EUROPEAN REGULATORY WATCH
March 2014
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EUROPEAN REGULATORY WATCH
SIX KEY EUROPEAN REGULATORY
DEVELOPMENTS TO WATCH IN 2014
Welcome to the first edition of European
Regulatory Watch, where we profile six key
regulatory developments that will affect
companies operating in the European Union
across a range of sectors.
ata protection—A battlefield between the
D
EU and U.S.?
Net Neutrality—The future of e-business?
The future of state aid to airports and airlines
eferred Prosecution Agreements—Good news
D
for companies facing prosecution in UK?
U recommends minimum principles
E
for shale gas
U considers broad economic sanctions
E
against Russia
The articles above may be accessed
by clicking on the title.
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INTRODUCTION
Today, no company with European operations can ignore the impact of European
Union (“EU”) law on its business. The EU has grown to become a regulatory giant
that not only produces countless regulations directly applicable to citizens and
businesses, but also between 70 and 80 per cent of all legislation at the national
level is wholly or partially dictated by EU law. This percentage is even higher when
considering business-relevant legislation.
Although tempting, it would be wrong to look at the EU machine solely as a
source of constraints and obligations. While it is true that the vast amount
of regulation is burdensome for industry, the EU is a modern organisation at
the forefront of the principles of transparency and proportionality, and has a
consultation culture (in particular industry consultation) second to none. It is
precisely the culture of bureaucracy and transparency in the EU that has created
institutions that will listen more to technical, economic, and legal arguments than
to political or public pressure. Come with convincing and credible arguments, and
Brussels will listen to you.
In light of the opportunities that present themselves to companies who want to
participate in the policy debate in Brussels, K&L Gates has taken the initiative to
identify six key policy areas where important developments can be expected in
the coming year—shale gas, net neutrality, data privacy, state aid to the aviation
sector and white-collar crime prosecution. In all of these areas, the coming year
may be decisive for where regulation will go—whether because new rules have
just been enacted and will need to be interpreted over the coming months, or
because new legislation is in the pipeline and could take a decisive turn during
the coming year. Even with upcoming European Parliament elections and a new
Commission on the horizon, plenty of opportunities will be available to those
active companies who decide to participate in shaping their own future. The
chance is there. It is up to you to grab it.
Philip Torbøl is a founding partner of the firm’s Brussels office.
His practice focuses on EU competition law and government
strategies. A former EU official, Mr. Torbøl has substantial
experience representing clients in strategic regulatory and
legislative processes before European institutions, including
the Commission, Parliament and Council.
CONTACT
Philip Torbøl
philip.torbol@klgates.com
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EUROPEAN REGULATORY WATCH
The outcome of this debate
could shape the future of the
digital economy.
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Data Protection—A Battlefield Between The EU and U.S.?
Etienne Drouard
WHAT IS IT?
Since 25 January 2012, the EU has been debating
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3
a comprehensive reform of its current privacy protection framework .
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WHO IS AFFECTED?
This reform targets any entity either established in Europe or offering
its services or products to EU residents from any location in the world.
SUMMARY AND KEY IMPLICATIONS
The outcome of this debate could shape the future of the
digital economy, particularly with privacy and cyber sovereignty
becoming key talking points in transatlantic diplomacy since
the Snowden/NSA case.
There are two major objectives of this European reform. The first one
being to erase discrepancies between national legislations, which had
multiplied without any remedy since the adoption of the European
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Privacy Directive in 1995 . Such legal boundaries have been very
costly for multinational companies, and for many others, whose
activities rely on the use of the Internet. The second objective targets
new threats to privacy raised by the global digital society, in particular
through social networks and concerning the protection of minors.
1
http://ec.europa.eu/justice/newsroom/data-protection/news/120125_en.htm
2
http://ec.europa.eu/justice/data-protection/document/review2012/com_2012_9_en.pdf
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uch discrepancies have only been sanctioned once by the Court of Justice of the European Union, since a decision
S
dated 24 November 2011 against Spain. Please visit http://www.klgates.com/files/upload/GGS_2012_YearAhead.pdf, “EU
Data Protection: Poised for Reform in 2012”, page 60.
4
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31995L0046:en:NOT
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The current European debate on this draft reform has demonstrated
that data protection authorities work together regularly, but they do
not necessarily trust each other; they would prefer not to lose their
local power in a “one-stop shop” mechanism where any group of
companies established in several member states would be subject to
a single data protection law (based on a principal European location).
In this context, the much needed harmonisation and simplification
within the EU will be a challenge to achieve.
Furthermore, the European institutions see it as a necessity to
strengthen the control that people have over their own data,
regardless of where the processing of such data occurs globally. As
a result, the European Parliament has adopted a first lecture of the
Draft Regulation on March 12, 2014, which raises the requirements
on privacy protection to such a level that it may prove incompatible
for non-European businesses. Requirements include:
• Explicit and prior user consent would be required for a large
amount of data processing;
• Data transfers outside of the EU to be subject to European
control—this may well be incompatible with the “Safe Harbor”
arrangement monitored by the U.S. Federal Trade Commission;
• Financial penalties of up to five per cent of the global turnover of
a group of companies;
• Businesses needing to designate privacy officers, continuous
monitoring of their privacy compliance, and obtaining prior
authorisations from local regulators for some data processing; and
• Personal data breach notifications to be actively monitored by
local regulators.
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CONCLUSION
The draft European privacy regulation does not allow European and
U.S. businesses to share a consensual level of privacy protection,
even though they share and transfer considerable amounts of
personal data. The recent evolution of this draft reform may,
therefore, threaten business models on both sides of the Atlantic—
not because it is meant to protect individuals’ privacy, but because
it tends to create inefficient barriers outside of the EU and unstable
and balkanized governance within the EU.
European institutions must now address a strategic issue: Does
the EU need more privacy protection or more collaboration with its
partners on privacy standards?
Chancellor Angela Merkel recently suggested the building of a
European Internet in order to minimise data transfers outside of the
EU. This might lead to interesting industrial projects for German
or European businesses, subject to strong political support from
the other EU member states. However, this highlights the lack of a
common strategic vision within the European institutions, especially
between the European Council and the European Parliament.
It is doubtful that the United States (including during the TTIP
negotiation round), China, Russia, India, Brazil, and many other
countries will follow the European privacy standards. The European
privacy framework may, therefore, remain a regulatory nightmare for
European and non-European companies, unless they push strongly
for a balanced and consensual privacy protection framework.
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TTIP: Transatlantic Trade and Investment Partnership between the EU and the U.S.
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We also believe that the recent election of the French data protection
authority chairwoman, Isabelle Falque-Pierrotin, as the new
chairwoman of the WP29 (the European working party gathering
input from each national data protection authority), does reinforce
the current France - Germany leadership on the draft European
privacy reform. This further reinforces our viewpoint on this debate
in Europe.
Etienne Drouard is a
partner of the firm’s
IP and TMT practice
groups in Paris.
Mr. Drouard is one
of the few experts
appointed by the
European Commission in the draft
privacy regulation reform published in
January 2012.
CONTACT
Etienne Drouard
etienne.drouard@klgates.com
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The expected decision of the
European Parliament…will have a
huge effect on electronic business.
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Net Neutrality in Europe
Tobias Bosch
WHAT IS IT?
Proposal from the European Commission aimed at regulating the way
Internet service providers deliver content to end users, potentially
having a far-reaching impact on the e-commerce market.
WHO IS AFFECTED?
Internet service providers and Internet content providers.
SUMMARY AND KEY IMPLICATIONS?
On 11 September 2013, the European Commission published a
draft proposal for a regulation laying down measures to create a
European single market for electronic communications (“Draft
Regulation”). Apart from several other legislative changes, the Draft
Regulation also contains comprehensive provisions on net neutrality,
the principle that Internet service providers (“ISPs”) should treat
all content, applications and services equally, without blocking or
slowing down of particular products or websites. If approved by
the European Parliament and the Council, these regulations will be
directly applicable in the European member states.
As the proposed regulation on net neutrality constitutes a core
principle for today’s competition in the European electronic
communication market, the expected decision of the European
Parliament’s ITRE Committee on further amendments of the Draft
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Regulation, as well as the final vote of the European Parliament
itself, are highly relevant for both ISPs and content providers and
will have a huge effect on electronic business. This is particularly
true in the three major European telecommunications markets,
namely Germany, France, and the UK, none of which currently has a
comprehensive set of rules for protection of the open Internet.
KEY IMPLICATIONS OF THE DRAFT REGULATION
1. Best effort principle and non-discrimination
First and foremost, any regulation on net neutrality has to determine
whether data transmission should be subject to the best-effort
principle (the principle that ISPs should treat all content equally),
and to what extent and under which conditions ISPs should be
allowed to prioritise, slow down, or even to block certain content.
Without such a regulation, barriers to market entry are likely to
occur, with start-ups and most content providers likely to struggle to
compete with financially strong market players for access
to customers.
The Draft Regulation picks up this issue at two points: first, Article
23 Section 1 clarifies that end users should have the freedom “to
access and distribute information and content, run applications and
use services of their choice via their internet service”, and that this
general principle should not be impaired by contractual clauses
which allow ISPs to decelerate transmission in case the end user
reaches a contractually agreed data volume cap. Second, Article
23 Section 5 provides for the application of nondiscrimination
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rules within the limits of the contractually agreed data volume or
speed, with ISPs being prohibited from “blocking, slowing down,
degrading or discriminating against specific content, applications or
services, or specific classes thereof” unless this is necessary to apply
“reasonable traffic management measures”.
The Commission proposes to implement the best-effort principle
as the general rule for data transmission on the basis of flexible
nondiscrimination provisions: ISPs should be entitled to slow down
data transmission with regards to all content if the data cap is
reached, but are prohibited
from discriminating against
specified contents within the
contractually agreed data
volumes, except for justified
cases. However, there is no
clarity as to what constitutes
such justified cases.
2. P
ermissibility of
specialised services
and safeguards for
quality of service
As an exception from the
provisions set forth in
Article 23 Section 1, the
Commission’s proposal
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provides the possibility for end-users to close agreements with ISPs
and content providers on “specialised services with an enhanced
quality of service”. By setting up that structural exception from the
best-effort approach, the Commission intended to take into account
growing demand for bandwidth-intensive media consumption,
notably for video and music streaming services.
However, in order to ensure that end users continue to have access
to contents of their choice in accordance with Article 23 Section
1, the Commission provides that specialised services must not
impair “the general quality of internet access services in a recurring
or continuous manner”. In line with that, the Draft Regulation
provides in Article 24 Section 2 the possibility for national regulatory
authorities (“NRAs”) “to impose minimum quality of service
requirements on providers of electronic communications to the
public”. The respective means are supposed to be issued by the
NRAs in mandatory consultation with the Commission and the body
of European regulators for electronic communications (“BEREC”).
3. Transparency rules
In addition to the direct regulations on net neutrality, the
Commission sets forth several transparency rules and respective
publication obligations with regards to download speed and data
volume limitations in Article 25. By proposing these rules, the
Commission hopes to enhance the end user’s insight regarding the
ISPs measures on net neutrality and, thereby, to support the selfregulating forces of the markets. In particular, ISPs shall provide “a
clear and comprehensible explanation as to how any data volume
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limitation, the actually available speed and other quality parameters,
and the simultaneous use of specialised services with an enhanced
quality of service, may practically impact the use of content,
applications and services”.
CONCLUSION
The ongoing discussions within the Committees of the European
Parliament and the wide-ranging opposition of the BEREC and
several lobby groups reveal how legally complex the ongoing debate
on net neutrality is and how
many different interests
are affected by this issue.
However, even though the
Commission’s approach has
tried to create an “even playing
field” for content providers,
several key points, particularly
with regards to the permissible
scope of specialised services
and application of traffic
management measures, have
not been completely clarified.
With respective amendments of the Draft Regulation currently
being debated, it is now up to the European Parliament to weigh
the different interests and choose between various measures to
further adjust and clarify the provisions of the Draft Regulation.
However, due to the wide-ranging opposition and the upcoming
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election of the EU Parliament in late May 2014, we do not expect the
proposal to be effective by July 2014, the date initially proposed by
the Commission. In any case, the final regulation will have a huge
effect on competition in electronic business. Therefore, at this early
stage of the legislative process companies should begin to consider
whether their competitiveness could be affected by the upcoming
regulations and what opportunities the different alternatives might
provide for their business model.
Tobias Bosch is a
partner in the firm’s
TMT practice group
in Berlin. He advises
international clients
on regulatory issues
and technology
licensing matters in a range of areas
including information technology and
telecommunications.
CONTACT
Tobias Bosch
tobias.bosch@klgates.com
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The application of state aid rules to airports
and airlines is aimed at correcting market
failures and avoiding the creation of
unprofitable airports and overcapacity.
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State Aid To Airports and Airlines In The EU
Mélanie Bruneau
WHAT IS IT?
New guidelines from the European Commission regarding state
aid to airports and airlines.
WHO IS AFFECTED?
European airports, airlines, and public authorities.
SUMMARY AND KEY IMPLICATIONS?
On 20 February 2014, the European Commission (the
“Commission”) published its new guidelines on state aid to
airports and airlines (the “New Guidelines”).
The EU promotes the importance of transport infrastructure
as part of the “Europe 2020 Strategy” and wishes to eliminate
unjustified subsidies and waste of public resources. The
application of state aid rules to airports and airlines is aimed
at correcting market failures and avoiding the creation of
unprofitable airports and overcapacity, while contributing to the
efficient functioning of markets and enhancing competition.
The role of aviation in the European economy is fundamental,
with over 460 airports, 150 scheduled airlines, 60 air navigation
service providers and more than 15 million annual commercial
flights carrying more than 820 million passengers per year to and
from Europe.
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Over the past 20 years, the aviation sector has undergone
fundamental changes. EU airports are now managed less as public
infrastructure and have become more commercial, with active
competition between them. On the airlines’ side, the development
of low-cost carriers has considerably changed the competition
landscape as the market share of low-cost airlines (45 per cent in
2013) now exceeds the market share of incumbent air carriers
(40 per cent in 2013).
KEY IMPLICATIONS OF THE DRAFT REGULATION
In light of an analysis of the current market conditions in the
aviation sector, the New Guidelines—which replace the 1994
and 2005 Aviation Guidelines—aim
at introducing a new approach by
encouraging more effective state
aid measures. The New Guidelines
will be applied from the date of their
publication in the Official Journal,
which is expected in March 2014.
State aid, which may take a variety
of forms such as grants, tax rebates,
preferential financing conditions,
guarantees, and government
holdings of all or part of a company,
is generally prohibited by EU Law
unless it is considered justified under certain conditions.
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As such, the Commission explains in the New Guidelines that
it will take a balanced approach to reviewing state aid granted to
airports and airlines, taking into account the objective to finance
the construction of viable airports and the need for regional
development and accessibility, while avoiding distortions of
competition, overcapacity, and duplication of non-viable airports.
All airports and airlines, including private or public, are affected
and all type of public support, whether at a national, regional, or
local level, are to be reviewed including airport/airline arrangements.
The areas affected include:
1. Investment aid in airport infrastructure
State aid for investment in airport
infrastructure is allowed if it meets
several cumulative conditions,
including combating congestion
at major EU hubs, increasing
intra-EU mobility, and ensuring the
accessibility of a region.
The New Guidelines define
maximum permissible aid intensities,
depending on the size of an airport.
The possibilities to grant state aid to
smaller airports are higher than for
larger ones. In that respect, the aid
may go up to 75 per cent of the cost relating to airport infrastructure
and equipment for airports with annual passenger traffic of less
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than one million and should not exceed 25 per cent for airports with
annual passenger traffic of three to five million. For large airports
with annual passenger traffic of more than five million, investment
will be limited to very exceptional circumstances, such as a clear
market failure. For airports located in remote regions, irrespective of
their size, the maximum permissible aid level can be increased by up
to 20 per cent.
2. Operating aid to regional airports
For a transitional period of 10 years, operating aid to regional airports
with less than three million passengers a year can be declared
compatible under certain conditions in order to enable them to
adjust their business model.
To be eligible to receive the operating aid, airports need to work out
a business plan with the objective of fully covering operating costs
at the end of the transitional period. The Commission determined
that, under the current market conditions, airports with less than
700,000 passengers per year may face difficulties in achieving
full cost coverage during the 10-year transitional period. A special
regime is available for those airports with higher aid levels, with the
Commission due to reassess the situation after 2019.
3. Start-up aid to airlines to launch a new route
Start-up aid to airlines for the launch of new air routes is permitted,
provided this increases intra-EU mobility and connectivity of regions,
facilitates regional development of remote regions, and remains
limited in time.
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However, this only applies under the following specific conditions: (i)
airports of less than three million passengers per year (for airports
between three and five million passengers per year, the aid will be
granted only in exceptional circumstances) and (ii) airports located
in remote regions irrespective of their size. The route should not
be already operated by high-speed rail service or another airport in
the same area. The aid may cover up to 50 per cent of the airport
charges in respect of such routes for a period that cannot exceed
three years.
CONCLUSION
It is in the interest of all beneficiaries to ensure that state aid is
granted in compliance with EU rules. Indeed, companies, trade
associations, and consumers can use a number of tools to review
the state aid that has been granted and to challenge its compatibility
with state aid rules:
• Commission Complaint—
EU companies and
consumers whose interest
might be affected by
the granting of aid, in
particular competing
undertakings and trade
associations, may
trigger investigations
by lodging complaints
with the Commission or
submitting comments. The
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EUROPEAN REGULATORY WATCH
Commission may then open a formal investigation procedure. The
Commission can ultimately order the beneficiaries of incompatible
State aid to pay back the undue advantage.
• National Court Action—Individuals and companies whose
interests have been adversely affected by an alleged unlawful
state aid can bring direct action before national courts. Remedies
available before national courts include preventing the payment of
unlawful aid, recovery of unlawful aid, damages for competitors,
and interim measures against unlawful aid.
• Member State Information—In order to improve the transparency
of state aid in Europe, the New Guidelines provide that the
Commission will publish on its website annual reports that have
to be submitted by member states. In addition, member states
are requested to publish information on each state aid measure
granted to airports and airlines on a public website.
Mélanie Bruneau
is a partner in the
firm’s EU Antitrust
and Regulatory
practice group in
Brussels. She advises
international clients
on competition and regulatory issues
in the transport sector.
CONTACT
Mélanie Bruneau
melanie.bruneau@klgates.com
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For a company, DPAs provide a means of coming
clean and accepting punishment for offending
without receiving a criminal conviction, which
could put them out of business.
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Deferred Prosecution Agreements In The UK
Elizabeth Robertson and Laura Atherton
WHAT IS IT?
A voluntary alternative available to companies facing prosecution
in the UK, which allows them to avoid criminal prosecution by
agreeing to a set of terms and conditions that they negotiate with
the UK prosecutor.
WHO IS AFFECTED?
Potentially any company carrying out business in the UK.
SUMMARY AND KEY IMPLICATIONS?
On 24 February 2014, deferred prosecution agreements (“DPAs“)
became available for use by the Serious Fraud Office (“SFO”) and
the Crown Prosecution Service (“CPS”) in the UK. In essence,
DPAs are agreements between prosecutors and corporate
organisations that charges will be presented but not proceeded
with provided the organisation complies with a set of agreed terms
and conditions. These generally involve payment of fines and/or
the implementation of remediation programmes. Prosecutors are
able to offer DPAs to corporates as an alternative to prosecuting
them in respect of a specific list of economic crimes, including
offences under the UK Bribery Act and money laundering
offences under the Proceeds of Crime Act.
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DPAs are potentially available irrespective of when the offences
occurred so long as criminal proceedings have not yet
been initiated.
DPAs are already used in the U.S. by the Department of Justice to
deal mainly with corporate offenders. While some of the effects of
DPAs are already felt here in Europe, due to the imposition of DPAs
on companies with a strong European presence, the introduction of
DPAs into the English prosecutors’ armoury is expected to have a
far deeper impact.
KEY IMPLICATIONS OF DPAS
1. Bribes and anti-money laundering offences
One area of corporate criminal law that will be affected by the
impact of DPAs will be the offences under the UK Bribery Act
2010. Under this Act, UK courts have jurisdiction to prosecute a
company for a bribe paid on its behalf anywhere in the world if that
company also carries out any business in the UK.
The SFO has previously said that it wants to “level the playing field”
by seeking to prosecute non-UK companies for payments of bribes
in their business operations globally when UK-based and other
companies operating in the same territories refuse to pay these
sorts of bribes.
As a purely hypothetical working example, the UK Bribery Act gives
the UK court jurisdiction over the prosecution of a Polish company
for a bribe paid on its behalf of or for its benefit in Hong Kong in
respect of a contract to be performed in Uzbekistan. Neither the
bribe nor the contract have any connection to the UK, but the UK
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court will still have jurisdiction, and the SFO will consider it to be
within their remit to prosecute the Polish company in the UK under
the Bribery Act if the Polish company carries out any business in
the UK.
Another area where we are likely to see DPAs having an impact is
the prosecution of corporates for money laundering offences. The
UK courts will have jurisdiction in respect of prosecutions of non-UK
corporates for money laundering where an element of the offence
takes place in the UK. Assets
held in the UK can, therefore,
create exposure for international
companies if those assets are
suspected to be the product of
criminal activity, no matter where
in the world that criminal activity
took place.
2. A
positive step for
corporate organisations?
The importance of DPAs in the
world of international corporate
criminal liability cannot be
overstated. For a company, DPAs
provide a means of coming clean
and accepting punishment for offending without receiving a criminal
conviction, which could put them out of business.
For a company facing a criminal charge, the reputational damage
and uncertainty of the outcome of any trial if it chooses to defend
itself may well be as damaging, if not more so, than pleading
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EUROPEAN REGULATORY WATCH
guilty. However, a criminal conviction could mean the company
is debarred from future work, particularly under the EU and U.S.
public procurement regimes. It remains to be seen whether the
availability of DPAs, which represent a means of avoiding having to
plead guilty while obtaining a resolution in respect of past criminal
offending, encourages self-reporting by corporates. The degree
of encouragement is currently far from certain. The SFO says that
self-reporting is only one factor it will take into account in deciding
whether to prosecute. A corporate may, therefore, decide there is
little incentive to self-report considering the process of negotiating
a DPA will almost certainly involve it providing self-incriminating
evidence at an early stage without any guarantee that a prosecution
will not ultimately take place using that same evidence.
3. The DPA guidance for prosecutors
For prosecutors, DPAs represent the potential for massive savings in
terms of the time, resources, and expenditure needed to investigate
financial crime. It is interesting to
note that, according to the DPA
guidance, in deciding whether a
DPA is appropriate, a prosecutor
need only consider that there are
“reasonable grounds” for believing
that a continued investigation would
provide further evidence to satisfy the
full code test. Thus, a prosecutor can
come to a corporate with the offer
of a DPA without the evidence to
actually prosecute them.
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CONCLUSION
It is likely to be some time before we see DPAs in the UK publicised
in the media or elsewhere. The offer of a DPA and the negotiations
between the prosecutor and the corporate will remain confidential
between the parties unless and until the DPA is approved by a
court. Following approval, there will be a hearing in public and the
content of the DPA will be available to view. It is only at this stage
that outsiders will get details of the offences and the DPA terms that
have been agreed and approved. If the court refuses to approve the
DPA, it is likely that the next step will be the initiation of prosecution
against the corporate for the same offences that were to be the
subject of the DPA.
On balance, the implications for international companies appear
positive, as DPAs could potentially limit the negative impact of
criminal proceedings by giving corporates and their shareholders
certainty about the fallout from past economic crimes.
Given the wide jurisdiction of the UK prosecutors in respect of
bribery offences and certain other economic crimes, any evidence
of breaches of the UK Bribery Act or of the anti-money laundering
legislation identified by international companies (e.g. through an
internal audit) should now be assessed taking into account the
possibility of a resolution through a DPA. However, it should also be
borne in mind that DPAs will be for the prosecution to offer, not for
corporates to elect. Persuading the SFO or the CPS that an offence
is suitable to be dealt with by way of a DPA, and deciding whether
accepting a DPA is the best course to take are issues that corporates
will need to consider carefully with their legal advisers before making
any self-report or entering into discussions with UK prosecutors.
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The DPA Guidance makes clear that a good corporate compliance
programme will be an important factor in the prosecutor’s decision
whether to offer a corporate a DPA in respect of its offending.
Previously, the adequacy of internal anti-bribery systems and
controls were a defence to the offence of failing to prevent bribery
under the UK Bribery Act. Now it seems clear that there will be
an ongoing drive in English criminal law to place the onus for selfpolicing onto corporates and, while not a defence, the quality of a
corporate’s overall compliance programme is now likely help it avoid
prosecution in relation to a whole host of economic crimes where a
DPA might be offered instead. Corporates now have added incentive
to ensure that their internal systems and controls are as robust and
effective as possible.
Elizabeth Robertson is a partner in the London office’s
Corporate Crime team. She has a wealth of experience in
business crime, regulatory and policy matters, regularly
representing clients facing prosecution by the SFO and the
Financial Conduct Authority.
Laura Atherton is a senior associate in the London office’s
Corporate Crime practice.
CONTACT
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Elizabeth Robertson
Laura Atherton
elizabeth.robertson@klgates.com
laura.atherton@klgates.com
K&L Gates: EUROPEAN REGULATORY WATCH
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The Commission wants to ensure that
the risks that may arise from individual
projects and cumulative developments are
managed adequately at Member State level.
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European Commission Recommends Minimum
Principles For Shale Gas
Vanessa Edwards , Tomasz Dobrowolski, and Zanda Misina
WHAT IS IT?
On 22 January 2014, the European Commission (“Commission”)
adopted a nonbinding recommendation on minimum principles
for the exploration and production of hydrocarbons (such as
shale gas) using high-volume hydraulic fracturing within the
EU (“Recommendation”). Recommendations cover mostly the
environmental aspects of such operations.
WHO IS AFFECTED?
Companies active or considering involvement in the exploration
and exploitation of shale gas in the EU. Possibly national
environmental regulators.
SUMMARY AND KEY IMPLICATIONS?
Initially, the Commission had planned to propose binding EU
legislation regulating shale gas companies. But strong lobbying
by the UK and Poland reportedly with the support of Hungary,
the Czech Republic, the Netherlands, and Romania, led to a
U-turn. The UK argued that existing rules were sufficient and
that new EU legislation—which could take up to three years
to negotiate and a further year to implement—would delay
investment and increase costs. The Commission, accordingly,
instead issued the Recommendation.
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The Recommendation, which is intended to complement existing
EU law, sets out common minimum principles which member states
should apply if they have chosen to explore or exploit shale gas.
Member states are however, still free to choose whether to allow or
prohibit exploration or producing of shale gas in their own territory.
1. Strong focus on environmental issues
In its Recommendation, the Commission
aims to ensure that climate and
environmental safeguards are in place
while contributing to enabling shale gas
activities in the EU. Some of the key
elements of the Recommendation that
would affect operators in the industry
include provisions inviting EU member
states to ensure that:
• A strategic environmental assessment
is prepared before a licence is granted,
in order to prevent, manage and
reduce the impact on, and risks for,
human health, and environment;
•A site-specific characterisation and risk assessment is carried
out to determine whether an area is suitable for safe and secure
exploration or exploitation of shale gas;
•A baseline study of water, air, and land is carried out before the
fracturing starts, to be used as a reference for
subsequent monitoring;
•Operators use best available techniques and good industry
practice to prevent, manage, and reduce the impacts and risks
associated with exploration or exploitation of shale gas;
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•Operators publicly disseminate information on the chemical
substances and volume of water that are intended to be, and are
finally, used; and
•Operators provide (before starting operations) sufficient
financial guarantees or equivalent to cover liability for potential
environmental damage.
While operators and potential operators
are assessing the implications of the
Recommendation, the Commission is
reviewing the current reference document
on extraction waste under directive
2006/21/EC (known as the “Mining Waste
Directive”). In particular, the Commission
is considering the management of waste
from fracturing shale gas and other
hydrocarbons in order to ensure that
waste is appropriately handled and the
risk of pollution is minimised.
2. Clearer guidelines for investors and
operators across EU
Out of the 28 member states, only a
few countries, such as the UK and Poland, have chosen to explore
or exploit share gas. In these countries, the Commission wants
to ensure that the risks that may arise from individual projects
and cumulative developments are managed adequately at the
member state level. Poland seems to take the view that its current
environmental legislation in force is already addressing most of the
issues covered by the Recommendation.
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In several other countries, such as France, Spain, and Bulgaria, the
risks associated with the high-volume hydraulic fracturing technique,
commonly referred to as “fracking”, have triggered concerns about
public health, safety of water resources, and other
environmental effects.
Member states having chosen to explore or exploit shale gas are
invited to implement the minimum principles by 28 July 2014 and
inform the Commission about adopted measures annually from
December 2014. The Commission will review the Recommendation’s
effectiveness in mid-2015 and determine whether it should be
updated or whether there it is necessary to propose binding
EU legislation.
While the Recommendation is nonbinding, it is expected that
member states permitting fracturing in their territories will implement
the Commission’s minimum principles. The Recommendation
invites member states to make regular reports in order to enable the
Commission to monitor and review implementation and assess the
need for legislation. This provides an incentive for member states
to comply with the nonbinding principles. Taking a convergent
approach will moreover level the playing field for operators and
improve investors’ confidence. The Recommendation provides
companies already active or planning to get involved in the
exploration and production of shale gas with a clear indication of
what to expect in addition to existing EU legislation applicable in
this sector.
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3. Improved transparency over shale exploration and production
Related to these recommendations, the Commission is taking
additional steps in order to ensure that information is open and
transparent to the public and that knowledge on unconventional
hydrocarbon extraction technologies is exchanged. These include:
•A proposal that the European Chemical Agency make certain
changes in the existing database of registered chemicals under
Regulation 1907/2006 (known as the “REACH Regulation”) so as
to improve and facilitate the search of information on registered
substances used in the fracturing process. The Commission will
consult stakeholders before making its proposal.
•Establishing a European Science and Technology Network
on unconventional hydrocarbon extraction, bringing together
practitioners from industry, research, academia, and civil society.
This network will collect, analyse, and review results of exploration
projects and assess the development of technologies used in
the industry.
CONCLUSION
The Recommendation is unlikely to directly affect the openness to
fracturing of member states that currently remain opposed, since
the choice is still a matter of national competence. It may, however,
indirectly shape public opinion since, if member states implement
and enforce the principles, this may provide some reassurance
regarding the potential health and environmental risks and
consequences of fracturing. The guiding framework provided will add
some additional “red tape” to shale gas exploration and exploitation
projects—such as the recommendation for an environmental impact
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assessment, currently required by EU legislation only where the
amount of gas extracted exceeds 500,000 m3. It has also bought
some time before more extensive and intrusive binding legislation,
and possibly averted such regulation altogether, at least for the
foreseeable future. Given that the Recommendation is not binding,
however, the detail of how fracturing will be regulated will depend on
whether and how it is implemented, and companies with interests in
a particular member state will be advised to follow how that member
state chooses to incorporate the principles in its rules, practices, and
enforcement priorities.
Vanessa Edwards is a partner in the firm’s EU regulatory
practice group in London and Brussels, with particular focus
on environmental and chemical regulation and on international
trade. Before joining the firm, Ms. Edwards spent 15 years
working at the Court of Justice of the EU.
Tomasz Dobrowolski is a partner in the K&L Gates
Warsaw office. His practice is focused on energy,
infrastructure, and international finance.
Zanda Misina is a trainee solicitor with the firm’s EU
regulatory practice in London and Brussels.
CONTACT
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Vanessa Edwards
Tomasz Dobrowolski
Zanda Misina
vanessa.edwards@klgates.com
tomasz.dobrowolski@klgates.com
zanda.misina@klgates.com
K&L Gates: EUROPEAN REGULATORY WATCH
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EUROPEAN REGULATORY WATCH
All of these sanctions are
capable of having serious
consequences for businesses
with operations in Russia.
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K&L Gates: EUROPEAN REGULATORY WATCH
European Union Considers Broad Economic
Sanctions Against Russia
Philip Torbøl and Alessandro Di Mario
WHAT IS IT?
On 2 March 2014, the Heads of State of the European Union asked
the European Commission to prepare proposals for broad economic
sanctions against Russia, as a consequence of Russia’s recent
actions in Ukraine and, in particular, towards Ukraine’s
Crimea province.
WHO IS AFFECTED?
Potentially any company with operations in Russia, or trading with
Russian partners, is at risk of seeing its business disrupted very
significantly, if not dramatically and in the long term.
SUMMARY AND KEY IMPLICATIONS?
The Governments of the European Union Member States have
already imposed an asset freeze and a travel ban on several
Ukrainian and Russian nationals. The listed individuals are accused
of a misappropriation of Ukrainian State funds, of the violation
of human rights and of the violation of Ukraine’s sovereignty. EU
countries (and the United States) are now considering targeting
economic entities with a much bigger impact on businesses than the
initial sanctions.
New punitive measures might include:
• freezing the funds and assets of specific companies—typically
public companies and/or companies owned or controlled by
individuals considered responsible for the Crimea conflict
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EUROPEAN REGULATORY WATCH
• a prohibition against providing any “economic advantage” to the
same listed companies
• a prohibition against providing goods and services to Russian
entities and individuals in certain industry sectors – typically
strategic sectors, for example the energy, chemicals or
defence sectors
• a prohibition against conducting any trade with Russia within the
same listed strategic sectors
• the restriction of money transfers to and from Russia, or involving
Russian banks
The above examples of restrictive measures have all in the past
been used by the EU against third countries. All of these sanctions
are capable of having serious consequences for businesses with
operations in Russia. It is therefore crucial and in the interest of all
players that potential sanctions are considered very carefully by the
European Union in order to ensure proportionality and efficiency
of those sanctions, and to avoid unintended consequences. This
situation provides a unique
opportunity for companies
to initiate a dialogue with the
European institutions, where
experiences and technical
knowledge are exchanged and
in turn taken into account when
drafting new sanctions.
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CONCLUSION
The current political crisis in Ukraine has reopened the debate on
the pros and cons of sanctions. The European institutions are well
aware of the potential impact of broad economic sanctions, given
the importance of Russia in the world economy, and are more than
ordinarily interested in listening to advice. This offers a unique
opportunity to companies who are willing and who understand how
to enter into a constructive dialogue with the objective to mitigate
potential negative effects of the future punitive measures. This
dialogue will not only be beneficial in relation to the present conflict,
but will have the potential to establish a lasting dialogue on the EU’s
sanctions policy between government and industry – something we
have not seen much of until now.
Philip Torbøl is a founding partner of the firm’s Brussels office.
His practice focuses on EU competition law and government
strategies. A former EU official, Mr. Torbøl has substantial
experience representing clients in strategic regulatory and
legislative processes before European institutions, including the
Commission, Parliament and Council.
Alessandro Di Mario is an Italian “avvocato” based in
the Brussels office of K&L Gates. He specialises in EU
constitutional, public policy and regulatory affairs
CONTACT
Philip Torbøl
Alessandro Di Mario
philip.torbol@klgates.com
alessandro.dimario@klgates.com
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