UNITED STATES of America, Plaintiff–Appellee, v. Charles A. BALDWIN, Defendant–Appellant.
Before GORSUCH, ANDERSON, and HOLMES, Circuit Judges. Submitted on the briefs *: Charles A. Baldwin, pro se. J. Bishop Grewell, Assistant United States Attorney, and John F. Walsh, United States Attorney, District of Colorado, Denver, CO, for Plaintiff–Appellee.
Deep in the Code of Federal Regulations, in the part titled “Public Contracts and Property Management,” lie two small provisions that would be easy to overlook were it not for disputes like this one. The first says “[p]ersons in and on [Federal] property must at all times comply ․ with the lawful direction of Federal police officers and other authorized individuals.” 41 C .F.R. § 102–74.385. The second adds “[a]ll persons entering in or on Federal property are prohibited from loitering, exhibiting disorderly conduct or exhibiting other conduct on property that ․ impedes or disrupts the performance of official duties by Government employees.” Id. § 102–74.390. After trial, Charles Baldwin found himself criminally convicted for violating both. An attorney for the Department of Interior, he now appeals his convictions acting as his own lawyer. Among other things, he argues that violating these two federal regulations isn't a crime—and that even if it is a crime he didn't act with sufficient mens rea to be held criminally culpable. Mr. Baldwin's points are not without some power. But in light of the circumstances we face in this case we find ourselves compelled to affirm all the same.
The trouble began when Mr. Baldwin drove out of the Denver Federal Center at his workday's end. While still on the Federal Center grounds, Commander Kevin Lundy of the Federal Protective Service stopped Mr. Baldwin's truck. Commander Lundy did this because he'd seen Mr. Baldwin speeding and swerving to avoid a bicyclist, and he wanted to issue a warning. But before Commander Lundy could finish the warning Mr. Baldwin drove off, ignoring shouted commands to stop. In response, Commander Lundy took to his police car and followed Mr. Baldwin off the Federal Center's grounds, stopped him again, and asked for his driver's license, registration, and proof of insurance. According to Commander Lundy, Mr. Baldwin refused to comply and had to be forced from his vehicle and restrained with handcuffs. At the end of it all, Commander Lundy issued various tickets and allowed Mr. Baldwin to go on his way.
After a bench trial before a federal magistrate judge, the court convicted Mr. Baldwin of three offenses. Two of these offenses—failing to comply with “the lawful direction of [a] Federal police officer[ ]” and “imped[ing] or disrupt [ing]” the performance of a government employee's official duties—were premised on federal regulations 41 C.F.R. § 102–74.385 and 41 C.F.R. § 102–74.390(c). The third—attempting to obstruct a peace officer—was based on Colorado state law and the Assimilative Crimes Act. See 18 U.S.C. § 13; Colo.Rev.Stat. §§ 18–8–104(1)(a); 18–2–101(1); United States v. Christie, 717 F.3d 1156, 1170 (10th Cir.2013).
In challenging his convictions under the federal regulations, Mr. Baldwin begins by disputing the idea the regulations purport to articulate crimes at all. Looking at the regulations, he points out that their section headings pose these questions: “What is the policy concerning conformity with official signs and directions?” and “What is the policy concerning disturbances?” 41 C.F.R. §§ 102–74.385, 102–74.390. The regulations themselves then proceed to answer the questions their titles pose. In light of this, Mr. Baldwin submits, the regulations can be sensibly understood as articulating no more than administrative rules or policies, not crimes.
The regulations certainly do delineate policy, but that isn't all they do. Another section of the same regulatory “subpart” expressly provides that the very sections Mr. Baldwin violated can be enforced through criminal sanctions: “A person found guilty of violating any rule or regulation in this subpart ․ shall be ․ imprisoned for not more than 30 days,” subject to fines as prescribed by “title 18 of the United States Code,” or both. Id. § 102–74.450. Title 18, in turn, indicates that fines for crimes with a maximum term of imprisonment of 30 days are usually limited to no more than $5,000. See 18 U.S.C. §§ 3559(a)(8), 3571(b)(6).
By what authority is the Executive permitted to criminalize conduct and impose jail terms in administrative regulations buried deep within the Code of Federal Regulations? Normally we don't think of regulatory agencies as entitled to announce new crimes by fiat. But with some scratching around we see that Congress did expressly authorize first the General Services Administration and then the Department of Homeland Security to establish regulations “for the protection and administration of property owned or occupied by the Federal Government” and to prescribe “reasonable” penalties of “not more than 30 days” in prison and fines in the amounts allowed by title 18. See 40 U.S.C. § 1315(c) (formerly found at 40 U.S.C. §§ 318a, 318c); cf. 6 U.S.C. § 552 (facilitating transfer of authority from GSA to DHS). So it is that the regulation at issue before us can claim at least some legislative pedigree, some measure of congressional authorization.
Still there's no question the arrangement bears its curiosities. Can Congress so freely delegate the core legislative business of writing criminal offenses to unelected property managers at GSA? Might this arrangement, though arrived at with Congress's assent, still blur the line between the Legislative and Executive functions assigned to separate departments by our Constitution? Cf. Touby v.. United States, 500 U.S. 160, 165–66 (1991) (admitting “[o]ur cases are not entirely clear as to whether more specific guidance is in fact required” when Congress is delegating authority “to promulgate regulations that contemplate criminal sanctions”); Wayne R. LaFave, Criminal Law § 2.6(a), at 131 & nn. 6–7 (5th ed.2010). Thanks to this and many other similar and similarly generous congressional delegations, the Code of Federal Regulations today finds itself crowded with so many “crimes” that scholars actually debate their number. See, e.g., John C. Coffee, Jr., Does “Unlawful” Mean “Criminal”?: Reflections on the Disappearing Tort/Crime Distinction in American Law, 71 B.U. L.Rev. 193, 216 (1991) (“By one estimate, there are over 300,000 federal regulations that may be enforced criminally.”); Susan R. Klein & Ingrid B. Grobey, Debunking Claims of Over–Federalization of Criminal Law, 62 Emory L.J. 1, 28 (2012) (“An enormous number of new regulatory crimes were enacted in the period 1980–2011, so many that we were unable to count even a fraction of them․”). And quite apart from the separation of powers questions these arrangements pose, what about the “reasonableness” limitation found in the specific delegation before us? In the statute at issue here, Congress says agency officials may prescribe only “reasonable” criminal penalties within the limits it has prescribed (30 days in prison, usually no more than $5,000 in fines). Who's to say what in that range is reasonable, and by what measure?
In the end, these curiosities turn out to be no more than side shows in our case. Mr. Baldwin doesn't argue that the arrangement before us represents a constitutionally excessive delegation of legislative authority. He doesn't argue that the regulations or the penalties they impose are themselves “unreasonable” or otherwise invalid. So it is that in this case all these questions float by the board, left for others to encounter and resolve in the future. In this appeal, Mr. Baldwin begins by challenging only whether the regulations themselves purport to impose criminal penalties. As we've seen, at least that much they clearly do.
Even if the regulations before us do purport to impose criminal penalties, Mr. Baldwin does suggest that their terms are so vague they must violate the Constitution's due process guarantee. In one sense, Mr. Baldwin touches on an important point here too. Criminal offenses must be defined “with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement.” United States v. Orona, 724 F.3d 1297, 1310 (10th Cir.2013). And some of the questions he raises are not without their worries. If, on the one hand, it's a crime for anyone on federal property to “impede or disrupt” a government employee's “performance of official duties,” what public servant among us couldn't be brought up on charges on a prosecutorial whim? Pressing a prosaic conversation with a co-worker about ski conditions in the high country might seem enough to make criminals of us all. If, on the other hand, the regulations don't proscribe so much, then what exactly do they proscribe?
But whatever the answers to these questions, at the end of the day Mr. Baldwin doesn't help his own cause by asking them. He doesn't because, under governing precedent, a defendant won't be heard to complain about the vagueness of a criminal law as it applies to other defendants in other cases. He may complain only about the vagueness of the law as it applies in his own case. The Supreme Court has told us (repeatedly) that the relevant question in void for vagueness challenges is merely whether the defendant before us “had fair notice from the language” of the law “that the particular conduct which he engaged in was punishable .” Parker v. Levy, 417 U.S. 733, 755 (1974); see also United States v. Franklin–El, 554 F.3d 903, 910–11 (10th Cir.2009). And it's clear enough from the terms of regulations before us that, whatever else they do or don't proscribe, driving off while a uniformed officer is busy issuing a warning, and doing so over the officer's instructions to stop, counts as disobeying that person's directions and disrupting performance of his official duties. Maybe the regulations before us could be successfully challenged as impermissibly vague as applied in other situations, but under the law as it stands today we fail to see how they might be in this one.
The contention that an injury can amount to a crime only when inflicted by intention is no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil. A relation between some mental element and punishment for a harmful act is almost as instinctive as the child's familiar exculpatory “But I didn't mean to,” and has afforded the rational basis for a tardy and unfinished substitution of deterrence and reformation in place of retaliation and vengeance as the motivation for public prosecution.
Morissette v. United States, 342 U.S. 246, 250–51 (1952) (footnotes omitted); see also Staples v. United States, 511 U.S. 600, 605 (1994); United States v. U.S. Gypsum Co., 438 U.S. 422, 436–38 (1978).
The difficulty is, a law's silence about mens rea doesn't necessarily mean violating it isn't a crime, as Mr. Baldwin would have us conclude. In fact, a law's silence on the question of mens rea doesn't even mean the law lacks a mens rea requirement. To the contrary, as Justice Jackson proceeded to explain in Morissette, the courts of the United States have long said they will read criminal statutes as implicitly requiring proof of mens rea even when they don't require such proof explicitly. See Morissette, 342 U.S. at 263; see also Staples, 511 U.S. at 605–06; U.S. Gypsum, 438 U.S. at 437. We have defended this practice on at least two grounds—first, the presumption that Congress generally wishes us to interpret its laws in light of the long common law tradition linking criminal punishment and mens rea, a presumption Congress is well on notice of; second, the general injunction that ambiguity about the scope of criminal statutes should be resolved in favor of lenity. See, e.g., U.S. Gypsum, 438 U.S. at 437. For these reasons, the trial court in this case expressly required the government to prove that Mr. Baldwin knowingly failed to comply with the lawful direction of a federal police officer and knowingly impeded and disrupted the performance of a government employee's official duties. Neither does Mr. Baldwin suggest to us that some other mens rea requirement than this was required or more appropriate. See United States v. Brice, 926 F.2d 925, 928 & n. 4 (9th Cir.1991) (similarly reading a mens rea requirement into these regulations' predecessors).
Instead and shifting gears once again, Mr. Baldwin claims there wasn't enough evidence presented at trial to support the court's finding that he acted with the knowledge he was charged with. Mr. Baldwin insists and insisted at trial he didn't hear Commander Lundy's orders to stop because he suffers from hearing trouble. The trial court considered that testimony, however, and found otherwise. In support of its finding, it pointed out that Commander Lundy said he was shouting. It noted that another federal officer, farther away from Commander Lundy than Mr. Baldwin, testified he could clearly hear Commander Lundy's shouts. The court emphasized, as well, that video footage seemed to show Mr. Baldwin responding to the shout by speeding away, as if in an attempt to flee. In light of this evidence, the court rejected Mr. Baldwin's account and found as a matter of fact that he did hear Commander Lundy's call to stop. As a court of appeals, we may overturn a trial court's factual finding only if it is clearly wrong—“the error must be pellucid to any objective observer.” Watson v. United States, 485 F.3d 1100, 1108 (10th Cir.2007). Given the conflicting accounts before us, and the considerable evidence weighing in favor of the court's factual finding, we are in no position to say the trial court here fell afoul that low threshold.
Likewise, we see no way to accept Mr. Baldwin's contention that, even if he did hear and ignore Commander Lundy's command, there was insufficient evidence presented at trial that any regulatory violation took place on federal property—as opposed to later, after he left the Federal Center and Commander Lundy stopped him a second time. Mr. Baldwin admits his initial stop on the Federal Center grounds was lawful. The evidence shows that Mr. Baldwin drove away while Commander Lundy was in the middle of issuing his warning and that Mr. Baldwin disregarded the order to halt. To finish issuing the warning, Commander Lundy had to leave his post and follow Mr. Baldwin away from the Federal Center. From all this, and even without considering the more contentious interaction between Mr. Baldwin and Commander Lundy off federal grounds, the evidence surrounding the initial stop easily supports the conclusion that Mr. Baldwin knew his conduct amounted to a disregard of a police officer's lawful order and disrupted or impeded the officer's duty on federal grounds.
Mr. Baldwin replies that, in truth, Commander Lundy wasn't a “police officer” or attempting to perform his “official duties” within the meaning of federal law. But he points us to no federal statute or regulation suggesting otherwise, only the facts in this case. And viewing those facts in the light most favorable to the government, as we must given that it prevailed at trial, we cannot agree with Mr. Baldwin here either. Commander Lundy's testimony and his “POLICE” uniform suggest that much, and his position description tends to confirm the point: among his official duties are preserving the peace, preventing crime, and arresting offenders.
Neither can Mr. Baldwin himself get far by faulting the government for failing to prove that it had posted physical notice of the two federal regulations in question at the Denver Federal Center. He is surely right that the statute authorizing criminal enforcement of the regulations also requires those regulations to “be posted and remain posted in a conspicuous place on the property .” 40 U.S.C. § 1315(c)(1); see also 41 C.F.R. § 102–74.365. He is surely right, too, that fair notice of the law's demands is no small thing in a society striving to live under the law's rule. But Mr. Baldwin doesn't contend he lacked actual notice of the substance of the regulations. He doesn't dispute that he knew he shouldn't disregard orders from officers or speed off in the middle of an investigative detention. Instead, he complains only that the government failed to prove that it posted a notice. And the problem with this rather formal argument is itself pretty formal: Mr. Baldwin never raised it at trial. So it is the government never had notice that the question of a posted notice was in play. Mr. Baldwin doesn't identify any reason for neglecting to raise the argument until this appeal, but insists that he should prevail on it all the same. In these circumstances—when an argument was fully available to a litigant at trial but he simply neglected to raise it until appeal—we normally treat the matter as forfeited. See Richison v. Ernest Grp., Inc., 634 F.3d 1123, 1128 (10th Cir.2011).
Of course, we may still take notice of a forfeited error and reverse if it qualifies as “plain error.” See id.; Fed.R.Crim.P. 52(b). But to prevail on a claim of plain error, an appellant must not only point us to an error, he must also show that the error is plain or pellucid, that it affects his substantial rights, and that it seriously implicates the fairness, integrity, or public reputation of judicial proceedings. Richison, 634 F.3d at 1128.
It's the second step where we begin to stumble in this case. Neither this court nor the Supreme Court has decided whether posting the notice required by 40 U.S.C. § 1315(c)(1) and 41 C.F.R. § 102–74.365 is an element of the regulatory offenses at issue, which the government would have the obligation of proving, or something else altogether. As a textual matter, nothing in the statutory or regulatory provisions seems to say that failing to comply with a police officer's lawful order or disrupting performance of a government employee's duties is criminally unlawful only if notice is posted. The two regulations under which Mr. Baldwin was charged make no mention of posted notices. And the posting requirement appears in distinct and separate provisions all its own. In these circumstances, we can hardly charge the trial court with plainly erring when it failed to impose on the government the burden to prove a posted (as opposed to actual) notice in this case. After all, had the issue been fairly presented and fully developed at trial, it is at least possible it could have turned out to be that the posting requirement is divorced from, not a prerequisite to, prosecution.
To be sure, some circuits have treated proof of posted (or actual) notice as a required element of regulatory crimes like the ones found in this case. See, e.g., United States v. Strakoff, 719 F.2d 1307, 1309 (5th Cir.1983) (interpreting 40 U.S.C. § 1315(c)(1)'s differently worded predecessor). But other circuits have refused to read the posting requirement as a prerequisite to prosecution and indeed found it irrelevant to any prosecution. See, e.g., United States v. Strong, 724 F.3d 51, 57–58 (1st Cir.2013) (interpreting 41 C.F.R. § 102–74.365); United States v. Irby, 269 F. App'x 246, 248–49 (4th Cir.2008) (per curiam) (interpreting analogous provisions for property managed by the Department of Veterans Affairs). Without deciding which side has the better of this debate, its existence tends to confirm that the trial court in this case wasn't plainly wrong in failing to impose on the government the burden of proving a posted notice, as Mr. Baldwin now contends.
Finally, Mr. Baldwin challenges the sufficiency of the evidence supporting his third conviction, under Colorado law and the Assimilative Crimes Act. Here, Mr. Baldwin was accused of knowingly using “an obstacle” in a “substantial step toward” obstructing or hindering “the preservation of the peace by a peace officer, acting under color of his or her official authority,” while on federal property. See 18 U.S.C. § 13; Colo.Rev.Stat. §§ 18–2–101(1); 18–8–104(1)(a). The evidence was sufficient to show all this beyond a reasonable doubt, too. Rather than listen to a warning about how his speeding had endangered others—a warning Commander Lundy tried to issue under color of official authority in order to preserve the peace—Mr. Baldwin sought to use his vehicle (as an “obstacle”) to get away (to “obstruct” Commander Lundy's inquiry). And whatever his status under federal law, Commander Lundy, along with his fellow Federal Protective Service officers, is clearly and expressly treated as a “peace officer” for purposes of Colorado law. See Colo.Rev.Stat. § 16–2.5–147(1). Neither is there any evidence that Mr. Baldwin ever abandoned this attempt to hinder Commander Lundy's cautionary efforts. Cf. id. § 18–2–101(3) (describing affirmative defense of abandonment). On the contrary, his attempt succeeded, at least momentarily, as Commander Lundy had to chase Mr. Baldwin to finish the warning he had started.


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By Dennis A. Stubblefield & Matias Montillano of Shustak Reynolds & Partners, P.C. posted on Friday, March 16, 2018.
Dennis Stubblefield, a Partner at the firm, recently attended SEC Speaks, the Commission’s annual conference in which senior staff from all divisions and offices announce and comment upon key developments from the past year, and set forth coming priorities. Chair Jay Clayton chose GOP-side economist Commissioner Michael Piwowar to interview the newest Commissioners, Robert Jackson Jr. [Dem], and Hester Peirce [GOP]. The freshmen predictably disagreed on the goodness of Dodd-Frank, but both sounded reasonable, engaged and ready to explore common ground on key pressing issues, particularly the seemingly intractable problem of how to liberalize the rules around “finders.” Sounds logical given Clayton’s intention to gin back up a Capital Markets focus, which he suggested has taken a back seat to other priorities in recent years. Clayton’s Remarks contained nothing to suggest that Enforcement will be any less aggressive than it has been in the past (see below for a snapshot of key Enforcement developments since the conference).
Indeed, the plenary and break-out Enforcement panels gave no hint whatsoever that this Division is not continuing to go gangbusters. In particular, the recently-established “Retail Task Force” appears to be pursuing a wide swath of potential wrongdoing including sharp practices by various flavors of advisors. This unit, along with the rest of Enforcement, is taking full advantage of the Commission’s Big Data/Analytics prowess, where virtually every key metric across all fields can be sliced, diced, analyzed and acted upon. For example, there is a very cool (or ominous, depending upon your policy and moral perspective)-sounding “Query Viewer,” which, among other things, can slap redlined financial statements side-by-side. DERA regularly spoon-feeds Enforcement attorneys and investigators easy-to-digest leads on seemingly everything from churning to cherry-picking.
The message to the “gatekeepers,” from Enforcement (and OGC): do your homework! In both the plenary and break-out, Enforcement singled out penny-stock fraud, often enabled by “shell factories,” and all too many sleazy transfer agents and rubber-stamp-type 144 letter writers. Enforcement also warned that BDs must do robust due diligence on incoming paper to be clear of a Section 5 violation---remember, even before the realm of fraud, this fundamental binary gate provision is strict liability.
As for the back-end Wells and litigation process, OGC cautioned that it is not helpful to simply cite Janus and Stoneridge. Solicitor Michael A. Conley took close to 10 minutes to walk through the language of the key anti-fraud provisions, pointing out the necessity to “parse the exact words” of the statutes---’33 Act Section 17(a) and ’34 Act Section 10(b)---and the lynchpin Rule: 10b-5. He addressed whether and to what extent conduct beyond “misstatements” is required to trigger liability, citing the recent Frances Lorenzo case in the District of Columbia Circuit (holding that, although Mr. Lorenzo did not “make” the relevant statements within the meaning of Rule 10b-5(b), his status as a “non-maker” did not vitiate the Commission’s conclusion that his actions violated other subsections of Rule 10b-5, as well as Section 17(a)(1). See Lorenzo v. SEC, 872 F.3d 578, 586 (D.C. Cir. Sept. 29., 2017).
In Lorenzo, a three-judge panel overturned the SEC’s determination that an investment banker, Lorenzo, violated Rule 10b-5(b) of the Exchange Act by sending emails, drafted by his employer, to investors containing material misrepresentations about a securities offering. Id. at 580. The panel first held that Lorenzo did not “make” the relevant statements of the emails under the reasoning of Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), because his boss supplied the content of the false statements, and Lorenzo merely copied and pasted the statements into the email messages. Lorenzo, 872 F.3d at 587 (finding Lorenzo did not have “ultimate authority” over the false statements).
The panel, however, also held Lorenzo violated Rules 10b-5(a), 10b-5(c), and Section 17(a)(1) of the Securities Act, which “do not speak in terms of an individual’s ‘making’ a false statement.” Id. at 589. Instead, those rules prohibit employing any “device, scheme, or artifice to defraud . . . in connection with the purchase or sale of any security,” or “engag[ing] in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person . . . in connection with the purchase or sale of any security.” Id. (emphasis added)Although Lorenzo did not qualify as the “maker” of the false statements because he “lacked ultimate authority over their content and dissemination,” his own active role in producing and sending those emails “constituted employing a deceptive device, act, or artifice to defraud for purposes of liability under Section 10(b), Rule 10b-5(a) and (c), and Section 17(a)(1).” Id. In sum, the majority held that Lorenzo may be found liable as a primary violator for securities fraud, without having “ultimate authority” over the alleged misrepresentations. (The court vacated the sanctions and remanded for further consideration. Id. at 596).
The majority suggested that Janus need not govern its analysis of the other applicable anti-fraud provisions. And, tying Janus and Stoneridge together, the court distinguished the case before it. The court explained that the key feature of both of these Supreme Court cases was the lack of disclosure of the secondary actor’s role. “In this case, by contrast, Lorenzo’s role was not “undisclosed” to investors. The recipients [of the emails] were fully alerted to his involvement…” Lorenzo, 872 F.3d at 590 (emphasis added).
Agreed. “Engaging.” “Employing.” “by means of.” These are process words and terms. It was the process which Lorenzo used which amounted to securities fraud.
Section 10(b) simply sets forth two nouns and two adjectives before yielding to the Rule. “Manipulative or Deceptive.” “Device or Contrivance.” Rule 10b-5 then largely parrots ’33 Act Section 17(a) but contains slightly different wording. Conley counseled that “words matter,” and thus indicated that the better, and likely only, compelling Wells Submissions (and pleadings on litigated cases) will understand the precise meanings of the terms used by Congress and the Commission, and argue cases accordingly.
“Practice” and “course of business,” are common to both 17(a)(3) and 10b-5(c)). 17(a)(3) also includes the term “transaction,” whereas 10b-5(c) does not; conversely, 10b-5(c) includes the term “act,” which is absent from 17(a)(3). Both provisions focus on “effects” rather than actions, see Aaron v. SEC, 446 U.S. 680 (1980), but only 17(a)(3) (and (2)) permit merely negligent conduct to trigger liability, whereas the nearly identical language of the Rule requires scienter in light of its enabling statute.
So, back to “scheme.” It is the only term in Rule 10b-5(a) and Section 17(a)(1) which denotes, or at least strongly implies, a course of conduct, as opposed to a single item or feature or key attribute of deception, i.e., an “artifice” or a “device.” And, while the law of criminal conspiracy requires only one “overt act,” as a practical matter, very few schemes can be executed without at least a handful of actions and events, the course of which comprises the deception.
Congress also included the term “course of business” in 17(a)(3), a term which the Commission adopted in Rule 10b-5(c). But, notwithstanding the inconsistency of the mental states required for liability under 17(a)(3) and 10b-5(c), assuming the continued integrity of quasi-prosecutorial discretion in Enforcement, which has never been credibly questioned, the only courses of business which actors should worry about are those in which the business is fraud.
Two other items from the conference warrant mention. First, Enforcement is continuing to take processes from DOJ’s playbook, specifically noting that, at least in certain cases, it is inviting counsel to come in for “reverse proffers.” Second, it is taking ”self-reporting,” the genesis of which traces back to Stanley Sporkin’s voluntary disclosure program, to a new level, exhorting RIAs to voluntarily come clean about certain fee-disclosure shenanigans. See Share Class Selection Disclosure Initiative, SEC (Feb. 12, 2018), https://www.sec.gov/enforce/announcement/scsd-initiative; see also Judge Stanley Sporkin, The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act on its Twentieth Birthday, 18 NW. J. Int’l L. & Bus. 269 (1998).
In the three weeks since the conference, the SEC has continued to be aggressive in its enforcement efforts. On February 28, the SEC agreed to settle charges with Ameriprise Financial Services, Inc. for the firm’s failure to ascertain and disclose certain retirement account customers’ eligibility for less expensive mutual fund share classes. In the Matter of Amerprise Financial Services, Inc., Adm. Proc. File No. 3-18381 (Feb. 28, 2018). On March 5, the SEC charged New York-based company Edwin Shaw LLC with illegally brokering dozens of investments by foreign nationals seeking U.S. residency. In the Matter of Edwin Shaw, LLC, Adm. Proc. File No. 3-18384 (Mar. 5, 2018). According to the order, Edwin Shaw LLC was not registered with the SEC as a broker or dealer when it engaged in the solicitations and otherwise effectuated the transactions, thereby violating Section 15(a) of the Exchange Act of ’34. Id. On March 7, the SEC filed a complaint charging Dallas-based oil-and-gas company Americrude, alleging the company defrauded investors in securities offerings that purportedly raised funds to acquire working interests in oil-and-gas prospects. SEC v. Americrude, Inc., No. 3:18-CV-00534 (N.D. Tex. Filed Mar. 7, 2018). The complaint alleges violations of Securities Act sections 5(a), 5(c), and 17(a)(2). Id. On March 8, the SEC announced settled charges against Merrill Lynch, Pierce, Fenner & Smith Inc. for its failure to perform required gatekeeping functions in the unregistered sales of securities on behalf of a China-based issuer and its affiliates. In the Matter of Merrill Lynch, Pierce, Fenner & Smith Inc., Adm. Proc. File No. 3-18392 (Mar. 8, 2018). The Commission also just announced its cryptocurrency sweep of hedge funds. It is clear from its recent 21A report in this area that the Commission will not hesitate to find an investment contract, see SEC v. Howey Co., 328 U.S. 293 (1946), in “Initial Coin Offerings.” On March 14, the SEC filed a civil action against a former Equifax employee for selling his shares in the company after the security breach but before it was disclosed. SEC v. Ying, No. 1:18-CV-01069 (N.D. Ga. Filed Mar. 14, 2018) (a parallel criminal action was also instituted). The SEC filed another civil action on March 14 against Elizabeth Holmes, CEO, and Ramesh Balwani, President of Theranos, Inc. SEC v. Holmes, No. 5:18-CV-01602 (N.D. Cal. Filed Mar. 14, 2018). The complaintalleges that Theranos made numerous false and misleading statements about its product to investors, raising more than $700 million through years-long fraud. See Thomas Gorman, This Week in Securities Litigation (Week ending March 16, 2018), SEC Actions (Mar. 15, 2018), http://www.secactions.com, for discussion of the latest developments.
If you get “caught,” you had better cooperate, cooperate, and cooperate some more in Enforcement’s investigation except when your liberty is seriously threatened. See Razzano, To Cooperate with the SEC or Not to Cooperate, That is the Question, 30 Sec. Reg. L.J. 214 (2002).
If you cooperate, don’t tell even “little white lies,” much less whoppers, and don’t otherwise mess with the Commission’s investigative process: that is the fastest way to federal prison even if DOJ doesn’t already have a parallel investigation going. See In the Matter of David M. Tamman, ESQ, Adm. Proc. File No. 3-14207 (June 2, 2013).
If you are one who the Staff thinks “did it,” and you have any sort of franchise to protect, then invest in a cogent and compelling Wells Submission (and, earlier in the process, we recommend that “friends never let friends go into testimony unrepresented”).
Process matters: from the way you operate your business and deal with investors to the way you interface with the Staff in investigations and litigation, you are well advised to conceive, design and execute consistent with statutory and rule obligations.
And remember, above all, “words matter” (and audience too): every single Wells Submission is pored over by senior staff in Enforcement, OGC, and any other interested division or office, including those charged with economic analysis. If your submission cuts corners, takes too many liberties, or amounts to little more than a “Simply Stoneridge/Just Janus” series of assertions, Enforcement and OGC will take yet more time and ask themselves whether the public interest, and the interest of investors, demand litigation rather than settlement.
Dennis A. Stubblefield, a Partner in the firm, served in the SEC’s Enforcement Division from 1977 through 1984. His practice focuses on securities enforcement defense, and securities litigation and arbitration.
Matias Montillano is a Law Clerk at Shustak Reynolds & Partners, P.C.

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Argued Dec. 16, 17, 1952.
Rehearing Denied April 6, 1953.
The issue raised by this appeal is the constitutionality of the occupational tax provisions of the Revenue Act of 1951,1 which levy a tax on persons engaged in the business of accepting wagers, and require such persons to register with the Collector of Internal Revenue. The unconstitutionality of the tax is asserted on two grounds. First, it is said that Congress, under the pretense of exercising its power to tax has attempted to penalize illegal intrastate gambling through the regulatory features of the Act, 26 U.S.C. (Supp. V) § 3291, 26 U.S.C.A. § 3291, and has thus infringed the police power which is reserved to the states. Secondly, it is urged that the registration provisions of the tax violate the privilege against self-incrimination and are arbitrary and vague, contrary to the guarantees of the Fifth Amendment.
The case comes here on appeal, in accordance with 18 U.S.C. § 3731, 18 U.S.C.A. § 3731, from the United States District Court for the Eastern District of Pennsylvania, where an information was field against appellee alleging that he was in the business of accepting wagers and that he willfully failed to register for and pay the occupational tax in question. Appellee moved to dismiss on the ground that the sections upon which the information was based were unconstitutional. The District Court sustained the motion on the authority of our opinion in United States v. Constantine, 296 U.S. 287, 56 S.Ct. 223, 80 L.Ed. 233. The court reasoned that while 'the subject matter of this legislation so far as revenue purposes is concerned is within the scope of Federal authorities', the tax was unconstitutional in that the information called for by the registration provisions was 'peculiarly applicable to the applicant from the standpoint of law enforcement and vice control', and therefore the whole of the legislation was an infringement by the Federal Government on the police power reserved to the states by the Tenth Amendment. United States v. Kahriger, D.C., 105 F.Supp. 322, 323.
The result below is at odds with the position of the seven other district courts which have considered the matter,2 and, in our opinion, is erroneous.
Appellee would have us say that because there is legislative history3 indicating a congressional motive to suppress wagering, this tax is not a proper exercise of such taxing power. In the License Cases, supra, it was admitted that the federal license 'discouraged' the activities. The intent to curtail and hinder, as well as tax, was also manifest in the following cases, and in each of them the tax was upheld: Veazie Bank v. Fenno, 8 Wall. 533, 19 L.Ed. 482 (tax on paper money issued by state banks); McCray v. United States, 195 U.S. 27, 59, 24 S.Ct. 769, 777, 49 L.Ed. 78 (tax on colored oleomargarine; United States v. Doremus, 249 U.S. 86, 39 S.Ct. 214, 63 L.Ed. 493 and Nigro v. United States, 276 U.S. 332, 48 S.Ct. 388, 72 L.Ed. 600 (tax on narcotics); Sonzinsky v. United States, 300 U.S. 506, 57 S.Ct. 554, 81 L.Ed. 772 (tax on firearms); United States v. Sanchez, 340 U.S. 42, 71 S.Ct. 108, 95 L.Ed. 47 (tax on marihuana).
It is axiomatic that the power of Congress to tax is extensive and sometimes falls with crushing effect on businesses deemed unessential or inimical to the public welfare, or where, as in dealings with narcotics, the collection of the tax also is difficult. As is well known, the constitutional restraints on taxing are few. 'Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment and indirect taxes by the rule of uniformity.' License Tax Cases, supra, 5 Wall. 471.5 The remedy for excessive taxation is in the hands of Congress, not the courts. Veazie Bank v. Fenno, 8 Wall. 533, 548, 19 L.Ed. 482. Speaking of the creation of the Bank of the United States, as an instrument for carrying out federal fiscal policies, this Court said in McCulloch v. Maryland, 4 Wheat, 316, 423, 4 L.Ed. 579.
Penalty provisions in tax statutes added for breach of a regulation concerning activities in themselves subject only to state regulation have caused this Court to declare the enactments invalid.10 Unless there are provisions, extraneous to any tax need, courts are without authority to limit the exercise of the taxing power.11 All the provisions of this excise are adapted to the collection of a valid tax.
Nor do we find the registration requirements of the wagering tax offensive. All that is required is the filing of names, addresses, and places of business. This is quite general in tax returns.12 Such data are directly and intimately related to the collection of the tax and are 'obviously supportable as in aid of a revenue purpose.' Sonzinsky v. United States, 300 U.S. 506, at page 513, 57 S.Ct. 554, at page 555. The registration provisions make the tax simpler to collect.
Finally, we consider respondent's contention that the order of dismissal was correct because a conviction under the sections in question would violate the Due Process Clause because the classification is arbitrary and the statutory definitions are vague.14 The applicable definitions are 26 U.S.C. (Supp. V) § 3285(b), (d) and (e), 26 U.S.C.A. § 3285(b, d, e).15 The arbitrariness is said to arise from discrimination because some wagering activities are excluded. The Constitution does not require that a tax statute cover all phases of a taxed or licensed business.16 Respondent predicates vagueness of the statute upon the use, in defining the subject of the tax, of the description 'engaged in the business' of wagering and 'usually' in § 3285(b) (2). We have no doubt the definitions make clear the activities covered and excluded.
What is relevant to judgment here is that, even if the history of this legislation as it went through Congress did not give one the libretto to the song, the context of the circumstances which brought forth this enactment—sensationally exploited disclosures regarding gambling in big cities and small, the relation of this gambling to corrupt politics, the impatient public response to these disclosures, the feeling of ineptitude or paralysis on the part of local law-enforcing agencies—emphatically supports what was revealed on the floor of Congress, namely, that what was formally a means of raising revenue for the Federal Government was essentially an effort to check if not to stamp out professional gambling.
The Fifth Amendment declares that no person 'shall be compelled in any criminal case to be a witness against himself'. The Court nevertheless here sustains an Act which requires a man to register and confess that he is engaged in the business of gambling. I think this confession can provide a basis to convict him of a federal crime for having gambled before registration without paying a federal tax. 26 U.S.C. (Supp. V) §§ 3285, 3290, 3291, 3294, 26 U.S.C.A. §§ 3285, 3290, 3291, 3294. Whether or not the Act has this effect, I am sure that it creates a squeezing device contrived to put a man in federal prison if he refuses to confess himself into a state prison as a violator of state gambling laws.* The coercion of confessions is a common but justly criticized practice of many countries that do not have or live up to a Bill of Rights. But we have a Bill of Rights that condemns coerced confessions, however refined or legalistic may be the technique of extortion. I would hold that this Act violates the Fifth Amendment. See my dissent in Feldman v. United States, 322 U.S. 487, 494—503, 64 S.Ct. 1082, 1085—1089, 88 L.Ed. 1408.
Cf. State of New York v. United States, 326 U.S. 572, 582, 587—588, 66 S.Ct. 310, 314, 316—317, 90 L.Ed. 326.
26 U.S.C. § 2011 et seq., 26 U.S.C.A. § 2011 et seq., require registration by tobacco manufacturers, dealers and peddlers of the 'name, or style, place of residence, trade, or business, and the place where such trade or business is to be carried on.' 26 U.S.C. § 2810, 26 U.S.C.A. § 2810, requires the possessor of distilling apparatus to register 'the particular place where such still or distilling apparatus is set up * * * the owner thereof, his place of residence * * *.' See also 26 U.S.C. § 3270, 26 U.S.C.A. § 3270.


Investments in an Opportunity Zone (OZ) allow an investor to move money from investments in securities or other financial products into tax advantaged funds dedicated to specific distressed urban and rural communities, which in turn can be used for real estate development. As long as certain requirements are met, investors can carry forward their qualified capital gains in the OZ funds for a number of years and lower their taxable investment income. An investment in an OZ could be compared to how real property acquired in a “like-kind exchange”[i] is treated under the Internal Revenue Code, in that the tax on gains from the new investment or property are deferred.
OZs create an opportunity to redevelop underappreciated and distressed areas around the state with renewed investment opportunities. The hope from the real estate community is that these investments can stimulate economic growth in areas in the same way the Historic Tax Credit and the New Markets Tax Credit have helped spur redevelopment and revitalized downtown areas across Alabama.
The OZ provisions established by the Act provide that the chief executive officer of each state, U.S. territory and the District of Columbia designate eligible Low-Income Communities[v] to then be certified by the Internal Revenue Service (IRS) as OZs. 8,761 OZs nationwide were finalized in July 2018.[vi] In Alabama, Governor Kay Ivey worked with the Alabama Department of Economic and Community Affairs (ADECA) to select 158 OZs, with at least one OZ in all 67 counties.[vii] ADECA has published a map of where the Alabama OZs are located, which can be viewed here.
Investments in a QOF must be capital gains (i.e., gains from the sale of a security or other investment property) invested within 180 days from the date of sale into a QOF.[xi] To qualify for the deductions, investments cannot be made into a QOF by direct cash contribution,[xii] and investments cannot be put directly into activity in an OZ but must go through the QOF.
On December 12, 2018 President Donald Trump signed an executive order establishing the White House Opportunity and Revitalization Council (“Council”).[xix] The Council is comprised of 13 federal officials and is chaired by Department of Housing and Urban Development (HUD) Secretary Ben Carson.
The Council’s purpose is to engage with all levels of government to find ways to effectively utilize government funding to revitalize low-income areas, especially through coordinating and targeting existing federal programs to Opportunity Zones. The Council will also develop recommendations on changes to federal statutes and regulations to encourage investment in distressed communities, as well as changes to federal statutes and regulations that would assist local governments in utilizing federal resources in distressed communities more effectively.
Opportunity Zones present an exciting opportunity for investors to utilize their capital for supporting at-risk communities. If you are thinking about participating in the Opportunity Zone program, make sure you consult a qualified tax professional or tax attorney before doing so.
“An Unlikely Group of Billionaires and Politicians Has Created the Most Unbelievable Tax Break Ever.” Forbes, July 18, 2018, available here.
“Tax Breaks Open Up ‘Opportunity Zones’ for Investors.” REALTOR® Magazine, October 22, 2018, available here.
[i] See 26 U.S.C. § 1031.
[ii] Pub. L. No. 115-97, 131 Stat. 2054 (2017), codified at 26 U.S.C. § 1400z-1 et seq.
[iii] See 26 U.S.C. § 1400Z-2; see also Preamble to IRS Proposed Regulations Investing in Qualified Opportunity Funds, RIN 1545-BP03, pp.3. On October 19, 2018 the IRS released several publications concerning various parts of the Opportunity Zone program. Among those publications were proposed regulations that, in relevant part, clarify the rules for investments in OZs, which an investor is allowed to rely on before the rules are published in the Federal Register if the investor “applies the rules in their entirety and in a consistent manner.” Preamble to IRS Proposed Regulations Investing in Qualified Opportunity Funds, pp.30. The IRS held a public hearing on the proposed regulations which representatives from the National Association of REALTORS® participated in on February 14, 2019. You can view NAR’s summary of the hearing here.
[iv] 26 U.S.C. § 1400Z-2(d)(2)(D).
[v] An area is eligible for designation as an Opportunity Zone if it meets the requirements of a “low-income community” in 26 U.S.C. § 45D(e), the law governing the New Markets Tax Credit. See § 1400Z–1(c)(1).
[vi] IRS Notice 2018-48; see also IRS Bulletin No. 2018-28, July 9, 2018.
[vii] ADECA Brochure, available at: https://adecagis.alabama.gov/ozoneimages/ozonebrochure.pdf. A map of the state’s Opportunity Zones is available here.
[viii] Under the proposed regulations, eligible taxpayers include individuals, C corporations [including real estate investment trusts (REITS)], partnerships, S corporations, trusts and estates. IRS Proposed Regulations §1.1400Z-2(a)-1(b)(1).
[ix] 26 U.S.C. § 1400Z-2(d)(1).
[x] IRS Proposed Regulations Investing in Qualified Opportunity Funds, §1.1400Z-2(d)-1(a)(1). On October 19, 2018 the IRS published a draft of the new Form 8896 for the QOFs to use to self-certify.
[xi] See 28 U.S.C. § 1400Z-2(a)(1). The explanatory material in the proposed regulations states that an eligible capital gain would be “from an actual, or deemed, sale or exchange, or any other gain that is required to be included in a taxpayer’s computation of capital gain.” Preamble to IRS Proposed Regulations, pp. 6-7.
[xii] Other tax incentives already exist to encourage this type of investment, including the New Markets Tax Credit program and the Historic Tax Credit program.
[xiii] Preamble to IRS Proposed Regulations Investing in Qualified Opportunity Funds, pp. 36; see 28 U.S.C. § 1400Z-2(b)(1)(B).
[xiv] 28 U.S.C. § 1400Z-2(b)(2)(B).
[xv] 28 U.S.C. § 1400Z-2(c).
[xvi] The IRS proposed regulations clarified that, while OZs will terminate in 2028 under current law, investors can realize the tax benefits from their investment in a QOF on their tax return even after OZs are sunsetted. IRS Proposed Regulations Investing in Qualified Opportunity Funds, §1.1400Z-2(c)-1(b); see also 28 U.S.C. §1400Z–1(f).
[xvii] IRS Revenue Ruling 2018-29; IRS Proposed Regulations §1.1400Z-2(d)-1(c)(8)(ii) (clarifying 28 U.S.C. § 1400Z-2(d)(2)(D)(i)).
[xviii] IRS Proposed Regulations Investing in Qualified Opportunity Funds, §1.1400Z-2(d)-1(c)(8)(i); see also Rev. Rul. 2018-29. The improvements to the building must take place within 30 months of the acquisition of the building. Id.
[xix] Executive Order No. 13,853 (2018).
Disclaimer: This article provides general information only and does not constitute legal advice. No attorney-client relationship is created by reading, viewing, opening, or other action related to this article. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Specific circumstances may change the applicable law or advice a competent individual would provide. In addition, this information is not meant to supplant or in any way replace Errors and Omissions Insurance or other insurance coverage. Mistakes may occasionally be made. Once notified, we will work diligently to correct the issue in a timely manner and mark any updated or changed articles accordingly.


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In a recently published award, an ICSID tribunal ordered Zimbabwe to pay USD 196 million to several Swiss and German farmers whose farms were violently expropriated by order of President Mugabe.
This is the second ICISD award (a couple of years ago another ICSID tribunal had ordered Zimbabwe to compensate Dutch farmers) which found Zimbabwe’s so-called black empowerment policy to be nothing else than discrimination based on grounds of race.
This is a tellingly example of how important and useful Bilateral Investment Treaties (BITs) are as a last resort to obtain compensation for the total destruction of foreign investments.
It now remains to be seen whether Zimbabwe will honour its obligations and pay the compensation.
This entry was posted in News on 18/02/2016 by Jan Krcmar.
On 25 January 2016 it was reported that the first award of the more than 20 investment arbitrations against Spain regarding measures against solar energy was issued (Charanne B.V. and Construction Investments S.A.R.L. v. Spain (SCC Arb No. 062/2012).
As this is the first award regarding retroactive measures against renewable energy sources (RES), which many EU Member States have implemented in the past years, the outcome of the award contains important indications regarding the possible outcomes in other cases. Yet it should be stressed that this award is only binding for the parties involved in this specific case and not binding for the other arbitral tribunals. Also, this first arbitration challenged only the 2010 measures and did not concern the 2013 measures, which were even more severe against RES investors. Moreover, the other Member States, such as the Czech Republic, Slovakia or Italy have adopted slightly different types of measures, which are currently pending before other arbitral tribunals.
Accordingly, the takeaways from this award cannot simply be applied automatically and fully to the other solar energy disputes. Nonetheless, the analysis of the arbitral tribunal and its conclusions in this case are certainly relevant and thus important to understand.
In 2009, the claimants – Charanne B.V., a Dutch company, and Construction Investments S.à.r.l., a Luxemburg company – acquired shares in Grupo T-Solar Global, S.A. (“T-Solar”), which T- indirectly owned 34 solar plants. After mergers and share transfers over the course of 2011 and 2012, the claimants held an interest in T-Solar through two further companies (jointly, “Isolux”).
When the claimants made their investment, Spain had enacted a special regime for – among others -, solar energy producers, mainly through two “Royal Decrees” (Nos. 661/2007 and 1578/2008). Under this framework (the “Initial Framework”), T-Solar benefitted from a feed-in tariff for a 25-year period. Most plants would also receive 80% of that tariff after that 25-year period. The amount of the tariff depended on the plant’s installed capacity, among other criteria. In order to benefit from this special regime, investors had to invest in the plant facilities and register those facilities in a public registry (“RAIPRE”) within a peremptory deadline. All of T-Solar’s plants had been timely registered with RAIPRE.
Starting from 2010, Spain modified the Initial Framework (the “Modified Framework”),. The Modified Framework: (i) eliminated the feed-in tariff after the start of the plant’s 26th year (later, 30th year) of operations; (ii) required certain plants to take measures to be able to react to voltage dips; (iii) capped the amount of equivalent operating hours subject to the special regime (and thus, subject to the tariff); and (iv) established a transmission charge of EUR 0.55/MWh, in accordance with EU regulations.
The claimants notified their request for arbitration on 7 May 2012. They claimed “less than 10 million euros” for violations of the Energy Charter Treaty (ECT). The European Commission filed an amicus curiae brief. The Stockholm Chamber of Commerce (SCC) Arbitration Institute administered the arbitration under its 2010 Arbitration Rules, with Madrid as the seat of the arbitration.
The tribunal comprised Alexis Mourre (President), Guido Santiago Tawil (claimant’s appointment) and Claus von Wobeser (respondent’s appointment). Arbitrator Tawil appended a partial dissenting opinion to the Final Award.
One of the main arguments brought forward by the various EU Member States, which have been confronted with ECT-claims, and with strong support by the European Commission (EC), is that – for various reasons – European investors would be prohibited from relying on the ECT to bring claims against EU Member States.
However, quite rightly, the arbitral tribunal fully rejected these arguments.
Firstly, Spain argued that investors of an EU Member State were simultaneously investors of the EU. Since the EU is a party to the ECT they argued that EU Member State investors could not be considered as “an Investor of another Contracting Party”. It was also argued that the definition of “territory” encompassed the territory of all member States and thus the investors originated in the same “area” or “territory” as they made the investment.
The tribunal dismissed this argument. It held that EU Member States did not lose their status as ECT parties when the EU ratified the ECT. Likewise, Spanish territory constituted the relevant “area” or “territory” for jurisdictional purposes..
Secondly, Spain argued that the ECT contained a so-called “implied disconnection clause” for intra-EU disputes. Some international treaties contain disconnection clauses, which provide that EU Member States will apply relevant provisions of EU law in their mutual relations instead of the international treaty that contains them. Article 7 of the ECT contains obligations concerning the transit of energy materials and products. Spain argued that Article 7 obligations only made sense if they applied to a customs union as a whole, rather than to transit between members of the union. Therefore, the existence of a customs union within the EU is incompatible with Article 7 ECT.
The arbitral tribunal dismissed this argument too.
Thirdly, Spain argued that dispute settlement under the ECT was incompatible with EU law. It relied on Article 344 TFEU, whereby “Member States undertake not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein.” Spain contended that Article 344 TFEU also regulated investor-State disputes. It argued that Article 344 TFEU required that disputes concerning the responsibility of EU Member States should remain within the jurisdiction of EU institutions, as such disputes would involve interpreting EU law. Moreover, Spain argued that treaties in force for the EU and for EU Member States are part of EU law. This dispute thus concerned EU law.
The tribunal rejected this argument. For the tribunal, Article 344 TFEU “[l]iterally” refers to inter-State disputes, rather than to disputes between EU Member States and private persons. The numerous domestic court disputes that concern the interpretation of EU legislation belie Spain’s thesis that only EU institutions should have jurisdiction over disputes concerning EU law. For the tribunal, EU Member States could agree to arbitrate disputes that “may involve” EU law issues. Moreover, relying on the EcoSwiss Case, the tribunal considered it “universally accepted” that arbitral tribunals have both the ability and the duty to apply EU law. Citing the Electrabel v. Hungary award, the tribunal construed Article 344 TFEU as a guarantee that the CJEU has the final say on EU law in order to ensure its uniform interpretation. Also, citing Electrabel again, the tribunal underscored that the EU accepted the possibility of investor-State arbitration under Article 26 ECT when it became a party to that treaty, which does not admit reservations (Article 46 ECT).
Furthermore, the tribunal noted that Spain did not identify a rule of European public order that forbids investor-State arbitration in intra-EU matters. The tribunal noted that it did not analyse EU norms and was not faced with any argument that the Initial Framework or the Modified Framework violated EU law. The tribunal also noted that the European Commission has recently started (but has not issued a decision on) state aid preliminary investigation proceedings regarding the Initial Framework. The tribunal remarked that were it faced with such matters, it would consider them as public order issues pertaining to the merits, to be decided “of course under the control of the judge who would eventually consider the validity of the award”.
In short, all the arguments claiming that EU law somehow prohibits European investors from using the ECT to bring claims against EU Member States have been fully rejected. This is good news because the arbitral tribunal explicitly accepted that the ECT is available for intra-EU disputes.
Spain argued that the claimants were not investors under Article 1(7) ECT. For Spain, the claimants were “empty shells” ultimately controlled by two Spanish nationals. Access by these individuals to the tribunal would also violate the Spanish Constitution, Spain argued, as most Spanish citizens would not enjoy such access.
However, the arbitral tribunal dismissed the objection. The tribunal assessed its jurisdiction in light of the ECT, rather than Spain’s domestic laws. Moreover, the tribunal held that Article 1(7)(a)(ii) ECT simply requires that a company be “organised in accordance with the law applicable” in a Contracting Party to be recognised as an investor of that party. The claimants met this test. More importantly, the tribunal refused to analyse the nationality of ECT investors through “economic” criteria as suggested by Spain. The tribunal found it significant that the benefits of the ECT could only be denied to companies controlled by nationals of ECT parties (or “third State” nationals) under Article 17 ECT. The tribunal stated that Spain’s argument would also deny benefits to companies controlled by host State nationals, a possibility it said had been rejected by the drafters of the ECT. In appropriate circumstances, the tribunal would have considered (but Spain did not adduce) arguments on lifting of the corporate veil, such as fraudulent corporate structures or in cases of “fraud to jurisdiction” (e.g., a transfer of the assets that comprise the investment after a dispute has arisen).
Accordingly, the arbitral tribunal applied the broad definition of “investor” by simply analysing whether the claimants had fulfilled the formal condition of being organized in accordance with the applicable law in a Contracting Party of the ECT. Again, this is good news for investors who have structured their investments in a way to obtain maximum investment protection.
The claimants argued that the Spanish measures constituted an “indirect expropriation” and thus violated Art. 13 ECT. They also claimed that the measures were in violation of Art. 10 ECT, in particular the “fair and equitable treatment” (FET)-standard.
Despite the fact, that the arbitral tribunal rejected all jurisdictional objections raised by Spain and the European Commission and thus followed the claimants, it did not find any violations of the ECT.
The claimants argued that the Modified Framework constituted indirect expropriation, as it deprived them of a “substantial value” of their indirect investment in T-Solar (Art. 1(6)(b) ECT). They also argued that the Modified Framework affected their future cash flows and, therefore, their returns, a form of investment (Article 1(6)(e) ECT).
However, arbitral tribunal disagreed. According to the tribunal, a measure constitutes indirect expropriation under international law if it “substantially affect[s]” the investor’s property rights. This can occur when the State effectively takes all or part of the investment or when the taking causes a loss of such a magnitude that it “destroys [the] value” of the investment. The parties agreed that Spain had not affected the claimants’ shareholder rights and that T-Solar was still in operation, turning a profit and in possession of its assets. Therefore, the claimants actually complained of a reduction in the profitability of T-Solar and, consequently, of the value of their shares. However, the arbitral tribunal concluded that this reduction does not justify an indirect expropriation claim in itself.
First, the claimants argued the Modified Framework frustrated their legitimate expectations that the Initial Framework would remain stable and that they would receive the feed-in tariffs. They argued that Spain enticed the claimants’ investments through the Initial Framework and through Government materials that promised up to 15% profitability. They expected to receive feed-in tariffs throughout the lifecycle of the plants, which they estimated at 35-50 years (Spain’s estimate was 25-30 years). For the claimants, registration with RAIPRE consolidated their right to receive the feed-in tariffs.
But the arbitral tribunal dismissed this part of the claim. The tribunal accepted that legitimate expectations could derive both from specific commitments and from the host State’s legal system. However, it rejected the notion that both types of expectation were identical. An investor cannot expect that an existing regulatory framework will remain unchanged absent a specific commitment from the host State. Similarly, regulations aimed at a limited number of investors are as “general” as any statute or regulation and do not create specific commitments vis-à-vis each investor. Accepting the opposite proposition would excessively limit States’ ability to regulate their economies.
Furthermore, the tribunal was not persuaded that the claimants had any legitimate expectations that the Initial Framework would not be modified (e.g., a stabilisation clause or a statement addressed to investors). These expectations should be analysed objectively, rather than on the basis of the investors’ subjective beliefs at the time of the investment. The expectations should also be reasonable in light of any representations by the host State. Additionally, in order to frustrate legitimate expectations, the regulatory changes should not have been “reasonably foreseeable at the time of the investment”. As part of their due diligence, investors in a “highly regulated sector such as energy” must “exhaustive[ly]” analyse the applicable legal framework before they make their investment.
RAIPRE registration was an administrative requirement to be able to sell energy, rather than a guarantee to a specific return.
Security measures to cover voltage dips did not discriminate against solar energy investors, although Spain did not apply them to wind power investors, as a State “may well apply different rules to different industrial sectors without incurring in discrimination under international law”.
Secondly, the claimants argued that the Modified Framework applied retroactively and breached their acquired rights to operate under the Initial Framework. They drew a parallel with Argentina’s liability for the “pesification” of obligations denominated in foreign currencies, notably in CMS v. Argentina.
The arbitral tribunal dismissed this part of the claim, as it had found no legitimate expectations to a stabilisation of the regulatory framework. Moreover, and unlike the case before it, CMS involved specific, contractual commitments.
In short, the arbitral tribunal fully rejected the two main complaints of the claimants. Essentially, the tribunal concluded that the deprivation of their investments caused by the Spanish measures was not sufficiently serious enough as to constitute an “indirect expropriation”. Besides, the arbitral tribunal concluded that the claimants did not have any legitimate expectations that the regulatory framework would remain stable – even the application of those measures retroactively, i.e., to existing installations, did not amount to a violation of the FET-standard.
From the solar investor’s perspective the outcome of this award is disappointing. In particular, the conclusions of the majority of the tribunal that there has been no violation of the ECT is rather surprising and from a legal perspective very questionable.
While one may argue whether or not the deprivation of the investments was sufficiently serious enough, it is clear that Spain created legitimate expectations with the RES investors when it invited them to invest in Spain. There were clear specific commitments by Spain, which guaranteed that the feed-in tariff would remain unchanged for the whole lifecycle of those plans. That was indeed also the conclusion of the dissenting arbitrator Tawil.
Obviously, States can modify their legislation. However, it is equally obvious that such changes can never be applied retroactively but only for new RES installations, i.e., only for the future. Indeed, it is rather surprising that the arbitral tribunal did not discuss in any depth the issue of retroactivity, whereas under the Rule of Law, it is generally accepted that retroactive legislative changes are unacceptable because it violates the legal certainty and legitimate expectations of investors (indeed of all citizens). It is to be hoped that the other arbitral tribunals will analyse this issue in more depth and thereby come to a different conclusion. Indeed, the 2013 measures of Spain had an even more devastating impact on the investors, so the arbitral tribunals dealing with these measures have every reason a find violation of the ECT.
But there is one important silver lining in this award, which concerns the conclusions of the arbitral tribunal regarding the intra-EU aspects.
First and foremost, the tribunal rejected all the misguided arguments by Spain and the European Commission regarding so-called “implied disconnection clause” and Art. 344 TFEU. Accordingly, there is no legal obstacle – neither under EU law nor under the ECT – that would prevent European investors from bringing ECT claims against EU Member States. This is an important victory for all other pending solar energy claims under the ECT.
Second, the arbitral tribunal rightly defined the term “investor” in the ECT broadly, thus rejecting Spain’s attempts to read into the ECT any more restrictive type of definition. Again, this is a crucial victory for investors, which can reasonably assume that the arbitral tribunals in the other pending cases will continue to follow this tribunal’s approach.
So, in conclusion while the outcome of this award is disappointing for the harmed RES investors, there are some hopeful elements in it too. The good thing is that this award is not binding on the other arbitral tribunals, so – in principle – there is no precedent which would prevent them to come to different conclusions, i.e., to find a violation of the ECT. Moreover, each dispute is case- and fact specific, so it is quite possible that the claimants in the other disputes will be successful across the board. But this requires deep understanding of the ECT and investment arbitration issues and the solar energy industry.
GIP has this understanding and stands ready to assist any investor regarding ECT claims.
This entry was posted in News on 04/02/2016 by Jan Krcmar.
The explosion of Energy Charter Treaty (ECT) claims against Spain made the EU the most sued region according to ICSID’s most recent caseload statistics.
The report (published 22 January) shows that EU Member States received 19 claims in 2015, over a third of all the claims registered at the ICSID in that year.
The vast majority – 15 cases – were filed against Spain, with three against Italy and one against Austria. All except the claim against Austria relate to reforms to the solar energy subsidy regimes.
The sudden growth in claims comes after a decline over the previous years. In 2015 a a new all-time record of 52 new claims were filed (in 2014, only 38 cases were filed). In total, Spain is defending 26 claims over its renewable energy market filed at ICSID and other institutions.
Meanwhile, 2015 saw only two new claims against states in South America, which had historically been the most-sued region.
Due to the claims against Spain, there has also been a rise in ECT claims at ICSID, which used to be relatively rare. While historically the ECT formed the basis for less than 9% of claims, in 2015 thisrose to 33%. Likewise the field of power disputes has expanded, being the subject matter of 42% of all new claims filed in 2015 compared to 17% in the past. The historical mainstay of oil, gas and mining disputes, however, accounted for only 19% of new claims in 2015.
The 15 cases against Spain highlight another trend in the statistics: apart from Spain and Italy – the recipients of the solar claims – very few states in 2015 had to deal with more than one new case.
In terms of the outcomes of arbitrations, tribunals continued to comply with historical trends. 47% of awards in 2015 upheld claims in part or in full, while 33% dismissed all claims and 20% declined jurisdiction.
Summing up, it can be concluded that claims against EU Member States will continue to increase, which makes the need for optimal investment protection through BITs and the ECT even more urgent.
As a specialized consultancy, GIP stands ready to advise on the best BIT/ECT protection available to your investment.
What will the Dutch EU presidency bring for investment protection?
As of 1 January 2016, the EU Presidency is now in the hands of the Netherlands. What will the next 6 months of the Dutch EU Presidency bring for investment protection?
As we have reported several times in our previous newsletters, investment protection and access to investor-state dispute settlement (ISDS) is increasingly under fire from several fronts.
Regarding intra-EU Bilateral Investment Treaties (BITs) (i.e. BITs concluded between EU Member States), the European Commission has initiated infringement procedures against 5 EU Member States (Sweden, Romania, Austria, Slovak Republic and the Netherlands) arguing that their intra-EU BITs are violating EU law. Those Member States will soon submit their cases to the Court of Justice of the EU (CJEU). While a judgment is not expected in the next half year, it will be very interesting to see whether and how those states will defend their intra-EU BITs. It will be also interesting to see to what degree the line of arguments of those states will differ. So far the Netherlands has always been a staunch defender of its intra-EU BITs – even to the extent that it got actively involved in the Eureko/Achmea dispute against the Slovak Republic.
The new year already saw Italy withdrawing from the Energy Charter Treaty (ECT) to avoid new arbitrations over retroactive cuts to renewable energy. The European Commission is actively pushing member states to leave the ECT to make sure no new intra-ECT cases can be lodged.
The result of this strategy will be that European investors could only turn to domestic courts for relief, which – as we all know –in many Member States are corrupt and under direct political pressure from their governments. This will effectively lead to the removal of any effective level of investment protection within Europe.
The big question is: will the Netherlands – as EU President – be able to effectively stop this course of events?
This entry was posted in News on 08/01/2016 by Jan Krcmar.
At the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal. The agreement sets out a global action plan to put the world on track to avoid dangerous climate change.
The key elements agreed on include a long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels and to undertake rapid reductions thereafter in accordance with the best available science.
More specifically, the EU and other developed countries agreed to continue to support climate action in order to reduce emissions and build resilience to climate change impacts in developing countries. Moreover, developed countries intend to continue their existing collective goal to mobilise USD 100 billion per year until 2025 when a new collective goal will be set.
In this context, the EU claims for itself to be at the forefront of international climate action. In particular, the EU has adopted the target of reducing CO2 emissions by at least 40% by 2030. This will require massive investments in renewable energy sources (RES) as well as investments for energy saving measures for private households, for industrial consumers as well as the transport sector (cars, trucks, ships, airplanes).
In light of the existing budgetary constraints in practically all EU Member States and the EU itself, the massive investments in RES necessary will have to come from private investors – individuals, SMEs, and multinationals. However, they will only invest in RES if they consider the investment risks to be manageable and if a decent return of their investments can be reasonably expected. In other words, investors need legal certainty and long-term stability, in particular since for RES investments any returns can only be expected after a few years. Indeed, the more than 3,000 Bilateral Investment Treaties (BITs) and the Energy Charter Treaty (ECT) have been concluded for that purpose, namely, to grant investors legal certainty by providing investment protection and access to investor-state dispute settlement (ISDS).
However, whereas the EU and its Member States are pushing for ever more ambitious targets for reducing CO2 emissions, they at the very same do everything they can to terminate their BITs and the ECT. This schizophrenic policy will result in a grand failure of the EU and its Member States to achieve any of their targets. First, the EU and its Member States are not only destroying any remaining confidence in the Rule of Law within the EU, but they also take away any effective legal guarantees which investors still have to protect their investments. Second, and as a result of the first point, the EU and its Member States will fail to meet their own targets as well as the targets agreed in the Paris Climate deal.
The big loser will not only be the investors, but more importantly, the environment.
But the EU and its Member States can still avoid this course of events, if they replace their schizophrenic approach with a more consistent one.
The solution is so obvious and simple: stop terminating BITs and the ECT!
Only by maintaining a high level of investment protection and providing for legal certainty will investors be ready to make the massive investments, which are necessary to achieve the agreed targets. In addition and as welcome side-effect, this would also create a huge number of new jobs. In sum, this would result in a win-win situation for everybody. Therefore, it can only be hoped that sense and sensibility will eventually regain the upper-hand.
As of 1 January 2016, Italy has withdrawn from the Energy Charter Treaty (ECT). This means any new investments in the energy sector in Italy are not protected anymore by the ECT, while existing investments will remain protected until 2036. The withdrawal of Italy must be considered a significant setback to the relevancy of the ECT, in particular since also Russia withdrew from the ECT some years ago. The reason for Italy’s withdrawal from the ECT must be found in the rising number of arbitrations that Italy is facing because of its retroactive measures, which it adopted in the renewable energy sector. Apparently, Italy hopes to avoid new disputes by stepping out of the ECT, despite the fact that, as mentioned above, existing investments continue to be protected and allow investors to use the ISDS provisions of the ECT.
An additional reason for Italy’s move can be found by the fact that the European Commission is aiming to prevent European investors from using the ECT against EU Member States, i.e. to prevent intra-ECT disputes. It is for this reason that in the past years the European Commission is actively pushing EU Member States to step out of the ECT. In other words, as is the case with intra-EU BITs, the European Commission wants to make sure that no new intra-ECT cases can be lodged.
GIP can advise you on the optimal investment protection in Italy and many other countries using existing BITs.
This entry was posted in News on 06/01/2016 by Jan Krcmar.
On 18 November, Iraq finally ratified the Convention on the Settlement of Investment Disputes (ICSID Convention), which enters into force for Iraq on 17 December. This strategic decision comes at a time when Iraq needs significant amounts of Foreign Direct Investments in order to rebuild its country.
While Iraq has signed more than 30 Bilateral Investment Treaties (BITs), only the BITs with Japan and Kuwait have entered into force. Iraq has also ratified a multilateral investment protection treaty among several Arabic states. But there are many BITs in the pipeline, which are pending signature and/or ratification, for example with Slovakia, Iran, the UAE, the Czech Republic, Bahrain, China, Macedonia, Vietnam, Italy, Netherlands and Poland.
Unfortunately, Iraq is still not yet party to the New York Convention, which means that non-ICSID awards still face difficulties of being recognised and enforceable.
Despite the limited number of Iraqi BITs in force, the fact that Iraq has now ratified the ICSID Convention is a positive sign towards investors by providing them a reliable and globally recognized dispute settlement forum. The signature and ratification of more BITs, which will provide for access to ICSID, would significantly increase the attractiveness of Iraq.
GIP can advise you on how to safely invest in Iraq.
This entry was posted in News on 03/12/2015 by Jan Krcmar.
On 6 December 2015, the world leaders will meet in Paris for the World Climate Summit to work on a legally binding global climate agreement. Given that a failure to stop climate change would have catastrophic results for the global economy due to spreading natural catastrophes and demographic change, significant steps must be taken now.
In anticipation of the summit the European Union has been taking the lead by imposing more ambitious targets for curbing carbon emissions on its Member States than contained in the original 2020 targets.
Recently, on 23 October, EU leaders agreed to reduce greenhouse gas emissions by at least 40%, and increase energy efficiency and the share of renewables by at least 27% by 2030.
Moreover, the EU has adopted the energy roadmap 2050 aiming to reduce emissions to 80–95% below 1990 levels by 2050.
In other words, the EU is committed to emissions, which will only be possible by substantially increasing the production of renewable energy in Europe.
However, and at the same time, the European Commission is actually doing the opposite by actively destroying renewable energy producers. Member states too are doing what they can to destabilise the economic environment in many countries, making investments in renewables extremely risky and not worthwhile.
As we have reported previously in our newsletters, many Member States are retroactively removing the agreed feed-in tariffs (FIT) for the production of renewable energy, or retrospectively introducing other damaging measures. This has resulted in more than 30 investment arbitration disputes, which have been initiated by affected renewable energy producers against for example Spain, Czech Republic and Italy. The European Commission is has been actively intervening in those investment arbitration disputes, siding with the Member States.
At the same time, as is highlighted by the situation in the Czech Republic, where the Energy Regulatory Office – lead by a personal vendetta against solar energy – is currently threatening to block the distribution of 1,5 billion EUR worth of renewable energy subsidies in 2016, which would destroy the renewable energy industry and causing significant problems for the financing banks.
Thus, on the one hand the EU is pushing for ambitious greenhouse gas emission cuts, while at the other hand, it destroys renewable energy producers. There is a clear contradiction here, which needs to be clarified.
Turning back to the upcoming climate conference, it is important to remain realistic. Whatever the outcome will be, any binding international agreement on reducing greenhouse emissions will most likely not include any effective enforcement mechanism.
Indeed, so far multilateral environmental agreements only contain some sort of monitoring system, but lack an enforcement system that enables others to make sure that the States which are parties to such agreements fulfil their obligations.
This is where bilateral investment treaties (BITs) and investor-state dispute settlement (ISDS) come in, by assisting in the enforcement of legally binding environmental obligations. The following case is a good illustration of the usefulness of ISDS for the protection of the environment.
Most BITs contain “full protection and security”-standard. Arguably, the “full protection and security”-standard encompasses the obligation that the host state exercises sufficient “due diligence” to protect the investor’s physical assets and persons. It is not difficult to argue that this obligation also includes that the host state takes all necessary measures to prevent or effectively mitigate damages caused by egregious pollution or greenhouse gas emissions.
In fact, this line of argument is currently tested in an ISDS case, which has been brought by Peter Allard. He is a Canadian owner of an eco-tourist facility in Barbados and brought the ISDS case against Barbados alleging a breach of the “full protection and security”-standard of the Canada-Barbados BIT. More specifically, Allard claims that Barbados breached its BIT obligations by failing to enforce its domestic environmental laws, which he alleges led to the environment being spoilt and thus a loss of tourist revenues at his eco-resort.
Another example in which ISDS could help to force States to take effective measures to protect the environment is the case of the massive fires that have been affecting the climate in Indonesia and several of its neighbouring countries. Millions of people are suffering from respiratory problems and many sectors of the economy cannot function anymore properly. The haze is caused by fires, which are set to burn forests in order to create land for palm oil crops. Reportedly, this practice, which takes place every year, seems to have been condoned by Indonesia and the respective provincial governments. It seems that Indonesia has neither prevented the fires and the resulting haze, nor has it responded to these fires in a promptly and effective manner with a view of minimising their negative effects. If that is indeed the case, this would constitute a breach of Indonesia’s international treaty obligations relating to both environmental protection and investment protection.
Since most of Indonesia’s BITs contain the “full protection and security”-standard, it would be possible that affected foreign investors could use the BITs for bringing ISDS claims against Indonesia.
More generally, it seems reasonable to apply this line of argument also in the case of greenhouse gas emissions. For example, if in Paris a treaty is signed which contains binding targets for the reduction of greenhouse gas emissions and a State party fails to implement them, which in turn causes damages to a foreign investor, that foreign investor could use the BIT and ISDS to bring a claim against that State. The possibility of facing ISDS claims, which could amount to hundreds of millions of dollars, could be an effective instrument to persuade States to actually implement their legally binding environmental protection obligations.
Considering the fact that – unfortunately – many States around the world fail to effectively implement applicable environmental legislation – be it international or domestic -, causing not only damages to the environment and the health of their citizens but also to the property of foreign investors, ISDS claims could turn out to be a very effective tool to compel States to take the necessary steps to prevent environmental damages.
In other words, the protection of investors goes hand in hand with the protection of the environment.
Accordingly, instead of actively dismantling investor protection in Europe, the European Commission should take measures against the Member States for violating their obligations towards renewable energy producers. Similarly, the European Commission should stop undermining the legal status of intra-EU BITs and the Energy Charter Treaty. This would be the best way in ensuring that the Member States meet the ever more ambitious cuts in greenhouse gas emissions.
In sum, the useful role which ISDS can play for the protection of the environment is yet another argument – next to the well-known and generally accepted – arguments that investment treaties and ISDS promote the Rule of Law, legal certainty and the flow of FDIs – for maintaining easily accessible, effective and fair ISDS rules in all trade and investment agreements.
The GIP team stands ready to advise you on the best available investment protection in Europe and beyond.
This entry was posted in News on 02/12/2015 by Jan Krcmar.
The Czech energy sector is currently being held hostage by the Czech Energy Regulator (ERU), which is refusing to define the prices that renewable energy projects, installed before 2011, should receive next year. Each year ERU is required to publish a list of prices, based on which the Feed-in-tariffs are paid out. This year ERU has so far (that is end of November) refused to do so. If the situation is not resolved very soon, a total of 42 billion crowns (1,5 billion euro) would not be paid out to renewable energy companies.
The consequences would be dyer: defaults on bank loans, thousands of jobs destroyed in an instant, bankrupt companies and more. But not only the renewables industry would suffer, but also the financing banks, who have bankrolled projects worth tens of billions of euro.
How exactly did we arrive at this point?
ERU claims that the law, on which the biggest part of the Czech Republic’s renewable subsidies is based, first needs to be notified to the European Commission (EC) according to EU state aid law, before the subsidies can be paid out. When the law was passed, back in 2005, the subsidies in the form of feed-in-tariffs were not considered state aid within the meaning of EU state aid law. And subsequently the subsidies were paid out regularly each year, without the law ever having been notified to the EC. However the Czech government recently – out of the blue – decided to notify the law. ERU now argues, that unless notification is received or the Czech government issues a declaration confirming that the law does not violate EU regulations, it cannot set out the subsidies for next year. ERU chairwoman Alena Vitásková – who to the public presents herself as a martyr and fighter against what she calls the “solar mafia” – claims she either needs EU notification or a decision by the Czech government, which would make clear that the law and the subsidies are not counter to EU legislation.
Never mind, that both industry associations, the chamber of commerce and the Industry Ministry have all informed ERU, that the law does not in fact need notification for the subsidies to be paid out, ERU is still refusing to budge.
Questioned by journalists, what kind of government decision ERU would need to change its minds, Vitásková could not answer. This and many obscure statements make it clear, that the real motive behind ERU’s reckless behaviour is to be found somewhere else.
Vitásková, who herself has a background in the gas industry and has close ties to Czech president Milos Zeman – who himself is said to be fond of Vladimir Putin and his regime – is head of the independent Energy Regulator ERU. She has in the past years repeatedly claimed, that the solar boom, which saw more than 2 GW of photovoltaic power plants installed in the Country before 2011, was partly orchestrated by what she calls the „solar mafia“. Every since she was made ERU chairwomen in 2012, she has lead several media attacks on solar producers, claiming that a number of solar investors are defrauding the system by producing more energy than installed. She herself is the subject of a lengthy police investigation and her job is currently anything but safe.
Interestingly, Vitásková is currently facing criminal investigations for the dodgy appointment of EUR’s vice-chairwoman Renata Vesecká. The crucial problem for Vitásková is that as of 2016, she would no longer be chairwoman of ERU, since a new law was passed earlier this year, changing the leadership structure of the office. Vitaskova can only safe her job if a technical bylaw is passed, ensuring that she stays in office until the end of her term in 2017. That bylaw is currently still in parliament and on the way to being passed later this year, after parliament had stalled and delayed it. Apparently, Vitaskova has made so many enemies across the political, bureaucratic and economic spectrum that hardly anybody wants to see her remain in office.
Vitaskova, whose motives might be found in the uncertainty over her personal future, her past in the non-renewable energy sector, her love for PR or elsewhere, has probably not realised, what she has got herself into.
It could be argued that all she wanted was a new debate in the media about how much the Czech state pays out to the renewable energy industry, which is in fact helping the government achieve its environmental goals as imposed by EU law. It could be argued that she wants to put pressure on parliament to guarantee her job until 2017. In all probability there are many reasons, but what is almost certainly true is that Vitaskova and her colleagues at ERU have underestimated the consequences and also don’t know what they are talking about.
At a round table on 27 November 2015 Vitaskova expressed hope, that the situation would sort itself out, when industry minister Jan Mládek returns from Brussels with a notification at the same day. This displays a fundamental lack of knowledge about EU notification procedures and highlights, that Vitaskova has dug herself a hole and now needs a way out which helps her safe face.
As always, this also highlights the fact, that the basic legitimate expectations investors must have, are to legitimately expect key official bodies to be run by people who lack fundamental knowledge about important aspects of their work. As we pointed out in our article Mind the gap, investors basically have to expect, that even if a law is prepared by national institutions, ministries and regulatory bodies, and then debated and passed on government level, then passes the legislative process and becomes law, investors still have to presume that somebody along the line screwed up and that they might in the end get shafted.
Representatives of the Czech industry ministry assured renewables investors that a solution would be found, and unlike ERU they seem to understand the danger of the situation. If ERU fails to set out the prices for 2016 and companies go bust, the Czech Republic will face a barrage of lawsuits, both national and international. And in these cases, the Czech Republic probably won’t stand a chance.
If you have renewable assets in the Czech Republic and are affected by the current situation, get in touch with us to see how we can help you protect your assets.
This entry was posted in News on 01/12/2015 by Jan Krcmar.
Read Nikos Lavranos’ interesting piece about a neglected aspect of arbitrations: environmental protection.
This entry was posted in News on 10/11/2015 by Jan Krcmar.

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v. break something long. Mibálì siyag sanga, He broke off a twig. Nabálì ang ákung buktun, I broke my arm. Túhud lay ibálì ánà, Break it off with your knee. — ang súngay put someone in his place. Balían ku siya sa íyang súngay arun dílì na mag-abusar, I’ll put her in her place so she won’t be so abusive any more. (→) a. 1. for an elongated thing to be broken; 2. someone who is new at something, ignorant. Balì ka pang mumaníhu, You’re still just learning how to drive. Balì siyag linaktan, He carries himself like a greenhorn; 3. foolish in trying to do something one doesn’t even know how to do. Balì ning tawhána. Midrayib sa dyíp, unyà dì diay kamau, He’s a fool. He tries to drive the jeep when he doesn’t even know how to. balìbálì n. 1. kind of rifle that is bent when cocked, usually a double-barreled gun; 2. see bulinaw.
a. in a motion with the back bent. Baliad na run ákung daybing, Now I will do a back dive; v. bend one’s body backward with a rapid motion, do something on one’s back. Nagbaliad siya paglanguy, He was swimming on his back.
(not without l) n. the Malaysian fantail, a small bird that moves its tail up and down while perched: Rhipidura javanica. -un a. characterized by constant moving around or changing positions, fidgety.
v. 1. refuse someone or something Balibáran gánì ku nímu, patyun ta ka, If you turn me down, I’ll kill you; 2. give an excuse for not doing something Mibalíbad (namalíbad) siyang dì musulti kay pagaw siya, He got out of giving the speech with the excuse that he was hoarse; n. 1. refusal. Ang ímung balíbad way kapuslánan kun tiúnan kag pusil, No use trying to refuse when someone points a gun at you; 2. excuse. Nakadawat mig balíbad níya nga dì siya makaanhi, We already received his excuse that he couldn’t come. paN- v. say something is not the case. Namalíbad siya nga wà siya mahigugma kaníya, She said she did not love him. balibaran a. fond of giving excuses.
v. throw something away, get rid of, throw. Ayaw nag ibalibag. Magámit pa man, Don’t throw it away. We can still use it.
v. scatter grains, small solids over an area. Balibúrig sibúyas ang sabaw, Sprinkle onions on the soup. Ibalíbud ning pulbus sa salug, Sprinkle this powder on the floor.
v. wind something around something Ibalíbud (balibúra) ang hílu sa káhuy arun dì magubut, Wind the thread around the stick so it will not get tangled up.
n. 1. volleyball; 2. volleyball style of playing billiards: the table is divided into two territories, and each player must make a carom inside his territory; v. play volleyball. -an n. volleyball court.
v. cover the space between the upper edges of the roof at the ridge. Sín ang maáyung ibalibung sa atup, Galvanized iron is a good material to put over the ridge of the roof. -an n. 1. ridge of the roof; 2. the material which covers the ridge.
v. trickle down in drops, clinging to something Íyang gipahíran ang lúhà nga mibalidbid sa íyang áping, She wiped the tears that trickled down her cheeks.
n. 1. valedictorian; 2. one who excels in something Basta mahitungud na gánì sa babáyi, balidikturyan siya ánang buháta, He’s an expert when it comes to women; v. become the valedictorian.

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