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Commissioner of Internal Revenue v. Zuch, No. 24-416 – Decided June 12, 2025

Today, the Supreme Court held 8-1 that the Tax Court loses jurisdiction in a proceeding under 26 U.S.C. § 6330 when the IRS ceases to pursue a levy.

“Because there was no longer a proposed levy, the Tax Court properly concluded that it lacked jurisdiction to resolve questions about Zuch’s disputed tax liability.”

Justice Barrett, writing for the Court

Background:

In order to collect previously assessed tax liabilities, the IRS may seek to levy—i.e., to seize and sell—a taxpayer’s assets. In such cases, the taxpayer may request an administrative pre-levy hearing with the IRS’s Independent Office of Appeals. An adverse “determination” in that proceeding may then be petitioned to the United States Tax Court under 26 U.S.C. § 6330.

In 2013, the IRS sent Jennifer Zuch a notice of intent to levy her property to collect unpaid taxes from 2010. Zuch requested a pre-levy hearing, claiming that a payment from her former husband should have been applied to offset her tax liabilities for the year at issue. The IRS’s Office of Appeals sustained the proposed levy, and Zuch petitioned the U.S. Tax Court. The U.S. Tax Court remanded for clarification, and, in 2017, the IRS’s Office of Appeals once again sustained the proposed levy.

Meanwhile, Zuch overpaid her annual taxes in certain years. Instead of issuing Zuch a refund in each of those years, the IRS applied the overpayments against her 2010 outstanding tax liability. By April 2019, the entire amount of Zuch’s alleged federal tax liability subject to the levy action had been paid.

The IRS then moved to dismiss the levy case as moot, and the Tax Court granted that motion. The Third Circuit reversed, holding that the Tax Court still had jurisdiction to determine Zuch’s underlying tax liability under 26 U.S.C. § 6330 and Zuch did not need to file a separate refund suit in district court.

Issue:

Does a proceeding under 26 U.S.C. § 6330 become moot when the IRS no longer seeks the proposed levy that gave rise to the proceeding?

Court’s Holding:

Yes. The IRS’s decision to stop seeking to levy a taxpayer’s property deprives the Tax Court of jurisdiction in a proceeding under 26 U.S.C. § 6330.

What It Means:

Today’s decision ties a taxpayer’s ability to pursue a pre-levy challenge to the IRS’s decision to continue seeking to levy the taxpayer’s property. If the IRS ceases to pursue a levy and the taxpayer believes they overpaid, the taxpayer must file a new administrative action before the IRS claiming a refund (the precursor to a refund suit in the U.S. District Court of the U.S. Court of Federal Claims).
An administrative action before the IRS seeking a refund must be filed within two years of any potential overpayment. For this reason, a taxpayer who has potentially satisfied an outstanding liability during the pendency of a proceeding under 26 U.S.C. § 6330 should file a protective administrative action promptly, even if the IRS has not yet formally abandoned its request for a levy.
Justice Gorsuch speculated in dissent that today’s decision may incentivize the IRS to stop pursuing levies in 26 U.S.C. § 6330 proceedings if it anticipates unfavorable rulings from the Tax Court, and to instead pursue other mechanisms of collection, like keeping future overpayments.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the U.S. Supreme Court. Please feel free to contact the following practice group leaders:

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Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

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This alert was prepared by Samuel Eckman and Brian Sanders.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Please join us for an in-depth overview of the key legal considerations and liability risks that companies and their boards face during the IPO process and as they transition to life as a public company. With a focus on mitigating exposure under federal securities laws, the session covers the basics of liability under Sections 11 and 12 of the Securities Act of 1933, including the potential consequences of material misstatements or omissions in registration statements and prospectuses.

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PANELISTS:

Gerry Spedale is a partner in the Houston office of Gibson Dunn. He has a broad corporate practice, advising on mergers and acquisitions, joint ventures, capital markets transactions and corporate governance. He has extensive experience advising public companies, private companies, investment banks and private equity groups. With over 30 years of experience, Gerry covers a broad range of industries, with a focus on the energy industry, including upstream, midstream, downstream, oilfield services and utilities.

Gerry earned his Juris Doctor magna cum laude in 1993 from Tulane University Law School, where he was elected to the Order of the Coif. He graduated cum laude in 1990 from Louisiana State University, where he received a Bachelor of Arts degree in Political Science.

Michael Kahn is a litigation partner in the San Francisco office of Gibson Dunn. Michael’s practice focuses on securities litigation, including securities class actions and derivative suits. Michael represents clients at all stages of a company’s lifecycle, from defending established public companies against Exchange Act claims, to defending newly public companies against suits under the Securities Act, to prosecuting and defending private company shareholder disputes. He has crafted winning arguments in many complex securities actions, including for Slack in the U.S. Supreme Court’s 9-0 opinion in Slack Technologies v. Pirani. Michael also represents clients facing SEC investigations, and as both plaintiffs and defendants in a broad range of commercial litigation.

Michael received his Juris Doctor from New York University School of Law in 2012, where he was a Robert McKay scholar. He received his undergraduate degree from the University of California, Berkeley in 2009, where he graduated with High Honors in History and High Distinction in General Scholarship, and was elected to Phi Beta Kappa.

Jeff Lombard is of counsel in the Palo Alto office of Gibson, Dunn & Crutcher and a member of the firm’s Securities Litigation Practice Group.

Jeff’s practice focuses on the representation of companies and their officers and directors in securities class actions, merger and acquisition disputes, and shareholder derivative litigation. In addition, Jeff has substantial experience representing clients in other shareholder and securities related matters, including governmental and internal investigations, books and records demands, and FINRA inquiries. Jeff also regularly advises public and private companies about a wide range of issues relating to corporate governance, insider trading, disclosure obligations and litigation risk and strategy.

Jeff graduated summa cum laude from Santa Clara University School of Law in 2012. He received his Bachelor of Science from Santa Clara University in 2008, where he served as captain of the school’s Division 1 baseball team during the 2008 season.

Gibson Dunn will continue monitoring these developments and reporting to our trusted friends and clients in the days, weeks, and months ahead.

Two notable developments this week have clarified DOJ’s approach to corporate criminal enforcement generally under the Trump Administration and ended a four-month pause in bringing new enforcement actions under the Foreign Corrupt Practices Act (FCPA).

During a speech on June 10, 2025, the Head of DOJ’s Criminal Division, Matthew R. Galeotti, publicly announced the issuance of a memorandum dated June 9, 2025, by Deputy Attorney General Todd Blanche (Blanche Memorandum). The Blanche Memorandum provides much-anticipated guidance to the DOJ Criminal Division regarding the investigation and enforcement of the FCPA. In addition, Galeotti’s remarks highlighted several notable developments in the DOJ Criminal Division’s approach to corporate enforcement more generally and emphasized the Department’s focus on incentivizing corporate self-disclosure and cooperation and targeting the misconduct of specific individuals.

This guidance follows a February executive order in which President Trump paused new FCPA enforcement actions and directed DOJ to prepare the new guidance, as discussed in greater detail in our prior alert. That executive order mandated that any FCPA investigations or enforcement actions initiated or allowed to continue afterward must be governed by the revised guidelines and be “specifically authorized by the Attorney General.” The executive order followed a memorandum by Attorney General Pamela Bondi that instructed DOJ’s FCPA Unit to prioritize cases with a nexus to cartels and transnational criminal organizations (TCOs), while shifting focus away from cases lacking such nexus, as discussed in another prior alert.

The Blanche Memorandum

The much-awaited memorandum, titled Guidelines for Investigations and Enforcement of the FCPA, seeks to address directives in President Trump’s executive order by expressly “limiting undue burdens on American companies that operate abroad” and “targeting enforcement actions against conduct that directly undermines U.S. national interests.” More specifically, under the Blanche Memorandum, prosecutors must now consider four separate, non-exhaustive factors in determining whether to pursue FCPA investigations or enforcement actions:

Total Elimination of Cartels and TCOs – whether the misconduct (1) is directly tied to a cartel or TCO, (2) relates to money laundering efforts on behalf of a cartel or TCO, such as through a shell company, or (3) involves a foreign official or SOE employee who has received bribes from a cartel or TCO previously.

This factor ties into the Administration’s previously declared criminal enforcement priority of addressing the impact of cartels and TCOs on U.S. national security, foreign policy, and economy. The Blanche Memorandum leaves little doubt that FCPA enforcement will now provide another avenue for combatting the influence of entities and individuals with financial ties to cartels and TCOs . Including this factor in the Blanche Memorandum may further signal a shift toward more FCPA investigations wherever cartel and TCO connections exist—and possibly fewer in the absence of such links.

That said, the Memorandum creates ambiguity as to the scope of FCPA enforcement, making it increasingly difficult to predict how and when the FCPA Unit and DOJ’s political leadership will use their enforcement authority. For example, the third scenario described above, relating to foreign officials who have received bribes from cartels or TCOs in the past, could apply to companies or individuals who pay a bribe to a government official without any knowledge that the official had previously received a bribe from a cartel or TCO. In practice, this should not impact a company’s compliance measures, particularly given the difficulty of ascertaining the existence of any such prior bribes. It does, however, give DOJ flexibility to target jurisdictions with substantial cartel presence, such as Mexico and Venezuela.

Fair Opportunities for U.S. Companies – whether, and the extent to which, alleged misconduct adversely impacts the ability of U.S. entities to compete for and obtain business abroad.

The Blanche Memorandum highlights the way in which bribery skews markets to the disadvantage of law-abiding companies and directs prosecutors to consider the competitive and economic injury suffered by “specific and identifiable” American companies due to corruption. The Memorandum notes that DOJ will not focus on the nationality of the bribing entity but rather will prioritize prosecuting activities that harm U.S. national security and economic prosperity. Footnote 4 of the Blanche Memorandum does, however, assert that “[t]he most blatant bribery schemes have historically been committed by foreign companies.” It remains to be seen whether this directive will be applied in practice in a way that favors U.S. over non-U.S. companies in keeping with the Trump Administration’s broader America First agenda. Similarly, the Blanche Memorandum directs prosecutors to focus enforcement of the Foreign Extortion Prevention Act (FEPA) on “foreign officials’ demands for bribes” that harm U.S. entities or individuals. Again, this factor leaves several questions unanswered as to how the analysis of what misconduct impacts U.S. entities is carried out, as discussed further below. This ambiguity provides DOJ with significant leeway to implement the Memorandum’s guidance.

National Security – whether the misconduct impacted U.S. companies’ ability to obtain key “minerals, deep-water ports,” or other “infrastructure or assets,” in recognition of the importance of certain resources to the U.S. defense and intelligence sectors.
Serious Misconduct – whether the misconduct “bears strong indicia of corrupt intent tied to particular individuals,” such as substantial bribes, extensive measures to conceal bribes, fraudulent conduct related to bribery, or obstruction of justice. Expressly excluded from this focus are “routine business practices” and de minimis or low-dollar, generally accepted business courtesies. While the scope of this exclusion is not entirely clear, it may indicate DOJ does not intend to pursue FCPA cases that are based on systemic, low-value bribes—such as cases involving improper expenditures on gifts, travel, and entertainment, or cases that involve only internal controls or books and records violations.

None of these four factors is required, and the Blanche Memorandum recognizes that “myriad factors must be considered” in any prosecution. Additionally, footnote 2 suggests that prosecutors may be able to initiate an investigation with limited insight into the presence of any of these factors, given the likelihood that the investigation itself will be necessary to understand the facts at play. Taken together, the factors reflect an apparent enforcement focus on substantial bribery connected to large-scale criminal organizations or that otherwise undermines U.S. national interests.

As Galeotti explained in his remarks, the Blanche Memorandum also confirms a directive that misconduct “that does not implicate U.S. interests should be left to our foreign counterparts or appropriate regulators.” Although Galeotti stated that DOJ will help its foreign counterparts “vindicate their interests and pursue their mandates,” it is unclear whether DOJ will continue to pursue actions in parallel with foreign regulators as it often has in the past.

For corporations, this guidance also puts a clear onus on prosecutors to pursue corporate cases involving criminal misconduct attributable to individuals and disfavors charging a company with “nonspecific malfeasance.”

The Blanche Memorandum also imposes a new approval requirement. Before a Criminal Division prosecutor can open a new FCPA investigation or bring an FCPA enforcement action, the approval of the Assistant Attorney General (AAG) for the Criminal Division or a more senior DOJ official—all of whom are political appointees—is now required. At odds with AG Bondi’s prior memorandum suspending Justice Manual approval requirements for FCPA cases connected to cartels and TCOs, the new approval requirement takes the decision of whether to open a new FCPA investigation out of the hands of career DOJ prosecutors and places it in the hands of political appointees, limiting career prosecutors’ discretion in determining how to apply the law.

Other Remarks by Criminal Division Head Galeotti

After introducing the new FCPA guidance, Galeotti discussed the Criminal Division’s approach to white-collar crime generally and made clear that “[f]ighting white-collar and corporate crime is a critical component of the Criminal Division’s priorities.” His message notably tied “aggressive and robust” strategies for investigating and prosecuting white-collar and corporate crime with “[p]rotecting the American people.” Galeotti’s remarks further highlighted other developments in the DOJ Criminal Division’s approach to corporate enforcement, including three “key areas of change”:

Declinations. DOJ intends to move from a presumption to a near guarantee of declination for companies that self-report, cooperate, and remediate. This policy is aimed at providing more transparency around the process of granting declinations and incentivizing disclosure to “hold the most culpable individuals accountable.” Although the framework retains an element of discretion for cases that present aggravating circumstances, Galeotti stated that a declination will only be inappropriate when “truly” aggravating factors—recently narrowed in the revised Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) to the nature and seriousness of the offense, egregiousness or pervasiveness of misconduct, severity of harm caused, or similar misconduct resulting in criminal adjudication or resolution within the last five years—”outweigh” the company’s voluntary disclosure. Although the factors listed in the revised CEP are narrower than the prior CEP, they leave DOJ with significant discretion to determine when the factors are satisfied. Therefore, it is not yet certain whether DOJ will in fact grant more declinations going forward.
Monitorships. Galeotti explained that DOJ’s recently revised monitor policy clarifies when monitorships should be imposed and how monitorships should operate. The revised policy places emphasis on the need to balance the potential benefits of a compliance monitor with the expense of a monitorship for a company and the potential for interference with business operations. The policy provides considerations seeking to ensure that the scope and cost of a monitorship is proportionate to the severity of the misconduct, the company’s profits, and the company’s size and risk profile, among other considerations. Galeotti commented that in some resolutions, in place of monitors, the Criminal Division will work more closely with companies to ensure compliance, including by considering whether other measures (such as self-reporting or certifications) more efficiently achieve compliance. Galeotti expressed a belief that these “self-directed measures,” instead of monitorships, are often more efficient in helping companies achieve full compliance, “make lasting improvements,” and limit the waste of resources.
Efficiency and Cooperation. Galeotti highlighted a major focus on reducing the time spent on investigations. He emphasized speed and efficiency, and stressed that the Criminal Division will move the matters it sees as meritorious “expeditiously.” But Galeotti also noted that companies can contribute to this efficiency by complying with requests for documents and witnesses quickly and comprehensively, and stated that arguments about the lack of efficiency and length of investigations will not work if they are caused by those being investigated. We expect there to be continued back-and-forth between companies and prosecutors on what is realistic in terms of collection and production of evidence and completion of an internal investigation, particularly when DOJ’s requests and expectations can be very broad. Additionally, Galeotti indicated that companies and their counsel should be “conscientious” about avoiding premature appeals of the decisions of the attorneys leading their investigation to supervisors and should be prepared to follow DOJ’s process, ironing out issues with line attorneys to the extent feasible. He stressed that “seeking premature relief, mischaracterizing prosecutorial conduct, or otherwise failing to be an honest broker” will be “counter-productive to [one’s] appeals.” This suggests that complaining too high up the chain too quickly could backfire.

Galeotti highlighted that in less than thirty days from issuing the white-collar enforcement plan (as we discussed in our recent alert), DOJ has received new voluntary self-disclosures and “robust tips” from whistleblowers. He previewed that further “significant announcements in key priority areas” are on their way in the coming weeks, “including corporate resolutions across the white-collar landscape.” This is a notable statement, given that the Criminal Division has yet to announce a corporate resolution in this Administration, and we anticipate it will shed light on what to expect from the Criminal Division in the Trump Administration going forward.

Observations and Questions

The new approaches highlighted in the Blanche Memorandum and Galeotti’s remarks raise several questions—some of which we raised previously:

How will the Criminal Division’s emphasis on speed be accomplished amid the Administration’s restructuring and efficiency efforts? Public reporting indicates DOJ’s Fraud Section has seen recent staff reductions, raising questions about resourcing. A push to increase case turnover may lead to further strains on teams and resources.
Will the DOJ no longer pursue cases based on collective knowledge theories? Both the Blanche Memorandum and Galeotti’s remarks leave little doubt that DOJ Criminal Division leadership seeks to focus on corporate misconduct tied to specific bad acts by culpable individuals, not generalized notions of “nonspecific malfeasance” or collective corporate knowledge. DOJ’s pursuit of such theories is not unique to FCPA enforcement, and it remains to be seen whether DOJ will disfavor the approach when investigating or prosecuting non-FCPA offenses. To the extent the Criminal Division has historically disfavored collective knowledge theories, Galeotti’s remarks provide strong support that this will continue. In instances where DOJ does not pursue fraud cases against public companies under collective knowledge theories, the SEC may still seek to use corporate negligence theories to address similar conduct by issuers under the broader authority and with the lower burden of proof under Section 17(a) of the Securities Act of 1933.
How will the focus on TCOs affect FCPA enforcement? The Blanche Memorandum reiterates, and arguably expands, the directives and priorities in AG Bondi’s earlier memoranda prioritizing investigations and prosecutions of foreign bribery connected to cartels and TCOs. It is not entirely clear whether and how the Blanche Memorandum—which is addressed only to the Criminal Division and expressly does not apply to other TCO elimination efforts—will affect U.S. Attorneys’ Offices’ ability to bring FCPA cases that have a connection to cartels or TCOs without seeking prior authorization from the Criminal Division, as contemplated by AG Bondi’s Total Elimination of Cartels and TCOs memorandum. Still, the focus on cartels and TCOs may lead to increased enforcement in jurisdictions with significant cartel and TCO activity.
How does the Blanche Memorandum relate to cases pursued under alternate legal theories? As we have previously observed, a significant portion of foreign corruption enforcement has historically been pursued under adjacent criminal laws, including money laundering, wire fraud, and securities fraud. These offenses are not expressly covered by the Blanche Memorandum, which is limited to the FCPA, and remain avenues to pursue corruption-related fact patterns. The SEC and other international enforcement authorities may also still pursue actions outside the scope of DOJ’s priorities.
Will the SEC’s role in FCPA Enforcement be impacted? During a congressional hearing earlier this month, SEC Chair Paul Atkins was asked by Senator Coons whether the SEC was “directly affected” by the Trump Administration’s pause on FCPA enforcement. Chair Atkins explained that, to his understanding, the SEC was not affected by the executive order. Senator Coons requested a follow-up on the SEC’s anticipated enforcement trajectory. Whether and how the SEC’s FCPA enforcement priorities align with the DOJ Criminal Division’s, or cover other types of FCPA cases, remains an open question.
What constitutes “key infrastructure or assets”? The Blanche Memorandum implicates defense, intelligence, and critical infrastructure as key national security sectors and provides critical minerals and deep-water ports as examples. Additionally, the Blanche Memorandum notes “key infrastructure or assets” as a significant factor for prosecutors to consider when assessing whether the alleged conduct implicates key national security sectors, but neither the Blanche Memorandum nor Galeotti in his speech define these terms. DOJ could potentially interpret these terms broadly to include critical infrastructure sectors—such as those identified by the Cybersecurity and Infrastructure Security Agency (CISA)—and the assets associated with them. CISA’s “Critical Infrastructure Sectors“ include: agriculture, communications, energy, financial services, healthcare, transportation, and several other sectors considered “vital to” the United States’s “security, national economic security, national public health or safety, or any combination thereof.”
Where do routine business practices in other nations end and substantial bribe payments begin? Although misconduct at both ends of the spectrum from low-dollar business courtesies to massive, concealed, fraudulent bribe payments will be apparent, the middle ground between the two is vast. Although the new guidelines appear to provide more leeway for facilitating payments and other lower-value expenses, in practice, this change is likely too nuanced for companies to adjust their operations based on the Blanche Memorandum alone. Additionally, there is no equivalent exception in the law of other jurisdictions, such as the UK’s Bribery Act 2010.
How will requiring that all FCPA investigations and enforcement actions be approved by the Criminal Division AAG impact enforcement? Previously, the Justice Manual required all FCPA investigations and prosecutions to be approved by the Criminal Division generally rather than the Criminal Division AAG specifically. In practice, those approvals were delegated to the Deputy Chief of the Fraud Section in charge of the FCPA Unit. By requiring approval from the AAG him- or herself, a political appointee will now decide how the FCPA is applied, instead of career prosecutors, and can therefore ensure that career prosecutors do not undermine the Administration’s priorities or guidance. There is also a practical risk that approvals will take longer to obtain. However, under the Blanche Memorandum, the FCPA Unit continues to maintain its authority to investigate and prosecute FCPA cases—subject to the continuing suspension of the Justice Manual’s approval provisions for a narrow set of cases following AG Bondi’s earlier memorandum, which allows U.S. Attorneys’ Offices to pursue FCPA cases with a connection to cartels and TCOs upon twenty-four hours’ advance notice to the FCPA Unit.
How will the Criminal Division approach corporate resolutions? As noted above, Galeotti foreshadowed “corporate resolutions across the white-collar landscape” in the coming weeks. So far, the Criminal Division in this Administration has yet to announce a corporate resolution. How these coming corporate resolutions look will illuminate what we may expect from DOJ going forward, including, possibly, to what extent DOJ will prosecute U.S. companies.

We will continue monitoring these developments and reporting to our trusted friends and clients in the days, weeks, and months ahead.

The following Gibson Dunn lawyers prepared this update: F. Joseph Warin, Patrick Stokes, Stephanie Brooker, Winston Chan, Nicola Hanna, Matthew Axelrod, Courtney Brown, John Chesley, Michael Diamant, Melissa Farrar, Amy Feagles, Oleh Vretsona, Jaclyn Neely, Bryan Parr, Kio Bell, and Matt Weiner.

Gibson Dunn’s White Collar Defense and Investigations Practice Group successfully defends corporations and senior corporate executives in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies and their boards of directors in almost every business sector. The Group has members across the globe and in every domestic office of the Firm and draws on more than 125 attorneys with deep government experience, including more than 50 former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission, as well as former non-U.S. enforcers.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of Gibson Dunn’s White Collar Defense and Investigations or Anti-Corruption and FCPA practice groups:

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Kai Gesing (+49 89 189 33 285, kgesing@gibsondunn.com)
Katharina Humphrey (+49 89 189 33 155, khumphrey@gibsondunn.com)
Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com)

Hong Kong
Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com)

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Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com)
Karthik Ashwin Thiagarajan (+65 6507 3636, kthiagarajan@gibsondunn.com)

If enacted in its current form, new section 899 could significantly affect the U.S. tax landscape for a variety of U.S. and non-U.S. persons.

On May 22, 2025, the House of Representatives passed the One Big Beautiful Bill Act (the “Act”). The Act would extend or make permanent certain components of the 2017 Tax Cuts and Jobs Act[1] that under current law expire at the end of 2025. The Act would also make a number of other changes to the U.S. Internal Revenue Code (the “Code”), including adding new section 899,[2] which would impose retaliatory U.S. federal income and withholding taxes on certain governments, individuals, and entities associated with or owned by residents of foreign countries that have implemented “unfair foreign taxes.” The Senate is currently considering the Act.

Section 899 is based on legislation that was proposed both earlier this year and in 2023 in different forms by House Ways and Means Committee Chairman Jason Smith. It also incorporates base erosion and anti-abuse (BEAT)-related legislation proposed earlier this year by Rep. Ron Estes (R-KS) (H.R. 2423).

If enacted in its current form, section 899 could significantly affect the U.S. tax landscape for a variety of U.S. and non-U.S. persons. The most dramatic effects likely would be felt by (i) non-U.S. investors (including sovereign wealth funds) resident in certain countries, (ii) private equity funds and other investment entities, (iii) U.S. borrowers under credit agreements with standard tax “gross-up” provisions, and (iv) certain multinational enterprises and their U.S. subsidiaries.

I. Summary

A. Scope of Foreign Persons and Taxes Covered

Section 899 would apply to an array of foreign persons and their affiliates, including governments and tax residents of countries with one or more unfair foreign taxes (“applicable persons”)[3], as well as foreign corporations of which more than 50 percent of the vote or value is owned by applicable persons. The provision would also increase the tax rate and extend the application of the BEAT to corporations in which more than 50 percent of the vote or value is owned by applicable persons, regardless of gross receipt and base erosion payment percentage safe harbors that otherwise apply.[4]

The definition of “unfair foreign tax” is broad and includes any undertaxed profits rule (UTPR), digital services tax, and diverted profits tax, although section 899 does not define any of these taxes.[5] In addition, to the extent provided by the Secretary of the Treasury, an “unfair foreign tax” would include any extraterritorial tax,[6] discriminatory tax,[7]or other tax enacted with a public or stated purpose that the tax be economically borne, directly or indirectly, disproportionately by U.S. persons.[8] Notably, under this definition, governments and residents of countries that have adopted a UTPR as part of their legislation aimed at implementing a global minimum tax on multinational enterprises (“Pillar 2”) or that impose a digital services tax or diverted profits tax automatically would be considered “applicable persons” for purposes of section 899, without further action required from Treasury.[9]

B. Taxes and Tax Rates Subject to Section 899

1. General Rule for Tax Rate Increases

The following tax rates would increase by five percentage points for the first calendar year beginning after section 899 becomes applicable to the “applicable person” and then by an additional five percentage points for each calendar year thereafter (capped at 20 percentage points over the statutory rate):

The 30 percent rate on U.S.-source dividends, interest, rents, royalties and other fixed, determinable, annual, or period income (FDAP) of foreign individuals and corporations.
The 21 percent rate imposed on income effectively connected with the conduct of a U.S. trade or business (ECI) of foreign corporations, including as a result of FIRPTA;
The graduated rates applicable to FIRPTA gains and losses of individuals;
The rates of withholding on FDAP items and payments subject to withholding under FIRPTA are similarly increased;
The 30 percent rate on branch profits; and
The 4 percent excise tax on foreign private foundations.

In addition to the rate increases noted above, Section 899 would also increase the BEAT tax rate for corporations to which it applies from 10 percent to 12.5 percent and remove the Code provisions that currently exclude certain payments from BEAT calculations, such as (i) tax benefits attributable to base erosion payments that are subject to withholding, (ii) base erosion payments for services that are eligible for use of the services cost method, and (iii) payments made at cost.

The bill does not affect the portfolio interest exemption or the FIRPTA exemption that applies to gain from the sale or exchange of shares in a “domestically controlled qualified investment entity.”

2. Interaction with Treaties

Importantly, the five percentage point rate increases would also apply to lower rates established by a treaty that applies in lieu of the above statutory rates. In that case, the annual increase would start with the lower rate but would continue until the rate is 20 percentage points higher than the statutory rate that would apply if there were no treaty in place. For example, if an income tax treaty with a particular country provides that dividends may not be taxed at a rate that exceeds 15 percent, the rate would increase to 20 percent in year one, 25 percent in year two, and so on until the rate is 50 percent.

Although it is not clear how this rule applies to treaties that (a) entirely cede taxing jurisdiction for an item of income to the other country (for example, a provision that U.S.-source interest may only be taxed by the other country) or (b) entirely exempt certain categories of investors, such as pension trusts. The House Budget Committee report suggests that section 899 would not affect those types of treaty exemptions. Specifically, the committee report notes that “[b]ecause the provision only increases the specified rates of tax, it does not apply to income that is explicitly excluded from the application of the specified tax…[c]ontrast certain categories of income that are subject to a reduced or zero rate of tax in lieu of the statutory rate, such as amounts that are exempted or subject to a reduced or zero rate of tax under a treaty obligation.”[10]

3. Other Effects

Foreign governments that otherwise are exempt from tax on FDAP under section 892(a) and subject to section 899 would not be eligible for the benefits of section 892(a) and would be subject to the increased FDAP withholding rates.

4. Effective Date

Assuming Congress enacts the bill by September 30, for countries that have already enacted an “unfair foreign tax,” the rate increases would apply beginning on January 1, 2026. For other countries, the rate increase would go into effect on the first day of the first calendar year beginning on or after (i) 90 days after the date of enactment of the bill, (ii) 180 days after the date of enactment of the applicable unfair foreign tax, or (iii) the first date that the unfair foreign tax begins to apply.[11]

II. A Few Practical Take-Aways

Fund structures. Depending on whether Congress enacts section 899 and in what form, fund compliance and planning would become more complex. For example, section 899 could require ongoing monitoring of the tax residence and status of investors in fund entities and their percentage interests in such entities (including feeders, holding companies, and intermediate entities, etc.), as well as monitoring of applicable withholding rates. Likewise, a fund entity itself might be an applicable person subject to section 899 (for example, a fund entity organized in a relevant country with a UTPR or digital services or profits tax). Fund structures that currently benefit from certain investors’ U.S. federal income tax or treaty exemptions may need to be re-visited.
Financings. Gross-up provisions, prepayment or call rights, and similar provisions in credit agreements and indentures and other financings, as well as derivatives or hedging transactions could be implicated.
Sovereign Wealth Funds. As currently drafted, section 899 would eliminate section 892 benefits for foreign governments that are applicable persons.

III. Next Steps

What are people doing now? Fund managers and other affected groups are closely monitoring the situation. Managers that are forming new funds may consider structures that would mitigate the effects of section 899 for their investors, to the extent possible. Companies issuing new debt (for example, new credit agreements) are seeking to mitigate the risk of tax gross-up provisions or ensuring they have protective measures (such as ability to prepay or call debt or ability to replace lenders) in their agreements.
What we are hearing. Section 899 is intended to provide the U.S. with negotiating leverage over other countries with respect to their UTPR, digital service taxes, or diverted profits taxes or other taxes thought to discriminate against U.S. persons. Therefore, support exists among some members of the Senate for preserving a version of section 899 in the final legislation. Industry groups and individual stakeholders are working on ideas that would modify certain provisions to ameliorate the risks while allowing the provisions to still have the desired leverage over relevant countries. Interestingly, Congressional Budget Office scoring shows that section 899 will ultimately have a negative impact on governmental revenue in the long term due to its chilling effect on inbound U.S. investment.

[1] The Tax Cuts and Jobs Act is formally titled “An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. No. 115-97, 131 Stat. 2045.

[2] Unless indicated otherwise, all “section” references are to the Code or proposed additions to the Code.

[3] U.S. citizens and foreign corporations of which 50 percent or more of the vote or value is held directly or indirectly by U.S. persons are not included in the definition of “applicable person.”

[4] Constructive ownership rules apply for purposes of each of the 50 percent thresholds noted in the paragraph above.

[5] Although these concepts are not defined in section 899, the House Budget Committee Report discusses UTPRs and digital services taxes in detail. H.R. Rep. No. 119-106, at 1757-1760.

[6] An “extraterritorial tax” is a tax imposed by a foreign country on a corporation that is determined by reference to the income or profits of any other person connected to such corporation through any chain of ownership, other than by direct or indirect ownership by the corporation itself.

[7] A “discriminatory tax” is a tax imposed by a foreign country that (i) applies more than incidentally to income that would not be considered sourced within, or effectively connected with a trade or business in, the foreign country applying the relevant U.S. tax rules, (ii) is imposed on a base other than net income and does not permit recovery of costs and expenses, (iii) is exclusively or predominantly applicable to nonresidents, or (iv) is not treated as an income tax under the tax laws of such foreign country or is otherwise treated by the foreign country as being outside the scope of double tax treaties.

[8] This concept is consistent with existing section 891, which allows the President of the United States to double various tax rates applicable to citizens and corporations of a foreign country if the President finds that citizens and corporations of the United States are being subject to discriminatory and exterritorial taxes in such country.

[9] For example, most European Union countries, Australia, the United Kingdom, Japan, New Zealand, and others, have implemented a UTPR, and countries such as Canada, France, Italy, Spain, Turkey and the United Kingdom have enacted digital services or diverted profits taxes.

[10] H.R. Rep. No. 119-106, pt. 6, at 395 n.1533.

[11] Withholding agents could rely on a list of countries published by the IRS (with a 90-day phase-in for withholding on payments to subsidiaries and trusts) and apply the rates in effect on January 1 of the year of payment. Penalties and interests for withholding agents would be waived for 2026 upon demonstrating best efforts to comply with the new withholding rates under section 899.

The following Gibson Dunn lawyers prepared this update: Matt Donnelly, Bree Gong, Evan Gusler, James Jennings, Brian Kniesly, Pamela Lawrence Endreny, Yara Mansour, Galya Savir, Eric Sloan, and Dan Zygielbaum.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Tax and Tax Controversy and Litigation practice groups:

Tax:
Dora Arash – Los Angeles (+1 213.229.7134, darash@gibsondunn.com)
Sandy Bhogal – Co-Chair, London (+44 20 7071 4266, sbhogal@gibsondunn.com)
Michael Q. Cannon – Dallas (+1 214.698.3232, mcannon@gibsondunn.com)
Jérôme Delaurière – Paris (+33 (0) 1 56 43 13 00, jdelauriere@gibsondunn.com)
Anne Devereaux* – Los Angeles (+1 213.229.7616, adevereaux@gibsondunn.com)
Matt Donnelly – New York/Washington, D.C. (+1 212.351.5303, mjdonnelly@gibsondunn.com)
Benjamin Fryer – London (+44 20 7071 4232, bfryer@gibsondunn.com)
Evan M. Gusler – New York (+1 212.351.2445, egusler@gibsondunn.com)
James Jennings – New York (+1 212.351.3967, jjennings@gibsondunn.com)
Kathryn A. Kelly – New York (+1 212.351.3876, kkelly@gibsondunn.com)
Brian W. Kniesly – New York (+1 212.351.2379, bkniesly@gibsondunn.com)
Pamela Lawrence Endreny – Co-Chair, New York (+1 212.351.2474, pendreny@gibsondunn.com)
Kate Long – New York (+1 212.351.3813, klong@gibsondunn.com)
Gregory V. Nelson – Houston (+1 346.718.6750, gnelson@gibsondunn.com)
Benjamin Rapp – Munich/Frankfurt (+49 89 189 33-290, brapp@gibsondunn.com)
Jennifer Sabin – New York (+1 212.351.5208, jsabin@gibsondunn.com)
Eric B. Sloan – Co-Chair, New York/Washington, D.C. (+1 212.351.2340, esloan@gibsondunn.com)
Edward S. Wei – New York (+1 212.351.3925, ewei@gibsondunn.com)
Lorna Wilson – Los Angeles (+1 213.229.7547, lwilson@gibsondunn.com)
Daniel A. Zygielbaum – Washington, D.C. (+1 202.887.3768, dzygielbaum@gibsondunn.com)

Tax Controversy and Litigation:
Saul Mezei – Washington, D.C. (+1 202.955.8693, smezei@gibsondunn.com)
Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, sstark@gibsondunn.com)
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, tussing@gibsondunn.com)

*Anne Devereaux, of counsel in the firm’s Los Angeles office, is admitted to practice in Washington, D.C.

Partner Eric Sloan, Co-Chair of our Tax Practice Group, told Tax Notes (subscription required) that he agrees with business groups urging the U.S. Internal Revenue Service (IRS) to withdraw a revenue ruling on related-party basis shifting. Eric said the IRS should pull Rev. Rul. 2024-14 because “it really isn’t an appropriate topic for a ruling — it’s not a ‘clean’ legal issue.” He added: “More importantly, though, its analysis is flawed, most notably by neglecting the all-important relevance analysis.”

The passage of laws that enhance governance of Texas corporations and discourage frivolous shareholder litigation, along with a commercially minded government and the development of the business courts to hear complex commercial disputes, have enhanced Texas’s “aura as a business-friendly state,” partner Hillary Holmes told the Financial Times. “By providing greater legal certainty, reducing frivolous litigation risks and enhancing governance, Texas has created a compelling case for businesses to consider the state as their corporate home.”

Read the full article, “How Corporate America Learnt Not to Mess with Texas,” in the Financial Times (subscription required).

Commenting for an article in Politico on Senator Lindsey Graham’s expansive Russia sanctions bill, which would see the U.S. impose 500% tariffs on countries that buy Russian energy and which appears to have widespread Congressional support, partner Adam Smith said, “There is a sense in the Senate that more sanctions on Russia need to be imposed, or ought to be imposed,” and that Congress may be “pressuring the executive branch to act.”

Read the full article, “Graham’s ‘Bone Crushing’ Russia Sanctions Bill Could Freeze US Trade with the World’s Largest Economies,” in Politico.

Partner Mohamed AlHasan and associate Hadeel Tayeb take a detailed look at Saudi Arabia’s new Trade Name Law. Writing in The Oath, they highlight how the law enhances transparency, secures commercial identities, and increases business interest in the Kingdom. They also examine key changes introduced by the law, including new processes and their impact on business.

“This law reform marks yet another significant step in the modernisation of Saudi’s legal framework, streamlining processes and fostering a transparent, efficient business landscape.”

From the Derivatives Practice Group: This week, the SEC selected Jamie Selway to lead its Trading and Markets Division.

New Developments

SEC Selects Jamie Selway to Run Trading and Markets Division. On June 5, Jamie Selway was selected to head the SEC’s Trading and Markets division. He previously withdrew his name from consideration when he was nominated for this role during the first Trump administration. Currently, Selway is a partner at Sophron Advisors. [NEW]
SEC Solicits Public Comment on the Foreign Private Issuer Definition. On June 4, the SEC issued a concept release soliciting public comment on the definition of foreign private issuer. The concept release solicits public input on whether the definition of foreign private issuer should be amended in light of significant changes in the population of foreign private issuers since 2003. [NEW]
CFTC Alerts Traders Domain Customers to July 28 Claim Deadline. On June 3, the CFTC alerted customers that the Traders Domain claims process will end July 28. Customers who believe they may be victims in this alleged fraud scheme are urged to complete the claims process by this date to be eligible for any future judgment. [NEW]
Natalia Díez Riggin Named Senior Advisor and Director of Legislative and Intergovernmental Affairs. On June 2, the SEC announced that Natalia Díez Riggin has been named Senior Advisor and Director of the agency’s Office of Legislative and Intergovernmental Affairs. Ms. Riggin has been serving as Acting Director since joining the SEC in January. [NEW]
CFTC Names Paul Hayeck as Acting Director of Division of Enforcement. On June 2, CFTC Acting Chairman Caroline D. Pham announced Paul G. Hayeck as the Acting Director of the Division of Enforcement. Hayeck has served at the CFTC for 25 years and has been a deputy director in the Division of Enforcement since 2013. He will continue to serve as the acting chief of the Division’s Complex Fraud Task Force. [NEW]
CFTC Adds 43 Unregistered Foreign Entities to RED List. On May 29, as part of the CFTC’s ongoing efforts to help protect Americans from fraud, the CFTC added 43 unregistered foreign entities to its Red List, a tool that provides information to U.S. market participants about foreign entities that are acting in an unregistered capacity and to help them make more informed decisions about trading. The Red List, which stands for Registration Deficient List, launched in 2015, and now contains almost 300 entities.
CFTC Awards Approximately $700,000 to Whistleblower. On May 29, the CFTC announced a whistleblower award of approximately $700,000. The whistleblower information prompted the CFTC to open the investigation and described the misconduct that ultimately appeared in the order. The whistleblower also provided substantial assistance and helped the Commission conserve resources during the investigation.
SEC Publishes Data on Regulation A, Crowdfunding Offerings, and Private Fund Beneficial Ownership Concentration. On May 28, the SEC published three new reports that provide the public with information on capital formation and beneficial ownership of qualifying private funds. The first two papers—analyses of the Regulations A and Crowdfunding markets—provide valuable information on how capital is being raised in the United States particularly by smaller issuers. The third paper on Qualifying Hedge Funds provides information on the interaction of beneficial ownership concentration, portfolio liquidity, investor liquidity, fund leverage, performance, and margins.
CFTC Staff Issues Advisory on Market Volatility Controls. On May 22, the CFTC issued a staff advisory reminding designated contract markets and derivatives clearing organizations of certain core principles and regulatory obligations under the Commodity Exchange Act and CFTC regulations related to controls designed to address market volatility.
Commissioner Kristin N. Johnson Makes Statement on Departure from CFTC. On May 21, Commissioner Kristin N. Johnson announced that she intends to step down from the Commission later this year.
CFTC Staff Issues Interpretation Regarding Certain Cross-Border Definitions. On May 21, the CFTC issued an interpretative letter confirming the application of certain cross-border definitions to Susquehanna Crypto, a proprietary trading firm organized in a foreign jurisdiction. Specifically, the interpretative letter confirms that the proprietary trading firm is not a “person located in the United States” for purposes of the “foreign futures or foreign options customer” definition in Commission regulation 30.1(c); is not a “participant located in the United States” for purposes of Commission regulation 48.2(c); is a “foreign located person” for purposes of Commission regulation 3.10(c)(1)(ii); and is not a “U.S. person” as defined by Commission regulation 23.23(a) and the Commission’s 2013 Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations.
CFTC Releases Procedures on Registered Non-U.S. Swap Entities Using Substituted Compliance. On May 20, the CFTC released procedures regarding CFTC-registered non-U.S. swap dealers or major swap participants relying on substituted compliance. The procedures establish how CFTC Divisions will address potential non-compliance with foreign law that has been found by the CFTC to be comparable in outcome to the Commodity Exchange Act or CFTC regulations pursuant to a substituted compliance order.

New Developments Outside the U.S.

- ESMA Urges Social Media Companies to Tackle Unauthorized Financial Ads. On May 28, ESMA wrote to several social media and platform companies encouraging them to take proactive steps to prevent the promotion of unauthorized financial services. This approach complements last week’s initiative launched by IOSCO, highlighting the global nature of doing online harm linked to financial misconduct.
- ESMA Renews the Mandate of the Chair and the Two Independent Members of the CCP Supervisory Committee. On May 28, ESMA renewed the mandates of Klaus Löber as Chair of the Central Counterparties (“CCP”) Supervisory Committee and Nicoletta Giusto and Froukelien Wendt as Independent Members. The renewed mandates will be effective as of December 1, 2025 for a 5-year period.
- ESMA Asks for Input on the Retail Investor Journey as Part of Simplification and Burden Reduction Efforts. On May 21, ESMA launched a Call for Evidence (“CfE”) on the retail investor journey under the Markets in Financial Instruments Directive 2014. The purpose of this CfE is to gather feedback from stakeholders to better understand how retail investors engage with investment services, and whether regulatory or non-regulatory barriers may be discouraging participation in capital markets.

New Industry-Led Developments

ISDA Responds to HMT SI on Digital Assets. On May 23, ISDA sent a comment letter in response to a draft statutory instrument (“SI”) from His Majesty’s Treasury (“HMT”) that establishes a new regulatory framework for digital assets. In the letter, ISDA recommended a review of the proposed “safeguarding” activity, noting that the current definition and scope, particularly on “control” and acting “on behalf of another,” could unintentionally capture standard collateral arrangements in the derivatives market, including both security interest and title transfer structures. [NEW]
ISDA Provides Guidance for EU Model Application for ISDA SIMM®. On May 29, ISDA provided guidance to ISDA Standard Initial Margin Model (“SIMM”) users to promote awareness and facilitate a consistent approach to preparing data for the initial application. ISDA SIMM v2.7+2412 goes into effect on July 12, 2025, triggering the initial application requirement for its continued use by all financial and non-financial EU counterparties exchanging IM calculated using ISDA SIMM®.
ISDA Publishes SwapsInfo for First Quarter of 2025. On May 27, ISDA published its SwapsInfo Quarterly Review. The review noted that interest rate derivatives trading activity increased in the first quarter of 2025, driven by elevated interest rate volatility, shifting central bank policy expectations and evolving inflation and growth outlooks. Trading in index credit derivatives also rose, as market participants responded to a changing macroeconomic environment and sought to manage credit exposure.
IOSCO Issues Final Report on Updated Liquidity Risk Management Recommendations for Collective Investment Schemes. On May 26, IOSCO published its Final Report on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”), alongside its Implementation Guidance. The Final Report includes 17 recommendations across six sections: CIS Design Process, Liquidity Management Tools and Measures, Day-to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities.
ISDA Publishes ISDA SIMM® Methodology, Version 2.7+2412. On May 22, ISDA published updates to its SIMM methodology that are based on the full recalibration of the model and marked the first SIMM version publication of the new semiannual calibration cycle in 2025. The effective date of July 12, 2025 means that ISDA SIMM users should use SIMM version 2.7+2412 to calculate the initial margin for close of business on Friday, July 11, 2025 onwards. This means that the first day for exchange of initial margin calculated using SIMM version 2.7+2412 would be on Monday, July 14, 2025.
ISDA/SIFMA/SIFMA AMG Publish Joint Response to CFTC Request for Comment on 24-7 Trading. On May 21, ISDA, the Securities Industry and Financial Markets Association (“SIFMA”), and the SIFMA Asset Management Group (“SIFMA AMG”) jointly filed a comment letter in response to the CFTC’s request for comment on 24/7 trading and clearing. ISDA, SIFMA, and SIFMA AMG believe that the feasibility of both 24/7 trading and clearing needs to be evaluated holistically with an understanding of the interdependencies between market participants, trading venues, middleware and software providers, clearing systems, margining frameworks, payments systems, default mechanisms and adjacent markets.
IOSCO Makes Statement on Combatting Online Harm and the Role of Platform Providers. On May 21, IOSCO reiterated its concern about risks associated with investment fraud orchestrated through online paid-for advertisements and user-generated content. IOSCO stated that regulators and platforms providers are strategically positioned to mitigate the potential investor harm arising from these risks and asks platform providers to enhance efforts, consistent with local law, aimed at reducing risk of pecuniary harm to investors, which also threatens public trust in the services provided by platform providers.
IOSCO Releases Sustainable Bonds Report. On May 21, IOSCO published its Sustainable Bonds Report which identifies the key characteristics and trends tied to the sustainable bond market. IOSCO’s Report includes five key considerations which are designed to address market challenges, including enhancing investor protection, ensuring sustainable bond markets are operating in a fair and efficient way, and improving accessibility.
IOSCO Publishes Final Reports on Finfluencers, Online Imitative Trading Practices and Digital Engagement Practices. On May 19, IOSCO published the Final Reports on Finfluencers, Online Imitative Trading Practices and Digital Engagement Practices, as part of the third wave of its Roadmap for Retail Investor Online Safety. The Finfluencers Final Report explores the evolving landscape of finfluencers, the associated potential benefits and risks, and the current regulatory responses across jurisdictions.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, Karin Thrasher, and Alice Wang.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus, New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

If the SEC were to change the FPI definition substantially, it could have significant consequences for a potentially large number of foreign issuers.

Overview

On June 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a concept release[1] requesting public comment on the definition of “foreign private issuer” (FPI).[2] This move comes in response to significant shifts in the FPI landscape, including changes in the jurisdictions of incorporation and headquarters of many FPIs, and a marked increase in the number of FPIs whose securities are traded almost exclusively in U.S. markets. The SEC is considering whether the current FPI definition and related regulatory accommodations remain fit for purpose, or whether updates are needed to better align with today’s global capital markets and to ensure appropriate investor protections. If the SEC were to change the FPI definition substantially, it could have significant consequences for a potentially large number of foreign issuers.[3]

As a concept release, this is the first step in a SEC rulemaking process that potentially could lead to the publication of proposed rules and possibly the adoption of final rules. Foreign issuers accessing or seeking to access the U.S. capital markets should monitor the SEC’s process and consider whether changes to the FPI definition will affect their ability to qualify for FPI status or affect the disclosure and reporting accommodations currently available to FPIs.

Background: The FPI Framework and Its Evolution

The SEC established the initial regulatory framework for foreign issuers in 1935[4] and conducted its latest review in 2008,[5] when there were approximately 900 FPIs.[6] As of 2023, there were approximately 1,100 FPIs.[7]

The FPI regulatory framework was established to recognize the unique challenges foreign issuers face when accessing U.S. capital markets and becoming subject to different and sometimes competing legal and accounting reporting requirements in their home country and the United States.[8] To mitigate this effect, the SEC allowed foreign companies with a sufficient nexus to a foreign home country jurisdiction to qualify as an FPI and granted such FPIs a range of accommodations from U.S. securities laws. These accommodations for FPI registrants include the use of specialized registration and reporting forms, less frequent reporting (with interim reporting on Form 6-K consisting of disclosure required by the issuer’s home country or any stock exchange on which the issuer is listed, or any other disclosure distributed to the issuer’s securityholders),[9] more flexible accounting standards, and exemptions from certain other rules such as the U.S. proxy rules, Regulation FD and Section 16 reporting, and short-swing profit liability.[10]

The current FPI definition was first adopted in 1983 and last amended in 1999,[11] and is based on a combination of U.S. ownership thresholds, and percentages of U.S. management control, U.S. business assets and business contacts with the United States.[12]

In the case of an existing registrant, FPI eligibility is determined annually as of the end of a foreign issuer’s second fiscal quarter.[13] A foreign issuer filing an initial registration statement under the Securities Act of 1933 or the Securities Exchange Act of 1934 determines its FPI status as of a date within 30 days prior to filing.[14]

Historically, the SEC’s FPI framework was based on the expectation that FPIs would be subject to meaningful disclosure and regulatory oversight in their home countries, and that their securities would primarily trade in foreign markets. However, the data derived from the SEC’s recent review of the composition of the current FPI population indicates that these assumptions may no longer hold true for a significant portion of the FPI population.[15]

Key Developments in the FPI Population

Jurisdictional Shifts: There has been a dramatic change in the jurisdictions of incorporation and headquarters among FPIs. The Cayman Islands is now the most common place of incorporation, while mainland China is the most common headquarters location. Many FPIs are now incorporated in jurisdictions with limited disclosure requirements, while their operations are based elsewhere.
Divergence Between Incorporation and Headquarters: The proportion of FPIs with different jurisdictions for incorporation and headquarters has risen sharply, from 7% in 2003 to 48% in 2023. This trend is particularly pronounced among China-based issuers, many of which are incorporated in the Cayman Islands or British Virgin Islands but are headquartered and operate primarily in China.
Increased Reliance on U.S. Markets: A majority of FPIs now have their equity securities traded almost exclusively in U.S. capital markets. In 2023, 55% of the FPIs that filed Forms 20-F had at least 99% of their global trading volume in the United States, up from 44% in 2014. These FPIs tend to be smaller in market capitalization but represent a growing share of the FPI population by number.
Regulatory Arbitrage Concerns: The SEC notes that some FPIs may be seeking to minimize regulatory costs by incorporating in jurisdictions with minimal disclosure requirements while listing primarily in the United States, potentially reducing the information available to U.S. investors and raising questions about the adequacy of investor protections.

Members of Congress and other stakeholders beyond the SEC have questioned whether the present regime creates an uneven playing field for certain foreign companies relative to U.S. reporting companies who are not able to benefit from the same accommodations, and have proposed legislation aimed at curbing perceived abuses.[16]

Potential Regulatory Responses Under Consideration

The SEC is seeking feedback on a range of possible approaches to updating the FPI definition and related accommodations, including:

Updating Existing Eligibility Criteria
- Lowering the U.S. ownership threshold or revising the business contacts test to better capture issuers with significant ties to the United States.

Introducing a Foreign Trading Volume Requirement
- Requiring FPIs to maintain a minimum percentage of trading volume outside the United States to retain FPI status.
- The SEC is considering various thresholds (e.g., 1%, 3%, 5%, 10%, 15%, 50%) and has provided data on how many current FPIs would be affected at each level.

Requiring Listing on a Major Foreign Exchange
- Mandating that FPIs be listed on a “major” foreign exchange, with the SEC defining which exchanges qualify based on criteria such as market size, governance standards, and disclosure requirements.

SEC Assessment of Foreign Regulation
- Limiting FPI status to issuers incorporated or headquartered in jurisdictions with robust regulatory and oversight frameworks, as determined by the SEC.

Mutual Recognition Systems
- Expanding mutual recognition arrangements (similar to the U.S.-Canada MJDS[17]) to other jurisdictions with comparable investor protection standards.

International Cooperation Arrangement Requirement
- Conditioning FPI status on the issuer’s home country securities authority being a signatory to international information-sharing agreements, such as the International Organization of Securities Commissions Enhanced Multilateral Memorandum of Understanding Concerning Consultation, Cooperation, and the Exchange of Information.[18]

Business Implications

Regulatory Uncertainty: Companies currently relying on FPI status—especially those incorporated in jurisdictions with limited disclosure requirements or trading primarily in the United States—face potential changes to their reporting obligations and compliance costs.
Competitive Dynamics: The SEC is considering whether the current framework creates an uneven playing field between domestic issuers and FPIs, particularly those with limited home country oversight.
Market Access: Changes to the FPI definition could prompt some issuers to reconsider their U.S.listings or seek alternative markets, potentially impacting U.S. investor access to foreign securities.
Transition and Compliance: The SEC is seeking input on transition periods, potential accommodations for affected issuers, and the costs and complexities of moving from IFRS or home country GAAP to U.S.GAAP.

Commissioners Comments

Below are links to the full statements of several SEC Commissioners regarding the concept release and potential changes to the FPI definition:

Next Steps

Businesses with cross-border operations, FPI registrants in the United States (including those with classes of securities listed on a U.S. stock exchange), and investors in FPI securities should closely monitor this process and consider participating in the comment period to help shape the future regulatory landscape for FPIs.

The SEC is inviting comments on all aspects of the FPI definition and potential regulatory responses, including the costs, benefits, and competitive impacts of any changes. Comments are due within 90 days of publication in the Federal Register. Comments may be submitted: (1) using the SEC’s comment form at https://www.sec.gov/rules/submitcomments.htm; (2) via e-mail to rule-comments@sec.gov (with “File Number S7-2025-01” on the subject line); or (3) via mail to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-2025-01.

[1]  Concept Release on Foreign Private Issuer Eligibility, Release Nos. 33-11376; 34-103176 (June 4, 2025), available at https://www.sec.gov/files/rules/concept/2025/33-11376.pdf.

[2]  A “foreign private issuer” is currently defined as a foreign issuer (i.e., an issuer which is a foreign country, a national of any foreign country or a corporation or other organization incorporated or organized under the laws of any foreign country) other than a foreign government (i.e., the government of any foreign country or of any political subdivision of a foreign country) except an issuer that as of the last business day of its most recently completed second fiscal quarter has more than 50% of its outstanding voting securities directly or indirectly held of record by U.S. residents and for which any of the following is true: (i) a majority of its executive officers or directors are citizens or residents of the United States, (ii) more than 50% of its assets are located in the United States, or (iii) its business is administered principally in the United States. See 17 CFR § 230.405; 17 CFR § 240.3b-4.

[3]  As used herein, any reference to a “foreign issuer” means an entity, other than a foreign government, organized under the laws of any non-U.S. jurisdiction.

[4]  See supra note 1, n.13.

[5]  See Foreign Issuer Reporting Enhancements, Release No. 33-8959 (Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)], available at https://www.sec.gov/files/rules/final/2008/33-8959fr.pdf.

[6]  See Evan Avila and Mattias Nilsson, Trends in the Foreign Private Issuer Population 2003-2023: A Descriptive Analysis of Issuers Filing Annual Reports on Form 20-F (Dec. 2024 (Revised May 2025)), available at https://www.sec.gov/files/dera_wp_fpi-trends-2412.pdf.

[7]  Id.

[8]  See supra note 1, n.13.

[9]  The reporting obligations of an FPI registrant are in contrast to the interim, quarterly and annual reporting requirements for non-FPI registrants, which are based on specific items of disclosure mandated in the relevant Form 8-K, Form 10-Q and Form 10-K. While both Nasdaq and the New York Stock Exchange require listed companies (including FPIs) to timely disclose any material information likely to affect the market price for their listed securities, those rules do not mandate the specific financial and other disclosure that would also apply to a non-FPI registrant that is required to file interim and quarterly reports on Form 8-K and Form 10-Q. For more details on the FPI reporting obligations, see Form 6-K, General Instructions, U.S. Securities and Exchange Commission (Revised February 2025), available at https://www.sec.gov/files/form6-k.pdf.

[10]  See supra note 1 at § II.B for an outline of the accommodations afforded to FPIs.

[11]  See supra note 1, n.101.

[12]  See supra note 2.

[13]  Id.

[14]  See supra note 1, n.101.

[15]  See supra note 1, at §§ II.A, and III.C.1.

[16]  See Holding Foreign Insiders Accountable Act, S. 2542, 118th Cong. (2024), available here; Press Release, Sen. Chris Van Hollen, Van Hollen, Kennedy Introduce Bipartisan Bill to Deter Executives of Foreign Companies from Insider Trading at the Expense of American Investors (June 13, 2024), available here.

[17] Notably, the concept release does not seek comments on the MJDS. Rather, the SEC appears to generally be positing the MJDS as a mutual recognition model to consider as an alternative.  See supra note 1, n.100.

[18]  See International Organization of Securities Commissions, Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (2016), available at https://www.iosco.org/about/pdf/Text-of-the-EMMoU.pdf.

The following Gibson Dunn lawyers prepared this update: J. Alan Bannister, Mellissa Campbell Duru, James J. Moloney, Eric Scarazzo, Rodrigo Surcan, and Chad Kang.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Capital Markets or Securities Regulation & Corporate Governance practice groups, or the following authors and practice group leaders:

Alan Bannister – New York (+1 212.351.2310, abannister@gibsondunn.com)

Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)

James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)

Eric Scarazzo – New York (+1 212.351.2389, escarazzo@gibsondunn.com)

Rodrigo Surcan – New York (+1 212.351.5329, rsurcan@gibsondunn.com)

Chad Kang – Orange County (+1 949.451.3891, ckang@gibsondunn.com)

Capital Markets:

Andrew L. Fabens – New York (+1 212.351.4034, afabens@gibsondunn.com)

Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)

Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Peter W. Wardle – Los Angeles (+1 213.229.7242, pwardle@gibsondunn.com)

Securities Regulation & Corporate Governance:

Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)

Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)

James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)

Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

We are pleased to provide you with the May edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.

ENFORCEMENT ACTIONS

UNITED STATES

SEC Drops Binance Suit
On May 29, the SEC and Binance filed a joint stipulation dismissing with prejudice the SEC’s lawsuit against the trading platform. The suit had been stayed at the SEC’s request while the agency’s crypto task force considers a new regulatory framework for digital assets. Binance stated that the dismissal “signals a global green light for responsible crypto innovation, boosting confidence from the U.S. to the EU and beyond.” Gibson Dunn represented Binance in this matter. Joint Stipulation; Law360; The Block.
SEC Charges Unicoin and Its Executives with $100 Million Fraud
On May 20, the SEC brought an enforcement action under the antifraud provisions of the federal securities laws against New York-based crypto project Unicoin, Inc., and three of its executives, in the U.S. District Court for the Southern District of New York. Unicoin and its executives allegedly made false and misleading statements by offering certificates that purportedly conveyed rights to Unicoin’s tokens and common stock. SEC; Complaint; The Block.
FTC and the State of Nevada Sue Online Crypto Trading Education Firm for $1.2 Billion Fraud Targeting Young Investors
On May 1, the Federal Trade Commission and the State of Nevada filed a complaint against an entity currently operating as IYOVIA and more broadly referred to as “IML.” IML offers educational courses in cryptocurrency trading but allegedly stole over a billion dollars from young investors through fraudulent courses. The company allegedly misrepresented how much both customers and salespeople could make, claiming its salespeople could make up to $750,000 per month, while knowing that just one in five earned more than $500 per month. FTC; Complaint; The Block.
Prosecutors Drop Money-Transmitter Charge Against Tornado Cash Developer
On May 15, the U.S. Attorney’s Office for the Southern District of New York pared back a charge for conspiracy to operate a money-transmitting business in its criminal case against Tornado Cash developer Roman Storm. Storm was charged in August 2023 with three counts: conspiracy to violate sanctions, conspiracy to commit money laundering, and conspiracy to operate an unlicensed money-transmitting business. The government had argued that the money-transmitting conspiracy could be proved through either evidence that Storm failed to comply with money-transmitting regulations or evidence that he transmitted funds known to be derived from a criminal offense. The government has dropped the former theory but continues to maintain the latter (along with the remaining counts). The decision comes in response to the April 7 memorandum from Deputy Attorney General Todd Blanche, which directed federal prosecutors to avoid “enforcement actions that have the effect of superimposing regulatory frameworks on digital assets.” Law360; SDNY Letter; Blanche Memo.
Judge Vacates Fraud and Manipulation Convictions Against Mango Markets Trader
On May 23, a federal judge in Manhattan overturned a jury verdict for charges of wire fraud, commodities fraud, and commodities manipulation against Avraham Eisenberg. Eisenberg had been convicted in April 2024 of manipulating the price of Mango Markets’ MNGO token in order to artificially inflate the value of his assets on the Mango Markets platform, allowing him to “borrow” money he did not intend to return. The court vacated the commodities fraud and commodities manipulation convictions for lack of venue, and entered a judgment of acquittal for the wire fraud charge due to insufficient evidence by the government that Eisenberg had made false statements. Eisenberg’s separate conviction for possession of child pornography was left in place. Law360; Opinion and Order.
New York Man Charged with Using Sham Blockchain Venture
On May 21, the Department of Justice and the SEC filed parallel criminal and civil actions against Jeremy Jordan-Jones, CEO of start-up Amalgam Capital Ventures LLC. Jordan-Jones had allegedly misrepresented his business to investors, raising $500,000 on the claim that it had developed a blockchain-based payment processing system, when Amalgam allegedly had not developed the technology. The U.S. Attorney’s Office for the Southern District of New York charged Jordan-Jones with fraud, false statements, and identify theft offenses; in a parallel action, the SEC sued Jordan-Jones under the antifraud provisions of the federal securities laws for making material misrepresentations to investors. DOJ; Indictment; SEC.
Former Celsius CEO Alex Mashinsky Sentenced to 12 Years in Prison for Crypto-Related Fraud
On May 8, Alex Mashinsky, the former CEO of the now-defunct crypto lender Celsius, was sentenced to 12 years in prison after he had pleaded guilty to fraud and market manipulation in the U.S. District Court for the Southern District of New York. According to the U.S. Attorney’s Office, Mashinsky defrauded Celsius investors by taking inappropriate risks with their funds, including by propping up the price of Celsius’ crypto-token CEL. DOJ.
DOJ Seizes $24 Million of Cryptocurrency from Developer of Qakbot Malware
On May 22, the Department of Justice unsealed an indictment against Qakbot developer Rustam Rafailevich Gallyamov and filed a civil forfeiture action against cryptocurrency tied to Qakbot. The Qakbot malware had allegedly been used to infect thousands of computers, allowing Gallyamov to sell access to those computers to various ransomware attackers. As part of the investigation, the FBI seized approximately $24 million in cryptocurrency generated through Qakbot’s allegedly criminal activity. CoinTelegraph; DOJ; Indictment; Complaint.
Superseding Indictment Adds 12 Defendants to RICO Conspiracy for $263 Million Scheme
On May 15, a superseding indictment was unsealed in the U.S. District Court for the District of Columbia adding twelve additional defendants to a RICO criminal charge originally brought against two individuals, Malone Lam and Jeandiel Serrano. The case, originally filed in September 2024, alleges a conspiracy to steal over $263 million worth of cryptocurrency, include over $230 million of Bitcoin from one victim in Washington, D.C., and then launder the proceeds. The defendants are charged with RICO conspiracy, conspiracy to commit wire fraud, money laundering, and obstruction of justice. DOJ 1; DOJ 2; Original Indictment.
Arrests Made in Kidnapping Attempt to Steal Cryptocurrency
On May 23, two people were arrested in New York City for the kidnapping and torture of an Italian tourist. The kidnappers were allegedly attempting to extort the tourist into turning over control of “millions of dollars” in cryptocurrency. The Block; NYT.

INTERNATIONAL

Argentinian President Milei Dissolved Investigation into LIBRA Scandal
On May 19, Argentinian President Javier Milei and Justice Minister Mariano Cúneo Libarona signed a decree dissolving a task force which was investigating the LIBRA cryptocurrency. LIBRA was originally promoted by Milei via social media as a “private project” to stimulate the Argentine economy. Milei’s promotion of LIBRA caused a scandal when the cryptocurrency reached a market valuation of more than $4.5 billion before soon losing nearly 90% of its value. Forbes; CoinDesk.
German Authorities Seize Over $38 Million from Now-Defunct Crypto Exchange Platform eXch
On May 9, the German Federal Criminal Police Office (BKA) announced that it had seized the server infrastructure of eXch, along with €34 million in Bitcoin, Ether, Litecoin, and Dash. The crypto exchange, which had been operating since 2014, enabled anonymous exchanges of crypto assets without any KYC measures or anti-money laundering protocols. German prosecutors said that the platform advertised this lack of measures on websites and other platforms of “criminal underground economy.” It is estimated that up to $1.9 billion has been moved through the exchange since its inception, in large part from criminal origins. The German authorities also claimed that a portion of the $1.4 billion in crypto stolen from Bybit earlier this year was laundered through eXch. BKA; The Block.

REGULATION AND LEGISLATION

UNITED STATES

Senate Advances GENIUS Act
On May 19, the Senate invoked cloture on the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act. The bill is the first comprehensive federal regulatory framework for stablecoins. The bipartisan cloture vote (66-32) limits the amount of further debate before a final vote is taken to approve or reject the bill. There is still an opportunity to propose amendments before the final vote, after which the bill will advance to the House of Representatives. The Block; MSN; Democrat Amendments.
Crypto Market Structure Bill Formally Introduced in House of Representatives
On May 29, a bipartisan group of House members formally introduced the crypto market-structure bill that would clarify the jurisdictional boundaries of the SEC and CFTC over digital assets. A discussion draft of the legislation had been released earlier in the month. The House Financial Services and Agriculture committees will consider and revise the bill before voting on whether to send the bill to the full chamber. The House Financial Services Committee held a hearing on the bill on June 4. Axios; Law360; Bill.
New Hampshire Becomes the First U.S. State to Pass “Strategic Bitcoin Reserve” Bill
On May 6, New Hampshire Governor Kelly Ayotte signed bill HB 302 into law, enabling up to 10% of the State’s general fund to be allocated to both precious metals and digital assets with a market cap exceeding $500 billion – a threshold currently met only by Bitcoin. The State can invest in qualifying digital assets either directly or via an exchange-traded fund, and may self-custody these assets or use a custodian. On May 7, Arizona followed suit and passed its own crypto reserve bill, but Governor Katie Hobbs vetoed it five days later. A similar bill has been adopted by the Texas State Legislature and is awaiting the signature of Governor Greg Abbott. Other States are currently considering adopting similar legislation, while these efforts have been paused in Florida. The Block; Axios.
The OCC Confirms that U.S. Banks Can Buy and Sell Customers’ Crypto on Their Behalf
On May 7, the Office of the Comptroller of the Currency published Interpretive Letter No. 1184, which clarified that national banks and federal savings associations may buy and sell crypto-assets held in custody on a customer’s behalf at the direction of the customer. The agency also stated that national banks can outsource crypto custody and trade execution services to third parties if proper risk-management procedures are in place. The guidance is consistent with prior OCC, Federal Reserve, and FDIC guidance and other actions as they continue to signal increased receptivity to crypto-related activities and digital assets in the banking industry on behalf of clients. Interpretive Letter No. 1184; The Block.
SEC and FINRA Withdraw Broker-Dealer Guidance
On May 15, FINRA and the SEC Division of Trading and Markets withdrew their 2019 Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities. The Joint Statement had set forth the SEC’s interpretation of the so-called Customer Protection Rule, which effectively prohibited broker-dealers from taking custody of digital assets. The withdrawal was accompanied by new FAQs on broker-dealer responsibility. The FAQs state that broker-dealers can custody digital assets without complying with the Customer Protection Rule or with the requirements of the 2020 Special Purpose Broker-Dealer Statement. Withdrawal; Joint Statement; FAQs; Lexology.
Department of Labor Rescinds Guidance Discouraging 401(k) Crypto Investment
On May 28, the Department of Labor rescinded its 2022 guidance directing 401(k) plan fiduciaries to exercise “extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.” In its place, the Department’s new guidance states that “a plan fiduciary’s decision should consider all relevant facts and circumstances.” DOL; Prior Guidance; The Block.

INTERNATIONAL

Hong Kong Passes Stablecoin Bill
Hong Kong’s Legislative Council passed a stablecoin bill for fiat-referenced stablecoins. The bill will require stablecoin issuers to obtain a license from the Hong Kong Monetary Authority and comply with a range of requirements, including proper management of asset reserves, redemption mechanisms, and segregation of client assets. The bill is expected to come into effect this year, with “sufficient time” allowed for the industry to understand the requirements. The bill builds on Hong Kong’s recent expansion of its crypto market, including the introduction of a virtual crypto asset regime for crypto trading platforms in 2023, and the launch of a sandbox for stablecoin issuers in 2024. The Block; CNBC.
El Salvador Continues to Purchase Bitcoin After IMF Announces Agreement to Stop
On May 27, the International Monetary Fund announced that it had reached an agreement with the government of El Salvador to release $120 million of funds as part of a $1.4 billion loan program approved last year. As part of the agreement, the IMF noted that El Salvador agreed not to purchase more Bitcoin. After the announcement, however, El Salvador posted on X that it had purchased additional Bitcoin. The Block; IMF; X.
New Singapore Rules for Offshore Crypto Service Providers
The Monetary Authority of Singapore (MAS) has confirmed its new rules for crypto service providers that operate “outside Singapore” but with Singapore touchpoints (e.g. supported by a corporation or individuals in Singapore). To determine if a service provider operates “outside Singapore,” factors such as whether the front-office functions (e.g. sales, business development) or customers are located outside Singapore are relevant. In-scope service providers will not benefit from any transitional grandfathering. They must suspend or cease their business by June 30, 2025. The MAS will grant licenses under the new framework only in extremely limited circumstances (as this type of operating model generally gives rise to regulatory concerns, e.g. AML/CFT-related). The MAS has published ongoing requirements (conduct, prudential, governance, risk management etc.) for those service providers that will obtain a license. Consultation Paper.
FCA Consults on Stablecoin Issuance and Custody Rules
On May 28, the UK Financial Conduct Authority (FCA) published consultation papers CP25/14 and CP25/15, seeking stakeholder feedback on a draft framework that would bring the activities of issuing “qualifying stablecoins” and safeguarding “qualifying cryptoassets” within the regulatory perimeter, and introduce prudential rules for the aforementioned activities. Proposed regulatory measures relating to stablecoin issuance include requirements for full reserve backing, guaranteed par redemption on a T+1 basis, and a prohibition on distributing stablecoin yield to customers. The FCA is further proposing to introduce a new prudential regime to ensure that crypto firms set aside adequate financial resources. The proposed framework—which will mirror the three-pillared approach of minimum capital, liquidity buffers and risk controls used in traditional finance—will set baseline rules applicable across sub-sectors in the crypto industry and prescribe capital and liquidity rules for stablecoin issuers. Interested respondents are invited to provide comments by July 31, 2025. CP25/14; CP25/15.

SPEAKER’S CORNER

UNITED STATES

Commissioner Peirce Describes Role for the SEC in Crypto Regulation
On May 29, SEC Commissioner Hester Peirce spoke at the Bitcoin 2025 conference in Las Vegas. Acknowledging that the SEC had dismissed several crypto-related enforcement actions, Commissioner Pierce emphasized that the Commission still has a role in enforcing the law against bad actors in the crypto space. “The goal is to use our enforcement tool for what it was intended to be used for, which is when there are clear rules and people violate them, then we can use our enforcement too.” The Commissioner also stated that “most crypto assets as we see them today are probably not themselves securities,” but that “doesn’t mean that you can’t sell a token that is not itself a security in a transaction that is a securities transaction.” Speech; The Block; Cointelegraph.
SEC Holds Tokenization Roundtable
On May 12, the SEC held a roundtable on tokenization as part of a series of discussions on digital asset regulation. The roundtable, held at the SEC’s headquarters, included panels on the evolution of tokenized capital markets and on the future of tokenization. In his keynote address, SEC Chairman Paul Atkins outlined the Commission’s goals to create clear guidelines for issuance of digital assets, to allow more choice regarding how to custody digital assets, and to allow a wider variety of trades, including “‘pairs trading’ between securities and non-securities.” SEC; Keynote.

INTERNATIONAL

Nigel Farage Advocates for UK Bitcoin Reserve
On May 29, UK Reform Party leader and former Brexit campaigner Nigel Farage pledged to introduce legislation to establish a strategic bitcoin reserve if he were to be elected Prime Minister. Speaking at the Bitcoin 2025 conference in Las Vegas, he also pledged to ban crypto debanking and to lower the capital gains tax. Speech; The Block.

OTHER NOTABLE NEWS

Coinbase Acquires Crypto Options Exchange Deribit for $2.9 Billion
On May 8, Coinbase agreed to acquire the crypto options exchange Deribit for approximately $2.9 billion in cash and stock. The transaction is still subject to regulatory approvals and closing conditions and is expected to close by year-end. Coinbase Blog; CoinDesk.
Leaders of IRS Crypto Unit Departs, Trish Turner Takes Over
On May 6, Trish Turner, a longtime IRS official, was appointed to lead the agency’s digital-asset unit after the exit of Sulolit Mukherjee and Seth Wilks, who co-led the unit for over a year. Before this new role, Turner served as a senior advisor within this unit responsible for crypto taxation and enforcement. The Block.
Three CFTC Commissioners Announce Departure
On May 21, CFTC Commissioner Kristin Johnson announced her intent to leave the agency, joining two others—Summer Mersinger, and Christy Goldsmith Romero—who had already announced that they would step down at the end of May. With former Chairman Rostin Behnam having departed earlier this year, when Commissioner Johnson leaves only acting Chair Caroline Pham will remain. Pham has also stated that she plans to leave the agency once President Trump’s nominee, Brian Quintenz, is confirmed. The CFTC has not operated with so few governing members since early 2022. Law360.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, William Hallatt, Michelle Kirschner, Hagan Rooke, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Nicholas Tok, Apratim Vidyarthi, Justin Fishman, and Theo Curie.

FinTech and Digital Assets Group Leaders / Members:

Ashlie Beringer, Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Jason J. Cabral, New York (+1 212.351.6267, jcabral@gibsondunn.com)

Ella Alves Capone, Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)

M. Kendall Day, Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Sébastien Evrard, Hong Kong (+852 2214 3798, sevrard@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)

Nick Harper, Washington, D.C. (+1 202.887.3534, nharper@gibsondunn.com)

Martin A. Hewett, Washington, D.C. (+1 202.955.8207, mhewett@gibsondunn.com)

Sameera Kimatrai, Dubai (+971 4 318 4616, skimatrai@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Stewart McDowell, San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Hagen H. Rooke, Singapore (+65 6507 3620, hhrooke@gibsondunn.com)

Mark K. Schonfeld, New York (+1 212.351.2433, mschonfeld@gibsondunn.com)

Orin Snyder, New York (+1 212.351.2400, osnyder@gibsondunn.com)

Ro Spaziani, New York (+1 212.351.6255, rspaziani@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Eric D. Vandevelde, Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)

Benjamin Wagner, Palo Alto (+1 650.849.5395, bwagner@gibsondunn.com)

Sara K. Weed, Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

Partners Collin Cox, Sydney Scott, Gregg Costa, Andrea Smith, and Trey Cox recently spoke to Texas Lawyer about the strategic growth of our Houston trial team. As Collin told the publication, “The plan was, and is, to build the best litigation department in Houston with the resources of a big firm like Gibson Dunn.”

Gibson Dunn Building Trial Team in Houston With Lawyers Drawn to the Courtroom
After launching its Houston office in 2017 with transactional partners, Gibson, Dunn & Crutcher has strategically built a trial team over the last four years.
Law.com | Texas Lawyer
By Brenda Sapino Jeffreys
June 05, 2025

Since the hiring of litigation partner Collin Cox in 2021, Gibson, Dunn & Crutcher has strategically built a trial practice within its eight-year-old Houston office, which was launched with a splashy team of Big Law transactional partners.

Cox, who came from trial boutique Yetter Coleman as the first trial partner in the office, made the move with the goal of building a litigation practice on the firm’s Big Law platform. In 2022, the firm hired litigation partners Sydney Scott, formerly a partner with Houston’s Smyser Kaplan & Veselka, and Gregg Costa, who stepped down from the U.S. Court of Appeals for the Fifth Circuit and joined the Houston team.

“The plan was, and is, to build the best litigation department in Houston with the resources of a big firm like Gibson Dunn,” Collin Cox said.

The trial team has grown to four partners—New York partner Andrea Smith recently transferred to the Houston office—and 13 associates, with more on the way in the fall.

Trey Cox, a Dallas partner who is co-chair of the firm’s global litigation practice group, said the plan is to continue to strategically grow the Houston trial team by acquiring “excellent talent at both the top end and at the junior level.”

“Look, it’s going great. Litigation is continuing to grow. We’ve got all of these companies moving in here. The economy has made the corporate side of things a little more uneven, the uncertainty, but frankly that uncertainty is good for litigation,” Trey Cox said.

Trey Cox, who joined Gibson Dunn’s office in 2020 from Lynn Pinker Cox & Hurst, said Houston was an outlier among Gibson Dunn offices when it lacked a litigation team. After he joined the firm in Dallas, he started working on recruiting Collin Cox to be the base of the Houston litigation team.

Bolstered by the associates, the team of Cox, Scott and Costa tried seven lawsuits to trial or arbitration in 2024.

And in 2025, a team led by Collin Cox, Costa and Trey Cox won a verdict in state court in North Dakota against environmental organization Greenpeace and affiliates. The jury awarded their clients nearly $667 million, after finding Greenpeace defamed the companies and incited protesters to trespass on their property and disrupt construction efforts.

“We had three first-chair lawyers. That’s crazy. I’m not sure who else can put three first-chair lawyers on the floor,” Trey Cox said.

“It’s a great place in terms of people and quality of work,” Collin Cox said.

Scott said when she decided to leave Smyser Kaplan, she figured Gibson Dunn would be a good fit, because the firm has a reputation for getting hired for “landmark cases” and winning them. And, she said, “I love trying cases.”

“I didn’t think that when I started at Gibson Dunn [that] I would have a year like last year. I tried four cases in a year, which is pretty remarkable,” she said.

Her trials included two defending Johnson & Johnson in talcum powder cases — one in Miami that ended in a hung jury, and one with Collin Cox in Dallas that settled during trial.

The number of significant trials shows that Collin Cox’s vision for growing the practice has panned out, she said, because they have been busy and getting hired for big lawsuits, some out of state, like the North Dakota litigation for Energy Transfer and the Dakota Access Pipeline.

“Texas has some of the best trial lawyers in the country, but the opportunity for me to take associates to Miami Dade County to try a case has sharpened us all as lawyers [with the] opportunity to argue to other jury pools,” Scott said.

Costa said that when he decided to leave the bench, he wanted to practice at a firm where litigation “really matters,” and it is roughly 50% of the work at Am Law 100 firm Gibson Dunn. The Houston office was also in a “sweet spot,” because it was “effectively launched” in 2017 and has grown.

In his view, the litigation team in Houston is doing what many Big Law firms don’t do, which is actually going to trial and also focusing on giving younger lawyers an active role in the trial.

“I gave up the federal bench and I didn’t want to go somewhere and shuffle paper,” he said.

Collin Cox, co-partner in charge of the Houston office, said the team sees potential for work stemming from the new Texas Business Court, a specialty court launched in 2024 to handle certain commercial disputes.

Costa, global co-chair of the Gibson Dunn trials practice group, said it’s not just the number of lawsuits the Houston team has tried, but the variety of litigation, including commercial, oil and gas litigation, and defending Johnson & Johnson in talc cases.

Reprinted with permission from the June 5, 2025 edition of “Texas Lawyer” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

Partner Jason Schwartz told The Wall Street Journal that a recent U.S. Supreme Court decision allowing a woman to pursue a claim that she was denied a promotion because she is straight “will supercharge the current wave of reverse discrimination lawsuits by removing a significant obstacle for plaintiffs.”

In a unanimous decision, the Supreme Court found that the lower appeals court was wrong to require the plaintiff to show “background circumstances” indicating anti-straight bias by her employer — a burden that would not have applied had the plaintiff been gay.

CC/Devas (Mauritius) Limited v. Antrix Corp. Ltd., Nos. 23-1201, 24-17 – Decided June 5, 2025

Today, a unanimous Supreme Court held that personal jurisdiction exists under the FSIA whenever an exception to immunity applies and service of process has been accomplished, without regard to whether a foreign state has minimum contacts with the United States.

“Personal jurisdiction exists under § 1330(b) of the FSIA when an immunity exception applies and service is proper.”

Justice Alito, writing for the Court

Background:

The Foreign Sovereign Immunities Act of 1976 provides that foreign states are generally immune from suit in United States courts, subject to several exceptions. 28 U.S.C. §§ 1330, 1602 et seq. For example, the FSIA waives immunity for certain suits to confirm arbitration awards. Id. § 1605(a)(6). When an exception applies, the FSIA vests federal courts with “original jurisdiction” over the claims, id. § 1330(a), and provides that “[p]ersonal jurisdiction over a foreign state shall exist” where the district court possesses subject-matter jurisdiction and “where service has been made under section 1608 of this title,” id. § 1330(b).

In 2005, Antrix Corporation Ltd.—the commercial arm of India’s national space agency—entered into a satellite-leasing agreement with Devas Multimedia Private Ltd.—a privately owned Indian company. Several years later, Antrix invoked the agreement’s force-majeure clause to terminate the agreement with Devas, arguing that India’s new satellite-allocation policy prevented it from performing under the contract. Devas initiated arbitration before the International Chamber of Commerce, which awarded Devas damages for Antrix’s breach of contract.

Devas sought to confirm the award in the United States, invoking the FSIA’s arbitration exception as the basis for federal jurisdiction. On appeal of the confirmed award, the Ninth Circuit held that the court lacked personal jurisdiction over Antrix. Although it did not question that the arbitration exception applied, the court of appeals imposed an additional requirement that a foreign state have sufficient “minimum contacts” with the United States. The Supreme Court granted certiorari to decide whether the FSIA requires proof of minimum contacts before a United States court can exercise personal jurisdiction over a foreign state.

Issue:

Whether plaintiffs must prove minimum contacts before federal courts may assert personal jurisdiction over foreign states sued under the FSIA.

Court’s Holding:

The FSIA does not require proof of minimum contacts before a court can exercise personal jurisdiction over a foreign state.

What It Means:

The Court interpreted 28 U.S.C. § 1330(b) to provide for personal jurisdiction whenever an FSIA exception to immunity applies and a party properly served the foreign state under 28 U.S.C. § 1608. In doing so, the Court admonished the Ninth Circuit for its “strange” statutory interpretation that failed to “enforc[e] these provisions as written.” Op. 10–11.
Although this case arose under the arbitration exception to immunity, the Court’s analysis of 28 U.S.C. § 1330(b) applies to any suit implicating one of the several exceptions in 28 U.S.C. §§ 1605–1607.
In reaching its decision that the statutory text of the FSIA does not impose a minimum contacts requirement, the Court left open for consideration on remand the question whether the Due Process Clause of the Fifth Amendment “itself requires a showing of minimum contacts.” Op. 12–13. Thus, it is possible future courts may hold jurisdiction lacking as a constitutional matter, regardless of the text of the FSIA.

Gibson Dunn represented Devas’s owners as Petitioners.

The Court’s opinion is available here.

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com
Jacob T. Spencer 202.887.3792 jspencer@gibsondunn.com	David W. Casazza +1 202.887.3724 dcasazza@gibsondunn.com

Related Practice: Judgment and Arbitral Award Enforcement

Matthew D. McGill
+1 202.887.3680
mmcgill@gibsondunn.com

This alert was prepared by associates Elizabeth A. Kiernan and Rebecca Roman.

Ames v. Ohio Department of Youth Services, No. 23-1039 – Decided June 5, 2025

Today, the Supreme Court unanimously held that Title VII of the Civil Rights Act of 1964 does not impose an additional requirement on majority-group plaintiffs to show “background circumstances” suggesting that their employer discriminates against the majority group.

“We hold that this additional ‘background circumstances’ requirement is not consistent with Title VII’s text or our case law construing the statute.”

Justice Jackson, writing for the Court

Background:

Title VII makes it unlawful for any “employer to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual . . . , because of such individual’s race, color, religion, sex, or national origin.” 42 U.S.C. § 2000e-2(a)(1). Those protections cover adverse employment actions based on sexual orientation. Bostock v. Clayton County, 590 U.S. 644, 649-52 (2020).

Marlean Ames, a straight woman, sued her employer under Title VII, claiming she was denied a promotion and later demoted based on her sexual orientation. In support, she pointed out that her employer hired a gay woman for the position to which she had applied and a gay man to fill her previous position after the demotion. The district court granted summary judgment for her employer, and the Sixth Circuit affirmed. Applying circuit precedent, the court of appeals held that Ames had failed to show “background circumstances to support the suspicion that the defendant is th[e] unusual employer who discriminates against the majority.” The Supreme Court granted review to decide whether Title VII imposes that background-circumstances requirement.

Issue:

Whether a plaintiff who belongs to a majority group must show “background circumstances” suggesting the defendant is the “unusual employer who discriminates against the majority” to establish a prima facie case of discrimination under Title VII of the Civil Rights Act of 1964.

Court’s Holding:

No: Title VII imposes the same evidentiary requirements on majority-as on minority-group plaintiffs.

What It Means:

Today’s decision confirms that courts assessing Title VII claims need not divide plaintiffs into majority and minority groups. The burdens of proof are identical for all Title VII plaintiffs, regardless of whether the plaintiffs are in the majority or minority with respect to their protected characteristics.
The Court’s opinion lowers the barrier for majority-group plaintiffs to bring (and increases the burden on employers to defend against) so-called reverse-discrimination claims, particularly in the Sixth, Seventh, Eighth, Tenth, and D.C. Circuits, all of which had adopted the background-circumstances requirement.
The Court’s opinion emphasizes that Title VII prohibits covered discrimination of any kind, not merely discrimination against a limited set of historically disadvantaged groups, which comports with the Court’s modern approach to most anti-discrimination statutes.
Given the narrowness of the question presented, the opinion leaves a number of related Title VII issues unaddressed. For example, the Court assumed without deciding that McDonnell Douglas—the traditional framework for evaluating Title VII claims based on circumstantial evidence—applies in the summary-judgment context. The Court also declined to address whether McDonnell Douglas requires specific evidence of pretext or only a showing that discrimination was a motivating factor in the employer’s decision. And Justices Thomas and Gorsuch, in a separate concurrence, questioned whether McDonnell Douglas “is a workable and useful evidentiary tool” at all.

The Court’s opinion is available here.

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Labor and Employment

Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com	Katherine V.A. Smith +1 213.229.7107 ksmith@gibsondunn.com	Zakiyyah T. Salim-Williams +1 202.955.8503 zswilliams@gibsondunn.com
Danielle J. Moss +1 212.351.6338 dmoss@gibsondunn.com	Harris M. Mufson +1 212.351.3805 hmufson@gibsondunn.com	Cynthia Chen McTernan +1 213.229.7633 cmcternan@gibsondunn.com

This alert was prepared by associates Matt Aidan Getz and Bryston C. Gallegos.

Join us for a 30-minute briefing covering several Executive Compensation practice topics. This program is part of a quarterly webcast series designed to provide quick insights into emerging issues as well as practical advice.

Topics to be discussed:

Emerging best practices and analysis of disclosures around equity grant timing policies and practices
Expanding clawback policies beyond accounting restatements
Executive security, both physical and digital

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 0.5 credit hour, of which 0.5 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 0.5 hour.

Gibson, Dunn & Crutcher LLP is authorized by the Solicitors Regulation Authority to provide in-house CPD training. This program is approved for CPD credit in the amount of 0.5 hour. Regulated by the Solicitors Regulation Authority (Number 324652).

Neither the Connecticut Judicial Branch nor the Commission on Minimum Continuing Legal Education approve or accredit CLE providers or activities. It is the opinion of this provider that this activity qualifies for up to 0.5 hour toward your annual CLE requirement in Connecticut, including 0 hour(s) of ethics/professionalism.

Application for approval is pending with the Illinois, Texas, Virginia, and Washington State Bars.

PANELISTS:

Krista Hanvey is Co-Chair of Gibson Dunn’s Executive Compensation and Employee Benefits practice group and Co-Partner in charge of the firm’s Dallas office. She counsels clients of all sizes across all industries using a multi-disciplinary approach to compensation and benefits matters that crosses tax, securities, labor, accounting and traditional employee benefits legal requirements. Ms. Hanvey has significant experience with all aspects of executive compensation, health and welfare benefit plan, and retirement plan compliance, planning, and transactional support. She also oversees the Dallas office’s pro bono adoption program.

Alli Balick is Of Counsel in the Los Angeles office of Gibson Dunn. She is a member of the firm’s Executive Compensation and Employee Benefits Practice Group. Her practice focuses on all aspects of executive compensation and employee benefits, including tax, ERISA, accounting, corporate, and securities law aspects of equity and other incentive compensation plans, qualified and nonqualified retirement and deferred compensation plans and executive employment and severance arrangements. Alli also practices with the firm’s Corporate and Securities Regulation and Corporate Governance departments, focusing on mergers and acquisitions, emerging growth companies, corporate governance and securities law matters.

In a recent episode of the Original Jurisdiction podcast, partner Debra Wong Yang joined host David Lat to reflect on the formative family and professional experiences that shaped her journey — from serving as a California state judge and U.S. Attorney to advising on multiple White House task forces. Today, she chairs our Crisis Management Practice Group, bringing a career of public service and legal excellence to the most complex challenges our clients face.

Speaking with David about her experience at Gibson Dunn, Debra shared how she has been inspired to recognize the potential to affect meaningful change, tackle the bigger issues confronting the country, and help make it a better place. “And when I saw that it went way beyond just lawyering and doing cases, it was really opportunities, opportunities to affect major change in the world. And I think that’s the thing that I treasured the most about the run that I’ve had here.”

Listen to the episode: https://davidlat.substack.com/p/crisis-management-debra-wong-hang-gibson-dunn-crutcher-podcast-interview

The Judgment is only the third occasion on which the Competition Appeal Tribunal has been required to approve a collective settlement, and it offers valuable insight to the CAT’s developing approach to a settlement procedure still in its infancy.

A. Introduction

In the long-running Merricks v Mastercard litigation, the Competition Appeal Tribunal (the CAT) approved the Class Representative and the Defendants’ (together, the “Settling Parties”) joint application for a collective settlement approval order (CSAO) (the Settlement Application). On 20 May 2025, the CAT issued its judgment setting out its reasons for that approval, together with its decision as to how the settlement sum should be distributed (the Judgment).

The Judgment is important because it is only the third occasion on which the CAT has been required to approve a collective settlement. As such, the Judgment offers valuable insight to the CAT’s developing approach to a settlement procedure still in its infancy. It is also the first time the CAT has had to consider whether it is required to consider the interests of other stakeholders (in particular, the litigation funder, who opposed the Settlement Application) when considering a settlement application.

This client alert briefly examines the Judgment and identifies some key takeaways.

B. Collective Settlement Procedure

The CAT is required to approve proposed settlements in opt-out collective proceedings.[1] Accordingly, once parties have reached a settlement, they must apply jointly to the CAT for a CSAO (which application will usually be determined at a hearing). The application must among other things: set out the terms of the proposed settlement; contain a statement that the applicants believe the terms of the proposed settlement are just and reasonable, supported by evidence; and specify how any sums are to be paid and distributed. The test for approval is whether the terms of the proposed settlement are “just and reasonable”.

The process is new, with little authority on how it should operate in practice. Prior to the Judgment, there had only been two previous decisions under the collective settlement regime, each involving far smaller sums. In McLaren,[2] the Class Representative settled with one of 12 Defendants for £1.5 million (comprising both damages and costs). In Gutmann,[3] the Class Representative settled with one of two Defendants for up to £25 million (comprising both damages and costs).

C. Judgment Summary

Approval of the settlement

The Settling Parties signed a settlement agreement on 3 December 2024 (the Settlement Agreement), which provided that, subject to the CAT’s approval, the Defendants would pay £200 million in full and final settlement of the proceedings (inclusive of interest and all costs and expenses) (the Settlement Sum).[4] The Settlement Agreement did not contain any provisions regarding distribution of the Settlement Sum, which was expressed to be a matter for the CAT.[5] The litigation funder was not a party to the Settlement Agreement, strongly opposed the Settlement Application on the basis that the Settlement Sum was “significantly too low”,[6] and was granted permission to intervene. As a result of the litigation funder’s opposition, the Settlement Agreement provided for an indemnity from the Defendants to the Class Representative of up to £10 million against any contractual exposure he might have to the litigation funder as a result of accepting the settlement (the Indemnity).[7]

Notwithstanding the litigation funder’s intervention and objections, the Judgment makes clear that the test to be applied by the CAT in determining whether to approve a collective settlement application is whether the terms of the settlement are “just and reasonable” from the exclusive perspective of the class members (as opposed to all stakeholders involved, i.e. including the litigation funder).[8] That is because, in opt-out proceedings, class members are not involved in the proceedings and the CAT’s role is to scrutinize the proposed settlement on their behalf.

Rule 94(9) of the Competition Appeal Tribunal Rules 2015 (the CAT Rules) provides that, in determining whether a collective settlement is “just and reasonable”, the CAT shall take into account all relevant circumstances, including a non-exhaustive list of factors. In this regard, the Judgment emphasises that the CAT will not require a settlement to be “perfect” and that “there is likely to be a range of settlements which could be approved”.[9]

The CAT considered various factors listed in CAT Rule 94(9). In doing so, it noted, amongst other things, that:

the number of class members entitled to participate in the settlement was “vast”;[10]
the £200 million Settlement Sum was “well within the reasonable range”, despite the litigation funder’s objections;[11]
there was “real benefit to class members in securing a payment of damages now, rather than waiting potentially a further two years for the uncertain prospect of potentially a higher amount”;[12]
the fact that any further costs would have been paid by the litigation funder was not an irrelevant consideration from the perspective of the class members since the litigation funder would have sought reimbursement for such costs;[13], and
there was “no requirement for there to be an independent opinion” in the circumstances – it would have been very difficult to obtain a meaningful opinion in the short period of time available and, in any event, the CAT was not short on legal analysis of the relevant strengths and weaknesses of the case, nor past judgments in the case (however, note the CAT’s postscript guidance below).[14]

More generally, the CAT observed that it is not concerned with deciding “the best negotiating strategy”.[15] In this regard, it made clear that there may be a difference in perspective and interests between a class representative and a litigation funder. For the former, a 15% chance that the case may fail might be an unacceptable risk in terms of rejecting a settlement sum of £200 million; whereas for the latter, which has a portfolio of cases and seeks to make a high return on that portfolio, continuing a case which only has a 30% chance of achieving £500 million as opposed to settling it for £200 million may be a more commercially sensible approach.[16]

In relation to the Indemnity, the CAT noted this may have given rise to a conflict of interest when the Settlement Agreement was entered into. However, it explained that it had subjected the terms of the settlement to “careful scrutiny to satisfy [itself] that they are just and reasonable”.[17] Further, the Class Representative had reached the view that the Settlement Sum was in the best interests of the class members before the Defendants offered the Indemnity.[18]

Distribution

As a preliminary point, the CAT rejected the litigation funder’s “fundamentally misconceived” argument that it could not: (i) approve the Settlement Application; but, (ii) then direct a different basis of distribution to that proposed in the draft order accompanying the Settlement Application. Rather, the CAT held that it must first determine the Settlement Application and then must itself decide the appropriate order as to how the Settlement Sum is distributed.[19] This distinction is made clear in CAT Rule 94(4)(b) and (d).[20]

The CAT highlighted as “fundamental” that “the collective proceedings regime should operate for the benefit of [class members] and not primarily for the benefit of lawyers and funders” while recognising the need for “commercial litigation funding to pay for it”.[21] The Tribunal further noted that there is “no one right answer […] regarding the amount to be offered to each [class member]”; “the only requirement is that the distribution should be fair and reasonable”.[22]

On that basis, the CAT divided the Settlement Sum into the following pots for distribution:

Pot 1 – Class Members. The CAT agreed with the Settling Parties that a payment of £45 per class member, which was expected to lead to a take-up of 5% (i.e., 2.2 million class members), was reasonable and fair, subject to a cap of £70 per class member in the event of lower take-up to ensure payments were not excessive.[23] Equally, given the possibility of higher take-up, which could exhaust the Settlement Sum, the CAT determined that it was necessary to reserve a portion of the Settlement Sum for the litigation funder.[24] Accordingly, the CAT limited Pot 1 to £100 million.
Pot 2 – Costs. The CAT decided that this pot should cover: (i) costs paid on behalf of the Class Representative; (ii) the litigation funder’s payment of its own direct costs; and (iii) further anticipated costs, with certain of those costs to be assessed for reasonableness by an independent expert. The CAT noted that the total Pot 2 sum may exceed the estimated figure of £45.6 million in the Settlement Application.
Pot 3 – Litigation Funder’s Profit Return and Other. Pot 3 would amount to £100 million less the sum of Pot 2. The CAT determined it should be used to:
1. Pay the Class Representative’s costs which do not fall within Pot 2.[25]
2. Pay the litigation funder’s profit return. The Settlement Application expressly left the determination of the profit return to the CAT, in line with the statutory scheme and the LFA.[26] As an initial matter, the CAT was satisfied that the litigation funder should be paid a profit return given the importance of litigation funding to collective proceedings. However, to determine the appropriate level in the circumstances,[27] it was guided by jurisprudence from Australia and Canada. The CAT took into account the significant value of the funding commitment (a notional £54.85 million),[28] the significant funding period (over 5 years),[29] the fact that the case was “very far from a success”,[30] the litigation funder’s strategy of running a portfolio of cases,[31] and an Australian judgment which found that the return on investment for a substantial litigation funder is 1.2x for all completed cases, 1.9x for cases which did not provide a negative return, and above 4x for 15% of cases.[32] On that basis, although the litigation funder argued it was entitled to an “agreed minimum floor” of a return of £179 million, the CAT determined that a return on investment of 1.5x (amounting to only £68 million) would be appropriate, “recognising the significant risk but reflecting also the poor outcome”.[33]
3. Supplement Pot 1 in the event that more than 5% of class members submit claims.

Any remaining money in Pot 3 after these three stages would go to a charity, The Access to Justice Foundation (as proposed by the Class Representative), which the CAT determined to be more appropriate than The Good Things Foundation (proposed by the Defendants).[34]

D. Takeaways for Future Collective Settlements

The CAT emphasised that its approach to settlement in this case had been “determined by the exceptional circumstances of this case” and “should not be regarded as a guide for more positive settlements”.[35] Nonetheless, given the limited jurisprudence in this area, we anticipate the Judgment, together with the Canadian and Australian jurisprudence, will at the very least provide a starting point for future collective settlements.

Practitioners should also note the CAT’s postscript guidance that: (i) settlement applications should have a section specifically addressing full and frank disclosure;[36] (ii) they will ordinarily expect a comprehensive opinion from a KC;[37] and (iii) if a settlement application is made shortly before trial, the likely outcome is that the trial will be adjourned and refixed if the settlement is not approved.[38]

Finally, in the days since the Judgment, the litigation funding industry has sounded the alarm in relation to the CAT’s approach to the litigation funder’s level of return on investment which they say is far too low and likely to produce a chilling effect in terms of the availability of funding for future collective proceedings. Indeed, the litigation funder in this case has called the Judgment “unfair” and is exploring potential options to appeal. Claimant law firms and other litigation funders will therefore be watching closely to see what steps the litigation funder takes next.

[1] Section 49A Competition Act 1998.

[2] Case 1339/7/7/20 Mark McLaren Class Representative Limited v MOL (Europe Africa) Ltd and Others.

[3] Case 1304/7/7/19 Justin Gutmann v First MTR South Western Trains Limited and Another.

[4] Judgment, para. 61.

[5] Judgment, para. 68.

[6] Judgment, para. 75.

[7] Judgment, para. 67.

[8] Judgment, para. 81.

[9] Judgment, para. 83.

[10] Judgment, para. 84.

[11] Judgment, para. 89.

[12] Judgment, para. 100.

[13] Judgment, para. 100.

[14] Judgment, para. 106.

[15] Judgment, para. 107.

[16] Judgment, para. 107.

[17] Judgment, para. 102.

[18] Judgment, para. 103(1).

[19] Judgment, para. 112.

[20] Judgment, para. 118.

[21] Judgment, para. 121.

[22] Judgment, para. 129.

[23] Judgment, paras 129 and 131.

[24] Judgment, para. 130.

[25] Judgment, para. 196.

[26] Judgment, para. 167.

[27] Judgment, para. 168.

[28] Judgment, para. 179.

[29] Judgment, para. 180.

[30] Judgment, para. 182.

[31] Judgment, para. 183.

[32] Judgment, para. 187.

[33] Judgment, para. 188.

[34] Judgment, para. 202.

[35] Judgment, para. 208.

[36] Judgment, para. 211.

[37] Judgment, para. 212.

[38] Judgment, para. 213.

The following Gibson Dunn lawyers prepared this update: Doug Watson, Dan Warner, and Jack Crichton.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Class Actions, Antitrust & Competition, or Litigation practice groups, or the following in London:

Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com)

Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com)

Doug Watson (+44 20 7071 4217, dwatson@gibsondunn.com)

Susy Bullock (+44 20 7071 4283, sbullock@gibsondunn.com)

Dan Warner (+44 20 7071 4213, dwarner@gibsondunn.com)

Jack Crichton (+44 20 7071 4008, jcrichton@gibsondunn.com)

Partner Ibrahim Soumrany spoke to Arabian Gulf Business Insight about promising signs for Saudi Arabia’s IPO markets, as companies begin to list again following a period of geopolitical uncertainty.

Ibrahim told the publication that while some companies have chosen to delay their IPO plans by a few weeks, there is still momentum from those intending to list. “Everyone’s acknowledging that it’s not a very easy market, but I don’t think that anyone is taking the view that people are about to pull their IPOs. It also depends on how much you price your IPO; it’s a kind of balancing act.”

Washington, D.C. partner Matt Axelrod spoke to Global Investigations Review (subscription required) about a recent U.S. Department of Justice (DOJ) decision to decline prosecution of a company that voluntarily disclosed export controls violations.

He also discussed how the DOJ may view similar cases in future. “When a case fits this fact pattern [of] a less-serious national security harm and rogue employee … the message seems to be that if you do the voluntary self-disclosure, robust internal investigation [and] remediation, a declination is certainly possible,” Matt told the publication.