D.C. Insider: February 2024

By ICR

In the February 2024 edition of The ICR D.C. Insider, we share our insights and analysis about developments in Washington that could have an immediate and long-term impact on your business.

What’s Next In Washington

The House, Senate, and the White House continue their public and private engagement across a series of hot-button issues, including: funding and policy changes for border security, military aid for Israel and Ukraine, avoiding a government shutdown, and the possibility of a tax deal. Importantly, any or all of these items could eventually be fused with another one in an effort to gain – or prevent – eventual passage. Issues around all of them remain fluid. As of early February:

• Bipartisan Tax Cut Bill Passes The House – With a vote of 357 to 70, the House passed a $78 billion bipartisan tax-cut bill that would restore several tax breaks for businesses and expand the Child Tax Credit. Specifically, the bill would let businesses deduct domestic research costs immediately instead of over five years, reversing a change that hit the cash flow of companies, and expand deductions for equipment purchases and interest costs. The bill now moves to the Senate, where issues from a desire by some to send the bill through a committee markup (where changes would result in the House having to pass the new version) to the political optics of denying the White House a win in an election year could stymie passage.
• Congress Works to Avoid A Government Shutdown – Top Senate and House appropriators agreed on the totals for 12 spending bills. These efforts by Senate Appropriations Chair Patty Murray (D-Wash.) and House Appropriations Chair Kay Granger (R-Texas) will allow lawmakers to hash out the finer policy and funding points of each individual bill, with time short – funding for veterans, transportation, agriculture and energy programs runs out March 1; and funding for the rest of the government, including the military and the biggest domestic programs, expires March 8 – to finalize a government funding accord that will top $1.7 trillion.

SEC

• New SPAC Rules Approved – Unsurprisingly, by a 3-2 partisan vote, the Securities and Exchange Commission (SEC) approved wide-ranging new rules that include provisions that will force more disclosure about SPAC sponsors, sponsor compensation, dilution, conflicts of interest, the target company, and other information. The rules also demand more disclosures in de-SPAC transactions, including any determinations made by a board of directors as to whether the de-SPAC is advisable, in the best interests of the SPAC and its shareholders, and any outside opinions or reports received related to the transaction. In addition, the rules states there is no safe harbor for companies that make misleading projections during a SPAC’s initial public offering, and requires target companies in a de-SPAC transaction to register with the SEC, increasing their liability. The rules will become effective 125 days after publication in The Federal Register.
• Further Congressional Criticism of Climate Change Disclosure Rule – Kyrsten Sinema (I-Ariz.) and Sen. Jon Tester (D-Mont.) pushed back on the SEC’s forthcoming climate change risk disclosure regulations. The lawmakers, whose terms expire this year, said of the proposed rule’s requirement that publicly traded companies report on their direct and indirect (Scope 3) carbon emissions, “If it is not possible to develop Scope 3 in a way that does not burden small businesses in a public company’s supply chain, including agricultural producers, it would be better to take it out of the final rule altogether.”
• Potential Challenge to Cyber Rules Denied – Sen. Thom Tillis (R-N.C.) will not pursue a vote on his resolution to overturn the SEC’s recent cyber disclosure rules.

FTC

• Republican Nominee on Hold – Josh Hawley (R-Mo.) continues to block Republican nominees to the Federal Trade Commission (FTC) and National Transportation Safety Board (NTSB) as a result of his standoff with Senate Minority Leader Mitch McConnell (Ky.). Sen. Hawley is holding up Andrew Ferguson, McConnell’s former chief counsel, who is nominated to serve on the FTC, and Todd Inman, a former McConnell campaign aide, who is nominated to the NTSB, after he blamed Sen. McConnell for stripping an amendment he sponsored from the annual defense authorization bill that would have expanded and extended the Radiation Exposure Compensation Act to cover individuals and families around St. Louis exposed to improperly stored nuclear waste left over from the Manhattan Project.
• The FTC’s Steps Forward on AI – The FTC launched an investigation into the race among the biggest technology companies to produce and commercialize artificial intelligence, ordering Alphabet, Inc., Amazon.com, Inc., Anthropic PBC, Microsoft Corp., and OpenAI, Inc., to provide information regarding recent investments and partnerships involving generative AI companies and major cloud service providers. The Commission seeks to get a better internal understanding of these relationships and their impact on the competitive landscape.
  • The FTC also held a virtual tech summit on AI to “bring together a diverse set of perspectives across academia, industry, civil society organizations, and government agencies.” The public was invited as well.
• Size of Transaction Thresholds for Premerger Notification Filings Updated for 2024 – For 2024, the size of transaction threshold for reporting proposed mergers and acquisitions under Section 7A of the Clayton Act will adjust from $111.4 million to $119.5 million. The revised jurisdictional thresholds and filing fee schedule will apply to all transactions that close on or after the effective date of the notice, which is 30 days after its publication in The Federal Register.
• New Interlocking Directorates Levels for 2024 – With a 3-0 vote, the FTC approved revised jurisdictional thresholds for Section 8 of the Clayton Act, which prohibits interlocking directorates. For 2024, the thresholds that trigger prohibitions on certain interlocking memberships on corporate boards of directors are $48,559,000 for Section 8(a)(l) and $4,855,900 for Section 8(a)(2)(A). The thresholds became effective upon their publication in The Federal Register.

Consumer Products Safety Commission (CPSC)

• Enormous Expansion of Regulatory Authority – In another example of regulators having much more – and immediate – power to affect companies than Congress does, Amazon is facing a government order that could make the company responsible for the safety of goods that it sells for outside vendors and ships for them through its logistics network. The Consumer Product Safety Commission (CPSC) is preparing an order that could classify Amazon (which accounts for 40% of all e-commerce in the U.S.) as a distributor of goods, which could then give Amazon the same safety responsibilities as traditional retailers and potentially open it up to lawsuits and extensive recalls. The CPSC’s order could negate arguments from Amazon that it’s merely a platform for sellers and buyers to connect, as well as similar views from other marketplaces and technology companies that are similarly structured and have argued that they aren’t legally responsible for what others do on their platforms

Labor

• More Contractors Could be Considered Full-Time Employees – The Biden Administration’s new rule issued by the Labor Department intends to put more contractors on company payrolls, a change that could reverberate across a range of industries, including healthcare, restaurants, construction and transportation. The rule, which will go into effect on March 11^th, imposes a stricter test to determine whether companies can classify their workers as independent contractors. The rule effectively expands the reach of federal labor laws that require employers to extend certain benefits and protections to workers classified as employees. These include the right to the minimum wage, overtime pay, unemployment insurance and Social Security benefits – which employers are not required to provide to independent contractors.

Additional Key Developments

• China – Key developments include:
  • The House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, led by Chairman Mike Gallagher (R-Wisc.) and Ranking Member Raja Krishnamoorthi (D-Ill.), sent a letter to Department of Homeland (DHS) Secretary Alejandro Mayorkas, urging him to take immediate action to strengthen enforcement of the Uyghur Forced Labor Prevention Act (UFLPA). According to the letter, recent reports reveal that the companies across China who are profiting from Uyghur forced labor have not yet been added to the UFLPA Entity List; that there has been a failure to fully prosecute or otherwise deter transshipment of forced labor goods through third countries; and that Chinese companies are increasingly using the de minimis provision to ship forced-labor goods into the U.S.
  • Gallagher and Krishnamoorthi – introduced the BIOSECURE Act, a bill to ensure foreign adversary biotech companies of U.S. national security concern do not gain access to U.S. taxpayer dollars.
  • Among the points identified in the Committee’s December 2023 bipartisan report that outlined a strategy to fundamentally reset the U.S.’s economic and technological competition with China is the recommendation that an interagency committee study potential risks of RISC-V (a freely available technology that provides a common language for designing processors). Congressional aides have met with members of the Biden Administration about the technology, and lawmakers and their aides have discussed extending restrictions to stop U.S. citizens from aiding China on RISC-V, according to congressional staff members.