Ssn spring '18 final

Volume 15, Issue 1

spring 2018

Security Shredding News Serving the Security Shredding & Records Storage Markets

Visit us online at www.SecurityShreddingNews.com

How Will Tax Reform Impact Your Business?

By Ken McEntee

S

ome provisions of the new federal tax law signed by President Donald Trump on December 22 provided an early Christmas present to many businesses.

The impacts of other parts of the new law, however, may not be as simple as general media sound bites imply, cautions CPA Jim Gero, comanaging partner of Hobe & Lucas, a Clevelandbased accounting firm.

“Whether some of the new rules are going to help your business has to be judged on a case by case basis,” Gero said. “A lot of it is still pretty complicated. In fact, we’re in the middle of March (March 17 - two days after the filing deadline for federal business taxes) and there is still a lack of clarity about some of these rules.”

What is certain, Gero agreed, is that revised depreciation laws are very beneficial for businesses that are looking to invest in new equipment - such as shredders and mobile shredding trucks.

Doug Knisely, owner of Knisely Shredding, an LLC based in Lock Haven, Pa., said he has already taken advantage of an increased deduction for bonus depreciation. The new rule covers equipment placed into service after September 27, 2017.

“One of the reasons I bought my new Ford truck in December was because of the depreciation benefit,” Knisely said. “If I need to deduct the full expense in the first year for a tax benefit I can do it, but I don’t have to.”

Along with improved depreciation allowances, the tax reform lowers tax rates for some C corporations and offers a tax deduction of up to 20 percent to some owners of pass-through entities, such as LLCs and S corporations.

In the opinion of Bob Johnson, executive director of the National Association for Information Destruction (NAID), of Phoenix, every bit of tax savings is helpful for businesses.

“The 20 percent credit for pass-throughs is a nice thing,” Johnson said. “For small businesses in a competitive marketplace, anything that can enhance the economic welfare of the owner is a Godsend. Our members have rolling stock, so things like bonus depreciation are going to be beneficial in helping them to invest in more equipment like mobile shredding vehicles.”

Here’s a look at the provisions of the 2017 tax act that are likely to impact businesses in the document shredding industry.

Reduced rate for C corps

he “reduction” in the corporate tax rate to T a flat 21 percent has been well documented in the media. But it may not be a reduction for all companies, Gero said.

“It’s good for big companies,” he said. “The breakeven point is around $90,000. If your taxable income is less than that, you’re going to pay more taxes under the new rules.”

That’s because under the old plan, the first $50,000 in taxable income was taxed at 15 percent. The next $25,000 was taxed at 25 percent, and the rate increased gradually from there. So with taxable income under $90,000, a corporation was probably paying taxes at below 21 percent.

However, Gero noted, “most businesses that are earning under $90,000 are probably S Corps and LLCs, rather than C corporations.”

Cash vs. accrual accounting

ero said a major win for businesses, which G hasn’t received much play in the mainstream media, is an increase in the income threshold under which a business can elect to use the cash basis of accounting. Previously, corporations with more than $5 million in revenue - averaged over the past three years - had to use the accrual method of accounting. That threshold has been

lifted to $25 million.

Gero said the difference is significant in terms of cash flow.

For example, suppose a business makes a sale in one year, but doesn’t get paid until the following year. Under the accrual method, taxes must be paid during the year in which the sale is made. Under the cash method taxes aren’t due until the year the company actually receives the revenue.

“The benefit is you are paying the tax when you have the cash to pay it,” Gero said. “It can make a huge difference in a company’s cash flow and its ability to control income by offsetting income by purchasing supplies or something like that.”

Bonus depreciation

h e i n c re a s e d a l l owa n c e fo r b o nu s T depreciation, Gero said, is probably the biggest win for most businesses. An increased deduction for “Section 179” depreciation is also significant. The difference between the two can be confusing.

Briefly, when a business buys equipment, machinery or other property, the cost of that purchase, for tax purposes, is deducted, or depreciated over the expected life of the equipment. Bonus depreciation allows a portion of qualified equipment and machinery to be immediately deducted in the year it is placed into service, allowing a larger offset against taxable Continued on page 3

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Security Shredding News

How Will Tax Reform Impact Your Business?

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Continued from page 1 income. Until now, the rules allowed for a 50 percent bonus depreciation, with the other 50 percent of the asset’s value being depreciated over time.

The new rules allow the full 100 percent of the cost to be deducted on equipment placed into service after September 27, 2017, and they now include used equipment purchases.

“I have a client who bought a $500,000 machine and placed it into service in October,” Gero said. “He is eligible for a half million dollar deduction for 2017, and because he financed a large portion of it, he’ll be paying for it in future years. Plus, his deduction was off the higher tax rates than he will have this year.”

The 100 percent bonus depreciation will be available through 2022, after which it begins phasing out by 20 percent per year until it is completely phased out in 2027.

Section 179 depreciation also allows a business to fully deduct the cost of qualified equipment and machinery during the year it is placed into service. In the new tax plan, the maximum Section 179 deduction has been raised from $500,000 to $1 million. The new law is expanded to include certain improvements to non-residential real property, such as roofs, HVAC and other improvements.

Also, Gero said, the deduction limit for luxury automobiles has been raised from $3,160 to $10,000.

through if their income is under $157,500. Above that, the 20 percent credit gradually lowers and completely phases out at $207,500. For married owners filing a joint return, the limit is $315,000 and completely phases out at $415,000.”

Things can get complicated, Gero said, when a person owns multiple pass-through entities.

“What if you own more than one entity and you have a loss on one entity and income on the other?” he said. “There are no regulations in place at this time and that’s a problem because it’s already March and people want to know how to structure or restructure their businesses.”

Alternative minimum tax

Explore your options

M

uch has been written about the elimination of the corporate alternative minimum tax (AMT). The bad news, Gero said, is that the new law limits the past-year losses that can be used to offset future taxable income to 80 percent after 2018.

“It’s ironic that they eliminated the AMT for corporations, but are restricting the losses that a business can carry over,” Gero said. “It kind of washes out. If you have taxable income in the following year, you’re going to be paying taxes on something instead of potentially getting a 100 percent loss write-off.”

Pass through entities

ike the elimination of the AMT, the 20 percent credit on taxable income that passes L through to owners of LLCs, S corporations and other pass-through entities has been widely reported in the media. But not everybody will qualify for the credit, Gero cautioned.

“There are income limits on the 20 percent credit,” he said. “If the owner of the business files as a single person, he or she can deduct the full 20 percent of qualified business income from a pass-

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No more entertainment expenses

hat happens in Vegas stays in Vegas, and that now includes the money you spend W schmoozing your customers.

Under the new tax plan, entertainment expenses are no longer deductible, and the deductibility of meals is still being debated, Gero said.

“So far it seems that the business meals will still be 50 percent deductible,” he said. “But the deduction for Cavs tickets or a round of golf are gone. There has always been a question as to whether entertainment is a necessary business expense, and now this has eliminated the judgement call.”

T

he new “simpler” tax law may not be a lot simpler than before, but it does offer some major incentives to make capital investments to grow your business. Gero said because many of the new provisions will impact each business differently, it’s important to consult with your accountant and tax attorney to be sure you derive the greatest possible tax benefits.

“The new rules are going to be beneficial to small businesses like our members,” Johnson said. “But the other part of this is that the businesses that they serve also are going to benefit from reduced taxes. A prosperous economy that is bolstered by these tax benefits helps everybody prosper and hire more people, which also results in more opportunities for our members to grow.

Every service provider owes it to themselves to make sure they are exploring all the angles by which they can capitalize.”

Ken McEntee is the publisher and editor of The Paper Stock Report, providing market intelligence for the paper recycling industry. Visit paperstockreport.com.

PUBLICATION STAFF Publisher / Editor Rick Downing Contributing Editors / Writers Bernie Lee • Ken McEntee Adam Minter • Sumaya M. Noush Sandy Woodthorpe Production / Layout Barb Fontanelle • Christine Mantush Advertising Sales Rick Downing Subscription / Circulation Donna Downing Editorial, Circulation & Advertising Office 6075 Hopkins Rd., Mentor, OH 44060 Ph: 440-257-6453 • Fax: 440-257-6459 Email: downassoc2@oh.rr.com www.securityshreddingnews.com For subscription information, please call 440-257-6453 Security Shredding News (ISSN #15498654) is published bimonthly by Downing & Associates. Reproductions or transmission of Security Shredding News, in whole or in part, without written permission of the publisher is prohibited.

Annual subscription rate U.S. is $19.95.

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Contact our main office, or mail-in the subscription form with payment.

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3

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RISI’s recycled fiber conference in Chengdu, China, examined the likely effects of Chinese environmental and import regulations that are shrinking the Chinese market for recovered paper, leaving the mixed paper picture especially uncertain.

By Bernie Lee and Adam Minter

A

t least 180 people representing 120 paper recyclers, traders, mills, packaging companies, and brands from 30 countries packed into a tight conference room at the JW Marriott in Chengdu, China, recently, for the opening session of the RISI International Recycled Fiber and Containerboard Conference. Organizers from RISI (Bedford, Mass.) reported that demand was so strong—and space was so limited—they had to close registration weeks earlier. Nobody at the 2017 conference was surprised by the attendance. For months, the recycled fiber industry had been fixated on China’s announced ban on imports of certain grades of mixed paper and postconsumer plastic—and the volatility the announcement had created. Many in attendance viewed the conference, featuring analysts and market participants from China and the rest of the world, as a chance to get some clarity on the issue before the ban went into effect.

Policies force mill consolidation

T

he conference opened with Levi Li, managing director of RISI China (Shanghai), cautioning that “news about a policy can bring a bigger impact than the policy itself.” And if there was a consistent theme during the forum, it was that factors in addition to the import bans are contributing to the volatility in recovered paper markets.

The first factor is China’s longstanding desire to consolidate its heavy industries into large conglomerates to reduce “disorderly” competition and make the industries easier to regulate. Zhou Haichen, chief analyst for light industry and papermaking at SWS Research (Shanghai), referred to the effort as “supply-side reform,” noting that the country has made particular progress in consolidating heavy industries such as steel and mining. Accompanying this consolidation—initially, at least— are capacity reductions. In China’s papermaking industry, the closure of smaller plants eliminated roughly 30 million mt of outdated capacity

4 Security Shredding News Spring 2018

during the five-year plan that ended in 2015. One policy proposal would give the top 100 Chinese paper manufacturers a 40- to 50-percent market share within three years.

This consolidation process has already started, with environmental regulation being the tool of choice to achieve it. Root Li, general manager of Sichuan F. Source Paper Co. (Jinyuan, China), a large mill, described how this happens: “Environmental regulators will ask you to cut down your capacity to lower pollution,” he noted. “In Fuyang [a major eastern China papermaking city], they will restrict your output to meet energy emission targets.” Companies that can’t shoulder the cost of operating at a lower production level close, he said.

Burdens on smaller paper companies are unlikely to let up in 2018, speakers said. The policy proposal likely to have the greatest impact will restrict recovered paper import permits to papermaking companies with output capacity exceeding 300,000 mt a year. According to Tang Yanju, secretary general of the Recovered Paper Branch of the China Resource Recycling Association (Beijing), 179 companies in China can reach this threshold—a small proportion of China’s overall papermaking industry.

It’s possible, she said, that the government will lower that 300,000 mt threshold, but she dismissed an audience question about lowering it to 100,000 mt—that level would allow 90 percent of Chinese papermaking companies to import, she noted.

That’s not the only policy likely to affect the number and competitiveness of China’s smaller mills. According to Zhou of SWS Research, China plans to prohibit mills that lack their own power plants from receiving a new quota to import recovered paper. In the long term, such a policy would be doing the mills a favor, he said. China’s general electricity rates are much higher than what a mill might expect to pay to generate its own electricity. “[With] no power plant, you’ll have production problems in the future,” he said.

Tang noted another policy change likely to further upend China’s recovered paper market: “If, within the last year, you’ve received a notice of infraction from the environmental authorities, you can’t import paper for a year.” That restriction has run up against a complicated reality, she said. “This year, a lot of companies received penalties because there’s been an uptick in monitoring and enforcement.” The government shows no sign of backing off, either, despite CRRA’s appeals, she added. “They say no, there’s no gray area. If you have an infraction, there’s no further negotiation, you can’t even appeal, and even if you appeal there will be no change in decision.”

Despite this inflexibility on infractions, the government remains flexible—within a limited range—on the contamination it will allow in mixed paper imported into China, Tang said. “0.3 percent, 0.5 percent could be upgraded a little,” she said, referring to proposed contamination limits. “Lots of mills are talking directly to the Ministry of the Environment. [Ministry officials] listen to mills and companies, and they’re hoping for more discussion.” She was quite clear that the goal of reducing contamination will remain because “contamination was too high.” But as a pragmatic matter, she noted, “China is short of resources, and it needs overseas ones.” How the country resolves those two imperatives remains an open question.

Chinese paper industry consolidation seems likely to continue, with impacts all the way down the supply chain. Outside the doors of the JW Marriott, scrap peddlers were busy bundling cardboard they had collected from the many shopping malls in the area. Tang made a point of declaring the end of such endeavors. “Individual street vendors will be eliminated,” she said. In their place will be professional recycling companies with recycling licenses. One benefit of this consolidated future, she said, is that companies who belong to it “can control the prices.”

By way of example, she noted that peddlers, despite stiff competition with each other, earn 1.1 to 1.2 yuan (17 to 18 cents) a kilogram for paper they collect in cities. Big recyclers, working collectively, would offer a better deal to the mills because they could drive down that price to 0.5 to 0.6 yuan (8 to 9 cents) a kilogram. “They can collectively lock onto a price and prevent the bad influence of the market,” Tang said. To further advance this development, municipal governments will establish recycler “white lists” and offer policy support to entities on the list, she said.

Continued on next page

Security Shredding News Continued from previous page

China’s imports likely to decline

S

peakers suggested China’s new policies are likely to massively accelerate a downward trend in the country’s recovered paper imports that started about eight years ago. China’s recovered paper imports have fallen an average of 1.9 percent annually since 2009, and that parallels the decline in China’s use of recovered paper in paper production, said Echo Xu, a recovered paper analyst at UM Paper (Shanghai), now a RISI subsidiary. In 2005, China based 36 percent of its paper production on recovered fiber. At current rates of decline, recovered fiber will be less than 30 percent of its paper production by 2020. “And if policy is more strict, it drops more,” Xu added.

In part, the decline of recovered paper imports is a result of China’s growing volume of domestic fiber. Between 2004 and 2016, domestic fiber went from meeting less than 10 percent of China’s pulping needs to 30 percent. Xu is skeptical that the country can sustain that growth rate, however. China already recovers 70 percent of its paper nationwide, she said, and as much as 80 percent in the economically dynamic coastal regions. “There are no breakthroughs on the horizon that will allow greater collections,” she said. But that has not dissuaded the government from a long-term program to further restrict imports. In fact, Xu mentioned a “vague” government policy in the works that will restrict imports of all recovered paper grades that China can replace domestically. By 2020, if all imports are restricted, China will need to grow its domestic collections 60 percent annually, she pointed out, “and that’s not going to happen.”

If Chinese domestic OCC prices remain high, she added, mills might have to add deinking fiber and other pulp substitutes to the mix to meet their fiber demand, especially if the estimate of 87 million mt of annual domestic containerboard consumption by 2021 is on target.

China’s policy moves leave two lingering questions: How big of a hole in supply are the import restrictions creating, and how will mills fill that hole? Xu estimates that the import restrictions will leave China in need of 5 million mt of recovered paper, and replacing that volume could actually exacerbate China’s environmental issues. “China’s domestic fiber is inferior to U.S. fiber, and strengthening it with chemical additives leads to environmental problems,” she said. That leaves Chinese mills looking to the international markets to meet their pulp and paper needs. As the mills explore these options, prices for their products are likely to rise.

Candy Chen, general manager of trading firm Vecycle (Hong Kong), said she is “concerned about the impact on the Chinese paper industry” of such policies and prices, which she believes will damage its competitiveness. But CRRA’s Tang said she believes mills will shift the higher costs of fiber onto other players in the supply chain. “Chinese companies will charge a bit more and then transfer the costs to the packaging companies and then the consumers.”

Despite these concerns about supply, consolidation, and competitiveness, the Chinese speakers agreed that the health of the Chinese paper business, and the allure of it, remain strong. Tang noted, for example, that 20 paper mills likely went bankrupt in 2017, but another 70 to 80 opened, attracted by the opportunity of historically high prices for paper and packaging and the niches that volatility offers nimble players.

www.youtube.com/user/KeithMfgCo

Chinese policies’ global impact

C

hina’s market influence will continue to drive the global paper industry, especially in Asia, the speakers said. Fiber costs are the lion’s share of Asian containerboard production costs, followed by labor. China’s labor costs have generally risen over the last decade, but the country still has a massive labor-cost advantage in global paper production, said Sampsa Veijalainen, RISI’s senior product manager for mill intelligence. Asia’s paper production will continue to rely primarily on recycled fiber, he pointed out. Only 20 percent of global paper production capacity uses virgin fiber, he said, and nearly half of that capacity is in North America.

While the Japanese market is more self-contained than other Asian paper markets, the South Korean market exhibits extreme price sensitivity

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Continued on page 6

Security Shredding News Spring 2018

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Security Shredding News

Volatile Paper Markets Ahead

Continued from page 5

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to volatile Chinese demand. A buyer from a South Korean paper mill who attended the conference said he has seen mixed paper prices drop enough that the company is considering whether to begin importing U.S. mixed paper. At the same time, he is wary of the Chinese government reversing some of these policies, which could lead mixed paper prices to rise higher than the company’s margins can handle.

Recovered paper buyers and sellers said they worry about the lack of price stability, which they need for long-term business relationships with end-use consumers. During a panel discussion on the conference’s last morning, two Chinese end-use consumers of paper packaging indicated they’re already exploring alternative packaging materials such as wood, aluminum, and plastics. Environmental concerns have even pushed them to explore whether a circular, reusable packaging system could work to uncouple the business-to-business transportation of goods from the market volatility they’re currently experiencing. In the lobby outside the conference hall, paper packaging consumers were adamant that they are not willing to aid the paper packaging manufacturers by lobbying on their behalf.

The economic question Tang and many of the Chinese analysts, buyers, and sellers seem to be struggling with is how quickly the market will react to a new price norm. An analyst for a European broker and packaging producer remarked that since the policy environment has been filled with vague and ominous announcements, it’s all but impossible to stabilize buying patterns to maintain better pricing. The sudden spikes and drops in prices are requiring purchasing managers to focus further up and down the supply chain.

For speakers who work in regions and companies that traditionally supply China, the mood was not optimistic. Bill Moore, president of Moore & Associates (Atlanta), bluntly asserted that neither Europe or the United States is capable of meeting China’s proposed 0.3-percent contamination limit, and those recyclers would have difficulty meeting any limit below 2 percent. He expects China’s policies will lead to a “collapse” in U.S. and UK (and, to a lesser extent, EU) residential recycling programs. Eventually, he expects the low prices that are likely to result from the glut of mixed paper that previously went to China will spur U.S. mill owners to look at mixed paper as a feedstock and invest in the necessary upgrades to process it. “But we’re going to have a rocky one to two years in the mixed paper markets,” he predicted Dan Cotter, vice president for recovered paper sales to China and other Southeast Asian countries at CellMark (Gothenberg, Sweden), a major exporter of paper to China, said mixed paper formerly bound for China is flowing to other markets “and crashing prices worldwide.” That’s been good for buyers, he explained, but not for CellMark’s suppliers. The ultimate solution, Cotter suggested, might be an allowed contamination level “that isn’t published” but which allows material to flow into China.

“In the past, that’s what happened in China,” he said, admitting “it might have caused some abuses.”

Setting sights on India

I www.paperstockreport.com

ken@paperstockreport.com

6 Security Shredding News Spring 2018

n the absence of any immediate Chinese or generator-based solutions to the changing Chinese policy picture, paper recyclers and traders are looking at alternative markets for recovered paper. The Indian market is perhaps the most tantalizing. P.R. Ray of Esskay Impex (Kolkata), who has been active in the Indian paper industry for nearly a half century, outlined the scope of that opportunity in a candid speech that he opened by lamenting the poor quality of Indian industry data. Nonetheless, he was able to describe a modest but growing papermaking industry that had—as of 2016—more than 15 million mt of installed capacity and 14 million mt of production. That year it imported nearly 2 million mt of fiber, mostly newsprint, to help fulfill the large and growing demand for printed newspapers in the country. Currently 45 percent of India’s fiber use in paper production is recovered fiber, he said.

Continued on next page

Security Shredding News Continued from previous page Though the Indian government reports India’s papermaking industry is growing 7.5 to 8 percent annually, Ray believes a more realistic figure is 4.5 to 5 percent, based on central bank and statistical bureau data. Under that scenario, he believes that India’s production volume should reach nearly 22 million mt by 2026. Though India’s virgin fiber mills have a steady source of domestic pulp, it will be difficult for them to grow, he said, because of India’s growing population, receding forests, and increasing demand for agricultural cash crops. As a result, he said, he believes “the road for Indian paper’s growth is through recovered paper.”

India’s leading sources of recovered paper are the United States, supplying 43 percent of its imports, and the Middle East, supplying 22 percent. The former, he noted, supplies India with high-quality fiber that simply isn’t available domestically. With 4.8- to 5-percent domestic consumption growth, he projects that India’s recovered paper needs will hit more than 14 million mt by 2026, with domestic sources providing about 9 million mt, or 62 percent of it.

Ray also said he expects recovered fiber to be the primary source of high-quality fiber for the Indian paper market. Raw material use statistics he presented show at least 33 percent of the virgin pulp used in Indian paper production consists of non-wood-based fibers.

The wide diversity of languages, and the many newspapers that serve communities speaking those languages, result in a high demand for news grades and mechanically pulped fiber, he noted. But most mills consuming recovered paper use high-grade deinking bales, not the grades of recovered paper that will be seeking new markets as China’s policy changes take effect.

Canadian Government Balks at US Import Duty on Paper

W

ashington, D.C. – In January, U.S. Secretary of Commerce Wilbur Ross announced the intent to levy an import duty on uncoated groundwood paper from Canada.

In 2016, imports of uncoated groundwood paper from Canada were valued at an estimated $1.27 billion. The U.S. Commerce Department’s preliminary determination of the countervailing duty (CVD) on Canada stems from an investigation urged by North Pacific Paper Company of Washington State.

With countervailable subsidies ranging from 4.42 to 9.93 percent, the intent of the duty is to ensure groundwood paper prices are affordable for domestic consumers. The determination authorizes the U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of uncoated groundwood paper from Canada based on these preliminary rates.

Secretary Ross is scheduled to announce the final CVD determination on or about May 22, 2018. If Commerce makes an affirmative final determination and the U.S. International Trade Commission (ITC) makes an affirmative final injury determination, Commerce will issue a CVD order.

If Commerce makes a negative final determination or the ITC makes a negative final determination of injury, the investigation will be terminated, and no order will be issued.

Canadian government officials warned that the direct and negative impact on US newspapers, especially those in small cities and towns, and result in job losses in the American printing sector.

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Bernie Lee is ISRI’s research analyst for commodities. Adam Minter is a freelance writer based in Kuala Lumpur, Malaysia. This article originally appeared in Scrap’s Jan/Feb 2018 issue. Reprinted with permission.

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Security Shredding News

NAID 2018 General Election Results

NAID-Canada Testimony Leads to Government Action

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“I

ith the general election for the open seats in the 2018 NAID Board of Directors concluding Friday, February 23, the association is proud to announce the following persons have been elected serve: • President-Elect: Pat DeVries of DeVries Business Services • Secretary: Don Gerard,

CSDS of Land Shark Shredding • Director: Brian Connelly

of All Points Mobile Shredding In extending his well-wishes to the successful candidates, NAID President Eric Haas of A.R.M.S. Inc. took the time to recognize the contribution of all those who competed.

“We congratulate those who were elected to the board,” said Haas. “NAID will benefit greatly from their input and guidance. But, we also owe a great debt to all those who ran in this election. Their willingness to serve is a testimony to their dedication to the industry, and we are going to make sure to put that enthusiasm to work.”

Elections for the three region-specific directors (Europe, Canada, and ANZ) will be held in the coming weeks, as will the election for the director’s seat reserved for the maximum dues paying members.

The 2018 NAID Board of Directors will be installed at the annual business meeting held on April 14 at the NAID 2018 Conference and Expo.

Canadian Survey Reveals Increasing Concerns About Identity Theft

A

ccording to a phone survey commissioned by the Chartered Professional Accountants of Canada (CPA Canada), about four in 10 of respondents (39 percent) say they fear their personal information has been compromised.

More than seven-in-ten (71 per cent) of those surveyed agreed that they are concerned about identity theft, up from 66 per cent last year. Roughly three quarters of the respondents (76 per cent) fear Canadian businesses are vulnerable to cyber-attacks regarding their personal data, compared to 73 per cent in 2017. What’s more, fewer respondents (68 percent) believe Canadian businesses are doing the best they can to safeguard the personal information of customers, down from 72 percent last year.

The survey found that 68 percent of the respondents believe electronic payment methods, such as tapping debit and credit cards or using smartphone apps, facilitate fraudulent activities. Forty percent of survey participants report feeling uncomfortable buying online.

Thirty-five percent of respondents report being a victim of financial fraud at some point in their lives, basically unchanged from last year. Credit card fraud (75 percent) and debit card fraud (24 percent) remain the top two listed in terms of the types cited.

The 2018 CPA Canada Fraud Survey was conducted

by Nielsen via telephone between February 7 and February 18, 2018. The survey used a national random sample of 1,000 adult Canadians aged 18 years and over.

t’s what associations are supposed to do,” says NAID CEO Bob Johnson. “We keep pushing the message and eventually it pays off.”

Johnson comments come on learning that testimony given by NAID-Canada during the government’s period review of the country’s data protection law led to an official recommendation to add new data destruction requirements.

In testimony given last September, NAID-Canada Chair, Kristjan Backman, pressed the Canadian Access to Information, Privacy and Ethics Committee to recommend inserting stronger and clearer direction on data destruction in the Personal Information Protection and Electronic Document Act (PIPEDA).

While the association has called for such changes for more than a decade, it seems the renewed concerned raised by continued disposal malfeasance and the development of stronger laws elsewhere have made legislators more receptive to the need. Among the committee’s recommendations just released is one stating…

Recommendation #13: That the Government of Canada consider amending the Personal Information Protection and Electronic Documents Act to strengthen and clarify organizations’ obligations with respect to the destruction of personal information.”

The committee’s report attributing the recommendation directly to Backman’s testimony: “Another privacy protection concern raised in the study is PIPEDA’s lack of clarity regarding how information – whether on paper or electronic – should be destroyed.

According to Mr. Backman of NAID, this aspect of privacy protection is often overlooked: “Far too often little attention is paid to the end of a document’s lifecycle. We see evidence of this on almost a daily basis in the media, with reports of information being left intact and publicly accessible in dumpsters, recycling bins, and discarded electronic devices sent for reuse and recycling.”

In addition to its ongoing campaign for clear data destruction requirements within PIPEDA, NAID-Canada has also been a strong proponent of more aggressive enforcement, which it considers equally important. Fortunately, the committee concurred.

Recommendation #15: The Personal Information Protection and Electronic Documents Act be amended to give the Privacy Commissioner enforcement powers, including the power to make orders and impose fines for non-compliance.

Of course, this is not the end of it. While obtaining the committee’s recommendations are an important step, the job is not over until they have been translated into the revised law. NAID-Canada will stay on it. As demonstrated by this success, persistence pays off.

When in Doubt, Shred: PHI Found in Hospital Recycling Bins

T

oronto, Canada – Doctors’ offices and hospitals should be more careful about the papers they toss into recycling bins, concludes a research letter published at jamanetwork.com.

In a study led by Dr. Nancy Baxter, chief of general surgery at St. Michael’s Hospital, a team of researchers dressed as custodial staff and rifled through recycling bins. The amount of personally identifiable information (PII) and patient health information (PHI) they found was not great, but it was enough to cause concern and raise awareness among healthcare providers.

After collecting 591.6 kilograms of recycled papers from emergency departments, intensive care units, hospital clinics and physician offices, the team evaluated the sensitivity of the documents. They counted 2,687 documents containing personal information that should have been shredded, based on amount and sensitivity of data (including patient identification, diagnosis, medical notes and prescriptions). The half tonne of paper included 802 documents with low sensitivity, 843 with medium, and 1,042 with high sensitivity.

Though sensitive documents were found in recycling bins of all areas of all five hospitals, most of the items --1,449 of them -- came from physicians’ offices.

Though the study looked only at five hospitals, Dr. Baxter says this issue is likely the same at others – or at any place that prints off the personal information of patients or clients.

Ontario’s privacy commissioner, who reviewed the study, noted that despite the move to electronic medical records, paper medical records continue to exist and need to be disposed of securely. He suggested healthcare providers adopt a “shred all” policy for any documents containing confidential information.

Security Shredding News Spring 2018

9

Security Shredding News

Involuntary Dissolution Does Not Absolve Business Associate of HIPAA Obligations

By Sumaya M. Noush

A

receiver appointed to liquidate the assets of Filefax, Inc. has agreed to pay $100,000 to the U.S. Department of Health and Human Services (HHS), Office for Civil Rights (OCR) in a nofault settlement regarding potential violations of the Health Insurance Portability and Accountability Act (HIPAA).

Filefax, an entity involuntarily dissolved by the Illinois Secretary of State in August 2017, previously provided services to HIPAA covered entities, including storage, maintenance, and delivery of medical records.

On February 10, 2015, OCR received an anonymous complaint alleging that an individual had transported medical records obtained from Filefax to a shredding and recycling facility to sell on February 6 and 9, 2015.

OCR investigated the matter and confirmed that an individual had left medical records that contained the protected health information (PHI) of approximately 2,150 patients at the shredding and recycling facility. OCR’s investigation indicated that Filefax had either left the PHI in an unlocked truck in its parking lot or granted permission to an unauthorized person to remove the PHI from Filefax, and left the PHI unsecured outside of the Filefax facility.

In addition to making the forfeiture payment, the receiver must also take all necessary steps to comply with a Corrective Action Plan (CAP) that was required by the OCR as part of the settlement. Under the CAP, the receiver will formulate a plan to properly dispose the remaining medical records in a Records Disposition Plan and seek authorization from the Circuit Court of Cook County, Illinois that appointed the receiver to implement the Records Disposition Plan. Prior to presenting the Records Disposition Plan to the court, the receiver must first send it to HHS for review and approval.

www.shred-tech.com

10 Security Shredding News Spring 2018

In connection with the CAP, the receiver will be required to: Instruct Iron Mountain Information Management, LLC to properly store and dispose of all remaining medical records that were once in Filefax’s facility and have since been delivered to Iron Mountain.

• Catalogue the remaining medical records it holds in its custody, and provide HHS with a copy of this inventory within seven days of the signing of the settlement agreement.

• Within seven days of the signing of the settlement agreement, the receiver must provide HHS with an affidavit, signed under oath, detailing where and when the remaining medical records were found, the steps taken after their discovery to secure them, including their transfer to Iron Mountain, and the process undertaken to catalogue the remaining medical records. The affidavit must also authenticate the remaining medical records inventory.

• Upon final disposal of all remaining medical records, the receiver must attest that all PHI in its possession was properly disposed of as outlined in the Records Disposition Plan.

This settlement illustrates that HIPAA covered entities and business associates must abide by HIPAA – even when operations shut down.

•

This article was originally published in the February 21, 2018 edition of National Law Review (www.natlawreview.com) and is reprinted with permission. The author, Sumaya Noush, an associate at Drinker Biddle & Reath LLP (www.drinkerbiddle.com), counsels health care clients on strategic and operational matters, including transactions, corporate governance and regulatory compliance. Sumaya Noush can be contacted at sumaya.noush@dbr.com.

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Security Shredding News Spring 2018 11

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Inside This Issue

VOL. 15 NO. 1

SPRING 2018

How Will Tax Reform Impact Your Business?

PAGE 1 Volatile Paper Markets Ahead PAGE 4 Canadian Government Balks at US Import Duty on Paper PAGE 7 When in Doubt, Shred: PHI Found in Hospital Recycling Bins PAGE 9 2018 Involuntary Dissolution Does Not Absolve Business Associate ofNews, HIPAA Obligations Security Shredding & Storage Mobile PAGE 10 1/2 page, 4C

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