Publications Archives

On January 10, 2025, the Federal Trade Commission announced its annual update of thresholds for pre-merger notifications of certain M&A transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).[1]

Pursuant to the statute, the HSR Act’s jurisdictional thresholds are updated annually to account for changes in the gross national product. The new thresholds will take effect on February 21, 2025, 30 days after publication in the Federal Register, which happened earlier today, and apply to transactions that close on or after that date.[2]

The size-of-transaction threshold for reporting proposed mergers and acquisitions under Section 7A of the Clayton Act will increase by $6.9 million, from $119.5 million in 2024 to $126.4 million for 2025.

Original Threshold	2024 Threshold	2025 Threshold
$10 million	$23.9 million	$25.3 million
$50 million	$119.5 million	$126.4 million
$100 million	$239 million	$252.9 million
$110 million	$262.9 million	$278.2 million
$200 million	$478 million	$505.8 million
$500 million	$1.195 billion	$1.264 billion
$1 billion	$2.39 billion	$2.529 billion

The HSR filing fees have been revised pursuant to the 2023 Consolidated Appropriations Act. The new filing fees, which will also take effect on February 21, 2025, will be:

Fee	Size of Transaction
$30,000	Valued at less than $179.4 million
$105,000	Valued at $179.4 million or more but less than $555.5 million
$265,000	Valued at $555.5 million or more but less than $1.111 billion
$425,000	Valued at $1.111 billion or more but less than $2.222 billion
$850,000	Valued at $2.222 billion or more but less than $5.555 billion
$2,390,000	$5.555 billion or more

The 2025 thresholds triggering prohibitions on certain interlocking directorates on corporate boards of directors are $51,380,000 for Section 8(a)(l) (size of corporation) and $5,138,000 for Section 8(a)(2)(A) (competitive sales). The Section 8 thresholds take effect today, January 22, 2025.

[1] FTC Announces 2025 Update of Size of Transaction Thresholds for Premerger Notification Filings, Press Releases, FTC (Jan. 10, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-announces-2025-update-size-transaction-thresholds-premerger-notification-filings

[2] Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 90 Fed. Reg. 7697, 7697–98 (Jan. 22, 2025), https://www.federalregister.gov/documents/2025/01/22/2025-01518/revised-jurisdictional-thresholds-for-section-7a-of-the-clayton-act

The following Gibson Dunn lawyers prepared this update: Rachel Brass, Kristen Limarzi, Stephen Weissman, Andrew Cline, and Tristan Locke.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the new HSR size of transaction thresholds, or HSR and antitrust/competition regulations and rulemaking more generally. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Antitrust and Competition, Mergers and Acquisitions, or Private Equity practice groups:

Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, [email protected])
Jamie E. France – Washington, D.C. (+1 202.955.8218, [email protected])
Sophia A. Hansell – Washington, D.C. (+1 202.887.3625, [email protected])
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, [email protected])
Joshua Lipton – Washington, D.C. (+1 202.955.8226, [email protected])
Michael J. Perry – Washinton, D.C. (+1 202.887.3558, [email protected])
Cynthia Richman – Washington, D.C. (+1 202.955.8234, [email protected])
Stephen Weissman – Washington, D.C. (+1 202.955.8678, [email protected])

Mergers and Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, [email protected])
Saee Muzumdar – New York (+1 212.351.3966, [email protected])
George Sampas – New York (+1 212.351.6300, [email protected])

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, [email protected])
Ari Lanin – Los Angeles (+1 310.552.8581, [email protected])
Michael Piazza – Houston (+1 346.718.6670, [email protected])
John M. Pollack – New York (+1 212.351.3903, [email protected])

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.

Gibson Dunn’s DEI Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

On January 21, 2025, President Trump rescinded Executive Order 11246, which had imposed affirmative action obligations on federal contractors in addition to non-discrimination requirements. E.O. 11246—adopted in 1965 by President Lyndon Johnson—was enforced by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). Contractors may continue to comply with the prior requirements for up to 90 days. The Order directs the OFCCP to “immediately cease” “[h]olding Federal contractors and subcontractors responsible for taking “affirmative action.” The Order will presumably have the effect of terminating ongoing and future compliance investigations based upon the now-rescinded E.O. 11246, although the status of those proceedings is not addressed directly.

In place of the prior affirmative action requirements, federal contracts and grants now will be required to include a clause requiring the contractor or grant recipient to agree that compliance “with applicable Federal anti-discrimination laws” is a term “material to the government’s payment decisions” for purposes of the False Claims Act, 31 U.S.C. § 3729 et seq., as well as certify that that the contractor or grant recipient “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” This requirement does not appear to impose any substantive obligation beyond those contained in federal statutes such as Title VII and the Americans with Disabilities Act. These additions appear calculated to strengthen the ability of the government—and of individual whistleblowers, or “relators”— to use the False Claims Act to enforce non-discrimination requirements. President Trump’s executive order does not indicate that OFCCP will have a role in enforcing the new non-discrimination clause.

President Trump also directed agency heads within 120 days to submit to the White House proposed “strategic enforcement plan[s]” “containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” Agency submissions are instructed to include, among other things, “up to nine” large companies or non-profits for “potential civil compliance investigations,” as well as “[l]itigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest.”

President Trump also directed the Attorney General and Education Secretary to issue joint guidance “regarding the measures and practices required to comply with Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023).”

Gibson Dunn continues to monitor developments in this area. Government contractors, federal grant recipients, and other private sector employers should consider reviewing their diversity programs and training to ensure compliance with evolving legal requirements. Our DEI Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

The following Gibson Dunn lawyers assisted in preparing this update: Jason Schwartz, Katherine Smith, Mylan Denerstein, Dhananjay Manthripragada, Lindsay Paulin, Zakiyyah Salim-Williams, Zoë Klein, Cate McCaffrey, Kelley Pettus, and McKenzie Deutsch.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s DEI Task Force, Labor and Employment, or Government Contracts practice groups, or the following authors and practice leaders:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, [email protected])

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, [email protected])

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, [email protected])

Dhananjay S. Manthripragada – Partner & Co-Chair, Government Contracts Group
Los Angeles/Washington, D.C. (+1 213.229.7366, [email protected])

Lindsay M. Paulin – Partner & Co-Chair, Government Contracts Group
Washington, D.C. (+1 202.887.3701, [email protected])

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, [email protected])

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, [email protected])

With Republicans taking control of the U.S. Senate, the party now holds the majority in both chambers and Republican committee chairs will control the investigative agenda in the 119th Congress. We expect that Republicans will investigate a variety of topics, including: wasteful government spending (working with the Department of Government Efficiency); university responses to antisemitism; environmental, social, and corporate governance (ESG) efforts; Big Tech; China-related issues; the high cost of healthcare; the role of diversity, equity, and inclusion (DEI) programs; COVID origins; and debanking. Other focal points likely will include border security and cryptocurrency. With President Trump in the White House, Congress is less likely to focus investigations on the executive branch and allocate more of its resources to examining the private sector and causes perceived to be aligned with the left. Despite sharp partisan divides, there may be areas for bipartisan cooperation, particularly regarding cybersecurity threats, artificial intelligence, and investigations relating to China.

Unlike executive branch investigations, congressional probes can unfold quickly and attract immediate media attention, often requiring swift, strategic responses. Companies, universities, other organizations, and individuals facing potential investigations must be prepared to navigate not only the substantive issues raised but also the unique norms and procedures governing congressional investigations, as well as the public and media scrutiny that often accompanies these inquiries.

To help organizations assess their preparedness for the 119th Congress, Gibson Dunn offers insights into Congress’s likely investigative priorities and practical guidance on congressional committees. This includes a review of Congress’s legal authority, common defenses, and best practices for managing requests for information. As the new Congress begins, now is the time for organizations and individuals to plan for the possibility of congressional scrutiny and ensure they are ready to respond to the challenges ahead.

I. Lay of the Land in the 119th Congress (House)

As we explained in prior alerts for the 116th, 117th, and 118th Congresses, the House adopts rules at the beginning of each Congress. After re-electing Speaker Mike Johnson (R-LA-4), the House adopted its rules package for the 119th Congress on January 3, 2025. Although the rules package does not add any new investigative tools, it maintains the House’s expansive investigative authorities, including the majority’s ability to issue subpoenas without consulting members of the minority and deposition powers that allow staff to conduct depositions without members present.

Investigative Priorities: We expect several investigative priorities to continue over from the last Congress. For example, Big Tech—the most investigated industry during the 118th Congress—is likely to face continued scrutiny on multiple levels. We also expect increased investigative activity related to alleged censorship of conservative viewpoints on social media platforms and in the media. Similarly, healthcare companies, specifically pharmaceutical companies and pharmacy benefit managers, are likely to face continued scrutiny in the 119th Congress.

The Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party has been renewed for the 119th Congress.[1] In the last Congress, the Select Committee pursued a number of investigations, generally on a bipartisan basis, and advanced legislative measures designed to counteract the Chinese Communist Party’s (CCP) influence. The Select Committee has focused on areas such as research security,[2] TikTok data collection and influence,[3] banning certain CCP-influenced drone manufacturers,[4] protecting Taiwan against possible invasion,[5] and introducing legislation to combat the CCP’s role in the fentanyl crisis[6] and the use of forced labor and Uyghur labor,[7] among others. The Select Committee is poised to continue its focus on the CCP’s impact on the supply chain, U.S. capital flows to Chinese corporations, and technological decoupling.

Notably, the House Rules package broadens the Select Committee’s investigative jurisdiction for the 119th Congress. The Select Committee’s expanded jurisdiction now consists of “policy recommendations on countering the economic, technological, security, and ideological threats of the Chinese Communist Party to the United States and allies and partners of the United States,”[8] a seemingly broader and more pointed focus than its jurisdiction in the 118th Congress, which was “to investigate and submit policy recommendations on the status of the Chinese Communist Party’s economic, technological, and security progress and its competition with the United States.”[9] Chairman John Moolenaar (R-MI-2), who succeeded Mike Gallagher (R-WI-8) in April 2024, has expressed optimism that the Select Committee will continue its bipartisan work into the 119th Congress.

Committee Leadership Changes and Priorities: While we expect many investigative priorities from the last Congress to carry forward, companies should be aware of new leadership at several key committee and subcommittee posts, as well as the creation of the new Subcommittee on Delivering on Government Efficiency, which may portend new investigative priorities.

The Committee on Energy and Commerce will be led by new Chairman Brett Guthrie (R-KY-2), a longtime member of the Committee who also previously chaired the Subcommittees on Health and Oversight and Investigations. Guthrie has expressed interest in broadband spectrum, privacy, artificial intelligence, and addressing Big Tech’s perceived role in censorship. Additionally, new Health Subcommittee Chairman Buddy Carter (R-GA-1), a former pharmacist, announced[10] plans to prioritize reducing drug prices and likely will focus his Subcommittee’s attention on pharmacy benefit managers, a topic about which he has been outspoken. Similarly, Chairman Gary Palmer (R-AL-6), plans to target the healthcare industry in his new role atop the Oversight and Investigations Subcommittee.[11]

The Committee on Oversight and Government Reform (previously the Committee on Oversight and Accountability) will again be led by Chairman James Comer (R-KY-1). Chairman Comer announced that Rep. Marjorie Taylor Greene (R-GA-14) will chair the new Subcommittee on Delivering on Government Efficiency (the “DOGE Subcommittee”). It is expected that the DOGE Subcommittee will work closely with President Trump’s Department of Government Efficiency (DOGE). DOGE’s mission is to reduce the deficit, streamline the federal workforce, and curtail the administrative state. DOGE itself will not have the power to reduce spending or cut programs—that authority rests with Congress. Thus, we expect the DOGE Subcommittee and DOGE to work together, with the DOGE Subcommittee using its investigative powers to augment DOGE’s recommendations to Congress.[12] We discuss DOGE’s potential structure and implications in further detail in another client alert.

The Committee on the Judiciary will again be led by Chairman Jim Jordan (R-OH-4), while Rep. Jefferson Van Drew (R-NJ-2) will lead the Subcommittee on Oversight. Notably, House leadership chose not to renew the Committee’s Select Subcommittee on the Weaponization of the Federal Government in the 119th Congress, though we anticipate the full committee to continue investigating alleged weaponization of the government and suppression of conservative speech.

Lastly, the Committee on Education and Workforce’s new Chairman Tim Walberg (R-MI-5), will likely continue to focus in part on how colleges and universities respond to antisemitism on campus—an investigative focal point of the 118th Congress.

II. Lay of the Land in the 119th Congress (Senate)

Senate committees soon will begin to organize and to publish their rules. We anticipate a relatively slow start to Senate investigations in the 119th Congress while the Senate focuses on the confirmation of President Trump’s cabinet nominees. That said, we may see early investigative and oversight activity from some Republicans who launched investigations from their ranking member positions last Congress, and, as the Congress gets underway, we expect Senate Republicans to aggressively pursue investigations on various topics.

Key committees to watch: While all Senate committees have investigative jurisdiction and authorities, we focus on four that we expect to be active: the Commerce, Science, and Transportation Committee; the Judiciary Committee; the Homeland Security and Governmental Affairs Committee; and the Permanent Subcommittee on Investigations.

As Chairman of the Senate Commerce, Science, and Transportation Committee, Ted Cruz (R-TX) is likely to expand the investigative agenda he developed during the 118th Congress. During the 118th Congress, he investigated National Science Foundation grants for research projects allegedly pursuing DEI agendas and large technology companies’ recommendation algorithms for allegedly suppressing speech. Just this past November, then-Ranking Member Cruz opened an investigation into foreign influence on AI.[13] We anticipate Chairman Cruz will continue to show interest in these topics and likely expand into others.

Senator Chuck Grassley (R-IA), always an active investigator, will once again chair the Senate Judiciary Committee, a position he held from 2015 to 2019. Last Congress, he used his position as Ranking Member of the Senate Committee on the Budget—a committee not usually associated with investigations—to pursue inquiries into private equity firms and banks. Back atop a more conventional investigative committee, we anticipate he will continue ongoing investigations as well as look into the Biden Department of Justice’s special counsel investigation and charges against President Trump. We also expect him to investigate how antitrust laws apply to the purported monopolization of the tech sector and to conduct oversight to support President Trump’s immigration policy agenda. Given his strong relationship with the whistleblower community, we expect Chairman Grassley to continue working with whistleblowers on investigations involving government contracting and other issues.

Senator Rand Paul (R-KY) will chair the Senate Homeland Security and Governmental Affairs Committee (HSGAC). Chairman Paul has one of the strongest voices in Congress against government waste, fraud, and abuse, publishing an annual “Festivus” Report on government waste.[14] We except he will work closely with DOGE to highlight government waste through oversight and support legislation to effectuate DOGE’s goals. He also has publicly promised to hold hearings to investigate the origins of COVID-19.[15]

The Senate Permanent Subcommittee on Investigations (PSI), a HSGAC subcommittee, has some of the broadest investigative authorities and jurisdiction in the Senate. Its jurisdiction has expanded over time and today includes including oversight all government agencies, organized crime and other criminal activities, national security, energy, and labor issues.[16] Chaired by Senator Richard Blumenthal (D-CT) during the 118th Congress, PSI was very active, holding investigative hearings on multiple topics, including Saudi Arabian investment in the United States, aircraft manufacturing safety, and the semiconductor industry. The new PSI chairman, Senator Ron Johnson (R-WI), is more likely to investigate COVID-19 origins, vaccine efficacy, and how to eliminate waste, fraud, and abuse in the federal government.

Senator Bill Cassidy (R-LA), a gastroenterologist, will be taking over as Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and we expect he will wield his investigative authorities aggressively. Senator Cassidy is likely to focus on healthcare issues such as prescription drug costs and unexpected medical bills; student loan debt; cybersecurity in the healthcare ecosystem; and lowering the cost of higher education. During the 118th Congress, Senator Cassidy demonstrated his interest in investigations, seeking information from UnitedHealth Group regarding a data breach of its subsidiary, Change Healthcare. He also began an investigation into the government’s 340B Drug Pricing Program.

Potential Changes to Subpoena and Deposition Authority: We will be closely watching whether Senate Republicans strengthen their investigative arsenal, particularly when it comes to subpoena and deposition authority. On the House side, the chamber’s rules allow committee chairs to issue subpoenas unilaterally—although specific committee rules may require giving notice to the ranking member or other procedures. In the Senate, there has been a longstanding hesitation on whether to grant committee chairs unilateral subpoena authority. We will see if any Senate chairs take a more aggressive approach to committee rules in the 119th Congress.

It is also important to keep a close watch on Senate deposition authority. In the last Congress, nine Senate bodies included deposition provisions in their rules: (1) Judiciary; (2) HSGAC; (3) PSI; (4) Aging; (5) Agriculture, Nutrition, and Forestry; (6) Commerce, Science, and Transportation; (7) Ethics; (8) Foreign Relations; and (9) Intelligence. Staff is expressly authorized to take depositions in each of these committees other than the Intelligence Committee. Note that Senate rules do not provide committees with authority to compel deposition testimony. Instead, the Senate may grant that power to certain committees through a Senate resolution. Hence, the Senate’s committee funding resolution for the 118th Congress granted the Judiciary Committee, HSGAC, and PSI the ability to subpoena witnesses for depositions.[17] While other committees may maintain deposition authority through their rules, any deposition testimony would be on a voluntary basis.[18]

III. Unique Features of Congressional Investigations

Congressional investigations are unlike more familiar executive branch investigations in several respects. First, there are often complex motivations at work. Committee chairs may want to advance their political agenda, heighten their public profile, develop support for a legislative proposal, expose alleged criminal wrongdoing or unethical practices, pressure a company to take certain actions, or respond to public outcry. Recognizing these underlying objectives and evaluating the political context surrounding an inquiry can therefore be a key component of developing an effective response strategy.

Second, Congress’s power to investigate is broad—as broad as its legislative authority—which can often make investigations unpredictable. The “power of inquiry” is inherent in Congress’s authority to “enact and appropriate under the Constitution.”[19] And while Congress’s investigatory power is not a limitless power to probe any private affair or to conduct law enforcement investigations, but rather must further a valid legislative purpose,[20] the term “legislative purpose” is understood broadly to include gathering information not only for the purpose of legislating, but also for overseeing governmental matters and informing the public about the workings of government.[21]

Finally, unlike the relatively controlled environment of a courtroom or a confidential investigation, congressional investigations often unfold through public letters and subpoenas and before television cameras in hearing rooms. Targets must coordinate their legal, political, and communications strategies to respond effectively.

IV. Investigatory Tools of Congressional Committees

Congress has a broad range of investigatory tools at its disposal, which enable it to gather information, ensure compliance with legal and regulatory standards, and inform legislative and policy agendas. Although many of Congress’s tools present opportunities for targets to comply voluntarily, it does have the ability to issue subpoenas for documents and testimony. It is essential for subjects of congressional oversight to understand both the scope and the limitations of these investigatory powers in order to respond effectively.

Requests for Information: Any member of Congress may request information from an individual or entity, including through documents, briefings, or other formats.[22] Absent the issuance of a subpoena, responding to such requests is voluntary as a legal matter (although of course there may be public or political pressure to respond). As such, recipients of such requests should carefully consider the merits of different degrees of engagement.
Interviews: Interviews also are voluntary, led by committee staff, and occur in private (in person or remotely). They tend to be less formal than depositions and are sometimes transcribed. Committee staff may take copious notes and rely on interview testimony in subsequent hearings or public reports. Although interviews are typically not conducted under oath, false statements to congressional staff can be criminally punishable as a felony under 18 U.S.C. § 1001.
Depositions: Depositions can be compulsory, transcribed, and taken under oath. As such, depositions tend to be more formal than interviews and are similar to those in traditional litigation. The number of committees with authority to conduct staff depositions has increased significantly over the last few years, and a member no longer needs to be present in a House committee deposition.
Hearings: While both depositions and interviews allow committees to acquire information quickly and (at least in many circumstances) confidentially,[23] testimony at hearings, unless on a sensitive topic, is conducted in a public session led by the members themselves (or, on occasion, committee counsel).[24] Hearings can either occur at the end of a lengthy staff investigation or take place more rapidly, often in response to an event that has garnered public and congressional concern. Most akin to a trial in litigation (though without many of the procedural protections or the evidentiary rules applicable in judicial proceedings), hearings are often high profile and require significant preparation to navigate successfully.
Executive Branch Referral: Congress also has the power to refer its investigatory findings to the executive branch for criminal prosecution. After a referral from Congress, the Department of Justice may charge an individual or entity with making false statements to Congress, obstruction of justice, or destruction of evidence. Importantly, while Congress may make a referral, the executive branch retains the discretion to prosecute, or not.

Subpoena Power

As noted, Congress will usually seek voluntary compliance with its requests for information or testimony as an initial matter. If requests for voluntary compliance are met with resistance, however, or if time is of the essence, Congress may compel disclosure of information or testimony by issuing a subpoena.[25] Like Congress’s power of inquiry generally, there is no explicit constitutional provision granting Congress the right to issue subpoenas.[26] But the Supreme Court has recognized that the issuance of subpoenas is “a legitimate use by Congress of its power to investigate” and its use is protected from judicial interference in some respects by the Speech or Debate Clause.[27] Congressional subpoenas are subject to few legal challenges,[28] and “there is virtually no pre-enforcement review of a congressional subpoena” in most circumstances.[29]

The authority to issue subpoenas is initially governed by the rules of the House and Senate, which delegate further rulemaking to each committee.[30] While every standing committee in the House and Senate has the authority to issue subpoenas, the specific requirements for issuing a subpoena vary by committee. These rules are still being developed by the committees of the 119th Congress and can take many forms. For example, in the 118th Congress, most House committee chairs were authorized to issue subpoenas unilaterally if they provided notice to the ranking member. Other chairs, however, required approval of the ranking member, or, upon the ranking member’s objection, required a vote of the majority of the committee in order to issue a subpoena.

Contempt of Congress

Failure to comply with a subpoena can result in one of three enforcement avenues: a criminal contempt referral, a civil contempt action, or exercise of Congress’s inherent contempt power.

Statutory Criminal Contempt Power: Congress possesses statutory authority to certify recalcitrant witnesses for criminal contempt prosecutions in federal court. In 1857, Congress enacted this criminal contempt statute as a supplement to its inherent authority.[31] Under the statute, a person who refuses to comply with a subpoena is guilty of a misdemeanor and subject to a fine and imprisonment.[32] “Importantly, while Congress initiates an action under the criminal contempt statute, the Executive Branch prosecutes.”[33] This relieves Congress of the burdens associated with its inherent contempt authority. The statute simply requires the House or Senate to certify a contempt finding to the Department of Justice. Thereafter, the statute provides that it is the “duty” of the “appropriate United States attorney” to prosecute the matter,[34] although the Department of Justice maintains that it always retains discretion not to prosecute and often declines to do so. Although Congress rarely uses its criminal contempt authority, the House Democratic majority, following January 6, 2021, employed it against a flurry of Trump administration officials, including Attorney General Bill Barr, Secretary of Commerce Wilbur Ross, Secretary of Homeland Security Chad Wolff, political adviser Steve Bannon, and White House Chief of Staff Mark Meadows. The Department of Justice prosecuted Bannon for defying a subpoena from the Select January 6 Committee. A jury found him guilty, and the D.C. Circuit upheld his conviction.[35] In September 2024, the Senate unanimously voted to find Ralph de la Torre, the CEO of a bankrupt hospital operator, Steward Health Care, in contempt of the Senate and to certify the report of his contempt to the U.S. Attorney for prosecution. This was the first time the Senate had held someone in criminal contempt since 1971.[36]
Civil Enforcement Authority: Congress may seek civil enforcement of its subpoenas, which is often referred to as civil contempt. The Senate’s civil enforcement power is expressly codified.[37] This statute authorizes the Senate to seek enforcement of legislative subpoenas in a U.S. District Court. In contrast, the House does not have a civil contempt statute, but federal district judges have held that it may pursue a civil contempt action “by passing a resolution creating a special investigatory panel with the power to seek judicial orders or by granting the power to seek such orders to a standing committee.”[38]
Inherent Contempt Power: The first, and least relied upon, form of compulsion is Congress’s inherent contempt power. The inherent contempt power has not been used by either body since 1935.[39] Much like the subpoena power itself, the inherent contempt power is not specifically authorized in the Constitution, but the Supreme Court has recognized its existence and legitimacy.[40] To exercise this power, the House or Senate must pass a resolution and then conduct a full trial or evidentiary proceeding, followed by debate and (if contempt is found to have been committed) imposition of punishment.[41] As is apparent in this description, the inherent contempt authority is cumbersome and inefficient, and it is potentially fraught with political peril for legislators.[42]

V. Defenses to Congressional Inquiries

While potential defenses to congressional investigations are limited, they are important to understand. The principal defenses are as follows:

Legislative Purpose

Because the Constitution grants Congress the power to investigate as a means of informing its legislative responsibilities, a congressional investigation must have a “valid legislative purpose,” that is, it must be “related to, and in furtherance of, a legitimate task of Congress.” The Supreme Court provided guideposts on legislative purpose defenses in Trump v. Mazars.[43] In Mazars, the Court announced what it called a “balanced approach” to govern future interbranch disputes, laying out a somewhat more rigorous set of guideposts that it viewed as protecting Congress’s ability to investigate the president while also mitigating the risk of improper congressional inquiry. The Court’s language emphasized that legislative purpose must serve as a limiting principle with respect to Congress’s subpoena power. Accordingly, to demonstrate a valid legislative purpose, Congress must, in effect, show its work and adequately describe the nexus between the records sought and the legislation the committee is considering.

Courts recently evaluating legislative purpose have largely followed Mazars while ultimately showing deference to committees.[44] Based on current information, the last time this defense was successfully argued was in 1880.[45]

Committee Jurisdiction and Procedural Defenses

Committees are created by the Senate and House. They have no independent authority beyond their delegations. Each committee creates its own rules based on Senate or House delegation, and the committee is then bound by those rules. These rules provide procedural protections to targets of congressional investigations. If a committee fails to follow its rules and violates the rights of witnesses in the process, the violation is cognizable in court and can be used as an effective defense against contempt.[46] In addition, the subject matter of an inquiry must also be within the scope of jurisdiction clearly delegated to the committee by Congress.

As an example of the potential importance of rule violations in the authorization of subpoenas, we note the Senate Judiciary Committee’s attempt to authorize subpoenas against Harlan Crow and Leonard Leo in November 2023. There, the Committee majority committed three rule violations. First, the Committee majority violated the Senate’s “Two-Hour Rule,” which prohibits committees from conducting business after two hours have elapsed from when the Senate convenes on a given day.[47] While the Senate convened at 10 AM that day, the Committee’s vote did not conclude until 12:02 PM. Second, the Committee violated Senate Judiciary Committee Rule IV, which requires that a matter may be brought to a vote without further debate only if at least one of the votes to end debate is “cast by the minority.”[48] No Republican senators voted to bring the matter to a vote. Third, the Committee violated Senate Judiciary Committee Rule III, which requires that at least “[n]ine Members of the Committee, including at least two Members of the minority,” be present in order to transact business. No Republican members of the Committee were present during the vote. Although the significance of these rule violations were never litigated, the Committee majority’s procedural missteps provided a strong potential defense if the Committee attempted to enforce the subpoenas, which it never did.

Constitutional Defenses

Constitutional defenses under the First, Fourth, and Fifth Amendments may be available in certain circumstances. While few of these challenges are ever litigated, these defenses should be carefully evaluated by the subject of a congressional investigation.

The First Amendment protects petitioning, lobbying, association, and speech on matters of public concern, and it prohibits government officials from taking retaliatory actions on account of protected speech. When an investigative target invokes a First Amendment defense, a court must engage in a “balancing” of “competing private and public interests at stake in the particular circumstances shown.”[49] The “critical element” in the balancing test is the “existence of, and the weight to be ascribed to, the interest of the Congress in demanding disclosures from an unwilling witness.”[50] A First Amendment defense has succeeded in cases where committees have used their powers to investigate political ideas with which they disagree – though not since the 1950s.[51]

The First Amendment also constrains judicially compelled production of information in certain circumstances.[52] Accordingly, it is clear that the First Amendment limits congressional subpoenas in some circumstances. Moreover, targets of congressional investigations sometimes contend that the investigation itself constitutes impermissible retaliation in violation because it was allegedly initiated and pursued because of the target’s exercise of First Amendment rights. It is an open question whether retaliatory motives can be inferred from committees’ and members’ public statements regarding the nature and purpose of an investigation.[53]

The Fourth Amendment protects individuals from subpoenas that are overly broad and that lack congruence and proportionality to the scope of the investigation.[54] Supreme Court dicta suggest the Fourth Amendment can be a valid defense in certain circumstances related to the issuance of congressional subpoenas.[55] Nevertheless, no court has relied on it to reverse a contempt conviction.[56]

The Fifth Amendment’s privilege against self-incrimination is available to witnesses—but not entities—who appear before Congress.[57] The right generally applies only to testimony, and not to the production of documents,[58] unless those documents satisfy a limited exception for “testimonial communications.”[59] Congress can circumvent this defense by granting transactional immunity to an individual invoking the Fifth Amendment privilege.[60] This allows a witness to testify without the threat of a subsequent criminal prosecution based on the testimony provided.

Attorney-Client Privilege & Work Product Defenses

Although the House and the Senate have taken the position that they are not required to recognize the attorney-client privilege, in practice, they generally do. Moreover, no court has ruled that the attorney-client privilege does not apply to congressional investigations. In Mazars, the Court stated that recipients of congressional subpoenas retain both “common law and constitutional privileges with respect to certain materials, such as attorney-client communications and governmental communications protected by executive privilege.”[61] While the Court’s treatment of common law privileges in Mazars is arguably dicta, both the executive branch and private litigants can be expected to take the position that Congress is obligated to observe common law privileges in the same way that courts and grand juries must observe them. Recent court decisions have followed the Mazars language on attorney-client privilege. For instance, while the district court in Eastman v. Thompson rejected the plaintiff’s broad attorney-client privilege claims over an entire cache of documents requested by the government, it permitted the plaintiff leave to reassert privilege claims in the context of specific documents, concluding that “[t]he party must assert the privilege as to each record sought to allow the court to rule with specificity.”[62]

The work product doctrine protects documents prepared in anticipation of litigation. Accordingly, it is not clear whether or in what circumstances the doctrine applies to congressional investigations. The question is whether such investigations are the type of “adversarial proceeding” required to satisfy the “anticipation of litigation” requirement.[63]

VI. Top Mistakes and How to Prepare

Successfully navigating a congressional investigation requires mastery of the facts at issue, careful consideration of collateral political events, and closely-coordinated crisis communications.

Here are some of the more common mistakes we have observed:

Facts: Failure to identify and verify the key facts at issue;
Message: Failure to communicate a clear and compelling narrative;
Context: Failure to understand and adapt to underlying dynamics driving the investigation;
Concern: Failure to timely recognize the attention and resources required to respond;
Legal: Failure to preserve privilege and assess collateral consequences;
Rules: Failure to understand the rules of each committee, which can vary significantly; and
Big Picture: Failure to consider how an adverse outcome can negatively impact numerous other legal and business objectives.

The consequences of inadequate preparation can be disastrous on numerous fronts. A keen understanding of how congressional investigations differ from traditional litigation and executive branch or state agency investigations is therefore vital to effective preparation. The most successful subjects of investigations are those that both seek advice from experienced counsel and employ multidisciplinary teams with expertise in government affairs, media relations, e-discovery, and the key legal and procedural issues.

The 119th Congress is poised to continue a robust and wide-ranging slate of investigations, driven by Republican priorities in both the House and Senate. While investigations into Big Tech, healthcare, government efficiency, and Chinese influence remain central, the new leadership and shifting committee structures will likely introduce additional areas of focus, such as the role of DEI programs, ESG efforts, and border security. Organizations, companies, and universities must remain vigilant, prepared not only for the substantive policy scrutiny these investigations may bring but also for the public attention and political dynamics that often accompany congressional probes. With the heightened scrutiny of both media and public opinion, navigating congressional investigations requires careful, proactive preparation. Gibson Dunn lawyers have extensive experience in both running congressional investigations and defending targets of and witnesses in such investigations. If you or your company become the subject of a congressional inquiry, or if you are concerned that such an inquiry may be likely, please feel free to contact us for assistance.

[1] See H.R. Res. 5, 119th Cong, § 4(a) (2025).

[2] See Report Summary: How American Taxpayers and Universities Fund the CCP’s Advanced Military and Technological Research. The Select Committee on the Chinese Communist Party (Sept. 24, 2024), https://selectcommitteeontheccp.house.gov/media/videos/report-summary-how-american-taxpayers-and-universities-fund-ccps-advanced-military-and.

[3] See Letters to CEOs of TikTok, Apple & Google Following DC Circuit Court Decision. The Select Committee on the Chinese Communist Party (Dec. 13, 2024), https://selectcommitteeontheccp.house.gov/media/letters/letters-ceos-tiktok-apple-google-following-dc-circuit-court-decision.

[4] See Press Release, Moolenaar, Krishnamoorthi: Commerce’s Move to Restrict PRC Drones Enhances National Security (Jan. 3, 2025), https://selectcommitteeontheccp.house.gov/media/press-releases/moolenaar-krishnamoorthi-commerces-move-restrict-prc-drones-enhances-national.

[5] See Ten For Taiwan: Policy Recommendations to Preserve Peace and Stability in the Taiwan Strait. The Select Committee on the Chinese Communist Party (May 24, 2023), (https://docs.house.gov/meetings/ZS/ZS00/20230524/116035/HRPT-118-2.pdf.

[6] See Fentanyl Policy Working Group Unveils Bipartisan Legislation. The Select Committee on the Chinese Communist Party (Dec. 17, 2024), https://selectcommitteeontheccp.house.gov/media/press-releases/fentanyl-policy-working-group-unveils-bipartisan-legislation.

[7] See generally The Select Committee on the CCP: Uyghur Genocide, https://selectcommitteeontheccp.house.gov/issues/uyghur-genocide.

[8] H.R. Res. 5, 119th Cong, § 4(a)(2) (2025) (emphasis added).

[9] H.R. Res. 11, 118th Cong, § 1(b)(2) (2023) (emphasis added).

[10] See Press Release, Rep. Buddy Carter, Carter Selected to Chair Energy and Commerce Subcommittee on Health (Dec. 20, 2024), http://buddycarter.house.gov/news/documentsingle.aspx?DocumentID=15295.

[11] See @RepGaryPalmer, X (Dec. 20, 2024, 6:04 PM), http://x.com/USRepGaryPalmer/status/1870243948234518704.

[12] See also Theodore Schleifer and Madeleine Ngo, Inside Elon Musk’s Plan for DOGE to Slash Government Costs, The New York Times (Jan. 12, 2025), https://www.nytimes.com/2025/01/12/us/politics/elon-musk-doge-government-trump.html.

[13] Letter from The Hon. Ted Cruz, Ranking Member, S. Comm. on Commerce, Science & Transp. to the Hon. Merrick Garland, Atty Gen., U.S. Dep’t of Justice (Nov. 21, 2024), https://www.commerce.senate.gov/services/files/55267EFF-11A8-4BD6-BE1E-61452A3C48E3.

[14] See e.g., Press Release, Dr. Paul Releases 2024 ‘Festivus’ Report on Government Waste (Dec. 23, 2024), https://www.hsgac.senate.gov/media/reps/dr-paul-releases-2024-festivus-report-on-government-waste/.

[15] John Wilkerson, Rand Paul plans to investigate Covid-19 origins from his new perch leading a key committee, STAT News (Nov. 22, 2024), https://www.statnews.com/2024/11/22/rand-paul-senate-investigation-covid-19-origin-lab-leak-theory-anthony-fauci-nih/.

[16] S. Res. 59, 118th Cong. §§ 12(e)(1)(A)–(G).

[17] S. Res. 59, 118th Cong. §§ 12(e)(3)(E), 13(e) (2023).

[18] See Authority and Rules of Senate Committees, 2023–2024 (118th Congress), https://www.govinfo.gov/content/pkg/CDOC-118sdoc4/pdf/CDOC-118sdoc4.pdf.

[19] Barenblatt v. United States, 360 U.S. 109, 111 (1957).

[20] See Wilkinson v. United States, 365 U.S. 399, 408-09 (1961); Watkins v. United States, 354 U.S. 178, 199-201 (1957).

[21] Michael D. Bopp, Gustav W. Eyler, & Scott M. Richardson, Trouble Ahead, Trouble Behind: Executive Branch Enforcement of Congressional Investigations, 25 Corn. J. of Law & Pub. Policy 453, 456-57 (2015).

[22] Id.

[23] Bopp, supra note 11, at 457.

[24] Id. at 456-57.

[25] Id. at 457.

[26] Id.

[27] Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 504 (1975).

[28] Bopp, supra note 11, at 458.

[29] Id. at 459. The principal exception to this general rule arises when a congressional subpoena is directed to a custodian of records owned by a third party. In those circumstances, the Speech or Debate Clause does not bar judicial challenges brought by the third party seeking to enjoin the custodian from complying with the subpoena, and courts have reviewed the validity of the subpoena. See, e.g., Trump v. Mazars, 140 S. Ct. 2019 (2020); Bean LLC v. John Doe Bank, 291 F. Supp. 3d 34 (D.D.C. 2018). It also could be argued that a subpoena is subject to pre-enforcement challenge if it lacks a valid legislative purpose. The idea is that the Speech or Debate Clause might not preclude a preemptive litigation challenge to such a subpoena on the rationale that a subpoena lacking any valid legislative purpose is not a legislative act at all. In Trump v. Committee on Ways & Means, the district court explained that “in the context of investigations, and in particular cases involving congressional efforts to gather information, . . . Speech or Debate Clause immunity is available only when those efforts are undertaken for a legitimate legislative purpose, that is, to gather information ‘concerning a subject “on which legislation could be had.”’” 415 F. Supp. 3d 38, 45-46 (D.D.C. 2019) (quoting McSurely v. McClellan, 553 F.2d 1277, 1284-85 (D.C. Cir. 1976) (en banc), in turn quoting Eastland, 421 U.S. at 506). The argument faces the challenges discussed earlier in that we have not seen a successful challenge based on legislative purpose in nearly a century and a half.

[30] Bopp, supra note 11, at 458.

[31] Id. at 461.

[32] See 2 U.S.C. §§ 192 and 194.

[33] Bopp, supra note 11, at 462.

[34] See 2 U.S.C. § 194.

[35] United States v. Bannon, 101 F.4th 16, 18 (D.C. Cir. 2024).

[36] 170 Cong. Rec. S6405-02 (daily ed. Sept. 25, 2024); S. Res. 837 (118th Cong.).

[37] See 2 U.S.C. §§ 288b(b), 288d.

[38] Bopp, supra note 11, at 465. A panel of the U.S. Court of Appeals for the D.C. Circuit ruled in August 2020 that the House may not seek civil enforcement of a subpoena absent statutory authority. Committee on the Judiciary of the United States House of Representatives v. McGahn, 973 F.3d 121 (D.C. Cir. 2020). That decision was vacated when the D.C. Circuit decided to rehear the case en banc, but the case then settled without a final judicial resolution, thereby leaving the question unresolved in the D.C. Circuit.

[39] See Congress’s Contempt Power and the Enforcement of Congressional Subpoenas: Law, History, Practice, and Procedure, Congressional Research Service (May 12, 2017), at 12.

[40] Bopp, supra note 11, at 460 (citing Anderson v. Dunn, 19 U.S. 204, 228 (1821)).

[41] Id.

[42] Id. at 466.

[43] Trump v. Mazars, 140 S. Ct. 2019 (2020).

[44] See Committee on Ways and Means, U.S. House of Representatives v. U.S. Dep’t of Treasury (D.C. Cir. 2022) (upholding the subpoena as valid, the court found a valid legislative purpose in the requests: the Presidential Audit Program); Bragg v. Jordan (S.D.N.Y. 2023) (holding that the subpoena had a valid legislative purpose, the court accepted Defendant’s argument that subpoenas related to federal funding and possible legislative reforms to insulate current and former presidents from state prosecutions had valid legislative purposes); Eastman v. Thompson (C.D. Cal. 2022) (finding a valid legislative purpose, the court held that “the issues surrounding the 2020 election and the January 6th attacks [are] clearly ‘subjects on which legislation could be had,’ [and that] there are numerous legislative measures that could relate to [Plaintiff’s] communications.”).

[45] See Kilbourn v. Thompson, 103 U.S. 168 (1880) (overturning a contempt conviction on the ground that the House lacked a legislative purpose, because the investigation was deemed judicial rather than legislative in character).

[46] See Liveright v. United States, 347 F.2d 473 (D.C. Cir. 1965) (holding a subpoena was invalid where a subcommittee’s rules required the whole subcommittee to issue subpoena, but the subpoena was issued only by the Chair, without consulting the rest of the subcommittee); Shelton v. United States, 327 F.2d 601 (D.C. Cir. 1963) (finding a subpoena invalid where committee rules permitted a chairman to delegate “ministerial responsibility” but did not authorize delegation of discretionary function of calling witnesses “it deem[ed] advisable”; “[s]ince the Subcommittee did not authorize the issuance of the subpoena to Shelton, the subpoena was invalid”).

[47] See Senate Rule XXVI(5)(a).

[48] Committee Rule IV.

[49] Barenblatt, 360 U.S. at 126.

[50] Id. at 126–27.

[51] See Rumely v. United States, 345 U.S. 41 (1953) (relying at least in part on the First Amendment in that the Court imposed a heightened level of scrutiny in assessing the jurisdictional question because of substantial doubts about the constitutionality of the inquiry under the First Amendment); United States v. Peck, 154 F. Supp. 603 (D.D.C. 1957) (granting motion for acquittal for contempt conviction where committee asked for names of fellow Communists and defendant refused to answer on First Amendment grounds). However, in Republican Nat’l Comm. v. Pelosi, Chairman Bennie Thompson (D-MS) of the January 6th Select Committee issued a subpoena to Salesforce.com, ordering the company to produce documents and to testify at a Select Committee deposition about, inter alia, the Republican National Committee’s (RNC) use of the platform. 602 F. Supp. 3d 1, 12–15 (D.D.C. 2022), vacated, No. 22-5123, 2022 WL 4349778 (D.C. Cir. Sept. 16, 2022). The RNC sued Speaker Nancy Pelosi (D-CA), the Select Committee, and each member of the Select Committee to challenge the subpoena, arguing in part that the subpoena violated the First Amendment. Id. at 15. The district court rejected the RNC’s First Amendment objections to the subpoena, id. at 35, but the DC Circuit granted an injunction pending appeal, meaning that the DC Circuit found a likelihood of success on appeal, see Republican Nat’l Comm v. Pelosi, No. 22-5123 (May 25, 2022). The Select Committee withdrew the subpoena, mooting the case. Republican Nat’l Comm. v. Pelosi, No. 22-5123, 2022 WL 4349778, at *1 (D.C. Cir. Sept. 16, 2022). Thus, while there was ultimately no decision made on the merits, this may be viewed as a case in which the First Amendment defense was ultimately successful.

[52] See, e.g., Perry v. Schwarzenegger, 591 F.3d 1147, 1173 (9th Cir. 2009).

[53] See Hartman v. Moore, 547 U.S. 250, 260 (2006) (“Evidence of the motive and the [adverse action are] sufficient for a circumstantial demonstration that the one caused the other.”); Nieves v. Bartlett, 139 S. Ct. 1715, 1727 (2019) (demonstrating that motive may be inferred when individuals “otherwise similarly situated” but “not engaged in the same sort of protected speech” are not subject to the same adverse action).

[54] McPhaul v. United States, 364 U.S. 372 (1960).

[55] Watkins, 354 U.S. at 188.

[56] Id.

[57] See Quinn v. United States, 349 U.S. 155, 163 (1955).

[58] See Fisher v. United States, 425 U.S. 391, 409 (1976).

[59] See United States v. Doe, 465 U.S. 605, 611 (1984).

[60] See 18 U.S.C. § 6002; Kastigar v. United States, 406 U.S. 441 (1972).

[61] See Mazars, 140 S. Ct. at 2032.

[62] See Eastman v. Thompson, 594 F. Supp. 3d 1156, 1175 (C.D. Cal. 2022).

[63] See In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 924 (8th Cir. 1997).

The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Thomas Hungar, Stuart Delery, Barry Berke, Amanda Neely, Jillian Katterhagen, Kareem Ramadan, Christian Dibblee, Sarah Burns, Maya Jeyendran, and Kelly Yahner.

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 Congressional Investigations or Public Policy practice groups, or the following authors:

Michael D. Bopp – Chair, Congressional Investigations Practice Group,
Washington, D.C. (+1 202.955.8256, [email protected])

Barry H. Berke – Co-Chair, Litigation Practice Group,
New York (+1 212.351.3860, [email protected])

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.955.8515, [email protected])

Thomas G. Hungar – Partner, Appellate & Constitutional Law Practice Group,
Washington, D.C. (+1 202-887-3784, [email protected])

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
Washington, D.C. (+1 202.777.9566, [email protected])

Guidance for Employers Navigating the New Guidelines.

Overview

On January 16, 2025, the U.S. Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) jointly issued Antitrust Guidelines for Business Activities Affecting Workers (2025 Guidelines or Guidelines) that reflect a marked departure from prior practice and applicable precedent alike.[1] The 2025 Guidelines, which replace the 2016 Antitrust Guidance for Human Resource Professionals (2016 Guidelines),[2] are a targeted effort to reframe the law on the intersection between antitrust laws and workers.[3]

The 2025 Guidelines are significantly more expansive than the 2016 Guidelines. Like the DOJ and FTC enforcement activity and statement of interest filings in recent years, they reflect a proscriptive, rather than descriptive, approach to antitrust law and labor markets. They repeal long-established safe harbors for conducting aggregated, anonymized market surveys about wages and benefits, adopt a restrictive view of non-competes like the one put forth by the FTC in its currently stayed Non-Compete Rule, and otherwise seek to do through guidance what the administration was unable to accomplish in rulemaking.[4] The new Guidelines reflect not just an aggressive stance toward labor market enforcement, but a final attempt to cause a sea change in well-established business practices. The fate of these 2025 Guidelines and its effect on DOJ and FTC enforcement activities will be a decision for the new Trump Administration and the courts.

While in force, however, they attempt to—and do—create uncertainty for employers.

Information Sharing

The 2025 Guidelines retract the so-called “safe harbor” guidance from the 2016 Guidelines, which advised that labor-market information could be shared if it (1) was managed through a neutral third party; (2) was limited to relatively old data; (3) was comprised of aggregated data; and (4) contained enough data sources that information could not be attributed to any specific competitor.[5] Instead, the 2025 Guidelines emphasize that sharing through third-parties and algorithms may be unlawful even when companies do not strictly adhere to third-party recommendations[6]—as DOJ has recently argued in private litigation.[7] The Guidelines also caution that information-sharing agreements may be unlawful even if participants retain discretion on compensation or are sharing as part of a legitimate business transaction, such as a joint venture or other collaborative activity.[8]

Further, the 2025 Guidelines assert that information exchanges may provide evidence of the existence of a wage-fixing conspiracy, which could be a per se violation of the antitrust laws with criminal implications.[9]

Although the 2025 Guidelines memorialize the DOJ’s and FTC’s desire to take an aggressive approach to the sharing of information with competitors “about terms and conditions of employment,” such as wage information, they fail to offer concrete, actionable guidance to replace the prior information-sharing safe harbors contained in the 2016 Guidelines.[10] Instead, the 2025 Guidelines simply conclude that the sharing of competitively sensitive employee/employment-related information may constitute an antitrust violation if the information exchange has, or is likely to have, an anticompetitive effect (even if that effect was not intended).[11] For this reason, if you are interested in wage-related benchmarking, you should consult with counsel to adopt best practices and understand potential risk.

Independent Contractors

The 2025 Guidelines also emphasize that antitrust laws apply to agreements impacting independent contractors and to “platform businesses” that use technology platforms “to match workers who provide labor with consumers seeking their services.”[12] In particular, the 2025 Guidelines note that agreements between competing platforms to “fix the compensation of independent contractors offering their services via the platforms” could constitute a per se criminal antitrust violation.[13]

Non-Compete Agreements

Under the 2025 Guidelines, “[n]on-compete clauses that restrict workers from switching jobs or starting a competing business,” such as those often contained in employment agreements, “can violate the antitrust laws.”[14] This guideline aligns with the FTC’s Non-Compete Rule.[15] That Rule is currently unenforceable nationwide because a team led by Gibson Dunn attorneys persuaded a federal district court to set it aside.[16] You can read more about Gibson Dunn’s work obtaining that result here and here. The FTC appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, filing its opening brief on January 2, 2025.[17]

The Guidelines also state that the Agencies will continue to “investigate and take action against non-competes and other restraints on worker mobility that limit competition,” and the FTC will retain the authority to address non-compete clauses through case-by-case enforcement actions, including in the context of merger review.[18]

Attacks on Standard Deal and Employment Terms

The 2025 Guidelines explain that any employment terms that “impede worker mobility or otherwise undermine competition” may violate antitrust laws.[19] The “restrictive conditions” identified by the Guidelines include:[20]

Non-solicitation employment terms that prohibit a worker from soliciting the clients or customers of their former employer, depending on the facts and circumstances. Notably, the Guidelines also assert agreements that prohibit two or more entities from hiring or soliciting one another’s workers can be per se unlawful, condemning even arrangements “to request permission from the other company before trying to hire an employee”[21] “regardless of whether it actually harms workers.”[22]
Non-disclosure agreements that are “drafted so broadly as to prohibit disclosure of any information that is ‘usable in’ or ‘relates to’ and industry.”[23]
Training repayment agreement provisions that require a person to repay costs of training when they leave their employer.
Exit fees and liquidated damages provisions that require a worker to pay a penalty for leaving their employer.

False Earnings Claims

According to the 2025 Guidelines, “[t]he Agencies also may investigate and take action against business that make false or misleading claims about potential” wages that workers may earn.[24] Although the Agencies’ position applies to all businesses, it appears to be largely focused on workers in the gig economy. In the Agencies’ view, “[w]hen workers are lured to [ ] businesses by false earnings promises, honest businesses are less able to fairly compete for those workers.”[25]

Criminal Enforcement

The 2025 Guidelines indicate that criminal investigation and prosecution of wage-fixing and no-poach agreements continue to be one of DOJ’s antitrust enforcement priorities.[26] Like the 2016 Guidelines, which first announced that naked no-poach and wage-fixing agreements would be investigated and prosecuted as potentially criminal antitrust violations,[27] the 2025 Guidelines confirm the Agencies’ broad view of conduct that may create criminal risk.[28]

Like the 2016, Guidelines, the 2025 Guidelines prohibit wage fixing agreements. That includes asserting agreement to “align, stabilize, or other coordinate [] wages” can constitute a criminal violation, even if there is no agreement on a specific wage.[29]

The 2025 Guidelines reiterate that no-poach agreements can give rise to criminal risk.[30] And, as noted above, the Guidelines assert such agreements may be criminal even when they do not harm workers.[31]

Takeaways

The 2025 Guidelines articulate an expansive view of labor-market conduct that may violate the antitrust laws and signal an aggressive enforcement agenda. It remains to be seen, however, how much these Guidelines accurately signal future enforcement priorities for the new administration. Andrew Ferguson, a current FTC Commissioner and President Trump’s nominee to become FTC Chair, issued a strong dissent noting that “the Biden-Harris FTC announcing its views on how to comply with the antitrust laws in the future is a senseless waste of Commission resources.”[32] The 2025 Guidelines also assert positions that remain either contrary to long-standing precedent, untested in court, or demonstrably unsuccessful in recent enforcement actions. DOJ, for example, has suffered a series of trial losses and dismissals in no-poach cases over the last four years without a single trial verdict in its favor, yet these Guidelines expand—rather than retract—the scope of agreements that may have antitrust implications. Whether the 2025 Guidelines will result in successful enforcement actions, and whether the incoming administration will allow the new Guidelines to remain in place, will be an open question. In fact, the 2025 Guidelines may be withdrawn by the FTC by a majority vote without a notice and comment period. DOJ would need to separately withdraw the Guidelines to nullify them for purposes of DOJ as well.

It would be a mistake, however, to dismiss the 2025 Guidelines wholesale. The prior Trump administration pursued an aggressive labor market enforcement agenda, including bringing several criminal prosecutions for wage fixing and no-poach agreements, and the incoming FTC Chair Ferguson has said that “[t]he Commission is wise to focus its resources on protecting competition in labor markets.”[33]

The Guidelines emphasize that these labor-related issues also are subject to state AG enforcement and/or may signal further enforcement from state AGs on these issues. In addition, the Guidelines may embolden the private plaintiffs’ bar to test new theories of civil antitrust liability, leading to an uptick in civil private litigation.[34]

Given the breadth of the 2025 Guidelines when compared to the 2016 Guidelines—and continued activity by state AGs and private plaintiffs in this area—employers should carefully consider the Agencies’ new guidance and how it may apply to their current business activities and increased scrutiny thereof. The Guidelines may embolden government and plaintiffs to test new theories of liability. Companies should assess and audit their hiring, employment, and compensation policies and practices, including their use of benchmarking in these areas. Companies looking to include restraints on employee mobility in M&A or other deal transactions, to engage in benchmarking, or to otherwise continue various labor-facing practices also are wise to seek counsel during this period of uncertainty.

The following Gibson Dunn lawyers prepared this client alert: Rachel Brass, Caeli Higney, Melanie Katsur, Julian Kleinbrodt, Kristen Limarzi, Cynthia Richman, Jeremy Robison, and Katherine Warren Martin.

Gibson Dunn lawyers have extensive experience with the issues addressed above and stand ready to work with you to minimize risks associated with the 2025 Guidelines. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Antitrust and Competition, Labor and Employment, or Mergers and Acquisitions practice groups.

[1] Antitrust Guidelines for Business Activities Affecting Workers (2025) (“2025 Guidelines” or “Guidelines”), available at https://www.ftc.gov/legal-library/browse/ftc-doj-antitrust-guidelines-business-activities-affecting-workers (FTC Website) and https://www.justice.gov/atr/media/1384596/dl?inline (DOJ Website).

[2] Antitrust Guidance for Human Resource Professionals (2016) (“2016 Guidelines”), available at https://www.justice.gov/atr/file/903511/dl?inline.

[3] See DOJ Press Release: Justice Department and Federal Trade Commission Issue Antitrust Guidelines on Business Practices that Impact Workers (Jan. 16, 2025), available at https://www.justice.gov/opa/pr/justice-department-and-federal-trade-commission-issue-antitrust-guidelines-business.

[4] Gibson Dunn Client Alert: Gibson Dunn Secures Nationwide Relief from Federal Trade Commission’s Non-Compete Rule (Aug. 20, 2024).

[5] 2016 Guidelines at 5.

[6] 2025 Guidelines at 6.

[7] See, e.g., Duffy v. Yardi Sys., Inc., 2024 WL 4980771, at *5 (W.D. Wash. Dec. 4, 2024); See DOJ Press Release: Justice Department Sues Six Large Landlords for Algorithmic Pricing Scheme that Harms Millions of American Renters (Jan. 7, 2025), available at https://www.justice.gov/opa/pr/justice-department-sues-six-large-landlords-algorithmic-pricing-scheme-harms-millions.

[8] 2025 Guidelines at 7.

[9] Id. at 6.

[10] Id.

[11] Id.

[12] Id. at 10.

[13] Id.

[14] Id. at 7.

[15] Gibson Dunn Client Alert: FTC Issues Final Rule Barring Employee Non-Compete Agreements (April 24, 2024).

[16] Ryan LLC v. FTC, No. 3:24-CV-00986-E, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).

[17] Ryan LLC v. FTC, No. 24-10951 (5th Cir. Jan. 2, 2025), ECF No. 41 (FTC’s opening brief). It is uncertain, however, whether the incoming administration will pursue this appeal.

[18] 2025 Guidelines at 7-8.

[19] Id. at 9.

[20] Id.

[21] Id. at 4.

[22] Id. at 6.

[23] Id. at 9.

[24] Id. at 11.

[25] Id.

[26] Id. at 4.

[27] 2016 Guidelines at 4.

[28] 2025 Guidelines at 4.

[29] Id.

[30] Id. “In this context, the term ‘no-poach’ agreement refers to the types of market-allocation agreements that affect employees’ attempts to get other jobs, such as an agreement between two competitors not to try to hire or solicit each other’s employees, or an agreement to request permission from the other company before trying to hire an employee. These no-poach agreements are different than, for example, agreements between an employer and its workers that prevent the workers from soliciting clients or vendors at a future employer or for a future competing business.” Id. n.11.

[31] Id. at 5-6.

[32] https://www.ftc.gov/system/files/ftc_gov/pdf/at-guidelines-for-business-activities-affecting-workers-ferguson-holyoak-dissent.pdf

[33] https://www.ftc.gov/system/files/ftc_gov/pdf/guardian-ferguson-dissenting-statement-final.pdf

[34] The Guidelines also seek to promote more reporting of potential violations, reflecting the Agencies’ efforts in recent years to facilitate online reporting. See 2025 Guidelines at 12. Similarly, in an effort to promote reporting of potential antitrust violations, on January 14, 2025, DOJ and the Department of Labor, Occupational Safety and Health Administration jointly issued a statement “affirm[ing] that corporate non-disclosure agreements (NDAs) that deter individuals from reporting antitrust crimes undermine the goals of whistleblower protection laws. . . .” See https://www.justice.gov/opa/pr/justice-department-and-osha-issue-statement-non-disclosure-agreements-deter-reporting. In addition, the statement cautions that “using NDAs to obstruct or impede an investigation may also constitute separate federal criminal violations.” Id.

The following Gibson Dunn lawyers prepared this update: Rachel Brass, Caeli Higney, Melanie Katsur, Julian Kleinbrodt, Kristen Limarzi, Cynthia Richman, Jeremy Robison, and Katherine Warren Martin.

Antitrust and Competition:
Rachel S. Brass – Co-Chair, San Francisco (+1 415.393.8293, [email protected])
Kristen C. Limarzi – Co-Chair, Washington, D.C. (+1 202.887.3518, [email protected])
Cynthia Richman – Co-Chair, Washington, D.C. (+1 202.955.8234, [email protected])
Caeli A. Higney – San Francisco (+1 415.393.8248, [email protected])
Melanie L. Katsur – Washington, D.C. (+1 202.887.3636, [email protected])
Julian W. Kleinbrodt – San Francisco (+1 415.393.8382, [email protected])
Jeremy Robison – Washington, D.C. (+1 202.955.8518, [email protected])

Labor and Employment:
Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202.955.8242, [email protected])
Katherine V.A. Smith – Co-Chair, Los Angeles (+1 213.229.7107, [email protected])

Gibson Dunn’s DEI Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

In his inaugural address yesterday, President Trump vowed to “forge a society that is colorblind and merit based,” and stated he would “end the government policy of trying to socially engineer race and gender into every aspect of public and private life.” Later in the day, he issued two executive orders that could affect race- and gender-related practices by government contractors and other private sector corporations.

The first order, “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” defines “sex” as “an individual’s immutable biological classification as either male or female” and directs federal agencies to “enforce laws governing sex-based rights, protections, opportunities, and accommodations to protect men and women as biologically distinct sexes.” There are at least two potential implications for private sector corporations.

First, the order directs federal agencies to “prioritize investigations and litigation to enforce . . .the freedom to express the binary nature of sex and the right to single-sex spaces in workplaces and federally funded entities covered by the Civil Rights Act of 1964.” Although the scope of this directive is not yet clear, it could lead to enforcement actions against private employers if they do not provide “single-sex spaces” such as bathrooms or if they take disciplinary action against employees for “express[ing] the binary nature of sex.”

Second, the order also affects government grant recipients. Although it does not restrict grantees’ use of their own funds, it directs agencies to ensure that “grant funds do not promote gender ideology.” It defines “gender ideology” as follows:

“Gender ideology” replaces the biological category of sex with an ever-shifting concept of self-assessed gender identity, permitting the false claim that males can identify as and thus become women and vice versa, and requiring all institutions of society to regard this false claim as true. Gender ideology includes the idea that there is a vast spectrum of genders that are disconnected from one’s sex. Gender ideology is internally inconsistent, in that it diminishes sex as an identifiable or useful category but nevertheless maintains that it is possible for a person to be born in the wrong sexed body.

The second order, “Ending Radical And Wasteful Government DEI Programs And Preferencing,” directs the termination of all “DEI” programs, policies, and activities in the federal government. It has two provisions potentially affecting government contractors.

First, the order directs the termination of “equity-related” grants or contracts. Contractors or grantees performing “equity-related” work should expect their contracts or grants to end. Relatedly, it directs agencies to provide the Director of OMB with a list of all “Federal contractors who have provided DEI training or DEI training materials to agency or department employees; and . . . Federal grantees who received Federal funding to provide or advance DEI, DEIA, or ‘environmental justice’ programs, services, or activities since January 20, 2021.” Presumably any contracts or grants on these lists will be terminated when possible for the government to do so.

Second, the order directs the termination of “all DEI or DEIA performance requirements for employees, contractors, or grantees.” Thus, any contractor whose contract includes such requirements should expect that they will no longer be enforced.

Gibson Dunn continues to monitor developments in this area. Additional executive action, especially with respect to government contractors, is anticipated. Government contractors and other private sector employers should consider reviewing their diversity programs and training to ensure compliance with evolving legal requirements. Our DEI Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

The following Gibson Dunn lawyers assisted in preparing this update: Jason Schwartz, Katherine Smith, Mylan Denerstein, Blaine Evanson, Zakiyyah Salim-Williams, Zoë Klein, Cate McCaffrey, Kelley Pettus, and McKenzie Deutsch.

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, [email protected])

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, [email protected])

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, [email protected])

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949-451-3805, [email protected])

Dhananjay S. Manthripragada – Partner & Co-Chair, Government Contracts Group
Los Angeles/Washington, D.C. (+1 213.229.7366, [email protected])

Lindsay M. Paulin – Partner & Co-Chair, Government Contracts Group
Washington, D.C. (+1 202.887.3701, [email protected])

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, [email protected])

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, [email protected])

Daniel Zygielbaum and Jennifer Fitzgerald are the authors of “Continuation Funds: Tax Issues” published by Practical Tax Strategies in its January 2025 issue.

From the Derivatives Practice Group: This week, the CFTC initiated review of certain sports-related events contracts. This week, the CFTC initiated review of certain sports-related events contracts.

New Developments

CFTC and the Bank of England Comment on Report on Initial Margin Transparency and Responsiveness in Centrally Cleared Markets. On January 15, the Basel Committee on Banking Supervision (“BCBS”), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (“CPMI”) and the International Organization of Securities Commissions (“IOSCO”) published the final report Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals and the accompanying cover note Consultation feedback and updated proposals. This report is the culmination of work undertaken by BCBS, CPMI, and IOSCO, co-chaired by the Bank of England and the Commodity Futures Trading Commission. [NEW]
CFTC Announces Review of Nadex Sports Contract Submissions. On January 14, the CFTC notified the North American Derivatives Exchange, Inc. (“Nadex”) d/b/a Crypto.com it will initiate a review of the two sports contracts that were self-certified and submitted to the CFTC on Dec. 19, 2024. As described in the submissions, the contracts are cash-settled, binary contracts. The CFTC determined the contracts may involve an activity enumerated in CFTC Regulation 40.11(a) and section 5c(c)(5)(C) of the Commodity Exchange Act. As required under CFTC Regulation 40.11(c)(1), the CFTC has requested that Nadex suspend any listing and trading of the two sports contracts during the review period. [NEW]
CFTC Announces Departure of Clearing and Risk Director Clark Hutchison. On January 15, the CFTC announced Division of Clearing and Risk Director Clark Hutchison will depart the agency Jan. 15. Mr. Hutchison has served as director since July 2019. [NEW]
CFTC Staff Issues Advisory Regarding the Compliance Date for Certain DCO Reporting Requirements. On January 10, the CFTC’s Division of Clearing and Risk (“DCR”) announced it issued a staff advisory regarding the compliance date for certain daily reporting requirements for registered derivatives clearing organizations (“DCOs”). The requirements were amended in August 2023. The compliance date for the amended requirements is February 10, 2025. According to the advisory, DCR will not expect any DCO to comply with the amended requirements until December 1, 2025, so long as the DCO continues to comply with the previous version of the requirements.
CFTC Announces Departure of Enforcement Director Ian McGinley. On January 10, the CFTC announced that Division of Enforcement Director Ian McGinley will depart the agency on January 17, 2025. Mr. McGinley has served as Director of Enforcement since February 2023.
Chairman Rostin Behnam Announces Departure from CFTC. On January 7, Chairman Rostin Behnam announced that he will be stepping down from his position as Chairman on January 20 and that his final day at the CFTC will be Friday, February 7.

New Developments Outside the U.S.

The EBA and ESMA Analyze Recent Developments in Crypto-Assets. On January 16, ESMA and the European Banking Authority (“EBA”) published a Joint Report on recent developments in crypto-assets, analyzing decentralized finance (“DeFi”) and crypto lending, borrowing and staking. This publication is the EBA and ESMA’s contribution to the European Commission’s report to the European Parliament and Council under Article 142 of the Markets in Crypto-Assets Regulation. EBA and ESMA find that DeFi remains a niche phenomenon, with value locked in DeFi protocols representing 4% of all crypto-asset market value at the global level. The report also sets out that EU adoption of DeFi, while above the global average, is lower than other developed economies (e.g. the US, South Korea). [NEW]
EU Funds Continue to Reduce Costs. . On January 14, ESMA published its seventh market report on the costs and performance of EU retail investment products, showing a decline in the costs of investing in key financial products. This report aims at facilitating increased participation of retail investors in capital markets by providing consistent EU-wide information on cost and performance of retail investment products. [NEW]
ESMA Launches Selection of the Consolidated Tape Provider for Bonds. On January 3, ESMA announced the launch of the first selection procedure for the Consolidated Tape Provider (“CTP”) for bonds. Entities interested to apply are encouraged to register and submit their requests to participate in the selection procedure by February 7, 2025. The CTP aims to enhance market transparency and efficiency by consolidating trade data from various trading venues into a single and continuous electronic stream. This consolidated view of market activity is intended to help market participants to access accurate and timely information and make better-informed decisions, leading to more efficient price discovery and trading.

New Industry-Led Developments

ISDA and GFXD Respond to FCA on Future of SI Regime. On January 10, ISDA and the Global Foreign Exchange Division (“GFXD”) of the Global Financial Markets Association (“GFMA”) responded to questions from the UK Financial Conduct Authority (“FCA”) on the future of the systematic internalizer (“SI”) regime. In the response, ISDA and GFXD support the proposal that firms are no longer required to identify themselves as SIs for derivatives trading and provide input on the consequences of this requirement falling away. ISDA and GFXD do not believe there will be any impact for reporting, best execution or on market structure. [NEW]

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

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, [email protected])

Michael D. Bopp, Washington, D.C. (202.955.8256, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Darius Mehraban, New York (212.351.2428, [email protected])

Jason J. Cabral, New York (212.351.6267, [email protected])

Adam Lapidus – New York (212.351.3869, [email protected] )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, [email protected])

William R. Hallatt , Hong Kong (+852 2214 3836, [email protected] )

David P. Burns, Washington, D.C. (202.887.3786, [email protected])

Marc Aaron Takagaki , New York (212.351.4028, [email protected] )

Hayden K. McGovern, Dallas (214.698.3142, [email protected])

Karin Thrasher, Washington, D.C. (202.887.3712, [email protected])

Class actions remain an active and evolving area of litigation, and we expect that trend to continue in 2025.

This update previews several important issues for class-action practitioners in the year ahead, including significant circuit splits, a noteworthy petition before the Supreme Court regarding Rule 23’s “ascertainability” requirement, and developments in mass arbitration.

I. Circuit Splits to Watch in 2025

Class action-related issues continue to percolate through the federal courts of appeals, with several circuit splits that deepened in 2024 growing potentially ripe for Supreme Court review. This section highlights circuit splits on standing in class actions, personal jurisdiction, and standards for expert evidence at the class-certification phase.

A. Standing in Class Actions

Courts continue to grapple with how Article III standing principles affect class actions. As summarized in the Fifth Circuit’s recent decision in Chavez v. Plan Benefit Services, Inc., 108 F.4th 297 (5th Cir. 2024), the courts of appeals have taken varying approaches to implementing Article III requirements in class actions, including: (1) the “standing” approach, and (2) the “class certification” approach. Id. at 308-11.

Under the “standing” approach—adopted by the Second, Seventh, and Eleventh Circuits—named plaintiffs must establish Article III standing for themselves and absent class members before courts can proceed to a Rule 23 certification analysis. Chavez, 108 F.4th at 309-11. Although the specific approach varies somewhat by circuit, it generally requires class representatives to show they have the “same interest[s] and “same injur[ies]” as the putative class. Id. at 311.

By contrast, under the “class certification” approach—adopted by the First, Third, Fourth, Sixth, and Tenth Circuits—courts include these standing questions as part of “the Rule 23 inquiry.” Id. at 312. According to the Fifth Circuit, courts following this approach do so to separate Article III’s standing requirements with Rule 23’s requirements, and thus focus on “the relationship between the class representative and the passive class members.” Id. at 309.

There remain important questions about how to square these approaches with the Supreme Court’s insistence that Article III principles apply equally in class actions. As the Fifth Circuit observed, the Supreme Court has “caution[ed] against dispensing standing ‘in gross’ in a class-action context”—and emphasized that plaintiffs must always “demonstrate standing for each claim that they press and for each form of relief that they seek.” Id. at 307 (quoting TransUnion, LLC v. Ramirez, 594 U.S. 413, 431 (2021)); see also TransUnion, 594 U.S. at 431 (“Every class member must have Article III standing in order to recover individual damages.”). But it seems we will have to wait before there is more clarity on this issue: although the defendants in Chavez filed a petition for a writ of certiorari, the Supreme Court denied the petition in December. So at least for now, the split will persist—though it may only be a matter of time before the Supreme Court provides guidance.

B. Personal Jurisdiction in FLSA Collective Actions

We previously addressed a circuit split on the issue of personal jurisdiction in collective actions under the Fair Labor Standards Act (FLSA), specifically regarding whether out-of-state plaintiffs can join an FLSA action filed in a state where the defendant is not subject to general personal jurisdiction. This circuit split stems from competing interpretations of the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court, 582 U.S. 255 (2017), which addressed personal jurisdiction in mass actions, but did not explicitly address FLSA collective actions.

Since the Supreme Court decided Bristol-Myers Squibb, the Third, Sixth, and Eighth Circuits have held that the jurisdictional analysis in Bristol-Myers Squibb, which requires a “claim-by-claim personal jurisdiction analysis” in mass actions, also applies to FLSA collective actions. Fischer v. Fed. Express Corp., 42 F.4th 366, 375 (3d Cir. 2022); Canaday v. Anthem Cos., Inc., 9 F.4th 392, 397 (6th Cir. 2021); Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861, 865 (8th Cir. 2021). By contrast, only the First Circuit has declined to follow that line of decisions and instead has held that courts need not have personal jurisdiction over every opt-in plaintiff in FLSA cases. See Waters v. Day & Zimmerman NPS, Inc., 23 F.4th 84, 93 (1st Cir. 2022).

The First Circuit’s decision is the clear outlier among the circuits, with the momentum in favor of the majority approach adopted by more and more circuits. For example, this past year, in Vanegas v. Signet Builders, Inc., 113 F.4th 718 (7th Cir. 2024), the Seventh Circuit joined the majority of circuits in holding that opt-in plaintiffs must each satisfy personal jurisdiction requirements to participate in FLSA collective actions. Id. at 724. The court explained that an FLSA collective action is like a mass action because it is a “consolidation of individual cases, brought by individual plaintiffs.” Id. at 725.

While it remains unsettled whether the same rule applies to absent class members in Rule 23 class actions, the growing agreement among the circuits suggests that companies should expect their home jurisdictions to be the preferred venue for plaintiffs filing nationwide collective actions—meaning jurisdictional defenses will remain an important consideration when defending such actions in other forums.

C. Standards for Expert Evidence at Class Certification

Parties often rely on expert evidence when litigating class-certification motions, and one important question that practitioners routinely confront is to what extent the admissibility of such expert evidence should affect the class-certification analysis. We earlier previewed a developing circuit split on the intersection between Daubert admissibility analysis and class certification. On one side of the split, the Third, Fifth, and Seventh Circuits require a full Daubert analysis and a finding that expert evidence is admissible before it can support class certification. In re Blood Reagents Antitrust Litig., , 186-88 (3d Cir. 2015); Prantil v. Arkema Inc., 986 F.3d 570, 575-76 (5th Cir. 2021); Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010). On the other side of the split, the Eighth Circuit has applied a more flexible approach for examining expert evidence regarding class certification. In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 611-14 (8th Cir. 2011).

This circuit split is poised to persist into 2025, with no clear consensus emerging. The Sixth and Ninth Circuits entered the fray this past year, with the Sixth Circuit joining the majority and the Ninth Circuit apparently siding with the minority:

In In re Nissan North America, Inc. Litigation, 122 F.4th 239 (6th Cir. 2024), the Sixth Circuit reasoned that “[i]f expert testimony is insufficiently reliable to satisfy Daubert, it cannot prove that the Rule 23(a) prerequisites have been met in fact through acceptable evidentiary proof.” at 253 (internal quotation marks omitted); see In re Nissan N. Am., Inc. Litig., 122 F.4th 239, 253 (6th Cir. 2024) (“[t]he Supreme Court requires parties to ‘satisfy through evidentiary proof’ that they ‘in fact’ meet the elements” of Rule 23). The Sixth Circuit therefore held that where expert evidence is “material to class certification,” it must satisfy Daubert. Nissan, 122 F.4th at 253.

By contrast, the Ninth Circuit recently held that plaintiffs may rely on evidence that is not admissible to support class certification and that a district court need conduct only a “limited” Daubert analysis at the class-certification stage, even if an expert’s model is not “fully developed.” Lytle v. Nutramax Labs., Inc., 99 F.4th 557, 570-71, 576-77 (9th Cir. 2024). The Ninth Circuit based its holding on the “temporal focus of the class certification inquiry,” reasoning that “class action plaintiffs are not required to actually prove their case” at class certification, but rather “must show that they will be able to prove their case through common proof at trial.” at 570. Notably, the holding in Lytle appears at odds with Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 31 F.4th 651 (9th Cir. 2022) (en banc), in which the Ninth Circuit held en banc that plaintiffs “may use any admissible evidence” to satisfy their burden at class certification (id. at 665 (emphasis added)) and that defendants “may challenge the reliability of an expert’s evidence under Daubert” when opposing class certification (id. at 665 n.7).

The defendants in Lytle petitioned for a writ of certiorari, asking the Supreme Court to rule on whether a district court may rely on inadmissible expert evidence to certify a class under Rule 23. As argued in the petition, the less stringent approach described in Lytle is particularly dangerous because it “allows putative class counsel to choose what evidentiary standard applies,” and “expert testimony that is less developed receives less scrutiny.” Nutramax Labs., Inc. v. Lytle, No. 24-576, 2024 WL 4904592, at *15 (U.S. Nov. 21, 2024). The petition remains pending.

The Supreme Court previously expressed doubt that Daubert was not applicable to expert testimony at the class-certification stage. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 354 (2011). Until the Supreme Court provides clarification, parties and practitioners should carefully consider their approach to relying on and opposing expert evidence at the class-certification stage, particularly in jurisdictions like the Eighth or Ninth Circuits (or those that have yet to address the role of Daubert at class certification). Given the possibility for Supreme Court review, litigants should ensure that their own expert evidence satisfies Daubert, consider mounting Daubert challenges to opposing expert evidence to preserve claims of error, and ask courts to make clear findings regarding admissibility of expert evidence to best position their cases for review in the event the Supreme Court decides this issue.

II. Ascertainability at the Supreme Court

The Supreme Court continues to receive cert petitions that raise interesting and recurring issues in the class-action space. There is one such petition pending on an oft-litigated issue: whether Rule 23 embodies an “ascertainability requirement” that obliges plaintiffs to offer “objective criteria” by which class members are “readily identifiable” in reference to objective criteria. As discussed in last year’s article, courts have taken different approaches to ascertainability, with no clear consensus among the circuits.

The pending cert petition seeks review of the Fourth Circuit’s decision in Career Counseling, Inc. v. AmeriFactors Financial Group, LLC, 91 F.4th 202 (4th Cir. 2024), which reaffirmed that Rule 23 contains an ascertainability requirement. The case involves a putative class action alleging that a company sent unsolicited fax advertisements to 59,000 recipients in violation of the Telephone Consumer Protection Act (TCPA). The district court denied class certification, holding that the putative class failed to satisfy Rule 23’s implicit threshold requirement of ascertainability. Id. at 207. Specifically, the district court reasoned that the individuals eligible for class membership were not “readily identifiable” because only those who received the advertisements through “stand-alone” fax machines (rather than online fax services) could maintain a TCPA claim, and there was no way to readily identify those with stand-alone fax machines. Id. In affirming the denial of class certification, the Fourth Circuit rejected the plaintiffs’ argument that there is no implicit ascertainability requirement under Rule 23. Id. at 209.

The plaintiffs filed a cert petition that asks the Supreme Court to settle whether “administrative feasibility” stands as a distinct prerequisite to class certification, or instead sits as one of several prudential factors for courts to consider in their Rule 23(b)(3) superiority analysis. See Career Counseling v. Amerifactors Fin. Grp., No. 24-86, 2024 WL 3569079, at *11 (U.S. July 19, 2024). This is the latest of several cert petitions to have raised this question in the past few years; although the Supreme Court has not taken the question up yet, this is certainly an issue that many are eagerly watching.

III. Continued Judicial Scrutiny of Dispute-Resolution Agreements and Evolving Strategies to Manage Mass Arbitration Risk

Mass arbitration is becoming one of the largest legal threats to companies, with a sophisticated plaintiff’s bar implementing novel strategies to take advantage of arbitration agreements to exert settlement pressure on defendants. We see no signs of this trend slowing in 2025, and companies have responded to this threat with dispute-resolution provisions that encourage the efficient resolution of individual disputes—all the while disincentivizing plaintiff’s attorneys from initiating “mass arbitration” campaigns that benefit no one other than themselves.

Courts have begun to review these efforts to curb the risk of exploitative mass arbitration. In Heckman v. Live Nation Entertainment, Inc., 120 F.4th 670 (9th Cir. 2024), the court has declined to enforce an arbitration agreement based on its conclusion that the arbitration provider’s rules were “internally inconsistent, poorly drafted, and riddled with typos,” and that “counsel struggled to explain the Rules at oral argument.” Id. at 677-78.

The court determined that defendants’ “market dominance” in the ticket services industries supported a finding that the contract was adhesive, further supporting a finding of unconscionability. Id. at 682. The court also ruled that a provision permitting unilateral modification of the terms without prior notice rendered the clause “procedurally unconscionable” under California law. Id. at 682-83.

As to substantive unconscionability, the court expressed three concerns. First, the defendant’s “bellwether” process—which would bind future claimants to a single arbitrator’s ruling on the validity of the delegation clause in both bellwether and non-bellwether cases—effectively deprived the non-bellwether claimants of their right to be heard or otherwise participate in proceedings that could affect their rights. Id. at 684-85. Second, the arbitration rules also restricted discovery and the evidence that could be presented. Id. at 685-86. And third, the claimants were bound by what the court viewed as a functionally “asymmetrical” appeal provision, leaving them without a right to appeal any denial of injunctive relief. Id. at 686.

Heckman did not reach several types of clauses that have been used to address “mass arbitration” abuses such as pre-dispute informal dispute resolution clauses, individualized arbitration demand requirements, cost-splitting provisions, and fee-shifting for frivolous claims. And courts already have upheld “batching” clauses post-Heckman. See, e.g., Kohler v. Whaleco, Inc., 2024 WL 4887538, at *9 (S.D. Cal. Nov. 25, 2024) (post-Heckman decision holding that batching provision in arbitration agreement did not make delegation clause unconscionable). Given the rapidly evolving case law and differing approaches to the review of arbitration provisions, companies should analyze their clauses on a regular basis.

The following Gibson Dunn lawyers contributed to this update: Jessica Pearigen, Vannalee Cayabyab, Psi Simon, Matt Aidan Getz, Wesley Sze, Lauren Blas, Bradley Hamburger, Kahn Scolnick, and Christopher Chorba.

Gibson Dunn attorneys 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, Litigation, or Appellate and Constitutional Law practice groups, or any of the following lawyers:

Theodore J. Boutrous, Jr. – Los Angeles (+1 213.229.7000, [email protected])

Christopher Chorba – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7396, [email protected])

Theane Evangelis – Co-Chair, Litigation Practice Group, Los Angeles
(+1 213.229.7726, [email protected])

Lauren R. Goldman – Co-Chair, Technology Litigation Practice Group, New York
(+1 212.351.2375, [email protected])

Kahn A. Scolnick – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7656, [email protected])

Bradley J. Hamburger – Los Angeles (+1 213.229.7658, [email protected])

Michael Holecek – Los Angeles (+1 213.229.7018, [email protected])

Lauren M. Blas – Los Angeles (+1 213.229.7503, [email protected])

We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during December 2024. Please click on the links below for further details.

I. GLOBAL

Institutional Shareholder Services Inc. (ISS) announces updates to voting guidelines for 2025

On December 17, 2024, proxy advisor ISS released its 2025 Proxy Voting Guidelines updates for the U.S., Canada, and the Americas. These guidelines will apply to shareholder meetings held on or after February 1, 2025. United States updates included additional guidance on poison pills, special purpose acquisition company extension proposals, and natural capital and community impact assessment shareholder proposals. Regarding such shareholder proposals, ISS now considers whether the company’s current disclosure is aligned with “relevant, broadly accepted reporting frameworks” when considering its recommendations related to environmental or community impact assessment proposals. ISS explained that the change is in response to frameworks on biodiversity and nature-related risks such as the Taskforce on Nature-related Financial Disclosures and the Kunming-Montreal Global Biodiversity Framework. Updates for Canada related to director independence, board gender and racial/ethnic diversity, the presence of a former chief executive or financial officer on the audit or compensation committee, pay-for-performance, and article and bylaw amendments. Updates to the Americas policies consisted of board structure and compensation plan proposals.

International Court of Justice (ICJ) concludes hearings on obligations of states to address climate change

Between December 2 and December 13, 2024, the ICJ held hearings to determine the responsibilities states have under international law to combat climate change. The proceedings involved participation from 96 countries and 11 regional organizations. Smaller island nations called for consequences for high-emitting states that fail to meet their climate-related obligations. In contrast, China pressed the ICJ to favor existing frameworks on climate change such as the Paris Agreement rather than creating new legal obligations. The United States pushed back against the approach of “common but differentiated responsibilities” among states, arguing that international treaties such as the Paris Agreement are not legally binding. Based upon the hearings, the ICJ is expected to publish its advisory opinion, which, while not binding, has authoritative value and may inform subsequent legal proceedings.

II. UNITED KINGDOM

UK Sustainability Disclosure Technical Advisory Committee (TAC) issues final recommendations on International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards

On December 18, 2024, the Financial Reporting Council (FRC), in its role as Secretariat to the TAC, published the TAC’s recommendations to the Secretary of State for Business and Trade on the use of the first two IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board. The TAC recommended the endorsement of the use of Sustainability Disclosure Standards IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures), subject to small amendments, including extending the “climate first” reporting relief to two years. It was also suggested that guidance be developed on how entities can align IFRS S1 with existing disclosure requirements.

Financial Markets Standards Board (FSMB) publishes Transparency Draft Statement of Good Practice (SoGP) on the governance of Sustainability-Linked Products (SLPs) for consultation

On December 17, 2024, the FMSB published an SoGP on the governance of SLPs and invited comments by February 21, 2025. The SoGP aims to codify good practices for the governance of SLPs and support the adoption of consistent governance approaches across asset classes and jurisdictions. The SoGP is stated to apply to service providers or users of SLPs in wholesale financial markets. The SoGP comprises six “Good Practice Statements,” including that borrowers or issuers (Users) of SLPs should outline the strategic objectives of their transaction, their internal processes for measuring outcomes, and their appetite for pre-execution external review. In addition, Users should take measures to mitigate material risks including conflicts of interest, and have robust and clearly defined governance processes for the approval of SLPs which demonstrate a consistent internal approach to these approvals.

UK Government Consultation on Implementing the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

On December 16, 2024, the Department for Transport published a consultation on implementing the UN’s CORSIA in the UK. Established by the International Civil Aviation Organization, this global initiative seeks to offset carbon dioxide (CO₂) emissions from international aviation by requiring airlines to purchase emissions units for growth beyond 85% of 2019 levels. The UK Government has already begun implementing CORSIA, starting with the incorporation of the requirement to monitor, report, and verify CO₂ emissions (known as MRV) into UK law through the Air Navigation (CORSIA) Order 2021. Amendments may be required to UK legislation, including the Air Navigation (CORSIA) Order 2021 and the Greenhouse Gas Emissions Trading Scheme Order 2020, to integrate CORSIA’s offsetting provisions, compliance penalties, and reporting requirements. The consultation includes two policy options for the interaction between CORSIA and the UK ETS. The consultation closes on February 10, 2025.

UK Government sets out plan for “new era of clean electricity”

On December 13, 2024, the UK Government announced the Clean Power 2030 Action Plan, a series of reforms to the UK’s energy system. The goals of the reforms include bringing down energy costs and protecting consumers from price volatility, expediting decisions on planning permission for critical energy infrastructure, and expanding the renewables auction process to stop delays and increase the number of projects completed. The Action Plan was devised with the advice of the National Energy System Operator to achieve the target of “Clean Power 2030.” The aim is that by 2030, clean sources will produce at least as much power as the UK consumes in total over the year, and at least 95% of total power generated in the UK.

Financial Conduct Authority (FCA) publishes quarterly consultation for its Handbook, including adjustments to the anti-greenwashing rule

On December 6, 2024, the FCA published CP24/26, a quarterly consultation proposing minor amendments to its Handbook. The changes include adjustments to the anti-greenwashing rule and Sustainability Disclosure Requirements, and updates to reflect the latest UK Corporate Governance Code. Feedback is invited by January 13, 2025, for most chapters, and by January 27, 2025, for the Corporate Governance Code updates.

FCA’s new “naming and marketing” sustainability rules come into force

On December 2, 2024, the FCA’s “naming and marketing” sustainability rules came into force. The package of measures is designed to provide investors with more information when making decisions. In particular, the guiding principles require a fund that uses sustainability-related terms in its name to have sustainability characteristics. As mentioned in our September update, the FCA is offering temporary flexibility, until 5 p.m. on April 2, 2025, for some funds to comply with the rules.

UK Emissions Trading Scheme (UK ETS) Authority issues consultation on expanding the UK ETS to the maritime sector

On November 28, 2024, the UK ETS Authority issued a consultation seeking input on a number of proposals to expand the UK ETS to the maritime sector from 2026. The consultation closes on January 23, 2025.

III. EUROPE

Cutting back on EU ESG legislation on the horizon: Omnibus Simplification Package?

The president of the European Commission, Ms. Ursula von der Leyen, in a press conference in Budapest recently mentioned her intention to cut back the obligations under the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Sustainable Finance Disclosure Regulation, the Regulation on Deforestation-free Products, and the Taxonomy Regulation by a so-called Omnibus Regulation, stating that “the content of the laws is good—we want to maintain it and we will maintain it—but the way we get there, the questions we are asking, the data points we are collecting, is too much—often redundant, often overlapping—so our task is to reduce this bureaucratic burden without changing the correct content of the laws.” The Omnibus Regulation is part of the EU Commission’s efforts to strengthen the EU’s economic competitiveness. The “tentative agenda for forthcoming Commission meetings” published on December 4, 2024, also mentions an “Omnibus simplification package” for the meeting on February 26, 2025, to be published by Executive Vice-President Stéphane Séjourné.

No further details regarding the substance are public yet.

CSRD transposition continues to stutter

As of the end of 2024, nine EU member states and EEA states had not yet transposed the CSRD into national law—namely, the Netherlands, Luxembourg, Germany, Spain, Portugal, Austria, Cyprus, Malta, and Iceland. This will generally mean that CSRD reporting (based on the European Sustainability Reporting Standards (ESRS)) will not apply in these states for financial year 2024 (mainly relevant for certain listed and regulated entities); if transposed in the course of 2025, it will likely still be possible to provide for application for financial year 2025 (based on the analysis of the Institute of Auditors in Germany (IDW) [original German only] on retroactive effects; to be verified under each relevant law). Financial year 2025 is typically relevant for in-scope subsidiaries of U.S. and other non-EU groups. It remains to be seen whether the indicated omnibus simplification package by the EU addressed above will provide for a further postponement of the reporting requirements as suggested by the German cabinet members. An overview of the current status of the transposition of the CSRD into national laws can be found here.

German government seconds plans for EU Sustainability Omnibus Regulation

In response to the EU Commission’s plan to simplify administrative procedures and sustainability reporting requirements, certain cabinet members of the German government—notably including vice chancellor Robert Habeck of the Green Party—sent a letter to the EU Commission dated December 17, 2024 supporting such an endeavor. In the letter, the cabinet members highlighted the burden of sustainability reporting requirements for companies and made several (drastic) proposals for simplification measures, including a two-year postponement of the reporting requirements for large companies that do not qualify as public-interest entities, an increase in the thresholds for these companies to €450 million in revenue and 1,000 employees, analogous to the CSDDD, a reduction of data points contained in the European Sustainability Reporting Standards (ESRS), and targeted measures to reduce the trickle-down effect on companies in the value chain. In a letter dated January 2, 2025 [original German only], the German Chancellor Olaf Scholz expressly supported the request by the cabinet members and the intended omnibus regulation.

European Financial Reporting Advisory Group (EFRAG) releases Voluntary Sustainability Reporting Standard for non-listed micro-, small-, and medium-sized undertakings (SMEs) and adds explanations to its ESRS Q&A Platform

On December 17, 2024, EFRAG published its Voluntary Reporting Standard for SMEs (VSME). The VSME shall provide guidance to companies that are not in scope of the CSRD but wish to standardize their reporting of sustainability information to access sustainable financing. In 2025, EFRAG plans to issue additional digital tools, support guides, and outreach initiatives to facilitate market acceptance and uptake of the VSME.

Furthermore, EFRAG released additional explanations on its ESRS Q&A Platform. The updates include answers to questions on mapping of sustainability matters to topical disclosures, the use of secondary data for social topics, and restrictions due to national regulations. The latest compilation of explanations can be found here and here.

EU Council adopts regulation on packaging and packaging waste

The Council of the European Union formally adopted a new regulation on packaging and packaging waste on December 16, 2024, thereby concluding the legislative process. The new rules require EU member states to reduce the amount of plastic packaging waste and introduce overall packaging reduction targets of 5% by 2030, 10% by 2035, and 15% by 2040. Among other things, certain types of single-use plastic packaging shall be banned by 2030, including very lightweight plastic carrier bags.

European Securities and Markets Authority (ESMA) publishes Q&As on guidelines on funds’ names using ESG or sustainability-related terms

On December 13, 2024, ESMA announced its publication of Q&As relating to its guidelines on funds’ names using ESG or sustainability-related terms. The guidelines have applied to alternative investment fund managers and UCITS management companies since November 2024. Amongst other matters, the Q&As confirm: (i) investment restrictions relating to the exclusion of companies do not apply to investments in European green bonds; and (ii) investment funds may not be meaningfully investing in sustainable investments if they contain less than 50% of sustainable investments.

Regulation on ESG rating activities published in the Official Journal

On December 12, 2024, Regulation (EU) 2024/3005 on the transparency and integrity of ESG rating activities was published in the Official Journal of the European Union. The Regulation introduces a regulatory regime for ESG rating providers operating in the EU. The Regulation entered into force on January 2, 2025 and will apply from July 2, 2026.

Switzerland plans to require disclosure of detailed roadmaps for achieving net-zero target by 2050 and to align reporting with international standards

On December 6, 2024, the Swiss government launched a consultation on proposed amendments to the Ordinance on Climate Disclosures, which requires large companies and financial institutions to report climate-related factors. With the amendment, Switzerland plans to establish minimum requirements for net-zero roadmaps (formerly called “transition plans”) to align with Switzerland’s Climate and Innovation Act targeting net-zero greenhouse gas (“GHG”) emissions by 2050. The amendments also propose that reporting shall be done in accordance with an internationally recognized standard or the sustainability reporting standard used in the European Union.

EU Parliament approves delay of EU Deforestation Regulation (EUDR) applicability

Following the EU Council’s decision to extend the application timeline for the EUDR until December 30, 2025, for large- and medium-sized companies, and until June 30, 2026, for micro and small companies (see our October 2024 ESG Update), the EU Parliament has confirmed the postponement.

IV. NORTH AMERICA

New York passes law creating new climate superfund

On December 26, 2024, Governor Kathy Hochul of New York signed into law the “Climate Change Superfund Act.” The law requires certain fossil fuel companies to pay into a climate superfund that is intended to fund infrastructure investments deemed to be related to climate resilience, such as coastal protection and flood mitigation systems. The law applies to companies that extracted or refined enough oil and gas between 2000 and 2018 to produce more than one billion tons of covered GHG emissions when consumed, and will require the companies to pay $75 billion into the superfund over 25 years, with each company’s payment proportionate to its attributed emissions.

U.S. House Judiciary Committee releases report on “climate cartel” and opens investigation into Net Zero Asset Managers Initiative (NZAM)

On December 20, 2024, members of the U.S. House Judiciary Committee sent letters to 60 U.S. asset managers requesting information about their involvement with the Glasgow Financial Alliance for Net Zero (GFANZ) and Net Zero Asset Managers initiatives (NZAM). The letters, which were signed by Representatives Jim Jordan (R-Ohio) and Thomas Massie (R-Kentucky), claimed that the funds have colluded with climate activists to “impose left-wing environmental, social, and governance (ESG)-related goals, which may violate U.S. antitrust law.” The letters requested information regarding how the asset managers’ membership in GFANZ and NZAM has changed the companies’ engagement strategies and voting policies.

Previously, on December 13, 2024, the U.S. House Judiciary Committee released a new report as part of its probe into whether asset management funds and activists are part of a “climate cartel” colluding to engage in climate activism. The report claims that asset managers such as BlackRock, Inc. (BlackRock) and State Street Global Advisors were concerned that joining an industry climate initiative could create the perception of collusion and draw regulatory scrutiny.

Biden administration sets new 2035 U.S. climate goal

On December 19, 2024, the outgoing Biden administration announced a new goal to reduce U.S. greenhouse gas (GHG) emissions by 61-66% below 2005 levels by 2035. This goal builds off the target set by President Biden in 2021 under the Paris Agreement to reduce GHG emissions by 50-52% by 2030. The new target is intended to keep the United States on a path to reach net zero GHG emissions economy-wide by 2050. The Biden administration is submitting this target to the United Nations Climate Change secretariat as the United States’ next Nationally Determined Contribution (NDC) under the Paris Agreement.

Canada releases inaugural sustainability disclosure standards, announces new 2035 climate goal, and plans to introduce supply chain due diligence legislation

On December 18, 2024, the Canadian Sustainability Standards Board (CSSB) published its inaugural Canadian Sustainability Disclosure Standards (CSDSs). CSDS 1 establishes general requirements for the disclosure of material sustainability-related financial information, and CSDS 2 focuses on disclosure of material information on critical climate-related risks and opportunities. Both CSDSs are closely aligned with the global International Financial Reporting Standards but included additional transition relief. Reporting under the CSDSs is currently voluntary, and CSSB plans to provide resources to facilitate its implementation. The CSDS exposure drafts initially proposed a two-year delay for Scope 3 GHG disclosures, but feedback on the exposure drafts prompted the CSSB to extend the transition relief by an additional year in the final standards.

On December 16, 2024, the Canadian Department of Finance released its 2024 Fall Economic Statement, which included a commitment to introduce legislation to help eradicate forced labor from Canada’s supply chains through new due diligence requirements. According to the report, the Canadian government intends to introduce legislation that would require “government entities and businesses to scrutinize their international supply chains for risks to fundamental labour rights and take action to resolve these risks.” The statement indicates that a new oversight agency would be created to ensure compliance.

On December 12, 2024, the Canadian government announced a new goal to reduce GHG emissions by 45-50% by 2035 compared to a 2005 baseline. This target follows the goal to reach net zero GHG emissions by 2050 under the Canadian Net-Zero Emissions Accountability Act, and its 2030 target to reduce emissions by 40-45% compared to a 2005 baseline. However, the target fell below the 50-55% 2035 target recommended by the Net-Zero Advisory Body. This new target will form the basis of Canada’s upcoming NDC under the Paris Agreement.

Indiana Public Retirement System to replace BlackRock due to ESG investing policies

On December 13, 2024, the board of trustees for the Indiana Public Retirement System (INPRS) voted unanimously to replace BlackRock as the manager of its portfolio due to BlackRock’s alleged “ESG focused agenda.” The INPRS board will now select another firm to manage the state’s pension funds portfolio.

U.S. Internal Revenue Service (IRS) and U.S. Department of Treasury (Treasury) issue final investment tax credit regulations for energy property

As summarized in our alert, on December 12, 2024, the IRS and Treasury published final regulations in the Federal Register on the investment tax credit for energy property.

BlackRock updates its 2025 U.S. stewardship expectations and voting guidelines

BlackRock published its new proxy voting guidelines, effective January 2025, which softened prior expectations related to racial and gender diversity on boards. In previous years, BlackRock had recommended that boards aspire to at least 30% diversity of their members and consider gender, race, and ethnicity when evaluating board composition. The 2025 guidelines no longer explicitly expect 30% diversity, but instead note that “[m]any S&P 500 companies” have reported benefits from current diversity levels, that “more than 98% of S&P 500 firms have diverse representation” of 30% or greater. BlackRock notes that it may vote against members of the nominating/governance committee if an S&P 500 company is not in line with market norms. The 2025 guidelines also no longer ask boards to consider gender, race, and ethnicity when evaluating board composition and instead ask boards to disclose “[h]ow diversity, including professional and personal characteristics, is considered in board composition, given the company’s long-term strategy and business model,” noting that personal characteristics may include gender, race, and ethnicity, as well as disability, veteran status, LGBTQ+, and cultural, religious, national, or Indigenous identity.

In case you missed it…

The Gibson Dunn Workplace DEI Task Force has published its updates for December summarizing the latest key developments, media coverage, case updates, and legislation related to diversity, equity, and inclusion, including a December 11, 2024 decision by the U.S. Fifth Circuit Court of Appeals to vacate the Nasdaq board diversity disclosure rules.

V. APAC

Japan Exchange Group, Inc. (JPX) launches new tool to reduce information gathering burden

On December 26, 2024, the Japan Exchange Group, Inc. and JPX Market Innovation & Research, Inc. launched the JPX Sustainability Information Search Tool. This tool aims to enhance Tokyo Stock Exchange (TSE) listed companies’ disclosure of sustainability-related information by providing a centralized platform where TSE listed companies can access links to publications from Prime Market-listed companies, such as annual securities reports, integrated reports, and websites, across 38 ESG topics. The tool is currently in its beta phase and is available only to TSE listed companies.

China establishes corporate sustainability disclosure standards

On December 17, 2024, the Chinese Ministry of Finance in conjunction with nine other departments, unveiled the Basic Guidelines for Corporate Sustainability Disclosure (the Basic Standards). The Basic Standards aim to standardize ESG disclosures across the nation and guide businesses in aligning their sustainability practices with global ESG expectations while addressing local priorities like climate change and rural development. ESG reporting in China will become mandatory for large, listed companies by 2026, with full implementation expected by 2030. The framework includes overarching principles, specific standards for ESG themes, and practical application guidelines, and emphasizes transparency, investor-focused reporting, and phased adoption to ease the transition, particularly for smaller firms. Enterprises may implement the Basic Standards on a voluntary basis before the mandatory compliance requirements take effect.

South Korea introduces new green finance guidelines

On December 12, 2024, the Financial Services Commission, the Ministry of Environment, and the Financial Supervisory Service in South Korea introduced administrative guidelines on green finance, building upon the K-taxonomy framework established in 2021. These guidelines set clear criteria for financial companies to assess and support green economic activities, aiming to promote green financing and address greenwashing concerns. While adoption is voluntary, financial institutions are encouraged to implement the guidelines to ensure a smooth and efficient supply of green finance. The guidelines also outline internal control standards and provide mechanisms for financial companies to assist businesses in meeting green finance criteria. Revisions to the guidelines are expected as updates to the K-taxonomy are finalized, ensuring alignment with evolving sustainability standards.

Hong Kong Institute of Certified Public Accountants (HKICPA) publishes HKFRS Sustainability Disclosure Standards

On December 12, 2024, the HKICPA published the HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures (HKFRS SDS) with an effective date of August 1, 2025. Fully aligned with the International Financial Reporting Standards – Sustainability Disclosure Standards (ISSB Standards), the HKFRS SDS establish a standardized framework to enhance the consistency and comparability of corporate sustainability reports.

Hong Kong launches roadmap on sustainability disclosure

On December 10, 2024, the Hong Kong Government launched a roadmap for sustainability disclosure (the Roadmap) outlining its approach to integrating the ISSB Standards for publicly accountable entities (e.g., listed issuers, regulated financial institutions) (PAEs). The Roadmap sets a clear path for large PAEs to fully adopt the ISSB Standards by 2028. The Roadmap also emphasizes the creation of a comprehensive ecosystem to support sustainability disclosures, focusing on assurance, data quality, technology, and the development of skills and competencies.

Australia issues First Nations Clean Energy Strategy

On December 6, 2024, the Australian Government released the First Nations Clean Energy Strategy (the Strategy) following extensive public consultation and stakeholder engagement. The Strategy provides a national framework to guide investment, shape policy, and empower First Nations people to self-determine their participation in and benefits from Australia’s clean energy transition. Spanning five years, the framework aims to foster collaboration among governments, industry, and communities to create opportunities for First Nations people to make informed choices and achieve social and economic benefits through the energy transition.

New Zealand Financial Markets Authority (FMA) presents its review on climate-related disclosures

On December 4, 2024, the FMA released a report detailing key insights from its review of New Zealand’s first mandatory climate statements. The FMA examined 70 climate statements prepared for reporting periods ending on December 31, 2023, January 31, 2024, and March 31, 2024. While the FMA observed variability in the quality of the disclosures across the 70 statements reviewed, it noted that the submissions were generally aligned with expectations. The FMA affirmed its commitment to reviewing climate statements using a broadly educative and constructive regulatory approach.

Monetary Authority of Singapore (MAS) introduces good disclosure practices for retail ESG funds

On December 4, 2024, the MAS published an Information Paper on Good Disclosure Practices for Retail ESG Funds (Information Paper). The Information Paper sets out good disclosure practices that retail ESG Funds may adopt in their adherence with the disclosure and reporting guidelines for Retail ESG Funds contained in Circular No. CFC 02/2022, which came into effect on January 1, 2023. The Information Paper emphasizes the importance of defining ESG terms, clearly outlining the use of ESG metrics, disclosing risks, and explaining any involvement with ESG indices or engagement activities. It encourages fund managers to adopt these practices in their offer documents, reports, and marketing materials, with the goal of improving the overall quality of ESG fund disclosures.

The following Gibson Dunn lawyers prepared this update: Lauren Assaf-Holmes, Ash Aulak*, Mitasha Chandok, Becky Chung, Martin Coombes, Ferdinand Fromholzer, Kriti Hannon, Elizabeth Ising, Saad Khan*, Michelle Kirschner, Sarah Leiper-Jennings, Vanessa Ludwig, Johannes Reul, Antonia Ruddle*, Meghan Sherley, and QX Toh.

*Ash Aulak, Saad Khan, and Antonia Ruddle are trainee solicitors in London and are not admitted to practice law.

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 leader or member of the firm’s Environmental, Social and Governance practice group:

ESG Practice Group Leaders and Members:
Susy Bullock – London (+44 20 7071 4283, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Perlette M. Jura – Los Angeles (+1 213.229.7121, [email protected])
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])
Robert Spano – London/Paris (+33 1 56 43 13 00, [email protected])

Gibson Dunn lawyers are monitoring the recommendations and are available to discuss the implications for your business or assist in preparing a public comment for submission to the CLRC.

California has long had antitrust and unfair competition laws, including the Cartwright Act,[1] Unfair Competition Law,[2] and Unfair Practices Act.[3] In August 2022, the California Legislature directed the California Law Revision Commission (the CLRC) to recommend potential changes to these laws.[4] The CLRC created eight working groups, received public comments, and held hearings. On January 13, 2025, the staff of the California Law Revision Commission recommended extensive changes to California’s antitrust laws, including: (1) adopting a law on unilateral anticompetitive conduct by a company, (2) revising the state process for merger review, and (3) expanding private plaintiffs’ ability to sue while restricting available defenses.

The staff recommendations are submitted to the CLRC’s commissioners, who will ultimately decide whether to recommend revisions to the legislature. Typically, the CLRC will make a tentative recommendation within 2–3 months and then open a period of public comment on those recommendations. The CLRC’s final recommendations across a wide range of laws have historically been enacted into law over 90% of the time.[5] Gibson Dunn attorneys are monitoring these recommendations and are available to discuss the implications for your business or assist in preparing a public comment for submission to the CLRC.

Staff Report’s Recommendations for Change

First, the staff recommended adopting a law to reach unilateral acts by a single company. Currently, California’s Cartwright Act is similar to Section 1 of the federal Sherman Act, which prohibits anticompetitive agreements between two or more entities, but the Cartwright Act contains no provision analogous to the unilateral conduct provisions of Section 2 of the Sherman Act, which prohibits monopolization and attempts to monopolize. The CLRC staff recommended adopting such an analogue, though they rejected wholesale adoption of Section 2, on the view that it had developed too many “jurisprudential limitations that can undermine effective enforcement.”[6] The CLRC staff instead preferred a bespoke, and more enforcement-friendly, standard that modifies the general federal standard with express language rejecting certain limitations that have arisen out of federal case law. While the staff did not enumerate these modifications, they may include provisions restricting a company’s ability to refuse to deal with competitors,[7] easing the requirements for predatory pricing claims,[8] and eliminating the requirement that plaintiffs define and prove a relevant market.[9] The staff also recommended “integrating elements” of an “abuse of dominance” standard—the prevailing standard used in European competition enforcement—to further “challenge dominant companies’ conduct that defy a ready application” of federal law.[10]

Second, the CLRC staff made two recommendations for changing merger law. The staff recommended that California adopt its own regime for premerger notification and merger approval and that the regime prohibit mergers that create an “appreciable risk” of lessening competition – a standard that would go beyond the prevailing federal test.[11] If adopted, this would reduce the burden on the California Attorney General in challenging mergers and allow for challenges based on alleged harm to “labor, innovation, and other nonprice elements”—even though the Mergers and Acquisitions Working Group recognized such a change “could impose significant burdens” and may be unnecessary as courts could “adjust . . . with no change in the relevant antitrust statutes.”[12]

Third, the CLRC staff noted a number of other potential changes that, if adopted, would give more plaintiffs standing to bring antitrust claims, ease their burden in doing so, and restrict the defenses available to defendants. These include adopting a “proximate cause” test to determine standing under the Cartwright Act; eliminating the Cartwright Act’s limitation to tying claims involving only commodities and services; precluding defendants from offering business justifications for tying; codifying that resale price maintenance in California is per se illegal; and “strengthen[ing] laws on information sharing by competitors.”[13]

Notably, the CLRC staff recommended against adopting certain changes, including advising against laws specific to technology companies, preferring general changes.

Takeaways

If adopted, the CLRC staff’s proposed changes would proscribe conduct that was previously lawful under both federal and state law and encourage competition lawsuits to be filed under California law. The proposed revisions to California’s merger laws would expand the role of California’s Attorney General in investigating mergers. Merging parties could face increased burden associated with pre-merger filings, longer merger reviews, and potentially inconsistent outcomes under federal and state review. If enacted into law, these changes thus would expand potential liability; enhance the risk of facing investigations, enforcement actions, or private lawsuits; and complicate or frustrate potential acquisitions and other deals.

Furthermore, the California Assistant Attorney General has previously threatened to “reinvigorat[e] criminal prosecutions under the Cartwright Act.”[14] The proposed Cartwright Act revisions from the staff memo could embolden an aggressive enforcement agenda and provide new ground for prosecutors to test new theories, including those beyond federal antitrust law.

Because the CLRC’s recommendations historically have been adopted into law at a high rate, companies should think carefully about how the staff’s proposed changes may affect their businesses and whether to provide comments for the CLRC to consider before issuing a final recommendation to the legislature. Attorneys from Gibson Dunn are available to help in preparing a public comment for submission to the CLRC or to the legislature as they consider potential bills, to discuss how these proposed changes may apply to your business, or to address any other questions you may have regarding the issues discussed in this update.

[1] Bus. & Prof. Code §§ 16700 – 16770.

[2] Bus. & Prof. Code §§ 17200 – 17210.

[3] Bus. & Prof. Code §§ 17000 – 17101.

[4] 2022 Cal. Stat. Res. Ch. 147 (ACR 95). Specifically, the legislature asked the CLRC to study: (1) Whether the law should be revised to outlaw monopolies by single companies; (2) Whether the law should be revised in the context of technology companies; and (3) Whether the law should be revised in any other fashion such as approvals for mergers and acquisitions and any limitation of existing statutory exemptions to the state’s antitrust laws. Id.

[5] Cal. L. Revision Comm’n, https://clrc.ca.gov/ (last visited Jan. 15, 2025).

[6] Memorandum, Initial Recommendations for ACR 95 Questions, Cal. L. Revision Comm’n (Jan. 13, 2025) at 5 [henceforth “Staff Memo”].

[7] Memorandum, Single-Firm Conduct Working Group, Cal. L. Revision Comm’n (Jan. 25, 2024), at 7, 13, 17.

[8] Id. at 6, 13, 17 (8(iii)).

[9] Id. at 18.

[10] Staff Memo at 8.

[11] Id. at 12.

[12] Id.; see also Memorandum, California Antitrust Law and Mergers, Cal. L. Revision Comm’n (May 28, 2024), at 20.

[13] Id. at 13.

[14] Bonnie Erslinger, Top Calif. Antitrust Atty Says Criminal Cases On The Horizon, Law360, Mar. 6, 2024 https://www.law360.com/california/articles/1810754. Criminal penalties under the Cartwright Act can be quite strong: fines of up to the greater of $1 million or twice the pecuniary gain or loss for corporations and fines of up to the greater of $250,000 or twice the pecuniary gain or loss and up to three years imprisonment for individuals. Bus. & Prof. Code § 16755(a).

The following Gibson Dunn lawyers prepared this update: Rachel Brass, Dan Swanson, Caeli Higney, Julian Kleinbrodt, Sarah Roberts, and Gaby Candes.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. 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 Antitrust and Competition, Mergers and Acquisitions, or Private Equity practice groups in California:

Antitrust and Competition:

Rachel S. Brass – San Francisco (+1 415.393.8293, [email protected])

Christopher P. Dusseault – Los Angeles (+1 213.229.7855, [email protected])

Caeli A. Higney – San Francisco (+1 415.393.8248, [email protected])

Julian W. Kleinbrodt – San Francisco (+1 415.393.8382, [email protected])

Samuel G. Liversidge – Los Angeles (+1 213.229.7420, [email protected])

Daniel G. Swanson – Los Angeles (+1 213.229.7430, [email protected])

Jay P. Srinivasan – Los Angeles (+1 213.229.7296, [email protected])

Chris Whittaker – Orange County (+1 949.451.4337, [email protected])

Mergers and Acquisitions:

Candice Choh – Century City (+1 310.552.8658, [email protected])

Matthew B. Dubeck – Los Angeles (+1 213.229.7622, [email protected])

Abtin Jalali – San Francisco (+1 415.393.8307, [email protected])

Ari Lanin – Century City (+1 310.552.8581, [email protected])

Stewart L. McDowell – San Francisco (+1 415.393.8322, [email protected])

Ryan A. Murr – San Francisco (+1 415.393.8373, [email protected])

Comments on the Front-of-Package Proposed Rule must be submitted to FDA by May 16, 2025.

On January 14, 2025, the U.S. Food and Drug Administration (FDA) published a much-anticipated proposed rule that, if finalized, will require front-of-package (FOP) nutrition labeling for foods (FOP Proposed Rule). The proposed rule is the culmination of almost two decades of consideration by FDA and Congress of whether and in what form to require an abbreviated FOP nutrition disclosure on food packages, with the stated goal of aiding consumers in making healthier choices.[2] FDA’s development of the approach set forth in the proposed rule included focus groups and experimental testing of various formats, including a Guideline Daily Amount (GDA) format resembling the industry-developed Facts Up Front (FUF) scheme.[3]

The proposed rule contains provisions that have been hotly contested by both the food industry and health advocates and is expected to face significant administrative and constitutional challenges if finalized by the incoming Trump administration. Comments on the Front-of-Package Proposed Rule should be submitted to Docket No. FDA-2024-N-2910 by the deadline of 120 days after the publication, on May 16, 2025.

Here are five things to know about the FOP Proposed Rule:

Introducing the “Nutrition Info” Panel: The FOP Proposed Rule introduces a new black-and-white “Nutrition Info” panel that will appear on the front of food packages. The Nutrition Info panel, shown below, provides the serving size of the food and the per-serving percent Daily Value (DV) of three nutrients: saturated fat, sodium, and added sugars. Characterizations of each of these three nutrients will be included as “Low” (5% DV or less), “Med” (6% to 19% DV), or “High” (20% DV or more). The panel will also include an attribution to “FDA.gov,” intended to increase consumer credibility and trust.[4]

FDA also allows for a smaller version of the Nutrition Info panel for foods in smaller packages with less than 40 square inches to present the Nutrition Facts label in tabular fashion. This smaller format includes only the “Low,” “Med,” or “High” characterizations for the three nutrients to limit, without the serving size (or disclosure that the characterization is based on serving size) or percent DVs for each:[5]

Similar to FDA’s current regulations for Nutrition Facts, FDA proposes to exempt foods in packages with a total surface area of less than 12 square inches from bearing the Nutrition Info box.[6] The FOP Proposed Rule also includes special formats for certain types of foods, including packages that contain separately packaged foods intended to be eaten individually, such as variety packs; foods with Nutrition Facts labeling for two or more population groups, for both per serving and per individual unit amounts, and for the food “as packaged” and “as prepared;” foods sold from bulk containers; and, game meats.[7]

“High,” “Med,” “Low”: Following its testing of various schemes, FDA has chosen to propose a black-and-white Nutrition Info panel (i.e, rather than a red/yellow/green traffic light schema) that includes characterizations of the levels of nutrients to limit, rather than presenting plain numerical data. FDA justified this approach based on scientific literature showing that consumers struggled to understand numeric values in current nutrition labeling when making choices about food.[8] FDA stated that its “Low” and “High” characterizations are consistent with its historical approach for thresholds for “low” and “high” claims for sodium and saturated fats. While there are no current regulations on “medium” nutrient content claims, the agency is establishing “Med” to refer to products that fall between the “Low” and “High” categories.[9] Consistent with this approach, FDA also proposes amendments to its regulations to provide for low sodium and low saturated fat nutrient content claims in line with current nutrition science and the updated Daily Reference Value (DRV) for sodium in the 2016 Nutrition Facts label final rule.[10]

Who is Subject to the FOP Proposed Rule?: FDA proposes to require all foods currently marketed to people ages 4 and older – the population FDA considers to constitute the general population for nutrition labeling – to comply with the Nutrition Info box requirements, unless specific exemptions apply.[11] The proposed rule includes exemptions for, among others, foods in packages with a total surface area of less than 12 square inches; packages marketed as gifts containing a variety or assortment of foods; and, unit containers in multiunit retail food packages.[12]

When Does the FOP Nutrition Labeling Requirement Go into Effect?: If the proposed rule is finalized as published, it would require manufacturers to add a Nutrition Info box to packaged food products three years after the final rule’s effective date (for businesses with $10 million or more in annual food sales) and four years after the effective date (for businesses with less than $10 million in annual food sales). However, before the rule can be finalized, FDA must review any comments on the proposed rule and issue a final rule. This process can take anywhere from one to several years, depending on the number and nature of comments received and agency (and broader administration) priorities.

Making America Healthy Again?: Similar to other recently issued FDA guidance and regulations, it is unclear whether the FOP Proposed Rule will be finalized following the change in administration. Nutrition and transparency in food labeling are also priorities of anticipated leadership for FDA and the U.S. Department of Health and Human Services (HHS) under the incoming Trump administration. It remains to be seen whether FOP nutrition labeling will feature as part of FDA’s food regulatory priorities moving forward.

Interested parties should submit comments to the docket. The FOP Proposed Rule is scheduled to be published in the Federal Register on January 16, 2025. Comments on the FOP Proposed Rule should be submitted to Docket No. FDA-2024-N-2910 by the deadline of 120 days after the publication, on May 16, 2025. Gibson Dunn is prepared to help interested parties consider the implications of this proposed rule, if finalized, including through regulatory counseling, FDA and legislative engagement, and litigation.

[1] FDA, “Food Labeling: Front-of-Package Nutrition Information,” available at https://www.federalregister.gov/public-inspection/2025-00778/food-labeling-front-of-package-nutrition-information (last accessed Jan. 14, 2025) (FOP Proposed Rule). The FOP Proposed Rule is scheduled to be published in the Federal Register on Thursday, January 16, 2025.

[2] See id., Part III.B-D.

[3] See id., Part III.D.2-3.

[4] Id., Part I.A, V.B, V.B.2, V.B.5.

[5] Id. Part V.E.5.

[6] Id. Part V.F.2.

[7] Id. Part V.E.1-4, 6-7.

[8] Id., Part III.A, D.2-3.

[9] Id., Part IV.B.3.

[10] Id., Part V.G.

[11] Id., Part V.A.

[12] Id., Part V.F.1-4.

[13] Regulations.gov, Docket No. FDA-2024-N-2910.

The following Gibson Dunn lawyers assisted in preparing this update: Katlin McKelvie, Gustav W. Eyler, Carlo Felizardo, and Wynne Leahy.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s FDA & Health Care practice group:

Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, [email protected])
Katlin McKelvie – Washington, D.C. (+1 202.955.8526, [email protected])
John D. W. Partridge – Denver (+1 303.298.5931, [email protected])
Jonathan M. Phillips – Washington, D.C. (+1 202.887.3546, [email protected])
Carlo Felizardo – Washington, D.C. (+1 202.955.8278, [email protected])
Wynne Leahy – Washington, D.C. (+1 202.777.9541, [email protected])

E.M.D. Sales, Inc. v. Carrera, No. 23-217 – Decided January 15, 2025

Today, the Supreme Court unanimously held that the preponderance-of-the-evidence standard, rather than the more demanding clear-and-convincing-evidence standard, governs Fair Labor Standards Act exemptions.

“[T]he public interest in Fair Labor Standards Act cases does not fall entirely on the side of employees. Most legislation reflects a balance of competing interests. So it is here. Rather than choose sides in a policy debate, this Court must apply the statute as written and as informed by the longstanding default rule regarding the standard of proof.”

Justice Kavanaugh, writing for the Court

Background:

The Fair Labor Standards Act (FLSA) generally requires employers to pay employees a minimum hourly rate, 29 U.S.C. § 206(a), and overtime to employees who work over 40 hours per week, id. § 207(a). But the Act exempts many classes of workers from these requirements. Id. § 213.

Sales representatives for E.M.D. Sales Inc., a food-distribution company that delivers to grocery stores, sued E.M.D. under the FLSA, claiming that they were entitled to overtime pay. In response, E.M.D. argued that the plaintiffs were exempt from the FLSA because they were “employed . . . in the capacity of outside salesm[e]n.” 29 U.S.C. § 213(a)(1). The district court, applying Fourth Circuit precedent, ruled that E.M.D. had not shown by clear and convincing evidence that the plaintiffs were outside salesmen. After the Fourth Circuit affirmed, E.M.D. successfully petitioned for a writ of certiorari, explaining that the Fourth Circuit’s approach conflicted with decisions from the Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits.

Issue:

Does the FLSA require employers to prove by clear and convincing evidence, or merely by a preponderance of the evidence, that employees are exempt from the Act’s minimum-wage or overtime-pay requirements?

Court’s Holding:

Employers invoking a FLSA exemption need satisfy only the ordinary preponderance-of-the-evidence standard, not the more demanding clear-and-convincing-evidence standard.

What It Means:

The Court’s holding brings the Fourth Circuit, which had been alone in requiring proof by clear and convincing evidence, in line with other circuits, and will make it far easier for employers to prove that employees are exempt from the FLSA’s overtime-pay or minimum-wage requirements.
By correcting course, the Court’s opinion not only changes the likely outcome of FLSA cases turning on whether their employees are exempt, but also relieves employers of the chill of costly litigation and encourages productive use of exempt employees.
The Court rejected the policy arguments in favor of a more demanding standard of proof. As the Court explained, the FLSA is no more significant, in terms of public policy, than any number of other important statutes under which the preponderance standard applies.
More broadly, the Court emphasized that the preponderance-of-the-evidence standard is the presumptive standard of proof for all civil statutes. A more demanding standard applies only where (1) Congress speaks clearly to displace that presumption, (2) the Constitution requires it, or (3) the government seeks to take unusual coercive action against an individual.

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:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Lucas C. Townsend +1 202.887.3731 [email protected]	Bradley J. Hamburger +1 213.229.7658 [email protected]	Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Labor and Employment

Jason C. Schwartz
+1 202.955.8242
[email protected]

Katherine V.A. Smith
+1 213.229.7107
[email protected]

This alert was prepared by associates Matt Aidan Getz and Catherine Frappier.

A quarterly update of high-quality education opportunities for Boards of Directors.

Gibson Dunn’s summary of director education opportunities has been updated as of January 2025. A copy is available at this link. Boards of Directors of public and private companies find this a useful resource as they look for high quality education opportunities.

This quarter’s update to the summary of director education opportunities includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities are available for both public and private companies’ boards.

Read More

The following Gibson Dunn attorneys assisted in preparing this update: Hillary Holmes, Lori Zyskowski, Elizabeth Ising, Ronald Mueller, Jason Ferrari, and To Nhu Huynh.

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 Securities Regulation and Corporate Governance practice group, or the following authors:

Hillary H. Holmes – Houston (+1 346.718.6602, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, [email protected])
Lori Zyskowski – New York (+1 212.351.2309, [email protected])

Please also view Gibson Dunn’s Securities Regulation and Corporate Governance Monitor.

Please join us for a briefing where we provide an in-depth legal perspective on the critical regulatory compliance issues companies must address when preparing for an Initial Public Offering (IPO) and operating as a newly public company. Emphasizing the importance of robust compliance frameworks, we examine key legal risks associated with OFAC (Office of Foreign Assets Control) sanctions, Anti-Money Laundering (AML) regulations, the Foreign Corrupt Practices Act (FCPA), and other emerging regulatory concerns such as climate change disclosures and diversity requirements.

This session is designed for legal professionals and executives seeking to mitigate compliance risks and establish a foundation for ongoing regulatory adherence in the post-IPO environment.

Key topics include:

OFAC and AML Compliance: Understanding sanctions, money laundering risks, and the controls necessary to mitigate them.
FCPA Considerations: Navigating anti-bribery and corruption regulations in international operations.
Climate Change Disclosures: Meeting the growing demand for environmental impact reporting.
Diversity and Inclusion Requirements: Addressing stakeholder expectations and legal mandates for diversity in the workplace and boardroom.
Compliance Program Implementation: Considerations and steps for developing and implementing a comprehensive compliance program to minimize risks during the IPO process.
IPO Diligence and Disclosure: Preparing to meet the scrutiny of regulators, investors, and underwriters in the due diligence and disclosure phases.

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 1.0 credit hour, of which 1.0 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 1 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 1.0 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 1 hour toward your annual CLE requirement in Connecticut, including 0 hour(s) of ethics/professionalism.

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

PANELISTS:

Cynthia Mabry is a partner in the Houston office of Gibson, Dunn & Crutcher. Cynthia concentrates her practice on capital markets, securities, mergers and acquisitions and general corporate matters. She represents public and private entities, investors and underwriters in capital markets and finance transactions, including offerings of equity and debt securities.

Adam Smith is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher and serves as co-chair of the firm’s International Trade Practice Group. He is an experienced international lawyer with a focus on international trade compliance and white collar investigations, including federal and state economic sanctions enforcement, CFIUS, the Foreign Corrupt Practices Act, embargoes, and export and import controls.

Patrick Stokes is a litigation partner in Gibson, Dunn & Crutcher’s Washington, D.C. office. He is the co-chair of the Anti-Corruption and FCPA Practice Group and a member of the firm’s White Collar Defense and Investigations, National Security, Securities Enforcement, Trials, and Litigation Practice Groups.

Sam Raymond is Of Counsel in the New York office of Gibson Dunn & Crutcher and a member of the White Collar Defense and Investigations, Litigation, Anti-Money Laundering, Fintech and Digital Assets, and National Security Groups. As a former federal prosecutor, Sam has a broad-based government enforcement and investigations practice, with a specific focus on investigations and counseling related to anti-money laundering, the Bank Secrecy Act, and sanctions.

Gibson Dunn lawyers are available to assist developers preparing proposals for the competitive solicitation process or to answer questions about the Executive Order.

On January 14, 2025, President Biden issued an executive order[1] that directed certain federal agencies—predominantly the Department of Energy (DOE), the Department of Defense (DOD), and the Department of the Interior (DOI), but also the Department of State and other agencies—to stand up processes by which non-federal entities, including private-sector companies, can apply to lease certain federal sites for the purpose of constructing and operating “AI infrastructure.”[2] Much of the Executive Order focuses on encouraging the development on federal lands of large data centers capable of developing artificial intelligence (AI) models that match or surpass the current state of the art, a type-and-location combination the order dubs “frontier AI data centers.”[3]

The order also requires federal agencies to take additional actions meant to: (1) help the agencies understand and mitigate the impact of AI infrastructure on consumers’ electricity rates and the environment;[4] (2) identify the characteristics of transmission infrastructure near potential federal sites[5] and ensure that adequate transmission infrastructure exists at federal sites;[6] (3) facilitate the expeditious permitting of AI infrastructure projects on federal sites;[7] (4) improve the overall permitting and power procurement processes for AI infrastructure;[8] and (5) engage with other countries on accelerating the global buildout of AI infrastructure.[9] At its most practical level, the Executive Order sets an objective to achieve full permitting and approval of construction to begin for six frontier AI data centers (three on DOE sites and three on DOD sites) by the end of 2025.[10]

This client alert focuses on the leasing program established by the Executive Order, which will be available to the private sector, and provides a high-level summary of: (1) the process by which agencies are required to select the federal sites that will be leased; (2) the information that agencies must request from prospective developers in the competitive public solicitation process; (3) the criteria by which agencies must judge proposals submitted in the competitive public solicitation process; and (4) the types of provisions that are required in the lease agreement.

1. Federal Site Selection

The Executive Order requires the Secretary of the DOD and the Secretary of the DOE (the “Secretaries”) to identify by February 28, 2025, at least three sites on their respective agency’s land that may be suitable for the construction and operation of a frontier AI data center and clean energy facilities to serve such data center by the end of 2027.[11] To identify these sites, the Secretaries are directed to prioritize sites that:

are geographically sufficient for the AI infrastructure;
minimize possible adverse effects of AI infrastructure on the local community, natural and cultural resources, threatened or endangered species, or harbors or rivers not associated with hydropower;
are in close proximity to communities seeking to host AI infrastructure;
have access and are close in proximity to high-voltage transmission infrastructure that minimizes transmission-related costs associated with the construction of the AI infrastructure;
are not at risk of persistently failing to attain National Ambient Air Quality Standards;
lack proximity to waters that fall under the jurisdiction of the federal government under the Clean Water Act, 33 U.S.C. 1251 et seq.;
lack extensive restrictions on land uses associated with constructing and operating AI infrastructure;
have access to high-capacity telecommunications networks;
are suitable for the development of temporary infrastructure necessary for the construction of AI infrastructure; and
would not compromise a competing national security concern if the site were used or repurposed for AI infrastructure.[12]

The Executive Order also requires the Secretary of the Department DOI, in consultation with other agencies, to (1) identify sites managed by the Bureau of Land Management (BLM) that can be used to construct or operate clean energy facilities that are being or may be built to support AI infrastructure, prioritizing the identification of sites that meet certain criteria listed in the Executive Order[13] and (2) designate at least five regions composed of lands or subsurface areas as “Priority Geothermal Zones” based on certain criteria listed in the Executive Order.[14] The Secretaries must also each make legal determinations that they have the authority to lease each identified site and that the site is available to lease.[15] Finally, the Secretaries must publicize the selected sites and certain characteristics of those sites by March 31, 2025.[16]

2. Project Solicitations

The Executive Order requires that the Secretaries coordinate with one another to design, launch, and administer competitive public solicitations of proposals from non-federal entities seeking to lease and construct AI infrastructure on the land that the Secretaries identified.[17] In the solicitations, the Secretaries must require applicants to:

identify particular sites on which they propose to construct and operate the AI infrastructure;
submit a detailed plan specifying proposed timelines, financing methods, and technical plans for the construction of the AI infrastructure, including a contingency plan for decommissioning the infrastructure;
describe proposed AI training work that will occur when the site is operational;
describe plans to use high labor and construction standards; and
submit proposed lab-security measures associated with the operation of the AI infrastructure.[18]

3. Project Selections

When evaluating and selecting proposals, the Secretaries (in consultation with other agencies) generally[19] must consider the information detailed in the applications including, at a minimum:

the proposed financing mechanisms and sources of funds secured for the project;
the plans for AI training operations to be executed at the site;
the plans for maximizing resource efficiency;
the plans for safety and security measures, including cybersecurity measures;
the capabilities of the applicant’s AI scientists, engineers, and other AI infrastructure workforce;
the plans for commercializing or otherwise deploying the (i) intellectual property and/or (ii) generation and transmission infrastructure innovations that are developed at the site;
the plans to help ensure that the construction and operation of AI infrastructure does not increase electricity or water costs to other rate payers;
the plans to use high labor standards and a plan to address labor-related risks associated with the development and use of AI;
the design features, operational controls, and plans that mitigate potential environmental effects and protect community health, public safety, and the environment;
the benefits to the community and electric grid infrastructure surrounding the site;
the applicant’s experience completing comparable projects;
the applicant’s experience with federal, state, and local permit compliance and with relevant environmental reviews or, alternatively, other evidence of the applicant’s ability to obtain and comply with such permits or reviews;
the applicant’s organizational and management structures that will help ensure sound governance of work performed at the site;
whether the selection of the applicant will support the emergence of an interoperable, competitive AI ecosystem;
whether an applicant has already been selected to construct or operate AI infrastructure in an opportunity related to the instant Executive Order; and
other national defense, national security, or public interest considerations that the Secretaries deem appropriate.[20]

4. Contractual Obligations

For projects that are selected to become frontier AI data centers, the Executive Order requires the Secretaries to require lease or contract terms that accomplish the following:

establishing target dates for the construction of each frontier AI data center by January 1, 2026, and the full-capacity operation of the AI infrastructure by December 31, 2027;
requiring that the non-federal parties have procured sufficient new clean power generation resources to meet the frontier AI data center’s planned electricity needs by providing power that matches the data center’s timing of electricity use on an hourly basis and is deliverable to the data center;
clarifying that the non-federal parties bear all responsibility for paying any costs incurred from work pursuant to the contract or lease regardless of whether they, transmission providers, transmission organizations, or other entities that are not party to the contract incur such costs;[21]
requiring adherence to technical standards and guidelines identified by various federal agencies for cyber, supply-chain, and physical security for protecting and controlling the facilities and other property developed, acquired, modified, used, or stored at the site or in the course of work performed on the site;
requiring that non-federal parties owning or operating frontier AI data centers sign a memorandum of understanding with the Secretary of Commerce “to facilitate collaborative research and evaluations on AI models developed, acquired, modified, run, or stored at the site or in the course of work performed on the site, for the purpose of assessing the national-security or other significant risks of those models;”[22]
requiring non-federal parties to (i) report certain information about investments or financial capital used for the development, ownership, or operation of AI infrastructure on the site, including the AI models operating in the AI infrastructure, to evaluate risks to national security and (ii) limit investments or financial capital from any person designated by the Secretaries on national security grounds;
requiring non-federal parties owning or operating AI data centers on federal sites to (i) take appropriate steps to advance the objective of harnessing AI for purposes of national security and (ii) commit to providing access to such models and their derivatives to the federal government for national-security applications at terms at least no less favorable than current market rates;
requiring that non-federal parties owning or operating AI data centers on federal sites develop plans to make available certain computational resources (including computational resources that are not already dedicated to supporting frontier AI training or otherwise allocated under another provision) for commercial use by startups and small firms on nondiscriminatory terms and in a manner that minimizes barriers to interoperability, entry, or exit for users;
requiring non-federal parties owning or operating AI infrastructure on federal sites to explore the availability of certain clean energy resources (including geothermal power, long-duration storage paired with clean energy, and others) at appropriate sites that they lease for AI data centers or generation capacity serving those centers; and
requiring AI developers owning and operating frontier AI data centers on federal sites to either (a) procure an “appropriate share” of leading-edge logic semiconductors fabricated in the United States to the maximum extent practicable or (b) develop and implement a plan to qualify leading-edge logic semiconductors fabricated in the United States for use in the developer’s data centers as soon as practicable if that plan is approved by the applicable Secretary.[23]

Takeaways and Timelines

The Executive Order sets an ambitious timeline for the solicitations of large infrastructure projects, projects of a type that often take years to successfully permit and begin constructing. Nonetheless, the Executive Order is the result of bipartisan urging to protect and expand U.S. AI data center infrastructure and may represent an area where the Biden and Trump administrations find some common ground. The Executive Order addresses wide-ranging infrastructure needs for data centers, particularly in the energy sector, but leaves some critical issues unaddressed, perhaps due to the jurisdictional limitations of federal and executive powers. For example, the Executive Order addresses transmission grid interconnection issues but is silent as to coordination with owners and operators of the nation’s distribution grids, which are generally regulated at the state level. The order, as ambitious as it is, also does not clear a path for expediting securing the many non-federal permits that will likely be necessary to build transmission facilities to serve frontier AI data centers.

The Secretary of the DOI, in consultation with the Secretaries, is required to publicize the sites they have selected for clean energy generator leases by March 31, 2025, at the latest, and the Secretaries are required to issue solicitations for frontier AI infrastructure proposals by March 31, 2025, at the latest, and close solicitations within 30 days of their issuance.[24] The Executive Order requires the DOE and DOD to announce winning proposals by June 30, 2025, with a goal of fully permitting winning proposals by the end of 2025 so construction can begin. Given the fast pace of these timelines, and assuming the incoming administration does not repeal or modify the Executive Order, entities that are interested in participating in this program may wish to closely monitor the DOE, DOD, and DOI websites for the DOI’s publication of the selected sites and the DOE’s and DOD’s issuance of solicitations of proposals.

Additionally, given the relatively short amount of time entities will have to prepare their proposals and the amount of information that will be required in their proposals, entities may wish to consider compiling information they know will be required in their proposals based on the Executive Order as soon as the DOI announces the selected sites. Gibson Dunn attorneys are available to assist developers preparing proposals for the competitive solicitation process or to answer questions about the Executive Order. Please contact your contact attorney at Gibson Dunn or one of the Gibson Dunn attorneys that authored this article with any questions you may have regarding this Executive Order.

[1] Executive Order on Advancing United States Leadership in Artificial Intelligence Infrastructure, The White House (Jan. 14, 2025), https://www.whitehouse.gov/briefing-room/presidential-actions/2025/01/14/executive-order-on-advancing-united-states-leadership-in-artificial-intelligence-infrastructure/ (“Executive Order”).

[2] Id. at Sections 3(c), 4 (“The term ‘AI infrastructure’ refers collectively to AI data centers, generation and storage resources procured to deliver electrical energy to data centers, and transmission facilities developed or upgraded for the same purpose.”).

[3] Id. at Section 3(m) (A “frontier AI data center” is defined as “an AI data center capable of being used to develop, within a reasonable time frame, an AI model with characteristics related either to performance or to the computational resources used in its development that approximately match or surpass the state of the art at the time of the AI model’s development.”).

[4] Id. at Section 5.

[5] Id. at Section 6.

[6] Id. at Section 8.

[7] Id. at Section 7.

[8] Id. at Section 9.

[9] Id. at Section 10.

[10] Id. at Section 4.

[11] Id. at Section 4(a).

[12] Id. at Section 4(a).

[13] Id. at Section 4(b) (specifically, the Secretary of the DOI must prioritize identification of sites used to construct or operate clean energy facilities based on the same criteria by which the Secretaries of the DOD and DOE must prioritize sites (listed above) and must also prioritize sites that: (1) contain completed, permitted, or planned clean generation projects that (i) can deliver electricity to the data centers and (ii) possess an executed interconnection agreement with a transmission provider; (2) have been allocated as available for clean-energy applications in a BLM resource management plan; and (3) have reasonable access to existing high-voltage transmission lines that have at least one gigawatt of additional capacity available or for which such capacity can be reasonably developed).

[14] Id. at Section 4(c) (“The Secretary of the Interior shall designate those regions based on their potential for geothermal power generation resources, including hydrothermal and next-generation geothermal power and thermal storage; diversity of geological characteristics; and possession of the characteristics described in subsections (a)(i)-(x) and (b)(i)-(v) of this section.”)

[15] Id. at Section 4(d).

[16] Id. at Section 4(f).

[17] Id. at Section 4(e).

[18] Id.

[19] Interestingly, the Executive Order also requires that the Secretaries “select at least one proposal developed and submitted jointly by a consortium of two or more small- or medium-sized organizations — as determined by those organizations’ market capitalization, revenues, or similar characteristics — provided that the Secretaries receive at least one such proposal that meets the appropriate qualifications” to the extent consistent with applicable law and the Secretaries’ assessment that the requirement promotes national defense, national security, or the public interest. Id. at Section 4(g).

[20] Id. at Section 4(g).

[21] Note that these costs explicitly include the “costs of work performed by agencies to complete necessary environmental reviews, any costs related to the procurement of clean power generation resources and capacity in accordance with [AI training operations described in Id. at Section 4(g)(ii)], any costs of decommissioning AI infrastructure on Federal sites, any costs of developing transmission infrastructure needed to serve a frontier AI data center on a Federal site, and the fair market value of leasing and using applicable Federal lands.” Id. at Section 4(h)(iii).

[22] Id. at Section 4(h)(v).

[23] Id. at Section 4(h).

[24] Id. at Section 4(f)-(g).

Gibson Dunn’s Data Center Task Force attorneys are available to assist clients by offering strategic advice; drafting comment letters to agencies; arranging and preparing for high-level executive branch and congressional meetings; and helping clients take advantage of potential opportunities emerging from the rapidly changing regulatory environment.

The following Gibson Dunn lawyers prepared this update: F. Joseph Warin, William R. Hollaway, Ph.D., Tory Lauterbach, Emily Naughton, Evan D’Amico, Whitney Smith, Jess Rollinson, and Simon Moskovitz.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Artificial Intelligence, Energy Regulation & Litigation, Mergers & Acquisitions, National Security, Public Policy, Real Estate, or White Collar Defense & Investigations practice groups, or the following authors:

William R. Hollaway, Ph.D. – Chair, Energy Regulation & Litigation Practice Group,
Washington, D.C. (+1 202.955.8592, [email protected])

Tory Lauterbach – Partner, Energy Regulation & Litigation Practice Group,
Washington, D.C. (+1 202.955.8519, [email protected])

Vivek Mohan – Co-Chair, Artificial Intelligence Practice Group,
Palo Alto (+1 650.849.5345, [email protected])

Evan M. D’Amico – Partner, Mergers & Acquisitions Practice Group,
Washington, D.C. (+1 202.887.3613, [email protected])

Stephenie Gosnell Handler – Partner, National Security Practice Group,
Washington, D.C. (+1 202.955.8510, [email protected])

Michael D. Bopp – Co-Chair, Public Policy Practice Group,
Washington, D.C. (+1 202.955.8256, [email protected])

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
Washington, D.C. (+1 202.777.9566, [email protected])

Eric M. Feuerstein – Co-Chair, Real Estate Practice Group,
New York (+1 212.351.2323, [email protected])

Emily Naughton – Partner, Real Estate Practice Group,
Washington, D.C. (+1 202.955.8509, [email protected])

F. Joseph Warin – Co-Chair, White Collar Defense & Investigations Practice Group,
Washington, D.C. (+1 202.887.3609, [email protected])

In this update, we reflect on the major developments within the UK employment landscape during the course of 2024 and look ahead to what is to come in 2025.

Provided below is a brief overview of developments and cases which we believe will be of interest, with more detailed information on each topic available by clicking on the links.

1. Preventing sexual harassment (view details)

We consider the recently introduced legal duty requiring employers to take reasonable steps to prevent sexual harassment in the workplace – which extends to sexual harassment by clients, customers and other third parties – as well as the practical steps employers can take to ensure compliance.

2. Spotlight on dismissal and re-engagement (view details)

We report on recent legal developments regarding the practice of ‘firing and rehiring’ employees in order to impose unilateral changes to employees’ contractual terms of employment.

3. Case updates (view details)

We consider three significant cases from 2024 dealing with the determination of employment status, the process to be followed in relation to small-scale lay-offs and a recent decision on the enforceability of post-employment restrictive covenants in investment agreements.

4. Employment Rights Bill update (view details)

We provide an update on two amendments which the Labour Government has proposed to the Employment Rights Bill (the “Bill”).

5. What to expect in 2025 (view details)

We review the potential developments and cases which we expect will shape UK employment law during the course of 2025.

Appendix

1. Preventing sexual harassment

Since 26 October 2024, the Worker Protection (Amendment of Equality Act 2010) Act 2023 has required employers to take “reasonable steps” to prevent sexual harassment in the workplace. This new duty creates a positive and anticipatory legal obligation on employers to assess the risks and take action to prevent sexual harassment from taking place (and, where sexual harassment has taken place already, from taking place again).

The consequences for employers who do not take “reasonable steps” to prevent sexual harassment in the workplace can be severe: the Equality and Human Rights Commission now has the power to take enforcement action against such employers, while the Employment Tribunal can uplift compensation for sexual harassment by a maximum of 25% where employers are found to have breached this duty.

The test of whether employers have taken “reasonable steps” is objective, depending on the nature of the employer and the facts and circumstances of each situation. How this duty comes to be interpreted by the courts and tribunals remains to be seen and whilst what amounts to “reasonable steps” will vary from case to case, based on guidance published by the Equality and Human Rights Commission (which can be accessed here) and detailed advice provided by the Advisory, Conciliation and Arbitration Service (“ACAS”) (which can be found here) the following steps should be taken:

a. Survey attitudes

Employers should conduct anonymous organisational reviews to measure employees’ understanding and awareness of sexual harassment, as well as employees’ perceptions of how the employer will respond to reported incidents of sexual harassment. Such reviews should be conducted on a regular basis, with the findings used to identify where action is needed and to develop training and policies.

b. Develop policies

Employers should develop detailed sexual harassment policies which include: (i) a clear definition and examples of sexual harassment; (ii) an explanation of to whom and where the policies apply; (iii) a description of the reporting channels available; (iv) an overview of the complaint procedures and the possible sanctions for committing sexual harassment; and (v) a statement of zero tolerance for victimisation. Employers should commit to monitor the effectiveness of sexual harassment policies and to implement changes to them as and when required.

c. Raise awareness of policies

Employers should communicate sexual harassment policies to all staff, highlighting the reporting channels available. This may include advising new employees of sexual harassment policies during induction procedures and sending annual reminders to all staff. Sexual harassment policies may also be referenced in (even if not incorporated into) contracts of employment and/or other terms and conditions of work.

d. Conduct risk assessments

Employers should make assessments of the risks relating to sexual harassment in the course of employment, with particular emphasis on the workplace culture and the working environment. In order to address the risks identified, employers should take mitigating actions and communicate openly with employees about any such steps taken. It is critical for employers to regularly conduct risk assessments to ensure compliance with the new duty.

e. Provide training

Employers should provide training to all staff on sexual harassment and victimisation. While the training provided should be tailored based on the nature of the employer and the working environment, the training should cover as a minimum: (i) how to recognise sexual harassment; (ii) the action required if employees experience or witness sexual harassment; and (iii) how to handle sexual harassment complaints. It is recommended that employers also maintain records of who has received sexual harassment training and provide refresher training on a regular basis.

f. Consider third parties

Employers should assess the risks of sexual harassment arising from any third parties with whom staff will come into contact, including clients, customers, and contractors. In order to reduce this risk, employers should encourage staff to report any sexual harassment by third parties. Employers should also consider including express terms in standard contracts with third parties requiring them to adhere to any sexual harassment policies in place.

g. Formalise reporting channels

Employers should offer multiple reporting channels for those who wish to raise sexual harassment complaints. Wherever possible, employers should offer both anonymous and named reporting routes and give anonymous complainants the option to make named reports at later stages if they so wish. Employers should consider providing external online or telephone reporting tools for those who wish to make anonymous complaints.

h. Deal with complaints

Employers should make clear that sexual harassment complaints can be made at any time: there should be no time limit within which complaints must be made. Employers should ensure any complaints raised are investigated fairly and thoroughly. Consideration should be given to the wishes of the complainant and care taken to respect the confidentiality of all parties. The outcomes of any formal complaints of sexual harassment should be as transparent as possible to encourage future complainants to come forward.

i. Prevent victimisation

Employers should consider the risks relating to victimisation when conducting risk assessments. It may be necessary for employers to take measures to limit the contact between complainants and alleged harassers to protect complainants and to minimise any risks of victimisation. Employers should give careful consideration to all viable alternatives to mitigate any such risks before suspending the alleged harasser.

j. Evaluate steps taken

Employers should conduct evaluations of the effectiveness of policies to prevent sexual harassment in the workplace. One recommendation is that employers evaluate sexual harassment policies through anonymised surveys. Any such surveys should ask staff to describe whether they have been subjected to or witnessed behaviours which would constitute sexual harassment, and, if so, whether they reported these behaviours. Employers should compare the data received from these surveys against the number of sexual harassment complaints formally raised. This will allow employers to obtain as clear a picture of sexual harassment in the workplace as possible and to put in place further measures to encourage reporting if needed.

2. Dismissal and re-engagement

a. Code of Practice

In July 2024, the Labour Government published a new Statutory Code of Practice on Dismissal and Re-engagement (the “Code”) which sets out employers’ responsibilities when seeking to change employees’ contractual terms using the controversial method of ‘fire and rehire’ (where the employee is dismissed and offered re-engagement on less favourable terms).

A failure to follow the Code does not itself make an employer liable to proceedings, however, any failure to comply with the Code must be taken into account by the relevant court, tribunal or committee when assessing the fairness of an employer’s conduct and, in particular, when assessing compensation. From 20 January 2025, the Employment Tribunal will also have the power to vary any awards made by up to 25% for any unreasonable failure to comply with the Code.

A brief overview of the major provisions of the Code is provided below:

employers proposing changes to employees’ contractual terms and conditions must be open and transparent with the relevant employees and should consult with the employees “for as long as reasonably possible in good faith” to try to reach agreement concerning any changes;
before raising the prospect of dismissal and re-engagement with employees, the Code suggests that employers should consult ACAS for impartial advice on their rights and obligations;
the Code emphasises that employers should not use the threat of dismissal as a “negotiating tactic” to pressure employees if they are not genuinely considering dismissal as a means of achieving the intended objectives;
in the event that employers opt for dismissal and re-engagement:
- the Code recommends employers give employees “as much notice as reasonably practicable” of the dismissal and consider extending the employees’ contractual notice periods to enable them to accommodate the changes; and
- the Code suggests employers seek feedback from employees and commit to reviewing the changes at a fixed point in the future; and
importantly, the Code does not apply to the dismissal and re-engagement of employees arising out of a genuine redundancy (lay-off) situation.

b. Employment Rights Bill

In parallel to the publication of the Code, the Labour Government has committed to fully ending the practice of ‘fire and rehire’ during the lifetime of this Parliament. Under the Employment Rights Bill, the dismissal and re-engagement of employees will be rendered unfair dismissals, apart from in certain limited circumstances. Employers will continue to be able to engage in this practice (subject to further safeguards) if: (i) the variation to the terms of employment could not reasonably have been avoided; or (ii) reducing or eliminating financial difficulties which are impacting the employer’s ability to carry on the business as a going concern are the reason for the variation. These carve outs are intended to ensure that businesses can restructure to remain viable where business or workforce demands necessitate it.

c. Supreme Court Injunction

Meanwhile, the Supreme Court has reinstated an injunction preventing an employer from terminating employment contracts as part of a ‘fire and rehire’ operation to unilaterally remove a permanent enhanced “retained” pay feature that had formed part of the employees’ contractual entitlements following previous negotiations with the employees’ union.

In Tesco Stores Limited v Union of Shop, Distributive and Allied Workers, the High Court had originally granted the injunction on the basis that there was an implied term within the employees’ contracts that precluded termination of employment as a method to remove the employees’ entitlement to retained pay. The Court of Appeal overturned this decision; however, the Supreme Court reinstated the injunction, holding that the intention of the parties when negotiating the enhanced pay provision could not have been for Tesco to retain an unrestricted unilateral right to terminate the employees’ contracts in order to deprive them of this right.

While the facts underpinning the Supreme Court decision were highly unusual, the case highlights the importance of clarity of drafting when seeking to crystallise the outcome of rights negotiated with unions, as well as the vulnerability of ‘fire and rehire’ practices to legal challenge. If employers are seeking to use this process to change employees’ terms of employment, employers should give careful consideration to the specific circumstances and history of the arrangements they are proposing to change.

3. Case updates

a. Determining employment status

Whether an employment relationship exists is guided by the three tests from Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance which are, in summary, that for an employment relationship to exist: (i) the individual agrees to a perform a service for a company in exchange for remuneration (“mutuality of obligation”); (ii) the individual is subject to a degree of control, such as to how, when and where work is done (“control”); and (iii) the contractual provisions and relationship between the parties as a whole are consistent with an employment relationship.

HMRC v Professional Game Match Officials Ltd was a case brought by HMRC which asserted that part-time football referees were employees and therefore national insurance and income tax should have been deducted from payments made to them. The Supreme Court found that mutuality of obligation and control were present in individual match day contracts for these referees. In its decision, the Supreme Court held that mutuality of obligation need not exist for the entirety of the contractual relationship and can subsist only for the period while the work is carried out, and that control is fact specific and can be sufficient even where it is over only incidental matters. With that guidance now issued, the Supreme Court has submitted the case back to the First-tier Tribunal (“FTT”) to determine whether the contracts amounted to contracts of employment considering the third test described above.

What this means for employers

This case serves as a useful reminder of the elements required to establish an employment relationship and highlights the risk of reclassification of self-employed contractors even where on first glance the circumstances for reclassification may seem unlikely. The Supreme Court has also given some guidance on the extent to which mutuality of obligation and control are required for such reclassification and we will look with interest at the next judgment in this case once the FTT has reconsidered it.

b. Redundancies

In the UK, whether a dismissal for redundancy (i.e., a lay-off) is considered ‘fair’ depends on whether an employer has reasonably treated redundancy as a sufficient reason for dismissing the employee. Case law has determined that an employer will usually not have acted reasonably in a redundancy dismissal situation unless they have consulted with the relevant employees when the proposals for redundancies are still at a formative stage. In addition, where an employer is proposing to make 20 or more employees redundant at one establishment within 90 days, it must engage in collective consultation with affected employees in accordance with the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”).

Whilst the requirement for collective consultation has only been legally required under TULRCA for what are considered ‘large-scale’ redundancies, some have argued that, as a matter of good industrial relations practice, the general workforce should also be consulted in the case of ‘small-scale’ redundancy exercises falling below the threshold in TULRCA. In the case of De Bank Haycocks v ADP RPO UK Ltd, Mr. De Bank Haycocks claimed he had been unfairly selected for redundancy. Upon initially having his claim dismissed at the Employment Tribunal stage, his claim was upheld by the Employment Appeal Tribunal which found that there had been a lack of meaningful consultation at the formative stage of the redundancy process due the lack of a general workforce consultation by ADP RPO UK Ltd (“ADP”) which it determined was a requirement of good industrial relations practice in all redundancy situations.

ADP appealed this decision to the Court of Appeal, who allowed the appeal, confirming that where there is no requirement for general workforce consultation in the case of ‘small-scale’ redundancy exercises below the thresholds in TULRCA. Provided that there is adequate consultation at an individual level, this will suffice.

What this means for employers

This case should bring some comfort to employers engaging in small-scale or individual redundancies that general workforce consultation is not required for a fair redundancy process. However, it also emphasises the importance of allowing individual employees to express their views on issues that might affect the employer’s decision, such as the rationale, selection pools and criteria for redundancies, at a formative stage of the redundancy process where their views could impact outcomes.

c. Post-employment restrictive covenants

In the UK, the use of post-termination restrictive covenants is enforceable only if they protect a legitimate business interest and do so in a reasonable manner. This means the duration and scope of any restrictive covenants should not exceed what is necessary to protect the legitimate interests of the employer.

Literacy Capital Plc v Webb concerned a founding director of the business Mountain, who entered into an investment agreement as a loan note holder with Mountain after resigning from her previous position. The investment agreement contained restrictive covenants. After Mountain applied to the High Court to enforce the restrictive covenants against the former director, the High Court found that the restrictive covenants in the investment agreement arose as a result of the defendant’s status as a former director and as an employee of the relevant company. In such circumstances, the High Court undertook a restraint of trade analysis to determine the validity of the provisions. The High Court found that the covenants were unenforceable as they were: (i) too long (ten years in duration as opposed to the conventional one or two years); (ii) too wide in geographical scope (extending to the entirety of the UK and Channel Islands when the company’s business only covered two English counties); and (iii) restricted too broad a range of business activities, extending far beyond the operating core of the company.

What this means for employers

This case highlights the importance of ensuring the reasonableness of both duration and scope when drafting restrictive covenants. In particular, employers should be cautious about tying duration to events that may cause the restrictive covenants to become too protracted (such as, in this case, the redemption of loan notes). It also serves as a timely reminder that even if restrictive covenants form part of a commercial agreement, a court may apply a restraint of trade analysis if it is of the view that the restrictive covenants are connected to an individual’s status as an employee.

4. Employment Rights Bill update

In our last publication “A New Deal for Working People”? – Labour Government Introduces Employment Rights Bill in the UK on 16 October 2024, we outlined the steps the Labour Government has taken and intends to take under the Employment Rights Bill. An Amendment Paper was published on 27 November 2024, setting out various amendments to the Bill proposed by both the Labour Government and other Members of Parliament. We have provided a brief overview of two of the amendments proposed by the Labour Government which we believe will be of interest to our clients. The Bill is currently being scrutinised by the Public Bill Committee, which is expected to report to Parliament on 21 January 2025.

a. Unfair Dismissal during Initial Period of Employment

The Labour Government has previously promised that, while the Bill makes unfair dismissal a “Day One” right, there would be a “lighter touch” process for dismissals that occur during an initial period of employment. The Labour Government has now proposed an amendment that would allow the Secretary of State to specify a cap on the compensatory award for employees who successfully claim unfair dismissal during the initial period of employment. A cap could provide employers with further comfort around the quantum of any potential liabilities incurred when making dismissals during the initial period of employment.

b. Employment Tribunal Time Limits

The time limit for bringing many types of UK employment claims in an employment tribunal currently expires three months from the date the claim arises, subject to an extension of up to six weeks for pre-claim conciliation. The Labour Government have proposed in the Amendment Paper that this time limit is to be increased to six months. This amendment should come as no surprise as it was previewed in the extensive reforms the Labour Government proposed in the lead up to the UK General Election. We explored this proposal in our publication What Employers Can Expect in the UK under the New Labour Government on 8 July 2024.

5. What to expect in 2025

Further to the amendments to the Employment Rights Bill outlined above, we expect the Labour Government to continue its comprehensive reviews of the various longer-term measures which were set out in its original “Plan to Make Work Pay” prior to the 2024 General Election. We explored these commitments in our publication “A New Deal for Working People”? – Labour Government Introduces Employment Rights Bill in the UK on 16 October 2024. The longer-term measures on which the Labour Government has committed to consult include:

employment status – the Labour Government has committed to consult with businesses on its proposals to strengthen protections for the self-employed and to simplify the existing employment status framework by shifting towards a single status of ‘worker’;
parental and carers’ leave – the Labour Government will conduct wide-ranging reviews on the impact of potential reforms to the parental and carers’ leave systems; and
collective grievances – the Labour Government has committed to consult with ACAS on its proposals to enable employees to raise collective grievances about conduct in the workplace.

The following Gibson Dunn lawyers prepared this update: James Cox, Heather Gibbons, Georgia Derbyshire, Olivia Sadler, Finley Willits and Josephine Kroneberger*.

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

James A. Cox (+44 20 7071 4250, [email protected])

Georgia Derbyshire (+44 20 7071 4013, [email protected])

Heather Gibbons (+44 20 7071 4127, [email protected])

Olivia Sadler (+44 20 7071 4950, [email protected])

Finley Willits (+44 20 7071 4067, [email protected])

*Josephine Kroneberger, a trainee solicitor in the London office, is not admitted to practice law.

This panel provides a practical update about the Texas Business Court. The panel includes transactional, litigation, and appellate perspectives, plus an update on the first five months of operation.

MCLE CREDIT INFORMATION:

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General Category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Brad Hubbard is a partner in the Dallas office of Gibson, Dunn & Crutcher. He is a member of the firm’s Appellate and Constitutional Law Practice Group.

Brad is a trusted appellate advocate and counselor. He has represented clients in their most complex, high-stakes, time-sensitive matters before the U.S. Supreme Court, the Texas Supreme Court, and state and federal courts of appeals throughout the country. Brad has presented argument before the Fifth and Tenth Circuits; second-chaired arguments in the Texas Supreme Court, the Fifth, Sixth, and Seventh Circuits, and the First, Fifth, and Fourteenth Texas Courts of Appeals; and conducted direct, cross, and redirect examination of witnesses at trial. Brad has successfully litigated cases involving arbitration, antitrust, class actions, the constitution, contracts, products liability, trade secrets, the False Claims Act, RICO, and state and federal criminal law.

Brad graduated with Honors from the University of Chicago Law School in 2013, where he served as Managing Editor of The University of Chicago Law Review. He was a Kirkland & Ellis Scholar and a member of the Order of the Coif. While at the Law School, he was a John M. Olin Fellow in Law and Economics and received the Chicago Bar Association Federal Tax Section’s Award for Academic Achievement in Taxation. Brad received his Bachelor’s and Master’s in Accountancy, summa cum laude, from the University of Missouri, where he was a four-year letter winner and captain of the nationally ranked men’s swim team.

He is a member of the Texas bar and is admitted to practice before the U.S. Supreme Court, the U.S. Courts of Appeals for the Third, Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits, and the U.S. District Courts for the Northern, Southern, Eastern, and Western Districts of Texas.

Robert B. Little is a partner in Gibson, Dunn & Crutcher’s Dallas office. He is a Global Co-Chair of the Mergers and Acquisitions Practice Group and a member of the firm’s Executive Committee.

Rob’s practice focuses on corporate transactions, including mergers and acquisitions, securities offerings, joint ventures, investments in public and private entities, and commercial transactions. He also advises business organizations regarding matters such as securities law disclosure, corporate governance, and fiduciary obligations. In addition, he represents investment funds and their sponsors along with investors in such funds. Rob has represented clients in a variety of industries, including energy, retail, technology, infrastructure, transportation, manufacturing, and financial services.

Rob received his law degree in 1998 with highest honors from The University of Texas School of Law, where he was named a Chancellor and a member of Order of the Coif and served as Articles Editor of the Texas Law Review. He holds a B.A. from Baylor University, where he graduated summa cum laude in 1995. He previously served as a law clerk to The Honorable Patrick Higginbotham of the U.S. Court of Appeals for the Fifth Circuit.

John Adams is a trial lawyer in the Dallas office of Gibson, Dunn & Crutcher. John has significant experience in all phases of litigation, from pre-suit strategy to trials and appeals. His experience spans numerous industries, including oil and gas, real estate, and technology. For example, he has successfully litigated cases involving asset purchase agreements; partnership disputes; executive compensation; trade secrets; non-compete agreements; natural gas gathering agreements; mineral leases; receiverships; securities; and class actions.

John received his law degree in 2015 from the SMU Dedman School of Law. He earned his Bachelor’s degree from the University of Southern California. John is a member of the Texas bar.

This update discusses recently issued final regulations under sections 45Y and 48E regarding tax credits enacted as part of the Inflation Reduction Act of 2022 for clean energy projects.[1]

On January 7, 2025, the IRS and Treasury released final regulations relating to tech-neutral tax credits for clean energy projects that were enacted as part of the Inflation Reduction Act (the “Final Regulations”) and that are scheduled to be published in the Federal Register on January 15, 2025. Please see the unpublished version of the Final Regulations here. The Final Regulation are largely consistent with proposed regulations published in May 2024 (the “Proposed Regulations”) (please see our earlier alert here), but do include a few notable adjustments.

Background on Sections 45Y and 48E

Beginning in 2025, sections 45Y and 48E (respectively, the tech-neutral production tax credit (PTC) and tech-neutral investment tax credit (ITC)) replace many of the credits in sections 45 (the legacy PTC) and 48 (the legacy ITC).[2] In lieu of prescribing a list of credit-eligible technologies, as sections 45 and 48 do, sections 45Y and 48E contemplate a “technology neutral” system, where energy generation or storage technology qualifies for credits by satisfying a “zero or negative” greenhouse gas (GHG) emissions standard. These credits are designed to “encourage innovation by allowing new zero-emissions technologies to develop over time” by providing “durable incentives” for making investments in clean energy technology.[3]

Qualifying Technologies

The Proposed Regulations included a list of technologies that are treated as having a GHG emissions rate that is not greater than zero (the Per Se List), including wind, solar, geothermal, marine and hydrokinetic, and nuclear energy (both fission and fusion) projects. Although taxpayers requested that additional technologies be added to the Per Se List, the Final Regulations include no new technologies. In addition, the IRS is required to publish an annual table that includes the GHG emissions rates for a variety of types of technology.[4] Some taxpayers had worried that the technologies on the Per Se List would be credit eligible only if they were included in the annual table, but the IRS resolved this issue in the Final Regulations by explicitly deeming technologies on the Per Se List to be included on the annual table with a GHG emissions rate of zero or less.

With respect to technologies not included on the Per Se List, some taxpayers had requested that the first annual table be released at the same time as the Final Regulations, but this request was not granted. In the preamble to the Final Regulations, the IRS and Treasury noted that in light of the time and effort needed to conduct the relevant emissions analysis, the IRS could “not commit to a specific timeline for publication” of the initial annual table.

LCAs and C&G Tech

As described in our alert on the Proposed Regulations, GHG emissions rates for combustion and gasification facilities (C&G Facilities) must be determined pursuant to a complicated lifecycle analysis (LCA) model that considers emissions beginning with feedstock generation or extraction and ending with the end of the electricity production process. For technologies not addressed in the annual table, taxpayers will likely need to pursue a provisional emissions rate from the IRS, which will require first receiving an emissions value from the Department of Energy in a process determined based on an LCA model designated by the IRS. The Final Regulations include numerous additional details regarding various aspects of how LCA determinations will be made, including details related to accounting for “alternative fates” and avoided emissions (i.e., estimated emissions associated with the feedstock’s production and use or disposal if the feedstock had not been diverted to the production of electricity), and details related to the required time horizon and spatial scope (which could, depending on the circumstances, require an examination of local, regional, domestic, or international markets and supply chains).

80/20 Rule Clarity

The Proposed Regulations provided guidance on the tax credit implications of retrofitting facilities after they had already been placed in service, drawing a distinction between capacity increases and capital expenditures that do not increase capacity. Capital expenditures that do not increase capacity yield tax credits (either a new, tech-neutral ITC under section 48E or a new period of tech-neutral PTCs under section 45Y) only where they are substantial enough to satisfy the 80/20 rule (see our discussion of this rule here), such that the facility will be treated as newly placed in service. Facilities for which certain other credits (including the legacy PTC and ITC) have been claimed, however, are ineligible for tech-neutral credits. Although the Final Regulations generally retain each of these rules[5], one question that had not been explicitly answered by the Proposed Regulations was whether, assuming the 80/20 rule is satisfied, it would be feasible to claim tech-neutral credits on a retrofitted facility in a circumstance where legacy PTCs or ITCs (under section 45 or 48) had been claimed for the predecessor facility. The Final Regulations make clear that the answer is yes.

Qualified Facilities and Prevailing Wage and Apprenticeship Rules

Credit eligibility is determined on a “qualified facility”-by-“qualified facility” basis, and this concept plays an important role throughout the tech-neutral guidance. The Final Regulations generally retain the definition of “qualified facility” from the Proposed Regulations,[6] but also make clear that the prevailing wage and apprenticeship rules[7] apply on a “qualified facility”-by-“qualified facility” basis, contrary to the existing section 48 ITC rules, which apply these rules on an “energy project”-by-“energy project” basis. As a result of this difference (which also applies for purposes of various credit adders), the prevailing wage and apprenticeship requirements (and the bonus credit requirements) that apply under 48E are more stringent than those that apply under 48.

Other Items

As described in our alert on the Proposed Regulations, the Inflation Reduction Act included an unfortunate bar on claiming a tech-neutral ITC for a “building or its structural components.” Although the Final Regulations of course do not eliminate this statutory restriction, the preamble does include some discussion that should be helpful to operators of certain nuclear facilities. In particular, the preamble to the Final Regulations confirms that nuclear containment structures are not considered to be buildings because they are essentially items of specialized equipment, qualifying under the rule that a structure is not considered a building if it is essentially an item of machinery or equipment.
Under the Proposed Regulations, hydrogen energy storage property was required to store hydrogen solely used as energy (and not for other purposes, such as fertilizer). The IRS received numerous comments criticizing this non-statutory requirement, which was referred to as the “End Use Requirement.” After consideration of the comments, the IRS agreed to abandon the End Use Requirement in the Final Regulations, meaning that hydrogen storage property will be able to store hydrogen for other purposes, such as the production of fertilizer.[8]
As described in our alert on the Proposed Regulations, a taxpayer must own at least a fractional interest in an entire unit of qualified facility to be eligible to claim the tech-neutral ITC. The Final Regulations maintain this requirement but clarify that the rule does not require a taxpayer claiming the tech-neutral ITC to own all “integral property”[9] and include an example that should be helpful to taxpayers who own certain hydropower facilities, clarifying that these taxpayers can claim the tech-neutral ITC, even if the associated dam is owned by a governmental entity.
The IRS and Treasury noted in the preamble to the Final Regulations that Notice 2008-60 would not apply to section 45Y because section 45Y provides for equipping a qualified facility with a metering device. Accordingly, if a taxpayer does not equip a facility with a metering device and claims the section 45Y credit, then that taxpayer should be particularly cautious in ensuring that the initial sale of electricity is not to a related person (because the taxpayer would not be permitted to rely on the former guidance under section 45 that an initial sale to a related person is permitted if the ultimate end user is unrelated).

Congressional Review Act

Because the Final Regulations will be published in the Federal Register on January 15, 2025, the incoming 119th Congress and President Trump will be able to overturn the Final Regulations under the special Congressional Review Act procedures. Under the Congressional Review Act, a final agency rule can be overturned under a special expedited procedure requiring a joint resolution of disapproval by both houses of Congress (in a process requiring very little Senate floor time) and signature by the President.[10] If Congress enacts such a joint resolution overturning a regulation, the agency may not reissue the rule “in substantially the same form” unless Congress passes legislation authorizing such a rule.[11]

[1] Unless indicated otherwise, all “section” references are to the Internal Revenue Code of 1986, as amended (the “Code”), and all “Treas. Reg. §” are to the Treasury regulations promulgated under the Code, in each case as in effect as of the date of this alert. The actual name of Public Law No. 117-169, commonly referred to as the Inflation Reduction Act of 2022, is “An Act to provide for reconciliation pursuant to title II of S. Con. Res. 14.”

[2] Most of the credits under sections 45 and 48 generally will not be available to projects the construction of which begins after December 31, 2024.

[3] Treas. Dept., U.S. Department of the Treasury Releases Final Rules for Technology-Neutral Clean Electricity Credits, available here.

[4] On January 15, 2025, the IRS published the first annual table in Revenue Procedure 2025-14. The list of facilities set forth on this table, which are treated as having a GHG emissions rate that is not greater than zero, is the same list of facilities that is set forth in Treas. Reg. § 1.45Y-5(c)(2). A taxpayer is permitted to rely on the annual table in effect on the date the taxpayer begins construction on a facility for purposes of determining that facility’s GHG emissions rate (for the 10-year period under section 45Y and for purposes of section 48E).

[5] The Final Regulations do include some incremental detail regarding how to determine whether there has been a capacity increase. Under these rules, if available, a taxpayer must utilize a modified or amended facility operating license from the Federal Energy Regulatory Commission or Nuclear Regulatory Commission (or related reports). Otherwise, taxpayers are to use nameplate capacity certified consistent with accepted industry standards, or a measurement standard published in the Internal Revenue Bulletin.

[6] A qualified facility includes a “unit of qualified facility,” along with property owned by a taxpayer that is an integral part of the qualified facility (the integral part need not be a “qualified facility” in its own right). A “unit of qualified facility” is defined as all “functionally interdependent” components of property owned by a taxpayer that are operated together and can operate apart from other property to produce electricity. Components of property are “functionally independent” if the placement in service of each of the components is dependent on the placement in service of each other component to produce electricity. An “integral part” of a qualified facility is property used directly in the intended function of the facility that is essential to the completeness of its function.

[7] Please see our earlier client alert on the prevailing wage and apprenticeship rules, available here. An uncured failure to comply with the prevailing wage and apprenticeship requirements generally results in an 80% haircut to the otherwise available credit.

[8] In finalizing the section 48 regulations in December 204, the IRS and Treasury removed a similar end use requirement. For our alert related to the final regulations, please see here.

[9] Under the final section 48 regulations, it is also clear that a taxpayer need not own all “integral property.”

[10] 5 U.S.C. § 802. In President Trump’s first term, the Congressional Review Act was used to overturn 16 rules that had been enacted toward the end of the Obama administration. Congressional Research Service, The Congressional Review Act (CRA): A Brief Overview, available here. For more information on the Congressional Review Act, please see here.

[11] 5 U.S.C. § 801(b).

The following Gibson Dunn lawyers prepared this update: Michael Cannon, Matt Donnelly, and Josiah Bethards.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Tax, Cleantech, Oil and Gas, or Power and Renewables practice groups, or the following authors:

Tax:
Michael Q. Cannon – Dallas (+1 214.698.3232, [email protected])
Matt Donnelly – Washington, D.C. (+1 202.887.3567, [email protected])
Josiah Bethards – Dallas (+1 214.698.3354, [email protected])
Eric B. Sloan – New York/Washington, D.C. (+1 212.351.2340, [email protected])

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, [email protected])
Daniel S. Alterbaum – New York (+1 212.351.4084, [email protected])
Adam Whitehouse – Houston (+1 346.718.6696, [email protected])

Energy Regulation and Litigation:
William R. Hollaway – Washington, D.C. (+1 202.955.8592, [email protected])
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, [email protected])

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, [email protected])
Rahul D. Vashi – Houston (+1 346.718.6659, [email protected])

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, [email protected])
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, [email protected])

We analyze below the important trends and developments in Anti-Money Laundering (AML) regulation and enforcement by recapping significant developments during the last half of 2024.

This update includes a critical judicial decision striking down the Corporate Transparency Act; notable enforcement actions and prosecutions; key regulatory developments; and significant judicial opinions. We conclude with some thoughts about how a second Trump term likely will continue to bring significant AML enforcement actions and regulations.

1. Constitutional Challenges to the Corporate Transparency Act

The Corporate Transparency Act (CTA) was enacted in 2021, and (but for judicial developments described below) would require corporations, limited liability companies, and certain other entities created (or, as to non-U.S. entities, registered to do business) in any U.S. state or tribal jurisdiction to file a beneficial ownership interest (BOI) report with the U.S. Financial Crimes Enforcement Network (FinCEN) identifying, among other information, the natural persons who are beneficial owners of the entity.[1] A regulation, the Reporting Rule, helps implement the CTA by specifying compliance deadlines—including, at the time, a January 1, 2025 deadline for companies created or registered to do business in the United States before January 1, 2024—and detailing what information must be reported to FinCEN.[2]

In December 2024, a judge of the U.S. District Court for the Eastern District of Texas granted six plaintiffs’ motion for a preliminary injunction.[3] The court held that the CTA exceeds Congress’s enumerated powers. In a 79-page opinion, Judge Amos L. Mazzant ruled that it was likely that the plaintiffs would be able to prove that:

the CTA is not a proper exercise of Commerce Clause power because it does not regulate a channel or instrumentality of interstate commerce or any activity that substantially affects commerce[4]; and
The CTA cannot be justified under the Necessary and Proper Clause because, contrary to the government’s assertions, it is not rationally related to any enumerated power to regulate commerce, conduct foreign affairs, or collect taxes.[5]

The court’s reasoning about the scope of the Commerce Clause, Necessary and Proper Clause, foreign affairs power, and taxing power echoed that of an earlier decision in the Northern District of Alabama.[6] While a judge of the U.S. District Court for the Northern District of Alabama had earlier enjoined enforcement of the CTA against only the plaintiffs in that case, the Eastern District of Texas went further. Observing that an injunction pertaining to plaintiff NFIB’s approximately 300,000 members would be tantamount to a nationwide injunction, the court concluded that it was appropriate to preliminarily enjoin enforcement of the CTA and the Reporting Rule nationwide.[7] Moreover, the court invoked its power under the Administrative Procedure Act’s stay provision, 5 U.S.C. § 705, to “postpone the effective date of” the Reporting Rule.[8]

Since the court’s opinion, there has been a flurry of appeals and additional litigation. As of today, the CTA is unenforceable, enjoined by the U.S. Court of Appeals for the Fifth Circuit pending oral argument in March 2025.[9] The Department of Justice is currently appealing this ruling to the U.S. Supreme Court. Gibson Dunn has set up a Resource Center to provide a consolidated page with all of its client alerts about the current status of enforcement of the CTA, and additional updates will be posted there. Entities that believe they may be subject to the CTA and its associated Reporting Rule should closely monitor this matter, and consult with their CTA advisors as necessary, to understand their obligations and options. It is possible that the district court’s injunction will again be stayed—and the CTA will become enforceable—on short notice.

Besides the Texas and Alabama decisions, three other federal courts also have ruled on the constitutionality of the CTA. Two courts upheld the statute.[10] Both sets of unsuccessful plaintiffs have appealed those rulings to the respective courts of appeal.[11] Another judge of the Eastern District of Texas recently held the statute unconstitutional.[12]

2. Enforcement Actions

There were a substantial number of enforcement actions brought in the latter months of 2024. Those include actions brought by DOJ, FinCEN, and state and federal bank regulators. Some of the most notable actions are discussed below.

a. AML and Money Laundering Resolutions involving T.D. Bank

On October 10, 2024, the Department of Justice, FinCEN, the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve Board (FRB), announced landmark resolutions with T.D. Bank, N.A. (TDBNA) and its parent company TD Bank U.S. Holding Company (TDBUSH).

In the criminal resolutions, TDBUSH pled guilty to violating the Bank Secrecy Act by failing to maintain an adequate anti-money laundering (AML) program and failing to file accurate currency transaction reports (CTRs)[13]; and TDBNA pled guilty to conspiracy to violate the Bank Secrecy Act by failing to maintain an adequate AML program, failing to file accurate CTRs, and to launder money.[14] TDBNA agreed to forfeit more than $450 million, and TDBUSH agreed to a criminal fine of more than $1.4 billion, for a total financial criminal penalty of more than $1.8 billion. DOJ also imposed an independent monitor on TDBNA.

In the civil resolutions, FinCEN assessed a $1.3 billion civil monetary penalty on TDBNA and its affiliate T.D. Bank USA, N.A. for alleged willful violations of the BSA by failing to maintain an adequate AML program, and by allegedly willfully failing to file accurate and timely suspicious activity reports (SARs) and CTRs.[15] FinCEN also imposed an independent monitorship. The OCC assessed a $450 million civil monetary penalty on TDBNA and T.D. Bank USA, N.A. for failing to develop and maintain an adequate AML program.[16] The OCC imposed restrictions on growth at TDBNA and T.D. Bank USA, N.A. The FRB assessed a civil monetary penalty of more than $123 million on TDBUSH and the other T.D. Bank parent companies.[17] In total, given various credit and off-sets between the authorities, T.D. Bank affiliated entities agreed to pay more than $3.1 billion in financial penalties, one of the largest financial penalties ever paid by a financial institution.

These resolutions are notable for several reasons. First, the actions show authorities’ interest in pursuing charges that financial institutions allegedly willfully violated the BSA based on the purported high costs of compliance. Second, the resolutions indicate that the government may second-guess compliance resourcing decisions. Third, DOJ criminally prosecuted TDBNA for the relatively novel charge of money laundering on this fact pattern, beyond the more standard charges of violating the BSA. A money laundering conviction for a financial institution can trigger license revocation proceedings. Finally, DOJ and FinCEN each imposed monitorships, and each agency reserves the sole discretion to select a monitor, meaning that there is a chance that two different monitors with overlapping remits will be appointed and report to different agencies.

b. Stepped Up Enforcement Involving Casinos

On September 6, 2024, Wynn Las Vegas (WLV) entered into a Non-Prosecution Agreement alleging that Wynn “illegally used unregistered money transmitting businesses to circumvent the conventional financial system.”[18] According to DOJ, WLV contracted with third-party independent agents that transferred foreign gamblers’ funds through “companies, bank accounts, and other third-party nominees in Latin America and elsewhere, and ultimately into a WLV-controlled bank account.”[19] The money was then transferred into a WLV cage account, which employees credited to the WLV account of each individual patron, enabling these gamblers to allegedly “evade foreign and U.S. laws governing monetary transfer and reporting.”[20] In other instances, WLV allegedly knowingly failed to report suspicious activity or scrutinize the source of funds.[21] WLV agreed to forfeit $130,131,645 to settle the allegations against it.[22]

On October 22, 2024, FinCEN imposed a $900,000 civil money penalty on Sahara Dunes Casino, LP (d/b/a Lake Elsinore Hotel and Casino) for implementing an allegedly “fundamentally unsound” AML program, violating the BSA and its implementing regulations.[23] As part of its settlement with FinCEN, the California gaming establishment admitted to willfully failing to implement and maintain a written AML program that met minimum BSA requirements, file timely CTRs, make accurately and timely reports of suspicious transactions, and maintain records consistent with the BSA.[24] For example, FinCEN alleged that it had identified more than ten instances in 2017 alone where Sahara Dunes was required to file a CTR but failed to do so in a timely fashion; and alleged dozens of instances in which the casino failed to file a SAR or filed the SAR late. Sahara Dunes agreed to hire a qualified independent consultant to review the casino’s AML program.[25]

These actions, and the DOJ’s criminal charges against a casino executive and non-prosecution agreements with two casinos earlier in 2024,[26] are indicative of authorities’ ongoing interest in AML programs at casinos and other gambling entities.

c. Novel Money Laundering and Forfeiture Theory Involving McKinsey

On December 13, 2024, the DOJ entered into a series of resolutions with McKinsey & Company Inc.[27] The resolutions involved McKinsey’s consulting work for Purdue Pharma L.P., relating to McKinsey’s advice concerning OxyContin. McKinsey entered into a deferred prosecution agreement, entered into a settlement of a forfeiture action brought by DOJ, and also settled claims brought under the civil False Claims Act. In sum, McKinsey agreed to pay $650 million to resolve the claims. The resolution included the novel assertion by DOJ that because McKinsey received approximately $7 million of alleged proceeds of narcotics trafficking from Purdue in 2013 and 2014, which McKinsey commingled with its other legitimate monies, McKinsey itself was property involved in money laundering and thus forfeitable to the government under the federal civil forfeiture laws.[28] McKinsey and the DOJ agreed to settle the forfeiture complaint for just over $93 million, which DOJ alleged is the amount of money Purdue paid to McKinsey “[o]ver the course of 75 engagements from 2004 through 2019.”[29]

d. Other Bank Actions

On September 12, 2024, the OCC entered into an agreement with Wells Fargo Bank, N.A, after the OCC identified alleged deficiencies relating to Wells Fargo’s AML internal controls.[30] As part of the agreement, Wells Fargo agreed to create a compliance committee charged with implementing the Agreement and monitoring and overseeing the Bank’s compliance with the Agreement in general.[31] The Agreement does not impose a financial penalty.

On August 27, 2024, the New York Department of Financial Services (DFS) imposed a $35 million penalty on Nordea Bank Abp for allegedly significant compliance failures with respect to AML requirements, and the bank’s failure to conduct proper due diligence of its correspondent bank partners.[32] DFS investigated Nordea after the 2016 Panama Papers leak exposed Nordea’s alleged role in helping customers create offshore tax-sheltered companies and entities connected to money laundering operations.[33] DFS found that Nordea failed to maintain an effective and compliant AML program, failed to conduct adequate due diligence in its correspondent bank relationships, and failed to maintain an adequate transaction monitoring system.[34]

e. FinCEN Finding Against Russian Virtual Currency Exchanger

On September 26, 2024, FinCEN took further steps to disrupt alleged Russian cybercrime services. Specifically, FinCEN issued an order that identified PM2BTC—a Russian virtual currency exchanger—as a “primary money laundering concern.”[35] According to FinCEN, through PM2BTC’s currency exchange activities, monies passing through the exchange relate to fraud schemes, sanctions evasion efforts, ransomware attacks, and instances of child abuse.[36] The order effectively prohibits U.S. financial institutions from engaging in financial transactions with PM2BTC.[37] The order comes on the heels of increased enforcement steps taken pursuant to the Combatting Russian Money Laundering Act; this is the second order issued pursuant to that statute.[38]

f. Notable Sentencings

The last few months of 2024 also brought notable sentencings in long-running cryptocurrency money laundering cases.

On November 8, 2024, Roman Sterlingov was sentenced to twelve years and six months’ imprisonment for his operation of a bitcoin money laundering service.[39] Sterling was convicted at trial earlier in 2024 on counts of conspiracy to commit money laundering and operating an unlicensed money transmitting business, for running a service called “Bitcoin Fog.” According to the government, Bitcoin Fog was a darknet site that made it more difficult to trace crypto transactions on public blockchains to identifiable entities and persons. The site was allegedly used to launder the proceeds of various criminal conduct, including narcotics trafficking and child sexual abuse material.

On November 14, 2024, Ilya Lichtenstein was sentenced to five years in prison for his 2016 hack of cryptocurrency exchange Bitfinex, and his subsequent conspiracy to launder hundreds of thousands of Bitcoin stolen in the hack.[40] In 2016, Lichtenstein hacked into Bitfinex’s network and fraudulently authorized over 2,000 transactions transferring 119,754 Bitcoin to his cryptocurrency wallet. Lichtenstein then deleted network access credentials and log files connected to him and, with the help of his wife Heather “Razzlekhan” Morgan,[41] laundered the funds through various fictitious identities, darknet markets, and cryptocurrency exchanges. Lichtenstein received credit for cooperating with authorities, including by testifying at Sterlingov’s trial.

On November 15, 2024, after years of litigation, Larry Dean Harmon was sentenced to three years’ imprisonment for operating Helix, a popular darknet cryptocurrency mixer.[42] Harmon previously pled guilty to conspiracy to commit money laundering. Harmon also received credit for cooperating with authorities, and also testified at Sterlingov’s trial.

3. Regulatory Developments and Guidance

a. Final Investment Adviser and Real Estate AML Rules

Early in 2024, FinCEN issued proposed rules extending certain AML requirements to residential real estate transactions, and to registered investment advisers. On August 28, 2024, FinCEN released the final rules for both.[43]

The final investment advisers rule (the “Investment Advisers Rule”)[44] will take effect January 1, 2026. The Investment Advisers Rule adds certain investment advisers to the definition of “financial institutions” governed by the BSA. The Investment Advisers Rule covers advisers who are registered or required to register with the Securities and Exchange Commission (SEC), with a few narrow exceptions, and those that report to the SEC as Exempt Reporting Advisers.[45] For investment advisers based outside of the United States, the Investment Advisers Rule only applies to advisory activities that (i) take place within the United States, including through the involvement of U.S. personnel or (ii) provide advisory services to a U.S. person or a foreign-located private fund with an investor that is a U.S. person.[46]

Under the Investment Advisers Rule, covered investment advisers will be required to, among other things, implement risk-based AML programs, file SARs with FinCEN, and keep records relating to the transmittal of funds that equal or exceed $3,000.[47] The Investment Advisers Rule also applies information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions.[48] FinCEN delegated examination/supervisory authority to the SEC, given the SEC’s expertise in supervising the investment adviser industry.[49]

The final real estate rule (the “Real Estate Rule”)[50] will take effect December 1, 2025. The Real Estate Rule covers non-financed transfers of various types of residential real estate, including single-family houses, townhouses, condominiums, cooperatives, and other buildings designed for occupancy by one to four families.[51] A transaction is considered “non-financed” if it does not involve an extension of credit issued by a financial institution required to maintain an AML program and file SARs.[52] There are exemptions from the Real Estate Rule for some common, low-risk types of transfers such as transfers resulting from death, divorce, or to a bankruptcy estate.[53]

The Real Estate Rule identifies persons required to file a report (“Reporting Person(s)”) through a “cascade” framework which assigns the reporting responsibility in sequential order to various persons who perform closing or settlement functions for residential real estate transfers.[54] The cascade is as follows: (1) the person listed as the closing agent; (2) the person who prepares the closing statement; (3) the person who files the transfer document (e.g., deed) with the recordation office; (4) the person who underwrites an owner’s title insurance policy for the transferee; (5) the person who disburses the greatest amount of funds in connection with the transfer; (6) the person who provides an evaluation of the status of the title; and (7) the person who prepares the deed or similar legal instrument.[55] Alternatively, persons specified in this list can designate by written agreement who will serve as a Reporting Person for the transfer.[56]

b. Proposed AML Program Rule

In the Anti-Money Laundering Act of 2020 (AMLA), Congress mandated the “[e]stablishment of national exam and supervision priorities.”[57] The AMLA made a number of changes to the Bank Secrecy Act, including that compliance programs remain “risk-based,” and requiring that the Secretary of the Treasury “establish and make public priorities for anti-money laundering.”

In 2021, the government published its AML/CFT priorities, which include “corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.”[58] SAR filings are now required to be guided in part by “the risk assessment processes of the covered institution,” with consideration for the government’s priorities The purpose of the amendments in the AMLA was to “strengthen, modernize, and improve” FinCEN’s ability to communicate, oversee, and process its AML and CFT program.

In July 2024, FinCEN issued a notice of proposed rulemaking on Anti-Money Laundering and Countering the Financing of Terrorism Programs (the “AML Program Rule”).[59] The AML Program Rule was designed to ensure that financial institutions “implement[] an effective, risk-based, and reasonably designed AML/CFT program to identify, manage, and mitigate illicit finance activity risks.” The proposed rule includes a mandatory risk assessment process. The proposed rule also would require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs. The proposed rule also articulated certain broader considerations for an effective and risk-based AML/CFT framework as envisioned by the AMLA.

c. Guidance to Prosecutors Regarding Corporate Compliance Programs

On September 23, 2024, the DOJ Criminal Division announced the latest revision of its Evaluation of Corporate Compliance Programs (the ECCP).[60] The ECCP serves as the Criminal Division’s guidance for its prosecutors to evaluate companies’ compliance programs when making enforcement decisions. This revision focused on how organizations proactively identify, mitigate, and manage the risks associated with their use of emerging technologies, including AI. This emphasis reflects DOJ’s increasing focus on companies’ use of data and technology and its expectations that companies’ approach to risk management will be proactive rather than reactive. The ECCP recognized that AI will affect AML programs. The general guidance provided to entities includes:

Documenting the entity’s use of AI and other new technologies and plan out steps for identifying the risk level for intended uses (e.g., in circumstances where the particular use of AI creates particular risks, such as confidentiality, privacy, cybersecurity, quality control, bias, etc.);

Deploying a sufficient degree of human oversight, especially for high-risk uses, and whether the performance of those systems is being assessed by reference to an appropriate “baseline of human decision-making” (e.g., the expected standard to which human decision-makers would be held for a given use case);

Monitoring and testing their technology to evaluate if it is functioning “as intended,” both in their commercial business and compliance program, and consistent with the laws and the company’s code of conduct.

4. Key Judicial Decisions

The last few months also featured important judicial decisions regarding the anti-money laundering and sanctions laws, both involving the decentralized cryptocurrency platform Tornado Cash. Tornado Cash is an open-source software protocol that facilitates private digital asset transactions, originally developed by a team of developers allegedly including Roman Storm, Alexey Pertsev and Roman Semenov.

a. Fifth Circuit OFAC Decision

On November 26, 2024, a unanimous panel of the Fifth Circuit Court of Appeals ruled in favor of users of Tornado Cash, striking down the Office of Foreign Asset Control’s (OFAC) attempt to add certain property of Tornado Cash to the Specially Designated Nationals (SDN) List.[61] In 2019, the developers uploaded the Tornado Cash protocol to the Ethereum blockchain via a series of open-source computer code known as “smart contracts”. In late 2022, OFAC added Tornado Cash to the SDN List and designated the smart contracts underlying the Tornado Cash protocol as blocked “property.” In doing so, OFAC alleged that Tornado Cash had been used by North Korean entities to commit cybercrimes including the laundering of stolen cryptocurrency.[62] Six users of Tornado Cash brought suit challenging OFAC’s determination, arguing that the addition of Tornado Cash to the SDN list was outside of OFAC’s authority under the International Emergency Economic Powers Act (“IEEPA”) and the North Korea Sanctions and Policy Enhancement Act.[63] The district court disagreed and dismissed the suit.[64]

The Fifth Circuit reversed. The Fifth Circuit first concluded that the plain text of the applicable statutes, which authorizes the government to block only “property,” does not encompass immutable smart contracts because they are incapable of being owned.[65] The Fifth Circuit further concluded that the smart contracts do not qualify as “property” even under OFAC’s regulatory definition of “property,” which includes “contracts” and “services.” The court determined that these “smart contracts” are not legal “contracts” at all.[66] Rather, they are “nothing more than lines of code.”[67] Finally, the court held that the smart contracts are not “services,” but instead “tools used in providing a service,” which is “not the same as being a service.”[68] In short, “the immutable smart contracts are not property because they are not ownable, not contracts, and not services.”[69] As a result, the Fifth Circuit concluded that OFAC lacks authority to add the Tornado Cash smart contracts to the SDN List.[70]

b. Southern District of New York MSB Decision

In a September 27, 2024 oral ruling, Judge Katherine Polk Failla of the Southern District of New York denied a motion to dismiss charges against Tornado Cash developer Roman Storm.[71] In 2023, Storm was charged with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business, and conspiracy to violate U.S. sanctions.[72] Storm moved to dismiss the charges, asserting (among other things) that his conduct, as charged in the Indictment, lies outside the scope of each applicable criminal statute.[73]

Judge Failla denied Storm’s motion to dismiss on statutory grounds. With respect to the unlicensed money transmitting charge, she held that the law applied to entities that do not maintain control over the funds being accepted or transmitted;[74] and held that the Indictment had adequately alleged that Tornado Cash charged fees for its services.[75] With respect to the money laundering charge, Judge Failla held that because the Indictment adequately alleged that Tornado Cash was a money transmitting business, transactions with the entity constituted “financial transactions” under the money laundering laws.[76] Finally, the court denied the motion to dismiss with respect to conspiracy to violate U.S. sanctions, rejecting Storm’s argument that Tornado Cash’s software was merely “informational materials,” subject to an exception to the law.[77] Judge Failla also rejected the defendant’s constitutional challenges to the Indictment.[78] Notably, citing the Fifth Circuit’s decision, the defendant recently moved the Court to reconsider its decisions; that motion is pending.[79]

5. Incoming Administration

Overall, we expect that anti-money laundering enforcement will remain a key area of focus under the second Trump Administration, though we also expect some shift in specific priorities. As a general matter, combatting money laundering has generally been a bipartisan issue. During the first Trump Administration, there were important regulatory and enforcement actions related to the anti-money laundering laws.[80] Indeed, high-ranking regulators at FinCEN and OCC at a November 2024 conference stated they expect continued focus on AML enforcement through the new Administration.[81]

During his campaign, President-Elect Trump also made policy announcements consistent with continued enforcement of the BSA, for example promising to “cut off [drug] cartels’ access to the global financial system” and “get full cooperation of neighboring governments to dismantle the cartels, or else fully expose the bribes and corruption that protect these criminal networks.”[82] His campaign also focused on continued pressure on North Korea and Iran, which implicitly puts focus on financial institutions’ AML and sanctions programs.

That said, it is possible that the new Administration may cut back on some of the more novel enforcement and regulatory actions brought during the Biden Administration. For instance, some members of President Elect Trump’s Administration have opposed the Corporate Transparency Act.[83] A second Trump Administration may also deemphasize enforcement actions targeting the cryptocurrency industry, which has been a major focus of the Biden Administration.

It is possible that some of the Department of Treasury’s existing priorities will also change. For example, there may be fewer FinCEN alerts on certain topics, including, for example, environmental crimes or wildlife trafficking that received more emphasis during the Biden Administration.

Using the Congressional Review Act, Congressional Republicans and the Administration may seek to strike down the Registered Investment Adviser and Real Estate regulations, and may also revise the AML Program rule.[84]

Conclusion

2024 was a notable year in the AML enforcement space. We anticipate that 2025 will be similarly active, as litigation challenging the CTA continues to unfold, and the incoming Trump Administration looks to AML enforcement as a way to advance its own policy priorities involving illegal immigration and narcotics trafficking. We will continue to monitor these updates and report accordingly on steps individuals and entities should take to navigate the ever-changing regulatory regime.

[1] See William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, Division F.

[2] 31 C.F.R. § 1010.380.

[3] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkt. No. 33 (E.D. Tex. Dec. 5, 2024) (as amended); see https://www.gibsondunn.com/cta-currently-unenforceable-cta-enforcement-enjoined-again-while-fifth-circuit-considers-appeal/.

[4] Id. at 35–53.

[5] Id. at 53–73.

[6] Nat’l Small Business United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024); see https://www.gibsondunn.com/corporate-transparency-act-declared-unconstitutional-what-it-means-for-you.

[7] Id. at 74–75, 77.

[8] Id. at 78.

[9] Texas Top Cop Shop, Inc. v. Garland, No. 24-40792, Dkt. No. 106-2 (5th Cir. Dec. 26, 2024), 163, 165 (5th Cir. Dec. 27, 2024); see https://www.gibsondunn.com/cta-currently-unenforceable-cta-enforcement-enjoined-again-while-fifth-circuit-considers-appeal/.

[10] Firestone v. Yellen, No. 3:24-cv-1034-SI, 2024 WL 4250192 (D. Or. Sept. 20, 2024); Cmty. Ass’ns Inst. v. Yellen, No. 1:24-cv-1597, 2024 WL 4571412 (E. D. Va. Oct. 24, 2024).

[11] Firestone v. Yellen, No. 3:24-cv-1034-SI, Dkt. No. 19 (D. Or. Nov. 18, 2024); Cmty. Ass’ns Inst. v. Yellen, No. 1:24-cv-1597, Dkt. No. 41 (E. D. Va. Nov. 4, 2024).

[12] Smith v. U.S. Dep’t of Treasury, No. 6-24-cv-336-JDK, Dkt. No. 30 (E.D. Tex. Jan. 7, 2025).

[13] https://www.justice.gov/criminal/case/united-states-america-v-td-bank-us-holding-company; United States v. TDBUSH, 24 Cr. 668 (ES), Dkt. Nos. 1, 4 (D.N.J. Oct. 10, 2024).

[14] https://www.justice.gov/criminal/case/united-states-america-v-td-bank-na; United States v. TDBNA, 24 Cr. 667 (ES), Dkt. Nos. 1, 4 (D.N.J. Oct. 10, 2024).

[15] Press Release, U.S. Dep’t of the Treasury, FinCEN, FinCEN Assesses Record $1.3 Billion Penalty against TD Bank (Oct. 10, 2024), https://www.fincen.gov/news/news-releases/fincen-assesses-record-13-billion-penalty-against-td-bank; https://www.fincen.gov/sites/default/files/enforcement_action/2024-10-10/FinCEN-TD-Bank-Consent-Order-508FINAL.pdf.

[16] Press Release, Office of the Comptroller of the Currency, OCC Issues Cease and Desist Order, Assesses $450 Million Civil Money Penalty, and Imposes Growth Restriction Upon TD Bank, N.A. for BSA/AML Deficiencies (Oct. 10, 2024), https://www.occ.treas.gov/news-issuances/news-releases/2024/nr-occ-2024-116.html; https://www.occ.gov/static/enforcement-actions/eaAA-ENF-2024-77.pdf.

[17] Press Release, Board of Governors of the Federal Reserve System, Federal Reserve Board fines Toronto-Dominion Bank $123.5 million for violations related to anti-money laundering laws (Oct. 10, 2024), https://www.federalreserve.gov/newsevents/pressreleases/enforcement20241010a.htm; https://www.federalreserve.gov/newsevents/pressreleases/files/enf20241010a1.pdf.

[18] Press Release, Dep’t of Justice, Wynn Las Vegas Forfeits $130 Million for Illegally Conspiring with Unlicensed Money Transmitting Businesses (Sept. 6, 2024), https://www.justice.gov/usao-sdca/pr/wynn-las-vegas-forfeits-130-million-illegally-conspiring-unlicensed-money-transmitting.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] FinCEN Consent Order Imposing Civil Money Penalty, In the Matter of Sahara Dunes Casino, LP (d/b/a Lake Elsinore Hotel and Casino), FinCEN Docket No. 2024-03, at 3, 12, 15 (Oct. 22, 2024) (consent order) https://www.fincen.gov/sites/default/files/enforcement_action/2024-10-23/FinCEN-Consent-Order-Lake-Elsinore-508.pdf.”

[24] Id. at 11–12, 17.

[25] Id. at 16.

[26] Press Release, Dep’t of Justice, Former President of MGM Grand Pleads Guilty to Violating the Bank Secrecy Act for Allowing Man Involved in Criminal Conduct to Gamble, https://www.justice.gov/usao-cdca/pr/former-president-mgm-grand-pleads-guilty-violating-bank-secrecy-act-allowing-man.

[27] Press Release, Dep’t of Justice, Justice Department Announces Resolution of Criminal and Civil Investigations into McKinsey & Company’s Work with Purdue Pharma L.P.; Former McKinsey Senior Partner Charged with Obstruction of Justice, https://www.justice.gov/opa/pr/justice-department-announces-resolution-criminal-and-civil-investigations-mckinsey-companys.

[28] United States v. McKinsey, 24 Civ. 63, Dkt. No. 1 (W.D. Va.).

[29] United States v. McKinsey, 24 Cr. 46, Dkt. No. 3 (W.D. Va.).

[30] Press Release, Office of the Comptroller, OCC Issues Enforcement Action Against Wells Fargo Bank (Sept. 12, 2024), https://www.occ.treas.gov/news-issuances/news-releases/2024/nr-occ-2024-99.html; https://www.occ.gov/static/enforcement-actions/eaAA-ENF-2024-72.pdf. The OCC did not specifically identify what these deficiencies were.

[31] Id. at 2.

[32] Press Release, New York Dep’t of Financial Services, Superintendent Adrienne A. Harris Secures $35 Million Settlement with Nordea for Significant Compliance Failures and Inadequate Diligence Over High-Risk Correspondent Banks (Aug. 27, 2024), https://www.dfs.ny.gov/reports_and_publications/press_releases/pr20240827.

[33] Id.

[34] In the Matter of Nordea Bank Abp, and Nordea Bank Abp New York Branch, New York State Department of Financial Services Consent Order, ¶ 124-26 (Aug. 27, 2024), https://www.dfs.ny.gov/system/files/documents/2024/08/ea20240827-co-nordea.pdf.

[35] Press Release, U.S. Dep’t of the Treasury, FinCEN, Treasury Takes Coordinated Actions Against Illicit Russian Virtual Currency Exchanges and Cybercrime Facilitator (Sept. 26, 2024), https://home.treasury.gov/news/press-releases/jy2616.

[36] U.S. Dep’t of the Treasury, FinCEN, Imposition of Special Measure Prohibiting the Transmittal of Funds Involving PM2BTC (Sept. 26, 2024), https://www.fincen.gov/sites/default/files/federal_register_notices/2024-09-26/PM2BTC-Order-508.pdf.

[37] Id.

[38] The first order was the January 18, 2023 order identifying Hong Kong based Bitzlato Limited as a currency exchange of “primary money laundering concern.”

[39] Press Release, Dep’t of Justice, Operator of ‘Bitcoin Fog’ Sentenced to More Than 12 Years in Prison for Running Notorious Darknet Cryptocurrency Mixer (Nov. 8, 2024), https://www.justice.gov/usao-dc/pr/operator-bitcoin-fog-sentenced-more-12-years-prison-running-notorious-darknet.

[40] Press Release, Dep’t of Justice, Bitfinex Hacker Sentenced in Money Laundering Conspiracy Involving Billions in Stolen Cryptocurrency (Nov. 14, 2024), https://www.justice.gov/opa/pr/bitfinex-hacker-sentenced-money-laundering-conspiracy-involving-billions-stolen.

[41] Morgan was sentenced to 18 months’ imprisonment for her role in the conspiracy on November 18. Sabrina Willmer, ‘Crocodile of Wall Street’ Gets 18 Months in Crypto Case, BLOOMBERG (Nov. 18, 2024), https://www.bloomberg.com/news/articles/2024-11-18/hacker-s-wife-razzlekhan-gets-18-months-for-money-laundering.

[42] Press Release, Dep’t of Justice, Operator of Helix Darknet Cryptocurrency ‘Mixer’ Sentenced in Money Laundering Conspiracy Involving Hundreds of Millions of Dollars (Nov. 15, 2024), https://www.justice.gov/usao-dc/pr/operator-helix-darknet-cryptocurrency-mixer-sentenced-money-laundering-conspiracy.

[43] We previously discussed these rules in a prior alert. https://wp.nyu.edu/compliance_enforcement/2024/09/17/the-top-5-mid-year-developments-in-anti-money-laundering-enforcement-in-2024/.

[44] Fact Sheet: FinCEN Issues Final Rule to Combat Illicit Finance and National Security Threats in the Investment Adviser Sector, Aug. 28, 2024, https://www.fincen.gov/sites/default/files/shared/IAFinalRuleFactSheet-FINAL-508.pdf; 89 Fed. Reg. 72156 (Sept. 4, 2024), https://www.govinfo.gov/content/pkg/FR-2024-09-04/pdf/2024-19260.pdf.

[45] 89 Fed. Reg. at 72167-70.

[46] Id. at 72172.

[47] Id. at 72189-204.

[48] Id. at 72204-06.

[49] Id. at 72182-83.

[50] Press Release, U.S. Dep’t of the Treasury, FinCEN, FinCEN Issues Final Rules to Safeguard Residential Real Estate, Investment Adviser Sectors from Illicit Finance (Aug. 28, 2024), https://www.fincen.gov/news/news-releases/fincen-issues-final-rules-safeguard-residential-real-estate-investment-adviser; Fact Sheet: FinCEN Issues Final Rule to Increase Transparency in Residential Real Estate Transfers, https://www.fincen.gov/sites/default/files/shared/RREFactSheet.pdf; Real Estate Reports Frequently Asked Questions, https://www.fincen.gov/sites/default/files/shared/RREFAQs.pdf [“Real Estate FAQ”]; 89 Fed. Reg. 70258 (Aug. 29, 2024), https://www.federalregister.gov/documents/2024/08/29/2024-19198/anti-money-laundering-regulations-for-residential-real-estate-transfers.

[51] 89 Fed. Reg. at 70265-66; Real Estate FAQ B.2.

[52] 89 Fed. Reg. at 70266.

[53] Id. at 70266-69.

[54] Id. at 70270-72.

[55] Id. at 70270-72.

[56] Id. at 70270-72; 70290.

[57] Pub. L. 116-283 § 6101.

[58] Press Release, U.S. Dep’t of the Treasury, FinCEN (June 30, 2021), https://www.fincen.gov/news/news-releases/fincen-issues-first-national-amlcft-priorities-and-accompanying-statements; https://www.fincen.gov/sites/default/files/shared/AML_CFT%20Priorities%20(June%2030%2C%202021).pdf; https://www.fincen.gov/sites/default/files/shared/Statement%20for%20Non-Bank%20Financial%20Institutions%20(June%2030%2C%202021).pdf.

[59] 89 Fed. Reg. 55428. Under the AMLA, the rule was supposed to be proposed years earlier.

[60] https://www.justice.gov/criminal/criminal-fraud/page/file/937501/dl. For further insight and analysis, please see our client alert. Gibson Dunn: DOJ Updates Its Evaluation of Corporate Compliance Programs Guidance Focused on AI and Emerging Technologies (Sept. 30, 2024), https://www.gibsondunn.com/doj-updates-evaluation-of-corporate-compliance-programs-guidance-focused-on-ai-and-emerging-technologies/.

[61] Van Loon, et al. v. Dep’t of Treasury, et al., 122 F.4th 549 (5th Cir. 2024).

[62] Id. at 561.

[63] Id. at 561–62.

[64] Id. at 562.

[65] Id. at 565.

[66] Id. at 563–65.

[67] Id. at 570.

[68] Id. (emphasis in original).

[69] Id.

[70] The Department of Justice, on behalf of the Department of Treasury, successfully requested that it be allowed until January 17, 2025 to file a petition for panel rehearing or rehearing en banc. Van Loon, et al. v. Dep’t of Treasury, et al., No. 23-50669 (5th Cir.), Dkt. No. 133.

[71] United States v. Storm et al., 23 Cr. 430 (S.D.N.Y.), Dkt. No. 84 (transcript of decision on motion to dismiss).

[72] Press Release, U.S. Dep’t of Justice, Tornado Cash Founders Charged With Money Laundering And Sanctions Violations (Aug. 23, 2023), https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-charged-money-laundering-and-sanctions-violations.

[73] United States v. Storm et al., 23 Cr. 430 (S.D.N.Y.), Dkt. No. 30 (Storm motion to dismiss).

[74] United States v. Storm et al., 23 Cr. 430 (S.D.N.Y.), Dkt. No. 84, at 21, 23 (transcript of decision on motion to dismiss).”

[75] Id. at 25.

[76] Id. at 25–26.

[77] Id. at 32.

[78] Id. at 36–45.

[79] United States v. Storm, 23 Cr. 430 (S.D.N.Y.), Dkt. No. 111.

[80] For example, under the first Trump Administration, FinCEN brought numerous enforcement actions, including against broker-dealers, banks like U.S. Bank National Association and Lone Star National Bank, and cryptocurrency exchanges like BTC-E. The Department of Justice brought numerous criminal BSA charges, including against Rabobank National Association, U.S. Bancorp, and the proprietors of cryptocurrency exchange BitMEX.

[81] https://www.reuters.com/markets/us/us-regulators-warn-bankers-about-intensified-focus-financial-crime-2024-11-13/.

[82] https://www.donaldjtrump.com/agenda47/president-donald-j-trump-declares-war-on-cartels.

[83] Vivek Ramaswamy, X (Dec. 11, 2024), https://x.com/VivekGRamaswamy/status/1867013707420799423 (“Tens of millions of small- and medium-sized businesses face the looming threat to file ‘Beneficial Ownership Information Reports’ with the federal government by Jan 1, 2025, or face up to $10,000 in fines or 2 years in prison. Yes, the rule has been temporarily stayed for now by a Texas court, but that could change any time so small business owners can’t really rely on it. Compliance with this rule takes up to 11 hours for the 32 million impacted businesses. Nationwide, that is the equivalent of 510 lifetimes. Small businesses should focus on their own success, not keeping government bureaucrats busy with intrusive data & paperwork.”)

[84] For a further description of the Congressional Review Act, see https://www.gibsondunn.com/tools-of-transition-procedural-devices-could-help-president-elect-implement-agenda/.

The following Gibson Dunn lawyers assisted in preparing this update: Stephanie Brooker, M. Kendall Day, Ella Capone, Sam Raymond, Maura Carey, Rachel Jackson, Ben Schlichting, Karsyn Archambeau*, and Aquila Maliyekkal*.

Gibson Dunn has deep experience with issues relating to the Bank Secrecy Act, other AML and sanctions laws and regulations, and the defense of financial institutions more broadly. For assistance navigating white collar or regulatory enforcement issues involving financial institutions, please contact any of the authors, the Gibson Dunn lawyer with whom you usually work, or any of the leaders and members of the firm’s Anti-Money Laundering / Financial Institutions, Financial Regulatory, White Collar Defense & Investigations, or International Trade practice groups:

Anti-Money Laundering / Financial Institutions:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, [email protected])
M. Kendall Day – Washington, D.C. (+1 202.955.8220, [email protected])
Ella Alves Capone – Washington, D.C. (+1 202.887.3511, [email protected])

White Collar Defense and Investigations:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, [email protected])
Winston Y. Chan – San Francisco (+1 415.393.8362, [email protected])
Nicola T. Hanna – Los Angeles (+1 213.229.7269, [email protected])
F. Joseph Warin – Washington, D.C. (+1 202.887.3609, [email protected])

Global Fintech and Digital Assets:
M. Kendall Day – Washington, D.C. (+1 202.955.8220, [email protected])
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, [email protected])
Sara K. Weed – Washington, D.C. (+1 202.955.8507, [email protected])

Global Financial Regulatory:
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Michelle M. Kirschner – London (:+44 20 7071 4212, [email protected])
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, [email protected])

International Trade:
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Adam M. Smith – Washington, D.C. (+1 202.887.3547, [email protected])

Karsyn Archambeau and Aquila Maliyekkal, associates in New York and Washington, D.C. respectively, are not yet admitted to practice law.

This update provides an overview of the proposed anti-money laundering and countering-the-financing-of-terrorism requirements, including background on the related Monetary Authority of Singapore consultation and response to industry feedback. We also discuss the practical implications for Market Operators.

The Monetary Authority of Singapore (MAS) has confirmed it will introduce new anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) requirements for organised market operators formed or incorporated in Singapore (Market Operators). This initiative is part of MAS’ ongoing efforts to strengthen the integrity of Singapore’s financial markets and ensure they remain sufficiently robust to counter the threats of money laundering (ML) and terrorism financing (TF).

MAS consultation and response to feedback

On 28 March 2024, the MAS published a consultation paper setting out AML/CFT requirements to be published in the form of a notice (the Notice) that would apply to Market Operators, i.e. approved exchanges and recognised market operators formed or incorporated in Singapore. The primary objective of the requirements was to address the increasing trend of Market Operators allowing unregulated entities to participate directly on organised markets without any intermediation by a financial institution (FI). As these investors are not subject to AML/CFT checks by capital market intermediaries, Market Operators that take on such investors are exposed to higher inherent ML/TF risks. To mitigate these risks, MAS proposed to introduce the Notice to require Market Operators to perform AML/CFT checks on market participants that are not FIs and that trade directly on their organised markets without facilitation by a capital market intermediary. The consultation period closed on 29 April 2024.

On 13 January 2025, MAS published a response to the consultation feedback which confirmed the introduction of the originally proposed requirements in all material respects, and also provided clarifications on the scope of the Notice. Amongst other points, the response clarified that under the Notice, Market Operators will need to apply AML/CFT checks on persons that perform a trade-related activity on the organised market or provide services to facilitate the completion of a trade-related activity, with a “trade-related activity” extending to any transfer of digital payment tokens (DPTs), digital capital markets product (CMP) tokens or fiat currency carried out by the Market Operator. Furthermore, holders of a capital markets services licence who also operate an organised market will need to additionally comply with the AML/CFT requirements under the Notice.

Requirements under the Notice

The Notice sets out several key requirements that Market Operators must adhere to in order to mitigate ML/TF risks. A high-level summary is as follows:

Scope of the Notice: The Notice requires Market Operators to perform AML/CFT checks in relation to all non-FI direct participants. This is intended to mitigate the higher inherent ML/TF risks arising from such participants. Market Operators will not be required to perform AML/CFT checks for FI direct participants or participants intermediated by an FI, as these participants are subject to AML/CFT requirements imposed by their respective regulators or exchange members.
Definitions: The Notice defines several key terms, including “trade-related activity,” “business relations,” and “customer.” “Trade-related activity” refers to the making or acceptance of an offer or invitation to exchange, sell, or purchase derivatives contracts, securities, or units in collective investment schemes on an organised market operated by the AE or RMO, as well as any act on an organised market that results in fiat currency, digital CMP tokens or DPTs being transferred by any person across accounts. “Business relations” include the opening or maintenance of an account, allowing a trade-related activity to be performed, or providing services to facilitate the completion of a trade-related activity. “Customer” refers to a person with whom the Market Operator establishes or intends to establish business relations or for whom transactions are undertaken without an account being opened.
Customer due diligence (CDD): Before establishing business relations, Market Operators are required to perform CDD checks and assess the level of ML/TF risks posed by their prospective customers. This includes identifying and verifying the identity of customers, understanding the nature of their business and identifying beneficial owners. Enhanced CDD measures must be performed for higher-risk customers, such as politically exposed persons and customers from high-risk jurisdictions.
Ongoing monitoring: Market operators must monitor their business relations with customers on an ongoing basis. This includes observing the conduct of customers’ accounts, scrutinising trade-related activities and ensuring that these activities are consistent with the Market Operator’s knowledge of the customer, its business and risk profile. Enhanced monitoring measures must be implemented for higher-risk customers and transactions.
Record-keeping: Market Operators must maintain records of all data, documents and information obtained during the CDD process. These records must be kept for at least five years following the termination of business relations or the completion of transactions. The records must be sufficient to permit the reconstruction of individual transactions and provide evidence for prosecution if necessary.
Suspicious transaction reporting: Market Operators must establish internal policies, procedures and controls for reporting suspicious transactions to the Suspicious Transaction Reporting Office and MAS. This includes establishing a single reference point within the organisation to whom all employees, officers and representatives must promptly refer all transactions suspected of being connected with ML/TF.
Internal policies, compliance, audit and training: Market Operators must develop and implement internal policies, procedures, and controls to prevent ML/TF. This includes appointing an AML/CFT compliance officer, maintaining an independent audit function and ensuring that employees and officers are regularly trained on AML/CFT laws, regulations and internal policies.

Timing

MAS will issue the finalised Notice in due course but has not confirmed the specific date on which the Notice will take effect. Following the effective date there will be a six-month implementation timeframe within which Market Operators will need to develop and implement the required policies, procedures and controls, as well as onboard existing and new non-FI direct participants in accordance with the CDD requirements in the Notice.

Conclusion

The proposed Notice represents a significant step forward in MAS’ efforts to strengthen the integrity of Singapore’s financial markets and ensure the industry maintains safeguards against ML/TF threats. Market Operators will need to ensure they allocate appropriate adequate personnel, training and operational resources to the development of corresponding AML/CFT policies, procedures and controls. While many Market Operators already maintain AML/CFT processes as a matter of good practice and regulatory risk management, they should nonetheless consider to what extent additional measures should be proactively implemented to ensure full compliance with the Notice and mitigate the risks associated with their business models and customer base.

The following Gibson Dunn lawyers prepared this update: Hagen Rooke and QX Toh.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following:

Hagen H. Rooke – Singapore (+65 6507 3620, [email protected])
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Jeffrey L. Steiner – Washington, D.C. (202.887.3632, [email protected])
Michelle M. Kirschner – London (+44 20 7071 4212, [email protected])
Emily Rumble – Hong Kong (+852 2214 3839, [email protected])
Becky Chung – Hong Kong (+852 2214 3837, [email protected])
QX Toh – Singapore (+65 6507 3610, [email protected])
Arnold Pun – Hong Kong (+852 2214 3838, [email protected])
Jane Lu – Hong Kong (+852 2214 3735, [email protected])