Washington Insider -- Tuesday

Legal Penalties for Food Safety Fraud

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Expanded Poultry Market Access Needed in NAFTA 2.0: Senators

Expanded access for U.S. poultry producers should be sought during NAFTA renegotiations – dubbed "NAFTA 2.0" – a bipartisan group of 10 senators wrote in a letter to U.S. Trade Representative Robert Lighthizer (USTR) June 14.

The Canadian government sets strict limits on agricultural imports, including poultry, meant to protect Canadian farmers from market fluctuations, according to the senators. NAFTA regulations set the tariff rate quota for Canadian chicken imports at 7.5% of the previous year's production. The 10 senators want that NAFTA stipulation eliminated. "Contrary to the promises of NAFTA, Canada has continued to impose stringent, protectionist trade policies that limit sales for American poultry exporters,” the senators wrote. U.S. exports in excess of import quotas are subject to a 249% tariff, according to data from the U.S. International Trade Commission (ITC).

"We write to urge strong consideration for American poultry farmers, processors and exporters in the negotiation process, both in eliminating trade barriers imposed by Canada against American poultry and in ensuring that our poultry trade with Mexico remains robust," the lawmakers said. While NAFTA was to have resulted in a goal of eliminating tariffs in goods traded between the three countries, the lawmakers said, "Unfortunately, in practice, this goal has proven difficult to achieve. This has been particularly true for American poultry, which continues to face trade barriers in North America more than 20 years after NAFTA’s enactment."

Mexico remains the number one U.S. export market for poultry, reaching almost $1 billion in 2016.

New Cuba-US Business Restrictions Not Immediate

Moves by the Trump administration to reverse an Obama-era loosening of restrictions on U.S. companies doing business in Cuba will not take effect immediately, according to administration officials. This will potentially give businesses an opportunity to seal deals before the restrictions take effect as the Trump administration signaled that deals in place before the new restrictions enter into force will be "grandfathered."

Blocking business transactions involving entities controlled by Cuba's military, intelligence, or security services is the aim of the new restrictions announced Friday by President Donald Trump. However, the Office of Foreign Assets Control (OFAC) said the changes will not take effect until new regulations are issued and thus will not affect deals already in place. OFAC will amend its Cuban Assets Control Regulations in the coming months, the office said, and the Commerce Department will amend its Export Administration Regulations.

The administration wants to ensure that the new policy will not have a negative impact on U.S. businesses currently operating lawfully in Cuba, according to OFAC. Business dealings that include “direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.”

“The Trump administration has now fired a starting pistol,” according to John Kavulich, president of the U.S.-Cuba Trade and Economic Council. "The race is for United States-based companies to sign as many agreements as possible and have those agreements implemented, before the new regulations, expected within ninety (90) days, are promulgated."

Washington Insider: Legal Penalties for Food Safety Fraud

One of the key problems in enforcing food-safety policies in the United States is the enormous number of food-processing operations that the feds must supervise. Because the intense inspection used for meats would be extremely expensive for other products, the previous administration worked to make business executives more accountable for corporate wrongdoing—and prosecuted and jailed several in the effort. Now Bloomberg says the industry is wondering whether this policy will be followed in the future.

The question is whether principles included in DOJ's “Yates-Caldwell memo,” are here to stay. Those mandated that whistle-blower lawsuits be referred automatically to the department's criminal division.

Bloomberg also says that none of the attorneys contacted for its story could cite a specific example of a contractor executive or other corporate official who has been charged with a crime as a result of either the September 2015 memo, named for former acting Attorney General Sally Yates, or the policy announced the year before by former Assistant Attorney General Leslie Caldwell.

The effects of the Yates and Caldwell policy changes likely will be increasingly felt in the months and years ahead if the policies remain in place, several big-firm Washington attorneys said. However, some attorneys are trying to decipher how likely it is that the policies might be rescinded—a task that has been made trickier by the fact that the administration has yet to replace any of 93 US attorney positions around the country, nor has it filled many top DOJ posts.

In addition, Attorney General Jeff Sessions has said that the Department of Justice “will continue to emphasize the importance of holding individuals accountable for corporate misconduct. It is not merely companies, but specific individuals, who break the law. We will work closely with our law enforcement partners, both here and abroad, to bring these persons to justice,” he said.

However, the fact that Sessions didn't mention the Yates memo directly seemed to leave the door open for the department to pivot away from the memo's principles, Bloomberg said. Also, Justin Dillon, a partner with KaiserDillon in Washington, wrote in a column for the legal news blog Above the Law, “Did A Jeff Sessions Riff Signal The Beginning Of The End For The Yates Memo?”

Also, Rachel Paulose, a former U.S. attorney in Minnesota in the George W. Bush administration, told Bloomberg that the Yates and Caldwell policy shifts likely will be “things of the past before long.” Neither the Yates Memo nor the Caldwell speech “are likely to remain the policy of this administration,” said Paulose, a Minneapolis-based partner with DLA Piper. She thinks the DOJ is likely to shift its emphasis to violent crime.” And, another reason why the Yates memo might be in jeopardy is because the President fired Yates. “I think anything entitled ‘Yates’ is going to be somewhat toxic,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, told Bloomberg. That name, he said, “is dead to this DOJ.”

The Caldwell-Yates policy came in the wake of sustained criticism of former Attorney General Eric Holder for declining to prosecute bank executives in the wake of the 2007-08 financial crisis. Some banks were held liable, but virtually no individuals were.

Justin Chiarodo, a Blank Rome partner and vice chair of the firm's government contracts practice, told Bloomberg that a larger issue is weighing on the debate over the Yates and Caldwell policies – the budget. Funding for DOJ would be cut overall by $1.1 billion in Trump's proposed fiscal 2018 budget, potentially imperiling the ability of the department to take on the number and range of corporate fraud cases they might otherwise wish to. “Even if something is referred to the criminal division, I think there's going to be some selectivity in terms of what they pursue and how aggressively they pursue it.”

So, it will be important to see if the DOJ does throw out the Caldwell-Yates policies, and what that might mean for the relatively new food safety rules. The modest number of cases that were prosecuted and that resulted in executives going to jail likely did little to push companies to protect their brands, but they did bring attention to the problem. Congress was never happy with administration reliance on legal threats to emphasize safety, and if the administration turns down the heat on individual firms and executives in food safety cases, that could intensify this debate, Washington Insider believes.

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