Question: I have to certify that my subsidiary that owns a vessel is not on the Arab League’s boycott blacklist. Can I do that?
Answer: If you are subject to the U.S. anti-boycott rules, the answer is “no,” but your subsidiary can provide the certification for itself. This is discussed more fully below.
A frequent issue that vessels and cargo bound for ports in the Middle East encounter is compliance with U.S. anti-boycott provisions. The issue may also arise in connection with restrictions in charter agreements for vessels. These provisions provide that a U.S. person engaged in almost any type of commerce cannot comply with or support an unsanctioned foreign boycott. These anti-boycott provisions were promulgated in response to the Arab League’s boycott of Israel, which remains the primary focus of the U.S. anti-boycott regulations. To avoid penalties, persons that trade with or in countries with a non-sanctioned boycott, such as the Arab League’s boycott of Israel, should familiarize themselves with the requirements of U.S. law.
Those engaged in the maritime industry are extremely interested in what the Trump administration will mean for our industry. Although a challenging task, here is what we see in some key areas as we look into our “crystal ball,” just as the new administration gets started.
In offering his views on foreign policy and national security, President Trump’s “Put America First” policy proposes to make the interests of the American workforce and national security his top priorities. In a step generally considered to be in direct support of that policy, President Trump has nominated retired Marine Corps General John Kelly to head the Department of Homeland Security (“DHS”). As a career Marine and former head of the United States Southern Command (“SOUTHCOM”), Kelly is tapped to lead an agency primarily responsible for managing U.S. borders, protection of critical infrastructure, enforcing immigration laws, preventing terrorism, and overseeing cybersecurity, among other issues. Kelly appears to be up for the challenge, possessing unique experience in maritime and national security issues, both of which may bode well for the DHS and Coast Guard, as well as U.S. domestic maritime interests.
Action Item: Although the ratification of the IMO’s Ballast Water Convention will not alter U.S. compliance obligations, industry stakeholders must now consider their obligations under international law to ensure compliance with both regimes. Until the U.S. Coast Guard type-approves a ballast water management system (“BWMS”), owners and operators of both U.S. and foreign-flag vessels trading in U.S. waters should take steps to evaluate the compliance obligations under both regimes before making capital investments in BWMSs that may not comply with U.S. law.Continue reading “U.S. Ballast Water Compliance Challenges and Considerations Now That Imo’s Ballast Water Convention Has Been Ratified”
Cyber risk management continues to be one of the most significant challenges currently facing the maritime industry. With an overreliance on information technology (“IT”) and operational technology (“OT”), the shipping industry is vulnerable to cyber risks, cyber threats, and cyber attacks that could result in significant damages and loss, including loss of business and damage to reputation and property. While the maritime industry has yet to be regulated, various stakeholders have recognized the need for the industry to address cyber risk. As the United States Coast Guard continues to assess and evaluate cyber risk throughout the marine transportation system, the International Maritime Organization (“IMO”) and various industry organizations have issued guidelines on cyber risk management this past year. Most notably, on May 20, 2016, the IMO approved Interim Guidelines on Maritime Cyber Risk Management (“IMO Interim Guidelines”). Continue reading “IMO Interim Guidelines: Recent Developments in Maritime Cyber Risk Management”
After a long wait and much anticipation, the Small Business Administration (“SBA”) issued its final rule expanding the mentor-protégé program to all small businesses on July 25, 2016. The new rule broadly expands upon the existing 8(a) mentor-protégé program, and is projected to result in two billion dollars in federal contracts to program participants. The final rule makes some key changes to the February 2015 proposed rule, including changes regarding size certification and reporting. As the new rule is now final, contractors in the maritime industry, both large and small, should prepare now to take advantage of what the newly expanded program has to offer.
Background
The SBA mentor-protégé program has long-allowed large businesses to provide technical, management, and financial assistance to small businesses, and for the mentor and protégé to compete together for contracts. The program was designed to help protégé businesses by leveraging the experience and expertise of the larger mentor contractors. Originally limited to 8(a) concerns, the program was extremely successful. Large businesses were attracted to the program because it allowed them to pursue small business set-aside contracts as a joint venture with a protégé and foster small business relationships, and small businesses benefited from the resources and expertise of their mentors.
In 2010 and 2013, Congress authorized the expansion of the mentor-protégé program. In February 2015, SBA issued its proposed rule expanding the program to include all small businesses, although the 8(a) program will also remain independent of the new program. The proposed rule indicated that the SBA was contemplating a number of changes to the 8(a) model, including size certification approval requirements from the SBA and additional reporting and compliance requirements, particularly with regard to the structure of the joint venture. Many of these new requirements remain in the final rule, but there are some significant changes that government contractors in the maritime industry should be aware of.
Key Provisions of the Final Rule
The key changes and provisions of the final rule are discussed below.
1. Size Status Determination: The proposed rule contained a requirement for formal SBA verification of the size status of the protégé. This requirement was removed from the final rule. The SBA will continue to allow protégés to self-certify, and will rely on the size protest mechanism to ensure that businesses are accurately certifying their size.
2. NAICS Code Standard: Under the final rule, businesses that do not qualify as small under their primary NAICS code can still participate under a secondary NAICS code if the protégé can show that it would benefit from the progression into a secondary industry to enhance its current capabilities.
3. Financial Condition of the Mentor: Under the proposed rule, a mentor was required to demonstrate to the SBA that it was in “good financial condition.” This requirement was removed from the final rule. The SBA acknowledged that as long as the mentor can meet all obligations under its mentor-protégé agreement, then the “good financial condition” requirement was unnecessary and created too much confusion, since the term was undefined.
4. Duration of the Agreement: The proposed rule limited the mentor protégé agreement to three years. It also only allowed for a protégé to engage in one three-year agreement with one entity and one with a separate entity, or two three-year agreements with the same entity. Commentors did not believe that three years was long enough. SBA’s final rule allows for two three-year agreements with different mentors, but also allows for each agreement to be extended for an additional three years as long as the protégé continues to receive the agreed-upon business development assistance.
5. Joint Venture Entity: The SBA clarified in the final rule that a joint venture need not be, but could be, a separate legal entity. The SBA sought to clarify that formal or informal joint ventures were permissible. Also, consistent with the proposed rule, the SBA clarified that a joint venture may not be populated with employees who are performing the contract, as this would defeat the purpose of the protégé learning from the mentor. A mentor may, however, own up to 40 percent of their small business protégé under the final rule. If ownership continues after the mentor-protégé agreement expires, the SBA indicated that its affiliation rules would apply.
6. Compliance and Reporting: In order to ensure the program serves its purpose and is not abused, the SBA has enacted rigid reporting requirements under the final rule. The SBA requires both the mentor and protégé to certify the joint venture’s compliance with the regulations, the terms of the joint venture agreement, and the performance requirements of the particular contract. The protégé is also required to engage in annual reporting on compliance. Penalties for non-compliance can include suspension and debarment.
Impacts on Government Contractors
Contractors should be aware that nearly all future small business set-aside contracts will draw bids from mentor-protégé joint ventures. Given this expansion to all small businesses, mentors will now have a wider selection of protégés to choose from. The new rule is expected to result in thousands of additional applications for the program. Indeed, the SBA has created an entirely new division within the Office of Business Development to process and review applications, and has left open the possibility of imposing open and closed enrollment periods for the program. Companies that are interested in participating in the program should make sure they obtain appropriate guidance on the final rule to ensure that all application, performance, and reporting requirements can be met.
Action Item: The creation of the National Jones Act Division of Enforcement (“JADE”) signals that U.S. Customs and Border Protection has made Jones Act outreach and enforcement a national priority. U.S. and foreign stakeholders in the coastwise trade, including the offshore sector, should consult with counsel to discuss the implications of the establishment of JADE and activities that could implicate the Jones Act to help ensure compliance.Continue reading “CBP Announces the “Jade”—A New Enforcement Division for the Jones Act”
Action Item: The recently published Subchapter M Final Rule establishes a comprehensive safety system and inspection program for towing vessels. Stakeholders involved in the operation or ownership of towing vessels should carefully evaluate the new measures, review safety procedures, and develop plans to comply with the timeframes mandated by the new regulations.Continue reading “Final Rule on Inspection of Towing Vessels Published After 12 Years in the Making”
In March, Blank Rome co-hosted a breakfast seminar in Dubai with Fichte & Co Legal Consultancy to discuss with local shipping and energy professionals the real risks and opportunities presented by the rollback of international sanctions on Iran. We were awed by the warm reception we received, the huge turnout (well over 250 clients and friends), and by the insightful questions and contributions of those who joined us. Continue reading “U.S. Export Controls Pose Risks for Offshore Energy Companies’ Return in Iran”
