Speaker 1: This is Bloomberg Law with June Bresso from Bloomberg Radio.
Speaker 1: In a case that threatens to undercut President Joe Biden's
Speaker 1: climate agenda, the Supreme Court considered the reach of the
Speaker 1: Environmental Protection Agency's power to reduce greenhouse gas emissions, but
Speaker 1: there was less talk about climate change than about the
Speaker 1: contours of the so called Major Questions doctrine, a doctrine
Speaker 1: the Court relied on to block Ocean's vaccine or test
Speaker 1: mandate and the c d c S eviction moratorium. Jones
Speaker 1: Is Elena Kagan gave an example which Justice any Coney
Speaker 1: Barrett then picked up on. The agency has stepped far
Speaker 1: outside of what we think of as its appropriate lane. Uh,
Speaker 1: you know the FDA regulating tobacco. That sort of thing,
Speaker 1: just like something that's like what the FDA regulates tobacco.
Speaker 1: You know, the FDA staying in its lane. What the
Speaker 1: FDA can regulate tobacco. Or if you think about the
Speaker 1: eviction moratorium case from earlier, this term, you know, it
Speaker 1: was what the CDC can regulate the landlord tenant relationship.
Speaker 1: Here for thinking about ep A regulating greenhouse gases, Well,
Speaker 1: there's a match between the regulation and the agency's wheelhouse. Right,
Speaker 1: How confusing was it all? Justice Stephen Bryer, known for
Speaker 1: his crazy hypotheticals, jumped into help Justice Samuel Alito with
Speaker 1: one of his hypotheticals for Attorney Beth Brinkman, something just
Speaker 1: as Kagan joked about, maybe it's sound a good hypothetical.
Speaker 1: I think he's saying, your mind. Yeah, in tobacco, I
Speaker 1: suppose they started off and saying, we are regulating the
Speaker 1: advertising of four foot cigars smoked through hocus. Okay, now
Speaker 1: the problem is can you regulate tobacco? And if you
Speaker 1: can regulate tobacco, that's a very big deal. But they say, no,
Speaker 1: it isn't. It's just this I n you know, there
Speaker 1: aren't There are only three in the whole country. So
Speaker 1: it's a little deal. So it isn't the major question.
Speaker 1: Doctory you know that helped me, your honor and justice leader.
Speaker 1: I really don't mean to be not answering your question.
Speaker 1: Well I won't, I won't belabor it, and I can
Speaker 1: never equal my my colleagues evocative hypotheticals. You know, it's
Speaker 1: not always the case, mis Brinkman, that a lawyer responds
Speaker 1: to one of Justice Prior's hypotheticals by saying, that's really
Speaker 1: helpful laughter from those who know Justice Briar's hypothetical as well.
Speaker 1: Joining me is Pat Parento, a professor of environmental law
Speaker 1: at Vermont Law School. Pat, what's at stake in this
Speaker 1: case When you're talking about the electricity sector that represents
Speaker 1: about a third of our total greenhouse gas emissions, So
Speaker 1: it's incredibly important to regulate that sector and get those
Speaker 1: emissions down. And within that sector, you know, the single
Speaker 1: most important category, of course, is coal fired power plants.
Speaker 1: So this case West Virginia versus e p A, no
Speaker 1: surprise West Virginia being a huge coal state still even
Speaker 1: though coal is dying there, it's all about whether e
Speaker 1: p A has authority to impose the kinds of controls well,
Speaker 1: a system of controls that will significantly bring those plants
Speaker 1: into compliance with the Clean Air Act and with President
Speaker 1: Biden's avowed pledge to make the electricity sector carbon free.
Speaker 1: So there's a lot writing on this and beyond the
Speaker 1: greenhouse gas and the climate change implications of the case.
Speaker 1: Depending on what the court does, it may sweep even
Speaker 1: more broadly. It may affect all of environmental law. So
Speaker 1: Republican led states, and as you mentioned, coal companies are
Speaker 1: trying to head off an e p A rule that
Speaker 1: isn't even on the books yet. That's right. Originally, the
Speaker 1: Obama administration proposed something called the Clean Power Plant and
Speaker 1: it had three different components. It was gonna make plants
Speaker 1: more efficient, it was going to require more reliance on
Speaker 1: natural gas plants, and it was going to require bringing
Speaker 1: on green energy, wind and solar more quickly. That plan
Speaker 1: never took effect. The Supreme Court put a stay on
Speaker 1: it before any court had even ruled on whether it
Speaker 1: was legal or not, and it never went into effect.
Speaker 1: And then subsequently, of course, the Trump administration proposed something
Speaker 1: called the Affordable Clean Energy Rule, which it wasn't but
Speaker 1: that rule would have only achieved maybe maybe one reduction
Speaker 1: in these emissions, so it was a meaningless rule. The
Speaker 1: DC Circuit Court vacated the Trump rule and sort of reinstated,
Speaker 1: or at least gave e p A the option of
Speaker 1: reinstating the Clean Power Plan. Ep A quickly said, we
Speaker 1: have no intention of reinstating the Clean Power Plan. We're
Speaker 1: certainly not going to keep the Affordable Clean Energy Rule
Speaker 1: on the books. We're going to start a new rulemaking,
Speaker 1: and that's where they are today. They promised the Court
Speaker 1: e p. A did that a new rule is forthcoming, right,
Speaker 1: you know, it's in the mail sort of government promise.
Speaker 1: But no, they did say they anticipate promulgating a new
Speaker 1: rule before the end of the year. So you're right.
Speaker 1: At the current time, there is no rule on the books.
Speaker 1: Nobody is required to do anything, which of course raises
Speaker 1: the question why in the world the Court take the case.
Speaker 1: My question, there's no case or controversy is there not
Speaker 1: to my way of thinking. But the majority of the
Speaker 1: Court disagrees. They're clinging to the idea that because e p.
Speaker 1: A didn't officially repeal the Clean Power Plan, it could
Speaker 1: spring back to life. That was a term that was
Speaker 1: used at some point. So that's the slender thread that
Speaker 1: the Supreme Court is using to say this case is
Speaker 1: still alive controversy. It really isn't. That's a fiction, but
Speaker 1: they're sticking to it. The majority, the conservative majority of
Speaker 1: the Court is saying, we think we still have jurisdiction
Speaker 1: and we're going to issue a ruling. Now, the question
Speaker 1: is what that ruling going to be. So the Bond
Speaker 1: Administration backing the e p A, and they have backing
Speaker 1: from environmental groups and power companies like Consolidated Edison, Exelon,
Speaker 1: and National Grid USA. Why is the power sector nervous
Speaker 1: about this? Yeah, because the power sector likes the idea
Speaker 1: of having flexible options to achieve the reductions, including things
Speaker 1: like emissions trading. Of course, the power industry has been
Speaker 1: the subject of emissions trading ever since the acid rain
Speaker 1: control program from so the industry groups are savvy. They
Speaker 1: understand that with that kind of a program they can
Speaker 1: figure out how to achieve emission reductions at the lowest costs.
Speaker 1: And they're afraid that the Supreme Court may go so
Speaker 1: far as to prohibit e p A from using emissions
Speaker 1: trading and averaging because West Virginia's argument is all that
Speaker 1: e p A can do is imposed controls at individual sources,
Speaker 1: one plant at a time, which is terribly inefficient and ineffective.
Speaker 1: It's not going to achieve the kind of reductions that
Speaker 1: are needed. But that's the whole point, right, I Mean,
Speaker 1: what West Virginia wants is a rule that's so weak
Speaker 1: it won't do anything. But the power company parties that
Speaker 1: joined with e p A are saying, we don't agree
Speaker 1: with that. We would much rather have E p A
Speaker 1: give us options, including, by the way, bringing on more
Speaker 1: wind and solar when that makes sense. So don't take
Speaker 1: things off the table, you know, don't necessarily force us
Speaker 1: to go green right away, but give us some options.
Speaker 1: That's what the companies want. The arguments were really long.
Speaker 1: Was there one issue that the justices were kicking around most? Yes,
Speaker 1: that's the major question doctrine. You know, the court has
Speaker 1: already used that twice this year. They struck down a
Speaker 1: rule putting a moratorium on evictions because of the CODE epidemic,
Speaker 1: and they said that the agency didn't have the authority
Speaker 1: because that was something the agency had never done before.
Speaker 1: And in another case, OSHA, the agency that regulates occupational
Speaker 1: exposure and health and safety concerns, also imposed a rule
Speaker 1: and the court struck that down, saying OSHA, you're not
Speaker 1: the health agency. You can't be writing a rule that
Speaker 1: regulates people's exposure to COVID in the workplaces. You can regulate,
Speaker 1: you know, the strength of ladders that people climb in
Speaker 1: performance of their duties, but you can't regulate the fact
Speaker 1: that they might be exposed to a deadly disease. You know.
Speaker 1: So the Court has already shown that it wants to
Speaker 1: wield this major question doctrine in a way that strikes
Speaker 1: down agency rules at the court. The conservative members of
Speaker 1: the Court believe are going too far, having major impacts
Speaker 1: on the nation's economy and so forth. But it's a
Speaker 1: rule they made up, you know, it doesn't come from
Speaker 1: the Constitution, and it's fairly recent. It's just within this
Speaker 1: era of the people that have joined the courts, Justice Roberts,
Speaker 1: Justice course, it's Justice Kavanaugh, now Justice Barrett, and formerly
Speaker 1: Justice A. Leado and Justice Thomas. They're all of the
Speaker 1: same mind about limiting agency authority. The so called administrative state.
Speaker 1: Is that what this is about. That's what this is about.
Speaker 1: I mean, the Court would never use that term, but
Speaker 1: that's what it's about. It's a suspicion that agencies who
Speaker 1: are quote unelectric bureaucrats, you know, taking irrigating a lot
Speaker 1: of power, and they don't like that. The conservatives believe,
Speaker 1: I think that those are things that Congress should be doing.
Speaker 1: And I suppose in a perfect world that's right. But
Speaker 1: what happens when Congress isn't doing that, which is exactly
Speaker 1: where we are today. So the major question doctrine is
Speaker 1: supposed to kick the issues back to Congress and forced
Speaker 1: Congress to be more explicit about the authority that they're granting. Well,
Speaker 1: that sounds good, but we know that in environmental law
Speaker 1: we have not seen updates. Who are major environmental laws
Speaker 1: like the Clean Air Act, like the Clean Water Act,
Speaker 1: like the Endangered Species Act. We haven't seen updates in decades,
Speaker 1: and there's no likelihood that we will. So this notion
Speaker 1: of quote kicking it back to Congress is illusory. What
Speaker 1: it really means is there won't be any rule and
Speaker 1: there won't be any protection. Did you see enough votes
Speaker 1: there to head off the e p A rule? No? No.
Speaker 1: I was hopeful that all of the members of the Court,
Speaker 1: when they really focused on what they were being asked
Speaker 1: to do in light of the fact there is no
Speaker 1: rule to review, might reconsider having taken the case. But
Speaker 1: there was no indication they were going to do that.
Speaker 1: So I'm convinced they are going to write a decision.
Speaker 1: The real question is what are they going to tell
Speaker 1: the e p A. I mean, the Court is not
Speaker 1: a rule making body. I mean the conservatives would be
Speaker 1: the first to say that's a violation of separation of powers.
Speaker 1: That's outside our lane. We're not supposed to write rules,
Speaker 1: we're supposed to review rules. So that's my question is
Speaker 1: what is factuty? Are they gonna say? Are they going
Speaker 1: to tell the EPA you can do these things but
Speaker 1: not those things? And on what basis would they do that.
Speaker 1: They can't say e p A has no power to
Speaker 1: do anything because of Massachusetts versus e p A. They've
Speaker 1: already decided e p A has the authority, and they
Speaker 1: actually said e p A has the duty to regulate
Speaker 1: once e p A has found that these emissions pose
Speaker 1: a danger the public health and welfare, which e p
Speaker 1: A has. The Supreme Court had a chance to review
Speaker 1: the endangerment finding some time ago and decided not to
Speaker 1: do that. And then yet in another case, the A
Speaker 1: e p versus Connecticut case, the Supreme Court specifically cited
Speaker 1: the provision that's that issue in the West Virginia case
Speaker 1: as the source of e p AS authority to regulate
Speaker 1: emissions from power plants. So I think the Court is
Speaker 1: sort of in a box. They've issued opinions saying e
Speaker 1: p A has a duty to regulate these emissions and
Speaker 1: a specific provision from which to do that. And so
Speaker 1: now what are they going to say about it? They're
Speaker 1: going to say, well, now we're gonna put some significant boundaries.
Speaker 1: There was an argument from West Virginia and from the
Speaker 1: coal industry parties that the rule should be you can't
Speaker 1: regulate beyond the fence line. And a lot of my colleagues,
Speaker 1: a lot of lawyers out there, thought that might be
Speaker 1: the rationale that the court might grab and use. But
Speaker 1: there was a lot of skepticism towards that, even from
Speaker 1: Justice Thomas right off the bat, saying that rule doesn't
Speaker 1: make any sense to me. So I don't think they're
Speaker 1: going to be able to use something simplistic like you
Speaker 1: can't regulate beyond the fence line. But again, what exactly
Speaker 1: are they going to say, and we won't know until
Speaker 1: June explain that you can't regulate beyond the fence line?
Speaker 1: What that means on the ground, Yeah, what that would
Speaker 1: mean is you go to each individual plant and you
Speaker 1: try to determine what control you know, the the typical
Speaker 1: Clean Air Act controls are things like scrubbers, right, That's
Speaker 1: that's how we scrub out pollutants like mercury and other
Speaker 1: air pollutants, or baghouse filters, you know, another end of
Speaker 1: stack kind of control for greenhouse gases. That doesn't work.
Speaker 1: Baghouses don't work. Scrubbers don't worry. That doesn't work. So
Speaker 1: the only thing you can do with carbon emissions is
Speaker 1: either capture them right and to question them. You know,
Speaker 1: that's carbon capture and sequestration that's incredibly expensive. I mean,
Speaker 1: that's the irony actually of West Virginia's argument. If you
Speaker 1: take it to its logical extreme, it would mean every
Speaker 1: single coal fired power plant out there would have to
Speaker 1: install incredibly expensive carbon capture and sequestration systems, not just
Speaker 1: one technology and the entire system, and that probably alone
Speaker 1: would put those plants out of business. So, you know,
Speaker 1: that kind of an argument of looking at the individual
Speaker 1: source and looking for sort of conventional technologies just really
Speaker 1: doesn't work for carbon um What the Trump administration said
Speaker 1: you could do is improve the heat rate efficiency of
Speaker 1: the individual plants. In fact, that's what Trump said is
Speaker 1: all you can do. But the problem with that is
Speaker 1: if you make plants run more efficiently, guess what, they're
Speaker 1: going to run more. They're going to run longer and
Speaker 1: that's going to put more emissions into the air long term.
Speaker 1: So that's a nonsensical frankly, a strategy by itself. It
Speaker 1: might make sense in combination, right with some other strategies
Speaker 1: to actually reduce emissions, but by itself just improving the
Speaker 1: efficiency these plants is not going to move the needle
Speaker 1: on carbon pollution. A lot of people were looking at
Speaker 1: the three newest justices to see, you know what they said.
Speaker 1: But Justice Neil i And only asked one question, and
Speaker 1: Justices Brett Kavanaugh and Amy Coney Barrett didn't ask that
Speaker 1: many questions in this long argument. But did Barrett seem
Speaker 1: to be considering sort of a middle ground position? I think.
Speaker 1: I think if there's any hope here to retain some
Speaker 1: authority for e p A to write a meaningful rule,
Speaker 1: it lies with Chief Justice Roberts, and there's a good
Speaker 1: likelihood actually that he may write the opinion in this case,
Speaker 1: and with Justice Barrett, because yes, she was cautious, and
Speaker 1: she didn't tip her hand at all about which way
Speaker 1: she was leaning, and she asked the kinds of questions
Speaker 1: of the petitioners, questions that would suggest she wasn't buying
Speaker 1: everything they were saying even Justice Kavanaugh, who when he
Speaker 1: was on the d C circuit, he heard arguments challenging
Speaker 1: the Clean Power Plan, and he made it pretty clear
Speaker 1: he had very little used for the Clean Power Plan
Speaker 1: and was prepared to use this major question doctrine to
Speaker 1: strike it down. But when he was asking questions, particularly
Speaker 1: of the lawyers arguing for the industry position, he was
Speaker 1: acknowledging that emissions trading and you know, some of these
Speaker 1: more flexible approaches did make sense. And in some of
Speaker 1: his earlier opinions, you know, he's shown a keen interest
Speaker 1: in looking at the costs and benefits of various ways
Speaker 1: of regulating. So I think he's going to hesitate to
Speaker 1: join in an opinion that would take away that kind
Speaker 1: of authority for epated shape a more flexible rules. So
Speaker 1: there's enough, I think play among the justices here that
Speaker 1: maybe the e p A could come out of this
Speaker 1: case not with everything they would like to have, but
Speaker 1: with at least enough to write a decent rule. That's
Speaker 1: what we're hoping. Those of us who want to see
Speaker 1: us make some progress towards controlling carbon pollution are hoping
Speaker 1: the Court will pause before it writes something that just
Speaker 1: strips p A of any meaningful authority to do that.
Speaker 1: Did it seem as if it was particularly just as
Speaker 1: Aldo was against the e p A. Here, Yes, Justice
Speaker 1: Aldo has been you know, he was the same way
Speaker 1: with the Maui and Clean Water Act case. He descended
Speaker 1: a long, long distent. His descent was longer than the
Speaker 1: majority opinion that Justice Brier wrote, you know, um saying
Speaker 1: that yes, under certain circumstances, dp A can regulate discharges
Speaker 1: through groundwater that affect lakes and rivers and so forth.
Speaker 1: Alito said, no, they don't. They don't have that authority period.
Speaker 1: So so Alito's questions were as typically, um, you know,
Speaker 1: a little bit over the top because of what Alado
Speaker 1: was saying. You know, if we if we grant e
Speaker 1: p A this broader authority that e p A wants,
Speaker 1: where does it lead? I mean, does it lead to
Speaker 1: e p A regulating everybody's house and telling everybody what
Speaker 1: kind of energy they could use? And that's ridiculous, right,
Speaker 1: But that is the way that Alito thinks about agency authority.
Speaker 1: He worries about the abuse of authority. That's where he
Speaker 1: always goes with his question. He sort of takes the
Speaker 1: extreme example of what a kind of renegade agency would do.
Speaker 1: You know, if we're not really careful in controlling their authority,
Speaker 1: they're likely to go overboard. That's where he was coming from.
Speaker 1: And the liberal justices were supportive of the e P
Speaker 1: a sort of, but I think they knew that, they
Speaker 1: knew what the writing on the wall was. They didn't
Speaker 1: fight on what we call the justiciability question there. There's
Speaker 1: all kinds of reasons why the court shouldn't take this case,
Speaker 1: for example standing. You know, how many times do environmental
Speaker 1: groups groups get thrown out of court because they can't
Speaker 1: adequately prove standing. They can't prove how they're hurt by
Speaker 1: what the agency is doing or not doing. There's no
Speaker 1: hurt here at all. Okay, so nobody's being required to
Speaker 1: do anything, right, So you would have thought the liberal
Speaker 1: members of the court would have been hammering on the
Speaker 1: standing question. Nothing almost nothing on that. In fact, Corsage
Speaker 1: was the only one to raise the standing question and
Speaker 1: he didn't press it at all, Like he said, one
Speaker 1: question and he was done. So no, you know, Justice
Speaker 1: Brier actually surprising, well maybe not surprisingly. He's an administrative
Speaker 1: law professor, so he he was quibbling over why e
Speaker 1: p A hadn't actually repealed the clean Power Plan. They
Speaker 1: you know, the e p A probably in hindsight, should
Speaker 1: have done that right uh, and taking it off the
Speaker 1: board completely. But because by leaving it sort of out there,
Speaker 1: even though there they have no intention of proceeding with it,
Speaker 1: it gave it gave the majority of the court, the
Speaker 1: conservatives on the court a handle on the case. And
Speaker 1: Briar was was was quizzing the Solicitor General on why
Speaker 1: didn't e p A just take that rule off the books?
Speaker 1: That was about all you got from the liberal a side.
Speaker 1: Talk about the possibilities of a ruling here. You could
Speaker 1: have them dismiss the case. You could have them issue
Speaker 1: a narrow ruling a broad ruling. What are the possibilities
Speaker 1: they won't dismiss the case. That's pretty clear now. It
Speaker 1: does come down to a narrow or broad ruling, and
Speaker 1: it does come down to will they call out some
Speaker 1: things that would be permissible. For example, could they say,
Speaker 1: you know, e e p A can consider a regulation
Speaker 1: that extends beyond the fence line, but not one that
Speaker 1: tries to restructure the country's energy system, you know, not
Speaker 1: one that that requires use of renewable energy, not one
Speaker 1: that tries to regulate the way the grid system of
Speaker 1: the country works and dispatch you know, gas power or
Speaker 1: clean power something like that. Those were things that the
Speaker 1: Clean Power Plan included as options. They weren't necessarily man
Speaker 1: the eights, but they were options. And it may be
Speaker 1: that the opinion in this case kind of goes through
Speaker 1: what the Clean Power Plan was considering and knocks individual
Speaker 1: pieces of it out and then leaves it to e
Speaker 1: p A to decide what can it do once the
Speaker 1: court has said what it can't do. I still have
Speaker 1: trouble imagining how an opinion like that reads and how
Speaker 1: you would write it. But that's maybe what we'll see
Speaker 1: is is kind of an opinion that limits e p
Speaker 1: as authority at the boundary, at the sort of the
Speaker 1: outer edge of its its potential authority, but leaves enough
Speaker 1: that e p A can figure out a rule that
Speaker 1: will make do some good. Thanks for those insights, Pat.
Speaker 1: That's Professor Pat Parento of the Vermont Law School. Our
Speaker 1: interests are maintained the strongest unified economic impact campaign that
Speaker 1: on food and in all history, and I think we're
Speaker 1: well on the way to doing that. President Joe Biden
Speaker 1: says they is determined to continue its economic assault on
Speaker 1: Russian President Vladimir Putin over his war in Ukraine. The
Speaker 1: latest round targets Russia's wealthy as oligarchs and their families
Speaker 1: with direct sanctions, adding to the ever growing list of
Speaker 1: sanctions against Russia, all in the hope that financial pain
Speaker 1: will force Putin to end his war. The rush of
Speaker 1: sanctions means that lawyer's phones are ringing off the hook
Speaker 1: with calls from clients struggling to figure out how to
Speaker 1: deal with them. Joining me as someone who's been taking
Speaker 1: those calls, Chase Knicki, a partner, Cleary Gottlieb start by
Speaker 1: telling us how significant the sanctions are in size and scope.
Speaker 1: So the sanctions that we've seen to date are somewhat
Speaker 1: unprecedented from a sanctions perspective, in the sense of, you know,
Speaker 1: a country with such economic ties, with countries like the
Speaker 1: United States, in the UK and the European Union being
Speaker 1: subject to the level in this amount of sanctions, largely
Speaker 1: targeting in many ways the Russian financial sector, including major
Speaker 1: Russian financial and institutions, as well as most recently the
Speaker 1: Central Bank of Russia and those sanctions, from what we're
Speaker 1: hearing from clients and otherwise hearing in the market, are
Speaker 1: having the intended effect of really isolating Russia from an
Speaker 1: economic perspective. Chase, would you say this situation is different
Speaker 1: in that usually you have a slower ramp up of
Speaker 1: sanctions over time, but here you have several stages in
Speaker 1: a compressed period of time, and more escalations are possible. Exactly,
Speaker 1: That's right, and it used to be the case. You know,
Speaker 1: look at the programs that apply to countries like Iran
Speaker 1: and even North Korea and Cuba. Those countries are just
Speaker 1: completely off limits for US persons. The US government, at
Speaker 1: least in recent years, hasn't really been taking that kind
Speaker 1: of broader, comprehensive approach, but instead is imposing at least
Speaker 1: what I call all sort of smart sanctions, narrowly tailored sanctions.
Speaker 1: You typically do see those in a more piecemeal way,
Speaker 1: where you know a sanction will be imposed, the US
Speaker 1: government will see whether that sanction is having the impact
Speaker 1: that they wanted to, and then if it's not, an
Speaker 1: additional sanction might be imposed. But you're absolutely right here.
Speaker 1: In the last week or so with the Russia stanctions program,
Speaker 1: it's just been a deluge of individual sanctions but all
Speaker 1: kind of at the same time, and having to wrap
Speaker 1: your arms around exactly what all those mean and what's
Speaker 1: the landscape looked like from various perspectives. It's not just
Speaker 1: U S sanctions, it's e U S sanctions, its UK sanctions.
Speaker 1: Countries around the world are imposing sanctions on Russia, and
Speaker 1: so it really is a multinational effort that you need
Speaker 1: to be thinking about when you're thinking about multinational companies
Speaker 1: engaging in transactions with Russia. Have the Treasury and Commerce
Speaker 1: Departments made it clear what the new restrictions are in
Speaker 1: many ways, Yet there was a period of chaos, you know,
Speaker 1: last week when the sanctions started to come out, primarily
Speaker 1: because they were coming out in a fast and unpredictable way.
Speaker 1: And I think it wasn't necessarily that the types of
Speaker 1: sanctions that were being imposed were difficult to understand. It
Speaker 1: was just the number and the sheer volume of them,
Speaker 1: and making sure that folks were wrapping their arms around
Speaker 1: everything that applies. And I think, now, you know, here
Speaker 1: we are a number of days after the first sanctions
Speaker 1: came into place, I think we're starting to get a
Speaker 1: better sense of what the landscape looks like. The landscapes
Speaker 1: starting to become much clearer with respect to the rules
Speaker 1: of the road, at least as they are today, And
Speaker 1: I think as new sanctions continue to be imposed, it's
Speaker 1: much easier to wrap your arms around how that particular
Speaker 1: sanctions bolts onto, if you will, the existing sanctions programs
Speaker 1: and becomes quite frankly, just the piece of the sanctions pie.
Speaker 1: So clients I think are getting a little bit more
Speaker 1: comfortable with understanding exactly what the contours of the sanctions are.
Speaker 1: Of course, all subjects to change if new sanctions are imposed.
Speaker 1: Can you broadly describe the sanctions US companies are dealing with?
Speaker 1: They sort of fall into two primary buckets, if you will,
Speaker 1: And one is there are a number of parties in
Speaker 1: Russia that have been subjects to blocking sanctions, a number
Speaker 1: of Russian financial institutions, a number of Russian individuals. Those
Speaker 1: entities and individuals are off limits for US companies as
Speaker 1: a general matter, and so US companies need to understand
Speaker 1: the extent to which they have relationships or other exposure
Speaker 1: to those entities and individuals in take appropriate action. The
Speaker 1: second bucket are entities that are not subject to these
Speaker 1: so called comprehensive blocking SDN sanctions, but more limited perhaps
Speaker 1: debt and equity related restrictions. And so US companies are
Speaker 1: not prohibited from engaging in transactions with those entities, but
Speaker 1: they are prohibited from engaging in certain types of activities
Speaker 1: with those entities, and making sure that what the U.
Speaker 1: S company is doing doesn't cross over the line of,
Speaker 1: for example, providing new debt or equities to those entities.
Speaker 1: So what are your clients calling you about or what
Speaker 1: are they most confused about? We do get questions all
Speaker 1: over the map. You know, some are easier than others.
Speaker 1: Some require judgment calls because there's just, you know, lack
Speaker 1: of clarity. There's potentially some uncertainty with respect to whether
Speaker 1: a particular activity is covered by sanctions. But we usually
Speaker 1: start with the basics. In the basics are along the
Speaker 1: lines of, well, what jurisdiction does this particular activity or
Speaker 1: this transaction fall under. If it falls under U S jurisdiction,
Speaker 1: for example, it involves a US company, or the transaction
Speaker 1: is going to be processed in US dollars, here's the
Speaker 1: set of rules that apply as of today. If the
Speaker 1: transaction doesn't involve US jurisdiction, but it involves UK jurisdiction
Speaker 1: or EU jurisdiction. It's helping companies understand exactly what set
Speaker 1: of rules apply to them on a case by case basis.
Speaker 1: And then once we kind of have an understanding of
Speaker 1: what those particular rules that apply are, does this transaction
Speaker 1: or some party that's involved in the trans actions trip
Speaker 1: any of these sanctions and if so, what do we
Speaker 1: do about it? Is it a nonstarter? Can we just
Speaker 1: not complete the transaction or their ways the transaction can
Speaker 1: be completed that are undertaken in compliance with, you know,
Speaker 1: the applicable sanctions regime. So a US company that was
Speaker 1: in the process of making an acquisition in Russia or
Speaker 1: a joint venture with a company in Russia, does that
Speaker 1: have to stop or does it depend? It depends if
Speaker 1: if those transactions don't involve any sanctioned parties um or
Speaker 1: if it does involve a stanction party, if the particular
Speaker 1: sanctions that apply to that party are not implicated by
Speaker 1: the transaction, there's no legal prohibition on continuing and pushing
Speaker 1: forward on those types of transactions. But what we've seen
Speaker 1: by and large with our experience with clients that were
Speaker 1: in those situations for you know, perhaps non legal reasons,
Speaker 1: waiting to see how the situation unfold, to make sure
Speaker 1: that no additional sanctions could impact the transaction. We've seen
Speaker 1: a lot of pullback, people pressing pause on those transactions
Speaker 1: to wait to see how things shake out so that
Speaker 1: they can feel comfortable. But if they do proceed forward
Speaker 1: with the transaction that one's allowed under the current rules
Speaker 1: into there won't be some drastic change in the rules
Speaker 1: a week from now, two weeks from now that could
Speaker 1: significantly change the ability to complete that transaction. What government agency,
Speaker 1: if ANNIE is looking at the compliance with sanctions, So
Speaker 1: from a US perspective, it's the U. S. Department of
Speaker 1: the Treasury, Office of Foreign Assets Control. That's the agency
Speaker 1: within the US Treasury Department that's charged with implementing and
Speaker 1: enforcing these sanctions UM. And so that's the entity that
Speaker 1: you would go before. For example, if you believe you
Speaker 1: may have violated sanctions, there's a possibility to disclose those
Speaker 1: sanctions to the U. S. Government and you get credit
Speaker 1: for doing so. Um. Other times, O fact will otherwise
Speaker 1: become aware of potential activities that could potentially result in
Speaker 1: violations of sanctions and reach out to the parties to
Speaker 1: develop additional information. The interesting piece from a US perspective
Speaker 1: is it is it's just not thinking about am I
Speaker 1: violating U S. Sanctions. The US also has so called
Speaker 1: secondary sanctions that it can impose, and these are sanctions
Speaker 1: that provide the US government with the authority to impose
Speaker 1: sanctions on non US parties for engaging in activities wholly
Speaker 1: outside of US jurisdiction if those activities are targeted under
Speaker 1: secondary sanctions, and there are a number of secondary sanctions
Speaker 1: authorities that apply to Russia. And so when we're advising
Speaker 1: non US companies, it's not just a matter of making
Speaker 1: sure that what they're doing is outside US jurisdiction, but
Speaker 1: it's also advising on the extent to which there's secondary
Speaker 1: sanctions risk. For example, if there's a U S sanctioned
Speaker 1: party involved, that creates potential risk of secondary sanctions for
Speaker 1: engaging in transactions with that particular party, even if it's
Speaker 1: undertaken wholly outside of US jurisdiction. If a company or
Speaker 1: a person violates sanctions, does the Justice Department ever go
Speaker 1: after them? Yes, there are potential civil penalties for sanctions violations.
Speaker 1: Typically civil related penalties are handled at the OH fact
Speaker 1: at the Treasury agency level, but there also are potential
Speaker 1: criminal penalties for violations of sanctions for you know, willful conduct.
Speaker 1: In those circumstances, you would see the Department of Justice
Speaker 1: intervene when you're talking about potential criminal penalties. But it
Speaker 1: sounds like what's happening now is a lot of confusion
Speaker 1: rather than willful exactly. And these are you know, unfortunately
Speaker 1: the U S. Sanctions are strict liability laws, and so
Speaker 1: from a civil liability perspective, there's no intent required to
Speaker 1: violate sanctions. If you violate sanctions, you violate sanctions whether
Speaker 1: you intend to who are not. And you know, what
Speaker 1: we see oftentimes from o FAX perspective is that you know,
Speaker 1: they use their enforcement discretion in those cases. So if
Speaker 1: it really is a situation where you know, the party
Speaker 1: was really trying to just understand the sanctions was an
Speaker 1: inadvertent violation, but it's still nonetheless a violation, you may
Speaker 1: not see o FAX pursue a penalty action in that case. Um,
Speaker 1: but may you know, decide to issue what we call
Speaker 1: a warning letter for example, recognizing and acknowledging that a
Speaker 1: violation occurred, but not pursuing any sort of civil enforcement.
Speaker 1: All these questions mean a lot of legal work and
Speaker 1: lawyers like you being inundated with calls. It means that
Speaker 1: my calendar is full of thirty to sixty minute calls,
Speaker 1: back to back to back, starting early in the morning,
Speaker 1: going until late at night. If there are no more
Speaker 1: sanctions imposed, how long do you think before this becomes
Speaker 1: just a simple process for you and people start to
Speaker 1: understand and what's going on? Or is that not going
Speaker 1: to happen for quite some time. Yeah, it's a good question.
Speaker 1: I was actually thinking about that earlier today, and how
Speaker 1: long my life is going to be like this? And
Speaker 1: I think, you know, if no more sanctions are imposed,
Speaker 1: you know, it's tough to you know, definitely say for sure,
Speaker 1: but I would say within a matter of weeks, maybe
Speaker 1: a month, I think folks will you know, I think
Speaker 1: the initial chaos will die down. Folks will have a
Speaker 1: good sense of at least how the sanctions apply to
Speaker 1: them UM and can move forward, and they will have
Speaker 1: done all their contingency planning UM and implemented the various
Speaker 1: measures that they've you know, they thought about implementing the
Speaker 1: mitigate or eliminate their risks. So I don't think three
Speaker 1: months from now, my my schedule is going to be
Speaker 1: as full on Russia's sanctions questions is today. But you know,
Speaker 1: I think there's certainly going to be a number of
Speaker 1: additional weeks from here where companies are still trying to
Speaker 1: wrap their arms around the extent to which these apply
Speaker 1: to them. Well, thanks for taking our call, Chase. That's
Speaker 1: Chase Kinnicky of Cleary Guttlieb, And that's it for this
Speaker 1: edition of The Bloomberg Law Show. Remember you can always
Speaker 1: get the latest legal news on our Bloomberg Law Podcast.
Speaker 1: You can find them on Apple Podcasts, Spotify, and at
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Speaker 1: night at ten pm Wall Street Time. I'm June Grosso,
Speaker 1: and you're listening to Bloomberg