Client Alert Archives

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments

On April 15, three current law students sued the Equal Employment Opportunity Commission (EEOC) in the U.S. District Court for the District of Columbia, seeking to enjoin the EEOC’s efforts to collect workplace demographic information from twenty law firms. The plaintiffs, who are proceeding pseudonymously, state that they have applied to work at one or more of the twenty targeted firms and that they are “deeply worried that their data will be divulged [to the EEOC], and that they may be targeted as a result.” The plaintiffs assert that the EEOC engaged in ultra vires action by informally investigating the law firms without a charge being filed with the agency. They ask the court to enjoin the EEOC from “investigating any law firm through means that do not satisfy the requirements of conducting an investigation under Title VII’s EEOC charge process,” to order the EEOC to withdraw the letters it sent to the twenty law firms, and to order the EEOC to return any information already collected from those firms.

As reported in our April 8 Task Force Update, on March 27, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois granted a nationwide temporary restraining order (TRO) blocking the Department of Labor from enforcing the Certification Provision of Executive Order (EO) 14173, which requires federal contractors and grantees to certify that they do not operate any unlawful DEI programs. The TRO also prohibited enforcement of the Termination Provision of EO 14151, which requires termination of all “equity-related” federal grants, against the plaintiff, the non-profit organization Chicago Women in Trade (CWIT). On April 14, the court issued an opinion preliminarily enjoining enforcement of these EOs to the same extent and for the same reasons articulated in its prior opinion. Accordingly, the Department of Labor remains prohibited from enforcing the Certification Provision nationwide. It is also enjoined from enforcing the Termination Provision against CWIT. The court’s order leaves the remainder of the EOs’ provisions in effect, and it does not impede other agencies’ ability to enforce the Certification or Termination Provisions, nor does it hinder the Department of Labor’s ability to enforce the Termination Provision against other federal grantees. The court’s entry of a preliminary injunction clears the path for the government to appeal to the Seventh Circuit and seek a stay of the court’s order pending the outcome of the appeal.

In an April 3 letter to state leaders, the U.S. Department of Education stated that it will withdraw Title I funding from public schools that maintain DEI-related programs. The letter stated that “the use of [DEI] programs to advantage one’s race over another” violates civil rights laws and is thus “impermissible.” The letter directed schools and state officials to return an attached certification within 10 days, confirming compliance with the directive. Craig Trainor, the Department’s Acting Assistant Secretary for Civil Rights, said in a statement that “[f]ederal financial assistance is a privilege, not a right . . . [and that] [w]hen state education commissioners accept federal funds, they agree to abide by federal antidiscrimination requirements. Unfortunately, we have seen too many schools flout or outright violate these obligations, including by using DEI programs to discriminate against one group of Americans to favor another based on identity characteristics.” Following an emergency motion by the National Educational Association for a temporary restraining order blocking this certification requirement, the Department agreed to extend the deadline to April 24. As Jonaki Mehta of NPR reports, the threat to withdraw funding could have sizable effects on schools nationwide. While the federal government only provides around 10% of public-school funding, Title I funding benefits nearly 90% of school districts nationwide. To date, the Department has already allocated $18.38 billion under Title I in the current fiscal year.

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

Reuters, “Former US Labor Officials Urge Contractors to Stand Firm on DEI” (April 15): Simon Jessop and Richa Naidu of Reuters report on an open letter sent from ten former U.S. Department of Labor officials to federal contractors, urging them to maintain their corporate diversity policies despite legal threats from the Trump Administration. The letter reads: “Although the federal government has chosen to dismantle diversity, equity, inclusion, and accessibility programs in its own workplaces at its own peril, the government cannot prohibit private employers from engaging in fully lawful strategies to advance equal opportunity for all.” The letter explains why, in the authors’ view, President Trump may not retroactively impose liability for complying with prior federal requirements or change legal standards through executive order. The letter also extolls the benefits of “proactive barrier analysis,” including collecting and analyzing workforce data and setting demographic benchmarks, which the letter asserts do not violate federal anti-discrimination law.
New York Times, “Harvard Says It Will Not Comply With Trump Administration’s Demands” (April 14): Vimal Patel of the New York Times reports on Harvard University’s decision to reject the policy changes requested of it by the Trump Administration, making it “the first university to directly refuse to comply with the administration’s demands and setting up a showdown between the federal government and the nation’s wealthiest university.” In an April 11 letter, the Administration requested that Harvard engage in a series of changes to its hiring, admissions, student discipline, and DEI policies and practices. In a statement following the letter, Harvard’s president Alan Garber said: “No government—regardless of which party is in power—should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue.” Patel reports that, shortly thereafter, the Administration announced it would freeze $2.2 billion in multiyear grants to Harvard along with a $60 million contract.
Law360, “Florida Won’t Hire Law Firms With DEI Initiatives, AG Says” (April 9): Madison Arnold of Law360 reports that the Attorney General of Florida, James Uthmeier, has issued a memorandum stating that the state will no longer engage law firms with DEI programs or environmental, social, and governance (ESG) initiatives. The memorandum also provided that Uthmeier will cease approving engagements between firms with these programs and other Florida agencies. The Attorney General’s office will also conduct a review of existing outside counsel engagements to assess compliance with the memorandum’s requirements. Uthmeier identified several initiatives he views as problematic, such as the Mansfield Certification Program and diversity mentorship programs. Uthmeier stated, “Like the EEOC, I am deeply troubled that these discriminatory practices have been embraced and amplified by many of our nation’s law firms. If we are truly committed to the rule of law, then we must be truly committed to equal justice under law. DEI and ESG practices flout those bedrock principles.”
LA Times, “California Signals Possible Defiance of Trump Anti-DEI Order that Threatens School Funding” (April 8): Howard Blume of the LA Times reports that California is resisting the Trump administration’s threat to cut federal funding for public schools that maintain DEI programs. The state’s education officials argue that DEI initiatives are essential for creating inclusive and equitable learning environments. California Governor Gavin Newsom and other state leaders have vowed to fight the administration’s directive, which they view as an attempt to undermine civil rights protections.
The New York Times, “When It Comes to D.E.I. and ICE, Trump Is Using Federal Grants as Leverage” (April 7): Benjamin Oreskes, Zolan Kanno-Youngs, and Hamed Aleaziz of The New York Times report that the Department of Homeland Security (DHS) is updating its grant funding contracts to require city and state grantees—many of which receive money from DHS for public safety services, such as police, fire, and emergency response—to “honor requests for cooperation, such as participation in joint operations, sharing of information or requests for short-term detention of an alien pursuant to a valid detainer.”

Case Updates:

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (AAER) sued the American Bar Association (ABA) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20-25 first year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” The complaint alleges that “White students are not eligible to apply, be selected, or equally compete for the ABA’s scholarship.” AAER seeks a TRO and preliminary injunction barring the ABA from selecting winners for this year’s scholarship, as well as a permanent injunction barring the ABA from knowing or considering applicants’ race or ethnicity when administering the scholarship.
- Latest update: The docket does not yet reflect that the ABA has been served.
American Alliance for Equal Rights v. Southwest Airlines Co., No. 24-cv-01209 (N.D. Tex. 2024): On May 20, 2024, AAER filed a complaint against Southwest Airlines, alleging that the company’s ¡Lánzate! Travel Award Program, which awards free flights to students who “identify direct or parental ties to a specific country” of Hispanic origin, unlawfully discriminates based on race. AAER seeks a declaratory judgment that the program violates Section 1981 and Title VI, a temporary restraining order barring Southwest from closing the next application period (set to open in March 2025), and a permanent injunction barring enforcement of the program’s ethnic eligibility criteria. On March 3, 2025, AAER filed a motion for summary judgment, arguing that there was no genuine dispute of material fact on three relevant questions: (1) whether ¡Lánzate! involved contracts; (2) whether ¡Lánzate! intentionally discriminated against non-Hispanics; and (3) whether that ethnic discrimination harmed one of AAER’s members by preventing them from competing for ¡Lánzate! in 2024.
- Latest update: On April 10, 2025, the United States filed an unopposed motion for Leave to File Statement of Interest in support of AAER’s Motion for Summary Judgment. In a three-page motion, the United States argued that it had a strong interest in protecting the civil rights of all Americans, including the right to be free from discrimination on the basis of protected characteristics. On April 9, 2025, Southwest filed a Motion for Entry of Judgment of $0.01 in nominal damages for AAER. Southwest argued the following: (i) it previously moved to dismiss AAER’s complaint in its entirety on the basis of mootness, as Southwest has already ceased operating the challenged Award Program, (ii) it is willing to accept judgment against it for $0.01 in nominal damages, without an admission of liability, (iii) its request to accept judgment for $0.01 follows a straightforward path to end this litigation, (iv) Justice Kavanaugh’s concurrence in Uzuegbunam v. Preczerski supports the conclusion that this path is available in a case like this one, (v) the proposed judgment would resolve AAER’s allegation that Southwest was resisting judgment and, therefore, had not obtained mootness, and (vi) the proposed judgment would also address the Court’s earlier conclusion that an offer to settle does not render the nominal damages claim moot.
National Association of Diversity Officers in Higher Educ., et al., v. Donald J. Trump, et al., No. 1:25-cv-00333-ABA (D. Md. 2025): On February 3, 2025, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United and the Mayor and City Council of Baltimore, Maryland brought suit against the Trump Administration challenging EOs 14151 and 14173. The plaintiffs contend that the executive orders exceed presidential authority, violate the separation of powers and the First Amendment, and are unconstitutionally vague. On February 13, the plaintiffs moved for a temporary restraining order and a preliminary injunction to prevent the Trump Administration from enforcing the executive orders. On February 21, the Court granted in part the preliminary injunction. The Fourth Circuit Court of Appeals stayed the injunction on March 14.
- Latest update: On March 21, the plaintiffs filed a motion in the district court to vacate the preliminary injunction without prejudice, asserting that they “intend to seek additional relief based on developments that have occurred since the motion for preliminary injunction was filed on February 13, 2025.” The defendants opposed the motion on the ground that the district court lost jurisdiction when the defendants appealed the preliminary injunction order to the Fourth Circuit. The court heard argument on the motion on April 10.
Desai v. PayPal, No. 1:25-cv-00033-AT (S.D.N.Y. 2025): On January 2, 2025, Andav Capital and its founder Nisha Desai sued PayPal, alleging that PayPal unlawfully discriminates by administering its investment program for minority-owned businesses in a way that favors Black and Latino applicants. Desai, an Asian-American woman, alleges PayPal violated Section 1981, Title VI, and New York state anti-discrimination law (NYSHRL) by failing to fully consider her funding application and announcing first-round investments only in companies with “at least one general partner who was black or Latino.” She seeks a declaratory judgment that the investment program is unlawful, an injunction barring PayPal from “knowing or considering race or ethnicity” in administering the program, and damages. PayPal is represented by Gibson Dunn in this matter.
- Latest update: On April 16, 2025, PayPal moved to dismiss the complaint, asserting that the plaintiffs lack standing because they never applied for funding under the challenged program. PayPal also argued that the plaintiffs’ claims are untimely because the challenged conduct occurred outside the three-year limitations period and that the plaintiffs engaged in improper “group pleading” by failing to make allegations against each defendant. Lastly, PayPal argued that complaint fails to state a claim on the merits because the plaintiffs allege no contractual relationship (Section 1981), do not allege PayPal received federal financial assistance (Title VI), and do not allege PayPal extended “credit” (NYSHRL).
National Association of Scholars v. U.S. Dep’t of Energy, et al., No. 25-cv-00077 (W.D. Tex. 2025): On January 16, 2025, the National Association of Scholars—a group of professors, faculty, and researchers at colleges and universities across the United States—sued the United States Department of Energy, alleging that the Department’s Office of Science unlawfully requires research grant applicants to show how they would “promote diversity, equity, and inclusion in research projects” through its Promoting Inclusive and Equitable Research (PIER) plan. The Association alleges that requiring grant applicants to show how they would promote DEI in their projects violates applicants’ First Amendment rights by requiring them to express ideas with which they disagree, that the Department lacked statutory authority to adopt the plan, and that the plan violates the procedural requirements of the Administrative Procedure Act. The Association seeks declaratory and injunctive relief. On March 31, 2025, the defendants filed a motion to dismiss. The defendants argue that the Association’s claims are moot, as the Department of Energy has rescinded the PIER plan requirement after President Trump issued EO 14151.
- Latest update: On April 14, 2025, the Association filed an opposition to the motion to dismiss, arguing that the recission of the PIER plan requirement does not sufficiently moot the controversy because the requirement was “suspended,” and not “rescinded,” making the change temporary. The Association also argues that EO 14151 is currently being challenged in multiple lawsuits, and it is likely that the PIER plan requirement, or something similar, could be reimposed.
San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 3:25-cv-01824 (N.D. Cal. 2025): On February 20, several LGBTQ+ groups filed suit against President Trump, Attorney General Pam Bondi, and several other government agencies and actors, challenging the President’s recent executive orders regarding DEI (EO 14151, EO 14168, and EO 14173). The complaint alleges that these EOs are unconstitutional on several grounds, including the Equal Protection Clause of the Fifth Amendment, the Due Process Clause of the Fifth Amendment, and the Free Speech Clause of the First Amendment. It also argues the EOs are ultra vires and exceed the authority of the President. The plaintiffs seek preliminary and permanent injunctive relief. On March 3, the plaintiffs filed a motion for preliminary injunction.
- Latest update: On April 11, 2025, the defendants filed an opposition to the plaintiff’s motion for preliminary injunction. The defendants argued that the plaintiffs are not likely to establish the Court’s jurisdiction, the plaintiffs’ Due Process, First Amendment, separation-of-powers, statutory, and Equal Protection Clause claims will likely fail on the merits, the plaintiffs have not shown irreparable injury, and the balance of inequities and public interest weigh against relief. The defendants also argued that “to the extent the Court intends to grant Plaintiffs’ request for a preliminary injunction, such relief should be narrowly tailored to apply only to [the] defendant agencies, Plaintiffs, and the provisions that affect them” and that any injunctive relief should be stayed pending an appeal and bond.
Strickland et al. v. United States Department of Agriculture et al., No. 2:24-cv-00060 (N.D. Tex. 2024): On March 3, 2024, plaintiff farm owners sued the USDA over the administration of financial relief programs that allegedly allocated funds based on race or sex. The plaintiffs alleged that only a limited class of socially disadvantaged farmers, including certain races and women, qualify for funds under these programs. On June 7, 2024, the court granted in part the plaintiff’s motion for a preliminary injunction. The court enjoined the defendants from making payment decisions based directly on race or sex. However, the court allowed defendants to continue to apply their method of appropriating money, if done without regard to the race or sex of the relief recipient. On February 10, 2025, the parties requested a 30-day stay of proceedings to discuss a resolution following the USDA’s determination to “no longer employ the race- and sex-based ‘socially disadvantaged’ designation” in light of recent executive orders. The court granted the request on February 11, 2025. On March 27, 2025, the parties filed a joint status report requesting additional time to discuss “the possibility of a resolution.” On March 31, 2025, the court granted the parties’ request to stay all proceedings until April 10, 2025.
- Latest update: On April 10, 2025, the parties filed a joint status report. The defendants stated they would be open to a voluntary remand to “take any available and necessary administrative steps to no longer use the race- and sex-based ‘socially disadvantaged’ designation[s] in the challenged programs,” and to financially compensate the plaintiffs, but aver they are unable to compensate non-parties affected by the program, either by clawing back funds paid to disadvantaged farmers under the challenged program or by providing compensation to non-disadvantaged farmers previously denied funds under the program. The plaintiffs argued that USDA’s objection “misses the point,” because “[t]he only way to cure Plaintiffs’ injuries is to rework the challenged programs to be lawful.”

2. Employment discrimination and related claims:

Dill v. International Business Machines, Corp., No. 1:24-cv-00852 (W.D. Mich. 2024): On August 20, 2024, America First Legal filed a discrimination suit against IBM on behalf of a former IBM employee, alleging violations of Title VII and Section 1981. The plaintiff claims that IBM placed him on a performance improvement plan as a “pretext to force him out of [IBM] due to [its] stated quotas related to sex and race.” The complaint cites to a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly states that all executives must increase representation of underrepresented minorities on their teams by 1% each year to receive a “plus” on their bonuses. On March 26, 2025, the court denied a motion to dismiss, concluding that the plaintiff alleged sufficient facts to support a discrimination claim.
- Latest update: On April 9, 2025, IBM answered the complaint, denying that the plaintiff consistently received high scores on the internal employee performance metric. IBM also denied having “executive compensation metrics that include a diversity modifier.” IBM raised seventeen affirmative defenses, including (1) failure to state a claim, (2) failure to show the irreparable harm required for injunctive relief, (3) failure to show the plaintiff was treated less well or materially different from other similarly situated employees, and (4) failure to mitigate damages.
Steffens v. Walt Disney Co., No. 25NNCV00944 (Cal. Super. Ct. Los Angeles Cnty. 2025): On February 11, 2025, a white former executive for Marvel Entertainment sued Disney, alleging the company discriminated against him on the basis of race, sex, and age. He alleged he was denied a promotion because of his race and age, and that the Company failed to promote him as retaliation for his objection to “effort[s] to promote presidents to senior vice presidents based on their race and a memorandum that would have referred to employees with the racial signifier ‘BIPOC.’” He brought claims under California state antidiscrimination and unfair business practices laws. On February 13, the court issued an order to show cause for failure to file proof of service. On March 17, 2025, the plaintiff filed a proof of personal service.
- Latest update: On April 9, 2025, Disney answered the complaint, “generally den[ying] each and every material allegation set forth in the complaint,” and the amount or manner in which the plaintiff has been injured. Disney also asserted twenty-two affirmative defenses, including (1) failure to state a claim, (2) failure to file within the applicable statute of limitations period, (3) failure to exhaust administrative remedies, and (4) failure to mitigate damages.

3. Challenges to statutes, agency rules, executive orders, and regulatory decisions:

American Alliance for Equal Rights v. City of Chicago, et al., No. 1:25-cv-01017 (N.D. Ill. 2025): On January 29, 2025, AAER and two white male individuals filed a complaint against the City of Chicago and the City’s new casino, Bally’s Chicago, alleging that the City precluded them from investing in the new casino based on their race, in violation of Sections 1981, 1982, 1983, and 1985. Under the Illinois Gambling Act, an application for a casino owner’s license must contain “evidence the applicant used its best efforts to reach a goal of 25% ownership representation by minority persons and 5% ownership representation by women.” The plaintiffs alleged that the casino precluded them from participating in the casino’s initial public offering by limiting certain shares to members of specified racial minority groups.
- Latest update: On April 4, 2025, the City of Chicago moved to dismiss the complaint for failure to state a claim on the following grounds: (1) AAER lacks both organizational and associational standing; (2) the plaintiffs’ Sections 1981, 1982, and 1983 claims fail because the complained of action was undertaken by a private company, not a state actor; and (3) the plaintiffs’ Section 1985 claim fails because the alleged harm was not caused by a City policy. Also an April 4, 2025, the individual named defendants—all members of the Illinois Gaming Board—also moved to dismiss, contending that (1) the plaintiffs lack Article III standing; (2) Section 1981 does not create a private right of action against state actors; (3) in any event, the Eleventh Amendment bars the plaintiffs’ claim for damages; and (4) the plaintiffs fail to allege any action by the Board that caused any injury. That same day, defendants Bally’s Chicago and Bally’s Chicago Operating Company moved to dismiss for failure to state a claim under Sections 1981, 1982, and 1985.
American Alliance for Equal Rights v. Walz, 24-cv-1748 (D. Minn. 2024): On May 15, 2024, AAER filed a complaint against Minnesota Governor Tim Walz, challenging a state law that requires Governor Walz to ensure that five members of the Minnesota Board of Social Work are from a “community of color” or “an underrepresented community.” AAER claimed that two of its white female members were “qualified, ready, willing and able to be appointed to the board,” but that they would not be given equal consideration. AAER sought a permanent injunction and a declaration that the law violates the Equal Protection Clause of the Fourteenth Amendment. On January 3, 2025, AAER filed an amended complaint to reflect the fact that they no longer rely on one of their original white female members. On January 17, 2025, Governor Walz answered the amended complaint, denying the allegations of unlawful discrimination and asserting that the plaintiffs lacked standing and failed to state a claim upon which relief can be granted. He specifically denied that the law required him to consider the race of potential appointees to the Board or otherwise limits the pool of candidates based on race or ethnicity.
- Latest update: On April 3, 2025, the parties filed a joint stipulation of dismissal, in which Governor Walz denied any wrongdoing. On April 4, 2025, the court dismissed the case.
Doe 1 v. Office of the Director of Nat’l Intel., No. 1:25-cv-00300 (E.D. Va. 2025): On February 17, 2025, 11 unnamed employees of the Office of the Director of National Intelligence and the Central Intelligence Agency sued their employers after they were placed on administrative leave from their DEI-related positions. They assert that the decision to place them on administrative leave violates the Administrative Leave Act, the Administrative Procedure Act, and the First and Fifth Amendments of the U.S. Constitution. On February 17, 2025, the plaintiffs moved for a temporary restraining order. The court entered an administrative stay to allow additional briefing on the motion. On February 24, 2025, the plaintiffs filed an amended complaint adding eight unnamed plaintiffs to the case. The court held a hearing on the plaintiffs’ motion for a temporary restraining order on February 27, 2025. That same day, the court denied the motion in a single page order and lifted the administrative stay.
- Latest update: On March 27, 2025, the plaintiffs moved for a preliminary injunction preventing the defendants from terminating their employment, as well as the employment of similarly situated individuals. The plaintiffs argued that they are likely to succeed on their Fifth Amendment Due Process claim, they will suffer irreparable economic and reputational harm absent an injunction, the balance of hardships weigh in their favor, and an injunction will serve the public interest. They asked the court to (1) order the CIA Director to “personally review and reconsider his termination decisions”; (2) order the CIA Director and the Director of National Intelligence “to state why each individual termination somehow serves the national interest”; and/or (3) allow the plaintiffs and other similarly situated individuals to be considered for reassignment to positions in the Intelligence Community. On March 31, 2025, the court enjoined the defendants from “effectuating or implementing any decision to terminate the Plaintiffs without further Court authorization.” The court ordered the defendants to “provide Plaintiffs a requested appeal from any decision to terminate him or her” and to “consider any Plaintiffs’ request for reassignment for open or available positions in accordance with their qualifications and skills.”

4. Actions against educational institutions:

Students for Fair Admissions v. Air Force Academy, No. 1:24-cv-03430 (D. Co. 2024): On December 10, 2024, Students for Fair Admissions (SFFA) filed a complaint against the United States Air Force Academy alleging that the Academy considers race in admissions decisions in violation of the equal protection component of the Fifth Amendment. SFFA alleges that the Academy impermissibly considers the race of applicants to achieve explicit statistical goals for the racial makeup of each incoming class. SFFA claims that the Academy’s admissions decisions “treat race as a ‘plus factor,’” in violation of Students for Fair Admissions v. President & Fellows of Harvard College. SFFA also alleges that the Academy’s justifications for considering race in admissions—that prioritizing diversity assists with recruiting and retaining top talent and preserves unit cohesion and the Air Force’s legitimacy—are flawed and not meaningfully furthered by the Academy’s admissions policies. SFFA seeks both declaratory relief and a permanent injunction preventing the Academy from considering race in admissions.
- Latest update: On April 11, 2025, the defendants filed a motion to hold the case in abeyance while the parties consider a recent change in the United States Air Force Academy’s admissions policy. On January 27, 2025, Acting Secretary of the Air Force Gary A. Ashworth issued a memorandum directing “cessation of all Diversity, Equity, and Inclusion (DEI) considerations regarding the Department of the Air Force (DAF) officer applicant pools.” And on February 6, 2025, Acting Assistant Secretary of the Air Force for Manpower and Reserve Affairs Gwendolyn R. DeFilippi eliminated “quotas, objectives, and goals based on sex, race or ethnicity for organizational composition, academic admission, career fields, or class composition.” The defendants asked the court to hold the case in abeyance to provide the parties an opportunity to determine how to proceed in light of these recent developments. In a minute order issued on April 14, 2025, the court, construing the consent motion to hold the case in abeyance as a motion to stay the case, granted the motion to stay.
Students for Fair Admissions v. United States Naval Academy et al., No. 1:23-cv-02699 (D. Md. 2023), on appeal at No. 24-02214 (4th Cir. 2024): On October 5, 2023, SFFA filed suit against the Naval Academy, claiming that the Academy’s consideration of race in its admissions process violates equal protection guarantees. After a year of discovery, the dispute proceeded to a nine-day trial in September 2024, during which SFFA argued that the Academy’s consideration of race in its admissions process violated the Constitution because it was not narrowly tailored to achieve a compelling government interest. The Academy countered that its consideration of race is necessary to achieve a diverse officer corps, which furthers a compelling government interest in national security. On December 6, 2024, the court issued a decision finding that the Academy’s admissions process withstands strict scrutiny mandated by Students for Fair Admissions v. President & Fellows of Harvard College, 600 U.S. 181 (2023), and entered judgment in favor of the Academy. SFFA appealed the decision to the Fourth Circuit. On March 28, 2025, the parties filed an unopposed motion to hold briefing in abeyance while the parties “consider a recent change in the United States Naval Academy’s admissions policy.”
- Latest update: On April 1, 2025, the court held the “case in abeyance to allow the parties a reasonable amount of time to discuss the details of the Academy’s new policy and to consider the appropriate next steps for this litigation.” The court directed the parties to file a status report on June 2, 2025.

Legislative Updates

On March 20, 2025, West Virginia State Senator Tom Willis introduced Senate Bill 850. The bill provides that a corporate director’s or officer’s “prioritiz[ation of] any element of environmental, social, and governance interest over pecuniary interests” serves as “prima facie evidence” that the corporation at which the director or officer works breached its fiduciary duty to its shareholders. SB 850 would define “environmental, social, and governance” to include “considering diversity, equity, and inclusion” in corporate decision-making.

On March 26, 2025, the Ohio legislature passed and sent to the Governor Senate Bill 1, the Advance Ohio Higher Education Act. The Act would direct the boards of trustees of state public institutions of higher education to adopt and enforce policies that prohibit the following: (1) “any orientation or training course regarding [DEI]” absent permission from the state chancellor of higher education; (2) operation of DEI offices and departments; (3) “[u]sing [DEI] in job descriptions”; (4) the “establishment of any new institutional scholarships that use diversity, equity, and inclusion in any manner”; and (5) contracting with consultants or third parties whose role is to promote racial, gender, religious, or sexual orientation diversity in admissions and hiring. The Act would also require these institutions to publicly declare alongside their mission statements—as well as in any offer of admission or employment—that their “duty is to treat all faculty, staff, and students as individuals, to hold them to equal standards, and to provide them equality of opportunity, with regard to those individuals’ race, ethnicity, religion, sex, sexual orientation, gender identity, or gender expression.”

On April 9, 2025, Texas Senate Bill 1006, was referred to the Texas House Insurance Committee. The bill had been approved by the Texas Senate on March 26, 2025. The bill would amend the Texas Insurance Code to require that insurers provide a quarterly report to the Texas Department of Insurance “summarizing the insurer’s written statements of reasons for declination, cancellation, or nonrenewal provided to applicants for insurance or policyholders.” The report must disclose if any decision to decline, cancel, or fail to renew a policy was based on “a score that is based on measuring exposure to long-term environmental, social, or governance risks” or “diversity, equity, and inclusion factors.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Zakiyyah Salim-Williams, Cynthia Chen McTernan, Zoë Klein, Cate McCaffrey, José Madrid, Jenna Voronov, Emma Eisendrath, Kristen Durkan, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokralla, Heather Skrabak, Maryam Asenuga, Angelle Henderson, Kameron Mitchell, Lauren Meyer, Chelsea Clayton, Maya Jeyendran, Albert Le, Allonna Nordhavn, Felicia Reyes, Godard Solomon, Laura Wang, and Ashley Wilson.

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 Labor and Employment practice group, or the following practice leaders and authors

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])

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])

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.

From the Derivatives Practice Group: This week, the CFTC issued a staff advisory that provides additional guidance on the criteria used to determine whether to refer self-reported violations or supervision or non-compliance issues to the Division of Enforcement.

New Developments

CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation. [NEW]
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps. [NEW]
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users. [NEW]
Senate confirms Atkins as SEC chair. On April 9, the Senate voted 52-44 to confirm Paul Atkins as the next chair of the SEC. Atkins, a former SEC commissioner and a longtime financial industry consultant, was tapped in December by Donald Trump for the position. In his March 27 confirmation hearing before the Senate Banking Committee, Atkins indicated he would streamline the agency’s regulatory activity. Atkins is expected to be friendlier toward the financial industry than the previous SEC chair, Gary Gensler.
CFTC Releases Staff Letter Relating to Certain Foreign Exchange Transactions. On April 9, MPD and DMO issued an interpretative letter providing the divisions’ views on the characterization of certain foreign exchange (“FX”) transactions as being “swaps,” “foreign exchange forwards,” or “foreign exchange swaps,” in each case, as defined in the Commodity Exchange Act. Specifically, the interpretative letter states: Window FX Forwards, as described in the letter, should be considered to be “foreign exchange forwards;” and Package FX Spot Transactions, as described in the letter, should not be considered to be “foreign exchange swaps” or “swaps.”
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders. On April 8, CFTC Acting Chairman Caroline D. Pham praised a recently-announced Justice Department policy ending the practice of regulation by prosecution that has targeted the digital asset industry in recent years, and directed CFTC staff to comply with the President’s executive orders and Administration policy, consistent with DOJ’s digital assets enforcement priorities and charging considerations. The DOJ policy comes as Acting Chairman Pham has similarly refocused the CFTC’s enforcement resources on cases involving fraud and manipulation.
CFTC Staff Issues No-Action Letter Regarding Pre-Trade Mid-Market Mark. On April 4, MPD issued a no-action letter in relation to the Pre-Trade Mid-Market Mark (“PTMMM”) requirement in Regulation 23.431 for swap dealers and major swap participants. The CFTC first issued a no-action letter regarding the PTMMM requirement in 2012, shortly after the PTMMM compliance date, because it did not provide significant informational value and created costly operational challenges. Unlike prior no-action letters which provided relief nofor certain specified types of swaps, this relief under this no-action letter applies to all swaps and does not require advanced counterparty consent.
Rahul Varma Named Acting Director of CFTC Division of Market Oversight. On April 2, CFTC Acting Chairman Caroline D. Pham announced Rahul Varma will serve as the Acting Director of DMO. Varma joined the CFTC in 2013 as an Associate Director for Market Surveillance in DMO, with responsibility for energy, metals, agricultural, and softs markets. In 2017, he helped start the Market Intelligence Branch in DMO and served as its Acting Deputy Director. In 2024, he took on the role of Deputy Director for the combined Market Intelligence and Product Review branches.

New Developments Outside the U.S.

EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025. [NEW]
JFSA Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only. [NEW]
ESMA Publishes Consultation on Clearing Thresholds. On April 8, ESMA published a consultation on a revised approach to clearing thresholds under the European Market Infrastructure Regulation (“EMIR”) 3. The consultation covers the following topics: proposals for a revised set of clearing thresholds; considerations for hedging exemptions for non-financial counterparties; and a trigger mechanism for reviewing the clearing thresholds.
FCA Publishes Policy Statement on the Derivatives Trading Obligation and Post-trade Risk Reduction Services. On April 3, the UK Financial Conduct Authority (“FCA”) published policy statement PS25/2 on changes to the scope of the UK derivatives trading obligation (“DTO”) and an extension of exemptions from certain obligations under the UK Markets in Financial Instruments Directive (“MIFID”) and MIFIR.
ESMA Consults on Transparency Requirements for Derivatives Under MiFIR Review. On April 3, ESMA asked for input on proposals for Regulatory Technical Standards (“RTS”) on transparency requirements for derivatives, amendments to RTS on package orders, and RTS on input/output data for the over-the-counter (“OTC”) derivatives consolidated tape. ESMA said that it is developing various technical standards further specifying certain provisions set out in the Market in Financial Instruments Regulation Review. The consultation paper covers the following three areas: transparency requirements for derivatives, RTS on package orders, and RTS on input/output data for the OTC derivatives consolidated tape. The consultation will remain open until 3 July 2025.
ESMA Publishes Annual Peer Review of EU CCP Supervision CCP Supervisory Convergence. On April 2, ESMA published its annual peer review report on the supervision of European Union (“EU”) Central Counterparties (“CCPs”) by National Competent Authorities (“NCAs”). The peer review measures the effectiveness of NCA supervisory practices in assessing CCP compliance with the European Market Infrastructure Regulation (“EMIR”) requirements on outsourcing and intragroup governance arrangements. ESMA indicated, for this exercise, the review of the functioning of CCP colleges remains overall positive. ESMA also said that the peer review identified the need to promote further supervisory convergence in respect of the definition of major activities linked to risk management.
The European Supervisory Authorities Publish Evaluation Report on the Securitization Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitization Regulation. The report purports to put forward recommendations to strengthen the overall effectiveness of Europe’s securitization framework through simplification, while ensuring a high level of protection for investors and safeguarding financial stability. This report identifies areas where the regulatory and supervisory framework can be enhanced, supporting the growth of robust and sound securitization markets in Europe.

New Industry-Led Developments

ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts. [NEW]
ISDA CEO Testifies Before House Financial Services Committee Task Force. On April 8, ISDA CEO Scott O’Malia testified on the implementation of mandatory US Treasury clearing before the House Committee on Financial Services Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. The testimony highlighted several key issues that need to be resolved before the clearing mandate comes into effect, including recalibration of the supplementary leverage ratio to ensure banks have the balance sheet capacity to provide intermediation and client clearing services in the US Treasury market, making changes to the proposed Basel III endgame and surcharge for global systemically important banks to avoid a disproportionate capital charge for client clearing businesses, and ensuring the margining and capital treatment of client exposures reflects the actual risk of a client’s overall portfolio.
ISDA Responds to ESMA Consultation on CCP Model Validation. On April 7, ISDA responded to ESMA’s consultation on the draft RTS under article 49(5) of the EMIR, on the conditions for an application for validation of model changes and parameters under Articles 49 and 49a of EMIR, which have been revised as part of EMIR 3. In the consultation paper, ESMA sets out proposed quantitative thresholds and qualitative elements to be considered when determining whether a model change is significant. In the response, ISDA noted that more information would be necessary to understand the rationale behind the thresholds that are proposed. ISDA provided comments on ESMA’s interpretation of ‘concentration risk’ and on the proposed lookback period for assessing whether a change in significant.
Cross-product Netting Under the US Regulatory Capital Framework. On April 4, ISDA, the Futures Industry Association (“FIA”) and the Securities Industry and Financial Markets Association (“SIFMA”) developed a discussion paper to: (i) provide an overview of cross-margining programs developed by clearing organizations and their importance in the context of implementing recent market reforms with respect to US Treasury securities clearing; (ii) describe cross-product netting arrangements with customers as a means to effectively reduce risk and their relation to cross-margining programs; (iii) describe the treatment of cross-product netting arrangements under the current US regulatory capital framework; and (iv) propose potential targeted changes to US regulatory capital rules to more appropriately reflect the economics of, and facilitate firms’ use of, cross-product netting arrangements with customers, particularly with respect to transactions based on US Treasury securities.
ISDA/IIB/SIFMA Request to Extend 22-14. On April 3, a joint ISDA/IIB/SIFMA letter requested reporting relief for certain non-US swap dealers in Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom with respect to their swaps with non-US persons. The joint trade association letter, submitted to CFTC on 26 March 2025, requests an extension of the no-action relief in Letter 22-14 until the adoption and effectiveness of final rules addressing the cross-border application of Part 45/46.
IOSCO Issues Final Report on Standards Implementation Monitoring for Regulator Principle. On April 2, IOSCO published a Final Report following its review of IOSCO Standards Implementation Monitoring (ISIM) for Regulator Principles 6 and 7, which address systemic risk and perimeter of regulation. IOSCO’s Objectives and Principles of Securities Regulation 6 and 7 stipulate that regulators should have or contribute to processes to identify, monitor, mitigate and manage systemic risk, as well as have or contribute to a process to review the perimeter of regulation regularly. This ISIM Review by IOSCO’s Assessment Committee found a high level of implementation across the 55 jurisdictions from both emerging and advanced markets. According to IOSCO, the report highlights some good practices and also identifies a few areas where there is room for improvement, observed primarily in some emerging markets. For example, the Report notes that some jurisdictions do not have clear responsibilities, definitions and regulatory processes with respect to systemic risk.
ISDA Sends Letter on Changes to the French General Tax Code. On March 31, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association sent a letter to the French tax authority about changes being made to Articles 119 bis A and 119 bis 2 of the general French tax code in the Loi des Finances pour 2025. In February, the French parliament passed budget legislation that broadened the application of withholding tax for both cleared and non-cleared derivatives involving payments related to manufactured dividends. In the letter, the associations request that detailed administrative guidelines are issued as soon as possible. The lack of guidelines makes it more difficult for the associations’ member firms to accurately determine the scope of the new legislation and calculation of the withholding tax when due.

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])

This update provides a brief overview of ERISA pension risk transfer litigation, a summary of the recent Camire and Konya decisions, and an update on what may be next for ERISA plan sponsors and fiduciaries in light of these court orders.

On March 28, 2025, two federal district courts issued divergent decisions on whether plaintiffs had Article III standing to bring class action lawsuits challenging pension risk transfer transactions under the Employee Retirement Income Security Act (ERISA). The cases—Camire v. Alcoa USA Corp. and Konya v. Lockheed Martin Corp.—are two of ten class action lawsuits filed over the past 12 months targeting employers with substantial pension plans that have executed pension risk transactions with Athene Annuity & Life Assurance Company.[1] Plaintiffs rely for standing not on any reduction in their current benefits, but on allegations of an increased risk that, if Athene fails, they will not receive the benefits their pension plans guarantee them. These two decisions provide the earliest indications of how courts might rule on plaintiffs’ standing to bring this new wave of ERISA litigation. The court in Camire granted defendants’ motion to dismiss, holding that plaintiffs lacked standing because they had received all benefits owed to them and were not at substantial risk of failing to receive future benefits. In contrast, the Konya court denied a similar motion to dismiss, finding that it was a “close call” but plaintiffs had stated sufficient facts to nudge that case into discovery.

Background on Pension Risk Transfers

Pension risk transfers, also known as de-risking transactions, are a mechanism used by employers to help reduce pension liabilities.[2] In a pension risk transfer, an employer causes its defined benefit pension plan to transfer some or all of its pension benefit obligations to an insurance company that in turn assumes responsibility for making payments to impacted pensioners.[3] The transfer reduces the plan’s liabilities to the pensioners (and thus the employer’s future funding risks), and the pensioners continue to receive benefits pursuant to the terms of their benefit plans (albeit from a different source).[4] These transfer transactions can be very large, extending into the hundreds of millions—or even billions—of dollars.[5]

Recent Litigation

Beginning in March 2024, pension recipients have brought a series of class action lawsuits against employers that engaged in pension risk transfers.[6] Many of the cases involve a private equity-backed insurance provider (Athene), which is not named as a defendant.[7] The plaintiffs in the cases argue that Athene is a particularly high risk annuity provider, and that plaintiffs’ employers, motivated by a desire for cost savings that was not in pensioners’ best interests, breached their fiduciary duties by failing to choose the safest annuity provider available.[8] The plaintiffs argue that the transfer puts their savings at risk by stripping them of federal protection available to them under ERISA and by instead placing them in the state-regulated insurance market, which, according to the plaintiffs, provides inferior protections in the case of insolvency compared to those available to them from the federal Pension Benefit Guaranty Corporation.[9]

These pension risk transfer lawsuits recount the 1991 bankruptcy of California-based Executive Life Insurance Company, which resulted in financial losses to pension annuitants.[10] As a result of the incident, Congress passed the Pension Annuitants Protection Act of 1994, which created a right of action to obtain appropriate relief for ERISA violations involving the “purchase of an insurance contract or insurance annuity.”[11]

The plaintiffs also argue that the U.S. Department of Labor’s Interpretive Bulletin 95-1 requires employers to find the “safest annuity available” in the case of a de-risking transaction, unless doing otherwise would be in the interest of participants and the plan.[12] The complaints involving Athene allege that Athene’s private equity backing and structure demonstrate that the employer’s choice is out of alignment with this DOL guidance and ERISA.[13]

This new wave of lawsuits is not the first time that employers have been sued over pension de-risking. In 2012, a group of Verizon retirees sued Verizon in an attempt to prevent it from transferring $7.4 billion in pension obligations in exchange for a group annuity contract from Prudential.[14] After the pensioners lost their bid to enjoin the transfer, the Fifth Circuit Court of Appeals ultimately dismissed the case because the plaintiffs lacked Article III standing and the transfer did not breach Verizon’s ERISA obligations.[15]

In the present cases, the employers’ motions to dismiss argue that plaintiffs lack standing because, as in the 2012 Verizon case, plaintiffs cannot point to any concrete, imminent injury that they have suffered as a result of the pension risk transfers.[16] In other words, there is no evidence that any plaintiff is in imminent risk of not receiving a pension payment. And even if the plaintiffs did have standing, the motions argue, the decision whether to terminate an ERISA plan is a settlor function exempt from ERISA’s fiduciary obligations.[17]

The Recent Decisions

On March 28, 2025, two federal district courts ruled on employers’ motions to dismiss two of the pending pension risk transfer cases. Despite substantially similar allegations, the courts reached divergent conclusions, with one court granting a motion to dismiss on standing grounds and the other denying it (including a standing argument).

Camire v. Alcoa USA Corp.

On March 28, 2025, the U.S. District Court for the District of Columbia granted Alcoa’s motion to dismiss on standing grounds.[18] The court held that the plaintiffs had not established Article III standing because they had suffered neither actual harm nor was there a risk of future harm.[19] The plaintiffs had not suffered actual harm from the pension risk transfer to Athene because they continued to receive their benefit payments.[20] And the plaintiffs had not established future harm because they had not shown a sufficiently substantial risk of Athene being unable to fulfill its obligations under the annuity contract; instead, they merely alleged that Athene was “at a greater risk of failure than its competitors.”[21] The court relied heavily on the constitutional requirement that an injury be “imminent” for standing to exist.[22] A risk is not sufficiently “imminent” unless there is a “substantial probability of harm” to the plaintiff.[23] Because the court dismissed the lawsuit on standing grounds, it did not reach Alcoa’s arguments that the plaintiffs had failed to state a claim.[24]

Konya v. Lockheed Martin Corp.

Conversely, on March 28, 2025, the U.S. District Court for the District of Maryland denied Lockheed Martin Corp.’s motion to dismiss.[25] The court held that the plaintiffs had standing and had stated a plausible claim that Lockheed Martin had violated ERISA by selecting Athene as its annuity provider.[26] The court explained that the plaintiffs had established Article III standing (albeit “barely”) because they “provided plausible allegations that the transfer to Athene put their pensions at serious risk” and that the Pension Benefit Guaranty Corporation would not “provide a requisite backstop to protect their retirement,” thus potentially causing the plaintiffs harm.[27] The court added that the plaintiffs’ requested remedy, the posting of security and disgorgement, “would serve to protect their ability to receive their vested retirement benefits.”[28] The court went on to reject Lockheed Martin’s argument that the plaintiffs’ claims were unripe, explaining that, because the pension risk transfers had already occurred, the evidence needed to adjudicate the decision already existed and was not contingent on future events.[29] The court also explained that the plaintiffs had statutory standing because, although they were no longer participants in the plans at the time of the lawsuit (by virtue of being part of the pension risk transfer to Athene), they were participants at the time of the alleged breach of fiduciary duty.[30]

Because the court denied the motion to dismiss for lack of standing, it proceeded to address the merits of the ERISA claim. The court rejected Lockheed Martin’s arguments that the plaintiffs had failed to state an ERISA claim. With regard to the plaintiffs’ claims for breach of fiduciary duties and failure to monitor fiduciaries (which are not identified in the Complaint), the court held that the plaintiffs had plausibly alleged that Lockheed Martin was acting as a fiduciary and had “breached its fiduciary duty when it transacted with Athene to increase its own profits,” explaining that the plaintiffs need not show harm to state a claim for breach of fiduciary duty.[31] The court also declined to dismiss the plaintiffs’ claim that Lockheed Martin had engaged in a prohibited transaction with Athene because “it is plausible enough that Lockheed acted for its own benefit in selecting Athene if, in fact, it proves true that the decision to choose Athene placed Lockheed’s interests, even if only in the short run, over those of participants in the Plans.”[32]

What’s Next for Plan Sponsors and Fiduciaries

It remains to be seen whether other courts will follow the lead of the courts in Camire or Konya or will forge a new path. The plaintiffs’ mixed record in these early cases may well be enough to suggest that plan sponsors and fiduciaries can expect to see more suits alleging claims related to pension risk transfers. Over the next year, the prognosis for these cases will no doubt become clearer as motions to dismiss that are currently pending in the remaining cases are decided. Additionally, the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overruled Chevron deference to administrative agencies’ interpretations of statutes, may impact whether and how much courts weigh the Department of Labor’s Interpretive Bulletin 95-1 when evaluating the merits of plaintiffs’ claims.[33] But for now, and absent further guidance from the courts or the Department of Labor, Interpretive Bulletin 95-1 remains in place and provides guidance to plan sponsors and fiduciaries when selecting an annuity provider as part of a de-risking transaction for an ERISA-governed pension plan.[34] Plan sponsors and fiduciaries evaluating de-risking transactions should review this guidance in connection with implementing any pension de-risking transaction.

[1] See Camire v. Alcoa USA Corp., No. 1:24-cv-01062, 2025 WL 947526 (D.D.C. Mar. 28, 2025); Konya v. Lockheed Martin Corp., No. 8:24-cv-00750, 2025 WL 962066 (D. Md. Mar. 28, 2025).

[2] See Dept. of Labor Rpt. to Congress on Employee Benefits Security Administration’s Interpretive Bulletin 95-1 2–3, 5 (June 2024), available at https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/secure-2.0/report-to-congress-on-interpretive-bulletin-95-1.pdf (last accessed Apr. 11, 2025).

[3] See id. at 3.

[4] See id.

[5] See id. at 5.

[6] See, e.g., Konya, No. 8:24-cv-00750 (D. Md. 2024); Camire, No. 1:24-cv-01062 (D.D.C. 2024); Doherty v. Bristol-Myers Squibb Co., No. 1:24-cv-06628 (S.D.N.Y. 2024).

[7] See, e.g., Complaint, Konya, No. 8:24-cv-00750, at ¶ 3 (D. Md. Mar. 13, 2024), ECF 1; Amended Complaint, Camire, No. 1:24-cv-01062, at ¶ 3 (D.D.C. July 2, 2024), ECF 28; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 3 (S.D.N.Y. Nov. 4, 2024), ECF 45.

[8] See Complaint, Konya, No. 8:24-cv-00750, at ¶¶ 3–4; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 29–30.

[9] See Complaint, Konya, No. 8:24-cv-00750, at ¶¶ 30–32; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 68–69.

[10] See Complaint, Konya, No. 8:24-cv-00750, at ¶ 33; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 75–76.

[11] See 29 U.S.C. § 1132(a)(9); see also Complaint, Konya, No. 8:24-cv-00750, at ¶ 39; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 80–82.

[12] See 29 C.F.R. § 2509.95-1(d); see also Complaint, Konya, No. 8:24-cv-00750, at ¶ 21; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 86.

[13] See Complaint, Konya, No. 8:24-cv-00750, at ¶ 60; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 149.

[14] See Lee v. Verizon Commc’ns, Inc., 837 F.3d 523, 532 (5th Cir. 2016).

[15] Id. at 529–31.

[16] See, e.g., Memorandum of Law in Support of Defendant’s Motion to Dismiss, Konya, No. 8:24-cv-00750, at 2 (D. Md. May 3, 2024), ECF 26-1; Memorandum of Law in Support of the Bristol-Myers Squibb Defendants’ Motion to Dismiss Plaintiffs’ Consolidated Complaint, Doherty, No. 1:24-cv-06628, at 2 (S.D.N.Y. Jan. 15, 2025), ECF 51.

[17] See, e.g., Memorandum of Law in Support of Defendant’s Motion to Dismiss, Konya, No. 8:24-cv-00750, at 2; Memorandum of Law in Support of the Bristol-Myers Squibb Defendants’ Motion to Dismiss Plaintiffs’ Consolidated Complaint, Doherty, No. 1:24-cv-06628, at 2.

[18] See Camire v. Alcoa USA Corp., No. 1:24-cv-01062, 2025 WL 947526 (D.D.C. Mar. 28, 2025).

[19] Id. at *4, *7.

[20] Id. at *4.

[21] Id. at *7.

[22] Id.

[23] Id.

[24] See id. at *8.

[25] See Konya v. Lockheed Martin Corp., No. 8:24-cv-00750, 2025 WL 962066 (D. Md. Mar. 28, 2025).

[26] Id. at *13, *17–18.

[27] Id. at *10.

[28] Id. at *9.

[29] Id. at *15.

[30] Id. at *14.

[31] Id. at *16–17.

[32] Id. at *18.

[33] See Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

[34] Dept. of Labor, News Release, UPDATED: US Department of Labor issues report to Congress on considerations for defined benefit pension plan fiduciaries choosing an annuity provider, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20240624 (last accessed Apr. 11, 2025); see also Dept. of Labor Rpt. to Congress on Employee Benefits Security Administration’s Interpretive Bulletin 95-1 (June 2024), available at https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/secure-2.0/report-to-congress-on-interpretive-bulletin-95-1.pdf (last accessed Apr. 11, 2025).

The following Gibson Dunn lawyers prepared this update: Michael Collins, Ashley Johnson, Jennafer Tryck, and Rachel K. Nardone.

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 & Employment or Executive Compensation & Employee Benefits practice groups, or the authors:

Labor & Employment:

Karl G. Nelson – Dallas (+1 214.698.3203, [email protected])
Geoffrey Sigler – Washington, D.C. (+1 202.887.3752, [email protected])
Katherine V.A. Smith – Los Angeles (+1 213.229.7107, [email protected])
Heather L. Richardson – Los Angeles (+1 213.229.7409,[email protected])
Ashley E. Johnson – Dallas (+1 214.698.3111, [email protected])
Jennafer M. Tryck – Orange County (+1 949.451.4089, [email protected])

Executive Compensation & Employee Benefits:

Michael J. Collins – Washington, D.C. (+1 202-887-3551, [email protected])
Sean C. Feller – Los Angeles (+1 310.551.8746, [email protected])
Krista Hanvey – Dallas (+1 214.698.3425, [email protected])

Cunningham v. Cornell University, No. 23-1007 – Decided April 17, 2025

Today, the Supreme Court unanimously held that plaintiffs bringing a prohibited-transaction claim under ERISA Section 406(a)(1)(C) need only allege, in their complaints, the elements set forth in that provision—they need not negate the affirmative defenses set forth in ERISA Section 408. The Court also emphasized that district courts have a variety of other means to screen out insubstantial claims at the pleading stage.

“[P]laintiffs seeking to state a [Section 406(a)(1)(C)] claim must plausibly allege that a plan fiduciary engaged in a transaction proscribed therein, no more, no less. … To the extent future plaintiffs do bring barebones [Section 406] suits, district courts can use existing tools at their disposal to screen out meritless claims before discovery.”

Justice SOTOMAYOR, writing for the Court

Background:

Health and retirement plans governed by the Employee Retirement Income Security Act (ERISA) commonly transact with third-party entities for various services that benefit plan participants, such as recordkeeping and investment advising. But Section 406(a)(1)(C) of ERISA prohibits a plan fiduciary from “caus[ing] the plan to engage in a transaction” that the fiduciary “knows or should know … constitutes a direct or indirect … furnishing of goods, services, or facilities between the plan and” a service provider for the plan, 29 U.S.C. § 1106(a)(1)(C); see id. § 1002(a)(14)(B), subject to exemptions listed in Section 408 (29 U.S.C. § 1108). Among other things, Section 408 exempts “reasonable arrangements with” a plan service provider “for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.” Id. § 1108(b)(2)(A).

The Eighth and Ninth Circuits held that merely alleging the elements set forth in Section 406(a)(1)(C)—that a plan fiduciary caused a plan to enter into a service transaction with a third-party service provider—is sufficient to plead a prohibited-transaction claim and proceed to discovery. But the Second Circuit held that a plaintiff also must plausibly allege that the Section 408(b)(2)(A) exemption does not apply—i.e., that the services were unnecessary or the compensation was unreasonable. The Supreme Court granted review to resolve the conflict.

Issue:

Whether a plaintiff can state a prohibited-transaction claim under Section 406(a)(1)(C) of ERISA solely by alleging that a plan fiduciary engaged in a service transaction with a plan service provider.

Court’s Holding:

Yes. The only elements of a prohibited-transaction claim under Section 406(a)(1)(C) are the elements set forth in that provision. To state a claim, the plaintiff need not allege facts negating Section 408’s exemptions, such as the exemption for necessary service transactions that are compensated reasonably. But district courts have several other tools at their disposal to weed out unmeritorious claims at the pleading stage.

What It Means:

The Court’s decision clarifies that, under ERISA’s text and structure, Section 408’s exemptions are affirmative defenses that defendants must plead—not elements of a prohibited-transaction claim under Section 406. So ERISA plaintiffs need not allege, in their complaints, facts that negate the necessity or reasonableness of a service transaction with a plan service provider.
The Court acknowledged, however, that this scheme raises “serious concerns” for ERISA plans and fiduciaries given the ubiquity of service transactions in the plan-administration context. The Court thus highlighted several tools that district courts can deploy to prevent meritless prohibited-transaction claims from reaching full-blown discovery. For example, the Court suggested that, once a defendant pleads a Section 408 exemption as an affirmative defense in its answer, the district court could order the plaintiff to file a reply setting forth “specific, nonconclusory factual allegations” showing that the exemption does not apply. The plaintiff’s inability to do so could result in dismissal.
The Court also highlighted four other mechanisms of protecting ERISA plans and fiduciaries from onerous and costly discovery: (1) Article III standing principles require dismissal of suits that fail to allege a concrete injury; (2) district courts retain discretion to expedite or limit discovery; (3) district courts can impose Rule 11 sanctions if a Section 408 exemption “obviously applies,” and “a plaintiff and his counsel lack a good-faith basis to believe otherwise”; and (4) ERISA authorizes district courts to shift attorneys’ fees and costs to plaintiffs.
In a concurring opinion, Justice Alito, joined by Justices Thomas and Kavanaugh, likewise acknowledged that the Court’s decision could cause “untoward practical results.” They urged district courts to “strongly consider” using the various mechanisms outlined by the majority opinion—especially the option of requiring plaintiffs to file post-answer replies—to ensure “the prompt disposition of insubstantial claims.”

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

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]
Ashley E. Johnson +1 214.698.3111 [email protected]

Related Practice: Insurance and Reinsurance

Geoffrey M. Sigler
+1 202.887.3752
[email protected]

Heather L. Richardson
+1 213.229.7409
[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 Robert Batista and Maya Jeyendran.

This edition of Gibson Dunn’s Federal Circuit Update for March summarizes the current status of petitions pending before the Supreme Court and recent Federal Circuit decisions concerning forfeiture, obviousness, patent term extensions, whether separately recited components in a claim must refer to distinct components in the patented invention, and 35 U.S.C. § 102(e).

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

There were no new potentially impactful petitions filed before the Supreme Court in March 2025. We provide an update below of the petitions pending before the Supreme Court, which were summarized in our February 2025 update:

In Converter Manufacturing, LLC v. Tekni-Plex, Inc. (US No. 24-866), a response was filed April 16, 2025.

The Court will consider the petitions filed in Brumfield v. IBG LLC, et al. (US No. 24-764) and Celanese International Corp. v. International Trade Commission (US No. 24-635) at its April 17, 2025 and April 25, 2025 conferences, respectively.

The Court denied the petitions in Koss Corp. v. Bose Corp. (US No. 24-916), Lighting Defense Group LLC v. SnapRays, LLC (US No. 24-524), and Parker Vision, Inc. v. TCL Industries Holdings Co., et al. (US No. 24-518).

Upcoming Oral Argument Calendar

The list of upcoming arguments at the Federal Circuit is available on the court’s website. .

Key Case Summaries (March 2025)

Odyssey Logistics & Technology Corp. v. Stewart, No. 23-2077 (Fed. Cir. Mar. 6, 2025): Odyssey appealed an examiner’s rejection of its patent application, which was affirmed by the Federal Circuit in 2020. Over a year later, the Supreme Court issued its decision in United States v. Arthrex, Inc., 594 U.S. 1 (2021), which held that administrative patent judges’ unreviewable authority in inter partes review proceedings violated the Appointments Clause. Odyssey petitioned for review by the Director of the United States Patent and Trademark Office (USPTO) based on that decision. The Director denied the request. Odyssey then filed a complaint in district court to compel Director review, but the district court dismissed Odyssey’s complaint for lack of subject matter jurisdiction, reasoning that whether the Director decides to review Odyssey’s request was committed to the agency’s discretion and judicial review of that decision is improper.

The Federal Circuit (Dyk, J., joined by Reyna and Stoll, JJ.) affirmed. The Court held that Odyssey had forfeited its Appointments Clause challenge by not raising it in its first appeal despite its knowledge of the Appointments Clause challenge addressed by the Federal Circuit in Arthrex in 2019. Considering the standard set forth in Fed. R. Civ. P. 60(b), the Federal Circuit found no extraordinary circumstances existed that would excuse Odyssey’s failure to raise its stated ground for relief earlier and decided that the USPTO did not abuse its discretion in denying Odyssey’s request for review. Therefore, the Court concluded that Odyssey’s complaint failed to state a claim for relief and affirmed the district court’s decision on that basis, rather than for lack of subject matter jurisdiction.

ImmunoGen, Inc. v. Stewart, No. 23-1762 (Fed. Cir. March 6, 2025): ImmunoGen’s patent application is directed to a dosing regimen for administering IMGN853, an antibody drug conjugate (ADC) for treating certain ovarian and peritoneal cancers. While a promising cancer therapy, the drug was known to cause ocular toxicity, including keratitis and blurred vision. ImmunoGen developed an effective dosing regimen that resulted in minimal adverse effects and sought to patent its solution, which included limitations reciting the administration of IMGN853 at a dose of 6 mg/kg based on an adjusted ideal body weight (AIBW) of the patient (the “dosing limitation”). The examiner rejected the claims as obvious primarily relying on ImmunoGen’s own prior patent publication related to IMGN853, which disclosed the 6mg/kg AIBW dosage. ImmunoGen brought an action under 35 U.S.C. § 145, and the district court determined that the claims are unpatentable as obvious.

The Federal Circuit (Lourie, J., joined by Dyk and Prost, JJ.) affirmed. ImmunoGen argued that the prior art did not disclose that IMGN853 caused ocular toxicity in humans and therefore did not render the dosing limitation obvious. However, the Federal Circuit held that a solution to “an unknown problem is not necessarily non-obvious.” Instead, “any need or problem known in the field of endeavor at the time of invention can provide a reason for combining the elements in the manner claimed.” Accordingly, the Court determined that it would have been obvious to a skilled artisan to experiment with changing the dosage to reduce toxicity, and AIBW was a known dosing methodology for anticancer drugs. Furthermore, the Court found that ImmunoGen’s own prior patent publication disclosed the 6mg/kg AIBW dosing regimen for ADCs. Thus, the Court concluded that a person of ordinary skill in the art would have been motivated to try an AIBW dosing methodology with IMGN853 at the 6 mg/kg AIBW dosage.

Merck Sharp & Dohme B.V. et al v. Aurobindo Pharma USA, Inc., No. 23-2254 (Fed. Cir. Mar. 13, 2025): Merck owns a patent directed to sugammadex, which is the active ingredient in BRIDION®, a drug that reverses neuromuscular blockade, which is a certain form of paralysis induced by certain types of surgery. While regulatory review for sugammadex was pending, Merck filed an application to reissue the patent. After both the patent reissued and the regulatory process concluded, Merck sought and received a five-year patent term extension (PTE) under 35 U.S.C. § 156(c), which provides limited extensions of patent terms due to regulatory review delay. Merck sued Aurobindo for infringement of its reissued patent based on Aurobindo’s filing of an abbreviated new drug application (ANDA) for approval to sell generic versions of BRIDION®. Aurobindo challenged the length of the reissued patent’s PTE and argued that 35 U.S.C. § 156(c) requires calculating the extension for “the patent,” as recited in the statute, from the date of issuance of the reissued patent, not the original patent. The district court disagreed, concluding that the amount of delay should be calculated from the date of issuance of the original patent.

The Federal Circuit (Dyk, J., joined by Mayer and Reyna, JJ.) affirmed. The Court held that, when calculating a patent term extension for reissued patents that include “the same claims directed to a drug product subject to FDA review” as the original patent, the statutory language of “the patent” in 35 U.S.C. § 156(c) refers to the original patent. The Court reasoned that the purpose of the Hatch-Waxman Act, in providing patent term extensions to recover a portion of market exclusivity lost during regulatory review, required interpreting “the patent” as the original patent in the context of reissued patents to fully compensate patent owners for the period of exclusivity lost due to regulatory delay.

Regeneron Pharmaceuticals, Inc. v. Mylan Pharmaceuticals Inc., No. 24-2351 (Fed. Cir. March 14, 2025): Regeneron owns a patent directed to pharmaceutical formulations for a fusion protein known as aflibercept, claiming “a vascular endothelial growth factor (VEGF) antagonist” and “a buffer,” among other limitations. The patent covers Regeneron’s biologic product EYLEA® (“Eylea”) and is listed in FDA’s Purple Book, which is a searchable online database that lists all FDA-approved biological products. Eylea is used to treat angiogenic eye disorders associated with uncontrolled blood vessel growth in the retina, which can cause vision loss or blindness. Amgen filed an abbreviated Biologics License Application (aBLA) at the FDA, which stated that its formulation differs from Regeneron’s formulation because it does not contain a separate buffer protein. Regeneron sued Amgen alleging infringement of its patent and filed a motion for preliminary injunction. Amgen opposed the preliminary injection arguing that the claims separately require a VEGF antagonist and a buffer, so Amgen’s formulation did not infringe. The district court determined that the claims required that the claimed VEGF antagonist be a separate component from the claimed buffer, concluded that Regeneron had not demonstrated a likelihood of success on the merits, and denied the preliminary injunction.

The Federal Circuit (Lourie, J., joined by Moore, C.J. and Stark, J.) affirmed. The Court held that “where a claim lists elements separately, the clear implication of the claim language is that those elements are distinct components of the patented invention,” citing Becton, Dickinson & Co. v. Tyco Healthcare Grp., LP, 616 F.3d 1249 (Fed. Cir. 2010). The Court further determined that the claims and specification only reinforced the interpretation that the claimed components are distinct, and therefore, the implication of separateness had not been overcome.

In re Riggs et al., No. 22-1945 (Fed. Cir. March 24, 2025): The named inventors (collectively, “Riggs”) filed a patent application directed to an integrated logistics system, which an examiner rejected in part as anticipated by prior art reference, Lettich, under 35 U.S.C. § 102(e). Riggs appealed to the Patent Trial and Appeal Board (Board), and the Board sustained the examiner’s rejections. Applying Dynamic Drinkware, LLC v. National Graphics, Inc., 800 F.3d 1375 (Fed. Cir. 2015), the Board determined that Lettich was entitled to the priority date of its provisional application as at least one claim in the Lettich non-provisional application was supported by the Lettich provisional application, and thus, qualified as prior art.

The Federal Circuit (Stoll, J., joined by Moore, C.J., and Cunningham, J.) vacated and remanded. The Court explained that while Dynamic Drinkware held that a patent “cannot be accorded the benefit of its provisional application’s filing date absent a showing that the provisional application provides support for the claims of the patent or published application,” it did not stand for the conclusion that support for only one claim from the provisional would be sufficient for the other portions of the specification to be afforded the provisional’s filing date. Instead, the Board needed to analyze whether Lettich’s provisional application provided “written description support for the specific disclosures in Lettich that the Examiner identified and relied on in the prior art rejections.”

The following Gibson Dunn lawyers assisted in preparing this update: Blaine Evanson, Audrey Yang, Al Suarez, Hannah Bedard, and Michelle Zhu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups, or the following authors:

Blaine H. Evanson – Orange County (+1 949.451.3805, [email protected])
Audrey Yang – Dallas (+1 214.698.3215, [email protected])

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, [email protected])
Allyson N. Ho – Dallas (+1 214.698.3233, [email protected])
Julian W. Poon – Los Angeles (+ 213.229.7758, [email protected])

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, [email protected])
Josh Krevitt – New York (+1 212.351.4000, [email protected])
Jane M. Love, Ph.D. – New York (+1 212.351.3922, [email protected])

New U.S. Department of Justice regulations are now in effect, imposing significant restrictions on the flow of bulk sensitive personal data and government-related data from the United States to China and other “countries of concern.”

On April 8, 2025, new regulations [1] came into effect to address broad national security risks related to sensitive personal data and U.S. government-related data (the “Rule”). The Rule is the cornerstone of the U.S. Department of Justice’s (DOJ’s) new Data Security Program (DSP). The Rule, in concert with a Compliance Guide,[2] more than 100 Frequently Asked Questions (FAQs),[3] and an Implementation and Enforcement Policy [4] released in connection with a press release [5] on April 11, 2025, launch DOJ into a new role as data regulator—and impose broad-reaching obligations for U.S. and multinational organizations to comply with new restrictions on cross-border transfers of Americans’ sensitive personal data. The DSP marks a significant shift in U.S. policy towards the free cross-border flow of data.

The Rule, implemented by DOJ’s National Security Division pursuant to President Biden’s 2024 Executive Order 14117,[6] addresses national security threats relating to the “weaponization” of sensitive personal data that have been a consistent focus across both the first Trump administration and the recent Biden administration. Indeed, the Rule was finalized in the waning days of the Biden administration but was subject to a 90-day period before becoming effective.[7] In DOJ’s announcement, Deputy Attorney General Todd Blanche made DOJ’s policy goals clear, stating, “If you’re a foreign adversary, why would you go through the trouble of complicated cyber intrusions and theft to get Americans’ data when you can just buy it on the open market or force a company under your jurisdiction to give you access? … The Data Security Program makes getting that data a lot harder.[8]

The Rule will meaningfully alter international data flows—including intracompany transfers—involving Americans’ sensitive personal data and U.S. government-related data. Specifically, it will prohibit or restrict “covered data transactions” that involve the sharing of or access to such data by “covered persons” or a “country of concern” (most importantly, the People’s Republic of China, inclusive of Hong Kong and Macau).

The DSP Compliance Guide and Implementation and Enforcement Policy signal this will be an area of focus for DOJ. These documents outline robust steps that entities must promptly undertake to ensure compliance under the Rule. Notably, the Compliance Guide contains prescriptive requirements that highlight the expectation that entities handling U.S. sensitive personal data and/or U.S. government-related data will have a keen understanding of their data, who has access to such data, whether they engage in covered data transactions, and will develop and implement a tailored compliance program to ensure regulatory requirements are met.

DOJ has noted in the Implementation and Enforcement Policy that it will not prioritize civil enforcement actions for violations occurring between April 8 and July 8, 2025 as long as companies make “good faith efforts to comply with or come into compliance with” the Rule, though DOJ “will pursue penalties and other enforcement actions as appropriate for egregious, willful violations.”[9]

While the Rule is complex and requires careful analysis to assess compliance requirements, below are high-level areas of impact on which companies should focus to assess their obligations under the Rule and to ensure compliance:

Review your data and data flows. Know your data. Understand (i) the nature, volume, geographic location and cybersecurity measures pertaining to covered data and (ii) where you are sending your data – and who has access. This should include review of intracompany transfers and access, as well as access by counterparties and vendors. The Compliance Guide highlights the importance of ascertaining the identity of parties to a covered data transaction and the end-use of the data, as well as the method of transfer.
Assess impact of the regulatory prohibitions and restrictions. Conduct legal analysis of covered data transactions to assess whether such transactions are prohibited or restricted under the Rule, and whether any potential exemptions may apply. While the Rule includes exemptions to facilitate the continued cross-border flow of data, these exemptions are narrow and often complex to apply in practice.
Develop and implement a tailored compliance program. A comprehensive risk assessment may facilitate the development of a compliance approach tailored to the nature and scope of covered data transactions. The compliance program should also address the various auditing, reporting, and recordkeeping requirements required under the Rule. The Compliance Guide and FAQs provide detailed guidance on DOJ’s expectations for compliance programs, including written policies and procedures, due diligence protocols, senior leader and board review of annual attestations, training, and testing of internal controls.
Establish the tone from the top—and resource the compliance team. DOJ is clear that a strong program will have senior management support and buy-in and set forth specific responsibilities for senior leadership. Notably, the CEO and board of directors are expected to review annual attestations and compliance reports—which must include whether the CEO has met with compliance personnel to discuss the DSP implementation, as well as engaged appropriate outside experts to verify the statements made in the annual certification. Companies are also expected to designate an individual with sufficient authority, technical expertise, and resourcing to lead the development and implementation of the data compliance program.
Expect this landscape to evolve. Many open questions remain concerning the implementation of the Rule. DOJ has invited companies to submit informal inquiries about the Rule and related guidance and noted that companies can request new FAQ answers by email, though it recommended companies wait to submit requests for formal licenses or advisory opinions until after July 8, 2025.

Overview of the Rule

At the core, the Rule applies to transactions fulfilling the following three elements:

The transaction must constitute a “covered data transaction”;
The “covered data transaction” must involve (i) “bulk” “U.S. sensitive personal data” or (ii) “government-related data”; and
The transaction must involve providing a “country of concern” or “covered person” with “access” to such controlled data.

Below, we present a high-level overview of the Rule and related guidance and highlight that given the complexities therein and the overall policy objectives the Rule seeks to address, it is important to also consult DOJ’s commentary throughout the rule-making process—and particularly in its final rule notice—and potentially outside counsel.

A. What types of transactions are “covered data transactions”?

“Covered data transactions” are those that involve “any access by a country of concern or covered person to any government-related data or bulk U.S. sensitive personal data and that involve[]” one of the following:[10]

Data brokerage: “the sale of data, licensing of access to data, or similar commercial transactions … where the recipient did not collect or process the data directly from the individuals” linkable to the data;[11]
A Vendor Agreement: “any agreement or arrangement, other than an employment agreement, in which any person provides goods or services to another person” for consideration;[12]
An Employment Agreement: “any agreement or arrangement in which an individual, other than as an independent contractor, performs work or performs job functions directly for a person” for consideration;[13] or
An Investment Agreement: an “arrangement in which any person, in exchange for payment or other consideration, obtains direct or indirect ownership interests in or rights in relation to” U.S. real estate or a U.S. legal entity.[14] There is an exception for certain passive investments.[15]

B. What types of data are covered?

The Rule covers two types of data: (1) “government-related data” and (2) “bulk U.S. sensitive personal data” involved in covered data transactions.

“Government-related data” includes the following types of data regardless of volume:
1. “Any precise geolocation data”[16] for any location on an enumerated list (e.g., military bases and other sensitive government sites)[17]; and
2. “Any sensitive personal data” marketed as linked or linkable to U.S. government employees, contractors, and officials.[18]
“Bulk U.S. sensitive personal data” includes a set of “sensitive personal data relating to U.S. persons,” even if de-identified or encrypted,”[19] exceeding specified thresholds in the preceding 12 months (beginning on April 8, 2025), whether through a single or multiple covered data transactions:[20]

Data Type	Threshold
“Human ’omic data” (i.e., genomic data and similar[21])	1,000 U.S. persons, or 100 persons for genomic data
Biometric identifiers[22]	1,000 U.S. persons
Precise geolocation data[23]	1,000 U.S. devices
Personal health data[24]	10,000 U.S. persons
Personal financial data[25]	10,000 U.S. persons
“Covered personal identifiers” (see below)	100,000 U.S. persons
Combined data	Lowest applicable threshold of U.S. persons or U.S. devices for any controlled data in the data set

“[C]overed personal identifiers” is a broad category that covers many types of commonly circulated personal data. To define this category, the Rule first enumerates a set of “listed identifiers” (discussed below). “Covered personal identifiers” means data containing either (1) any listed identifier combined with another listed identifier; or (2) any listed identifier combined with other data enabling it to be linked to other identifiers or other sensitive personal data.[26]

The “listed identifiers” defined by the Rule include any piece of data in these categories:

Government identification or account numbers (e.g., Social Security numbers);
Full financial account numbers or personal identification numbers;
Device-based or hardware-based identifiers (e.g., “SIM” numbers);
Demographic or contact data (e.g., name, birth date, or mailing address);
Advertising identifiers (e.g., Google Advertising ID, Apple ID for Advertisers);
Account-authentication data (e.g., username or password);
Network-based identifier (e.g., IP address); or
Call-detail data (e.g., Customer Proprietary Network Information).[27]

Thus, for example, the Rule would cover a dataset of first and last names linked to Social Security numbers or mobile advertising IDs linked to email addresses.

The Rule does exclude two categories of common data:

Demographic or contact data that is linked only to other demographic or contact data (such as first and last name linked to an email address); and
A network-based identifier, account-authentication data, or call-detail data linked only to other such data, when necessary to provide telecommunications, networking, or similar services.[28]

Finally, the Rule also covers combinations of multiple covered data types, or data that contains any listed identifier linked to any of the above, if any individual data-type threshold is met.

C. To whom does the Rule apply?

The Rule applies directly to “U.S. persons,” defined to include U.S. citizens, nationals, lawful permanent residents, refugees, and asylees; entities organized solely under the laws of the United States (including foreign branches of U.S. persons); and any persons within the United States.[29]

D. What recipients of information are covered?

The prohibitions and restrictions apply when U.S. persons provide “access”[30] to covered data to a “country of concern” or “covered person.”

“Countries of Concern” currently include China (including Hong Kong and Macau),[31] Cuba, Iran, North Korea, Russia, and Venezuela.[32]

“Covered Persons” include the following:[33]

Non-U.S. entities headquartered in or organized under the laws of a country of concern;
Non-U.S. entities 50% or more owned by a country of concern or covered person;
Non-U.S. individuals primarily resident in a country of concern;
Non-U.S. individuals who are employees or contractors of a covered person entity or a country-of-concern government; and
Any person—including a U.S. person—designated to DOJ’s Covered Persons List[34] (which has not yet been publicly released).

E. What types of transactions are prohibited?

Absent a license granted by DOJ, U.S. persons are prohibited from knowingly engaging in the following types of data brokerage transactions:[35]

Data brokerage transactions involving covered data with a country of concern or covered person;[36]
Covered data transactions with a country of concern or covered person that involves access to bulk human ’omic data or to biospecimens from which such data could be derived;[37]
Any transaction with the purpose of evading the regulations, or that would cause or attempt to cause a violation of the regulations;[38] and
Any transaction in which a U.S. person knowingly directs a transaction by a non-U.S. person that would be prohibited if engaged in by a U.S. person (or that would be restricted, when the requirements for a restricted transaction are not satisfied).[39]

In addition, the Rule affects data brokerage transactions with any foreign persons, even if they are not “covered persons.” A U.S. person may not knowingly engage in any data brokerage transaction involving access to the covered data types unless the U.S. person “[c]ontractually requires that the foreign person refrain from engaging in a subsequent covered data transaction involving data brokerage of the same data with a country of concern or covered person”; and “[r]eports any known or suspected violations of this contractual requirement.”[40] Reports are due to DOJ within 14 days of the U.S. person becoming aware of an actual or potential violation.[41]

Finally, under the data security requirements developed by the Cybersecurity and Infrastructure Agency (CISA) described below, even when a data transaction does not fall within the prohibitions described above, covered persons are functionally prohibited from accessing covered data “that is linkable, identifiable, unencrypted, or decryptable using commonly available technology by covered persons and countries of concern.”[42]

F. What types of transactions are restricted?

The Rule also creates a second category of “restricted transactions”: covered data transactions with a country of concern or covered person involving a (1) vendor agreement, (2) employment agreement, or (3) investment agreement.[43] U.S. persons are prohibited from engaging in such transactions unless they meet specified data security requirements developed by CISA.[44] Yet, even if the CISA security requirements are fulfilled, some covered data transactions that involve a vendor, employment, or investment agreement remain de facto prohibited by the security requirements, namely those which “involve access by countries of concern or covered persons to bulk human genomic data or human biospecimens from which such data can be derived.”[45] The CISA security requirements applicable to restricted transactions include organizational- and system-level requirements (such as cybersecurity policies, access controls, and internal risk assessments) as well as data-level requirements (such as data minimization, data masking, and encryption).[46]

As of October 6, 2025, U.S. persons must also fulfill specific due diligence and audit requirements before engaging in restricted transactions.[47] The Compliance Guide issued by DOJ on April 11, 2025, outlines a framework for compliance.[48] Due diligence programs should include, among other things, procedures for identifying the identity of vendors and written data compliance and cybersecurity policies.[49] The Rule also requires a yearly independent audit to verify compliance with the requirements.[50]

U.S. persons engaged in restricted transactions involving cloud-computing services must file annual reports to DOJ if twenty-five percent or more of the U.S. person’s equity interests are owned, directly or indirectly, by a country of concern or covered person.[51] These annual reports must contain specific components outlined in the Rule.[52]

G. What if it is unclear whether a transaction is prohibited or restricted?

If a party is unsure whether a contemplated transaction is prohibited or restricted, it may request an advisory opinion from DOJ. The agency will attempt to respond within 30 days, and the requestor may rely on the written response,[53] provided its disclosures were accurate and complete and the opinion remains in force.[54]

H. What exemptions exist?

The Rule contains a variety of exemptions, though many are narrow and require careful review to confirm that they apply. At a high level, there are exemptions for:

Transactions involving personal communications (e.g., by telephone) that do not involve the transfer of anything of value[55] or information or informational materials;[56]
Transactions ordinarily incident to international travel;[57]
Official business transactions of the U.S. government;[58]
Transactions ordinarily incident to and part of financial services, including payment processing and regulatory compliance;[59]
Transactions within corporate entities ordinarily incident to and part of administrative or ancillary business operations such as human resources, payroll, business travel, or customer support;[60]
Transactions required or authorized by federal law or international agreements, or necessary for compliance with federal law;[61]
Investment agreements subject to action by the Committee on Foreign Investment in the United States;[62]
Transactions ordinarily incident to and part of the provision of telecommunications services;[63]
Transactions related to drug, biological product, and medical device authorizations and data necessary to obtain those authorizations;[64] and
Transactions ordinarily incident to and part of clinical investigations and post-marketing surveillance data.[65]

The application of the Rule is likely to be especially complex when a U.S. business wishes to share information with a foreign subsidiary, which in turn may wish to share data with its own employees. U.S. businesses in this situation may wish to seek the advice of counsel.

I. Are any licenses available?

The Rule adopts a licensing structure reminiscent of sanctions and export controls. These licenses would permit otherwise prohibited or restricted transactions.[66] However, the Federal Register notice accompanying the final rule notes that DOJ anticipates that “licenses will be issued only in rare circumstances” and that their issuance may be contingent on any requirements that DOJ deems appropriate.[67] When issued, general licenses will apply to all U.S. persons unless otherwise specified, while specific licenses will apply only to the parties seeking the license for a particular transaction.[68] To date, no licenses have been released publicly.

J. Are completed transactions affected?

No, the Rule does not apply to transactions completed prior to April 8, 2025.[69] However, DOJ may request information about transactions completed before the effective date.[70]

K. What other recordkeeping requirements exist?

The Rule requires U.S. persons to generate (and save for ten years) a complete record of each non-exempt covered data transaction.[71] For restricted transactions, the Rule prescribes a specific list of documentation that must be maintained, such as annual audit results.[72] The Rule also permits DOJ to request, at any time, reports on any act, transaction, or covered data transaction subject to the Rule.[73]

Additionally, and as noted above, beginning on October 6, 2025, U.S. persons that have received and affirmatively rejected an offer from another person to engage in a prohibited data brokerage transaction must file a report within 14 days.[74]

L. What are the penalties for noncompliance?

Violations of the Rule can result in civil monetary fines of up to $374,474 per violation (an amount adjusted annually for inflation) or twice the value of the transaction, whichever is greater.[75] Criminal penalties of up to US $1,000,000 or 20 years’ imprisonment are available for willful violations.[76] As opposed to most violations under U.S. export controls and economic sanctions, which are subject to a strict liability standard, penalties under the Rule operate under a “knowledge” standard, meaning “with respect to conduct, a circumstance, or a result, that the U.S. person had actual knowledge of, or reasonably should have known about, the conduct, circumstance, or result.”[77] In determining whether an entity knew or had reason to know of the violation, DOJ has stated that it will “take into account the relevant facts and circumstances, including the relative sophistication of the individual or entity at issue, the scale and sensitivity of data involved, and the extent to which the parties to the transaction . . . appear to have been aware of and sought to evade the application of” the Rule.[78] DOJ also noted that it will take into account companies’ voluntary self-disclosures (VSDs) in assessing violations and that failure to implement data compliance programs could be an “aggravating factor in any enforcement action.”[79]

Gibson Dunn lawyers are actively advising in this space and are available to assist in addressing any questions you may have regarding these issues.

[1] See 28 C.F.R. Part 202.

[2] See Dep’t of Just., Nat’l Sec. Div., Data Security Program: Compliance Guide (Apr. 11, 2025) [hereinafter DOJ Compliance Guide], https://www.justice.gov/opa/media/1396356/dl.

[3] See U.S. Dep’t of Just., Nat’l Sec. Div., Data Security Program: Frequently Asked Questions (Apr. 11, 2025) [hereinafter DSP FAQs], https://www.justice.gov/opa/media/1396351/dl.

[4] See U.S. Dep’t of Just., Nat’l Sec. Div., Data Security Program: Implementation and Enforcement Policy Through July 8, 2025 (Apr. 11, 2025) [hereinafter DOJ Enforcement Policy], https://www.justice.gov/opa/media/1396346/dl?inline.

[5] See Press Release, U.S. Dep’t of Just., Nat’l Sec. Div., Justice Department Implements Critical National Security Program to Protect Americans’ Sensitive Data from Foreign Adversaries (Apr. 11, 2025) [hereinafter DOJ Press Release], https://www.justice.gov/opa/pr/justice-department-implements-critical-national-security-program-protect-americans-sensitive.

[6] Exec. Order 14117, 89 Fed. Reg. 15,421 (Mar. 1, 2024).

[7] See Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons, 90 Fed. Reg. 1636 (Jan. 8, 2025) [hereinafter DSP Final Rule].

[8] DOJ Press Release, supra note 5.

[9] DOJ Enforcement Policy, supra note at 2.

[10] 28 C.F.R. § 202.210.

[11] Id. § 202.214. The regulations on brokerage transactions overlap significantly with the Protecting Americans’ Data from Foreign Adversaries Act of 2024 (PADFAA), 15 U.S.C. § 9901. Although DOJ has acknowledged that the Final Rule and PADFAA are likely to place overlapping and conflicting obligations on businesses, DOJ declined to modify the rule to harmonize it to the law. It has promised to coordinate closely with the Federal Trade Commission (FTC) to harmonize enforcement. See DSP FAQs, supra note 3, at FAQ 12.

[12] 28 C.F.R. § 202.258.

[13] Id. § 202.217.

[14] Id. § 202.228(a).

[15] See id. § 202.228(b).

[16] See id. § 202.242.

[17] See id. § 202.1401.

[18] See id. § 202.222.

[19] Id. § 202.206.

[20] DSP FAQs, supra note 3, at FAQ 38.

[21] Human genomic data, human epigenomic data, human proteomic data, and human transcriptomic data but excludes pathogen-specific data embedded in human ‘omic data sets. See 28 C.F.R. § 202.224.

[22] “[M]easurable physical characteristics or behaviors used to recognize or verify the identity of an individual.” Id. § 202.204.

[23] “[D]ata, whether real-time or historical, that identifies the physical location of an individual or a device with a precision of within 1,000 meters.” Id. § 202.242.

[24] “[H]ealth information that indicates, reveals, or describes the past, present, or future physical or mental health or condition of an individual; the provision of healthcare to an individual; or the past, present, or future payment for the provision of healthcare to an individual.” Id. § 202.241.

[25] “[D]ata about an individual’s credit, charge, or debit card, or bank account, including purchases and payment history; data in a bank, credit, or other financial statement, including assets, liabilities, debts, or trades in a securities portfolio; or data in a credit report or in a ‘consumer report’ (as defined in 15 U.S.C. 1681a(d)).” Id. § 202.240.

[26] See id. § 202.212.

[27] Id. § 202.234.

[28] Id. § 202.212(b).

[29] See id. § 202.256.

[30] “Access” is a defined term that includes among other things “the ability to obtain, read, copy, decrypt, edit, divert, release, affect, alter the state of, or otherwise view or receive” the information.” Id. § 202.201.

[31] See id. § 202.208.

[32] See id. § 202.601; see also id. § 202.209.

[33] See DSP FAQs, supra note 3, at FAQ 14; see also 28 C.F.R. § 202.211.

[34] See DSP FAQs, supra note 3, FAQs 42, 43, & 52.

[35] See id., supra note 3, at FAQ 16.

[36] 28 C.F.R. § 202.301.

[37] Id. § 202.303.

[38] Id. § 202.304.

[39] Id. § 202.305. DOJ has noted, however, that although U.S. persons must conduct “know your customer” and “know your data” due diligence on foreign persons involved in data transactions, it does not expect or require “second-level due diligence on the employment practices of those foreign persons to determine whether their employees qualify as covered persons.” DSP FAQs, supra note 3, at FAQ 58; see id. at FAQ 79.

[40] 28 C.F.R. § 202.302 (emphasis added); see DSP FAQs, supra note 3, at FAQ 62. For sample contractual language, see DOJ Compliance Guide, supra note 2, at 5–6.

[41] See 28 C.F.R. § 202.302(b).

[42] See DSP FAQs, supra note 3, at FAQ 67.

[43] See 28 C.F.R. § 202.401; see also DSP FAQs, supra note 3, at FAQ 17.

[44] See Cybersecurity & Infrastructure Sec. Agency, Security Requirements for Restricted Transactions (Jan. 3, 2025) [hereinafter CISA Security Requirements], https://www.cisa.gov/sites/default/files/2025-01/Security_Requirements_for_Restricted_Transaction-EO_14117_Implementation508.pdf.

[45] See DSP FAQs, supra note 3, at FAQ 67.

[46] See CISA Security Requirements, supra note 45; see also DSP FAQs, supra note 3, at FAQs 66, 67, & 69.

[47] 28 C.F.R. §§ 202.1001–02.

[48] See DOJ Compliance Guide, supra note 2, at 11–16.

[49] See 28 C.F.R. § 202.1001.

[50] See id. § 202.1002.

[51] See id. § 202.1103.

[52] See id.; see also DSP FAQs, supra note 3, at FAQs 87–88.

[53] See DSP FAQs, supra note 3, at FAQs 98–99.

[54] 28 C.F.R. § 202.901(i).

[55] See id. § 202.501.

[56] See id. § 202.502.

[57] See id. § 202.503.

[58] See id. § 202.504.

[59] See id. § 202.505.

[60] See id. § 202.506.

[61] See id. § 202.507.

[62] See id. § 202.508.

[63] See id. § 202.509.

[64] See id. § 202.510.

[65] See id. § 202.511.

[66] See id. §§ 202.801–202.803; see also DSP FAQs, supra note 3, at FAQs 40–41.

[67] DSP Final Rule, 90 Fed. Reg. at 1,693.

[68] 28 C.F.R. §§ 202.801–02.

[69] DSP Final Rule, 90 Fed. Reg. at 1,645.

[70] See DSP FAQs, supra note 3, at FAQ 104.

[71] See 28 C.F.R. § 202.1101(a); see also DOJ Compliance Guide, supra note 2, at 9.

[72] See 28 C.F.R. § 202.1101(b); see also DSP FAQs, supra note 3, at FAQ 92.

[73] See 28 C.F.R. § 202.1102; see also DOJ Compliance Guide, supra note 2, at 9–10.

[74] See 28 C.F.R. § 202.1104; see also DSP FAQs, supra note 3, at FAQ 64.

[75] See 28 C.F.R. § 202.1301.

[76] See id.

[77] DSP FAQs, supra note 3, at FAQ 107.

[78] Id.

[79] Id.; see DOJ Compliance Guide, supra note 2, at 11. DOJ will also accept tips concerning non-compliance from third parties and notes that individual whistleblowers “may be eligible for substantial financial awards” to incentivize compliance monitoring. DSP FAQs, supra note 3, at FAQ 106.

The following Gibson Dunn lawyers prepared this update: Stephenie Gosnell Handler, Vivek Mohan, Chris Mullen, Eric Brooks, Karsten Ball, Hugh Danilack, and Roxana Akbari.

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, the authors, or the following leaders and members of the firm’s Privacy, Cybersecurity & Data Innovation / Artificial Intelligence, and International Trade Advisory & Enforcement, practice groups:

Privacy, Cybersecurity & Data Innovation / Artificial Intelligence:

United States:
Ashlie Beringer – Palo Alto (+1 650.849.5327, [email protected])
Keith Enright – Palo Alto (+1 650.849.5386, [email protected])
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, [email protected])
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, [email protected])
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, [email protected])
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, [email protected])
Vivek Mohan – Palo Alto (+1 650.849.5345, [email protected])
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, [email protected])

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, [email protected])

International Trade Advisory & Enforcement:

United States:
David P. Burns – Washington, D.C. (+1 202.887.3786, [email protected])
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, [email protected])
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, [email protected])
Roxana Akbari – Orange County (+1 949.475.4650, [email protected])
Karsten Ball – Washington, D.C. (+1 202.777.9341, [email protected])
Mason Gauch – Houston (+1 346.718.6723, [email protected])
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, [email protected])
Sarah L. Pongrace – New York (+1 212.351.3972, [email protected])
Anna Searcey – Washington, D.C. (+1 202.887.3655, [email protected])

An overview of environmental, health, and safety (EH&S) considerations in M&A transactions, which can impact risk allocation, valuation and the ability to operate after closing.

EH&S considerations can pose material issues and risks in M&A transactions, and early identification of these critical issues can assist buyers in evaluating problems and structuring solutions. It is therefore important to engage environmental subject matter experts early in the deal process, so they can effectively evaluate compliance with applicable EH&S laws and assess liability risks. Often, if a transaction deals with manufacturing, chemicals, or owned real estate, consultants will be used to visit sites or perform a Phase I Environmental Site Assessment (ESA) or “Phase I-lite” ESA. We are also seeing increased seller-led due diligence, which often includes presentations by consultants or pre-prepared Phase Is upon which buyers can rely. The purpose of seller diligence is to identify issues early so they can be presented in a favorable manner, guide valuations, and avoid surprises which could delay a transaction.

Environmental diligence may include: reviewing a target’s environmental operations, permit obligations and compliance, and permit transfer obligations that may be triggered in a transaction; evaluating non-compliances and remedial measures (including capital expenditures); and reviewing potential litigation risks, including from the current or past use of hazardous materials such as asbestos, solvents, per- and polyfluoroalkyl substances (PFAS), polychlorinated biphenyls (PCBs), or other emerging environmental issues. For both identified and unidentifiable risks, it may be necessary to develop strategies to mitigate future responsibility through indemnities, escrows, or insurance products. For transactions involving non-U.S. target companies, businesses, or assets, local environmental laws and obligations should also be assessed.

Discovery of environmental issues during the due diligence process may lead the parties to modify the agreement to re-allocate costs and/or potential liabilities, including a reduction in the purchase price, contamination indemnities benefiting the buyer, adding escrow to secure the completion of any required environmental cleanup after closing, and/or purchasing a pollution legal liability insurance policy to protect the buyer.

1. Impact of Transaction Structure

Understanding the transaction type and scope, and the associated assets and liabilities, should be a primary EH&S concern for a prospective buyer. The transaction structure will impact the scope of environmental diligence and can affect the range of potential liabilities to be assessed. For example, the type of transaction may impact some state filing requirements, determine permit transfer obligations, and limit the utility of obtaining insurance. A targeted asset purchase which carves out certain high environmental exposure assets may better insulate a buyer from environmental liabilities or obligations. In addition, some environmental permitting or property transfer obligations are not triggered in transactions occurring several corporate levels above the permitted entity. However, permit and/or property transfer obligations may be triggered regardless of the corporate organizational structure in an asset purchase, and will need to be accounted for as part of the transaction.

After evaluating the type and scope of the transaction, the next step is often deciding whether to hire environmental consultants to perform diligence, complete environmental assessment reports (typically a Phase I or Phase II ESA), and assess other technical issues. Understanding the target’s operations, real estate portfolio, and potential intersection with environmental laws is critical to making this determination. Some transactions—for example, those involving software companies that only lease commercial office space—are typically not environmentally intensive, and may not require EH&S consultants or more technical diligence. However, if real estate is owned and/or if a target’s operations are environmentally intensive (such as chemical manufacturing), then more extensive diligence by EH&S consultants may be appropriate.

2. Understanding and Managing Pre-Existing Contamination Liability

While transaction parties often seek to limit future liabilities post-closing, many environmental laws fundamentally attach liability from “cradle-to-grave,” even when an entity is no longer associated with a property. Therefore, understanding and managing potential environmental liabilities is crucial in any contemplated transaction.

a. CERCLA Liability

The federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., as amended, generally determines liability for addressing the cleanup of hazardous materials released into the environment. Notably, liability under CERCLA can be imposed for the presence of hazardous substances at a site even in the absence of fault or knowledge, and any one potentially responsible party can be held jointly and severally liable for the entire cost of the cleanup. As a result, current owners and operators of a site can be held liable for releases occurring at any time in the past—including before the owner or operator was present at the site. Relatedly, former owners and operators remain liable for releases that occurred during their ownership/occupancy.

Liable parties can include (1) current owners and operators of a facility from which there has been a “release or threatened release” of hazardous substances; (2) past owners and operators of a facility at the time hazardous substances were disposed; (3) generators and parties that arranged for the disposal or transport of the hazardous substances to or from the site; and (4) transporters of hazardous waste that selected the site to which the hazardous substances were brought.

With this backdrop, it is essential to understand how transaction structure can impact environmental liability under CERCLA and state equivalents.

In an asset acquisition, a buyer can avoid or limit environmental real estate exposure by qualifying for certain defenses to liability under CERCLA (and often state equivalents), including the Innocent Landowner and Bona Fide Prospective Purchaser defenses. These defenses have various elements that must be satisfied both before and after the purchase of real property, including that the buyer has conducted “all appropriate inquiries” (AAI) into the history and condition of the property before acquisition. The AAI standard requires obtaining an up-to-date Phase I ESA that meets the current ASTM standard.

In an equity purchase, prospective purchasers cannot avail themselves of the same defenses to liability, even with the completion of a Phase I ESA. Instead, a purchaser in an acquisition of equity interests indirectly inherits the liability of the acquisition target by purchasing its equity interests, standing in place of the former owner. In this situation, because the AAI standard does not apply, the parties have broader latitude to structure diligence, and a formal Phase I ESA is not required. Therefore, a mix of site visits, desktop reviews, or management calls may be sufficient to provide a buyer with an adequate sense of environmental risk or liability. Representations and Warranties Insurers and lenders also are becoming more flexible and accepting of “Phase I-lite” diligence approaches in the context of an equity purchase.

In either case, completing a Phase I ESA and other typical environmental diligence (including standard review of materials, and more limited environmental surveys or reports such as a desktop review and searches of public records) is common and a best practice, as this diligence may provide a prospective purchaser with valuable information that can inform key deal terms even if it does not provide a defense to liability. Additionally, a third-party lender may condition the funding arrangement on the borrower obtaining and providing Phase I ESAs for any property.

b. State Environmental Protection Act Liabilities

Beyond CERCLA, states may have analogous or unique statutory schemes for the assignment of historic environmental liabilities. For example, in Michigan, the Michigan Natural Resources and Environmental Protection Act (NREPA) impacts transactions involving assets and operations in the state. Under this scheme, a buyer can purchase contaminated property and be shielded from liability for remediation of known, existing contamination caused by others, but only for certain contamination under specific programs regulated by Michigan’s NREPA. To qualify, the buyer must (1) perform a baseline environmental assessment (BEA) and (2) disclose the BEA to the Michigan Department of Environment, Great Lakes, and Energy (EGLE), as well as to subsequent buyers and transferees. A BEA assesses the environmental condition of the property to determine if it is contaminated above Michigan’s unrestricted residential criteria and includes the results of an AAI and sampling analysis of the property. To provide a liability defense, the BEA must be conducted within 45 days of the buyer becoming the owner/operator of a property.

A BEA does not automatically protect the new owner/operator from other state or federal laws. However, EGLE and U.S. EPA have entered into an agreement that EPA will not act against a property owner who has disclosed a BEA, except under certain circumstances.

3. Managing Compliance Obligations Triggered by the Transaction

Because the federal government and state governments concurrently regulate air and water contamination and discharges of pollutants, state and local governments often regulate or require recordkeeping and filings related to transactions involving property transfers and contamination. For example, for the transfer of certain types of industrial properties and/or properties which are known or suspected to have contamination, several states have laws that require pre-closing evaluations and filings that can affect deal timelines. Below, we discuss two examples: Connecticut and New Jersey.

a. Connecticut Transfer Act

The Connecticut Transfer Act (CTA), CGS §§ 22a-134 to 22a-134e (1985), regulates the “transfer” of certain “establishments” in Connecticut. The CTA term “transfer” refers to a change in ownership of the real property or business, and “establishments” are a defined subset of real properties and businesses. Certain transactions are exempted, including transfers of ownership interests of 50 percent or less. In addition, the CTA may not be triggered in a transaction which occurs several levels above the direct ownership level of the property where the direct property owner remains unchanged. Such a transaction would qualify as an exempt “corporate reorganization not substantially affecting the ownership of the establishment.” See Conn. Gen. Stat. §§ 22a-134(1)(H), (22).

Once triggered, the CTA requires disclosure of environmental conditions, investigation, remediation, and liability for transferors and transferees of establishments. The CTA also allows property transferees to recover damages from a transferor who fails to comply with the CTA. Unlike most states, investigation and remediation liabilities under the CTA depend not on whether there has been a documented release of hazardous substances but rather on the volume of hazardous waste generated at the site and whether certain enumerated activities (including dry cleaning operations, furniture stripping, or vehicle body repair) have occurred onsite. As a threshold issue, then, transaction parties need to evaluate the historical and present operations at the site, including any hazardous waste generation.

Next, the parties must decide which entity will be responsible for CTA compliance and to perform a site investigation to determine if prior releases have occurred. Then, the responsible party must enlist a licensed environmental professional to file specific form notices with the Connecticut Department of Energy & Environmental Protection (DEEP) prior to the transfer, informing DEEP either that no action is required, or that some additional investigation/remediation is needed. No approval is necessary.

The CTA regulatory scheme is evolving. In February 2025, DEEP submitted its “Release Based Cleanup Regulations” (RBCRs) to the Connecticut General Assembly for review and approval. The RBCRs are intended to better align Connecticut with other states’ approaches to releases on real property by applying a uniform regulatory scheme to all properties, without requiring different properties and cleanups be approached in different ways. In March 2025, the Connecticut General Assembly’s Legislative Regulation Review Committee rejected the RBCRs without prejudice, and directed DEEP to make certain changes to the proposed regulation.[1] Until the RBCRs are approved and take effect, the CTA will continue to apply.

b. New Jersey Industrial Site Recovery Act

New Jersey’s Industrial Site Recovery Act (ISRA), N.J. Stat. §§ 13:1K-6 to 13:1K-14 (1983), is triggered by the transfer of a qualifying “industrial establishment,” and requires the completion of certain reporting, site evaluation, and potential remediation efforts before the transfer or closure of certain industrial properties that may have been contaminated by hazardous substances. This includes transfers of operations, not just ownership. ISRA only applies to industrial establishments meeting three conditions: (1) the business has a North American Industry Classification System (NAICS) number listed in ISRA’s Appendix C,[2] (2) the business operated in New Jersey on or after December 31, 1983, and (3) the business uses or stores hazardous substances as defined by the New Jersey Spill Compensation and Control Act.

Establishments may be able to qualify for an exemption, obtain a waiver, or meet alternate compliance conditions with the New Jersey Department of Environmental Protection (NJDEP).

The De Minimis Quantity Exemption exempts small quantity generators of hazardous materials, so long as the business/property has not exceeded certain gallon/weight thresholds for use, storage, or disposal of hazardous substances at any one time during the owner or operator’s tenure.
The Remediation in Progress Waiver allows for the transfer of sites already undergoing remediation with oversight by NJDEP or a Licensed Site Remediation Professional (LSRP).
The Regulated Underground Storage Tank Only Waiver allows for the transfer of sites without conducting remediation where the only potential Area of Concern (AOC) or hazardous substance discharge is in connection with a regulated underground storage tank.

If a property or business in a transaction is subject to ISRA and does not qualify for any waivers, exemptions, or alternate compliance processes, then all necessary remediation must be performed pursuant to ISRA. ISRA compliance will result in one of three outcomes: (1) a LSRP issues an Unrestricted Use Response Action Outcome (RAO), (2) a LSRP certifies a Remedial Action Workplan (RAW) prior to the transfer, or (3) the parties execute a Remediation Certificate to allow the transaction to be consummated prior to full ISRA compliance.

ISRA compliance starts with filing a General Information Notice (GIN) with NJDEP within five days of any triggering event, including transaction signing. An environmental investigation follows, and any required remediation must be completed by a LSRP. This includes a Preliminary Assessment (PA) to identify potential AOCs and, if necessary, a Site Investigation (SI) Report to check for contaminants above remediation standards. If the PA identifies no issues, an SI is not needed, and a RAO will be recommended, ending the investigation. If contamination is found, a Remedial Investigation will determine its nature and extent, and a proposed RAW will outline the remediation plan to meet regulatory standards.

As outlined above, compliance with ISRA is a multi-step process that can be costly and time consuming. Determining ISRA’s applicability, and whether any waivers, exemptions, or alternate compliance are feasible, are important steps early in a transaction.

4. Permit Transfer Obligations (Change in Control States v. Change in Ownership)

As with the transfer of real property, some transactions may require filings to transfer an environmental permit. Typically, when there is only a change in control several levels above the permit-holder, it is rare that a permit needs to be transferred. For example, it is common that air permits need not be transferred when the direct entity owning a permitted facility does not change. There are, however, certain state regimes that require an air permit transfer application in the event of a change in control of the permitted facility itself. The same typically applies to wastewater discharge or use permits.

5. Evolving Regulations, Areas of Focus, and Technical Understanding Impacting Risk

Environmental laws, regulations, guidance, and areas of regulatory focus—and thus the resulting liabilities—are ever-changing as a result of scientific advancements, changes in political leadership and policy goals, and public interest. For example, regulation of emerging or newly identified contaminants often changes quickly and requires an up-to-date understanding of technical advancements in both testing and remediation technology. These issues can quickly make “stock”/template environmental deal terms outdated—particularly representations regarding compliance with environmental laws and regulations, and regarding use, storage, and disposal of hazardous substances. As a result of the changing environmental status quo, buyers should consider close engagement with specialists and consultants to understand the current status and potential future risks implicated by a transaction.

One such contaminant of increasing scrutiny is per- and polyfluoroalkyl substances (PFAS), a ubiquitous category of chemicals subject to expanding federal and state regulation. PFAS are of particular concern for manufacturers, waste treatment and/or disposal sites, and sites with a history of fires, but may present a risk in other types of transactions, as well. Other examples of chemicals that have become the focus of recent regulatory scrutiny include 1, 4-dioxane, a chemical used in various industrial processes; glyphosate, a broad-spectrum systemic herbicide that can be of concern for companies involved in landscaping and agricultural operations; and ethylene oxide, a gas often used in chemical manufacturing facilities producing a range of products such as antifreeze, textiles, plastics, detergents, and adhesives. Understanding a target company’s operations and the potential presence of emerging contaminants at the target facilities should be an early focus of any buyer.

6. The Role of Insurance in Managing Unknown Liabilities

During due diligence, a Phase I or Phase II ESA may identify potential environmental liabilities and concerns; or, a lack of deep knowledge on the part of a seller may cause a buyer to worry about the “unknown unknowns.” In such cases, environmental insurance may provide protection from both identified and unexpected pollution not typically covered by standard casualty and property policies. Environmental insurance can also help cover compliance costs which otherwise could lead to significant fines and issues.

Representations and Warranties Insurance (RWI) deals are prevalent, particularly because sellers desire a “clean break” post-closing. Adding environmental provisions to RWI coverage may be more efficient than obtaining a separate policy and can be a useful tool to reduce or eliminate unknown risks. In addition to RWI, there are several potentially useful insurance products available depending on the deal structure and nature of the target business.

Pollution Legal Liability Insurance (PLLI) generally covers third-party claims for property damage, personal injury, and cleanup costs related to environmental contamination.
Contractor’s Pollution Liability Insurance (CPLI) generally covers pollution incidents caused by contractors during their work.
Environmental Site Liability Insurance (ESLI) generally covers environmental risks stemming from owned real estate or operating facilities, whether the source is traceable to conditions on the insured property or a neighboring property.

PLLI can help manage and allocate environmental risks associated with a transaction. In addition to protection for known and unknown historic pollution risks, it can also cover pollution that arises between signing and closing, or post-closing. Unknown site contamination can lead to significant financial losses, and insurance can smooth out such unpredictable costs.

In a deal environment where sellers wish for a clean break, environmental insurance can bridge the gap and help make an offer more attractive. Post-closing, environmental insurance continues to provide protection against covered environmental liabilities that may arise. This can be particularly valuable for competitive bid transactions where the diligence period is truncated and can provide buyers with some comfort that any inherited environmental liabilities will be covered by the known cost of insurance.

[1] https://eregulations.ct.gov/eRegsPortal/Search/RMRView/PR2024-025; https://eregulations.ct.gov/eRegsPortal/Search/getDocument?guid={D071CE95-0000-CA19-89A4-CFC56373AF95}.

[2] https://www.nj.gov/dep/srp/isra/isra_c.htm.

The following Gibson Dunn lawyers prepared this update: Michael Murphy, Rachel Levick, Rob Little, Saee Muzumdar, George Sampas, Taylor Amato, and Phil Washburn.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Mergers & Acquisitions, Private Equity, or Environmental Litigation & Transactions practice groups:

Environmental Litigation & Transactions:
Rachel Levick – Washington, D.C. (+1 202.887.3574, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])

Mergers & 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])

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 April 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.

Please view this and additional information on Gibson Dunn’s Securities Regulation and Corporate Governance Monitor Blog.

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])

We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during March 2025. Please click on the links below for further details.

I. GLOBAL

Fidelity updates voting guidelines regarding director diversity

As discussed in our February 2025 ESG Update, Institutional Shareholder Services, Glass Lewis, and institutional investors State Street, BlackRock, and Vanguard released updates to their proxy voting policies for 2025 with implications for how they intend to analyze director diversity. In March, Fidelity also published updated proxy voting guidelines that no longer set numeric expectations for director diversity but instead reflect Fidelity’s policy to “consider factors that [it] believe[s] are relevant to achieving effective governance practices, which may include the range of experience, perspectives, skills, and personal characteristics represented on the board.”

II. UNITED KINGDOM

Loan Market Association (LMA) publishes its revised Green, Social, and Sustainability-Linked Loan Principles

On March 26, 2025, the LMA published its revised Green, Social, and Sustainability-Linked Loan Principles and related guidance. The principles provide a recommended framework of market standards and guidelines, while also promoting the development of each of the three different types of loans (i.e., green, social, and sustainability-linked). The principles and related guidance are voluntary recommended guidelines to be applied on a deal-by-deal basis, depending on the nature of the transaction. These are mostly clarifying revisions, but there are also more detailed revisions relating to distinctions between what the principles consider to be mandatory requirements to comply with the principles compared to recommendations and optional courses of action. We previously reported on these principles here and here.

UK Home Office publishes updated supply chain guidance

On March 24, 2025, the UK Home Office published updated statutory guidance on transparency in supply chains. This guidance follows the December 2024 Policy Paper in which the Government stated that it was reviewing how it can strengthen penalties for non-compliance with its supply chain requirement. The updated guidance is intended to assist in-scope commercial organizations with preparing their mandatory modern slavery statements. The guidance sets out the Government’s expectations and provides practical advice based on learnings from the last ten years since the Modern Slavery Act 2015 came into force.

The Financial Conduct Authority (FCA) issues survey to Environmental, Social, and Governance (ESG) rating providers 2025

On March 21, 2025, the FCA distributed a voluntary survey to ESG rating providers to gather information the FCA hopes will help inform the future regulatory regime for ESG rating providers and sustainability disclosures. The survey aims to facilitate the FCA’s understanding of the ESG rating market, including the business models and methodologies of ESG rating providers, and the policies and processes of ESG rating providers. The FCA also expects the survey to help inform its approach to climate-related disclosure rules for listed companies, including possible incorporation of International Sustainability Standards Board (ISSB) standards and the Transition Plan Taskforce Disclosure Framework. Responses to the survey are due by May 16, 2025.

UK Government consults on mandatory ethnicity and disability pay gap reporting

On March 18, 2025, the UK Government published a consultation paper on its proposal to introduce mandatory ethnicity and disability pay gap reporting for large employers (defined as those with at least 250 employees). The proposed reporting obligation will be included in the upcoming Equality (Race and Disability) Bill and is expected to create a similar reporting framework to existing gender pay gap reporting (including the same “snapshot dates” and pay gap measures) in order to enhance transparency for both employers and employees. The consultation, which remains open until June 10, 2025, seeks views on several items, including how data should be collected and calculated taking into account the data privacy of individual employees.

Prudential Regulation Authority (PRA) and FCA will not pursue proposals relating to diversity and inclusion at financial services firms

On March 12, 2025, the FCA and the PRA announced that they will not proceed with their proposals to improve diversity and inclusion in financial services firms, which they consulted on in September 2023. The regulators cited feedback, expected legislation, duplication and regulatory burden as reasons for their decision and noted they will continue to support voluntary industry initiatives. The FCA also confirmed that it will continue to prioritize its work on non-financial misconduct in firms and will set out next steps by the end of June 2025. The regulators also referred to their review of the impact of removing the bonus cap on gender pay and inequality, which is likely to take place in 2026/27.

FCA clarifies sustainability rules and UK defense

On March 11, 2025, the FCA issued a statement explaining that its sustainability rules do not prevent investment in or financing for defense companies. The FCA said that its rules apply to financial products and services and some listed companies, but do not require them to treat defense companies differently. The FCA also noted that financial institutions can decide their own policies and risk appetites regarding support for the defense sector.

FCA publishes findings from review of firms’ treatment of vulnerable customers

On March 7, 2025, the FCA published its findings from its multi-firm review of firms’ treatment of customers in vulnerable circumstances. The review assessed how firms have implemented the FCA’s guidance on the fair treatment of vulnerable customers (FG21/1) and the consumer duty. The FCA found that many firms had taken positive action and made good progress, but also identified areas for improvement, such as outcomes monitoring, staff support, communications, and product and service design. The FCA decided not to update FG21/1 and encouraged firms to use the examples of good practice it published.

III. EUROPE

Germany plans to drop German Supply Chain Due Diligence Act (SCDDA)

On April 9, 2025, Germany’s new two-party coalition government presented its coalition agreement, including plans to suspend the SCDDA, which came into effect in 2023. The government announced that the SCDDA will be replaced by the Corporate Sustainability Due Diligence Directive (CSDDD), once it comes into effect (i.e., July 2028). Until then, due diligence obligations in the supply chain will not be sanctioned, except for severe human rights violations. Reporting obligations under the SCDDA for companies will be revoked immediately.

Green light for “Stop-the-Clock” EU proposal

On April 3, 2025, the European Parliament approved the so-called “Stop-the-Clock” proposal (the Postponement Directive), following the EU Council’s endorsement on March 26, 2025. As anticipated in our previous client alert, the proposal has progressed swiftly and is now expected to move toward formal adoption without further legislative negotiations. The Postponement Directive is likely to be formally adopted by the EU Council soon and to be transposed into national law by member states by December 31, 2025. While broad support for the Postponement Directive was expected, the forthcoming debate on the separate Amendment Directive addressing substantive changes to existing requirements—also outlined in our earlier coverage—is expected to be significantly more contentious.

A first draft of the Amendment Directive is currently expected in early June 2025. As with the Postponement Directive, the EU Parliament intends to apply a fast-track procedure. The aim is to resolve on the Amendment Directive as soon as October 2025, if possible.

Commission letter tasks the European Financial Reporting Advisory Group (EFRAG) to review European Sustainability Reporting Standards (ESRS) and reduce its datapoints

In a letter, the Commission has tasked EFRAG with reviewing the ESRS by October 31, 2025, suggesting that technical refinements to the sustainability framework will proceed regardless of the legislative timeline. The letter asks EFRAG to initiate the process to develop technical advice for the modification of the ESRS, with a particular focus on substantially reducing the number of mandatory datapoints. Proposed revisions include the removal of less relevant datapoints for general-purpose sustainability reporting, prioritization of quantitative over narrative disclosures, and ensuring continued interoperability with global standards without undermining the materiality assessment.

Several cases targeting greenwashing and climate change in Germany

Litigation: Greenwashing claims continue to significantly impact companies and courts in Germany. Environmental Action Germany (Deutsche Umwelthilfe e.V. – DUH) has brought five new claims against major companies in Germany (e.g., Tchibo and Toom) challenging slogans such as “ocean-friendly,” “sustainable,” and “sustainable commitment.” Since the end of 2024, the DUH has taken action against approximately 20 companies’ ESG claims. Additionally, three German courts have ruled in favor of claimants in greenwashing cases tackling companies’ claims regarding net-zero aims, carbon offsetting, and recyclability (e.g., Adidas).

Public prosecution: German public prosecutors have fined asset management company DWS EUR 25 million (USD 27 million) for greenwashing. Claims such as “ESG is an integral part of our DNA” or about being a leader in the ESG context were considered misleading, as they could not be proven to be accurate. The company had already been fined USD 25 million in the United States for greenwashing at the end of 2023.

CSRD Transposition: French Senate votes on delay of implementation for four years

No countries transposed the CSRD in March. In France, the Senate voted in favor of a proposal to delay the implementation of CSRD requirements by four years, citing major operational challenges for companies, but the measure still needs approval from the National Assembly to take effect. If adopted, the delay could put France in potential conflict with EU obligations, as companies may still be required to comply with CSRD under EU law. An overview of the current transposition status of CSRD into national laws can be found here.

IV. NORTH AMERICA

Securities and Exchange Commission (SEC) ends its defense of climate disclosure rules

On March 27, 2025, the SEC announced that it had voted to end its defense of the climate disclosure rules it adopted in March 2024 that would have required public companies to disclose certain climate risk-related information in their SEC filings. As discussed in our April 2024 ESG Update, the SEC had stayed effectiveness of the new disclosure rules pending legal challenges brought by states and private parties, which had been consolidated for review by the Eighth Circuit. Following the vote, the SEC sent a letter to the court withdrawing its defense of the rules.

On April 3, 2025, 18 states filed a motion to intervene in the cases, and on April 4, 2025 the same states filed a motion to hold the cases in abeyance until the SEC takes action to amend or rescind the rules.

New York Department of Environmental Conservation (DEC) releases draft regulations establishing greenhouse gas (GHG) emissions reporting program

On March 26, 2025, the DEC announced the release of draft regulations that would establish a mandatory reporting program requiring certain entities to annually report GHG emissions data to DEC, starting with reporting calendar year 2026 emissions data by June 1, 2027. Entities that meet “large emission source” thresholds will be required to verify their emissions data by DEC-accredited third-party verifiers and submit verification reports by August 10, 2027. Covered entities would generally include the following, subject to certain reporting thresholds: (i) owners and operators of electricity generation, stationary combustion, landfill, waste-to-energy, natural gas compressor station, and other facilities in New York; (ii) fuel suppliers, including natural gas, liquid fuels, petroleum, and coal; (iii) waste haulers and transporters; (iv) electric power entities; (v) suppliers of agricultural lime and fertilizer; and (vi) owners and operators of anaerobic digestion and liquid waste storage facilities. The public comment period on the draft regulations is open from April 2 to July 1, 2025, and final regulations are anticipated by the end of the year.

Sustainalytics publishes diversity, equity, and inclusion (DEI) rollback metrics and investor implications

On March 19, 2025, Sustainalytics published a report highlighting the potential impacts of the recent rollback of corporate DEI initiatives. In its report, Sustainalytics noted that not all rollbacks will have the same impact, and differences may depend on which of three categories the rollbacks fall into: (i) substantive changes to corporate policies, initiatives, or programs, (ii) reframing of existing policies, programs, or teams, and (iii) discontinuation of DEI-adjacent initiatives.

Sustainalytics’s ESG Risk Rating framework considers diversity programs, discrimination policies, gender pay equality programs, and gender pay disclosure, with the heaviest weight being placed on diversity programs. However, Sustainalytics notes that because human capital is only a portion of its ESG Risk Rating, the weight of human capital (and thus of DEI programs) on a company’s ESG Risk Rating can vary depending on the materiality of the workforce to the company’s business. This means that, in practice, DEI rollbacks are likely to have a greater impact on ESG Risk Ratings in more labor-intensive or knowledge-intensive industries that are more exposed to human capital-related risks, such as information technology, real estate, and healthcare, than in more capital-intensive industries, such as energy and utilities.

Environmental Protection Agency (EPA) initiated funding freeze blocked

On March 18, 2025, a federal judge issued an order granting a temporary restraining order blocking the EPA’s efforts to cancel $20 billion in grants issued under the Greenhouse Gas Reduction Fund. The funds were initially frozen prior to the cancellation of the grant. In the memorandum opinion, federal judge Tanya Chutkan stated that the EPA had failed to follow proper procedures related to the grant cancellations and that “based on the record before the court, and under the relevant statutes and various agreements, it does not appear that EPA Defendants took the legally required steps necessary to terminate these grants, such that its actions were arbitrary and capricious.” The ruling ordered Citibank, which held the funds for grant recipients, to process and disburse all funds requested under the Account Control Agreement and prohibited the funds from being moved to other accounts without further court order. The suit is ongoing.

Canada eliminates consumer carbon tax

On March 15, 2025, Canadian Prime Minister Mark Carney signed an order eliminating the country’s consumer carbon tax. This was Carney’s first act as Prime Minister (as the Liberal Party’s successor to Prime Minister Justin Trudeau). The new policy goes into effect on April 1, 2025.

Previously, under the Greenhouse Gas Pollution Pricing Act (GGPPA), Canadian citizens paid a charge for using or consuming any of 21 greenhouse gas-producing fuels. The charges varied by fuel type and were offset by a refundable tax credit provided to eligible individuals and small and medium-sized businesses. While this change in carbon tax policy affects the majority of Canadian provinces, British Columbia and the Northwest Territories impose their own provincial carbon tax regulations and will not be directly affected by the new policy.

U.S. Minister Counselor to United Nations (UN) Criticizes Sustainable Development Goals (SDGs)

On March 4, 2025, Edward Heartney, U.S. Minister Counselor to the UN Economic and Social Council, delivered remarks at the UN’s 58th Plenary Meeting of the General Assembly regarding the UN 2030 Agenda and Sustainable Development Goals, stating that “Agenda 2030 and the SDGs advance a program of soft global governance that is inconsistent with U.S. sovereignty and adverse to the rights and interests of Americans.” Heartney’s remarks made clear that the “United States rejects and denounces the 2030 Agenda for Sustainable Development and the Sustainable Development Goals, and it will no longer reaffirm them as a matter of course.”

In case you missed it…

The Gibson Dunn Workplace DEI Task Force has published its updates for March summarizing the latest key developments, media coverage, case updates, and legislation related to diversity, equity, and inclusion, including a dedicated alert describing the Equal Employment Opportunity Commission and Department of Justice guidance regarding discrimination related to DEI at work.

A collection of our analyses of the legal and industry impacts from the presidential transition is available here.

V. APAC

Sustainability Standards Board of Japan (SSBJ) finalizes sustainability disclosure standards

On March 5, 2025, the SSBJ issued three sustainability disclosure standards (SSBJ Standards), which align with the ISSB’s International Financial Reporting Standards Sustainability Disclosure Standards. The SSBJ Standards are composed of a universal sustainability disclosure standard and two theme-based standards on general and climate-related disclosures. The SSBJ anticipates that Tokyo Stock Exchange Prime Market-listed companies will eventually be required to adhere to the SSBJ Standards, with specific timelines to be set through a future amendment to the Japanese Disclosure Ordinance.

New Australian Environmental Claims Code took effect March 1, 2025

On March 1, 2025, the new Australian Environmental Claims Code, which is aimed at combating greenwashing, became effective. This code establishes standards for businesses making environmental and sustainability claims in advertisements. The implementation of the code reflects a broader effort to enhance transparency and accountability in environmental advertising.

The following Gibson Dunn lawyers prepared this update: Lauren Assaf-Holmes, Carla Baum, Susy Bullock, Mitasha Chandok, Becky Chung, Martin Coombes, Georgia Derbyshire, Mellissa Duru, Sam Fernandez*, Ferdinand Fromholzer, Muriel Hague, Saad Khan*, Michelle Kirschner, Julia Lapitskaya, Vanessa Ludwig, Babette Milz, Johannes Reul, Meghan Sherley, and Nicholas Tok.

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 ESG: Risk, Litigation, and Reporting practice group:

ESG: Risk, Litigation, and Reporting Leaders and Members:
Susy Bullock – London (+44 20 7071 4283, [email protected])
Perlette M. Jura – Los Angeles (+1 213.229.7121, [email protected])
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Julia Lapitskaya – New York (+1 212.351.2354, [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])

*Sam Fernandez and Saad Khan are trainee solicitors in London and not admitted to practice law.

Tariffs and customs compliance is an area of rapidly increasing risk for companies under the federal False Claims Act given the steep tariffs imposed on key U.S. trading partners by the Trump Administration that affects a broad swath of industries.

Introduction

The U.S. Department of Justice (DOJ) has signaled its intent to ramp up use of the FCA—DOJ’s primary tool for redressing fraud against government agencies—to police customs and tariff compliance.[1] Regardless of the particulars of country-specific tariff levels, the effect is likely to be a redoubling of the government’s already aggressive application of the FCA to trade matters, fueled by tariffs’ status as a top policy and political priority. The risks for businesses are significant and likely will affect a broader range of industries than DOJ has historically targeted with trade-related FCA investigations and litigation.

Tariff Developments Under President Trump

President Trump has imposed unprecedented and far-reaching tariffs on imports from some of the United States’ largest trading partners. The president imposed a 10% tariff on all Chinese imports on February 4.[2] He did so again on March 4, also assessing a 25% tariff on most imports from Canada and Mexico.[3] On a broader scale, President Trump levied a 25% tariff on all aluminum and steel imports beginning on March 12.[4] And on April 2, the president announced the most sweeping tariffs yet: a universal baseline tariff of 10% on all countries and reciprocal tariffs “on the countries with which the United States has the largest trade deficits.”[5] Although Canada and Mexico will be exempt from the new measures, they will remain subject to the 25% tariff on products that do not qualify for preferential treatment that was imposed on March 4.[6] On April 9, President Trump announced a 90-day freeze on tariffs for goods from some countries—leaving reinstatement of some or all of those tariffs a distinct possibility.[7] The same day, the president increased duties on goods from China, further advancing an escalating trade war between the world’s two largest economies. You can find additional analysis of the president’s tariffs in this recent client alert.

While the tariffs have implications for international politics and the global economy, their economic impact is being felt most immediately by companies that import goods from other countries. Under the new tariff regime, any company importing virtually any item from anywhere now owes at least 10% of the value of that item to the U.S. government—and up to 145%, or more, for goods from China.[8] Particularly for companies that import expensive products and materials in large volumes, this can mean massive sums in financial obligations to the U.S. government. All told, tariffs owed on goods imported into the United States could surpass $1 trillion—a nearly 13-fold increase compared to last year’s $78 billion figure.[9]

FCA Enforcement Against Alleged Customs Fraud

The FCA prohibits, among other things, the fraudulent retention of monies that a person or company is obligated to pay to the United States.[10] DOJ and qui tam relators have brought such allegations based on alleged avoidance of tariffs, customs duties, and similar “obligations” in a wide variety of contexts. For example, DOJ has frequently deployed this “reverse” FCA theory against companies that receive payments from the government in the ordinary course of business that the government then seeks to recoup. The thrust of DOJ’s allegations in those scenarios is typically that the company was required to return the money and knowingly or recklessly failed to satisfy that obligation. The reverse FCA often features in cases against health care companies and government contractors, which regularly receive payments from the U.S. government.[11] Courts have acknowledged the viability of reverse FCA theories premised on allegations of customs avoidance.[12]

Consistent with the nature of tariffs as money owed to the U.S. government in the first instance, use of the reverse FCA across industries and with significant financial consequences has been a hallmark of the statute’s enforcement in the trade arena. Since 2011, there have been over 40 resolutions of FCA matters involving alleged customs violations, with nearly half of those resolutions occurring since 2023. The resolutions since 2011 have netted the government nearly $250 million in recoveries, with larger settlements reaching into the tens of millions of dollars. In a trend generally consistent with the relative numbers of FCA matters brought by qui tam relators versus by DOJ without relator involvement, 35 of the resolutions involved relators, the majority of whom were former employees of the defendant companies.

DOJ’s use of the FCA against alleged customs fraud has historically targeted three main areas of conduct, the consequence of which is typically an alleged underpayment of tariffs to the government: (1) misclassification of imported products; (2) undervaluation of imported products; and (3) misrepresentation of imported products’ countries of origin. The following are representative examples of FCA resolutions that DOJ has reached with companies based on these theories. They provide a window into the kinds of cases DOJ is likely to pursue in higher volumes, and with greater potential financial consequences, in the future.

Misclassification. In March 2024, DOJ reached a $3.1 million settlement with a U.S. chemical products company which allegedly imported hazardous chemicals into the United States and misclassified them as non-hazardous goods.[13]
Undervaluation. On consecutive days on August 2024, DOJ settled for over $10 million with wiring and power products companies and almost $7.7 million with a clothing manufacturer, each of whom allegedly altered the prices on the invoices they submitted to the government.[14]
Country of origin. In November 2023, a German cutting tools manufacturer paid $1.9 million to settle allegations that it manufactured tools in a Chinese factory, shipped them to Germany to perform additional processing on some (not all) of the products, and then shipped them to the United States as “German” products to avoid certain tariffs on Chinese goods.[15] Several years earlier, a printing inks manufacturer reached a $45 million settlement with DOJ for allegedly misrepresenting its imports’ countries of origin as Japan and Mexico, rather than China and India, to avoid paying antidumping and countervailing duties.[16]

The FCA also imposes liability on companies that cause fraudulent underpayments to the government or conspire with others to fraudulently underpay.[17] Consistent with these provisions, DOJ also has sought recoveries from businesses elsewhere in the import chain, including upstream foreign exporters and suppliers as well as downstream U.S.-based companies. The upstream and downstream entities in these cases did not themselves owe customs duties, but they faced similar enforcement consequences under a conspiracy theory.

For example:

In 2016, both the importer and manufacturer of clothing goods agreed to pay $13.375 million to settle claims that they conspired to underpay customs duties using invoices that misrepresented the value of the goods at issue.[18]
The same year, a U.S. defense contractor paid $6 million for allegedly using ultrafine magnesium imported from China in flares it manufactured and sold to the U.S. Army in violation of its contract with the military.[19] While it was the importer who allegedly misrepresented the magnesium’s country of origin, DOJ alleged that the contractor conspired with the importer to sell the government the nonconforming goods.

At least one customs case under the FCA has gone to trial—resulting in a more than $8 million jury verdict.[20] In that case, Island Industries, Inc. accused its competitor Sigma Corporation of avoiding antidumping duties on “carbon steel butt-weld pipe fittings,” by falsely certifying to customs agents that the pipe fittings were “steel couplings.”[21] Island Industries pursued the FCA litigation notwithstanding the government’s decision not to intervene in the matter, and a vigorous dispute is still ongoing in the Ninth Circuit over whether the Court of International Trade has exclusive jurisdiction over the FCA claims in the suit.[22]

Implications for Industry

The Trump Administration’s new tariffs mean that the frequency and financial stakes of customs-related FCA cases are likely to increase. By the same token, DOJ’s past experience with similar cases means that this shift will be building on a foundation of existing enforcement activity, with little of the learning curve that the government often experiences in pursuing brand-new FCA theories. Prior cases have already given DOJ and relators the ability to test the factual and legal theories discussed above. Those theories will continue to feature in the government’s investigations, with both DOJ and relators likely to be emboldened by the potential for significantly higher monetary recoveries and by the perceived enforcement flexibility afforded by the application of the new tariff regime to all companies and all imports. We expect DOJ and relators will seek the same nine- and ten-figure monetary recoveries in customs-related cases that they have long sought—and frequently obtained—in cases in the health care and government contracting spaces.

Companies across the industry spectrum will face these enforcement risks, and we anticipate importers and manufacturers in the following industries will face particularly close scrutiny:

Automobile and automobile parts;
Medical devices;
Pharmaceuticals and dietary supplements;
Furniture, textiles, and other retail products;
Steel, aluminum, and other metals or metal alloys; and
Technology hardware.

While it is difficult to predict where these cases will arise, we can expect to see at least some cases being pursued by U.S. Attorneys’ Offices in the jurisdictions that are home to the country’s largest ports. Of the ten largest U.S. ports by annual container volume, seven are in jurisdictions where there has been at least one FCA customs enforcement case since 2011.[23] Accordingly, U.S. Attorneys’ Offices in the Southern and Eastern Districts of New York, the District of New Jersey, the Central District of California, the Eastern District of Virginia, the Southern District of Texas, the District of South Carolina, and the Southern District of Georgia may prove to be sites of particularly rapid expansion in this area. As in other areas of FCA enforcement, significant risks and costs are likely to be felt by companies given the relator and DOJ scrutiny that invariably accompanies the long investigative period preceding active litigation and dispositive briefing on legal issues.

To mitigate risk, companies should ensure that they have robust mechanisms in place to detect, report, and remedy instances of noncompliance with customs requirements. Such mechanisms should include comprehensive training on relevant legal requirements and the consequences of noncompliance. Companies should also review their compensation practices to ensure that any incentive compensation tied to cost reduction and process optimization is not incentivizing inappropriate attempts to reduce customs duty obligations. It will also be critical for companies to review the terms of their contractual relationships with upstream and downstream business partners, to ensure that the risk of government scrutiny is appropriately allocated and, where appropriate, to require contractual counterparties to comply with company policies and procedures.

[1] For example, at the February 2025 qui tam conference of the Federal Bar Association, DOJ Commercial Litigation Branch director Jamie Ann Yavelberg characterized customs fraud as a “key area” FCA enforcement.

[2] See Executive Order No. 14195 of Feb. 1, 2025, Imposing Duties To Address the Synthetic Opioid Supply Chain in the People’s Republic of China, 90 Fed. Reg. 9121 (Feb. 7, 2025).

[3] See Executive Order No. 14228 of March 3, 2025, Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China, 90 Fed. Reg. 11463 (Mar. 7, 2025); Executive Order No. 14193 of Feb. 1 2025, Imposing Duties To Address the Flow of Illicit Drugs Across Our Northern Border, 90 Fed. Reg. 9113 (Feb. 7, 2025); Executive Order No. 14194 of Feb. 1, 2025, Imposing Duties To Address the Situation at Our Southern Border, 90 Fed. Reg. 9117 (Feb. 7, 2025).

[4] Proclamation No. 10896, Adjusting Imports of Steel into the United States, 90 Fed. Reg. 9817 (Feb. 10, 2025); Proclamation No. 10895, Adjusting Imports of Aluminum into the United States, 90 Fed. Reg. 9807 (Feb. 11, 2025).

[5] Fact Sheet, The White House, President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security (Apr. 2, 2025), https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/.

[6] Id.

[7] See Stocks surge after 90-day pause announced for most countries, NBC News, Apr. 10, 2025, https://www.nbcnews.com/politics/trump-administration/live-blog/trump-administration-live-updates-global-tariffs-china-rcna200346.

[8] See Sean Conlon, Trump’s triple-digit tariff essentially cuts off most trade with China, says economist, CNBC, Apr. 10, 2025, https://www.cnbc.com/2025/04/10/trumps-triple-digit-tariff-essentially-cuts-off-most-trade-with-china-says-economist.html.

[9] Ana Swanson and Tony Romm, Trump Unveils Expansive Global Tariffs, N.Y. Times, Apr. 2, 2025, https://www.nytimes.com/2025/04/02/business/economy/trump-tariffs.html.

[10] See 31 U.S.C. § 3729(a)(1)(G).

[11] See, e.g., Press Release, U.S. Dep’t of Justice, Mallinckrodt Agrees to Pay $260 Million to Settle Lawsuits Alleging Underpayments of Medicaid Drug Rebates and Payment of Illegal Kickbacks (Mar. 7, 2022), https://www.justice.gov/archives/opa/pr/mallinckrodt-agrees-pay-260-million-settle-lawsuits-alleging-underpayments-medicaid-drug; .

[12] See, e.g., United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co., 839 F.3d 242 (3d Cir. 2016).

[13] Press Release, U.S. Dep’t of Justice, Owner of New Jersey Company Admits to Evading U.S. Customs Duties and His Company Agrees to $3.1 Million Settlement Agreement (Mar. 21, 2024), https://www.justice.gov/usao-nj/pr/owner-new-jersey-company-admits-evading-us-customs-duties-and-his-company-agrees-31.

[14] Press Release, U.S. Dep’t of Justice, Two Brookfield, Wisconsin-Based Companies and Their Owners Pay Over $10 Million to Resolve Allegations that They Evaded Customs Duties (Aug. 8, 2024), https://www.justice.gov/usao-edwi/pr/two-brookfield-wisconsin-based-companies-and-their-owners-pay-over-10-million-resolve; Press Release, U.S. Dep’t of Justice, U.S. Attorney Lapointe Announces $7.6 Million Settlement of Civil False Claims Act Lawsuit Against Womenswear Company for Underpaying Customs Duties on Imported Women’s Apparel (Aug. 9, 2024), https://www.justice.gov/usao-sdfl/pr/us-attorney-lapointe-announces-76-million-settlement-civil-false-claims-act-lawsuit.

[15] Id.

[16] Press Release, U.S. Dep’t of Justice, Japanese-Based Toyo Ink and Affiliates in New Jersey and Illinois Settle False Claims Allegation for $45 Million (Dec. 17, 2012), here.

[17] See 31 U.S.C. § 3729(a)(1)(C), (G).

[18] Press Release, U.S. Dep’t of Justice, Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Importer And Manufacturers For Evading Customs Duties (July 13, 2016), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-settles-civil-fraud-lawsuit-against-clothing-importer-and.

[19] Press Release, U.S. Dep’t of Justice, Tennessee and New York-Based Defense Contractors Agree to Pay $8 Million to Settle False Claims Act Allegations Involving Defective Countermeasure Flares Sold to the U.S. Army (Mar. 28, 2016), https://www.justice.gov/archives/opa/pr/tennessee-and-new-york-based-defense-contractors-agree-pay-8-million-settle-false-claims-act.

[20] See United States ex rel. Island Indus. B. Vandewater Int’l Inc., 2021 WL 6104402 (C.D. Cal. 2021); Island Indus., Inc. v. Sigma Corp., No. 22-55063 (9th Cir.).

[21] 2021 WL 6104402, at *1.

[22] See, e.g., Island Indus., Inc. v. Sigma Corp., No. 22-55063 (9th Cir.).

[23] 2024 Port Performance Freight Statistics Program: Annual Report to Congress, U.S. Dep’t of Transportation, Bureau of Transportation Statistics (Jan. 2024), https://www.bts.gov/sites/bts.dot.gov/files/2024-01/2024_Port_Performance_Report_0.pdf.

The following Gibson Dunn lawyers prepared this update: Jake Shields, Winston Chan, Jonathan Phillips, Lindsay Paulin, Michael Dziuban, and Andrew Becker.

Gibson Dunn lawyers regularly counsel clients on the False Claims Act issues and are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s False Claims Act/Qui Tam Defense or International Trade Advisory & Enforcement practice groups:

False Claims Act/Qui Tam Defense:

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, [email protected])
Stuart F. Delery (+1 202.955.8515,[email protected])
F. Joseph Warin (+1 202.887.3609, [email protected])
Jake M. Shields (+1 202.955.8201, [email protected])
Gustav W. Eyler (+1 202.955.8610, [email protected])
Lindsay M. Paulin (+1 202.887.3701, [email protected])
Geoffrey M. Sigler (+1 202.887.3752, [email protected])
Joseph D. West (+1 202.955.8658, [email protected])

San Francisco
Winston Y. Chan – Co-Chair (+1 415.393.8362, [email protected])
Charles J. Stevens (+1 415.393.8391, [email protected])

New York
Reed Brodsky (+1 212.351.5334, [email protected])
Mylan Denerstein (+1 212.351.3850, [email protected])

Denver
John D.W. Partridge (+1 303.298.5931, [email protected])
Ryan T. Bergsieker (+1 303.298.5774, [email protected])
Monica K. Loseman (+1 303.298.5784, [email protected])

Dallas
Andrew LeGrand (+1 214.698.3405, [email protected])

Los Angeles
James L. Zelenay Jr. (+1 213.229.7449, [email protected])
Nicola T. Hanna (+1 213.229.7269, [email protected])
Jeremy S. Smith (+1 213.229.7973, [email protected])
Deborah L. Stein (+1 213.229.7164, [email protected])
Dhananjay S. Manthripragada (+1 213.229.7366, [email protected])

Palo Alto
Benjamin Wagner (+1 650.849.5395, [email protected])

International Trade Advisory & Enforcement:

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, [email protected])
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, [email protected])
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, [email protected])
Donald Harrison – Washington, D.C. (+1 202.955.8560, [email protected])
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, [email protected])
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, [email protected])
David P. Burns – Washington, D.C. (+1 202.887.3786, [email protected])
Nicola T. Hanna – Los Angeles (+1 213.229.7269, [email protected])
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, [email protected])
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, [email protected])
Samantha Sewall – Washington, D.C. (+1 202.887.3509, [email protected])
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, [email protected])

Asia:
Kelly Austin – Denver/Hong Kong (+1 303.298.5980, [email protected])
David A. Wolber – Hong Kong (+852 2214 3764, [email protected])
Fang Xue – Beijing (+86 10 6502 8687, [email protected])
Qi Yue – Beijing (+86 10 6502 8534, [email protected])

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, [email protected])
Patrick Doris – London (+44 207 071 4276, [email protected])
Michelle M. Kirschner – London (+44 20 7071 4212, [email protected])
Penny Madden KC – London (+44 20 7071 4226, [email protected])
Benno Schwarz – Munich (+49 89 189 33 110, [email protected])

From the Derivatives Practice Group: This week, the SEC has a new Chairman, and the CFTC issued an important interpretative letter on certain FX products.

New Developments

Senate confirms Atkins as SEC chair. On April 9, the Senate voted 52-44 to confirm Paul Atkins as the next chair of the SEC. Atkins, a former SEC commissioner and a longtime financial industry consultant, was tapped in December by Donald Trump for the position. In his March 27 confirmation hearing before the Senate Banking Committee, Atkins indicated he would streamline the agency’s regulatory activity. Atkins is expected to be friendlier toward the financial industry than the previous SEC chair, Gary Gensler.
CFTC Releases Staff Letter Relating to Certain Foreign Exchange Transactions. On April 9, the CFTC’s Market Participants Division and Division of Market Oversight (“DMO”) issued an interpretative letter providing the Divisions’ views on the characterization of certain foreign exchange (“FX”) transactions as being “swaps,” “foreign exchange forwards,” or “foreign exchange swaps,” in each case, as defined in the Commodity Exchange Act. Specifically, the interpretative letter states: Window FX Forwards, as described in the letter, should be considered to be “foreign exchange forwards;” and Package FX Spot Transactions, as described in the letter, should not be considered to be “foreign exchange swaps” or “swaps.” [NEW]
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders. On April 8, CFTC Acting Chairman Caroline D. Pham praised a recently-announced Justice Department policy ending the practice of regulation by prosecution that has targeted the digital asset industry in recent years, and directed CFTC staff to comply with the President’s executive orders and Administration policy, consistent with DOJ’s digital assets enforcement priorities and charging considerations. The DOJ policy comes as Acting Chairman Pham has similarly refocused the CFTC’s enforcement resources on cases involving fraud and manipulation. [NEW]
CFTC Staff Issues No-Action Letter Regarding Pre-Trade Mid-Market Mark. On April 4, the CFTC’s Market Participants Division issued a no-action letter in relation to the Pre-Trade Mid-Market Mark (“PTMMM”) requirement in Regulation 23.431 for swap dealers and major swap participants. The CFTC first issued a no-action letter regarding the PTMMM requirement in 2012, shortly after the PTMMM compliance date, because it did not provide significant informational value and created costly operational challenges. Unlike prior no-action letters which provided relief nofor certain specified types of swaps, this relief under this no-action letter applies to all swaps and does not require advanced counterparty consent. [NEW]
Rahul Varma Named Acting Director of CFTC Division of Market Oversight. On April 2, CFTC Acting Chairman Caroline D. Pham announced Rahul Varma will serve as the Acting Director of the DMO. Varma joined the CFTC in 2013 as an Associate Director for Market Surveillance in DMO, with responsibility for energy, metals, agricultural, and softs markets. In 2017, he helped start the Market Intelligence Branch in DMO and served as its Acting Deputy Director. In 2024, he took on the role of Deputy Director for the combined Market Intelligence and Product Review branches.
CFTC Staff Withdraws Advisory on Review of Risks Related to Clearing Digital Assets. On March 28, the CFTC’s Division of Clearing and Risk (“DCR”) announced it is withdrawing CFTC Staff Advisory No. 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets, effective immediately. As stated in the withdrawal letter, DCR determined to withdraw the advisory to ensure that it does not suggest that its regulatory treatment of digital asset derivatives will vary from its treatment of other products.
CFTC Staff Withdraws Advisory on Virtual Currency Derivative Product Listings. On March 28, DMO and DCR announced they are withdrawing CFTC Staff Advisory No. 18-14, Advisory with Respect to Virtual Currency Derivative Product Listings, effective immediately. As stated in the withdrawal letter, DMO and DCR determined that the advisory is no longer needed given additional staff experience with virtual currency derivative product listings and increasing market growth and maturity.
ICE and Circle Sign MOU to Explore Product Innovation Based on Circle’s USDC and USYC Digital Assets. On March 27, Intercontinental Exchange Inc. (“ICE”), a leading global provider of technology and data, and Circle Internet Group, Inc. (“Circle”), a global financial technology company and stablecoin market leader, today announced an agreement whereby ICE plans to explore using Circle’s stablecoin USDC, as well as tokenized money market offering US Yield Coin (“USYC”), to develop new products and solutions for its customers. Under the MoU, Circle and ICE plan to collaborate to explore applications for using Circle’s stablecoins and other product offerings within ICE’s derivatives exchanges, clearinghouses, data services, and other markets, to deliver innovation and build new markets and product offerings based on Circle’s products.
Updated FIA Disclosures For New CFTC Rules. On March 24, the FIA announced that is has published updated versions of the FIA Uniform Futures and Options on Futures Risk Disclosures Booklet and FIA Template Disclosures Regarding Separate Accounts for new CFTC rules. Both documents are available in the “Regulatory Disclosures” section of FIA’s US Documentation Library. The CFTC approved new rules in December revising the list of permitted investments for Futures Commissions Merchants (“FCMs”) and DCOs in CFTC Regulation 1.25 (“1.25 Rule”) and codifying no-action relief governing treatment of separate accounts (“Separate Accounts Rule”). The 1.25 Rule requires FCMs and Introducing Brokers to use a revised form of the 1.55 risk disclosure statement for customers onboarded on or after March 31, 2025. The revised disclosure statement reflects the scope of permissible investments, as modified by the 1.25 Rule. The FIA Uniform Futures and Options on Futures Risk Disclosures Booklet is intended to assist FCMs in delivering mandatory customer disclosures under CFTC, exchange and Self-Regulatory Organization rules. Among the disclosures contained in the booklet is the FIA Combined Risk Disclosure Statement. That document has been updated in accordance with the 1.25 Rule to reflect the modified list of permissible investments.

New Developments Outside the U.S.

ESMA Publishes Consultation on Clearing Thresholds. On April 8, ESMA published a consultation on a revised approach to clearing thresholds under the European Market Infrastructure Regulation (“EMIR”) 3. The consultation covers the following topics: proposals for a revised set of clearing thresholds; considerations for hedging exemptions for non-financial counterparties; and a trigger mechanism for reviewing the clearing thresholds. [NEW]
FCA Publishes Policy Statement on the Derivatives Trading Obligation and Post-trade Risk Reduction Services. On April 3, the UK Financial Conduct Authority (“FCA”) published policy statement PS25/2 on changes to the scope of the UK derivatives trading obligation (“DTO”) and an extension of exemptions from certain obligations under the UK Markets in Financial Instruments Directive (“MIFID”) and MIFIR. [NEW]
ESMA Consults on Transparency Requirements for Derivatives Under MiFIR Review. On April 3, ESMA asked for input on proposals for Regulatory Technical Standards (“RTS”) on transparency requirements for derivatives, amendments to RTS on package orders, and RTS on input/output data for the over-the-counter (“OTC”) derivatives consolidated tape. ESMA said that it is developing various technical standards further specifying certain provisions set out in the Market in Financial Instruments Regulation Review. The consultation paper covers the following three areas: transparency requirements for derivatives, RTS on package orders, and RTS on input/output data for the OTC derivatives consolidated tape. The consultation will remain open until 3 July 2025.
ESMA Publishes Annual Peer Review of EU CCP Supervision CCP Supervisory Convergence. On April 2, ESMA published its annual peer review report on the supervision of European Union (“EU”) Central Counterparties (“CCPs”) by National Competent Authorities (“NCAs”). The peer review measures the effectiveness of NCA supervisory practices in assessing CCP compliance with the European Market Infrastructure Regulation (“EMIR”) requirements on outsourcing and intragroup governance arrangements. ESMA indicated, for this exercise, the review of the functioning of CCP colleges remains overall positive. ESMA also said that the peer review identified the need to promote further supervisory convergence in respect of the definition of major activities linked to risk management.
The European Supervisory Authorities Publish Evaluation Report on the Securitization Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitization Regulation. The report purports to put forward recommendations to strengthen the overall effectiveness of Europe’s securitization framework through simplification, while ensuring a high level of protection for investors and safeguarding financial stability. This report identifies areas where the regulatory and supervisory framework can be enhanced, supporting the growth of robust and sound securitization markets in Europe.
PRA, FCA Consult on Margin Requirements for Non-centrally Cleared Derivatives. On March 27, the UK Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority published CP5/25 – Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251. The consultation paper proposes to indefinitely exempt single-stock equity and index options from the bilateral margining requirements in the UK. In addition, it proposes to remove the requirement to exchange initial margin (“IM”) for legacy contracts once a counterparty falls out of scope of the margin requirements. It also proposes to permit UK firms, when transacting with a counterparty subject to the margin requirements in another jurisdiction, to use that jurisdiction’s threshold assessment calculation periods and dates of entry into the scope of IM requirements to determine whether those transactions are subject to IM requirements.
MAS Responds to Feedback on Proposed Changes to Capital Framework. On March 27, the Monetary Authority of Singapore (“MAS”) published its response to feedback received to the consultation paper on proposed amendments to the capital framework for approved exchanges and approved clearing houses. The consultation was later extended to licensed trade repositories. MAS’s response addresses liquidity requirements, eligible capital, and total risk requirements.
ESMA Makes Recommendations for the Supervision of STS Securitizations. On March 27, ESMA published its Peer Review Report on NCAs supervision of Simple, Transparent and Standardized (“STS”) securitizations. The Report looks into and provides recommendations on the supervisory approaches adopted by selected NCAs when supervising STS securitization transactions and the activities of their originators, sponsors and securitization special purpose entities. The Peer Review focused on the NCAs of France, Germany, Portugal, and the Netherlands.

New Industry-Led Developments

ISDA CEO Testifies Before House Financial Services Committee Task Force. On April 8, ISDA CEO Scott O’Malia testified on the implementation of mandatory US Treasury clearing before the House Committee on Financial Services Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. The testimony highlighted several key issues that need to be resolved before the clearing mandate comes into effect, including recalibration of the supplementary leverage ratio to ensure banks have the balance sheet capacity to provide intermediation and client clearing services in the US Treasury market, making changes to the proposed Basel III endgame and surcharge for global systemically important banks to avoid a disproportionate capital charge for client clearing businesses, and ensuring the margining and capital treatment of client exposures reflects the actual risk of a client’s overall portfolio. [NEW]
ISDA Responds to ESMA Consultation on CCP Model Validation. On April 7, ISDA responded to ESMA’s consultation on the draft RTS under article 49(5) of the EMIR, on the conditions for an application for validation of model changes and parameters under Articles 49 and 49a of EMIR, which have been revised as part of EMIR 3. In the consultation paper, ESMA sets out proposed quantitative thresholds and qualitative elements to be considered when determining whether a model change is significant. In the response, ISDA noted that more information would be necessary to understand the rationale behind the thresholds that are proposed. ISDA provided comments on ESMA’s interpretation of ‘concentration risk’ and on the proposed lookback period for assessing whether a change in significant. [NEW]
Cross-product Netting Under the US Regulatory Capital Framework. On April 4, ISDA, the Futures Industry Association (“FIA”) and the Securities Industry and Financial Markets Association (“SIFMA”) developed a discussion paper to: (i) provide an overview of cross-margining programs developed by clearing organizations and their importance in the context of implementing recent market reforms with respect to US Treasury securities clearing; (ii) describe cross-product netting arrangements with customers as a means to effectively reduce risk and their relation to cross-margining programs; (iii) describe the treatment of cross-product netting arrangements under the current US regulatory capital framework; and (iv) propose potential targeted changes to US regulatory capital rules to more appropriately reflect the economics of, and facilitate firms’ use of, cross-product netting arrangements with customers, particularly with respect to transactions based on US Treasury securities. [NEW]
ISDA/IIB/SIFMA Request to Extend 22-14. On April 3, a joint ISDA/IIB/SIFMA letter requested reporting relief for certain non-US swap dealers in Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom with respect to their swaps with non-US persons. The joint trade association letter, submitted to CFTC on 26 March 2025, requests an extension of the no-action relief in Letter 22-14 until the adoption and effectiveness of final rules addressing the cross-border application of Part 45/46. [NEW]
IOSCO Issues Final Report on Standards Implementation Monitoring for Regulator Principle. On April 2, IOSCO published a Final Report following its review of IOSCO Standards Implementation Monitoring (ISIM) for Regulator Principles 6 and 7, which address systemic risk and perimeter of regulation. IOSCO’s Objectives and Principles of Securities Regulation 6 and 7 stipulate that regulators should have or contribute to processes to identify, monitor, mitigate and manage systemic risk, as well as have or contribute to a process to review the perimeter of regulation regularly. This ISIM Review by IOSCO’s Assessment Committee found a high level of implementation across the 55 jurisdictions from both emerging and advanced markets. According to IOSCO, the report highlights some good practices and also identifies a few areas where there is room for improvement, observed primarily in some emerging markets. For example, the Report notes that some jurisdictions do not have clear responsibilities, definitions and regulatory processes with respect to systemic risk.
ISDA Sends Letter on Changes to the French General Tax Code. On March 31, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association sent a letter to the French tax authority about changes being made to Articles 119 bis A and 119 bis 2 of the general French tax code in the Loi des Finances pour 2025. In February, the French parliament passed budget legislation that broadened the application of withholding tax for both cleared and non-cleared derivatives involving payments related to manufactured dividends. In the letter, the associations request that detailed administrative guidelines are issued as soon as possible. The lack of guidelines makes it more difficult for the associations’ member firms to accurately determine the scope of the new legislation and calculation of the withholding tax when due. [NEW]
ISDA Responds to EC on Amendments to Taxonomy Regulation Delegated Act. On March 26, ISDA and the Association for Financial Markets in Europe submitted a joint response to the EC’s proposed changes to EU Taxonomy Regulation reporting. The associations indicated that they welcome the EC’s commitment in the context of the Omnibus sustainability package to reduce Taxonomy reporting burdens and provide swift relief to reporters. However, they also noted concerns over whether the proposals go far enough to achieve these objectives, opining that they would not provide sufficient reduction in reporting burdens for banks and their clients and they would not achieve meaningful disclosures. The responses sets our specific priority measures for consideration.

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])

The Monetary Authority of Singapore (MAS) has issued a consultation paper setting out proposed amendments to its anti-money laundering and countering the financing of terrorism (AML/CFT) Notices and Guidelines applicable to financial institutions and variable capital companies (VCCs).

The amendments aim to enhance AML/CFT measures, align with international standards and clarify existing supervisory expectations. The consultation period ends on 8 May 2025, with the amendments expected to take effect from 30 June 2025.

Proposed amendments

The proposed amendments—which apply across the financial sector to banks, merchant banks, finance companies, payment service providers, direct life insurers, capital markets intermediaries, financial advisers, the central depository, approved exchanges and recognised market operators, approved trustees, trust companies, non-bank credit and charge card licensees, digital token service providers (FIs) and VCCs—broadly cover the following areas:

Clarification of timelines for filing of suspicious transaction reports (STRs)

MAS proposes to amend the AML/CFT Guidelines to state that the filing of an STR should not exceed five business days after suspicion was first established, unless the circumstances are exceptional or extraordinary. In cases involving sanctioned parties and parties acting on behalf of or under the direction of sanctioned parties, FIs and VCCs should file the STRs as soon as possible and no later than one business day after suspicion was first established.

MAS also proposes to set out its supervisory expectations with respect to the controls and processes for timely review of suspicious transactions and mitigation of ML/TF concerns identified, such as the need for FIs and VCCs to identify, prioritise and promptly review concerns of higher ML/TF risks and escalate any such concerns to senior management where necessary.

MAS further intends to remove the requirement for FIs and VCCs to extend a copy of STRs filed to MAS for information and to replace it with a requirement for FIs and VCCs to extend a copy of STRs to MAS upon request.

Expanding the definition of money laundering (ML) to include proliferation financing (PF) and incorporating PF risk assessments in ML/TF risk assessments

MAS proposes to clarify that ML includes PF and that FIs and VCCs must include PF risk assessments in their ML/TF risk evaluations. This aligns with the latest Financial Action Task Force (FATF) Standards, which require FIs and designated non-financial businesses and professions to identify, assess, understand and mitigate PF risks. MAS further acknowledges that most FIs would likely already consider PF risks within their existing AML/CFT and sanctions compliance frameworks, in line with guidance issued by MAS over the years.

Updates to MAS Notice TCA-N03 for trust companies

MAS proposes to amend the wording of MAS Notice TCA-N03 to align with the Trustees Act 1967 and anticipated legislative changes, flowing from the revised FATF Recommendation 25. The amendments will broaden the definition of a trust relevant party and clarify the requirements for identifying all related parties to a legal arrangement and to collecting relevant information. Additionally, the amendments will mandate the collection of certain information about the legal arrangement, such as the full name, unique identifier, trust deed and the purpose for which the legal arrangement was established, in line with the FATF’s recommendations.

Other amendments to the AML/CFT Guidelines

MAS is also proposing further changes to clarify and reflect MAS’ supervisory expectations and guidance over the years. These amendments cover the areas of screening, source of wealth (SoW) and source of funds (SoF) establishment, as well as the characteristics of a higher-risk shell company. Key proposed amendments include:

Clarifying that ML/TF information sources for screening should include relevant search engines used in countries or jurisdictions closely associated with the person screened, and that screening should be conducted in the native language(s) of the person screened.
Ensuring processes are in place to share customer and related account information across business units, including customer due diligence and SoW information.
Providing staff with adequate guidance on identifying indicators of fraudulent or tampered data, documents, or information and ensuring timely application of appropriate ML/TF risk mitigation measures.
Various SoW and SoF-related clarifications, including the need for corroboration of SoW and SoF that are more material and/or present a higher risk for ML/TF and the assessment of the plausibility and legitimacy of SoW and SoF.
Clarifying the need to assess whether a further or supplementary STR is warranted when further suspicion is raised.
Including characteristics of a higher-risk shell company as examples of potentially higher-risk categories.
Including participation in a tax amnesty programme under examples of suspicious transactions related to tax crimes.
Replacing references to ‘settlors’ and ‘protectors’ with ‘trust relevant parties’ to reflect the expanded definition and replacing the term ‘trust’ with ‘legal arrangement’ in the Guidelines.

Concluding observations

The consultation paper underscores MAS’ ongoing efforts to maintain a robust and clear AML/CFT framework that meets international standards. The proposed amendments are also a significant step towards enhancing the effectiveness of AML/CFT measures across the financial sector. FIs and VCCs should thoroughly review these proposed amendments, evaluate their implications on current practices and provide feedback (if any) by 8 May 2025.

The following Gibson Dunn lawyers prepared this update: Hagen Rooke, Jun Qi Chin, QX Toh, and Nicholas Tok.

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. (+1 202.887.3632, [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])
Jun Qi Chin – Singapore (+65 6507 3622, j[email protected])
QX Toh – Singapore (+65 6507 3610, [email protected])
Nicholas Tok – Singapore (+65 6507 3621, n[email protected])
Arnold Pun – Hong Kong (+852 2214 3838, [email protected])
Jane Lu – Hong Kong (+852 2214 3735, [email protected])

Europe

03/19/2025

European Data Protection Board | Approval Procedure | Binding Corporate Rules

The European Data Protection Board (“EDPB”) published a document outlining the cooperation procedure for approving Binding Corporate Rules (“BCRs”) for both controllers and processors.

Drawing from practical experience of the previous version of the Guidelines on BCR approval, the procedure presented aims to streamline the approval of BCRs, promoting consistent data protection practices across organizations operating within the EU.

For more information: EDPB Website

03/05/2025

European Commission | Publication | European Health Data Space Regulation

On March 5, 2025, the European Health Data Space Regulation was published in the Official Journal of the European Union.

The regulation aims to establish a common framework for the use and exchange of electronic health data across the EU. It will also enhance individuals’ access to and control over their personal electronic health data, for instance, patients will have the right to restrict the access for health professionals to all or parts of their personal electronic health data exchanged though EHDS infrastructures. The regulation will enter into force on March 26, 2025, and will become applicable two years later.

For further information: European Commission Website and Official Journal of the EU

03/05/2025

European Data Protection Board | Coordinated Enforcement | Right to Erasure

On March 5, 2025, the European Data Protection Board (EDPB) published that they are launching a Europe-wide review of the right to erasure.

This initiative involves 32 data protection authorities across Europe. The aim is to evaluate how well the right to erasure, which allows individuals to request the deletion of their personal data, is being implemented in practice. The assessment will be conducted using a standardized questionnaire to analyze and compare procedures established by various data controllers. The results will be published in a report by the EDPB, highlighting best practices and areas for improvement.

For further information: EDPB Website

03/04/2025

European Commission | EU Adequacy Decision | Article 45 GDPR

On March 4, 2025, the European Commission proposed the first EU adequacy decision under Article 45 GDPR for an international organization.

The European Commission proposed an EU adequacy decision for the European Patent Organisation (EPO). The decision, based on Article 45 GDPR, finds EPO’s data protection rules comparable to the EU’s. The EPO is an international organization comprising the member states of the EU and various other European states to grant patents. The adequacy decision will enable safe data flow between the EU and EPO. Once adopted, companies in the EU can transfer data such as for patent applications to EPO without extra safeguards. The draft will be reviewed by the European Data Protection Board (EDPB) and other EU bodies before final adoption.

For further information: European Commission Website

France

03/27/2025

French Supervisory Authority | Work Program | 2025 Priorities

As part of its mission to guide professionals towards compliance, the French Data Protection Authority (“CNIL”) issued the main guidance materials it will issue in 2025.

The CNIL regularly issues soft law guidance (e.g., recommendations, guidelines, code of practice) to clarify the applicable law and provide best practices. In 2025, the CNIL will issue fact sheets on artificial intelligence (help professionals balance innovation and data subject rights), recommendations on the use of pixels in emails, and continue clarifying the use of dashcams.

For more information: CNIL Website [FR]

03/25/2025

French Supervisory Authority | Public Consultation | Connected Vehicles and Location Data

The French Supervisory Authority (“CNIL”) is submitting for public consultation a draft recommendation on the use of location data of connected vehicles.

The CNIL indicated that location data is considered as highly personal data as it can reveal individuals’ frequently visited places, habits, or areas of interest. The draft focuses on the use of connected vehicles by private individuals and aims at helping main actors to ensure compliance with GDPR principles. The public consultation will end on 20 May 2025. Any public or private actor can participate in the consultation.

For more information: CNIL Website [FR]

03/21/2025

French Supervisory Authority | Investigation | 2025 Priorities

The French Supervisory Authority (“CNIL”) announced its 2025 data protection priorities.

This year, the CNIL announced that it will focus on enforcing rules with respect to mobile app data collection, local government cybersecurity, penitentiary data management, and the enforcement of the right to erasure.

For more information: CNIL Website [FR]

03/05/2025

French Supervisory Authority | Guidelines | Case Law and Doctrine

The French Supervisory Authority (“CNIL”) published its “Tables Informatiques et Libertés” and its recap books (“Cahiers récapitulatifs”) for the year 2024.

The Tables are designed to give access to data professionals and academics to the CNIL’s doctrinal positions as well as case law from national and European courts. This tool allows practitioners to easily find precedents based on thematic classification.

For more information: CNIL Website [FR]

03/06/2025

French National Cybersecurity Authority | Strategic Plan | 2025-2027

The French National Cybersecurity Authority (“ANSSI”) published its strategic plan for 2025-2027.

The plan developed by ANSSI focuses on four key areas: (i) amplifying and coordinating the cyber response to the growing threat, (ii) developing the expertise needed to counter cyber threats, (iii) promoting effective European and international cyber action, and (iv) reinforcing the consideration of societal issues in ANSSI’s actions.

For further information: ANSSI Website [FR]

Germany

03/27/2025

German Federal Court of Justice | Judgement | GDPR and Competition Law

On March 27, 2025, the German Federal Court of Justice (BGH) ruled (I ZR 186/17) that a breach of information obligations by the controller may give rise to claims for injunctive relief under the German Act Against Unfair Competition (UWG). These can be pursued by consumer protection associations by way of an action before the civil courts.

According to the BGH, the Unfair Competition Act (UWG) and the Injunctions Act (UKlaG) provide for a legal basis under Article 80 Abs. 2 DSGVO for consumer protection associations to pursue violations of the GDPR. Consumer associations can take legal action against breaches of information obligations under Art. 12(1) and Art. 13(1)(c) and (e) GDPR, even without specific authorization from affected individuals. Breaches of data protection information obligations may constitute unfair competition if material information is withheld.

For further information: BGH Website [DE]

03/27/2025

German Federal Court of Justice | Judgement | GDPR and Competition Law

On March 27, 2025, the German Federal Court of Justice (BGH) ruled in two cases (I ZR 222/19, I ZR 223/19) that a breach of GDPR regulations regarding special categories of data by the controller may give rise to claims for injunctive relief under the German Act Against Unfair Competition (UWG). These can be pursued by competitors by way of an action before the civil courts.

According to the BGH, the Unfair Competition Act (UWG) provides a legal basis for competitors to pursue violations of the GDPR. In the decisions, the BGH ruled that a violation of Article 9(1) GDPR can be pursued by a competitor by way of a competition law action before the civil courts under Article 8(3)(1) UWG.

For further information: BGH Website (I ZR 222/19 [DE], I ZR 223/19 [DE])

03/20/2025

German Federal Office for Information Security | Certification | Cybersecurity Act

The German Federal Office for Information Security (“BSI”) was designated by the European Commission as the German certification body under the Cybersecurity Act.

The BSI is now the body in charge of the approval of applications from manufacturers seeking to obtain a European cybersecurity certificate for products with a high assurance level under the Implementing Regulation on the adoption of European Common Criteria-based cybersecurity certification scheme (EUCC).

For more information: BSI Website [DE]

03/19/2025

Hamburg Supervisory Authority | Recommendations | Data Retention

The Hamburg Supervisory Authority (“HmbBfDI”) recommends organizations to review and delete outdated data as part of a “digital spring cleaning”.

The HmbBfDI particularly recalls that, with the Fourth Bureaucracy Relief Act (BEG IV) , the federal legislator has reduced some retention periods defined under the German Fiscal and Commercial Codes, requiring businesses to adjust their data retention policies accordingly. In particular, the data retention period for accounting documents under tax law is reduced from ten to eight years which also affects the right to erasure under the GDPR.

For more information: HmbBfDI Website [DE]

03/13/2025

German Data Protection Conference | Statement | Data Act

On March 13, 2025, the German Data Protection Conference (DSK) published a statement on the implementation legislation for the EU Data Act.

The DSK, the conference of the independent data protection supervisory authorities of the German federal states, has published a position paper on the German legislation for the implementation of the EU Data Act, emphasizing the need for harmonized regulations across member states to be implemented effectively and in harmony with the legal requirements from the European legislation. The DSK criticizes the current German draft legislation in various aspects and emphasizes the interplay of EU regulations and their implementation in each member state, even in the case of regulation with direct application.

For further information: DSK Website [DE]

03/12/2025

Hamburg Supervisory Authority | Guest Orders | Online Retail

The Hamburg Supervisory Authority (“HmbBfDI”) announced having ordered a Hamburg-based online retailer to allow guest orders, without requiring users to create a customer account.

The HmbBfDI notes that in a resolution dated March 24, 2022, the German Data Protection Conference (DSK) stated that requiring users to create a customer account to place orders is incompatible with the principle of data minimization. As part of its enforcement actions, the HmbBfDI examined multiple online shops in January 2025 and will continue to monitor their practices. Online shops which are considered a marketplace do not have to allow guest orders.

For more information: HmbBfDI Website [DE]

03/06/2025

Bavarian Supervisory Authority | Guidance | Article 28 GDPR

On March 6, 2025, the Bavarian Supervisory Authority (“BayLDA”) published an updated version of their guidance on the correct classification of data controllers and data processors.

The new guidance focusses on explaining the different legal criteria for proper classification of controllers and processors by providing detailed elaborations on the exact wording of the GDPR to facilitate case by case decisions.

For further information: BayLDA Website [DE]

03/2025

German Supervisory Authorities | Activity Reports

In March 2025, several Supervisory Authorities published their annual Activity Reports.

In addition to the increasingly important interplay between AI regulations and the GDPR, the reports also focus on data protection in employment contexts. By way of example, the Supervisory Authority of Bremen (LfDI Bremen) highlighted that video surveillance of areas frequented by employees is only permissible in non-sensitive areas and always demands an assessment of interests. The Bavarian Supervisory Authority (LDA Bayern) recommends that the publishing of images of employees after their employment ends should be contractually agreed upon in advance to ensure GDPR compliance.

For further information: LfDI Baden-Württemberg Website [DE], LfDI Bremen Website [DE], LfDI Sachsen Website [DE] and LDA Bayern Website [DE]

02/25/2025

Higher Regional Court of Stuttgart | Judgement | Data Processing and Employment

In a recent decision (2 ORbs 16 Ss 336/24), the Higher Regional Court of Stuttgart (OLG Stuttgart) dealt with the so-called employee excess in data protection law. Of practical relevance is the OLG’s classification of when employees, who process personal data for non-work purposes, become data controllers themselves.Thus replacing the employer as addressee of potential GDPR fines.

If the data protection breach is committed deliberately and intentionally for reasons unrelated to work, the employee may be considered as an independent controller not solely acting contrary to employer instructions.

For further information: Official Court Website [DE]

02/21/2025

Higher Administrative Court of Bavaria | Judgement | Access to Controller Agreements

On February 21, 2025, the Higher Administrative Court of Bavaria (VGH Bayern) ruled (7 ZB 24.651) that data subjects cannot demand access to data processing agreements as part of their information rights under Art. 15 GDPR.

Art. 15 GDPR only grants data subjects a right to access their own personal data. The court argues that the supervisory authorities and not the data subjects are responsible for monitoring the application of the GDPR, including the data processing agreements and its requirements between a controller and the processor.

For further information: Official Court Website [DE]

Ireland

03/07/2025

Irish Supervisory Authority | Complaints | Data Access Requests

The Irish Supervisory Authority (“DPC”) has published a blog post on how it handles complaints related to data subjects’ access requests.

The DPC states that it regularly deals with complaints from data subjects concerned that their access requests have not been fulfilled. The authority details how it determines the validity of the restrictions that organizations use to refuse access requests, emphasizing that each restriction must be justified on an evidential basis.

For more information: DPC Website

03/05/2025

Irish Government | AI Act | Designation of Competent Authorities

The Irish Government approved the designation of eight public authorities as competent authorities, responsible for implementing and enforcing the AI Act.

These authorities are the Central Bank of Ireland, the Commission for Communications Regulation, the Commission for Railway Regulation, the Competition and Consumer Protection Commission, the Data Protection Commission, the Health and Safety Authority, the Health Products Regulatory Authority, the Marine Survey Office of the Department of Transport. Additional authorities, as well as a lead regulator, will be designated through a forthcoming decision.

For further information: Irish Government Website

Netherlands

03/06/2025

Dutch Supervisory Authority | Public Consultation | Human Intervention in Algorithmic Decision-making

The Dutch Supervisory Authority (“AP”) launched a public consultation on the tools it has developed to enable meaningful human intervention in algorithmic decision-making.

The AP recalls that organizations using algorithmic decision-making must comply with the obligation to ensure human intervention. Such intervention must be meaningful — not merely symbolic — and designed to guarantee that decisions are made carefully, without discrimination. Organizations must also ensure that human intervention is not undermined by factors such as time pressure or lack of knowledge about the system.

For further information: AP Website [NL]

United Kingdom

03/28/2025

Information Commissioner’s Office | Guidance | Data Anonymisation

The Information Commissioner’s Office (“ICO”) has published new guidance on data anonymisation.

This guidance explains the distinction between anonymisation and pseudonymisation, discusses what should be considered when anonymizing personal data, provides good practice advice and case studies, and discusses technical and organisational measures to mitigate the risks to people. It applies to all mediums, including tabular data, free text, video, images, and audio.

For more information: ICO Website

03/27/2025

Information Commissioner’s Office | Fine | Hacker Attack

The Information Commissioner’s Office (“ICO”) imposed a fine of £3.07 million (approx. €3.67 million) on a computer software company for security failures that compromised the personal data of 79,404 individuals.

In 2022, the company suffered a ransomware attack that was initiated through a customer account. The attack affected personal data processed on behalf of multiple organizations, including the National Health Service and healthcare providers. The ICO found that the software provider failed to implement appropriate technical and organizational measures in accordance with Article 32 of the GDPR (e.g., lack of multi-factor authentication, insufficient vulnerability scanning, and inadequate patch management).

For more information: ICO Website

03/24/2025

Information Commissioner’s Office | Notice of Intent | Data Breach

The Information Commissioner’s Office (“ICO”) issued a notice of intent to fine a DNA testing company £4.59 million (EUR 5.5 million).

The ICO had launched a joint investigation with the Office of the Privacy Commissioner of Canada (“OPC”) after the company reported a data breach in October 2023. The breach concerned genetic information which the ICO considers is “among the most sensitive personal data that a person can entrust to a company”.

For more information: ICO Website

03/01/2025

Information Commissioner’s Office | Code of Practice | Children’s Data Protection

The Information Commissioner’s Office (“ICO”) has updated its Children’s Code of Practice to enhance the protection of children’s data in the digital world.

The revised code includes stronger guidelines for businesses regarding age-appropriate design and data minimization principles, aiming to ensure children’s privacy online. The code highlights the importance of high privacy by default settings, limitation of the processing of geolocation data, and switching off by default targeted advertisement for children.

For further information: ICO Code of practice and Press release

The following Gibson Dunn lawyers prepared this update: Ahmed Baladi, Vera Lukic, Kai Gesing, Joel Harrison; Thomas Baculard, Billur Cinar, Hermine Hubert, Christoph Jacob, and Yannick Oberacker.

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, the authors, or any leader or member of the firm’s Privacy, Cybersecurity & Data Innovation practice group:

Privacy, Cybersecurity, and Data Innovation:

United States:
Abbey A. Barrera – San Francisco (+1 415.393.8262, [email protected])
Ashlie Beringer – Palo Alto (+1 650.849.5327, [email protected])
Ryan T. Bergsieker – Denver (+1 303.298.5774, [email protected])
Keith Enright – Palo Alto (+1 650.849.5386, [email protected])
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, [email protected])
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, [email protected])
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, [email protected])
Lauren R. Goldman – New York (+1 212.351.2375, [email protected])
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, [email protected])
Natalie J. Hausknecht – Denver (+1 303.298.5783, [email protected])
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, [email protected])
Martie Kutscher Clark – Palo Alto (+1 650.849.5348, [email protected])
Kristin A. Linsley – San Francisco (+1 415.393.8395, [email protected])
Timothy W. Loose – Los Angeles (+1 213.229.7746, [email protected])
Vivek Mohan – Palo Alto (+1 650.849.5345, [email protected])
Rosemarie T. Ring – San Francisco (+1 415.393.8247, [email protected])
Ashley Rogers – Dallas (+1 214.698.3316, [email protected])
Sophie C. Rohnke – Dallas (+1 214.698.3344, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213.229.7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650.849.5395, [email protected])
Frances A. Waldmann – Los Angeles (+1 213.229.7914,[email protected])
Debra Wong Yang – Los Angeles (+1 213.229.7472, [email protected])

Europe:
Ahmed Baladi – Paris (+33 1 56 43 13 00, [email protected])
Patrick Doris – London (+44 20 7071 4276, [email protected])
Kai Gesing – Munich (+49 89 189 33-180, [email protected])
Joel Harrison – London (+44 20 7071 4289, [email protected])
Lore Leitner – London (+44 20 7071 4987, [email protected])
Vera Lukic – Paris (+33 1 56 43 13 00, [email protected])
Lars Petersen – Frankfurt/Riyadh (+49 69 247 411 525, [email protected])
Christian Riis-Madsen – Brussels (+32 2 554 72 05, [email protected])
Robert Spano – London/Paris (+44 20 7071 4000, [email protected])

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, [email protected])
Jai S. Pathak – Singapore (+65 6507 3683, [email protected])

In this update, we discuss certain considerations as compensation decisionmakers navigate this period of macroeconomic uncertainty.

During any period of business uncertainty, board and compensation committee members, executive management teams and human resources leaders will feel pressure to act quickly. A singular proven strategy underscored successful compensation decisions through both the 2008 financial crisis and the COVID-19 pandemic—zoom out far enough to see the full picture and act in a manner that is systematic and consistent with your organization’s broader philosophy (including your compensation philosophy) and mission.

As compensation-decision makers navigate this period of macroeconomic uncertainty, there are many considerations to keep in mind. Below, in no particular order, are a few that we see arise time and time again.

1. The Road to a 409A Issue is Paved with Good Intentions

An executive or other service provider may elect to forego current compensation to conserve free cash flow, for internal or external optics, or other reasons relevant to the company. Salary and perquisites tend to be the first looked to for adjustment, with bonuses and long-term compensation trailing. Regardless of the bucket of compensation reduced or eliminated, a service provider who agrees to a reduction may ask for a “make-whole” or similar commitment from the company.

This can raise the specter of Internal Revenue Code Section 409A in two key ways: (1) creating new deferred compensation, and (2) impermissibly deferring compensation from one year to the next. The former impacts how the compensation can be structured, can limit flexibility to amend or terminate the arrangement in the future, and can result in payroll tax being incurred in an earlier year than the compensation is delivered. Impermissibly deferring compensation from one year to the next can come with accelerated income inclusion, a hefty 20% additional tax to the service provider, and potential reporting and withholding consequences to the employer.

In any case where a service provider forgoes compensation otherwise promised, and especially if there is an element of a “make-whole” or similar commitment, this should be structured carefully and in coordination with counsel.

2. Sneaky Stock Price Surprises

In any volatile economic environment, shareholders, board members, executives, and employees may all be intently watching a company’s stock price. For purposes of compensation, it is important to not lose sight of how stock price can impact existing compensation programs as adjustments may need to be made to avoid unintended windfalls or unintended reductions in the value of employee awards.

Companies often approve equity grants based on a grant date value concept—in its simplest form, a dollar amount divided by a share price on a specific date. Where grant date value has been set over a period of lower volatility, a company may fall into a rhythm where grant date value benchmarking follows a steady trend based on the peer group or industry. In a highly volatile environment, however, using a grant date value that was determined based on benchmarking conducted months before the period of volatility began can result in delivering significantly more shares than originally anticipated to satisfy the intended grant date value. This can result in an unintended windfall to the employee (especially if the stock price subsequently rebounds) and in share management issues under the company’s equity incentive plan, which could force the company to ask shareholders to approve an increase in its equity incentive pool sooner than it may have expected and in the midst of share price volatility.

3. A Smooth In-Flight Experience

Lastly, the enticement to take swift action to modify in-flight short- and long-term incentive awards may be tempting whether it is driven by retention risk, the consistent repetition in public disclosure indicating that performance goals were not achieved (for public companies), or other reasons.

Immediate changes, however, can be a third rail with investors. Companies would be well-advised to take a measured approach that includes careful monitoring of external economic factors, especially ones that are specific to their industry.

On the other hand, a company in the process of establishing new compensation programs or setting new goals during periods of economic bumpiness can look towards adjusting altitude to smooth out the journey, rather than making in-flight changes. For example, splitting a full-year annual incentive plan into two six-month programs—where the second performance period builds off (and in so doing accounts for) events occurring during the first—can help keep employees engaged and motivated to achieve realistic performance goals. For long-term awards, we would expect relative performance metrics to continue as a mainstay in award design and some award design alternatives, like target performance ranges, shorter performance periods, and simpler performance targets with longer holding periods in the post-vesting period, to come to the forefront. In both cases, retaining discretion to allow for appropriate adjustments to performance metrics to account for unanticipated events is important.

At the end of the day, whether companies are facing economic uncertainty or economic stability, compensation decisions should be made thoughtfully and with the broader company in mind. This does not mean that companies, boards, compensation committees, or executive teams should sit back and wait. A learn-and-see model that involves consistent review of relevant data sets, coordinating with external advisers, and leaving aside one-size-fits-all programs in favor of understanding practices specific to the industry will serve best.

The following Gibson Dunn lawyers assisted in preparing this update: Krista Hanvey, Sean Feller, Michael Collins, Kate Napalkova, and Gina Hancock.

Please also view this and additional information on Gibson Dunn’s Securities Regulation and Corporate Governance Monitor Blog.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these developments, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Executive Compensation and Employee Benefits practice group, or the authors:

Sean C. Feller – Los Angeles (+1 310.551.8746, [email protected])
Krista Hanvey – Dallas (+1 214.698.3425, [email protected])
Michael J. Collins – Washington, D.C. (+1 202-887-3551, [email protected])
Kate Napalkova – New York (+1 212.351.4048, [email protected])
Gina Hancock – Dallas (+1 214.698.3357, [email protected])

Reciprocal Tariffs and Mitigation Strategies for Global Supply Chains

On April 2, 2025, President Trump issued Executive Order 14257 (the “Order”) imposing “reciprocal tariffs” on virtually all U.S. trading partners, invoking the broad presidential authority to regulate foreign commerce under the International Emergency Economic Powers Act of 1977 (IEEPA), and raising U.S. tariff rates to levels not seen in over a century. President Trump’s announced tariffs represent an unprecedented shift in U.S. trade policy and have already generated challenges to his unilateral exercise of tariff authority under IEEPA in the courts and on Capitol Hill. Amid the shock to global markets and policymakers—as well as longer-term anxieties about global trade and inflation—uncertainty remains about just how long the tariffs may remain in place. Although certain tariffs took effect on April 5, 2025, with others to follow on April 9, 2025, these measures could be altered at any time through presidential action (the Order allows the president to increase or decrease duties as the president determines is required by the economic and national security interests of the United States), judicial orders, or a bipartisan congressional response. In this client alert, we discuss (based on current circumstances) the scope, substance, and implications of these unprecedented tariffs, including under what authority President Trump has imposed them, how key U.S. trading partners have responded, how they are being challenged, and what companies affected by the tariffs should know moving forward.

President Trump’s April 2 Order

As required under IEEPA, the president issued an Order on April 2 declaring a national emergency arising from conditions in the global trading system that have resulted in large and persistent annual U.S. deficits in the cross-border trade of goods, which the Order notes have “grown by over 40 percent in the past 5 years alone, reaching $1.2 trillion in 2024.” Citing a host of causes for such trade deficits in the domestic policies of foreign trading partners—including tariffs imposed on goods originating from the United States, licensing restrictions and technical barriers, inadequate intellectual property protections, government subsidies, discriminatory requirements perceived to disadvantage U.S. companies, low labor and environmental standards, currency manipulation, and corruption, among other factors—President Trump announced a “universal” 10 percent additional ad valorem duty on all imports from all trading partners (except Canada and Mexico, which are subject to separate tariff measures already in place) that in effect sets a baseline, plus what is described as a “reciprocal” ad valorem duty for certain trading partners listed in Annex I to the Order, which establishes higher duty rates of between 11 and 50 percent for 83 specified countries.[1]

The additional duties applicable to goods imported from some of the United States’ most significant trading partners are set forth in the table below. In general, the rates below are in addition to other duties imposed under U.S. law, except where the Order sets forth particular exemptions.

Country	Selected Countries’ Reciprocal Duty Rates
Cambodia	49%
Vietnam	46%
Sri Lanka	44%
Bangladesh	37%
Thailand	36%
China	34%
Taiwan	32%
Indonesia	32%
Switzerland	31%
South Africa	30%
Pakistan	29%
India	26%
South Korea	25%
Japan	24%
Malaysia	24%
European Union	20%
Israel	17%
Philippines	17%
United Kingdom	10%
Brazil	10%
Singapore	10%
Chile	10%
Australia	10%
Turkey	10%
Colombia	10%

These tariffs represent President Trump’s latest, dramatic break with longstanding U.S. trade policies. The recently announced universal and reciprocal tariffs together raise the United States’ average effective tariff rate on imported goods to above 20 percent, the highest rate since the Taft administration in 1909. The last period of sustained tariff rate increases was during the early 1930s, when President Herbert Hoover signed the Smoot-Hawley Tariff Act to raise tariffs on over 20,000 types of imported goods, which, together with retaliatory measures imposed by other nations, deepened and prolonged the Great Depression.

Scope and Effective Dates of Universal Tariff and Reciprocal Tariffs

The Order provides that all articles imported into the customs territory of the United States shall be subject to an additional ad valorem rate of duty of 10 percent. This universal baseline tariff took effect on 12:01 a.m. eastern daylight time on April 5, 2025, and applies to all countries exporting to the United States, except Canada and Mexico.

In addition to the universal baseline tariff, the Order imposes individualized increased duty rates on trading partners enumerated in Annex I to the Order. The individualized tariff rates will take effect on 12:01 a.m. eastern daylight time on April 9, 2025, and will replace the baseline tariff where they apply.

The Order notes that the country-specific increased ad valorem rates of duty apply to articles even if they are imported pursuant to the terms of an existing U.S. trade agreement (other than the United States-Mexico-Canada Agreement (USMCA), as discussed below). In addition, the rate of duty established by the Order is in addition to any other duties, fees, taxes, exactions, or charges applicable to the imported articles, unless the items are eligible for an exemption set forth in the Order.

Exemptions

The Order sets forth a series of exemptions that appear calculated to de-conflict the duties with some, but not all, of the prior tariff actions announced by the second Trump administration. The exemptions include:

Items that are exempt from regulation under IEEPA, such as informational materials and donations of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering;
Articles and derivatives of steel and aluminum that are subject to previously imposed 25 percent duties under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), a statute that authorizes the president to impose duties on articles that the U.S. Department of Commerce has determined are imported into the United States in quantities or under circumstances that threaten to impair national security;
Automobiles and automotive parts subject to additional 25 percent duties under a separate Section 232 action announced by President Trump on March 26, 2025;
Other items enumerated in Annex II to the Order, including copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy and energy products (the Trump administration has separately announced its intent to investigate most of these items under Section 232);
Articles from countries that do not have Permanent Normal Trade Relations (PNTR) with the United States, which presently includes Cuba, North Korea, Russia and Belarus (imports from these countries are subject to punitive tariffs, and may also be separately subject to restrictions under sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control); and
All articles that may become subject to duties pursuant to future actions under Section 232.

Treatment of Articles from Canada and Mexico

The Order is calibrated to not immediately affect goods imported from Canada or Mexico, which are the subject of previously announced tariffs imposed under IEEPA. Specifically, on February 1, 2025, President Trump announced the imposition of an additional 25 percent ad valorem rate of duty on all articles that are products of Canada or Mexico, except for a separate 10 percent additional ad valorem rate of duty for energy resources from Canada or potash from either Canada or Mexico. Those earlier tariffs were imposed pursuant to IEEPA and were characterized by President Trump as a response to inflows of illegal drugs and migrants at the U.S. northern and southern borders. After negotiations with Ottawa and Mexico City, the Trump administration delayed the effective date of these duties to March 4, 2025, and following negotiations with the automotive industry, the tariffs were also amended to exempt articles eligible for duty-free entry under the terms of the USMCA.

The Order does not disturb this arrangement. However, it notes that, in the event that the president’s prior executive orders imposing the duties on imports from Canada and Mexico are terminated or suspended (for example, by a congressional resolution to terminate the national emergencies at the northern and southern borders, or a determination by President Trump that those emergencies are no longer present), then the Order would operate to impose an ad valorem rate of duty of 12 percent on goods that do not qualify for preferential treatment under the USMCA.

Treatment of Articles from China

On February 1, 2025, President Trump issued an executive order imposing an additional 10 percent ad valorem rate of duty to all articles that are products of the People Republic of China (PRC) or of Hong Kong, citing a national emergency with respect to illegal drugs entering the United States and the PRC’s alleged failure to arrest, seize or otherwise intercept chemical precursor suppliers and money launderers connected to the illegal drug trade. President Trump subsequently increased such duties on China to 20 percent, effective March 4, 2025, citing the PRC’s continued failure to adequately respond to the emergency. These prior IEEPA-based tariffs were also (and, as of today, remain) cumulative to tariffs that already apply to goods from China, including duties imposed under the Harmonized Tariff Schedule of the United States (HTSUS), antidumping and countervailing duty orders (ADD/CVD) entered by the U.S. Department of Commerce related to particular categories of goods, duties imposed under Section 301 of the Trade Act of 1974 (“Section 301”), and certain national security related duties imposed on particular products under Section 232.

The Order does not provide exceptions for China-origin articles subject to the previous 20 percent IEEPA-based tariffs, nor does it exempt items subject to the Section 301 tariffs targeting China (which imposed duty rates between 7.5 percent and 25 percent on most goods from China, including electronics, semiconductors, textiles, and more). As a result, China-origin goods will be, upon the entry into force of the reciprocal rate on April 9, 2025, subject to a 54 percent tariff virtually across the board under IEEPA, with additional HTSUS, Section 301, and ADD/CVD duties potentially applicable. The reciprocal duty applies to goods from mainland China, as well as to goods from Hong Kong and Macau.

As of April 8, 2025, President Trump had announced that he would raise the reciprocal rate applicable to goods of China and Hong Kong even further, by an additional 50 percent, in response to retaliatory measures announced by Beijing.

Table: Illustration of selected China-related tariffs imposed by the United States (table does not include ADD/CVD rates or other remedial duties that may apply to particular categories of goods)

Tariff Program	Rate
Average effective tariff rate on imports from China, pre-IEEPA tariffs (HTSUS, plus Section 301)	approx. 11%[2]
IEEPA tariffs related to the opioid emergency	20%
IEEPA tariffs related to the trade deficit emergency	34%
(IEEPA tariffs responding to PRC retaliatory measures)	(50%)
Cumulative, approximate average duty rate on articles from PRC, Hong Kong, and Macau (actual rates for particular items are likely to be higher or lower than 65%, which is an approximate average)	approx. 65% (or 115%)

Other Limitations: Goods With At Least 20 Percent U.S.-Origin Content

The reciprocal duty applies only to the non-U.S. content of a subject article, provided that at least 20 percent of the value of the subject article originates from the United States. Under the Order, “U.S. content” refers to the value of an article attributable to the components produced entirely, or substantially transformed in, the United States. U.S. Customs and Border Protection (CBP) is authorized to require documentation to verify the value of the U.S. content.

Articles Entered Into Foreign Trade Zones

The Order provides that subject foreign items that are admitted into a Foreign Trade Zone (FTZ) on or after April 9, 2025, must be admitted with “privileged foreign status” (PF status), as defined at 19 C.F.R. § 146.41. PF status locks in the duty rate of an item on the basis of its condition and origin as it enters the FTZ, and this duty rate cannot be changed by subsequent processing, assembling, manufacturing, or substantial transformation in the FTZ. Therefore, if an item enters an FTZ under PF status, undergoes substantial transformation, and is removed from the FTZ (other than for export), CBP will charge the original duty rate as determined upon admission to the zone.

Availability of De Minimis Exception

The de minimis statutory exemption has allowed many shipments valued at $800 or less to enter the United States duty-free. The Order states that duty-free de minimis treatment (governed by the terms at 19 U.S.C. 1321(a)(2)(A)-(B)) remains available for now. However, the Order indicates that this exemption will be removed, once the secretary of commerce notifies the president that “adequate systems are in place” to process and collect duties from such shipments. Further, as discussed below, another executive order, also issued on April 2, 2025, eliminates de minimis treatment for shipments from China and Hong Kong, effective May 2, 2025. That order is the first announcement of a mechanism to collect duties on this high-volume type of shipment and may indicate a path toward removing the exemption for goods from countries other than China.

Modification Authority – Up or Down

The Order specifies that the president may modify the tariffs, if the action is “not effective in resolving the emergency conditions described above” by reducing the United States’ overall trade in goods deficit or reducing non-reciprocal arrangements of U.S. trading partners. Further, the president has warned that he will consider increasing the duty rates, or their scope, in response to retaliation by a foreign country against goods imported from the United States. For example, as noted above, after China responded to President Trump’s Order by announcing matching 34 percent tariffs on U.S. goods, the president threatened to impose an additional 50 percent tariff on Chinese goods.

Conversely, should a foreign country take “significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters,” the president will consider decreasing the duties or limiting their scope. Finally, should U.S. manufacturing capacity continue to worsen, the president may increase the duties imposed under the Order.

Executive Order Closing De Minimis Exemption for Low-Value Imports from China and Hong Kong

Also on April 2, President Trump signed Executive Order 14256, which eliminates duty-free de minimis treatment under section 321(a)(2)(C) of the Tariff Act of 1930 for low-value goods imported from the PRC or Hong Kong, effective May 2, 2025. Under the terms of this executive order, international postal items valued at or under $800 will face a duty rate of either 30 percent of their value or $25 per item, increasing to $50 per item on June 1, 2025. Low-value shipments of articles from the PRC or Hong Kong that enter the United States other than through the international postal network are subject to formal entry requirements and are subject to all applicable duties. The Order directs the secretary of commerce to submit a report within 90 days recommending whether to also close the de minimis exemption for imports from Macau, to avoid circumvention of these measures.

According to an accompanying “fact sheet” released by the White House, this executive order aims to “counter[] the ongoing health emergency posed by the illicit flow of synthetic opioids into the U.S.” by “targeting deceptive shipping practices by Chinese-based shippers, many of whom hide illicit substances, including synthetic opioids, in low-value packages to exploit the de minimis exemption.”

Although the de minimis exemption currently remains available for shipments of goods valued at or under $800 that are imported from other jurisdictions, the two April 2, 2025, executive orders make clear that the Trump administration is contemplating closing the de minimis exemption for some—and possibly all—of the other imports to which it still applies. Whether international carriers are able to effectively navigate these new requirements will be a bellwether for the fate of the de minimis exception for goods originating from other countries.

Historical Context

The April 2, 2025, tariff actions—styled by President Trump as “Liberation Day”—represent a seismic shift in the United States’ approach to international trade. Since the liberalization of global trade beginning in the 1940s, tariffs or similar restrictions on imports have generally been used—or threatened—selectively to protect specific industries. One exception was a 10 percent across-the-board ad valorem tariff imposed by President Richard Nixon in 1971 as part of an effort to negotiate monetary policy with the Group of Ten. In an indication of the decisive, long-term trend away from the use tariffs following the Second World War, the effective average tariff rate in the United States had decreased to less than five percent by the 2010s.

President Trump’s so-called reciprocal tariff announcement relies on a historical justification for the imposition of higher tariffs. Until the introduction of the U.S. federal income tax via a constitutional amendment in 1913, tariffs were among the largest sources of federal revenue. The Smoot-Hawley tariffs, however, had a different purpose: to shield U.S. industry from foreign competition during the nascent Great Depression. Since the 1940s, tariffs have had a negligible impact on federal revenue and have instead been developed on a multilateral or bilateral basis for broader economic purposes, including protecting or redeveloping sectors of the U.S. economy, including the automotive manufacturing, steel and aluminum production, and agricultural industries. Presidnet Trump’s tariffs draw on this tradition to justify the dramatic increases in the effective tariff rates for virtually all of the United States’ trading partners, stating that the increased tariffs are designed to reverse “the decline in American manufacturing” and ensure “[t]he future of American competitiveness.” However, it is evident that at least part of the attraction is the claimed ability for tariffs to lead to significant revenue for the federal government.

President Trump’s tariff actions to date also signify the culmination of a broad shift in tariff policy-making power from Congress to the president. Tariff policy in the United States has historically been the domain of Congress, which is expressly empowered to impose tariffs under Article I, Section 8 of the U.S. Constitution. Since the 1930s, the Congress has periodically delegated tariff-related authorities to the president, albeit under carefully delineated circumstances.

Key statutes expanding the president’s power to control tariff policy include the Reciprocal Tariffs Act in 1934 (which granted President Franklin Roosevelt the power to negotiate tariff reduction agreements with foreign nations), the Trade Expansion Act of 1962 (which allows the president to call for an investigation of imports that threaten national security and impose tariffs in response to affirmative findings, among other actions), and the Trade Act of 1974 (which empowers the U.S. Trade Representative to impose tariffs against “unjustifiable,” “unreasonable,” and “discriminatory” trade actions by other nations, among other actions). In addition and importantly, in the past the Congress has authorized the president to negotiate multilateral trade agreements under special “fast track” legislation permitting passage of implementing legislation pursuant to an “up or down vote” in the Congress without the possibility of amendments. President Trump’s unilateral tariff action therefore constitutes both a departure from more than 70 years of liberalized global trade policy and—in the absence of a legal challenge or significant congressional action—a dramatic expansion of the executive’s authority to impose tariffs.

Initial Reactions

The reciprocal tariff actions announced by President Trump in April 2025 have sent shockwaves through the global trading system. EU officials have called the reciprocal tariff actions “brutal and unfounded,” “an immense difficulty for Europe,” and “a major blow to the world economy.” While leaders maintain that they can—and should—negotiate with the United States to lower trade barriers, they have also declared their readiness to impose countermeasures in response to the reciprocal tariffs and earlier tariffs on steel and aluminum imports, for which the European Union is finalizing a package of tariffs on up to 26 billion euros of U.S. industrial and agricultural goods. Indeed, in response to this new round of tariffs, EU members state and officials are considering more unconventional responses to the Trump administration’s trade actions, including the addition of digital services—a major U.S. export to the European Union—to the list of U.S. industries subject to duties, taxes, or penalties. This would likely further the Trump administration’s concerns that Brussels is targeting U.S.-based “big tech” companies with over-reaching regulation.

In response to what was described as the Trump administration’s “unwarranted and unjustified tariffs that will fundamentally change the international trading system,” Canadian prime minister Mark Carney announced the imposition of 25 percent tariffs on U.S. vehicles that are not compliant with the USMCA, as well as on non-Canadian and non-Mexican components of USMCA-compliant vehicles imported from the United States. Canada has to date otherwise refrained from immediate countermeasures in light of President Trump’s decision not to impose full reciprocal tariffs on Canada.

Other immediate reactions to President Trump’s orders ranged from the imposition of retaliatory measures to expressions of confidence in trade relations with the United States and hopefulness for negotiations. It remains to be seen whether a more cautious and conciliatory approach will lead to tariff relief for certain countries.

China’s Retaliatory Measures

China, the fourth-largest importer of U.S. goods and third-largest source of U.S. imports, took a more active approach to countering the president’s announced tariffs. On April 4, 2025, China’s Finance Ministry announced that it will match President Trump’s new 34 percent tariffs on Chinese goods with its own 34 percent retaliatory tariff on imports from the United States.

In addition to the 34 percent tariff, China also announced a range of other retaliatory measures on April 4, including the following:

China’s Ministry of Commerce added 11 U.S. companies to its list of so-called “unreliable entities,” which bars them from engaging in all import and export activities in China and making new investments in China.
Beijing added 16 U.S. entities to its export control list, which prohibits exports of dual-use items to the listed firms. Nearly all of the firms so targeted operate in the defense and aerospace industries.
The Ministry of Commerce announced the launch of an anti-dumping probe into imports of certain medical computed tomography tubes from the United States and India.
Beijing launched an anti-monopoly investigation into the PRC subsidiary of a major U.S. chemical company.
Beijing announced export controls on seven types of rare earth minerals to the United States, which are vital to end uses ranging from electric cars to defense. Notably, the United States imports its rare earth materials predominantly from China, which produces approximately 90 percent of the world’s supply.

In response to China’s retaliatory measures, President Trump on April 7 threatened the imposition of a further 50 percent tariff on Chinese goods, which would increase the potential baseline tariff rate on many Chinese goods to 104 percent. In the absence of indications of de-escalation between China and the United States, the possibility of additional tit-for-tat escalatory measures appears to be increasing.

Compliance and Mitigation

In today’s deeply interwoven global trading system, the imposition of nearly across-the-board universal and reciprocal U.S. tariffs poses complex challenges for a wide array of industries and companies both within and outside of the United States. We discuss several compliance considerations and possible mitigation strategies to address these challenges below.

Transactions Between Related Parties

The Trump administration’s sweeping changes to cross-border trade place greater scrutiny on, and raise new risks related to, multinationals’ compliance with overlapping yet dueling customs-valuation and transfer-pricing regimes used to determine the transaction price for the cross-border sale of goods between related parties into the United States. The amount of a tariff depends on the value of the goods subject to the tariff and the origin of the good. Related parties have the ability to adjust both values and origin of the sale, subject to customs and transfer-pricing rules and restrictions—both of which will be affected by the Trump administration’s sweeping changes and retaliatory responses by foreign countries.

To the extent the costs of tariffs, which are imposed on the importers involved, are borne by a multinational enterprise (MNE) and not passed through to customers, tariffs may affect the taxable income allocated across multiple jurisdictions around the world under U.S. and OECD transfer-pricing principles—which could cause further economic and administrative challenges in these jurisdictions, including in the United States with the Internal Revenue Service. To the extent transfer-pricing principles are used for customs’ valuation purposes, this could also lead to audits by customs authorities around the world.
Differential tariffs by trading partner may incentivize MNEs to seek short-term and long-term changes to their cross-border transactions (including related-party transactions) and supply chains to mitigate and reduce the cost of these tariffs. Such adjustments are not without risk and require careful consideration and bespoke analysis and planning given the competing customs-valuation and transfer-pricing regimes within both the United States and other jurisdictions in what is likely to be an increased enforcement environment.

Foreign Trade Zones and Subzones

A foreign trade zone (FTZ), or FTZ subzone, is a facility authorized by the Foreign Trade Zone Board of the U.S. Department of Commerce, and subject to monitoring by CBP, that is considered outside of the “customs territory” of the United States. (A regular FTZ is a public facility, whereas an FTZ subzone is typically an area within a single company’s facility.) Under typical circumstances, foreign and domestic merchandise may be admitted into an FTZ, or FTZ subzone, for storage or processing (or other permissible activities), and duties on the foreign merchandise are not payable until the articles enter U.S. commerce (i.e. when removed from the zone for U.S. consumption). Importers ordinarily have a choice of paying duties either at the rate applicable to the foreign articles at the time they are admitted to the zone or, if used in manufacturing or processing, at the rate applicable to the product produced in the zone when it is removed for consumption. Under normal circumstances, FTZs and FTZ subzones offer numerous benefits and can mitigate duty liability by deferring when duty is owed, reducing the applicable tariff rate, or offering relief from duties for goods exported from the zone (i.e. goods that never enter U.S. commerce, so long as they are not destined for Canada or Mexico).

Under the Order, as well as other recent trade remedy actions by the Trump administration, these benefits are limited. Imported merchandise that is subject to the trade remedy tariffs under IEEPA, Section 301, or Section 232 must be admitted into an FTZ under “privileged foreign” status. Under PF status, the merchandise is recorded at its condition and duty rate at the time of admission to the zone, which is determined based on its foreign origin and classification. This means that once merchandise is admitted in PF status, any subsequent processing or manufacturing activities performed within the zone will not permit a lower duty rate to be applied. With PF status, the duty rate is effectively “locked in” to that of the merchandise when it entered the zone. Nonetheless, an FTZ or FTZ subzone could still allow some flexibility under the new measures by deferring when the duties are due and also allowing duty free re-exports.

Contractual Review

Companies seeking to navigate the fast-shifting U.S. tariff environment should consider reviewing their customer-facing and supplier-facing contracts to clarify which party bears responsibility for paying the tariffs and to identify any points of conflict or ambiguity in the event that customers seek to challenge or renegotiate terms. Particularly important provisions include those (1) determining which party will pay applicable duties, taxes, or value-added tax (VAT); (2) assigning responsibility for cross-border transportation and completion of customs formalities, including by use of Incoterms; (3) permitting termination or a declaration of force majeure in the event that government actions result in price increases; and (4) permitting, prohibiting, or rationing price increases, or describing what is included in the price of goods.

Potential Liability Under the False Claims Act

As fast-evolving and unpredictable tariffs increase complexity for companies, compliance with the U.S. False Claims Act (FCA) will be essential. The FCA is a key tool in the federal arsenal, which prohibits the avoidance of monetary obligations to the U.S. government by the presentation of false information. Through qui tam (or whistleblower) provisions, the FCA provides significant economic incentives for private parties, such as employees and customers, to bring lawsuits for alleged violations of the FCA. If an importer is found to be in violation of the FCA, penalties consist of substantial “treble damages,” equaling the amount of the U.S. government’s damages multiplied by three, as well as inflation-adjusted penalties, currently ranging from $14,308 to $28,619 per successful claim.

Reflecting recent statements by a senior Department of Justice official, the U.S. government has used the FCA aggressively to pursue fraudulent statements related to customs valuation and applicable duties. For example, on March 25, 2025, the government settled FCA claims against a U.S.-based importer of multilayered wood flooring. After its competitor and the United States sued the importer for evasion of antidumping, countervailing, and Section 301 duties, the United States and the importer settled the case for $8.1 million (an amount adjusted according to the respondents’ ability to pay). The U.S. Attorney responsible for prosecuting the case called the settlement “a message” to companies that the United States takes seriously its commitment to pursuing alleged FCA violations.

Initial Legal Challenges

Given the immediate and outsized impact of the Trump administration’s tariffs—as well as their unprecedented scope and questionable legal foundation—some businesses and policymakers have already taken steps to challenge the president’s tariff authority. The first judicial challenge to the IEEPA-based tariffs imposed by the Trump administration was filed on April 3, 2025, in the U.S. District Court for the Northern District of Florida. The case, Emily Ley Paper Inc. (d/b/a “Simplified”) v. Trump, was brought by a Florida-based small business that sells premium planners and organizational tools and relies on imports from China. The lawsuit argues that President Trump’s use of IEEPA to impose the tariffs is unlawful and unconstitutional, and presents four main legal claims: (1) the tariffs are in excess of the president’s authority because IEEPA does not clearly authorize them and the Supreme Court’s “major questions” doctrine bars finding such broad authority in the statute; (2) the tariffs lack a clear connection to the opioid-related national emergency cited as justification; (3) IEEPA, if interpreted to allow tariffs, violates the nondelegation doctrine by granting the president unchecked authority; and (4) the tariff-related modifications to the Harmonized Tariff Schedule of the United States violate the Administrative Procedure Act (APA). The lawsuit contends that these tariffs inflict severe harm on the plaintiff by increasing costs, reducing competitiveness, and forcing potential layoffs, making them unsustainable. The complaint seeks an injunction to block enforcement of the tariffs and to vacate all resulting modifications to the HTSUS.

Under the major questions doctrine, the Congress must clearly state its intent to give the president authority to take regulatory actions with outsized economic or political effects. Emily Ley Paper argues that the economic effects of President Trump’s tariffs are clearly extraordinary, constituting “the largest tax increase in a generation” on the order of “hundreds of billions of dollars per year.” Since Congress fails to even mention the word “tariff” in IEEPA, the company argues, the statute fails to clearly authorize the president to impose increased tariffs.

Whether Emily Ley Paper will succeed in challenging President Trump’s orders remains to be seen. Historically, judicial challenges to IEEPA-based restrictions (which have been rare and typically seen in the sanctions context, which has been the most frequent policy use of IEEPA-based restrictions) have faced an uphill battle.[3]

Companies seeking to challenge the president’s tariff authority may also consider making constitutional arguments that President Trump’s tariffs violate the constitutional separation of powers. As noted above, the constitution vests the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations” with Congress.[4] While delegations of legislative power to the executive branch have raised separation of power concerns in certain circumstances, the Supreme Court has authorized delegations of congressional authority “[s]o long as Congress ‘shall lay down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform.’”[5] In practice, almost any limitation or direction has been found to satisfy the “intelligible principle” test. Moreover, the Supreme Court has found that delegations of constitutional authority relating to foreign affairs are permitted to be broader than those concerning domestic affairs.[6]

We note members of Congress have also taken certain steps to limit the president’s exercise of tariff powers under IEEPA. Bills to restrain the president’s tariff authorities have been introduced in both houses and on a bipartisan basis. However, it remains unclear if such proposals have enough support to be passed and even more uncertain whether they have enough support to overcome an all but certain presidential veto if they made their way to the president’s desk.

Conclusion

In only a few short days, President Trump’s tariffs actions have profoundly altered the landscape of international trade and created manifold risks for companies across the U.S. and global economies. Instability and uncertainty around the application and duration of the tariffs is likely to continue as a variety of legal and legislative challenges to the president’s unprecedented use of IEEPA take shape. Further, President Trump’s use of effectively unilateral power to adjust or renegotiate tariff rates—combined with the desire of some U.S. trading partners to negotiate quick and lasting tariff relief—suggests that companies should prepare for possible sudden and dramatic shifts in applicable tariff rates. Affected companies should also closely monitor the responses of major U.S. trading partners such as China, which has shown a readiness to impose strong retaliatory measures in response to President Trump’s orders. An escalation in trade barriers between China and the United States threatens to further complicate trade and business activities between the world’s first- and second-largest economies.

While the tariffs’ scope is unprecedented, companies can consider initial steps to mitigate the impact of the tariffs on their core business activities and to protect themselves from novel compliance risks. Careful attention to applicable tariff rates, possible exemptions, and potentially applicable mitigation measures will be key not just for multinational enterprises, but a wide range of U.S.- and foreign-based manufacturers, retailers, and service businesses. Gibson Dunn lawyers stand ready to assist clients in navigating this period of change and uncertainty and will continue to monitor the Trump administration’s actions closely to assess the evolution of U.S. and global tariff policy.

[1] While the tariffs have been characterized as reciprocal, they appear to have been based on balance of payments calculations rather than foreign tariff rates.

[2] Hannah Miao, Breaking Down Trump’s Tariffs on China and the World, in Charts, Wall St. J. (Dec. 3, 2024), https://www.wsj.com/economy/trade/trum-tariff-rates-china-world-trad-charts-3d6aee09.

[3] For a case involving a challenge to import duties under the predecessor statute to IEEPA, see, e.g., Yoshida Int’l, Inc. v. United States, 526 F.2d 560 (C.C.P.A. 1975) (holding that President Nixon properly exercised his authority under the Trading with the Enemy Act (TWEA) to impose temporary 10 percent duties on all imports because Congress delegated a broad power to regulate foreign trade to the executive branch during “national emergencies,” President Nixon’s tariffs fell under a congressionally approved ceiling, and there was an “eminently reasonable relationship” between the claimed emergency and the tariff action).

[4] U.S. Const. art. I, § 8.

[5] Mistretta v. United States, 488 U.S. 361, 372 (1989) (quoting J.W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 406 (1928)) (emphasis added).

[6] See Zemel v. Rusk, 381 U.S. 1, 17 (1965) (“Congress—in giving the Executive authority over matters of foreign affairs-must of necessity paint with a brush broader than that it customarily wields in domestic areas.”); United States v. Curtiss–Wright Export Corp., 299 U.S. 304, 320 (1936) (explaining that delegations involving foreign affairs “must often accord to the president a degree of discretion and freedom from statutory restriction which would not be admissible were domestic affairs alone involved.”).

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, Christopher Timura, Donald Harrison, Terrell Ussing, Samantha Sewall, Scott Toussaint, Karsten Ball, Hui Fang, Erika Holmberg, Kamia Williams, and Roxana Akbari.

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, the authors, or the following leaders and members of the firm’s International Trade Advisory & Enforcement, Tax Controversy & Litigation, or False Claims Act/Qui Tam Defense practice groups:

Tax Controversy & Litigation:

Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, [email protected])
Saul Mezei – Washington, D.C. (+1 202.955.8693, [email protected])
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, [email protected])

International Trade Advisory & Enforcement:

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, [email protected])
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, [email protected])
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, [email protected])
Donald Harrison – Washington, D.C. (+1 202.955.8560, [email protected])
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, [email protected])
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, [email protected])
David P. Burns – Washington, D.C. (+1 202.887.3786, [email protected])
Nicola T. Hanna – Los Angeles (+1 213.229.7269, [email protected])
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, [email protected])
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, [email protected])
Samantha Sewall – Washington, D.C. (+1 202.887.3509, [email protected])
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, [email protected])
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, [email protected])
Mason Gauch – Houston (+1 346.718.6723, [email protected])
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, [email protected])
Sarah L. Pongrace – New York (+1 212.351.3972, [email protected])
Anna Searcey – Washington, D.C. (+1 202.887.3655, [email protected])
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, [email protected])
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, [email protected])
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, [email protected])
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, [email protected])

Asia:
Kelly Austin – Denver/Hong Kong (+1 303.298.5980, [email protected])
David A. Wolber – Hong Kong (+852 2214 3764, [email protected])
Fang Xue – Beijing (+86 10 6502 8687, [email protected])
Qi Yue – Beijing (+86 10 6502 8534, [email protected])
Dharak Bhavsar – Hong Kong (+852 2214 3755, [email protected])
Arnold Pun – Hong Kong (+852 2214 3838, [email protected])

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, [email protected])
Patrick Doris – London (+44 207 071 4276, [email protected])
Michelle M. Kirschner – London (+44 20 7071 4212, [email protected])
Penny Madden KC – London (+44 20 7071 4226, [email protected])
Irene Polieri – London (+44 20 7071 4199, [email protected])
Benno Schwarz – Munich (+49 89 189 33 110, [email protected])
Nikita Malevanny – Munich (+49 89 189 33 224, [email protected])
Melina Kronester – Munich (+49 89 189 33 225, [email protected])
Vanessa Ludwig – Frankfurt (+49 69 247 411 531, [email protected])

False Claims Act/Qui Tam Defense:

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, [email protected])
Stuart F. Delery (+1 202.955.8515,[email protected])
F. Joseph Warin (+1 202.887.3609, [email protected])
Jake M. Shields (+1 202.955.8201, [email protected])
Gustav W. Eyler (+1 202.955.8610, [email protected])
Lindsay M. Paulin (+1 202.887.3701, [email protected])
Geoffrey M. Sigler (+1 202.887.3752, [email protected])
Joseph D. West (+1 202.955.8658, [email protected])

San Francisco
Winston Y. Chan – Co-Chair (+1 415.393.8362, [email protected])
Charles J. Stevens (+1 415.393.8391, [email protected])

New York
Reed Brodsky (+1 212.351.5334, [email protected])
Mylan Denerstein (+1 212.351.3850, [email protected])

Denver
John D.W. Partridge (+1 303.298.5931, [email protected])
Ryan T. Bergsieker (+1 303.298.5774, [email protected])
Monica K. Loseman (+1 303.298.5784, [email protected])

Dallas
Andrew LeGrand (+1 214.698.3405, [email protected])

Los Angeles
James L. Zelenay Jr. (+1 213.229.7449, [email protected])
Nicola T. Hanna (+1 213.229.7269, [email protected])
Jeremy S. Smith (+1 213.229.7973, [email protected])
Deborah L. Stein (+1 213.229.7164, [email protected])
Dhananjay S. Manthripragada (+1 213.229.7366, [email protected])

Palo Alto
Benjamin Wagner (+1 650.849.5395, [email protected])

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments

On April 4, in a 5-4 per curiam opinion just over two pages in length, the Supreme Court granted the U.S. Department of Education’s emergency application to vacate a temporary restraining order preventing it from terminating two teacher-training grant programs. On February 7, the Department had terminated roughly $250 million in grants it found to have “[p]rovide[ed] funding for programs that promote or take part in DEI initiatives or other initiatives that unlawfully discriminate on the basis of race, color, religion, sex, national origin, or another protected characteristic; that violate either the letter or purpose of Federal civil rights law; that conflict with the Department’s policy of prioritizing merit, fairness, and excellence in education; that are not free from fraud, abuse, or duplication; or that otherwise fail to serve the best interests of the United States.” In a March 10 opinion, the U.S. District Court for the District of Massachusetts had granted a temporary restraining order (“TRO”) pausing the grants’ termination, concluding that the Department had failed to follow the proper legal processes as prescribed by the Administrative Procedure Act in cancelling the grant programs. While acknowledging that the appellate courts generally lack jurisdiction over appeals from TROs, the Supreme Court found that the order in this case “carrie[d] many of the hallmarks of a preliminary injunction”—an appealable order—and that the Department was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act. The Court’s opinion makes no mention of DEI. Chief Justice Roberts dissented in a one sentence dissent, stating that he would deny the application. Justice Kagan also wrote a dissent, stating that “nothing about this case demanded [the Court’s] immediate intervention.” Justice Jackson, joined by Justice Sotomayor, wrote a longer dissenting opinion in which she asserted that the Court lacked jurisdiction, the Department’s application did not demonstrate the need for emergency relief, and that the Department likely acted unlawfully in terminating the grants as it did. She cautioned against the overuse of the emergency docket, writing “if the emergency docket has now become a vehicle for certain defendants to obtain this Court’s real-time opinion about lower court rulings on various auxiliary matters, we should announce that new policy and be prepared to shift how we think about, and address, these kinds of applications.”

On April 3, twelve state attorneys general, led by Texas Attorney General Ken Paxton, sent a letter to twenty law firms, urging them to comply with the March 17 letters from the Equal Employment Opportunity Commission (EEOC) Acting Chair requesting information relating to the firms’ DEI “related employment practices.” Paxton states that the EEOC’s letters “flagged potential violations of employment discrimination laws, both at the federal and state levels,” specifically through “hiring practices that include diversity fellowships, setting hiring goals with targets for greater representation of minority groups, and DEI programs that entail unlawful disparate treatment in terms, conditions and privileges of employment.” He claims that based on publicly available information “flagged in the EEOC’s letter,” the firms “may have acted in violation of Title VII” and their conduct may “warrant action from state authorities” for “violations of state law.” Paxton urges the firms to “comply with EEOC’s letter” and send the “same responsive information” to the state attorneys general by April 15.

On March 27, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois granted a temporary restraining order blocking, in part, enforcement of Executive Orders (EOs) 14151 and 14173. The court’s decision prohibits the Department of Labor from enforcing the “Certification Provision” of EO 14173—which requires federal contractors and grantees to certify that they do not operate any unlawful DEI programs—nationwide against any federal contractor or grantee. The Order also prohibits the Department of Labor from enforcing the “Termination Provision” of EO 14151—which requires termination of all “equity-related” federal grants—against the plaintiff. The remainder of the EOs’ provisions remain in effect, and the temporary restraining order does not affect other agencies’ ability to enforce the Certification or Termination Provisions.

The case is Chicago Women in Trades v. President Donald J. Trump, et al., No. 1:25-cv-02005 (N.D. Ill. 2025). In its opinion, the court concluded that the Certification Provision likely violates the First Amendment because it uses threats to funding to suppress protected speech. Judge Kennelly explained that because the EO does not define DEI—let alone unlawful DEI—federal contractors and grantees are left “in a difficult and perhaps impossible situation” in which they must “either take steps now to revise their programmatic activity so that none of it ‘promote[s] DEI’ (whatever that is deemed to mean), decline to make a certification and thus lose their grants, or risk making a certification that will be deemed false and thus subject the grantee to liability under the False Claims Act.” Likewise, the court held that the Termination Provision likely violates the First Amendment on similar grounds. While Judge Kennelly enjoined enforcement of the Termination Provision against the plaintiff alone, he ruled that a broader restraining order of the Certification Provision was warranted because the provision was likely to lead to self-censorship and chilling of speech by organizations and companies nationwide.

The government may appeal the ruling, though any appeal of a temporary restraining order would face jurisdictional obstacles in the Seventh Circuit. The Fourth Circuit recently stayed a similar preliminary injunction that was entered by a district court in Maryland.

On March 24, Catherine Eschbach, newly appointed Director of the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), issued an office-wide memo detailing her plans to implement President Trump’s executive orders “to the fullest extent” and to ensure that the administration’s “policy priorities guide every action” the agency takes. The memo states that 91 days after Trump’s signing of EO 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), the OFCCP will “verify all federal contractors have wound down their use of affirmative action plans.” The memo instructs OFCCP staff to review previous affirmative action plans to determine whether they evidence “discriminatory DEI practices,” and notes that the agency will identify targets for civil compliance investigations “to deter DEI programs or principles.” More information on Executive Order 14173 can be found in our January 22, 2025 client alert.

On March 21, FCC Chair Brendan Carr said in an interviewwith Bloomberg that the FCC will only approve a transaction if “doing so serves the public interest,” and that if businesses are “still promoting invidious forms of DEI discrimination,” he did not “see a path forward where the FCC could reach the conclusion that approving the transaction is going to be in the public interest.”

On March 27, Carr sent a letter to Robert Iger, CEO of the Walt Disney Company, announcing an investigation into Disney and its ABC television network “to ensure” that neither is “violating FCC equal employment opportunity regulations by promoting invidious forms of DEI discrimination.” In the letter, Carr acknowledged recent changes by Disney and ABC to their DEI initiatives, but stated that it was “not clear that the underlying policies have changed in a fundamental manner.” Carr highlighted Disney’s “Reimagine Tomorrow” initiative, which he described as a “mechanism for advancing [Disney’s] DEI mission,” as well as the company’s “Inclusion Standards,” which Carr alleged require that at least 50% of writers, directors, crew, and vendors be “selected based on group identity.” The letter also states that it “appears that executive bonuses may also have been tied to DEI ‘performance,’” and that “ABC has utilized race-based hiring databases and restricted fellowships to select demographic groups.” Carr states that the FCC “Enforcement Bureau will be engaging with [Disney and ABC] to obtain an accounting of Disney and ABC’s DEI programs, policies, and practices.”

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

New York Times, “U.S. Presses French Companies to Comply With Trump’s Anti-Diversity Policies” (March 29): Liz Alderman of the New York Times writes that an unknown number of French companies received letters from the American Embassy in France, stating that the Trump Administration’s initiatives to eliminate diversity, equity and inclusion policies would apply to any firm doing business with the U.S. government. The letter provided a form requiring the companies to certify “that they do not operate any programs promoting D.E.I.” For those companies declining to sign the form, the letter instructed “we would appreciate it if you could provide detailed reasons [for declining to sign], which we will forward to our legal services.” Alderman writes that “[a] spokesperson for the French Association of Private Enterprises said the group was waiting for the government to make a ‘coordinated response’ to the Trump administration’s letter.”
New York Times, “U.S. Seeks to Calm Tempest in Europe Over Trump’s Anti-Diversity Policies” (April 2): Liz Alderman of the New York Times provides an update on the letters sent from the State Department to numerous French companies (as well as companies in several other European nations), writing that “the State Department tried to walk back the letters, saying the compliance requirement applies to companies only if they are ‘controlled by a U.S. employer’ and employ U.S. citizens.” Alderman reports that the letters said they “applied to all suppliers and contractors of the U.S. government, regardless of their nationality and the country in which they operate.” Alderman further reports the State Department further defended the certification requests, noting that they impose “no ‘verification’ . . . beyond asking contractors and grantees to self-certify their compliance. . . .In other words, we are just asking them to complete one additional piece of paperwork.” Representatives of several European countries whose companies received the State Department’s letter, including France, Belgium, and Denmark, all made statements in opposition to the State Department’s request, reminding companies that they must continue to follow the laws of those countries while operating in them.
Wall Street Journal, “‘Anti-Woke’ in the U.S., DEI at Home: the New Playbook for European Companies” (March 20): Ben Dummett and Joe Wallace of the Wall Street Journal report that European companies are adapting to the Trump Administration’s approach to DEI by shifting practices in their U.S. operations. He writes that companies aim to abide by European regulations while avoiding “lawsuits or consumer boycotts in the faster-growing U.S. market.” Dummett and Wallace quote Jeanne Martin of U.K.-based ShareAction, a responsible-investment nonprofit, as saying that “European companies choosing to pause or roll back DEI initiatives could face significant regulatory risk and reputational backlash in Europe.” Given the divide between European and American approaches on DEI, companies’ DEI strategies differ by location, Dummett reports. Some European companies, they report, have pared back diversity commitments and programs globally, while others have done so only for their American operations. Dummett and Wallace also report that American companies with a European presence are “seeking to strike a balance” across continents.
Reuters, “Disney investors reject a proposal to withdraw from HRC’s diversity index” (March 20): Reuters’ Dawn Chmielewski reports that Disney shareholders rejected a proposal to end the company’s participation in the Human Rights Campaign’s corporate equity index, which evaluates workplaces on LGBTQ+ equality. Only 1% of shareholders voted in favor of the proposal. According to Chmielewski, the proposal’s proponents argued that Disney’s participation in the index hurt its stock price and urged the company to “move back to neutral” on political issues. Disney, which received a perfect score in the 2025 index ranking, recommended voting against the shareholder proposal. Chmielewski reports that several other major corporations have recently withdrawn from the annual ranking.
NBC News, “Poll: American Voters are deeply divided on DEI Programs and political correctness” (March 18): NBC News reporter Bridget Bowman writes that a recent NBC News poll found Americans are divided on whether they support DEI programs in the workplace. According to the poll, 48% of registered voters said DEI programs should continue. Bowman reports that the poll indicated sharp divides across party lines: 85% of Republicans support eliminating DEI programs, while 85% of Democrats would maintain DEI programs in the workplace. Among independent voters, 59% support the programs. Bowman also reports on age and gender differences. Of women ages 18 to 49, 67% support the programs, while only 40% of men in the same age bracket agree. The poll also indicated a divide “along racial lines,” with 80% of Black voters supporting DEI programs and “a majority of white voters saying DEI programs should end.”
Bloomberg Law, “‘Diversity’ Becomes ‘Belonging’ as Companies Shift DEI Lingo” (March 13): Bloomberg Law’s Clara Hudson reports that, in corporate 10-K reports filed between January 1 and March 12 of this year, use of the acronym “DEI” fell 55% compared to the same date range in 2024, with 180 uses compared to 396. Similarly, she reports that the phrase “diversity, equity and inclusion” appeared 422 times this year compared to 991 times the year before, a 57% decrease. Hudson reports that companies instead used phrases like “inclusion,” “merit-based hiring,” and “belonging” in their 10-K reports. She writes that “DEI language wasn’t a ubiquitous feature in 10-K annual reports until companies ramped up efforts following the Black Lives Matter movement in 2020,” and notes that the current language shift began prior to the second Trump Administration. She cautions, however, that this shift in language in 10-K forms does not “necessarily mean a company is backing away from its diversity efforts.”

Case Updates:

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

Becker et al. v. Citigroup, No. 24-cv-60834 (S.D. Fl. 2024): On May 17, 2024, two plaintiffs filed a putative class action against Citigroup (Citi), in relation to its ATM Community Network program, which waives ATM fees for customers of certain banks, including minority-owned banks. Plaintiffs, users of banks that did not qualify for a fee-waiver, alleged that Citi intentionally discriminated against them and that the Community Network program had an express goal of racial discrimination. Citi moved to dismiss for lack of standing and failure to state a claim. Citi argued that the plaintiffs did not allege that their banks did not participate in the fee-waiver program because of race.
- Latest update: On March 28, 2025, the court granted the defendant’s motion to dismiss. The court agreed with Citi that plaintiffs lacked standing because they failed to plead that their banks “made attempts to participate in Citibank’s policy but were unable to or blocked from doing so.” The court also found that the plaintiffs lacked injury in fact, reasoning that “the Court does not consider Plaintiffs harmed by the requirement they pay out-of-network fees to utilize Citibank’s ATMs as customers of two of Citibank’s close competitors.” Because the court found that the plaintiffs lacked standing, it did not address the merits of their claims.
Bolduc v. Amazon.com Inc., No. 4:22-cv-615 (E.D. Tex. 2022): On July 20, 2022, American First Legal (AFL) filed a putative federal class action lawsuit on behalf of a white plaintiff who sought to become an Amazon delivery service provider (DSP) but claimed she was ineligible for a grant offered to offset the program’s start up costs due to her race. On April 25, 2024, the court dismissed the case without prejudice. The court found that Bolduc lacked standing to sue because she never applied to Amazon’s DSP program and thus has suffered no actual or imminent injury. The court concluded that “Bolduc falls outside the class of individuals potentially suffering a direct and personal injury: DSP owners who have been denied any contractual benefit due to their race.” Because the issue of standing was sufficient to dismiss the case, the court did not consider whether Bolduc stated a claim under Section 1981. On April 26, 2024, Bolduc filed a notice of appeal.
- Latest update: On March 24, 2025, the plaintiff filed a single-page unopposed motion to withdraw her appeal. On March 26, 2025, the court dismissed the appeal.
Do No Harm v. Society of Military Orthopaedic Surgeons, No. 1:24-cv-03457 (D.D.C. 2024): On December 11, 2024, Do No Harm filed a complaint against the Society of Military Orthopaedic Surgeons, the U.S. Navy, and the Department of Defense challenging a jointly run scholarship program that allegedly provides funding to female students and students of racial backgrounds that are “underrepresented in orthopaedics.” According to Do No Harm, the program excludes white, male applicants and therefore violates Section 1981 and the equal protection component of the Fifth Amendment.
- Latest update: On March 18, 2025, the parties filed a joint motion to stay the case and to permit the parties to file a joint status report by April 18, 2025. The parties reported that “they are discussing ways to resolve [the] case without further burdening the [c]ourt.” The parties stated that during the requested stay they “will meet and confer in good faith to explore possible amicable resolution of [the] case.” On March 26, 2025, in a minute order reflected on the case docket, the court granted in part and denied in part the parties’ joint motion to stay the case. The court granted the motion to stay “to the extent that it seeks to vacate all pending deadlines in [the] case” and denied the motion “in all other respects.” The court ordered that the parties shall appear before the court for a status conference on April 18, 2025.
Valencia AG, LLC v. New York State Off. of Cannabis Mgmt. et al., No. 5:24-cv-116 (N.D.N.Y. 2024): On January 24, 2024, Valencia AG, a cannabis company owned by white men, sued the New York State Office of Cannabis Management for discrimination, alleging that New York’s Cannabis Law and regulations favored minority-owned and women-owned businesses. The regulations include goals to promote “social & economic equity” (SEE) applicants, which the plaintiff claims violate the Fourteenth Amendment’s Equal Protection Clause and Section 1983. The plaintiff sought a permanent injunction against the regulations and a declaration that the use of race and sex in the New York Cannabis Law violates the Fourteenth Amendment. On April 24, 2024, the defendants moved to dismiss for lack of standing and failure to state a claim. Among other things, the defendants argue that there is no risk of injury because “the Board and Office have interpreted the Cannabis Law and implementing regulations to be satisfied by front-end measures to aid [minority] SEE applicants such as community outreach, low-burden applications, and assistance if an application is found to be defective.” The defendants also noted that they have submitted affidavits indicating that “applications are being reviewed solely for completeness and correctness, and thus that the race and gender of an applicant will play no role in whether an application is approved.”
- Latest update: On March 25, 2025, the court granted the defendants’ motion to dismiss based on lack of subject matter jurisdiction. The court reviewed the affidavits presented by the defendants and concluded the plaintiff lacked standing because the evidence contradicts the plaintiff’s factual allegations that the process of ranking and reviewing applications involves unequal treatment based on race. The court also noted that aspirational goals—here, to have a certain percentage of licenses given to SEE applicants—do not plausibly suggest an injury-in-fact. Additionally the court found that “even if standing were found to exist related to Plaintiff’s claims . . .[,] they have been rendered moot,” by the Cannabis Control Board’s resolution that it would ensure the plaintiff’s application be reviewed and granted a license if it meets the stated requirements.

2. Employment discrimination and related claims:

Arsenault v. HP Inc., No. 3:24-cv-00943 (D. Conn. 2024): On May 29, a white former employee of HP Inc. filed suit, alleging that his termination violated Title VII and 42 U.S.C. § 1981. The complaint alleges that during a review meeting in August 2022, the plaintiff voiced agreement with the opinion of another team member that the company was spending too much time on DEI practices, and as a result, his managers accused him of racism. The complaint also alleges that the plaintiff was verbally abused by a co-worker, but the company took no action after he complained. The plaintiff was terminated in March 2023.
- Latest update: On March 13, 2025, in a single-page stipulation, the parties entered a stipulation of dismissal with prejudice and without attorney fees or costs to any party.
Dill v. Int’l Bus. Machs. Corp., No. 1:24-cv-00852 (W.D. Mich. 2024): On August 20, 2024, a former IBM employee sued the company for wrongful termination under Title VII and 42 U.S.C. § 1981, claiming that IBM terminated his employment due to his race (white) and gender (male). In his complaint, the plaintiff alleged that IBM has a policy incentivizing its management to terminate white men so that the company’s workforce has a higher percentage of minorities and women, and that he was terminated according to this policy. To support is claim, the plaintiff cited to the company’s 2022 and 2023 Annual Reports, as well as its 2024 Notice of Annual Meeting and Proxy Statement, the latter of which acknowledges that the company applies a “diversity modifier . . .based on [its] progress in creating and developing a diverse executive population” when determining executive compensation. The plaintiff also cited a statement from IBM’s CEO at a corporate town hall, in which the CEO allegedly threatened to reduce executive bonuses if the company did not move forward on its diversity goals and detailed the percentage of representation he wished to see for various protected groups. The plaintiff alleged his supervisor was motivated by these policies and statements in deciding to terminate his employment. On October 24, 2024, IBM moved to dismiss the complaint for failure to state a claim.
- Latest update: On March 26, 2025, the court denied IBM’s motion to dismiss. Relying on the corporate statements and policies detailed in the complaint, the court concluded that—accepting the plaintiff’s allegations as true for purposes of the motion—the complaint pled sufficient facts to suggest the plaintiff’s race and/or gender motivated the company to terminate his employment.
Gerber v. Ohio Northern University, et al., No. 2023-cv-1107 (Ohio. Ct. Common Pleas Hardin Cnty. 2023): On June 30, 2023, a law professor sued his former employer, Ohio Northern University, for terminating his employment after an internal investigation determined that he bullied and harassed other faculty members. On January 23, 2024, the plaintiff, now represented by America First Legal, filed an amended complaint. The plaintiff claims that his firing was in retaliation for his vocal and public opposition to the university’s stated DEI principles and race-conscious hiring, which he believed were illegal. The plaintiff alleged that the investigation and his termination breached his employment contract, violated Ohio civil rights statutes, and constituted various torts, including defamation, false light, conversion, infliction of emotional distress, and wrongful termination in violation of public policy.
- Latest update: On March 21, 2025, the parties entered a notice of agreed settlement. As part of the settlement, the parties agreed to reinstate the plaintiff to his professorship, whereby he will immediately tender a notice of retirement. The Ohio Northern University acknowledged that the plaintiff “provided outstanding teaching, scholarship, and service.” In exchange for these concessions, amongst others, the plaintiff agreed to release all claims against all defendants and will not pursue litigation in the future.
Missouri v. Int’l Bus. Machs. Corp., No. 24SL-CC02837 (Cir. Ct. of St. Louis Cty. 2024): On June 20, 2024, the State of Missouri filed a complaint against IBM in Missouri state court, alleging that the company violated the Missouri Human Rights Act by using race and gender quotas in its hiring and by basing employee compensation on participation in allegedly discriminatory DEI practices. The complaint cited a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly stated that all executives must increase representation of ethnic minorities in their teams by 1% each year to receive a “plus” on their bonus. The Missouri Attorney General sought to permanently enjoin IBM and its officers from utilizing quotas in hiring and compensation decisions. On September 13, 2024, IBM moved to dismiss the suit, arguing that the “plus” bonus is not a “rigid racial quota,” but a lawful means of encouraging “permissible diversity goals.” IBM also argued that Missouri failed to assert sufficient facts to show that the “plus” bonus influenced any employment decisions in the state. On February 10, 2025, the court granted IBM’s motion to dismiss in a one-sentence order without any explanation. The court gave Missouri 30 days to amend its complaint.
- Latest update: On March 14, 2025, Missouri filed a notice of appeal to the Missouri Court of Appeals regarding “whether the trial court erred in granting IBM’s motion to dismiss.”

3. Challenges to statutes, agency rules, and regulatory decisions:

California et al. v. U.S. Department of Education et al., No. 1:25-cv-10548 (D. Mass. 2025): On March 6, 2025, the states of California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin (collectively, “the plaintiff states”) sued the U.S. Department of Education. The plaintiff states argue that the termination of the grants violates the Administrative Procedure Act (APA) and seek declaratory and injunctive relief to vacate and set aside the termination of all previously awarded grants under the TQP and SEED programs. On March 6, the plaintiff states filed a motion for a temporary restraining order. The plaintiff states argued that the “abrupt and immediate” termination of the programs threatens “imminent and irreparable” harm. The motion highlighted the programs’ purpose to address a critical shortage of highly qualified and licensed K-12 teachers. The district court granted the plaintiff states’ TRO request on March 10, 2025. The TRO requires the Department of Education to immediately restore the grants to the pre-existing status quo and enjoins it from implementing, maintaining, or reinstating the terminations. On March 11, the Department of Education appealed the TRO to the U.S. Court of Appeals for the First Circuit, and on March 12, filed an emergency motion to stay the district court case pending appeal and for immediate administrative stay in the First Circuit. The district court denied the motion to stay on March 13.
- Latest update: On March 21, 2025, the First Circuit denied the Department of Education’s motion to stay pending the appeal, finding that the Department’s termination of educational grants was insufficiently explained, likely arbitrary and capricious, and that the harm to grant recipients outweighed the potential harm to the Department. April 4, the Supreme Court granted the Department of Education’s emergency application to vacate the TRO. The Court’s opinion makes no mention of DEI but rather held that the Department was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act. Chief Justice Roberts, Justice Kagan, Justice Jackson, and Justice Sotomayor dissented.
De Piero v. Pennsylvania State University, No. 2:23-cv-02281 (E.D. Pa. 2023): A white male professor sued his employer, Penn State University, claiming that university-mandated DEI trainings, discussions with coworkers and supervisors about race and privilege in the classroom, and comments from coworkers about his “white privilege” created a hostile work environment that led him to quit his job. He claimed that after he reported this alleged harassment and published an opinion piece objecting to the impact of DEI concepts in the classroom, the university retaliated against him by investigating him for bullying and aggressive behavior towards his colleagues. The plaintiff alleged harassment, retaliation, and constructive discharge in violation of Title VI, Title VII, Section 1981, Section 1983, the First Amendment, and Pennsylvania civil rights laws. On March 6, 2025, the court granted summary judgment to the defendant on the plaintiff’s hostile work environment claims. The court found that the behaviors complained of by the plaintiff, including “campus wide emails” pertaining to racial injustice, “being invited to review scholarly materials,” and “conversations about harassment levied by and against [the plaintiff],” could not reasonably be found to rise to the level of severe harassment. As to the “pervasive” conduct prong, the court explained that of the twelve incidents in the complaint, no “racist comment” was directed at the plaintiff and “only a few” involved actions that were directed at the plaintiff at all.
- Latest update: On March 20, 2025, the plaintiff filed a supplemental brief in support of his retaliation claims under Title VII and Pennsylvania state law, arguing that these claims should proceed to trial. He presents what he asserts are undisputed facts to support his claims, including being reported for “micro aggressions” after objecting to racial harassment, colleagues lodging false claims against him, and facing disciplinary actions and salary clawbacks as retaliation. He requests that the court either grant summary judgment in his favor on this basis, or, if the court finds that these facts are disputed, allow his retaliation claims to proceed to trial. On March 27, 2025, the defendants filed a supplemental reply brief in support of summary judgment, arguing that the plaintiff’s putative Title VII and PHRA retaliation claims failed as a matter of law because the plaintiff cannot prove the defendants took adverse employment action against him, or there is no causal link between his alleged protected activity and adverse actions taken by the defendants.
Do No Harm v. Gianforte, No. 6:24-cv-00024 (D. Mont. 2024): On March 12, 2024, Do No Harm filed a complaint on behalf of “Member A,” a white female dermatologist in Montana, alleging that a Montana law requiring the governor to “take positive action to attain gender balance and proportional representation of minorities resident in Montana to the greatest extent possible” when making appointments to the twelve-member Medical Board violates the Fourteenth Amendment. Do No Harm alleged that since ten seats are currently held by six women and four men, Montana law requires that the remaining two seats be filled by men, which would preclude Member A from holding the seat. Following Governor Gianforte’s motion to dismiss, on February 5, 2025, the court dismissed the complaint without prejudice. On March 7, 2025, the plaintiff filed a second amended complaint.
- Latest update: On March 14, 2025, the plaintiff filed an unopposed motion to stay the case, as Montana is currently considering legislation that would significantly amend the challenged statute to remove the language at issue. According to the plaintiff, if passed, the bill would moot this case. On the same day, the court issued a one-page order granting the plaintiff’s motion to stay the case, pending the state legislature’s action on H.B. 215. The order also required the parties to file a status report within 14 days after the legislative session concludes.

Legislative Updates

On February 13, Congressman Gus Bilirakis (R-FL) introduced H.R. 1282, the “Eliminate DEI in Colleges Act,” which would “prohibit Federal funding for institutions of higher education that carry out diversity, equity, and inclusion initiatives[.]” The bill defines “diversity, equity, and inclusion” as “the concept according to which individuals are (1) classified on basis of race, color, sex, national origin, gender identity, or sexual orientation; and (2) afforded differential or preferential treatment on the basis of such classification.” It provides that “no institute of higher education shall be eligible” for any federal funding unless the institution certifies to the Secretary of Education that it “(1) does not and will not carry out any program, project, initiative, or other activity the primary purpose of which is to advocate, promote, or otherwise support diversity, equity, and inclusion; and (2) does not and will not maintain any office or other entity within the institution to advocate, promote, or otherwise support diversity, equity, and inclusion.” The bill further directs the Secretary to “publish regulations to implement and enforce” the law. It provides that an institution may appeal the Secretary’s determination to terminate funding, and that an administrative law judge’s decision “shall be considered to be a final agency action.”

On February 28, Florida State Senator Nick DiCeglie (R) introduced Senate Bill 1710, which imposes requirements and limitations on diversity, equity, and inclusion in state agencies and “medical institutions of higher education.” The bill defines “DEI” as including efforts “to manipulate or influence the composition of employees with reference to race, sex, color, or ethnicity” or to promote or adopt “differential treatment” or policies or procedures “implemented with reference to race, color, or ethnicity,” as well as programs and activities related to “race, color, ethnicity, gender identity, or sexual orientation.” The definition excludes “equal opportunity or equal employment opportunity materials designed to inform a person about the prohibition on discrimination based on protected status under state or federal law.” The bill would require any state agency “applying for a federal health care-related grant relating to diversity, equity, and inclusion” to “[p]ublish on its website all materials, requirements, and instructions related to the federal grant application which are in the state agency’s possession” and to submit a copy of the grant proposal to the Health Policy Committee in the Florida Senate and the Health and Human Services Committee in the Florida House of Representatives. The bill would prohibit state agencies from expending any appropriated funds or funds received from “any other source” to “establish, sustain, support, or staff a DEI office or to contract, employ, engage, or hire a person to serve as a DEI officer.” The bill would further prohibit all potential recipients of state contracts or funds from “using” DEI “material.” In addition, the bill would require any medical institution of higher education—defined as “a Florida College System institution or state university, as those terms are defined in s. 1000.21, that offer bachelor’s, master’s, or doctoral degrees, or a trade school that receives state funds and offers health care-related degrees, certification programs, or training”—to mandate “a standardized admissions test” and to “provide letter grade-based assessments for each course required to graduate.”

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])

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])

Attorney General Bonta seeks to remove any doubt that “[v]iolations of the FCPA remain actionable under California’s Unfair Competition Law (UCL)”—and that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.

In a press release and legal alert issued on April 2, 2025, California Attorney General Rob Bonta reminded businesses operating in California that making payments to foreign officials to obtain or retain business remains illegal. While many questions arising from President Trump’s recent executive order pausing enforcement of the Foreign Corrupt Practices Act (FCPA) remain unanswered, Attorney General Bonta sought to remove any doubt that “[v]iolations of the FCPA remain actionable under California’s Unfair Competition Law (UCL)”—and that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.

As discussed in our prior alert, in February 2025, President Trump announced a 180-day suspension of the initiation of FCPA investigations while the Department of Justice (DOJ) reviews current and past cases and revises its FCPA enforcement guidelines. The suspension followed memoranda issued by Attorney General Pamela Bondi that, among other things, directed the DOJ’s FCPA Unit to prioritize investigations concerning cartels and transnational criminal organizations over other cases. These developments collectively signaled a shift from the long-held, bipartisan view that international anti-corruption efforts generally benefit U.S. businesses and raised questions about FCPA enforcement going forward.

California Attorney General Bonta’s alert adopts the longstanding view by reiterating that “[i]llegal activity is still illegal” and that “[b]ribery erodes consumer confidence in the market and rewards corruption instead of competition.” Specifically, the alert cautioned that FCPA violations might invite legal action not only under California’s UCL, but also under other applicable state or federal tax and securities laws.

Broadly speaking, the UCL prohibits “unlawful, unfair or fraudulent” behavior across nearly all business practices.[1] For purposes of “unlawful” conduct, the UCL “borrows” violations of other laws, including federal laws such as the FCPA, and treats them as “independently actionable as unfair competitive practices.”[2] But under the UCL, even foreign bribery that does not meet all the elements of an FCPA violation may be actionable if it constitutes an unfair or fraudulent business act and has the requisite connection to California.

Both the Attorney General and private parties are authorized to pursue claims. The Attorney General may bring a suit under California’s UCL “in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association.”[3] Although civil penalties, restitution, disgorgement and injunctive relief are permissible forms of relief following a UCL violation, compensatory damages generally are not.[4] Given these limited remedies under the UCL, it is uncertain whether private plaintiffs—who also have standing to sue if they have “suffered injury in fact” and “lost money or property as a result of” the business practice they challenge as unlawful or unfair[5]—will be interested in bringing FCPA cases under the UCL.

There is some, limited precedent for pursuing cases under the UCL that are based on a violation of the FCPA. In Korea Supply Co. v. Lockheed Martin Corp., the California Supreme Court accepted the Court of Appeal’s determination, without deciding conclusively, that a claim under the UCL may be predicated on an FCPA violation.[6] In that case, the plaintiff company alleged that an agent of an aerospace defense company allegedly bribed Korean officials to obtain a contract from the Republic of Korea in violation of the FCPA.[7] Although the California Supreme Court reversed the judgment and rejected the UCL claim on the grounds of the monetary relief sought,[8] it affirmed plaintiff’s separate cause of action based on the tort of interference with prospective economic advantage[9]—which suggests avenues outside the UCL may be available to private plaintiffs under California law for FCPA-type misconduct, depending on the circumstances of their claim.

One practical limitation to California-based anti-corruption enforcement may lie in the requirement of injury in California, as the UCL does not apply extraterritorially.[10] California courts have held that valid UCL claims must involve injury in California, either to in-state plaintiffs or by in-state conduct. For instance, in Yu v. Signet Bank/Virginia, a California-based plaintiff sued a Virginia bank under the UCL for unfair business practices that allegedly occurred in Virginia; here, the court concluded that “a defendant who is subject to jurisdiction in California and who engages in out-of-state conduct that injures a California resident may be held liable for such conduct in a California court.”[11] More recently, in Aghaji v. Bank of America, the California Court of Appeal (Second Appellate District, Division Four) once again maintained that out-of-state plaintiffs must “allege facts to show that the alleged violations occurred within California, because California’s unfair competition law does not apply extraterritorially.”[12] Although it is well-established that the UCL extends to out-of-state conduct affecting in-state residents, California courts have been less clear about the degree to which these effects must be “direct” ones. The courts appear to have largely sidestepped this question, instead emphasizing the need to show “injury in California” rather than the directness of the effect.[13]

While California is the first state to express an interest in state-level enforcement of FCPA-type misconduct under state laws, it may not be the last. To take one hypothetical example, there is a risk that a similar enforcement theory may be pursued under several provisions of New York’s consumer protection statute that protects consumers from deceptive and fraudulent practices. General Business Law (GBL) § 349(a), for example, prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce in the furnishing of any service in the state.” This statute was intended to provide “authority to cope with the numerous, ever-changing types of false and deceptive business practices” that impact New York consumers,[14] and it “seeks to secure an honest market place where trust, and not deception, prevails.”[15] Much like its Californian counterpart, GBL § 349 “is intentionally broad, applying to virtually all economic activity,”[16] but to qualify as a prohibited act under GBL § 349, the deception of a consumer must occur in New York.[17] As another example, at least one private plaintiff has pursued claims arising from alleged kickbacks paid to Iraqi and Indonesia officials under Virginia’s antitrust laws where the alleged conduct demonstrated “a consistent course of business transactions . . . in Virginia.”[18]

The enforcement theory advanced by Attorney General Bonta may raise legal questions and practical challenges, but proving a predicate offense—such as a violation of the FCPA—is likely not one of them. The UCL reaches broadly to prohibit “any lawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.”[19] The California Supreme Court has made clear that “a practice may violate the UCL even if it is not prohibited by another statute.”[20] Analogous competition laws of New York and Washington, D.C., for example, also reach trade practices that do not violate any statutes.[21]

While California and potentially other states consider pursuing a competition-oriented approach, certain European regulators and enforcement authorities have recently sought to reiterate their continued focus on enforcement and collaboration specific to anti-corruption. On March 20, 2025, France’s Parquet National Financier, Switzerland’s Office of the Attorney General, and the UK’s Serious Fraud Office announced the formation of an International Anti-Corruption Prosecutorial Taskforce that will focus on increasing operational exchanges and sharing best practices among the three agencies, with the potential to invite other like-minded international bodies to join.

Taken together, these developments underscore the continued importance for companies to maintain effective compliance programs that address risks relating to corruption, mitigate the corresponding liability that may arise under the FCPA, unfair competition laws, or other statutes, and require appropriate internal accounting controls. In the face of uncertainty, companies would be well served by reviewing their compliance programs and calibrating their compliance-related risk assessments to mitigate against changing risk calculi and enforcement realities.

We will continue monitoring and reporting on these developments as they evolve.

[1] Cel–Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180, 83 Cal. Rptr. 2d 548, 973 P.2d 527 (1999) (citing Cal. Bus. & Prof. Code § 17200).

[2] Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143–44, 63 P.3d 937, 943 (2003).

[3] Cal. Bus. & Prof. Code § 17204.

[4] Bank of the West v. Superior Court 2 Cal. 4th 1254, 1266, 10 Cal. Rptr. 2d 538, 833 P.2d 545 (1992).

[5] Cal. Bus. & Prof. Code § 17204.

[6] Korea Supply, 29 Cal. 4th at 1144, n.5.

[7] Id. at 1159.

[8] Id. at 1140, 1166.

[9] Specifically, the Court found KSC sufficiently alleged that defendants’ unlawful acts to obtain the contract with the Korean government interfered with KSC’s business expectancy and satisfied the independent wrongfulness requirement for tortious interference, which allowed for monetary damages. Id. at 1159.

[10] See Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207, 254 P.3d 237, 248 (2011).

[11] Yu v. Signet Bank/Virginia, 69 Cal. App. 4th 1377, 1391, 82 Cal. Rptr. 2d 304, 313 (1999) (emphasis added).

[12] Aghaji v. Bank of Am., N.A., 247 Cal. App. 4th 1110, 1119, 202 Cal. Rptr. 3d 619, 627 (2016).

[13] Speyer v. Avis Rent a Car Sys., Inc., 415 F. Supp. 2d 1090, 1099 (S.D. Cal. 2005), aff’d, 242 F. App’x 474 (9th Cir. 2007).

[14] Karlin v. IVF Am., Inc., 93 N.Y.2d 282, 291, 712 N.E.2d 662, 665 (1999).

[15] Goshen v. Mut. Life Ins. Co. of New York, 98 N.Y.2d 314, 324, 774 N.E.2d 1190, 1195 (2002).

[16] Id. (quotation marks omitted); see City of New York v. Smokes-Spirits.Com, Inc., 12 N.Y.3d 616, 911 N.E.2d 834 (2009).

[17] Goshen, 98 N.Y.2d 314, 325 (2002).

[18] NewMarket Corp. v. Innospec, Inc., No. 3:10CV503-HEH, 2011 WL 1988073 (E.D. Va. May 20, 2011) (denying defendants’ motion to dismiss).

[19] Cal. Bus. & Prof. Code § 17200

[20] Zhang v. Superior Ct., 57 Cal. 4th 364, 370, 304 P.3d 163, 167 (2013).

[21] See N.Y. Gen. Bus. Law § 349(g); Columbia Dist. Cablevision Ltd. P’ship v. Bassin, 828 A.2d 714 (D.C. 2003).

The following Gibson Dunn lawyers prepared this update: Winston Chan, Patrick Stokes, Oleh Vretsona, Bryan Parr, Zachariah Lloyd, Kio Bell, and Alice Wang.

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

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

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Gibson Dunn is closely monitoring developments and is prepared to help companies consider and address the implications of potential changes to FDA’s funding structure and authorities, including through regulatory counseling, agency and legislative engagement, and litigation.

Following recent mass layoffs at the Food and Drug Administration and growing criticism from senior administration officials of FDA’s user fee funding programs, the life sciences industry can expect significant changes to both FDA’s ability to meet medical product user fee deadlines and the future of the user fee programs more broadly.

Although the reductions in force at FDA have not included medical officers responsible for product reviews, other key members of review teams have been terminated. These staffing changes are expected to have an immediate and sustained impact on FDA’s ability to meet current user fee performance goals. At the same time, concerns about FDA’s reliance on industry user fees from Robert F. Kennedy, Jr., Secretary of the Department of Health and Human Services, and other senior HHS officials, as well as an increasingly unpredictable legislative process in Congress, call into question whether the various medical product user fee programs, which start to expire as early as this year, will be renewed.

A shift away from user fee funding to appropriated funds would have a significant impact on the timing of agency medical product reviews and other life sciences industry interactions with the agency.

The Current User Fee Framework

A large portion of FDA’s regulatory activities are funded by industry-paid user fees. Medical product user fee acts, which must be renewed by Congress every five years, are in place for prescription drugs,[1] biosimilars,[2] approved generic drugs,[3] over-the-counter (OTC) drugs marketed under OTC monographs,[4] medical devices,[5] innovator animal drugs,[6] and animal drugs.[7]
User fees fund a range of FDA regulatory activities, depending on the particular user fee program, such as review of product submissions, research monitoring, and certain inspections. The use of those funds is specified in, and restricted by, the statutory text of the user fee provisions.[8]
Each user fee program assesses different types of fees on industry (e.g., for applications for marketing authorization, for establishments and facilities), and the fee structure may change as part of the renewal process.
Renewal of each user fee program involves a multi-step, months-long process. First, FDA and industry negotiate the proposed user fee structure and performance goals, with opportunity for public comment. Following those negotiations, FDA is required to transmit final recommendations for reauthorization to the committees of jurisdiction in Congress (the House Energy and Commerce Committee and the Senate Health, Labor, Education, and Pensions (HELP) Committee). Those recommendations include both proposed statutory changes and commitment letters that outline review timelines, program enhancements, and other goals. In considering the recommendations, the Committees hold a series of hearings and vote on their passage. The Committees typically also consider other pieces of FDA-related legislation to ride along with the user fee reauthorization package. The packages are then voted on by the full House and Senate.

All user fee acts are up for renewal between 2025 and 2028, with the vast majority requiring reauthorization in 2027—meaning that user fee act negotiation activities are either already in progress or are scheduled to commence soon.[9]

What Is Changing?

FDA likely will not be able to meet current user fee goals. FDA layoffs and certain retirement incentives have not targeted review staff in FDA’s medical product centers or staff that conduct inspections; however, reports indicate that some medical reviewers are looking to leave the agency due to recent agency tumult.[10] In addition, product reviews rely heavily on a broad spectrum of review team staff, many of whom have been dismissed, including project managers and labeling reviewers. Layoffs of other agency staff likely will have a ripple effect on product review times. For example, although staff that conduct inspections have not been the subject of reductions in force, the office that arranges travel for those inspections was eliminated. These staffing gaps are expected to result in delays in inspections, including those conducted in connection with user-fee funded product applications.[11] If FDA does decide to increase staffing to meet its needs, it may be difficult to find high-quality candidates, given uncertainty with respect to job security and agency morale. Finally, Secretary Kennedy has suggested that some HHS staff subject to layoffs will be reinstated. It is not clear whether that effort will include staff integral to the user fee review process, or whether those staff will choose to return and, if so, for how long.[12]
The future of FDA’s user fee programs is increasingly in doubt. Secretary Kennedy and FDA Commissioner Makary have expressed concerns about what they see as the improper influence of regulated industry over FDA. Secretary Kennedy in particular has suggested that user fees paid by industry may lead the agency to make decisions regarding marketing authorization and enforcement at the expense of the public health.[13] These statements raise uncertainty about the future of user fee programs at FDA.

In February, President Trump issued Executive Order 14212, which established the Make America Healthy Again (MAHA) Commission.[14] Part of the remit of the MAHA Commission, which is led by Secretary Kennedy and includes FDA Commissioner Makary, is to provide a report within 100 days of the order to, among other things, “restore the integrity of science, including by eliminating undue industry influence.”[15] Observers have noted that this report could provide for a change in how FDA is funded to eliminate industry funding.[16]

Other advisors to the White House and Secretary Kennedy have also opposed industry-funded user fees, including Calley Means, who has stated that “FDA “should stop being funded by pharma[ceutical companies]” and called for other measures to limit ties between FDA and industry, including limits on departing employees joining pharmaceutical companies.[17] Republican members of Congress aligned with the MAHA movement could follow suit as user fee programs approach expiration and discussions on reauthorizations ramp up.

Even if senior HHS and FDA leadership do allow for the renewal of user fee programs, without sufficient allocation of resources and support, the reauthorization processes could flounder. Managing the negotiations process and engaging with members of Congress and their staff involve significant agency resources and effort. Staff that had been working on forthcoming user fee negotiations reportedly were part of last week’s layoffs.[18]

Lawmakers in the Democratic caucus could also present obstacles to user fee program renewals. Senator Bernie Sanders — the highest-ranking member in the Democratic caucus on the Senate HELP Committee — has voted against user fee bills in the past,[19] and previously criticized user fees as enabling “industry, in a sense, [to] regulat[e] itself.” Without Ranking Member Sanders’ support, it will be difficult to move user fee reauthorizations through the HELP Committee.

Once relatively routine, the Congressional process for negotiating and passing future FDA funding legislation could become more unpredictable following precedent-breaking process during the last major reauthorization cycle. Moving legislation through Congress is always a challenge, even for so-called “must pass” legislation with respect to expiring programs such as user fees, but, until recently, user fee legislation had passed without significant issue. In 2022, however, during the last reauthorization cycle for prescription drug, medical device, biosimilar, and generic drug user fees, disagreements arose in the Senate over which riders carrying specific policy changes should be attached to the user fee package. As a result, action on user fee legislation was delayed and then tacked onto a continuing resolution approved by the House in late September, narrowly avoiding a lapse in the user fee programs, before reauthorization was secured in December.[20]

The OTC Monograph Drug User Fee Program (OMUFA), which is first up for reauthorization by September 30, 2025, may be a harbinger for potential FDA funding changes.[21] The Subcommittee on Health of the House’s Energy and Commerce Committee started hearings on OMUFA last week. Questions from Subcommittee members reflected general alignment on reauthorizing the OMUFA program, despite some concerns about how FDA has been implementing the program. The Senate HELP Committee has not yet scheduled a hearing on OMUFA reauthorization.

More trouble on the horizon for current user fee funding? Finally, we note the possibility that ongoing efforts to cut staffing and funding for FDA could force the agency to both refund user fees it has already collected and prevent it from collecting further fees. A lesser-known feature of user fee acts is a “trigger mechanism” put in place to ensure that user fees supplement, not replace, appropriation funds. For example, the Prescription Drug User Fee Act (PDUFA) requires that user fees, such as per-product program fees, be refunded if spending of appropriated funding for FDA salaries and expenses for prescription drug staff falls below a certain level.[22] Similarly, under the Medical Device User Fee Act (MDUFA), FDA cannot assess medical device user fees if appropriated funding spend for medical device salaries and expenses falls beneath a threshold.[23] While this mechanism has not been an issue historically, recent staffing cuts, coupled with a lack of administration support for FDA funding and user fee programs, could significantly interfere with agency product reviews.

[1] Prescription Drug User Fee Amendments of 2022 (PDUFA), 21 U.S.C. § 379g et seq.

[2] Biosimilar User Fee Amendments of 2022 (BsUFA), 21 U.S.C. § 379j-51 et seq.

[3] Generic Drug User Fee Amendments of 2022 (GDUFA), 21 U.S.C. § 379j-41 et seq.

[4] OTC Monograph Drug User Fee Program (OMUFA), 21 U.S.C. § 379j-71 et seq.

[5] Medical Device User Fee Amendments of 2022 (MDUFA), 21 U.S.C.§ 379i et seq.

[6] Animal Drug User Fee Amendments of 2023 (ADUFA), 21 U.S.C. § 379j-11 et seq.

[7] Animal Generic Drug User Fee Amendments of 2023 (AGDUFA), 21 U.S.C. § 379j-21 et seq.

[8] See generally, e.g., FDA, “FDA: User Fees Explained” (last accessed Apr. 4, 2025).

[9] OMUFA is currently set to be reauthorized in September 2025. PDUFA, BsUFA, GDUFA, MDUFA are currently set to be reauthorized in September 2027. ADUFA and AGDUFA are currently set to be reauthorized in September 2028.

[10] FDA reviewers, inspectors, and investigators excluded from $25K buyout offer, Regulatory Focus (Mar. 10, 2025); Trump layoffs to erode FDA drug review system, Reuters (April 4, 2025).

[11] Trump layoffs to erode FDA drug review system, Reuters (April 4, 2025).

[12] “RFK Jr says 20% of Doge’s health agency job cuts were mistakes,” The Guardian (Apr. 4, 2025).

[13] See, e.g., “RFK Jr vow to purge FDA sets up collision with Big Pharma,” Reuters (Nov. 15, 2024); “Trump’s US FDA User Fee Cycle: ‘An Underappreciated Threat,’” Pink Sheet (Nov. 16, 2024); “Trump nominates Marty Makary, a critic of some COVID-19 health measures, to lead the FDA,” NBC Washington (Nov. 22, 2024).

[14] Exec. Order 14212, § 3, 90 Fed. Reg. 9833 (Feb. 19, 2025).

[15] Id. § 5(a)(ix).

[16] See, e.g., “Trump establishes MAHA Commission, with medicines – and maybe user fees – in its crosshairs,” AgencyIQ by Politico (Feb. 13, 2025).

[17] See, e.g., “The move to protect abortion clinics in states,” Politico (Mar. 19, 2025); Tucker Carlson, “Calley & Casey Means: How Big Pharma Keeps You Sick, and the Dark Truth About Ozempic and the Pill,” YouTube (Aug. 16, 2024).

[18] Following layoffs, the future of FDA’s user fee programs is in extreme jeopardy, AgencyIQ (April 3, 2025).

[19] See Bernie Sanders, U.S. Senator for Vermont, “Issues” (last visited Apr. 4, 2025).

[20] See, e.g., “Sigh of relief as Congress reauthorizes user fee agreements,” Regulatory Focus (Sept. 30, 2022).

[21] Subcommittee on Health, Committee on Energy and Commerce, Examining the FDA’s Regulation of Over-the-Counter Monograph Drugs (Apr. 1, 2025).

[22] 21 U.S.C. 379h(f)(1).

[23] 21 U.S.C. 379j(g)(1).

The following Gibson Dunn lawyers prepared this update: Katlin McKelvie and Carlo Felizardo.

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 or Consumer Protection practice groups:

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])

From the Derivatives Practice Group: Rahul Varma was named acting director of the CFTC’s Division of Market Oversight this week and CFTC staff withdrew two advisories.

New Developments

Rahul Varma Named Acting Director of CFTC Division of Market Oversight. On April 2, CFTC Acting Chairman Caroline D. Pham announced Rahul Varma will serve as the Acting Director of the Division of Market Oversight (“DMO”). Varma joined the CFTC in 2013 as an Associate Director for Market Surveillance in DMO, with responsibility for energy, metals, agricultural, and softs markets. In 2017, he helped start the Market Intelligence Branch in DMO and served as its Acting Deputy Director. In 2024, he took on the role of Deputy Director for the combined Market Intelligence and Product Review branches. [NEW]
CFTC Staff Withdraws Advisory on Review of Risks Related to Clearing Digital Assets. On March 28, the CFTC’s Division of Clearing and Risk (“DCR”) announced it is withdrawing CFTC Staff Advisory No. 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets, effective immediately. As stated in the withdrawal letter, DCR determined to withdraw the advisory to ensure that it does not suggest that its regulatory treatment of digital asset derivatives will vary from its treatment of other products. [NEW]
CFTC Staff Withdraws Advisory on Virtual Currency Derivative Product Listings. On March 28, DMO and DCR announced they are withdrawing CFTC Staff Advisory No. 18-14, Advisory with Respect to Virtual Currency Derivative Product Listings, effective immediately. As stated in the withdrawal letter, DMO and DCR determined that the advisory is no longer needed given additional staff experience with virtual currency derivative product listings and increasing market growth and maturity. [NEW]
ICE and Circle Sign MOU to Explore Product Innovation Based on Circle’s USDC and USYC Digital Assets. On March 27, Intercontinental Exchange Inc. (“ICE”), a leading global provider of technology and data, and Circle Internet Group, Inc. (“Circle”), a global financial technology company and stablecoin market leader, today announced an agreement whereby ICE plans to explore using Circle’s stablecoin USDC, as well as tokenized money market offering US Yield Coin (“USYC”), to develop new products and solutions for its customers. Under the MoU, Circle and ICE plan to collaborate to explore applications for using Circle’s stablecoins and other product offerings within ICE’s derivatives exchanges, clearinghouses, data services, and other markets, to deliver innovation and build new markets and product offerings based on Circle’s products.
Updated FIA Disclosures For New CFTC Rules. On March 24, the FIA announced that is has published updated versions of the FIA Uniform Futures and Options on Futures Risk Disclosures Booklet and FIA Template Disclosures Regarding Separate Accounts for new CFTC rules. Both documents are available in the “Regulatory Disclosures” section of FIA’s US Documentation Library. The CFTC approved new rules in December revising the list of permitted investments for Futures Commissions Merchants (“FCMs”) and DCOs in CFTC Regulation 1.25 (“1.25 Rule”) and codifying no-action relief governing treatment of separate accounts (“Separate Accounts Rule”). The 1.25 Rule requires FCMs and Introducing Brokers to use a revised form of the 1.55 risk disclosure statement for customers onboarded on or after March 31, 2025. The revised disclosure statement reflects the scope of permissible investments, as modified by the 1.25 Rule. The FIA Uniform Futures and Options on Futures Risk Disclosures Booklet is intended to assist FCMs in delivering mandatory customer disclosures under CFTC, exchange and Self-Regulatory Organization rules. Among the disclosures contained in the booklet is the FIA Combined Risk Disclosure Statement. That document has been updated in accordance with the 1.25 Rule to reflect the modified list of permissible investments.
CFTC Staff Issues Interpretation Regarding Financial Reporting Requirements for Japanese Nonbank Swap Dealers. On March 20, the CFTC’s Market Participants Division issued an interpretation concerning financial reporting obligations for nonbank swap dealers subject to regulation by the Financial Services Agency of Japan (“Japanese nonbank SDs”). On July 18, 2024, the CFTC issued a comparability determination and related comparability order granting substituted compliance in connection with the CFTC’s capital and financial reporting requirements to Japanese nonbank SDs, subject to certain conditions in the order (“Japanese Comparability Order”). One of the conditions in the Japanese Comparability Order, condition 9, requires each Japanese nonbank SD to file a copy of its home regulator Annual Business Report with the CFTC and the National Futures Association (NFA). The staff interpretation clarifies that Japanese nonbank SDs may satisfy condition 9 of the Japanese Comparability Order by filing with the CFTC and the NFA certain enumerated schedules of the Annual Business Report (In Scope Schedules), subject to the translation, U.S. dollar conversion, and deadline requirements of condition 9. The interpretation was issued in response to a request from the Securities Industry and Financial Markets Association on behalf of its Japanese nonbank SD members that rely on the Japanese Comparability Order.
SEC’s Division of Corporation Finance Releases Statement on Certain Proof-of-Work Mining Activities. On March 20, the SEC’s Division of Corporation Finance (“Corp Fin”) released a statement providing its views on certain activities on proof-of-work networks known as “mining.” Specifically, the statement addressed the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network, and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network. Corp Fin said that participants in “Mining Activities” (as defined in the statement) do not need to register transactions with the SEC under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these Mining Activities. Commissioner Crenshaw released a related statement, noting that Corp Fin’s statement delivers “neither progress nor clarity” and suffers from issues of flawed logic and limited and imprecise application. Commissioner Crenshaw said that Corp Fin’s statement “leaves us exactly where we started,” because it does not obviate the need for a facts and circumstances application under the investment contract test set forth in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
CFTC’s Office of Customer Education and Outreach Releases New Advisory on Fraud Using Generative AI. On March 19, the CFTC’s Office of Customer Education and Outreach (the “OCEO”) released a customer advisory that says generative artificial intelligence is making it increasingly easier for fraudsters to create convincing scams. The OCEO advisory describes how fraudsters use AI to create fraudulent identifications with phony photos and videos that can appear very real if one is not familiar with the advances of AI technology. The fraudsters also are using AI to forge government or financial documents. An FBI public service announcement also warns the public about how criminals are using AI to commit fraud and how the technology is being used in relationship investment scams.

New Developments Outside the U.S.

ESMA Consults on Transparency Requirements for Derivatives Under MiFIR Review. On April 3, ESMA asked for input on proposals for Regulatory Technical Standards (“RTS”) on transparency requirements for derivatives, amendments to RTS on package orders, and RTS on input/output data for the over-the-counter (“OTC”) derivatives consolidated tape. ESMA said that it is developing various technical standards further specifying certain provisions set out in the Market in Financial Instruments Regulation Review. The consultation paper covers the following three areas: transparency requirements for derivatives, RTS on package orders, and RTS on input/output data for the OTC derivatives consolidated tape. The consultation will remain open until 3 July 2025. [NEW]
ESMA Publishes Annual Peer Review of EU CCP Supervision CCP Supervisory Convergence. On April 2, ESMA published its annual peer review report on the supervision of European Union (“EU”) Central Counterparties (“CCPs”) by National Competent Authorities (“NCAs”). The peer review measures the effectiveness of NCA supervisory practices in assessing CCP compliance with the European Market Infrastructure Regulation (“EMIR”) requirements on outsourcing and intragroup governance arrangements. ESMA indicated, for this exercise, the review of the functioning of CCP colleges remains overall positive. ESMA also said that the peer review identified the need to promote further supervisory convergence in respect of the definition of major activities linked to risk management. [NEW]
The European Supervisory Authorities Publish Evaluation Report on the Securitisation Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitisation Regulation (SECR). The report purports to put forward recommendations to strengthen the overall effectiveness of Europe’s securitization framework through simplification, while ensuring a high level of protection for investors and safeguarding financial stability. This report identifies areas where the regulatory and supervisory framework can be enhanced, supporting the growth of robust and sound securitization markets in Europe. [NEW]
PRA, FCA Consult on Margin Requirements for Non-centrally Cleared Derivatives. On March 27, the UK Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority published CP5/25 – Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251. The consultation paper proposes to indefinitely exempt single-stock equity and index options from the bilateral margining requirements in the UK. In addition, it proposes to remove the requirement to exchange initial margin (“IM”) for legacy contracts once a counterparty falls out of scope of the margin requirements. It also proposes to permit UK firms, when transacting with a counterparty subject to the margin requirements in another jurisdiction, to use that jurisdiction’s threshold assessment calculation periods and dates of entry into the scope of IM requirements to determine whether those transactions are subject to IM requirements. [NEW]
MAS Responds to Feedback on Proposed Changes to Capital Framework. On March 27, the Monetary Authority of Singapore (“MAS”) published its response to feedback received to the consultation paper on proposed amendments to the capital framework for approved exchanges and approved clearing houses. The consultation was later extended to licensed trade repositories. MAS’s response addresses liquidity requirements, eligible capital, and total risk requirements. [NEW]
ESMA Makes Recommendations for the Supervision of STS Securitizations. On March 27, ESMA published its Peer Review Report on NCAs supervision of Simple, Transparent and Standardized (“STS”) securitizations. The Report looks into and provides recommendations on the supervisory approaches adopted by selected NCAs when supervising STS securitization transactions and the activities of their originators, sponsors and securitization special purpose entities. The Peer Review focused on the NCAs of France, Germany, Portugal, and the Netherlands.
ESMA Extends the Tiering and Recognition of the Three UK-Based CCPs. On March 17, ESMA announced its decision to temporarily extend the application of the recognition decisions under Article 25 of the EMIR for three CCPs established in the United Kingdom (“UK”). On January 30, 2025, the European Commission adopted a new equivalence decision in respect of the regulatory framework applicable to CCPs in the UK. Subsequently, ESMA has prolonged the tiering determination decisions and recognition decisions for the three recognized UK CCPs – ICE Clear Europe Ltd, LCH Ltd (as Tier 2) and LME Clear Ltd (as Tier 1) – that were adopted by ESMA on September 25, 2020, to align with the expiry date of the new equivalence decision. The application of the tiering determination decisions and recognition decisions is temporarily extended until 30 June 2028.
ESMA and Bank of England Conclude a Revised MoU in Respect of UK-Based CCPs Under EMIR. On March 17, ESMA and the Bank of England (“BoE”) signed a revised Memorandum of Understanding (“MoU”) on cooperation and information exchange concerning the three CCPs established in the UK (ICE Clear Europe Ltd, LCH Ltd and LME Clear Ltd) which have been recognized by ESMA under EMIR. ESMA said that, according to EMIR, one of the conditions for recognition of a third-country CCP (TC-CCP) by ESMA is the establishment of cooperation arrangements between ESMA and the relevant third-country authority. ESMA noted that the revised MoU follows the amendments introduced by EMIR 3 on the requirements concerning the content of such cooperation arrangements, in particular, cooperation in respect of systemically important TC-CCPs (Tier 2 TC-CCPs), and replaces the earlier version that ESMA and the BoE concluded in 2020.

New Industry-Led Developments

IOSCO Issues Final Report on Standards Implementation Monitoring for Regulator Principle. On April 2, IOSCO published a Final Report following its review of IOSCO Standards Implementation Monitoring (ISIM) for Regulator Principles 6 and 7, which address systemic risk and perimeter of regulation. IOSCO’s Objectives and Principles of Securities Regulation 6 and 7 stipulate that regulators should have or contribute to processes to identify, monitor, mitigate and manage systemic risk, as well as have or contribute to a process to review the perimeter of regulation regularly. This ISIM Review by IOSCO’s Assessment Committee found a high level of implementation across the 55 jurisdictions from both emerging and advanced markets. According to IOSCO, the report highlights some good practices and also identifies a few areas where there is room for improvement, observed primarily in some emerging markets. For example, the Report notes that some jurisdictions do not have clear responsibilities, definitions and regulatory processes with respect to systemic risk. [NEW]
ISDA Responds to EC on Amendments to Taxonomy Regulation Delegated Act. On March 26, ISDA and the Association for Financial Markets in Europe submitted a joint response to the EC’s proposed changes to EU Taxonomy Regulation reporting. The associations indicated that they welcome the EC’s commitment in the context of the Omnibus sustainability package to reduce Taxonomy reporting burdens and provide swift relief to reporters. However, they also noted concerns over whether the proposals go far enough to achieve these objectives, opining that they would not provide sufficient reduction in reporting burdens for banks and their clients and they would not achieve meaningful disclosures. The responses sets our specific priority measures for consideration. [NEW]
IOSCO Launches New Alerts Portal to Help Combat Retail Investment Fraud. On March 20, IOSCO announced the launch of the International Securities & Commodities Alerts Network (“I-SCAN”). IOSCO said that I-SCAN is a unique global warning system where any investor, online platform provider, bank or institution can check if a suspicious activity has been flagged for a particular company by financial regulators, which will submit alerts directly to I-SCAN, worldwide. According to IOSCO, I-SCN forms part of IOSCO’s Roadmap for Retail Investor Online Safety, an initiative which was launched in November last year.

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])

FDA v. Wages & White Lions Investments, LLC, No. 23-1038 – Decided April 2, 2025

Today, the Supreme Court held unanimously that the Food and Drug Administration did not unlawfully change position in denying marketing authorization for flavored e-cigarettes.

“[A] belief about how an agency is likely to exercise its enforcement discretion is not a ‘serious reliance interest.’”

Justice Alito, writing for the Court

Background:

The Family Smoking Prevention and Tobacco Control Act of 2009 (“TCA”) requires the makers of tobacco products to apply for and obtain premarketing authorization before introducing any “new tobacco product” to the market. 21 U.S.C. § 387j(a). In 2016, the FDA issued a rule that deemed e-cigarettes tobacco products subject to the TCA. However, the FDA delayed enforcement for existing e-cigarette products and set a September 2020 deadline for manufacturers to file applications for premarketing authorization. Before that deadline, the FDA issued a proposed rule concerning premarket tobacco product applications, and guidance concerning the types of scientific evidence that would be required for approval and manufacturers’ marketing plans.

Two companies submitted applications seeking approval to market and sell flavored e-liquids for use in e-cigarettes, but the FDA denied the applications because they had not provided sufficient evidence from scientific studies. The FDA did not consider the marketing plans submitted by the companies with their applications.

After the manufacturers sought judicial review, the en banc Fifth Circuit set aside and remanded the FDA’s denial orders. The court held that the FDA’s denial of the companies’ applications under standards different from those articulated in its pre-decisional guidance was arbitrary and capricious, and that the FDA’s failure to consider the companies’ marketing plans was unlawful and prejudicial (not harmless) error.

Issue:

Did the court of appeals err in setting aside and remanding the FDA’s denial orders as arbitrary and capricious?

Court’s Holding:

The FDA’s denial orders were not arbitrary and capricious and did not constitute an unlawful change in position from the FDA’s pre-decisional guidance. Further, the Fifth Circuit applied an incorrect harmless-error standard to the agency’s failure to consider the marketing plans.

What It Means:

The Court largely deferred to the FDA’s decision to deny manufacturer applications for approval to market and sell flavored e-liquids for e-cigarettes. The decision is an example of the Court giving broad latitude to agency action under the arbitrary and capricious standard of review.
The Court clarified the “change-in-position doctrine,” which applies when an agency changes course on a question of law or policy. The Court explained that an agency does not unlawfully change positions where its previous positions were “largely noncommittal” and the agency gives specific reasons for its actions, or where its previous statements do not directly contradict its later actions. Op. 29, 33, 38. The Court further reasoned that a regulated party’s mere “belief about how an agency is likely to exercise its enforcement discretion is not a ‘serious reliance interest.’” Op. 39–40.
The Court also clarified the “tension” between the harmless-error doctrine, under which courts can excuse agency errors that are not prejudicial, and the Chenery doctrine, under which courts may not uphold agency action with alternative reasoning not considered by the agency. Op. 41–46. The Court explained that courts may uphold agency action—and need not remand to the agency—where it is clear that the agency’s error had no bearing on the procedure used or the substance of the decision reached. The Court remanded to the Fifth Circuit to apply that standard in deciding whether the FDA’s failure to consider marketing plans was a harmless error.
The Court declined to address statutory and constitutional challenges to the FDA’s denial orders that were raised for the first time after certiorari was granted. Parties challenging agency action thus should be mindful of the need to preserve statutory and constitutional challenges at all stages of the litigation.

The Court’s opinion is available HERE.

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: FDA and Health Care

Jonathan M. Phillips
+1 202.887.3546
[email protected]

Gustav W. Eyler
+1 202.955.8610
[email protected]

John D.W. Partridge
+1 303.298.5931
[email protected]

Related Practice: Administrative Law and Regulatory

Eugene Scalia +1 202.955.8210 [email protected]	Helgi C. Walker +1 202.887.3599 [email protected]	Stuart F. Delery +1 202.955.8515 [email protected]
Matt Gregory +1 202.887.3635 [email protected]

This alert was prepared by partner Grace Hart and associate Aly Cox.