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On April 8, 2020, the Federal Trade Commission (FTC) published a blog post titled, “Using Artificial Intelligence and Algorithms,” that offers important lessons about the use of AI and algorithms in automated decision-making. The post begins by noting that headlines today tout rapid improvements in AI technology, and the use of more advanced AI has enormous potential to improve welfare and productivity. But more sophisticated AI also presents risks, such as the potential for unfair or discriminatory outcomes. This tension between benefits and risks is a particular concern in “Health AI,” and the tension will continue as AI technologies are deployed to tackle the current COVID-19 crisis.

The FTC post reminds companies that, while the sophistication of AI is new, automated decision-making is not, and the FTC has a long history of dealing with the challenges presented by the use of data and algorithms to make decisions about consumers.

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The Occupational Safety and Health Administration (OSHA) issued interim guidance for enforcing the recording of occupational illnesses requirements, specifically for cases of coronavirus (COVID-19). This guidance rescinds OSHA’s earlier guidance providing for enforcement discretion on COVID-19 complaints arising outside of healthcare or emergency response employers. As of May 26, 2020, and until further notice, OSHA will be enforcing the recordkeeping requirements for employee COVID-19 illnesses for all employers.

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Federal authorities continue to prioritize and aggressively pursue individuals across the country who seek to exploit coronavirus relief programs meant to aid small businesses and their employees. Over the past week, Muge Ma of New York and Samuel Yates of Texas were arrested, each for submitting multiple fraudulent applications for COVID-19 relief through the Paycheck Protection Program (PPP). Both men obtained loan proceeds before their schemes were uncovered.

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On May 18, 2020, the Small Business Administration (SBA) released a new interim final rule addressing the confusion raised by the SBA’s FAQ 44 on how PPP applicants are to count employees of foreign and U.S. affiliates for purposes of determining eligibility against the 500 or fewer employee size standard provided for in the CARES Act.

The SBA posted an interim final rule on April 3, 2020 that stated that applicants are generally eligible for the PPP if the applicant, combined with its affiliates, has 500 or fewer employees whose principal place of residence is in the United States. In light of this and other consistent statements, many calculated their eligibility based on whether the applicant alone (i.e., if it had no affiliates) or the applicant and any affiliates (whether domestic and/or foreign) had 500 or fewer employees whose principal place of residence is in the United States. As we previously noted, this understanding was called into question when the SBA posted FAQ 44 on May 5, 2020, stating that “an applicant must count all of its employees and the employees of its U.S. and foreign affiliates.”

Now in this new interim final rule, the SBA provides that PPP applicants must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity, to determine eligibility against a 500-employee or other applicable PPP size standard. Read in conjunction with FAQ 44, any entity that has yet to submit its PPP application would be well-advised to count all of its own employees as well as all of the employees of its U.S. and foreign affiliates when determining its eligibility against a 500-employee or other applicable PPP size standard.

For those applicants who submitted PPP applications prior to May 5, 2020 in reliance on prior guidance, there is a silver lining. The SBA has stated that it will not find any entity that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the exclusion of non-U.S. employees from the applicant’s calculation of its employee headcount if the applicant, together with its affiliates, had no more than 500 employees whose principal place of residence is in the United States. Per the SBA, “[s]uch borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis.” (The SBA has reiterated that under no circumstances may PPP funds be used to support non-U.S. workers or operations.)

What this new interim final rule does not expressly address is what headcount methodology applies for an applicant that has no affiliates—leaving open the question of whether such an applicant by itself is allowed to count merely its employees whose principal place of residence is in the United States or whether it must count all of its employees. Crowell & Moring will continue to monitor and provide updates regarding developments in the PPP.

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Yesterday evening, May 18, Defense Pricing and Contracting issued draft instructions and requirements for contractors submitting Section 3610 reimbursement requests. Comments from industry are welcome by emailing osd.dfars@mail.mil before 5pm ET on Friday, May 22, 2020.

The draft instruction requires significant information from contractors. The required information falls into these general categories: detail about requested reimbursement; information about the contractor’s rates billed to the government and a variety of information to substantiate that rate; and, information about potential credits or reductions. Individuals at the Vice President level and above within the organization will be required to sign Section 3610 reimbursement requests.

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On May 15, 2020, the Small Business Administration (SBA) released the Paycheck Protection Program Loan Forgiveness Application which is comprised of a PPP Loan Forgiveness Calculation Form (SBA Form 3508), including related certifications, and worksheets to assist in making the calculations. Although the SBA has yet to release further guidance on PPP Loan forgiveness, the Loan Forgiveness Application does provide some guidance on elements of forgiveness that were not clear from either the text of the Cares Act, or the SBA’s Interim Final Rules and FAQs. However, the complexity of the application and the onerous submission requirements present challenges for small businesses and create a further need for guidance and legal/accounting support.

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On May 14, the President issued an Executive Order (EO) delegating funding and loan authority under Title III of the Defense Production Act (DPA) to the U.S. International Development Finance Corporation (DFC) to support domestic production of strategic resources to respond to the COVID-19 outbreak and strengthen domestic supply chains. The DFC’s loan authority under the EO is limited to loans that “create, maintain, protect, expand, or restore domestic industrial base capabilities” supporting “the national response and recovery to the COVID-19 outbreak” or “the resiliency of any relevant domestic supply chains.” Thus, while Congress established the DFC in 2018 to foster America’s investment in overseas development projects, the DFC now is expected to establish a separate investment team to, among other responsibilities, administer loans for this domestic support and to issue new implementing regulations.

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Yesterday we reported on the publication of FAQ 46 by the Small Business Administration (SBA) regarding the economic necessity certification contained in the Paycheck Protection Program (PPP) application and that the safe harbor deadline of May 14, 2020 remained in place. Late last night though, the SBA issued FAQ 47 in which it automatically extended the safe harbor deadline to May 18, 2020 for borrowers to return their PPP loan and still be deemed by the SBA to have made the necessity certification in good faith.

Yesterday, the SBA also issued an interim final rule authorizing all lenders to increase existing PPP loans to partnerships and seasonal employers who applied before SBA guidance specific to their type of business had been issued and, as a result, received lower loan amounts than they would have ultimately been entitled to. By this rule, lenders may now (1) increase existing PPP loans to partnerships to cover partner compensation in accordance with the SBA’s interim final rule posted on April 14, 2020, and (2) permit seasonal employers to calculate a maximum loan amount using the alternative criteria posted in an interim final rule on April 28, 2020.

Crowell & Moring will continue to monitor and provide updates regarding developments in the PPP.

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On May 13, 2020, the Federal Emergency Management Agency (FEMA) will publish an interim final rule establishing the Emergency Management Priorities and Allocation System (EMPAS) pursuant to Title I of the Defense Production Act (DPA). As drafted, EMPAS will apply beyond the current COVID-19 context and will become part of the Federal Priority and Allocations System (which includes, for example, the Defense Priorities and Allocation System (DPAS) and the Health Resources Priority and Allocations System (HRPAS)). Although largely similar to the DPAS and HRPAS, EMPAS also provides express authorization to issue rated orders to facilitate sales of health and medical resources to third parties while simultaneously rejecting any government financial liability for such orders (44 C.F.R. § 333.12(c) and 333.19). EMPAS is effective immediately upon publication, and comments on the interim final rule will be accepted through June 12, 2020.

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The Justice Department filed the first of likely many criminal charges related to the coronavirus stimulus Paycheck Protection Program (PPP), the $660 billion taxpayer fund to provide largely forgivable loans to small businesses suffering under the strain of the pandemic.

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