note 39. 42. Id. 43. “Belgium, for example, prohibits foreign bribery under a universal jurisdiction statute that applies to ‘any person’ ‘who is neither a Belgian national nor has their principle place of residence in Belgium.’ Brazilian authorities have asserted that an offense needs only to have ‘touched’ Brazilian territory for jurisdiction to be valid.” Weiss, supra note 4, at 493. 44. Convention on Combating Bribery, supra note 39.

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assistance.45 Article 9(3) is particularly interesting, as it prohibits a state party from asserting bank secrecy as grounds to refuse to cooperate in the enforcement of the treaty.46 These normative positions could, and I think should, be seen as of interpretive value in construing the British Anti-Bribery Act. The OECD anti-bribery convention took a “functional approach,”47 focusing on the effects of the national legislation rather than the individual rules.48 That is, the OECD Convention resembles an E.U. Directive, indicating to state parties what is to be prohibited, but leaving the means to national law. In sum, slowly, yet inexorably, an international norm against official bribery has formed.49 Thus, several states have enacted antibribery legislation pursuant to the OECD convention.50 C.

THE WTO

The surprisingly successful “soft law” approach taken by the OECD51 can be contrasted with the law/no law approach taken by the WTO. The WTO has not undertaken antibribery legislation.52 This is because soft law is regarded with suspicion and skepticism at the WTO.53 The fear is that developing WTO soft norms would undermine the existing WTO hard law54 because soft law norms could not be enforced,55 which would reduce WTO legitimacy. Thus, to date, the OECD, and not the WTO, has been the principle force for the formation of the norm against bribery. 45. Id. 46. “A Party shall not decline to render mutual legal assistance for criminal matters within the scope of this Convention on the ground of bank secrecy.” Id. 47. Carr & Outhwaite, supra note 1, at 9. 48. “Practices and informal rules are part of this approach as well as other aspects of the legal system taking over ancillary functions. Therefore the focus of comparison would lie on overall effects produced by a country’s legal system rather than the individual rules.” Id. at 10 (emphasis added). 49. A recent study on enforcement of anti-corruption laws by OECD countries “showed slow but steady movement toward more proactive government enforcement of anti-corruption laws over the first decade of the OECD Convention. In the past couple of years, the Bush and now Obama Administrations have substantially ratcheted up the US Government’s pursuit of all manner of cases in the anti-corruption space.” Andrea Bonime-Blanc, The UK Anti-Bribery Act: How Global Companies Should Prepare, ETHICAL CORP., Sept. 14, 2010, http://www.ethicalcorp.com/content.asp?contentid=7075. 50. For a list of national legislation implementing the OECD Anti-Bribery Convention, see OECD AntiBribery Convention: National Implementing Legislation, OECD, http://www.oecd.org/document/30/ 0,3343,en_2649_34859_2027102_1_1_1_1,00.html (last visited Oct. 27, 2010). 51. “Discussions in the OECD and WTO were based on very different conceptions of the process of legalization. In the OECD, the U.S. pursued a ‘transformational’ soft law strategy that over five years-1993 to 1997-produced a legally binding Convention. The U.S. undoubtedly adopted a gradualist strategy in this case because an immediate move to hard law seemed politically infeasible, but the approach was highly congenial to the OECD, which acts through a variety of soft (recommendations) and hard (decisions, conventions) legal instruments.” Abbott, supra note 10, at 290. 52. Id. at 275-96. 53. “In the WTO, in contrast, negotiators from the U.S. and other developed country governments, at least, perceived only two possible outcomes: a hard, legally binding multilateral agreement (whether on corruption, market access or TGP) or no action at all.” Id. at 290. 54. “The focus on hard law was not simply a matter of tactics on this particular issue. It reflected a deepseated understanding of how the WTO operates and should operate. The conviction that the WTO is an organization that deals only in hard law was most clearly revealed in debates over the applicability of the WTO dispute settlement mechanism to TGP.” Id. 55. Id. at 291.

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THE COUNSEL

OF

EUROPE (COE) CONVENTION

Following the FCPA model, the Council of Europe Convention obliges State Parties to create offenses in their national law for fraudulent accounting practices.56 The COE Convention permits State Parties to exercise extra-territorial jurisdiction over offenses on the basis of nationality or territoriality.57 Article 17(3), for its part, imposes a duty to extradite or prosecute, which is becoming ever more clearly a general principle of international law: states must prosecute or extradite criminals subject to their jurisdiction—aut dedere aut judicare.58 The COE convention permits criminal or civil liability for legal persons in accordance with national law59 because, e.g., corporations under German civil law, e.g., cannot commit crimes, but can be in (delictual) violation of administrative provisions. Corporate liability shall not exclude the possibility of civil liability of natural culpable persons.60 Article 21 of the COE convention mandates cooperation between national authorities.61 E.

COMMON FEATURES

OF THE

LAWS

Because the laws described all share a common lineage and logic, they share various features. These are synoptically described below to illustrate the state practice of the forming customary norm against bribery of public officials. 1. Corporate Criminal Liability—Permitted, Not Mandated The conventions mandate that corporations be held liable in accord with national law. The civil liability of corporations here is not at issue—that is unproblematic. What is less clear, internationally, is whether and how a corporation may be held criminally liable, e.g. as an accomplice or even principal. Germany and most States using Germanic civil law do not recognize corporate criminal liability for the simple and logical reason that corporations, unlike natural persons, are incapable of moral culpability.62 Of course, corporations in Germanic civilianist jurisdictions may be liable in tort and for administrative violations (Ordnungswidrigkeiten). Accordingly, the international conventions mandate either civil or criminal sanction, leaving the precise characterization of the sanction as civil, criminal, or some mix to national law. Because the common law does recognize corporate criminal liability,63 the extraterritorial application of common law legislation subjects foreign corporations to criminal liability. Criminal liability of corporations is thus an international 56. Criminal Law Convention on Corruption, Jan 27, 1999, E.T.S. 173, available at http://conventions.coe.int/treaty/en/treaties/html/173.htm [hereinafter Criminal Law Convention]. 57. Id. art. 17. 58. See e.g., R v. Bow St. Metro. Stipendiary Magistrate And Others, Ex Parte Pinochet Ugarte (No. 3), [1999] 1 A.C. (H.L.) 147, 154. 59. Criminal Law Convention, supra note 56, art. 18. 60. Id. art. 18(3). 61. Id. art. 21. 62. See generally Gunter ¨ Stratenwerth, Strafrechtliche Unternehmenshaftung, IN Festschrift fur ¨ Rudolf Schmitt zum 70. Geburtstag 295-310 (K. Geppert, J. Bohnert & R. Rengier eds., 1992). 63. Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co., [1915] A.C. 705, 713 (H.L.) (Viscount Haldane; ‘directing mind’ principle; wrongful act of corporate director attributed to corporation).

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practice,64 and holding corporations criminally liable for violations of international law, for example under the Alien Tort Statute, is consistent with customary public international law. 2. Dual Criminality In the context of extradition, “double criminality” (also known as “dual criminality”) is the principle that the criminal act which is the basis for the desired extradition must be a crime both in the state asserting jurisdiction and in the state where the crime occurred.65 States which apply a principle of “double criminality” refuse to extradite unless there is “double criminality.”66 Corporations cannot be extradited, so the issue of dual criminality normally does not arise in the context of corporate crimes. This procedural fact obviates the potential problem of determining whether the civil violations of corporations in jurisdictions which refuse to impute criminal liability to corporations satisfy the dual criminality requirement for extradition. But, because corporations can be liable for bribery under national or international law, and because some states permit extraterritorial application of their anti-bribery statutes only where the principle of dual criminality is satisfied, the theoretical problem reappears. The solution in national law is to assimilate the civil law violations of corporations under Germanic civilian law to the criminal liability of corporations in common law jurisdictions for the application of the test to determine whether the act is wrongful in both (or all) relevant jurisdictions.67 3. Cross Border Cooperation The various national and international instruments have extraterritorial effect to remedy international corruption. This leads to the issue of international cooperation, which has been increasing in recent years.68 Today, informal agreements exist to avoid the problems of double jeopardy and multiple prosecution69 as well as to ensure transfer of (confidential) information and cooperation between national law enforcement. 64. “Given the many approaches to imputing fault on the part of a company it is unfortunate that the OECD has not put forward an autonomous provision to address this issue.” Carr & Outhwaite, supra note 1, at 16. 65. “It is a fundamental requirement of international extradition that the crime for which extradition is sought be one provided for by the treaty between the requesting and the requested nation. The second determination is whether the conduct is illegal in both countries.” Heilbronn v. Kendall, 775 F. Supp. 1020, 1023 (W.D. Mich. 1991). 66. “A broad interpretation of the requirement of dual criminality is followed: The law does not require that the name by which the crime is described in the two countries shall be the same, nor that the scope of the liability shall be coextensive, or, in other respects, the same in the two countries. It is enough if the particular act charged is criminal in both jurisdictions. The fact that a particular act is classified differently or that different requirements of proof are applicable in the two countries does not defeat extradition.” Id. at 1025. 67. One can readily imagine situations where the wrongful act occurred in several jurisdictions, or where the national is subject to multiple states’ jurisdiction. In the corporate context the struggle between the “real seat theory” versus the “incorporation theory” to determine the nationality of the corporation recurs here, too. See, e.g., Kilian Baelz & Teresa Baldwin, The End of the Real Seat Theory (Sitztheorie): the European Court of Justice Decision in Ueberseering of 5 November 2002 and its Impact on German and European Company Law, 3 GERMAN L. J. 12, available at http://www.germanlawjournal.com/article.php?id=214. 68. Siri Schubert & T. Christian Miller, At Siemens, Bribery Was a Line Item, N.Y. TIMES, Dec. 20, 2008, http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html. 69. Weiss, supra note 4, at 504.

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4. Taxation—Non deductibility of Corruption Payments One real point of progress made by the conventions is the rise of a norm that corruption payments will not be deductible from taxable income. Article 12.4, UNCAC provides that “Each State Party shall disallow the tax deductibility of expenses that constitute bribes.”70 Similarly, the OECD recommends that tax deduction of corruption payments be disallowed.71 It is also worth noting that tax fraud and bribery often go hand-inhand.72 The Conventions make bribery non-deductible in order to root out tax fraud as well as bribery.

III. The U.K. Anti-Bribery Act (“the Act”)73 Against this background, Britain recently enacted an extensive anti-bribery statute in order to meet and exceed the OECD Convention’s standards. The British legislation was likely, in part, a response to the OECD’s report calling on the United Kingdom to enact effective anti-corruption legislation.74 The British statute, in sum,75 attempts to govern not only bribery of public officials but also commercial bribery of private actors inter se (as, for example, where a person bribes another person to breach their fiduciary duty to their employer). The British statute sanctions not only the wrongful acts of physical, i.e. natural persons but also those of corporations.76 Furthermore, and perhaps problematically, the British law applies a strict liability regime to corporate liability.77 Like the FCPA,78 the British law applies extraterritorially.79 Unlike the FCPA, the British statute does not provide an express exemption for liability for facilitation payments. I do not think one could be fairly implied from the terms of the statute, but some judges are creative sometimes. The Act includes controversial, even questionable, bases for liability. If I read this statute correctly, it imposes extraterritorial strict liability for corporate commercial bribery. 70. United Nations Convention Against Corruption art. 12.4, Oct. 31, 2003, 2349 U.N.T.S. 41 [hereinafter UNCAC]. 71. OECD, Recommendation of the Council on the Tax Deductibility of Bribes to Foreign Public Officials, at 2, [C(96)27/FINAL] (Apr. 11, 1996). 72. “In our experience, it is during interactions with foreign tax officials (both direct and indirect tax authorities) that many bribes take place.” David Lawler, The Bribery Bill-What Does it Mean For UK plc?, EUROPEAN UNION ANTI-BRIBERY BLOG, (Jan. 12, 2009), http://www.antibriberyblog.eu/2009/12/the-bribery-billa-non-technical-summary/. 73. Throughout this section quotation marks are used to indicate the exact terms of the Act, not as “scare quotes.” 74. See OECD Group Demands Rapid UK Action to Enact Adequate Anti-Bribery Laws, OECD, Oct. 16, 2008, http://www.oecd.org/document/8/0,3343,en_2649_34855_41515464_1_1_1_1,00.html. 75. “[T]he Bribery Act makes it an offense to receive, as well as give, a bribe; bribery of private individuals and companies is criminalized; there is no need to prove corrupt intent; there is a strict liability corporate offense for failing to prevent bribery; there is no exemption for facilitation payments; and the extraterritorial reach has a broader impact for companies and individuals.” The UK Bribery Act 2010: What US Companies Need to Know, DLA PIPER, June 1, 2010, http://www.dlapiper.com/the-uk-bribery-act-2010-what-us-companies-need-to-know/. 76. Id. 77. Id. 78. Lawler, supra note 72. 79. Bribery Act, 2010, c. 43, § 12 (U.K.).

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This strict liability of the corporate body for the wrongful act of its “associated person” can be avoided if the corporation had “adequate procedures” in place to prevent the wrongful act. The “adequate procedures” defense had not arisen in any of the international instruments or the FCPA so far as I have seen, but neither had strict liability. In addition to controversial theories, which reach extraterritorially to corporate actors and include strict liability, the Act also suffers from ambiguities. None of those weaknesses are fatal, but they will require much judicial interpretation to be cured. Despite the flaws—ambiguity and overreaching, the Act is a “hopeful monster.” First, the legislation represents another example of the success of functionalist method.80 Second, the statute represents an example of the power of non-binding soft law as a “strange attractor” for obligatory compliance. A.

SOFT LAW: A STRANGE ATTRACTOR

FOR THE

ACCRETION

OF

HARD LAW

International anti-bribery legislation is an example of effective transnational governance. How exactly did a binding international norm against the bribery of public officials arise? The approach taken follows: First, normative goals with few or no enforcement mechanisms, but which may be used to interpret other laws and/or as persuasive evidence of binding law, are established at the global or regional level. Second, these normative goals are then taken up and implemented via regional, national, and even private actors (e.g. corporate codes of conduct). Both private law actors (corporations, NGOs) and public law actors (states, international organizations) are used to establish the norm and to attribute greater and greater binding force to it over time. In sum, the persuasive and desired normative goal—here, transparent government, which is desired in fact by all honest persons, is attained gradually by ratcheting standards upward over time.81 The British Act attempts to further that process along by addressing commercial bribery and also by giving a hard law role to soft law actions of non-state actors. The corporate defense of adequate procedures is nothing other than an implied command to companies to form soft law in this field, soft law which will influence not merely the interpretation of hard law but also its application. To me, the Act represents the efficacy of soft law transnational governance and this model of international governance should be understood for it may have applications in many other fields. B. THE TERMS

OF THE

ACT

The statute first defines a “general bribery offence”82—bribing another person for improper performance.83 The statute then84 defines offenses relating to being bribed.85 80. Functionalism seeks to attain peace by pieces. Namely, specialist agencies defined around particular problems seek to develop and apply expert knowledge to apply to isolated individual disputes. See, e.g., ERIC ENGLE, LEX NATURALIS, IUS NATURALIS: LAW AS POSITIVE REASONING & NATURAL RATIONALITY, 3638, 154-155 (2010). 81. OECD, Recommendation of the Council on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business, at 1-2, [C(2009)64] (May 25, 2009) (non-binding norm; merely recommending state parties to take up binding national legislation). 82. Bribery Act, 2010, c. 43, § 1 (U.K.). 83. Id. 84. Bribery Act § 2.

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Thus, taking or offering a bribe is covered under the general offense which reaches commercial bribery, sometimes referred to as private to private bribery. Comparatively speaking, commercial bribery is recognized in some form in most U.S. states, though it is generally not addressed in the international conventions or, so far as I understand, in the FCPA. The United Kingdom seeks to raise the international standard on that point. “However, unlike bribery involving public officials, the logic of criminalizing bribery between commercial entities is sometimes questioned.”86 The two “general offenses”—taking or receiving a bribe—reach commercial i.e. private actors. Do they also reach bribery of officials? The general offenses do not appear to explicitly include or exclude bribery of public officials. Structurally, having defined general offenses which clearly include at least commercial bribery, the statute then defines “specific offenses,” starting with the specific offense of “bribery of foreign public officials.”87 That creates the argument that the structure of the legislation excludes bribery of public officials from the general offenses, which is an odd result, because the OECD Convention that the statute effectively implements is aimed only at bribery of public officials. The second, and perhaps most controversial specific offense, is also the last offense defined in the Act: “failure of commercial organisations to prevent bribery.”88 There, strict liability may be imputed to the corporation for the wrongful act of an associated person. The obvious question is who is an “associated person”? Directors? Officers? Employees? Likely all three. What about shareholders? Spouses? Children? Subsidiaries? Subcontractors? The statute on its own terms doesn’t answer who is an “associated person.” Happily, we can well imagine the eventual judge drawing on principles of tort liability (respondeat superior, vicarious liability, imputed liability), contract (privity), capital markets law (corporate insiders), and corporate criminal law to determine with some predictability who is or is not an “associated person.” I expect “associated person” will be defined as employers, directors, shareholders, persons in privity to those groups, general partners, probably also silent partners, wholly owned subsidiaries, probably also majority owned subsidiaries, joint venture partners, but probably not subcontractors; frankly I have no idea if shareholders or silent partners should be treated as associated persons or, if so, when. The court may well be forced to develop a center of gravity approach of some kind under which sometimes a shareholder will be an “associated person” and at other times will not. Regardless of what the court does in fact do with this undefined term, judicial interpretation can credibly cure this flaw because of the array of flanking corporate laws from which to draw analogies. However, one can imagine this Act leading to the use of subcontractors, and subsidiaries to outsource graft, as similar outcomes resulted from the Alien Torts Statute.89 As noted, the Act does not exempt facilitation payments. But, bribes paid by the military or intelligence services are exempted.90 There the difficult issue is the use of “Her Majesty’s Service” to obtain not vital intelligence about impending attacks but market share 85. Id. 86. McInerney, supra note 13, at 104. 87. Bribery Act § 6. 88. § 7. 89. See Eric Engle, U.S. Corporate Liability for Torts of Foreign Subsidiaries, 23 CORP. COUNSEL REV. 90 (2004). See also Eric Engle, The Alien Tort Statute and the Torture Victim’s Protection Act: Jurisdictional Foundations and Procedural Obstacle, 14 WILLAMETTE J. INT’L L. & DISP. RESOL. 1, 8 (2006). 90. Bribery Act, 2010, c. 43, § 13.

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for sale of British Aerospace products91—industrial espionage masquerading as security. The problem of corruption in military contracting is a matter for domestic British law to sort through. Here, however, the equitable remedy of procurement bars is called to the reader’s attention. With crafty interpretation, the judiciary might somehow reach a judicial (not equitable: equity does not exonerate otherwise wrongful acts—“he who seeks equity must do equity”) solutions. Perhaps the judiciary will find an exemption for facilitation payments, or an exemption for de minimis payments? Whether and how the court reaches such exemptions cannot be predicted either from the statute or other laws with which this author is familiar. A good argument might be to compare the U.K. Anti-Bribery Act to other similar laws overseas which do exempt “grease” payments as persuasive evidence that the British legislator did not intend to capture such conduct because it did not specifically say it would do so and because capturing such conduct might lead to conflicts of jurisdiction or between British law and the U.K.’s international obligation.92 What is clear is that the Act covers commercial bribery. Commercial bribery is one (the only?) basis for the general claims.93 Criminalizing commercial bribery is controversial because commercial bribery is not defined internationally, so far as I have seen, though it can be found in the laws of some of the federated states of the United States. It is also clear that commercial organizations are (strictly!) liable for failure to prevent bribery by (not of) persons associated with it (was that the result of bad drafting?). Commercial bribery is not well defined in the statute. I would argue that the essence of commercial bribery is an economically induced breach of fiduciary duty. Those are my own terms. Perhaps penetrating legal research would find a better rationale? I do think the terms I suggest reach the gravamen of the wrong. On its own terms, the Anti-Bribery Act centers the wrong on obtaining or retaining commercial advantage94 and/or business.95 Just about all company actions aim at commercial advantage and/or obtaining and/or retaining market share. Thus, business advantage is not the best focal point for capturing the wrongful act because that test captures almost all conduct of a commercial enterprise. Commercial organizations may assert the affirmative defense to an accusation of failing to prevent bribery by (not of) persons associated with the organization that the commercial organization had “adequate procedures” in place to prevent the wrongful act of the associated person.96 The Act does not define “adequate procedures.” But, here at least, the judge can look at the vast literature and even case law on corporate governance. So for example, we can readily envision a corporate code of conduct, corporate trainings, and contractual provisions in the company’s business practices. In fact, the soft-law aspects of the Act are the most interesting and innovative aspect of the Act. The Act is doing some very interesting things. It is essentially imposing a policing function on corporations—after all, they are the ones acting, the ones closest to the transactions. The Act is also relying on soft law measures to form hard law.97 Consequently, most law and consulting firms are 91. David Leigh & Rob Evans, BAE Accused of Secretly Paying 1bn to Saudi Prince, GUARDIAN, June 7, 2007, http://www.guardian.co.uk/world/2007/jun/07/bae1. 92. Then again, maybe not; your guess is as good as mine, maybe better. 93. Bribery Act, 2010, c. 43, § 7. 94. § 7(1)(a). 95. § 7(1)(b). 96. § 7(2). 97. Id.

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advising their clients to undertake compliance measures such as audits and trainings.98 Similar “due diligence” actions such as Corporate Codes of Good Conduct (COGCs) and management trainings were (and are) also recommended with respect to the U.S. FCPA,99 even though the FCPA does not provide for liability on a theory of commercial bribery or strict liability.

IV. Critique of the British Law A.

ACTUS REUS

1. Extortion versus Bribery As noted, the Act is vague: as written, the Act potentially covers so much conduct that extortion could well be included into the general offenses. Thus, it would be sensible for the judiciary to interpret the statute to exclude conduct which would be characterized as extortion. Bribery may be distinguished from extortion in that extortion relies on duress.100 This illustrates that some of the ambiguity in the Act can be cured by interpreting the Act in light of flanking criminal legislation so as to delimit the exact extent of the Act. 2. Commercial Bribery The FCPA and the international conventions surveyed do not criminalize commercial bribery. Criminalization of commercial bribery does not conflict with the terms of the conventions but is not mandated by them. Trying to draw on the international instruments described here will not help the British judge define commercial bribery, nor will looking to the FCPA. Nor is commercial bribery coherently defined in the Act. I suggest centering the definition of commercial bribery on the idea of some breach of fiduciary duty and/or a breach of the duty of good faith and fair dealing. However, while the applicability of commercial bribery can be rendered coherent in this way, it cannot be interpreted away by any judge, no matter how interventionist or activist she may be. The challenge for human rights and rule of law advocates is to figure out how best to generate business practices which will ultimately define just what is and isn’t commercial bribery. To that extent, one can hope that NGOs will promulgate model codes of business conduct. B. MENS REA The U.K. statute applies “strict liability” to companies.101 It would be prudent to interpret the statute as applying by implication there from specific intent to natural persons; that distinction is justified because natural persons are capable of being imprisoned and should enjoy the higher standard of proof (beyond reasonable doubt) of criminal defendants. This would be the interpretation moreover that one should expect from the court at 98. See, e.g., Gary DiBianco & Perry Madden, U.K. Parliament Enacts Landmark Anti-Bribery Law, SKADApr. 1, 2010, http://www.skadden.com/Index.cfm?contentID=51&itemID=2045. 99. See, e.g., Eric Engle, Corporate Social Responsibility (CSR): Market-Based Remedies for International Human Rights Violations?, 40 WILLAMETTE L. REV. 103 (2004). 100. McInerney, supra note 13, at 99. 101. See id.

DEN,

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least as to criminal prosecutions—in contrast to civil prosecutions, which would likely be based on an ordinary standard of proof (likelier than not). C.

POSSIBLE REMEDIES

1. Procurement and Licensing Restrictions The problem with the British Act is that it overreaches, taking into account “commercial” bribery and strict liability for corporations (extraterritoriality is not so problematic but elicits howls, too). Further, the Act’s substantive offenses and defenses are poorly defined. Judicial interpretation can, should, and likely will clarify the exact contours of the legislation. But, the Act does not address two remedies which would be very effective: procurement bars and license revocation. A procurement bar is the refusal of a State to enter into business contracts with a corporation that has violated the law.102 A licensing restriction is the suspension or revocation of a license, e.g. to practice law or medicine, resulting from the wrongful conduct of the license holder. Courts could and should interpret the statutes in question where possible to find such remedies, for they would be effective.103 2. A Private Cause of Action The U.K. Act does not, and should not, create a private law cause of action unless and until it modifies its substantive definitions of the covered actions and actors to create adequate legal certainty to avoid a flood of self-interested litigation. 3. Disgorgement (forfeiture) Because the United Kingdom is a common law country equitable remedies are also generally available. So, in theory, a British court could order disgorgement of wrongful profit. However, the remedy of disgorgement is problematic because measuring the profits resulting from a bribe will at times be difficult or impossible, which is one reason to be hesitant to use disgorgement as a remedy to cases of international bribery.104 Furthermore, permitting extraterritorial forfeiture could lead to overly zealous enforcement by prosecutors seeking to increase their budgets as well as to jurisdictional conflict.105 102. “In many states, corporations that engage in bribery of public officials may be barred from receiving further government contracts for up to a three year period. Such statutes typically specify that subject to reasonable notice and an opportunity for a hearing, bidders, offerors, or contractors including, in some cases, natural persons such as partners, members, officers, directors, or responsible managing officers of such entities, can be excluded from public contracts based on inter alia a criminal conviction in relation to obtaining a public or private contract or a conviction of bribery under state or federal law. Constitutional challenges to such statutes have generally failed.” Id. at 103-04. 103. “As with bars from procurement, many states make bribery convictions grounds upon which licenses may be withheld. The types of licenses to which such prohibitions apply range from licensed professional counselors to dentistry. Unlike the procurement bars discussed previously, the licensing restrictions can be far more onerous as they usually are irrefutable and presumably last a lifetime.” Id. at 104. 104. Weiss, supra note 4, at 502-03. 105. “[W]hile foreign enforcement is in its relative infancy, the recent growth in the number of these actions is a trend that will continue and that may eventually create a risk of redundant enforcement.” Id. at 481.

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D.

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REFORMING

THE

BRITISH STATUTE

THROUGH

GREATER CONCEPTUAL

AND

TERMINOLOGICAL CLARITY It is unproblematic that the British general offense reaches both the bribed and the briber. But, it is somewhat problematic that the British Act reaches commercial bribery because the British statute defines the offenses too vaguely. A more exacting and doctrinally coherent analysis would look at corruption as a variety of offenses: patronage/nepotism; bribery; misappropriation of funds (embezzlement); breach of fiduciary duty; unlawful and immoral conduct (e.g. illegal drugs, prostitution); betrayal of public trust; and political corruption.106 Carr’s groundbreaking work in defining corruption with specificity has not been completed, but legal scholars can and should try to organize thinking about corruption around the above mentioned concepts, and then seek to impose coherence onto the vague British Anti-Bribery Act thereby. Faced with an ambiguous statute but clear scholarship, judges could complete the meaning of the statute by referring to scholars’ works as persuasive evidence of the (internationally applicable) law.

V. Overall Conclusions Although the U.K. Anti-Bribery Act is poorly crafted, it does raise international standards because it effectively forces corporations to institute effective procedures to prevent bribery, such as corporate codes of conduct, internal trainings, contractual provisions, and “triple bottom line” auditing. The Act also raises the international standard by including facilitation payments and commercial bribery. But, because the statute casts its net so broadly, its attempt to raise the standard internationally may miss the mark. The extraterritorial character of the Act is not problematic. The vaguely defined predicate acts may be problematic but can be interpreted by courts so as to create adequate legal certainty for business, especially given the defense such of effective procedures. Doubtless, the Act will be amended, just as the U.S. FCPA was; perhaps facilitation payments will be exempted, or even commercial bribery. But, for now at least, companies are under the strongest pressure to institute procedures and standards so as to have the defense of adequate procedures in the event one of their employees breaks the law and should recast any requested facilitation payment contractually. This paper has tried to propose some interpretations of the Act which would reduce the uncertainties of the as-yet uninterpreted and unenforced law. Hopefully thereby it contributes to creating transparency and the rule of law in international commerce.

106. See Indira M. Carr, Fighting Corruption Through Regional and International Corruption: A Satisfactory Solution?, 15 EUR. J. CRIME, CRIM. L. CRIM. JUST. 121 (2007).

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Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law CRAIG C. CARPENTER*

I. Introduction Monsanto Technology LLC v. Cefetra BV1 was the first European Court of Justice (ECJ) interpretation of the twelve-year-old European Union Biotechnology Directive (Directive 98/44/EG), which established the foundation for patenting genetic material in member countries.2 The ECJ’s decision effectively limited the scope of the directive, and consequently, European biotechnology patent protection by determining that genetic patents are only effective when the patented gene “perform[s] the function for which it is patented[.]”3 The first part of this paper will discuss the history of the parties in dispute and the industry that is becoming familiar to this kind of dispute. The second and third parts will focus on the specific case that is the focus of this paper, and the final portion will analyze the effect this case had and will continue to have on patent law, particularly in the European Union and Argentina.

II. Background Monsanto, the world’s biggest seed company,4 provides agricultural products for farmers in the United States and internationally.5 Monsanto is a major player in global biotechnology innovation and business through its involvement in genetically modified seed crea* Craig C. Carpenter, 2012 Candidate for Juris Doctor, SMU Dedman School of Law. 1. Case C-428/08, Monsanto Tech. LLC v. Cefetra BV, 2010 E.C.R. 7, available at http://curia.europa.eu/ jcms/jcms/j_6/. 2. Richard Van Noorden, DNA Patent Ruling Hinders Monsanto, NATURE, July 9, 2010, http:// www.nature.com/news/2010/100709/full/news.2010.345.html. 3. Case C-428/08, Monsanto Tech. LLC v. Cefetra BV, 2010 E.C.R. 7. 4. Stephanie Bodoni, Monsanto May Lose Bid to Halt Argentinean Soy Imports, BUS. WEEK, Mar. 9, 2010, http://www.businessweek.com/news/2010-03-09/monsanto-may-lose-bid-to-halt-argentinean-soy-importsupdate1-.html. 5. Monsanto Co., YAHOO FIN., http://finance.yahoo.com/q/pr?s=MON (last visited Feb. 16, 2011).

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tion. The company sells genetically modified seeds to farmers worldwide and also licenses the beneficial genes that it uses to modify the seeds to other seed producers.6 To protect and profit from its innovation, Monsanto seeks patents on the seeds, methods of producing the seeds, and the genetic traits within the modified seeds. In 2005 and 2006, Monsanto sued European importers of Argentine soybean meal in Spain, the United Kingdom, Denmark, and Holland, for infringing on three of its European biotechnology patents.7 According to Monsanto, the imported soy meal was derived from soy beans produced by soy plants that were modified with a gene developed by Monsanto.8 The patents at issue relate to a gene (known as EPSPS) that, when added into the soy genome, confers resistance to the herbicide glyphosate, commonly known as “Roundup.”9 This trait allows farmers to use the herbicide to eliminate weeds while permitting the soy plant to grow unharmed.10 Specifically, the patent awarded Monsanto: [P]roprietary exclusivity over (1) isolated DNA encoding EPSPS, (2) a method of producing a genetically transformed plant which tolerates the herbicide glyphosate by making a transgenic plant cell containing the EPSPS gene, (3) glyphosate-tolerant plant cells and plants, and (4) a method of controlling weeds in a field by applying glyphosate to a crop and weeds in a field containing a crop that has been transformed with the EPSPS gene and is therefore glyphosate-tolerant.11 Monsanto alleged that the plants contained traces of the DNA from its patented gene, which indicated that the soy meal was produced from soy plants grown from its patented seeds.12 The suit alleged that the presence of this DNA in the soy meal violated Monsanto’s patent rights in three ways: (1) infringement of Monsanto’s patent claim of the isolated gene, (2) infringement of Monsanto’s patent claim of the method of producing resistant plants using the gene, and (3) infringement of Monsanto’s patent claim of the DNA sequence itself.13 Monsanto elected to enforce its patent in Europe because it did not have patent protection in Argentina, where the patent was rejected for procedural reasons,14 and thus Monsanto was not able to take action against Argentine farmers using the seeds without consent.15 6. Id. 7. Gareth Morgan et al., Expert Analysis of Recent European Developments Cargill vs. Monsanto, 27 BIOTECHNOLOGY L. REP. 109, 110 (2008). 8. Id. 9. Id. at 109. 10. Press Release, Court of Just. of the European Union, Monsanto Cannot Prohibit the Marketing in the EU of Soy Meal Containing, in a Residual State, a DNA Sequence Patented by It (July 6, 2010), available at http://curia.europa.eu/jcms/upload/docs/application/pdf/2010-07/cp100073en.pdf. 11. Richard Peet et al., The Future of Biotechnology Patents in the European Union, INTELL. PROP. WATCH, Aug. 17, 2010, http://www.ip-watch.org/weblog/2010/08/17/the-future-of-biotechnology-patents-in-the-european-union/. 12. Id. 13. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.) (Neth.). For an English translation, see http://holmancm.googlepages.com/CefetraEUBiotechDirective.pdf. 14. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 15. Id.; see also Andrew Turley, DNA Must Do Its Job for Patent Protection, CHEMISTRY WORLD, July 8, 2010, http://www.rsc.org/chemistryworld/News/2010/July/08071001.asp (“Farmers in Argentina can grow

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III. The Dutch Case In June 2005 and March 2006, shipments of soybean meal from Argentina arrived in harbors in the Netherlands intended for Cefetra Futures BV.16 The cargo was detained by customs on the grounds of the Anti-Piracy Regulation (E.U. Regulation number 1383/ 2003), and Monsanto took samples of the product to determine if the soy meal originated from its patented genetically modified soybeans.17 Monsanto found DNA matching that of its patented trait, and sued the importers (Cefetra and others) for patent infringement based on its European patent (the “patent”) granted June 19, 1996, under number EP0 546 090 relating to glyphosate tolerant 5-enolpyruvylshikimate-3 phosphate synthesis.18 The European Patent Office granted the patent, which was valid in Austria, Belgium, Switzerland, Germany, France, the United Kingdom, Italy, Lichtenstein, Luxemburg, the Netherlands, and Sweden.19 Cefetra and the government of Argentina, a major exportation country of soy products, joined to dispute Monsanto’s infringement claims. The Dutch court, sitting in The Hague, heard the case in 2008.20 The decision concurred with the earlier decision by the United Kingdom High Court of Justice.21 In response to Monsanto’s claimed infringement on the isolated DNA, the Dutch court and British court both held that “there can be no question of breach of these claims [for infringement of the isolated DNA patent] as the DNA is not present as isolated matter but is incorporated in the soy meal.”22 In so finding, the court reasoned that, even though the DNA was outside of its normal environment (the bacterial chromosome) and put into the plant cell, “[t]he average person skilled in the art would understand the term isolated DNA as DNA that has been retrieved from the cell (core) of an organism for further treatment in a manner as is usual in the relevant profession.”23 The Dutch court was equally skeptical of Monsanto’s second argument and rejected the theory “that the soy meal can be regarded as a directly obtained product by application of the claimed methods[.]”24 The court reasoned that “[i]t can be accepted that the soy plant and soy bean have been directly obtained by the method,” but that “[b]y means of the previously described crushing process, the beans are then separated, in a number of treatment stages, and worked into different components with a new identity. This process is too drastic to still assume a direct relationship between the method and the soy meal.”25 Thus, the Roundup Ready soya beans because Monsanto does not have patent protection in the country. Monsanto said in a recent statement that: ‘Approximately 95 per cent of the soybeans grown in Argentina contain the Roundup Ready trait.’”). 16. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 17. Id. 18. Id. 19. Id. 20. Id.; Peet et al., supra note 11. 21. Peet et al., supra note 11. 22. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 23. Id. 24. Id. 25. Id.

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product (soy meal) was not “directly obtained” by the patented method (growing herbicide resistant soy plants)26 and was not protected under the patent. Monsanto’s third infringement argument prompted the most discussion by the court and led to the present controversy. In this argument Monsanto claimed infringement of its patent claims that relate to the DNA sequence per se, without restrictions for isolation or method.27 The court dismissed Cefetra’s argument that the DNA present in the soy meal was overly fragmented and in de minimus quantity to support infringement, finding that: [e]ven should it have to be assumed that the DNA sequence is only present in the soy meal in minimal quantity, this does not deter from the fact that there is a breach of the Monsanto patent, if and to the extent that the scope of protection extends to the product, the DNA, as such[.]28 However, as the court noted, the question still remained as to whether the law even covers the DNA at issue. An interpretation of the applicable patent standard would be outcome determinative in this case: if the law does apply to the DNA per se, then Monsanto’s patent was infringed upon; however, if the law does not apply to the DNA per se, then there was no infringement.29 The court first grappled with the applicable law; specifically, whether to apply the national (Dutch) patent law or the E.U. directive.30 Article 9 of the E.U. Directive states: “[t]he protection conferred by a patent on a product containing or consisting of genetic information shall extend to all material, save as provided in Article 5(1), in which the product is incorporated and in which the genetic information is contained and performs its function.”31 Monsanto first argued that Article 9 of the Directive should not apply because soy meal was not a biological material.32 Monsanto also stated that the directive was created to expand patent protection to biotechnological inventions and not to limit it, and therefore set a minimum standard of protection for biotechnological inventions, which could be strengthened by the absolute protection of national law.33 Monsanto supports 26. Peet et al., supra note 11. 27. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). See also Chris Holman, Limitations on the scope of DNA Patent Claims in Europe: Monsanto Struggles in Its Attempt to Block Importation of Soy Meal Containing Patented DNA, HOLMAN’S BIOTECH IP BLOG, (May 4, 2008, 9:28 EST) http://holmansbiotechipblog.blogspot.com/2008/05/limitations-on-scope-of-dna-patent. html (explaining “whether claims directed to the DNA sequence per se, without any limitation to ‘isolated DNA,’ are infringed by the soy meal”). 28. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 29. Id. 30. Id. 31. Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions, art. 1 (emphasis added), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:31998L0044:EN:HTML. 32. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 33. Rijksoctrooiwet [Patents Act of the Kingdom] 1995, art. 53 (Neth.), available at http://www.ivir.nl/ legislation/nl/patentact1995.html (“a patent shall confer on its owner the exclusive right: a. to make, use, put on the market or resell, hire out or deliver the patented product, or otherwise deal in it in or for his business, or to offer, import or stock it for any of those purposes”); Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.); Holman, supra note 27.

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this argument by adding that “[s]uch a limitation . . . is not compatible with Article 27 of the [Trade-Related Aspects of Intellectual Property Rights (]TRIPS[)] Treaty[.]”34 Further, Monsanto argued that regardless of the use of Article 9 of the Directive, “the product[ ] is incorporated in the soy meal and expresses its function.”35 Monsanto reasoned that: the requirement that the DNA expresses its function means that it is sufficient that the DNA has exercised its function (namely the provision of resistance to glyphosate in the soy plant) or that the DNA, should it be isolated from the soy meal, can be incorporated in a cell in a soy plant and can then (once again) exercise its function.36 Cefetra cited a Spanish case and an English case, which applied the purpose/function limitation to patent protection for DNA as well as supplemental language from different sources from the E.U.37 Noting that the decision in this case turns on the interpretation and scope of Article 9 of the E.U. Directive (a transnational doctrine), the Dutch court decided that such matters would be better suited to the ECJ. Thus, the Dutch court referred the following three questions to the ECJ for clarification: 1. Should Article 9 of the Directive be understood such that the protection meant in this Article can also be relied upon in a situation such as in these proceedings whereby the product (the DNA) is present in a materials and does not express its function at the time of the stated breach but has indeed expressed its function or possibly, following the isolation from the material and its incorporation in the cell of an organism, could once again express its function? 2. Proceeding from the presence of the DNA sequence as described in claim 6 of the patent in soy meal imported into the European Community by Cefetra and ACTI and assuming that DNA is incorporated in the soy meal as meant in Article 9 of the Directive and that it therein no longer expresses its function: Does the provided protection of a patent for biological material in the Directive, specifically in Article 9, stand in the way for the national patent legislation to (additionally) allow absolute protection for the product (the DNA) as such, whether or not the DNA expresses its function and must the protection provided by Article 9 therefore be considered exhaustive? 3. Does it make any difference to the answer to the previous question that the patent was applied for and granted (on 19 June 1996) prior to the Directive being adopted? Can you, on answering the previous questions, take into consideration the TRIPS Treaty, specifically the Articles 27 and 30?38 34. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.); Trade-Related Aspects of Intellectual Property Rights art. 27, Apr. 15, 1994, Annex 1C, 1869 U.N.T.S. 299, available at http://www.wto.org/english/docs_e/legal_e/27-trips.pdf (“[P]atents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”). 35. Ktr. The Hague Maart 19, 2008, 249983/HA ZA 05/2885 m.nt (Monsanto Technology LLC/Cefetra B.V.). 36. Id. 37. Id. (“Cefetra, Argentina and ACTI have submitted a decision by the Spanish judge . . . in the case of Monsanto-Sesostris S.A.E. . . . [they have] also submitted an opinion on the same lines by Professor Dr. Dres. h.c. Joseph Strauss [and]. . .a decision by the English High Court of Justice dated 10 October 2007 was submitted in respect of the case Monsanto–Cargill.”). 38. Id.

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IV. THE ECJ DECISION On July 6, 2010, the ECJ made the final decision on Monsanto Tech. LLC v. Cefetra BV— a sweeping blow against Monsanto.39 In response to the first question proposed by the Dutch Court, the ECJ held that: [a]rticle 9 of Directive 98/44/EC of the European Parliament . . . is to be interpreted as not conferring patent right protection in circumstances such as those of the case in the main proceedings, in which the patented product is contained in the soy meal, where it does not perform the function for which it is patented, but did perform that function previously in the soy plant, of which the meal is a processed product, or would possibly again be able to perform that function after it had been extracted from the soy meal and inserted into the cell of a living organism.40 The court likewise answered the second question against Monsanto stating that “[a]rticle 9 of the Directive effects an exhaustive harmonisation of the protection it confers, with the result that it precludes the national patent legislation from offering absolute protection to the patented product as such. . . .”41 Finally, to complete its rejection of Monsanto’s arguments, the court held that: [a]rticle 9 of the Directive precludes the holder of a patent issued prior to the adoption of that directive from relying on the absolute protection for the patented product accorded to it under the national legislation then applicable. . . . Articles 27 and 30 of the. . . [TRIPS] do not affect the interpretation given of Article 9 of the Directive.42 With this decision, the Court chose sides and definitively answered a debate that has occupied European biotechnology scholars for some time. For the purposes of the Dutch litigation (and much to Cefetra and Argentina’s delight), the court held that there could not be infringement because the DNA was in dead material (the soy meal) and thus could not possibly be performing its patented function (resisting herbicide).43 However, this decision had no effect on the Dutch litigation because the parties settled outside of court prior to the ECJ decision.44 Settlement or no settlement, the ECJ, possibly sensing the urgency for clarification on its stance regarding the Directive, felt compelled to give a decision. This urgency likely spawned from the fact that the biotechnology industry is a controversial, $80-billion-dollar and growing industry.45 Europe has been slow to warm up to the industry and has instead allowed the United States and Canada to take the driver’s seat with regards to biotechnology policy.46 39. Case C-428/08, Monsanto Tech. LLC v. Cefetra BV, 2010 E.C.R. 7. 40. Id. 41. Id. 42. Id. 43. Turley, supra note 15. 44. Id. 45. Glen T. Giovannetti et al., Beyond Borders Global Biotechnology Report 2010, ERNST & YOUNG, 54 (2010), http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2010/$FILE/Beyond_borders_2010. pdf. 46. For a discussion on the history of biotechnology in Europe and the beginnings of the Directive, see Terence P. Stewart & David S. Johanson, Policy in Flux: the European Union’s Laws on Agricultural Biotechnology and Their Effects on International Trade, 4 DRAKE J. AGRIC. L. 243 (1999); Lydia Nenow, To Patent or Not to

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V. Effects of the Ruling The implications for this decision are widespread, and its merits are heavily debated. This decision, which cannot be appealed and is retroactively applicable in all twenty-seven European Union Member States,47 essentially makes European gene patents “purpose bound”48 in that the patent “can only be relied on [when it] actually performs the function for which it is patented.”49 Many commentators agree that this interpretation significantly narrows the protection offered by E.U. patents;50 however, as noted below, there is much disagreement as to how this will affect the industry as a whole. The Court refused the argument that gene patents should be “product-based” like other machine or chemical patents, which are granted per se protection that allows the owner to restrict any infringing use.51 In choosing this path, the court has carved out an exception to patent law that treats genetic patents differently than machines and other patentable material.52 Opponents argue that this interpretation of the directive is troublesome and would severely undermine patent enforcement for many biotechnology inventions.53 It is argued that this treatment of genetic patents is counterintuitive to and inconsistent with the way typical patent laws would approach this kind of infringement—under which, “so long as the genetic information is present and capable of performing its function, it should not matter whether the genetic information is active at the time of the alleged infringing act, unless some other claim element requires it[ ].”54 This argument has teeth when applied to this case. Monsanto’s patented material was found in the imported soy meal, and it can be said that the soy meal could not have existed were it not for Monsanto’s patented material—under traditional patent law this could be a fairly straightforward infringement. In this vein, problems also arise because “[m]any genes are only expressed for a limited time period or in specific tissues in a living organism.”55 Some commentators claim that this ruling allows for a lucrative loophole for patent infringement because growers could potentially “circumvent gene patents used to protect genetically modified crops by growing the crops in a country where the gene is not patented, such as Argentina in this case, . . . and then importing the product into a European Union member wherein the patent is in force with impunity.”56 This is an important global argument. From a business standpoint, biotech companies rely on the limited moPatent: The European Union’s New Biotech Directive, 23 HOUS. J. INT’L L. 569 (2001); Samantha A. Jameson, A Comparison of the Patentability and Patent Scope of Biotechnological Inventions in the United States and the European Union, 35 AIPLA Q.J. 193 (2007). 47. Jeremy Phillips, Monsanto: Court Makes a Meal of Soya Ruling, IPKAT BLOG, (July 6, 2010), http:// ipkitten.blogspot.com/2010/07/monsanto-court-makes-meal-of-soya.html. 48. Morgan et al., supra note 7, at 112. 49. Agriculture: EU Court Rejects Monsanto Demand for EU Ban on Argentine Soya Imports, 27 INT’L TRADE REP. (BNA) NO. 1034 (July 8, 2010). 50. Van Noorden, supra note 2. 51. Morgan et al., supra note 7, at 112. 52. Turley, supra note 15. 53. Peet et al., supra note 11. 54. Id. (emphasis added). 55. Id. 56. Chris Holman, Monsanto v. Cefetra: EU Court of Justice Limits Scope of Patent Protection Available to Gene Sequences, HOLMAN’S BIOTECH IP BLOG, (July 9, 2010, 16:37 EST), http://holmansbiotechipblog.blogspot. com/2010/07/monsanto-v-cefetra-eu-court-of-justice.html.

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nopolies granted by patents to offset the huge research and development costs commonly found in scientific fields. Additionally, as developing countries like Argentina57 continue to grow their agricultural export markets,58 genetically-modified-organism patent protection will be of great concern to international companies. The potential loophole created by the ruling in this case could have an expensive impact on companies like Monsanto and undermine the efforts for global intellectual harmonization.59 Because of this ruling, future action to reconcile this kind of “infringement” will have to focus on the court systems in the agricultural countries like Argentina, instead of patent protection in export destinations.60 Many commentators stress that, so far, Argentine intellectual property protection has come up short of expectations from the rest of the intellectual property world.61 However, there is also strong support for the court’s decision. Many countries in Europe have expressly or implicitly showed skepticism toward product-based patent protection for genetic information,62 including the United Kingdom, which has held that “while it may be true to say . . . that [the DNA] lay ‘at the heart of the invention’, it was not the invention. An invention is a practical product or process, not information about the natural world.”63 In that sense, this ruling harmonizes the E.U.’s stance on gene patents with that of some of the individual European countries.64 Proponents (the Argentina government included) find the limits imposed by this ruling necessary to prevent overly broad protection, even concluding that “[i]f the court decided that Monsanto can invoke its rights in the EU against soy meal originating from Argentina, nothing could stop it to then use its rights against soy meal coming from other countries[.]”65 Others do not see this situation becoming as much of a catastrophe, arguing that: [a]lthough lawyers will have to be careful about how they file patents for products containing genetic material, most . . . feel that the ruling will probably not dampen innovation or investment in the European biotech industry as a whole. If anything 57. Argentina is one of the world’s top exporters of soy-bean products. Balance of Trade: Argentine Exports Up 15 Percent to Record $46.57 Billion in 2006, 24 INT’L TRADE REP. (BNA) NO. 176 (Feb. 1, 2007) (“Among [Argentine] exports, $8.86 billion came from soybean and soy byproducts, according to Indec. Argentina is the world’s top exporter of soybean oil and the third largest exporter of soy beans.”). 58. See id. 59. 41st World Intellectual Property Congress A Resounding Success, BUS. WIRE, Sept. 26, 2008, available at http://findarticles.com/p/articles/mi_m0EIN/is_2008_Sept_26/ai_n29462689/. 60. EU Court Ruling Favours Argentina in Dispute With Monsanto Over Soy-Seed Patent, MERCOPRESS, July 8, 2010, http://en.mercopress.com/2010/07/08/eu-court-ruling-favours-argentina-in-dispute-with-monsantoover-soy-seed-patent (noting that, in anticipation of this ruling, the dispute between the two major players in the litigation, Monsanto and Cefetra, was settled outside of court and Monsanto is pursuing its options in Argentina, stating that Argentina was “the correct place for a resolution in these matters” and that “it will continue to work on a fair solution”). 61. Protection of Biotechnological Inventions in Argentina, APLF PATENT L. UPDATE, May 15, 2007, http:// www.aplf.org/protection-of-biotechnological-inventions-in-argentina/. 62. Morgan et al., supra note 7, at 112 (“It is worth noting that in implementing the Biotechnology Directive, Germany, France, and Luxembourg have all expressly barred gene sequences from product-based protection.”). 63. Kirin-Amgen Inc. v. Hoechst Marion Roussel Ltd, [2004] UKHL 46 (appeal taken from EWCA) (Eng.). 64. Morgan et al., supra note 7, at 112. 65. Bodoni, supra note 4.

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. . . the court decision shows that DNA patents are acceptable in Europe, even if their scope is quite narrow.66 Some of these commentators put more faith in the patent-seeking companies and export countries, rationalizing Monsanto’s current dilemma as an unfortunate mistake because “Monsanto’s lack of patent protection in Argentina is anomalous. In most cases, if your claim is in Argentina, you’d be able to stop them in Argentina. . . . Biotechnology companies with ‘good coverage’ are unlikely to be worried.”67 Additionally, all hope for the protection sought by Monsanto is not lost—patents can be prepared (by a prudent author) with other claims that could be used to enforce protection on products containing genetic material without relying on a claim for the DNA sequence, which was ineffective for Monsanto in this case.68 Inventors seeking patent protection for genetic information and the products created by such innovation will need to be aware of the “purpose-bound” distinction and creatively work around it in the patent claims to create optimal protection for their products.

VI. Conclusion The ECJ’s analysis of the twelve-year-old European Union Biotechnology Directive in the ruling in Monsanto Technology LLC v. Cefetra BV marks an important and definitive interpretation of European patent law. The finding that European Union patent protection of genetic material is “purpose-bound” helps clarify a murky area of patent law but places a significant limitation on biotechnology patents in Europe and may cause many holders of such patents to reconsider their comfort level with their patent portfolio. This insecurity reigns over the biotech industry as a whole; even countries that have shown early support for the biotech industry (like the United States) are struggling with application of patent law to this cutting-edge industry.69 While the total effect of this interpretation of biotechnology patent law on the related industries remains to be seen, it is clear that, for Monsanto and other genetically modified organism innovators, the battlefield will shift from major import countries like those in Europe to the agricultural export countries, such as Argentina (where they may be met with courts immature in patent experience). As the biotechnology industry continues to expand, both in scope and controversy, legislation will have to hustle to keep up with the science.

66. Van Noorden, supra note 2. 67. Turley, supra note 15 (internal quotation marks omitted). 68. Van Noorden, supra note 2. 69. See e.g., Andrew Pollack, U.S. Says Genes Should Not Be Eligible for Patents, N.Y. TIMES, Oct. 30, 2010, at B1 (noting that recent litigation has the United States possibly on the cusp of revising its longstanding policy towards patents for isolated genes), available at http://www.nytimes.com/2010/10/30/business/30drug.html?_ r=1&scp=2&sq=andrew%20pollack&st=cse.

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The International Lawyer Index to Volume 44 AUTHOR INDEX Articles Awad, Abed Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . Boulware-Miller, Kay The Challenges of Keeping “Private” International Dispute Resolution in the Private Healthcare Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deming, Stuart H. Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engle, Eric I Get by with a Little Help from My Friends? Understanding the U.K. AntiBribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fairley, H. Scott Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . French, Duncan Iraq and Climate Change: The Mainstream Lawyer’s Survival Guide . . . . . . . . Heather, Justin L. Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hirsh, Bobbe The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . Horning, Ryan A. Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jackson, Katherine Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . Kao, Frances P. Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lederman, Alan S. The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . .

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McBride, Paul M. The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . McKenzie, John F. United States Export Controls on Internet Software Transactions . . . . . . . . . . . . Michael, Robert E. Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . Moedritzer, Mark Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . Mooney, Lelia Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Murphy, John F. Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nelson, Timothy G. Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raush, Colette Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schonteich, ¨ Martin Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schreiber, Till Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . Sinclair, Jr., Martin V. Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sussman, Edna A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Walker, George A. Financial Crisis: UK Policy Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Whittaker, Kay C. Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . Windsor, Jennifer Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wolff, Lutz-Christian Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Case Note Carpenter, Craig C. Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . 1189 Comment Nelson, Michael Achtung! After 125 Years of Success, The German Health Care System is in Code Blue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 Simms, Virginia Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915

TITLE INDEX Articles A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations Sussman, Edna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939 The American Assault on Tax Havens—A Status Report Hirsh, Bobbe & Lederman, Alan S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1141 Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks Deming, Stuart H. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871 Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It Fairley, H. Scott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887 The Challenges of Keeping “Private” International Dispute Resolution in the Private Healthcare Sector Boulware-Miller, Kay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967 The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market McBride, Paul M. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption Nelson, Timothy G. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 897 Financial Crisis: UK Policy Response Walker, George A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751 Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court Murphy, John F. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act Engle, Eric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1173

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Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy Awad, Abed & Michael, Robert E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975 Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration Kao, Frances P., Heather, Justin L., Horning, Ryan A., & Sinclair, Jr., Martin V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Iraq and Climate Change: The Mainstream Lawyer’s Survival Guide French, Duncan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1019 Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad Moedritzer, Mark, Whittaker, Kay C., & Ye, Ariel . . . . . . . . . . . . . . . . . . . . 817 Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? Wolff, Lutz-Christian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa Jackson, Katherine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791 Private Antitrust Litigation in the European Union Schreiber, Till . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1157 Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges Mooney, Leila, Raush, Colette, Schonteich, ¨ Martin, Windsor, Jennifer . . . 837 United States Export Controls on Internet Software Transactions McKenzie, John F. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857 Case Note Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law Carpenter, Craig C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Comment Achtung! After 125 Years of Success, The German Health Care System is in Code Blue Nelson, Michael . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law Simms, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915

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YEAR-IN-REVIEW INDEX Aerospace and Defense Industries Hartmann Young Petra A. Vorwig Michael M. Lieberman Wendie L. Wigginton Michael P. House William R. Black Mark J. Nackman Brenda C. Swick C. Scott Maravilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Africa Ibrahim Sajalieu Bah Ricardo Silva Edna Udobong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-Corruption Jeffrey Clark John Davis Mikhail Reider-Gordon Alexandra Wrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia/Pacific William A. Herbert Manish Dhingra Steve Saunders Mark Du Sania Khan Juan Edgardo C. Angara Albert Vincent Y. Yu Chang Jae-Hoon Cheong Jung Won Hyun Young Seok Lee Hee Chul Kang John Wilson Ibrahim Sajalieu Bah Ricardo Silva Edna Udobong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

451

595

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Canada John W. Boscariol Sandra Walker Mark Katz Elisa Kearney Jim Dinning Cliff Sosnow Prakash Narayanan David Peaker Marcela B. Stras Sergio R. Karas John C. Roberts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China Adam Bobrow Jin Ma Adria Warren . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Social Responsibility Sarah A. Altschuller Amy Lehr Suzanne A. Spears . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customs Law John Boscariol Kelly Chen Cyndee B. Todgham Cherniak Courtney Fitzpatrick Laura Fraedrich Geoffrey M. Goodale Greg Kanargelidis Christine Martinez Cortney O’Toole Morgan Julia S. Padierna-Peralta David Salkeld Deep SenGupta Christopher H. Skinner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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631

213

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Employment Law Marjorie R. Culver Nathan A. Schacht Enrique M. Stile Anders Etgen Reitz Louise Gjellerup Philippe Despres Thomas Griebe Chie Miura Juan Bonilla Anna Jerndorf Ibrahim Elsadig Christopher Bracebridge Helena Laughrin Glenn S. Grindlinge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe Madeleine Giansanti Cag Jason R. Lindbloom Bjorn Arp Paul Luiki Maria Thierrichter Patrick Maydell Wim Vande Velde Janine de Keersmaecker Peter Harold Matson David A. Straite Lisa Bench Nieuwveld Boguslaw Banaszak Anne Wagner-Findeisen Levana Zigmund Dr. Florian S. Jorg Larry D. White Cihangir Karabiyik Cansu Akgun Bogdan Evtimov Jonathan B. Ross George L. Bustin Peter Werdmuller Ton Vandenbosch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1205

419

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Export Controls and Economic Sanctions John W. Boscariol J. Patrick Briscoe Laura El-Sabaawi Steven C. Emme Jahna M. Hartwig Jack R. Hayes Adam Klauder Carlos Ramos Cari N. Stinebower Petra A. Vorwig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Immigration and Nationality Law Qiang Bjornbak Josh D. Friedman Sandra Grossman Sarah J. Hawk Maria Manon Jorene Soto Judith L. Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India James Grandolfo Ajit Sharma Vandana Shroff H. Jayesh Rajiv K. Luthra Kavita Mohan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information Services, Technology and Data Protection Nicholas D. Wells Poorvi Chothani James. M. Thurman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Arts and Cultural Heritage Patty Gerstenblith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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435

663

355 487

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International Antitrust Bruno L. Peixoto Mark Katz Elisa Kearney Lorena Pavic Juan Coeymans Mauricio Jaramillo Luc´ıa Ojeda Claire Webb Ausra O. Pumputis Paul Schoff Jing Chua Peter Wang Yizhe Zhang Pallavi S. Shroff Harman Singh Sandhu Gunnar Wolf Michael Clancy Fran¸cois Brunet Eric Paroche Susanne Zuehlke Dr. Jan Philipp Komossa Alberto Pera Valentina Caticchio Vassily Rudomino Selin Beceni Stephen Kon Dr. Gordon Christian Jai Bhakar Heather Irvine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Dispute Resolution Steven Smith Ivana Cingel Robin Devaux Grant Gelberg Spencer Jones Justin Mates Sobia Haque Ian laird Kassi Tallent Baiju Vasani Marguerite Walter Howard Yuan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1207

45

113

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International Commercial Transactions, Franchising, and Distribution Arnold S. Rosenberg Alfredo L. Rovira Michael R. Daigle Florian S. Jorg Marc Ryser William P. Johnson Ander Forkman Paul Jones Alan S. Gutterman Calvin A. Hamilton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Courts Carl Magnus Nesser Yulia Andreeva Timothy J. Feighery Guillaume Lemenez Cesare P.R.Romano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Criminal Law Donald Shaver Michael C. Pacella . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources Paul M. Kiernan Jeffery A. Barnes Francisco Corona Caspar F. Den Doelder Mark A. Gould, Jr. Miroljub Macesic Juan F. Mackenna Ivana Manovelo Matthijs P. Nieuweld Ricardo Silva Mattiacolonnelle de Gasperis Matteo Silva . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Environmental Law David R. Downes Joseph W. Dellapenna Joseph Freedman Royal Gardner Emily J. Hildreth Richard A. Horsch David Hunter Peter H. Oppenheimer Stephen J. Porter Thomas Parker Redick R. Justin Smith Erica Thorson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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142

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International Family Law Robert G. Spector Bradley C. Lechman-Su . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Financial Products and Services Walter Stuber Adriana Maria Godel Stuber Jacek Jonak Francisca Brodrick Lennaert Posch Maarten Landkroon Martin Liebi Gary P. Silber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Human Rights Cleveland Ferguson III Adrienne L. Kepner Thelma Young Dana Renne Bucy Joi Leonard Laura Cosovanu Natalie S. Feher Omar John Lawrence G. Albrecht Anna Maria Martignetti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Intellectual Property Law Suong Nguyen David Lisson Jesse Dyer Henry Blanco White Leonardo Sempertegui Paul Jones Bruce McDonald Elizabeth Featherman Daniel Marugg Stephan W. Feierabend Carolina Keller Susun Brushaber Irina Kaminer Herman Croux Carl Kestens Matthew Astle Aleksey Zalesov . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1209

155

273

473

245

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International Investment and Development Diego Parravicini Mauricio Becerra Walter Stuber Adriana Maria Godel Stuber Mark Katz Jim Dinning Anand Dayal Rakesh Kumar Robert O’Shea Pat English Jean Paul Chabaneix Daniel Marin Andrea Montes Svitlana Kheda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Law of the Sea Michael A. Becker Ernesto J. Sanchez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Litigation Neale H. Bergman Jonathan I. Blackman Carmine D. Boccuzzi Lorraine De Germiny Phillip Dye Jr. William Lawrence Justin Marlles Jarrett Perlow Matthew D. Slater Karen Woody Howard S. Zelbo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International M&A and Joint Ventures Mattia Colonnelli de Gasperis Steven de Schrijver Randall A. Hanson Saul ´ Feilbogen Vanesa Balda Jeroen Mues Walter Stuber Adriana Maria Godel ¨ Stuber Sean P. O’Neill, Mark Neighbor Mei Gechlik, Hartmut Krause Lennaert Posch Nancy A. Matos Stephen J. Nelson Maliha Mahmood Mark Greene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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International NGO and NPO Karla W. Simon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Procurement David P. Goodwin Christopher R. Yukins Denis Chamberland Dr. Katharina Weiner Tatjana Ribic Robert J. Gaudet, Jr. Paul M. Lalonde Katrina Reyes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Secured Transactions and Insolvency Susan Jaffe Roberts Walter Stuber Adriana Maria Godel Stuber Daniel Marin Montserrat Corbella Vassily Rudomino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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261

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International Securities and Capital Markets Walter Stuber Adriana Maria Godel Stuber Anne Fontaine Christopher Murray Frank Reda Dr. Hartmut Krause Josee Weydert Petra Zijp David Quigg John Horner Matt Yates Asha Stewart Martin Liebi Herguner Bilgen Matthias M. Edrich Michael S. Sackheim Nathan A. Howell James R. McDaniel Elizabeth M. Schubert Madeleine J. Dowling Ellen P. Pesch Xiaowen Qiu Giselle M. Barth Sheetal Khera Dorothee Fisher-Appelt Donald Gilchrist Umut Gurgey Elvira de Jong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Trade Pablo M. Bentes Stacy J. Ettinger John M. Ryan Matthew T. Simpson Lee Smith Margaret-Rose Sales David Salkeld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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International Transportation Law Mark J. Andrews James H. Bergeron Leendert Creyf Catherine Erkelens Lorraine B. Holloway David Hernandez Gerald F. Murphy Catherine A. Pawluch Erin Spry Staton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Islamic Finance Michael J.T. McMillen Nabil Issa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America and Caribbean Patricia V. De L. Guidi Marco Rios Adrian L. Furman Angeles Murgier Daniela Rey Guillermo Malm Green Marcelo E. Bombau Valeria Kemerer Fernando Aguirre Bruno Sanchez Belo Erika Greguer Pizardo Marianne Mendes Webber Mirella da Costa Andreola de Almeida Paulo Trani O. Mello Solange Gonzalez Nelly Pazo Bianco Romero Charles Reeves Francisco Naranjo Gabriela Villalobos Leopoldo Gonzalez Maria Edith Jativa Paola Gachet Javier Zenteno Gomez Jorge G. de Presno John R. Pate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mexico Mark E. Wojcik Javier Zenteno Gomez Jorge G. de Presno David W. Austin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1213

379

333

681

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Middle East Anahita Ferasat Yasmine Lahlou C. Scott Maravilla Lamia Dalichaouch Anas A. Akel Omar Hafez Ayad Jenna Dicocco Mark Youakim Orly Gerbi Eric A. Savage David Pfeiffer Nora Al-Haroun Feras Gadamsi Nabil A. Issa Zaid Al. Farisi Fahad Bakheet Almalki Kinan H. Romman Vandana Rupani Hassan Elsayed John C. Boehm, Jr. Mark E. Bisch James Stul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Security Eve R. Pogoriler Derek Gilman Anna Katherine Drake Del William Atwood Adrianne Goins Gabriel C. Lajeunesse John T. Hicks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia Jesse Heath Sergey Budylin Dmitry Dyakin Dmitri Eseev Ekaterina Gill Christopher Kelley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Gender Identity David W. Austin Paul E. Johnson Mark E. Wojcik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transnational Legal Practice Laurel S. Terry Carole Silver Ellyn S. Rosen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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737

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Women’s Interest Network Madeleine Giansanti Cag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1215

415

SUBJECT INDEX 1954 Hague Convention on the Protection of Cultural Property in the Event of Armed Conflict in 2009 International Arts and Cultural Heritage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 1962 Uniform Act Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

1965 Hague Service Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 1977 Convention on the Prohibition of Military or Any Other Hostile Use of Environmental Modification Techniques Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 1980 Hague Convention on the Civil Aspects of International Child Abduction International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 1993 Hague Convention on Protection of Children and Co-Operation in Respect of Inter-Country Adoption International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 2005 Uniform Act Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Abuse of Dominance International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

Act of State Doctrine International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Admiralty Rule International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Afghanistan Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Africa Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

African Development Bank International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273

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African Union Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 Agreement Between Canada and the United States of America Relating to the Exchange of Information on Weather Modification Activities Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 Albania International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399

Algeria Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Alien Tort Statute Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213 473 167

American Bar Association Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

American Servicemembers’ Protection Act Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 American Society of International Law Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 Angola Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 367

Anti-competitive Practices International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

Anti-Corruption Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

871

Anti-Counterfeiting Free Trade Agreement International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Anti-Money Laundering International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273 283

Anti-Monopoly China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

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Anti-torture Law Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Anti-trust International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

Applications for Annulment International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Arms Export Control Act Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 25

Arbitration Award Enforcement International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Arbitration Law Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737 Argentina International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

223 419 283 71 681

Armenia International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399

Arrangements Law Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Artic Policy International Law of the Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

Ashurst Study Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

Asset Protection Scheme Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Asylum Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

Australia International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

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International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

223 399

Austria Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Austrian Stock Corporation Amendment Act Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Automated Export System Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Aviation Regulation International Transportation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

379

Bahrain Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 713

Bank Recapitalization Fund Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Banking (Special Provisions) Act Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Bankruptcy Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

Bar Standards Board Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Basel II Capital Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Belgian Corporate Governance Code International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

317

Belgium Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645 71 317

Bilateral Investment Treaty Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 93 563 939

Biotechnology Patent Law Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189

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Bismarck Model Achtung! After 125 Years of Success, The German Health Care System is in Code Blue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 Board of Immigrant Appeals Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

Bolivia International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283 681

Bond Markets Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Bosnia & Herzegovina International Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

Brane v. Roth The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Brazil International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Secured Transactions and Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 283 71 301 317 681

Bretton Woods Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Bribery I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 BRIC (Brazil, Russia, India, China) Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

737

Brussels I Regulation Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

Burma Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Burundi Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Business to Consumer Communications Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

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Buy American Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

CalPERS Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Cambodia International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399

Canada Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 45 223 367 283 71 399 261 317

Canada and the Republic of South Africa Mutual Assistance Agreement Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Canadian-European Free Trade Association Free Trade Agreement Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Canadian Transportation Act International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Cape Verde Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Capital Punishment International Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

473

Carbon Credits International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273

Cartel Damage Claims Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

CEDAW Women’s Interest Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

415

Charity and Societies Law Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Chartered Institute of Arbitrators Protocol Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 VOL. 44, NO. 4

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Chemical Anti-Terrorism Act of 2009 National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Chile International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 367 681

China Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451 International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . 223 International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 China’s Ministry of Commerce Anti-Monopoly Bureau China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

Civil Procedure Law of the PRC Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

Civil Unions Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Clearstream Banking The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Climate Change A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939 Iraq and Climate Change: The Mainstream Lawyer’s Survival Guide.. . . . . . . . . . . . . 1019 Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 Cloud Computing United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Cloud Seeding Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

Collective Investment Schemes International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273

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Colombia International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

Colorado River Doctrine International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Comity Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897 167

Commerce Control List United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Commercial Bribery I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Commercial Commodities United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Commercialized Social Media Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Commission on the Limits of the Continental Shelf International Law of the Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

Commodity Futures Modernization Act of 2000 The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Commodity Futures Trading Commission The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Company Law Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Competition Law Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595 713

Compulsory Licenses China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

Conflicts at Sea International Law of the Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

Congo Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

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Constitution of the World Health Organization The Challenges of Keeping “Private” International Dispute Resolution in the Private Healthcare Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1223

967

Consumer Protection Act The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Continued Dumping and Subsidy Offset Act Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Convention Against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Convention on the Elimination of all Forms of Discrimination Against Women International Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 Convention on Cultured Property International Arts and Cultural Heritage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

487

Copenhagen Accord Iraq and Climate Change: The Mainstream Lawyer’s Survival Guide . . . . . . . . . . . . . .

1019

Copyrights Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Council of Bars and Law Societies of Europe Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Council of Europe Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Council of European Convention I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Courage and Crehan Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

Court of International Trade International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Courts of Competent Jurisdiction Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Creditor Enforcement Mechanisms Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

Croatia International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

367

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Cryptography Note to the Commerce Control List United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Cuba Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Cuban Asset Control Regulation Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Cuban Embargo Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Custodial Rights International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155

Damascus Stock Exchange Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Death on the High Seas Act International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Death Penalty Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Debt Markets International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

317

Declaration of Legal Principles Governing the Activities of States in the Exploration and Use of Outer Space Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 Defense Federal Acquisition Regulation Supplement Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Defense Trade Advisory Group Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Democratic Republic of Congo Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 142

Denmark Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

419

Department of Homeland Security Appropriations Act of 2010 National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Department of Homeland Security Chemical Facility Anti-Terrorism Standards National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535

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1225

Developing Markets Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Directorate of Defense Trade Controls United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Distraint Order Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

Dodd-Frank Act The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Doha Development Round International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Domestic Preferences International Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

Double Criminality I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Dual Criminality I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Dual-Use Controls Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Dubai International Financial Center Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Dutch Act on the Collective Settlement of Mass Claims Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Ecuador Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

681

Egypt Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Energy A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

939 367

Equitorial Guinea Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 367

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Equity Joint Ventures Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 Ethiopia International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399 713 535

European Commission White Paper Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

European Court of Human Rights Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645 399

EU Competition Law Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

European Union Maritime Law International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

The Court of Justice of the European Communities Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Economic Sanctions Regulations United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Encryption Simplification Rule Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Encryption Software United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Energy Charter Treaty A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

939

Enforcement of Foreign Arbitral Awards International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Enforcement of Foreign Money Judgments Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

European Patent Law Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 European Union Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1227

Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 European Union Biotechnology Directive 98/44/EG Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 European Union Passporting Regime International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273

European Services Board Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Expert Witnesses Into the Hot Tub. . .A Practical Guide to Alternative Expert Witness Procedures in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Export Administration Act Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Export Administration Regulations Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Export Control Purposes United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Export Controls United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

External Commercial Borrowing International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283

Extraterritorial Application of United States Law International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Extrinsic Fraud Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Facilitation Payments I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Federal Arbitration Act International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Federal Aviation Administration International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Federal First Offender Act Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

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Financial Crisis Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Financial Services Authority (U.K.) Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Financial Services Oversight Council Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Foreign Asset and Tax Compliance Act The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Foreign Bank and Financial Accounts The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Foreign Currency Derivatives India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

663

Foreign Corrupt Practices Act Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577 I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 International Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Foreign Extraterritorial Measures Act Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Foreign Extraterritorial Order Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Foreign Investment and National Security Act National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Foreign Investment Enterprises Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 Foreign Investment Review Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

Foreign Monetary Judgments Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817 167

Foreign Relations Authorization Act Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Foreign Sovereign Immunities Act International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

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1229

Fortress America Report Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Forum non Conveniens International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

France International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 419

Freedom House Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Freedom in the World Survey Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Freshwater Resources International Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

503

Freshwater Shortage Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

FTC Guides to the Use of Endorsements and Testimonials in Advertising Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Futures Trading The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 General Agreement on Trade and Services Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Genetic Plants Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Genetic Resources China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

Genocide Convention Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 Germany International International International International

Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 71 261 317

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Achtung! After 125 Years of Success, The German Health Care System is in Code Blue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 GHCS Achtung! After 125 Years of Success, The German Health Care System is in Code Blue .......................................................................

1045

Global Banking Crisis Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Grave Risk of Harm International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155

Growth Enterprise Markets China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

Guri Dam Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

H-1B Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

Habitual Residence International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155

Hague Convention on Jurisdiction, Applicable Law, Recognition, Enforcement, and Co-Operation In Respect of Parental Responsibility and Measures for the Protection of Children International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Hague Convention on the International Recovery of Child Support and Other Forms of Family Maintenance International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Hard Law I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Harmonized Systems Commission Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Helms-Burton Act Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Hong Kong Anti-Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451

Human Rights Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

I-9 Document Compliance Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

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1231

Immigration and Nationality Act Immigration and Nationality Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

Impaired Securities International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

317

Importer Security Filing Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

India Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 45 595 355 71 547

Indian Capital Markets Regulation India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

663

Individual Liquidity Adequacy Assessment (ILAA) and Individual Liquidity Guidance (ILG) Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751 Individual Liquidity Governance Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Individual Retirement Accounts The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Indonesia Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 547

Internal Revenue Service The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

International Child Abduction International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

International Convention for the Prevention of Pollution from Ships (MARPOL) International Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 International Convention on the Settlement of Investment Disputes Between States and Nationals of Other States International Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 International Court of Justice International Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

129

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International Criminal Court Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 International Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 International Criminal Tribunal for the Former Yugoslavia National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

International Criminal Tribunal of Rwanda International Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142 535

International Discovery International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

International Reporting Standards Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

International Traffic in Arms Regulation United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Internet Service Providers India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

663

Internet Software Transactions United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Interpretation of Arbitration Clauses International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Intrinsic Fraud Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Iran Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25 713

Iran-United States Claims Tribunal International Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

129

Iraq Iraq and Climate Change: The Mainstream Lawyer’s Survival Guide . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1019 547

Ireland International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283 399

Islamic Finance Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

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1233

Islamic Law of Bankruptcy Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

Israel Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Italy International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 71

Ivory Coast Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Jamaica Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Japan Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595 419

Joint Committee on Human Rights Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213

Jones Act International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Judicial Improvement Programs Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Kampala Conference Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 Kenya Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Khodorkovsky, Mikail Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

737

Kuwait Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Lao PDR International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399

Lay Jury Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Legal Services Act Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Legal Services Board Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

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Lesbian, Gay, Bisexual Community Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Lesbians, Gays, and Bisexuals of Botswana Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Liberia Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Libya Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Limitation of Liability Act International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Luxembourg International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

317

Mack Amendment Between Scylla and Charybdis: The U.S. Embargo of Cuba and Canadian Foreign Extraterritorial Measures Against It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

887

Malta Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Manifest Disregard of the Law International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Marine Environmental Protection Committee International Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

503

Maritime Transportation Security Act National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Medical Malpractice Achtung! After 125 Years of Success, The German Health Care System is in Code Blue .......................................................................

1045

Mergers International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

Mexico Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897 45

Mexico Civil Court Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Mexico’s Drug War Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

701

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Military Commissions Act of 2006 National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1235

535

MOFCOM China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631 International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . 223 Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 Moldova International Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

473

Monetary Judgments Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

Mongolia Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Monsanto Technology Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Montreal Convention International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Most Favored Nation International Commercial Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113 737

Mozambique Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 367

Muflis Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

975

Multidistrict Litigation International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Multilateral Lending Institutions Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

871

Namibia Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451

National Conference of Commissioners on Uniform State Laws Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

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National Contact Point Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213

National Defense Authorization Act Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Netherlands Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645 367 273 71 317

New Civil Code Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

New Directive on Defense and Security Agreement Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

New Zealand Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 317

Nigeria Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Nigerian National Oil Corporation Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Non-recognition of Foreign Judgments Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

North American Free Trade Agreement Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337 613 5 93 701

North Korea Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Northern Rock Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Nuclear Non-proliferation Treaty Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

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1237

OECD Convention I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Office of Foreign Assets Control United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Oman Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Omnibus Appropriations Act Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

701

Open Society Justice Initiative Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Organization for Economic Cooperation and Development Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

681

OTC Derivatives The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 Qualified Intermediary The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Pakistan Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Panama Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Parallel Proceedings International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

Parental Rights International Family Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155

Passive Foreign Investment Corporation The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Patent Act of the Kingdom of the Netherlands 1995 Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Patent Law International Intellectual Property Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

245

Patent Law of the People’s Republic of China China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

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Pension Funds Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Permanent Court of Arbitration International Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

129

Personal Jurisdiction Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817 167

Personal Property Security Register International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . .

223

Peru International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283 563

Phantom Interest Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Philippines Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 595 547

Piracy International Law of the Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

Poland Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Polish Constitutional Tribunal Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Post-Amendment Patent Law China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631

Post Importation Payment or Fees: Subsequent Proceeds Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Private Dispute Resolution The Challenges of Keeping “Private” International Dispute Resolution in the Private Healthcare Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

967

Project Storm Fury Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

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1239

Purpose/function Limitation Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Racketeer Influenced and Corrupt Organizations Act Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213

Reciprocity Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Reporting, Procedures, and Penalties Regulations Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Resolution Code of Practice Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Restatement of Foreign Relations Law of United States Down in Flames: Three U.S. Courts Decline Recognition to Judgments from Mexico, Citing Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897

Romania Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Rome II Regulations Private Antitrust Litigation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1157

Rome Statute Gulliver No Longer Quivers: U.S. Views on and the Future of the International Criminal Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1123 Rotterdam Rules International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Roundup Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Rule of Law Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

Russia International International International International

Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Transactions and Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 223 399 301

Rwanda Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25 547

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Same-Sex Marriage Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

701 547

Sao Tome e Principe Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 367

Saudi Arabia Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Secured Transactions Law and Registries International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . .

223

Securities and Exchange Board of India India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

663

Securities and Exchange Commission The Dodd-Frank Act and OTC Derivatives: The Impact of Mandatory Central Clearing on the Global OTC Derivatives Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077 Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 Securities Markets Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Seed Modification Seeds of Doubt: The European Court of Justice’s Decision in Monsanto v. Cefetra and the Effect on European Biotechnology Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1189 Serbia International Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

Serious Frauds Office Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451

Service of Process Abroad International Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167

SESAR International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Shari’ah Compliant Islamic Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

333

Shari’ah Law Islamic Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy . . . . . . . . . . . . . . .

333 975

Sierra Leone Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

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1241

Sierra Leone Association of Journalists Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

Single European Sky International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Slot Auction International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

Social Networking Sites Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Social Security Administration Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Societies Law in Jordan International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399

Soft Law I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Software as a Service United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

Softwood Lumber Dispute Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

Solicitor’s Regulation Authority Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

Somalia Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577

South Africa International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . .

45 223

South Korea Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 25

Sovereign Immunity International Arts and Cultural Heritage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

487

Spain Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Secured Transactions and Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

419 283 301

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SPC Regulations Pathological Foreign Investment Projects in China: Patchwork or Trendsetting by the Supreme Court People’s Court? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001 Special Court for Sierra Leone National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Special Liquidity Scheme Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Special Resolution Regime Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Sponsored Communications Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Sri Lanka Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Statistical Sampling Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Strategic Sectors Law Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

737

Sub-Saharan Africa Pension-Funding the Future: Encouraging the Sustainable and Socially Responsible Development of Securities Markets in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . .

791

Sudan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 25

Sweden Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 223 419

Switzerland Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . International Financial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645 355 223 273 317

Syria Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

713

Taxation of Oil Revenues Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

701

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1243

Tax Deductability I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Tax Fraud I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Tax Havens The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

Tax Law Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

Temporary Foreign Workers Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

The Customs Facilitation and Trade Enforcement Reauthorization Act of 2009 Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The European Union Directive on Alternative Investments Instruments Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Trade Defense Instruments Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

Trademarks Information Services, Technology and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

Trade Preference Litigation Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Transboundary Movement of Hazardous Waste International Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

503

Transition to International Reporting Standards Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

613

Transnational Governance I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 Travel Act Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451

Treasury White Paper on Reforming Financial Markets Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Troubled Asset Recovery Program Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Trucking Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

701

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Turkey International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 645 317 713 547

Turner Review Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

Uganda Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

Ukraine International Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283

U.K. Anti-Bribery Act I Get by with a Little Help from My Friends? Understanding the U.K. Anti-Bribery Statute, by Reference to the OECD Convention and the Foreign Corrupt Practices Act . 1173 UNCITRAL Model Procurement Law International Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

Uniform Enforcement of Foreign Judgments Act Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

Uniform Foreign Money-Judgments Recognition Act Judgments ‘Made in China’ But Enforceable in the United States?: Obtaining Recognition and Enforcement in the United States of Monetary Judgments Entered in China Against U.S. Companies Doing Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

817

U.S. Department of Justice The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

U.S. Department of Treasury The American Assault on Tax Havens—A Status Report . . . . . . . . . . . . . . . . . . . . . . . . .

1141

United Arab Emirates Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 419 713

United Kingdom Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Commercial Transactions, Franchising, and Distribution . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

451 45 223 419 71 563

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United Nations Convention Against Corruption Anti-Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1245

451

United Nations Convention on the Elimination of All Forms of Discrimination Against Women Women’s Interest Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415 United Nations Convention on Law of the Sea International Law of the Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

United Nations Declaration for Human Rights Defenders Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

United Nations Framework on Climate Change International Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

503

United Nations High Commissioner on Refugees Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645

United Nations Human Rights Council Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213

United Nations Millennium Declarations A Multilateral Energy Sector Investment Treaty: Is it Time for a Call for Adoption by All Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

939

United States International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Mergers & Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Secured Transactions and Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sexual Orientation and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 419 367 71 301 317 547 563

United States Agency for International Development Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

United States Court of International Trade Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

United States Court of International Trade Improvement Act Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

United States Institute of Peace Promoting the Rule of Law Abroad: A conversation on its Evolution, Setbacks and Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

837

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United States Munitions List United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . .

857

United States Trade Representative Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Universal Declaration of Human Rights The Challenges of Keeping “Private” International Dispute Resolution in the Private Healthcare Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

967

Universal Periodic Review International Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

473

Validated End-User Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Venezuela Latin America and Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

681

Voluntary Disclosure Program Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

871

Walker Review on Corporate Governance Financial Crisis-UK Policy and Regulatory Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

751

War Crimes National Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

535

Weapons Acquisition Reform Act Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

Weapons of Mass Destruction United States Export Controls on Internet Software Transactions . . . . . . . . . . . . . . . . . . Export Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

857 25

Women’s Rights Asia/Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595

World Bank Sanctions Board Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and Regional Development Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

871

World Meteorological Association Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

World Water Council Making the Rain: Cloud Seeding, the Imminent Freshwater Crisis, and International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915

World Trade Organization International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

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Transnational Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563

WTO Agreement on Government Procurement Aerospace and Defense Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

337

WTO Doha Round India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

663

Zambia Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

577 399

Zeroing Disputes International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

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AMERICAN BAR ASSOCIATION 321 N. CLARK STREET CHICAGO, ILLINOIS 60610