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Fastest 5 Minutes: Answering Common Questions from Contractors

Wed, 30 Apr 2025 14:24:48 -0000

This week’s episode features a discussion of several common government contractor questions involving payment delays, cost increases due to tariffs, and inability to obtain certain government approvals. This episode is hosted by Peter Eyre and Skye Mathieson. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government...

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This week’s episode features a discussion of several common government contractor questions involving payment delays, cost increases due to tariffs, and inability to obtain certain government approvals. This episode is hosted by Peter Eyre and Skye Mathieson. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. Click below to listen or access from one of these links: <a href="https://www.podbean.com/eas/pb-ruapq-188dd84">PodBean</a> | <a rel="noreferrer noopener" href="https://www.crowell.com/admin/edit_contentitem.aspx?ID=1604611##" target="_blank"></a><a href="https://on.soundcloud.com/VnbdDbgreAhQyHcd7">SoundCloud</a> | <a href="https://podcasts.apple.com/us/podcast/fastest-5-minutes-the-podcast-government-contractors/id1142132203">iTunes</a> The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/fastest-5-minutes-answering-common-questions-from-contractors/">Fastest 5 Minutes: Answering Common Questions from Contractors</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Fastest 5 Minutes: Executive Order – “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base”

Wed, 23 Apr 2025 21:09:00 -0000

This week’s episode features a deep-dive on Executive Order 14265, Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base, which calls for a “comprehensive overhaul” of the DoD acquisition system to deliver state‐of‐the‐art capabilities at speed and scale. This episode is hosted by Yuan Zhou, Jon Baker, and Eric Ransom. Crowell & Moring’s “Fastest 5...

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This week’s episode features a deep-dive on Executive Order 14265, <a rel="noreferrer noopener" href="https://www.whitehouse.gov/presidential-actions/2025/04/modernizing-defense-acquisitions-and-spurring-innovation-in-the-defense-industrial-base/" target="_blank">Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base</a>, which calls for a “comprehensive overhaul” of the DoD acquisition system to deliver state‐of‐the‐art capabilities at speed and scale. This episode is hosted by Yuan Zhou, Jon Baker, and Eric Ransom. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. Click below to listen or access from one of these links: <a href="https://www.podbean.com/eas/pb-yguhm-188ba24">PodBean</a> | <a rel="noreferrer noopener" href="https://www.crowell.com/admin/edit_contentitem.aspx?ID=1604611##" target="_blank"></a><a href="https://on.soundcloud.com/8iU3g3jW7d8cWWm27">SoundCloud</a> | <a href="https://podcasts.apple.com/us/podcast/fastest-5-minutes-the-podcast-government-contractors/id1142132203">iTunes</a> The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/fastest-5-minutes-executive-order-modernizing-defense-acquisitions-and-spurring-innovation-in-the-defense-industrial-base/">Fastest 5 Minutes: Executive Order – “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base”</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Agencies to Curtail Unique, Customized Acquisitions in Favor of Commercial Products and Services

Wed, 23 Apr 2025 21:05:55 -0000

On April 16, 2025, the White House issued an Executive Order (“EO”), “Ensuring Commercial, Cost-Effective Solutions in Federal Contracts,” requiring agencies to meet their needs with commercially available products and services to the maximum extent practicable. The EO reiterates and builds upon the requirements set forth in the Federal Acquisition Streamlining Act of 1994 (“FASA”),...

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On April 16, 2025, the White House issued an Executive Order (“EO”), “<a rel="noreferrer noopener" href="https://whitehouse.gov/presidential-actions/2025/04/ensuring-commercial-cost-effective-solutions-in-federal-contracts/" target="_blank">Ensuring Commercial, Cost-Effective Solutions in Federal Contracts</a>,” requiring agencies to meet their needs with commercially available products and services to the maximum extent practicable. The EO reiterates and builds upon the requirements set forth in the Federal Acquisition Streamlining Act of 1994 (“FASA”), which similarly encourages the use of commercial acquisition procedures. Specifically, the EO institutes a required review procedure for certain open acquisition actions and establishes an oversight procedure to be implemented for all acquisitions hereafter. <h3 class="wp-block-heading">Review Procedure: Applications for Approval for Open Requirements</h3> Within 60 days of the EO (by June 16, 2025), each agency’s designated senior procurement authority (“approval authority”) must direct the agency’s contracting officers to take action with respect to open agency solicitations, pre-solicitation notices, solicitation notices, award notices, and sole-source notices for non‑commercial products or services. Contracting officers must review and consolidate such acquisition notices into an application for approval to purchase non-commercial products and services. Each application must contain the (1) relevant notices and open agency solicitations, (2) the market research and price analysis used to determine the unavailability of commercial equivalents; and (3) the agency’s rationale for pursuing a non-commercial product or service. Within 30 days of receiving the proposed applications, the agency’s approval authority must assess the applications’ compliance with FASA—including the sufficiency of the included market research and price analyses—and take appropriate action regarding any deficiencies. Permitted action includes, but is not limited to, returning a proposed application to the contracting officer in part or full to conduct additional research or take further action with respect to potential commercial products or services. Within this same 30-day period, the agency’s approval authority must also make appropriate recommendations to advance the solicitation of commercial products or services where those products or services would be sufficient to serve the applicable procurement needs. Within 120 days of the EO (by August 13, 2025) and annually thereafter, each agency’s approval authority must detail the agency’s compliance with FASA and progress towards implementing the EO’s policies in a report to the Director of the Office of Management and Budget (“OMB”). <h3 class="wp-block-heading">Oversight of Non-Commercial Procurements on a Going Forward Basis</h3> The EO also impacts forthcoming procurements. For all new procurements for a non‑commercial product or service, contracting officers must submit to the agency’s approval authority a proposal detailing the specific reasons a non-commercial product or service is required, inclusive of the underlying market research and price analysis. The approval authority must review and provide a written approval or denial of the contracting officer’s proposal. To assist in its determination, the agency’s approval authority may seek input from the OMB Director, who—in consultation with the Administrator for Federal Procurement Policy—will review and assess the validity of a proposal, including the thoroughness of the market research and price analysis and issue a written recommendation to the approval authority on whether the proposal should be approved or denied. The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/agencies-to-curtail-unique-customized-acquisitions-in-favor-of-commercial-products-and-services/">Agencies to Curtail Unique, Customized Acquisitions in Favor of Commercial Products and Services</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
March 2025 Bid Protest Sustain of the Month: GAO Finds Solicitation’s Page Limits Latently Ambiguous

Wed, 23 Apr 2025 21:01:31 -0000

The following is an installment in Crowell & Moring’s Bid Protest Sustain of the Month Series. In this series, Crowell’s Government Contracts Practice will keep you up to date with a summary of one of the most notable bid protest sustain decisions each month. Below, Crowell Consultant Cherie Owen discusses GAO’s decision in Perimeter Sec. Partners, LLC,...

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The following is an installment in Crowell & Moring’s Bid Protest Sustain of the Month Series.  In this series, Crowell’s Government Contracts Practice will keep you up to date with a summary of one of the most notable bid protest sustain decisions each month.  Below, Crowell Consultant Cherie Owen discusses GAO’s decision in <a href="https://www.gao.gov/assets/880/876353.pdf">Perimeter Sec. Partners, LLC</a>, which involved a protester’s challenge to its elimination for exceeding the solicitation’s page limits. After a <a href="https://www.governmentcontractslegalforum.com/2025/03/articles/bid-protest/february-2025-bid-protest-sustain-of-the-month-a-successful-corrective-action-challenge/">sustain-free</a> February, protesters saw significantly more success in March, with GAO issuing no fewer than six sustain decisions this month.  We discussed one of these sustain decisions—involving an agency’s improper use of noncompetitive procedures to procure fruits and vegetables for the Defense Commissary Agency—<a href="https://www.crowell.com/en/insights/client-alerts/gao-finds-authority-to-use-noncompetitive-procedures-is-not-carte-blanche">here</a>.  In Perimeter, the Army Corps of Engineers sought to procure preventative and corrective maintenance services for access control points at 19 Army installations in the northeast region of the United States using the procedures of FAR subpart 8.4.  After the Corps awarded the contract, Perimeter challenged the evaluation of past performance and the agency’s tradeoff decision.  The Corps took voluntary corrective action, stating that it would reevaluate quotations and make a new award decision.  However, upon reevaluation, the Agency concluded for the first time that Perimeter’s quote violated the solicitation’s page limits because its organizational chart and its response times chart exceeded the 15-page limit for offerors’ technical approach narrative volume. Perimeter protested, noting that the solicitation stated “Resumes, Schedules, Table of Contents, Cover Page/Letter, Cut Sheets, Drawings etc., are not counted in the page count.”  According to Perimeter, its charts fell within the exception for “Drawings, etc.”  In the alternative, Perimeter argued that the solicitation contained a latent ambiguity about whether the charts qualified under the exception for “Drawings, etc.”  In support of this argument, Perimeter noted that the Corps itself had previously (in this procurement and others) interpreted the exception to include charts.  GAO sustained the protest, agreeing that the page limit exception for “Drawings, etc.” contained an ambiguity with respect to whether charts were included in the exception.  In this regard, GAO found that both the protester’s interpretation (that “Drawings, etc.” included charts) and the Corps’ interpretation (that “Drawings, etc.” did not include charts) were reasonable.  Moreover, GAO found that this ambiguity was latent, noting that were no solicitation terms or provisions that were in irreconcilable conflict.  In sustaining the protest, GAO recommended that the Corps revise the solicitation to clarify the page limits and allow vendors to submit revised quotations. The Perimeter decision provides a reminder that even the meanings of common words can be interpreted differently in the context of a procurement. While obvious inconsistencies and ambiguities must be challenged prior to the submission of quotations/proposals, GAO may consider issues regarding latent ambiguities after the award of a contract. The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/march-2025-bid-protest-sustain-of-the-month-gao-finds-solicitations-page-limits-latently-ambiguous/">March 2025 Bid Protest Sustain of the Month: GAO Finds Solicitation’s Page Limits Latently Ambiguous</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
GAO Finds Authority to Use Noncompetitive Procedures Is Not Carte Blanche

Thu, 10 Apr 2025 14:31:48 -0000

Most protests involve competitive procurements and the many rules governing how agencies are to conduct such procurements. In certain circumstances, agencies are permitted to bypass some of these rules and limit competition. But, as GAO noted in a recently issued sustain decision, the authority to use noncompetitive procedures does not provide the agency carte blanche....

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Most protests involve competitive procurements and the many rules governing how agencies are to conduct such procurements. In certain circumstances, agencies are permitted to bypass some of these rules and limit competition. But, as GAO noted in a recently issued sustain decision, the authority to use noncompetitive procedures does not provide the agency carte blanche. In <a rel="noreferrer noopener" href="https://www.gao.gov/products/b-423246" target="_blank">E.K.K. Investments, LLC</a>, the Defense Commissary Agency (DeCA) sought to procure fresh fruits and vegetables for resale at commissary stores in Korea. After issuing a Request for Information (RFI) and reviewing responses from four potential vendors, DeCA established a blanket purchase agreement (BPA) with one of the vendors. EKK protested, arguing that the award was improper because DeCA failed to execute a Justification and Approval (J&A) supporting its sole-source decision and because DeCA failed to obtain offers from as many sources as practicable as required by the FAR. GAO agreed with EKK on both issues. With respect to the requirement to execute a J&A, GAO noted that, while the law allows the government to use noncompetitive procedures, agencies must support such procurements with a J&A. The law does provide an exception to the J&A requirement when “brand-name” commercial products are acquired, but there is no exception for non-brand-name items like the fruits and vegetables at issue here. Therefore, DeCA erred in failing the prepare a J&A justifying its use of noncompetitive procedures. Similarly, GAO found that there was no justification for DeCA’s failure to obtain as many offers as practicable before awarding the contract. In this regard, GAO noted that when an agency uses other than full and open competitive procedures, the FAR generally requires the agency to solicit offers from as many potential sources as practicable under the circumstances. DeCA was unable to identify any applicable statutory or regulatory exemption to this rule. Moreover, the agency’s issuance of an RFI failed to satisfy the requirement to obtain as many “offers” as practicable, since the FAR itself specifically states that RFI responses are not offers. Finally, GAO rejected the agency’s arguments that the protest was untimely because EKK should have known earlier that DeCA would bypass the J&A and solicitation requirements. DeCA had argued that EKK was on notice that DeCA was planning to establish a single-source BPA using other than competitive procedures based on the agency’s issuance of the RFI, draft BPA, the agency’s responses to questions concerning the draft BPA, the agency’s establishment of a BPA for similar services in Guam using noncompetitive procedures, and modifications that extended the period of performance for the protester’s incumbent contract. GAO rejected this argument, concluding that DeCA failed to show that EKK knew or should have known the agency would establish a sole-source BPA without executing a J&A or soliciting offers from as many sources as practicable. In sustaining the protest, GAO recommended that DeCA cancel the awarded BPA and conduct its procurement of fruits and vegetables in a manner consistent with applicable procurement law. <h3 class="wp-block-heading">Key Takeaways</h3> <ul class="wp-block-list"> <li>Although noncompetitive procurements are subject to fewer requirements than competitive procurements, agencies are nevertheless required to comply with applicable procedures governing the use of such procurements. Authority to conduct a procurement on an other-than-full-and-open basis is not carte blanche.</li> <li>In filing GAO protests, companies generally have ten days from when they know or should have known of their basis of protest to challenge the awarded contract. Therefore, potential protesters should be alert to information that may trigger their “protest clock.”</li> </ul> The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/gao-finds-authority-to-use-noncompetitive-procedures-is-not-carte-blanche/">GAO Finds Authority to Use Noncompetitive Procedures Is Not Carte Blanche</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
For Better or MORSE: Another Settlement Under DOJ’s Civil Cyber-Fraud Initiative

Thu, 10 Apr 2025 14:28:29 -0000

On March 26, 2025, the Department of Justice (DOJ) announced that defense contractor MORSECORP Inc. (MORSE) will pay $4.6 million to settle allegations that MORSE violated the False Claims Act (FCA) by failing to comply with cybersecurity requirements and subsequently submitting false or fraudulent claims for payment in its contracts with the Departments of the Army and...

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On March 26, 2025, the Department of Justice (DOJ) <a rel="noreferrer noopener" href="https://www.justice.gov/opa/pr/defense-contractor-morsecorp-inc-agrees-pay-46-million-settle-cybersecurity-fraud" target="_blank">announced</a> that defense contractor MORSECORP Inc. (MORSE) will pay $4.6 million to settle allegations that MORSE violated the False Claims Act (FCA) by failing to comply with cybersecurity requirements and subsequently submitting false or fraudulent claims for payment in its contracts with the Departments of the Army and Air Force. This is the first FCA settlement that is based on a defense contractor’s failure to reevaluate and promptly update its self-assessment score in the Supplier Performance Risk System (SPRS) after a third-party assessment resulted in a lower score. The settlement resolves allegations in United States ex rel. Berich v. MORSECORP, Inc., et al., No. 23-cv-10130-GAO (D. Mass.), which was initiated by MORSE’s head of security and facility security officer. In the qui tam complaint, the relator alleged that MORSE did not satisfy the requirements of Defense Federal Acquisition Regulation Supplement (DFARS) clauses 252.204-7008, 252.204-7012, 252.204-7019 and 252.204-7020 made false statements concerning cybersecurity practices and policies and provided the government with false cybersecurity assessment information to induce the award of government contracts and payments thereunder. DFARS clauses 252.204-7008 and 252.204-7012 generally require that Department of Defense (DoD) contractors provide “adequate security” on all covered contractor information systems by implementing National Institute of Standards and Technology (NIST) Special Publication 800-171 and that contractors use external cloud service providers that meet security requirements established by the Federal Risk and Authorization Management Program (FedRAMP). DFARS clauses 252.204-7019 and 252.204-7020 require DoD contractors to submit summary level scores based on NIST SP 800-171 assessments in SPRS. These scores can range from -203 to 110. The relator, who was familiar with MORSE’s information systems and cybersecurity practices and procedures, alleged that within weeks of arriving at MORSE, he witnessed multiple violations of DFARS cybersecurity requirements and raised concerns with several senior executives, including the COO and CEO. After allegedly disregarding those concerns on multiple occasions, MORSE eventually agreed to retain an outside auditor to evaluate the company’s cybersecurity compliance. However, the relator alleged that the company failed to take any steps to remediate its non-compliances or post an accurate cybersecurity assessment score after receipt of a detailed report confirming that Morse was out of compliance with 78% of the cybersecurity controls required by NIST SP 800-171. As part of the settlement, MORSE admitted, acknowledged, and accepted responsibly for the following facts, which allegedly violated the cybersecurity requirements in the DFARS: First, MORSE used a third-party service for email hosting that did not meet security requirements equivalent to the FedRAMP Moderate baseline and the requirements set forth in DFARS 252.204-7012(c)-(g). (DOJ’s $1.25 million <a rel="noreferrer noopener" href="https://www.crowell.com/en/insights/client-alerts/allegations-of-a-litany-of-lyin-penn-state-settles-claims-of-cybersecurity-noncompliance" target="_blank">settlement</a> with Pennsylvania State University in October 2024 included similar allegations.)  Second, MORSE did not fully implement the 110 security controls in NIST SP 800-171. Third, MORSE did not have a consolidated written plan, otherwise known as a systems security plan (SSP), for each of its covered information systems, describing system boundaries and documenting compliance with the NIST SP 800-171 controls. Fourth, MORSE failed to update its SPRS score in a timely manner after third-party consultants notified the company that its SPRS score was significantly lower than reported. Specifically, in 2021, MORSE submitted a SPRS score of 104, which represents almost perfect compliance and full implementation of the NIST SP 800-171 security controls. However, in July 2022, MORSE engaged a third-party cybersecurity consultant to perform a gap analysis of its control implementation, which resulted in a summary-level score of -142. MORSE did not update its score until June 2023, three months after the government served MORSE with a subpoena concerning its cybersecurity practices. <h3 class="wp-block-heading">Key Takeaways</h3> <ol class="wp-block-list"> <li>While there is no express requirement to reevaluate and update a SPRS score upon receipt of third-party assessment results, significant differences between a self-assessed and third-party score should not be ignored. Failing to maintain accurate information in SPRS remains a key area of FCA liability risk.</li> <li>Contractors who did not update their information in SPRS after engaging in CMMC-preparedness, readiness assessments, or other gap analysis projects that resulted in a lower SPRS score than originally reported, and subsequently received contract awards that included the relevant DFARS clauses, should consider whether a proactive disclosure is warranted.</li> <li>Contractors should also consider whether to conduct third-party cybersecurity assessments under attorney-client privilege to minimize the risk of assessment findings being used against the contractor in a government investigation or litigation.</li> <li>Companies should be mindful of their compliance with all contractual provisions relating to cybersecurity, which may include the traditional implementation of security controls, generating documentation that summarizes control implementation, and the use of compliant cloud service providers.</li> <li>Contractors should take concerns about their cybersecurity compliance from all personnel seriously and ensure that employees feel heard. This settlement resolves the seventh Civil Cyber-Fraud Initiative (CCFI) action brought under the qui tam provisions of the FCA, highlighting DOJ’s continued reliance on whistleblowers and relators to pursue recoveries under this initiative.</li> </ol> The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/cybersecurity/for-better-or-morse-another-settlement-under-dojs-civil-cyber-fraud-initiative/">For Better or MORSE: Another Settlement Under DOJ’s Civil Cyber-Fraud Initiative</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Canadian CMMC? Canada Proposes Cyber Compliance Regime for Canadian Defense Suppliers

Thu, 10 Apr 2025 14:24:44 -0000

On March 12, 2025, the Government of Canada announced plans to launch the Canadian Program for Cyber Security Certification (CPCSC). CPCSC is a cybersecurity compliance verification program that aims to protect sensitive unclassified government information handled by Canadian government contractors and subcontractors within Canada’s defense sector. Canada will roll out CPCSC to contractors in four phases, with...

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On March 12, 2025, the Government of Canada <a rel="noreferrer noopener" href="https://www.canada.ca/en/public-services-procurement/services/industrial-security/security-requirements-contracting/cyber-security-certification-defence-suppliers-canada.html" target="_blank">announced plans</a> to launch the Canadian Program for Cyber Security Certification (CPCSC). CPCSC is a cybersecurity compliance verification program that aims to protect sensitive unclassified government information handled by Canadian government contractors and subcontractors within Canada’s defense sector. Canada will roll out CPCSC to contractors in four phases, with the first phase launching this month. CPCSC’s structure appears closely aligned with the U.S. Department of Defense (DoD) Cyber Maturity Model Certification (CMMC) program. Like CMMC, CPCSC is broken out into 3 compliance levels, will verify compliance via self, third-party, and government-conducted assessments, and will be included in Canadian government defense solicitations and other procurement opportunities. However, CPCSC and CMMC have one key difference: as currently structured, they will evaluate contractors against fundamentally different security standards. CMMC assessments are primarily based on security controls from the U.S. National Institute of Standards and Technology Special Publication (NIST SP) 800-171, Revision 2. CPCSC, in contrast, will evaluate Canadian defense contractors against <a rel="noreferrer noopener" href="https://www.cyber.gc.ca/en/guidance/protecting-controlled-information-non-government-canada-systems-and-organizations-itsp10171" target="_blank">Canadian industrial security standard (ITSP 10.171)</a>, a Canadian government standard that mirrors NIST SP 800-171, Revision 3. While this distinction may appear minor, there are significant differences between the security controls found in Revision 2 and Revision 3 of NIST SP 800-171. DoD has stated that CMMC will eventually adopt Revision 3, but to date all CMMC rulemaking and guidance materials have been tailored to Revision 2. Accordingly, reciprocity or mutual recognition for CMMC and CPCSC assessment and certifications does not appear feasible, at least for now. Simultaneously, however, DoD has begun socializing the possibility of contractors’ voluntary adoption of Revision 3, an approach that now merits more consideration for contractors supporting both countries’ defense supply chains. Given the historically close ties between the U.S. and Canadian defense sectors, contractors on both sides of the border should watch closely for further updates from Canada on its phased rollout of CPCSC, updates from DoD regarding CMMC’s adoption of NIST SP 800-171, Revision 3, and any discussions of mutual recognition between the respective programs. The post <a href="https://www.governmentcontractslegalforum.com/2025/04/articles/government-contracts/canadian-cmmc-canada-proposes-cyber-compliance-regime-for-canadian-defense-suppliers/">Canadian CMMC? Canada Proposes Cyber Compliance Regime for Canadian Defense Suppliers</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Fastest 5 Minutes: Executive Order – “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement”

Thu, 27 Mar 2025 20:40:18 -0000

This week’s episode features a deep dive on the President’s Executive Order, Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement, which directs the consolidation of certain types of “domestic federal procurement” under the General Services Administration in an effort to “eliminate waste and duplication.” This episode is hosted by Peter Eyre and Yuan Zhou. Crowell &...

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This week’s episode features a deep dive on the President’s Executive Order, <a href="https://www.whitehouse.gov/presidential-actions/2025/03/eliminating-waste-and-saving-taxpayer-dollars-by-consolidating-procurement/">Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement</a>, which directs the consolidation of certain types of “domestic federal procurement” under the General Services Administration in an effort to “eliminate waste and duplication.”  This episode is hosted by Peter Eyre and Yuan Zhou. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. Click below to listen or access from one of these links: <a href="https://www.podbean.com/eas/pb-cyiwu-1863bd8">PodBean</a> | <a rel="noreferrer noopener" href="https://www.crowell.com/admin/edit_contentitem.aspx?ID=1604611##" target="_blank"></a><a href="https://on.soundcloud.com/EJKAt6JinZ63QZmd7">SoundCloud</a> | <a href="https://podcasts.apple.com/us/podcast/fastest-5-minutes-the-podcast-government-contractors/id1142132203">iTunes</a> The post <a href="https://www.governmentcontractslegalforum.com/2025/03/articles/podcast/fastest-5-minutes-executive-order-eliminating-waste-and-saving-taxpayer-dollars-by-consolidating-procurement/">Fastest 5 Minutes: Executive Order – “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement”</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
FedRAMP 20x: Proposed Framework Aims To Increase Automation and Efficiency

Wed, 26 Mar 2025 17:09:34 -0000

On March 24, 2025, the Federal Risk and Authorization Management Program (FedRAMP) unveiled “FedRAMP 20x,” a proposal to make FedRAMP more efficient by automating FedRAMP security assessments and continuous monitoring, simplifying required technical controls, and leaning on industry to provide tooling and solutions to support automation. What is FedRAMP? FedRAMP is a federal government-wide compliance...

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On March 24, 2025, the Federal Risk and Authorization Management Program (FedRAMP) unveiled “<a href="https://www.fedramp.gov/20x/" target="_blank" rel="noreferrer noopener">FedRAMP 20x</a>,” a proposal to make FedRAMP more efficient by automating FedRAMP security assessments and continuous monitoring, simplifying required technical controls, and leaning on industry to provide tooling and solutions to support automation. <h3 class="wp-block-heading">What is FedRAMP?</h3> FedRAMP is a federal government-wide compliance regime that provides a standardized approach to security assessment, authorization, and continuous monitoring for cloud products and services used by federal agencies or for federal government information. Through security assessments, cloud service providers (CSPs) obtain authorizations confirming that their cloud products and services are compliant with FedRAMP baseline security requirements. The FedRAMP website explains that FedRAMP 20x was driven by Trump administration efficiency goals and industry feedback that the current FedRAMP authorization process is “too expensive, time-consuming, and challenging.” The current process requires CSPs to obtain a federal agency sponsor, rigorously document compliance with hundreds of technical controls, and establish continuous monitoring programs to verify that they maintain compliance with FedRAMP requirements following authorization. <h3 class="wp-block-heading">What is FedRAMP 20x proposing?</h3> FedRAMP 20x is in the very early stages of its development and most details regarding implementation and timing don’t appear to be finalized, but FedRAMP has shared a few elements, summarized below. <ul class="wp-block-list"> <li>The current agency sponsorship authorization pathway will remain open (for now). FedRAMP will continue to process authorizations submitted through the agency sponsorship pathway while FedRAMP 20x is in development, but it will process agency sponsorship authorizations on an accelerated timeline with less-rigorous checks starting after March 2025. FedRAMP also stated that it intends to process all authorizations currently pending within the next few weeks.</li> <li>Assessments and continuous monitoring that rely heavily on automation. FedRAMP 20x proposes security assessments and continuous monitoring relying heavily on automated validation instead of expansive documentation and compliance narratives. FedRAMP 20x will aim for “80%+” of requirements to have automated validation and for compliance with FedRAMP controls to be documented mostly in machine-readable format instead of narratives.</li> <li>Simplified and tailored technical controls. “Key Security Indicators” (KSIs), described by FedRAMP as “straightforward, measurable and comparable translations of traditional controls” are to be developed in conjunction with industry, designed to be verifiable via automation, and may be tailored to focus on security functions relevant to the cloud service or product seeking authorization. FedRAMP’s apparent intent is for KSIs to supplant the NIST SP 800-53, Revision 5 security controls that undergird the current FedRAMP assessment process, as the FedRAMP website explains that FedRAMP “will not provide updated technical assistance or guidance for implementation of the Rev. 5 baselines after March 2025.”</li> <li>Looking to industry to support assessment and enforcement efficiency. FedRAMP 20x seeks to lean heavily on commercial partners to shape its policies and processes, including by looking to industry to provide tools and solutions geared towards automated validation and to participate in FedRAMP 20x <a href="https://www.fedramp.gov/20x/working-groups/">community working groups</a> centered around public GitHub repositories.</li> </ul> <h3 class="wp-block-heading">What does FedRAMP 20x mean for federal government cloud service providers?</h3> FedRAMP 20x does not make immediate changes to FedRAMP’s fundamental structure. Instead, by promoting FedRAMP 20x, FedRAMP aims to modernize their authorization process real-time with active participation and input from cloud service providers and other stakeholders. Cloud service providers who do business with the federal government should consider: <ul class="wp-block-list"> <li>Engaging in the FedRAMP 20x community working groups, which are set to launch over the next three weeks.</li> <li>Exploring potential procurement or commercial business opportunities arising from FedRAMP 20x, especially with regard to cloud service features, tools, and other functions that could support automated assessment and validation processes.</li> <li>Monitor closely for further updates regarding the existing authorization process and the status of current authorization holders.</li> </ul> The post <a href="https://www.governmentcontractslegalforum.com/2025/03/articles/cybersecurity/fedramp-20x-proposed-framework-aims-to-increase-automation-and-efficiency/">FedRAMP 20x: Proposed Framework Aims To Increase Automation and Efficiency</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Trump’s Government Contracts Rebrand: From “Government” Procurement to “Just-GSA” Procurements

Mon, 24 Mar 2025 13:25:00 -0000

On March 20, 2025, the White House issued Executive Order (“EO”), “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement,” to consolidate domestic civilian contracting for “common goods and services” within one agency—the General Services Administration (“GSA”). The EO defines “common goods and services” as those described in the Category Management system first developed as part of a...

The post Trump’s Government Contracts Rebrand: From “Government” Procurement to “Just-GSA” Procurements appeared first on Government Contracts Legal Forum.
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On March 20, 2025, the White House issued Executive Order (“EO”), “<a href="https://www.whitehouse.gov/presidential-actions/2025/03/eliminating-waste-and-saving-taxpayer-dollars-by-consolidating-procurement/" target="_blank" rel="noreferrer noopener">Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement</a>,” to consolidate domestic civilian contracting for “common goods and services” within one agency—the General Services Administration (“GSA”). The EO defines “common goods and services” as those described in the <a href="https://www.acquisition.gov/content/category-management" target="_blank" rel="noreferrer noopener">Category Management</a> system first developed as part of a previous effort, dating back to 2014, to coordinate spending across the government. The EO asserts that “standardized procurement functions should be carried out in the most efficient and effective manner possible for the American taxpayer,” because, under the current system, “multiple agencies and agency subcomponents separately carry out these same functions in an uncoordinated and less economical fashion.” The EO’s procurement consolidation effort sets forth four key deadlines. Within 14 days of the EO’s issuance, by April 3, 2025, the Director of the Office of Management and Budget (“OMB”) is required to issue a memorandum to executive agencies for implementation, and then within 30 days of the EO’s issuance, by April 19, 2025, implement the following: <ul class="wp-block-list"> <li>The OMB Director must designate the GSA Administrator as the executive agent for all governmentwide acquisition contracts (“GWACs”) for information technology (“IT”). The Administrator must, however, defer or decline its executive agent designation when doing so is necessary to ensure continuity of service or is otherwise appropriate.</li> <li>The Administrator, on an ongoing basis, must rationalize agencies’ use of IT GWAC vehicles by identifying contracts deemed duplicative, redundant, or inefficient for elimination.</li> </ul> Within 60 days of the EO, by May 19, 2025, all agency heads, in consultation with their respective procurement officials, must submit to the Administrator proposals for GSA to conduct “domestic procurement with respect to common goods and services for the agency, where permitted by law.” Within 90 days of the EO, by June 18, 2025, the Administrator must submit to the OMB Director a comprehensive plan to procure “common goods and services” across “the domestic components of the Government, where permitted by law.” Key Takeaways <ul class="wp-block-list"> <li>While the EO proposes significant changes, the immediate impacts on current and prospective government contractors could be modest depending on what is considered a “common good or service” and what authority the customer agencies retain to continue certain procurement activities. If these changes disrupt active contracts, contractors should know their rights in the event of performance delays, changes, and terminations.</li> <li>Contractors may expect fewer contracting opportunities and solicitations in the near future, as the EO requires GSA to cull efforts that it considers duplicative or redundant.</li> <li>Contractors may notice increased closures of procurement offices across numerous agencies as procurement functions shift to GSA.</li> </ul> The post <a href="https://www.governmentcontractslegalforum.com/2025/03/articles/gsa-schedule/trumps-government-contracts-rebrand-from-government-procurement-to-just-gsa-procurements/">Trump’s Government Contracts Rebrand: From “Government” Procurement to “Just-GSA” Procurements</a> appeared first on <a href="https://www.governmentcontractslegalforum.com">Government Contracts Legal Forum</a>.
Sidley Adds Morgan Lewis Financial Services Trio In Texas, NY

Mon, 12 May 2025 19:57:42 -0000

...with Morgan Lewis for a little over a decade and was with K&L Gates LLP for more than three years before that, his profile shows. He was a judicial law clerk for the Fifth Circuit and was an...
Steel Co. To Pay $6M To End Underpayment Suit

Mon, 12 May 2025 19:56:48 -0000

...Schroeter Goldmark & Bender. Steelscape is represented by Todd L. Nunn of K&L Gates LLP. The case is Jenkins v. Steelscape Washington LLC, case number 3:24-cv-05127, in the U.S. District Court
Jonathan McKernan Nomination for CFPB Director Rescinded; New Nominee Not Yet Named

Mon, 12 May 2025 20:58:38 -0000

...activities of the agency. In April 2025, and as previously reported by Holland & Knight, Scott expressed that Republicans hoped for Vought to "get as much of that work done" as possible prior...
CFPB Overdraft and Digital Payment Rules Repealed by Trump Administration

Mon, 12 May 2025 20:58:38 -0000

...by industry groups in U.S. federal courts. As previously reported by Holland & Knight, on March 5, 2025, the House Financial Services Committee voted 30-19 to pass H.J.Res 59, a Congressional...
Revitalizing Rhode Island Avenue NE: Draft Planning Study Outlines Vision for Growth, Equity and Identity

Mon, 12 May 2025 16:58:38 -0000

...opportunities along the corridor, please contact the author or another member of Holland & Knight's D.C. and Northern Virginia Land Use Team.
Algeria Seeks Oil and Gas Investment

Mon, 12 May 2025 14:58:40 -0000

...largely untapped hydrocarbon potential and ensure energy security and economic growth. This Holland & Knight alert provides a preliminary overview and key information for interested companies...
Split 4th Circ. Revives Naval Engineers' No-Poach Case

Sat, 10 May 2025 02:15:34 -0000

...of Allen Overy Shearman Sterling, and Sima Namiri-Kalantari and Chahira Solh of Crowell & Moring LLP. Bath Iron Works Corp., Electric Boat Corp. and General Dynamics are represented by John...
Feds Put Heat On Foreign Data Transfers With Sweeping Rules

Sat, 10 May 2025 01:43:16 -0000

...U.S. lead of the global data privacy and security practice at Bryan Cave Leighton Paisner LLP, adding that the NSD's new compliance guide can provide "a good roadmap" for the creation of such...
K&L Gates Adds Public Policy Pair From Arnold & Porter In DC

Fri, 09 May 2025 20:28:00 -0000

K&L Gates LLP boosted its office in Washington, D.C., with two former Arnold & Porter Kaye Scholer LLP attorneys with deep experience with public policy matters. Marne Marotta and David...
UK Litigation Roundup: Here's What You Missed In London

Fri, 09 May 2025 18:17:24 -0000

...regional partners, including Stoke-on-Trent City Council. Stoke-on-Trent City Council is represented by Womble Bond Dickinson (UK) LLP. The case is Stoke-on-Trent City Council v. Wates Construction...
Three-Clicks You’re Out? The FTC’s Action against Uber Showcases That Businesses Need To Provide Transparent Cancellation Processes

Thu, 01 May 2025 18:17:25 -0000

On April 21, 2025, the FTC filed an enforcement action against Uber alleging that Uber enrolled consumers in Uber One without proper consent, created substantial barriers to cancellation, and misrepresented the financial benefits of the subscription. The claims include violations of the FTC Act—which prohibits unfair and deceptive acts in commerce—and the Restore Online Shoppers’... Continue Reading…

On April 21, 2025, the FTC filed an enforcement action against Uber alleging that Uber enrolled consumers in Uber One without proper consent, created substantial barriers to cancellation, and misrepresented the financial benefits of the subscription. The claims include violations of the FTC Act—which prohibits unfair and deceptive acts in commerce—and the Restore Online Shoppers’ Confidence Act (“ROSCA”)—which prohibits charging consumers for goods and services sold on the internet through a negative option (i.e., failing to cancel a subscription, unless the seller clearly discloses all material terms of the transaction before obtaining the consumer’s information and obtains the consumer’s expressed informed consent for the charges and provides simple mechanisms for the consumer to stop the recurring charges). <a href="https://www.crowell.com/en/insights/client-alerts/three-clicks-youre-out-the-ftcs-action-against-uber-showcases-that-businesses-need-to-provide-transparent-cancellation-processes">Click here</a> to continue reading.
FTC Updates (April 14 – 18, 2025)

Tue, 29 Apr 2025 12:46:48 -0000

The FTC has remained active in both the antitrust and consumer protection spaces. The agency is seeking public comment about federal regulations that could themselves be harming competition in the economy. The Commission also released data and statistics about common text message scams. And, of course, the agency’s landmark trial against Meta continues. More information... Continue Reading…

The FTC has remained active in both the antitrust and consumer protection spaces. The agency is seeking public comment about federal regulations that could themselves be harming competition in the economy. The Commission also released data and statistics about common text message scams. And, of course, the agency’s landmark trial against Meta continues. More information on these stories after the jump. Monday, April 14, 2025 Bureau of Competition: Policy Planning <ul class="wp-block-list"> <li>Pursuant to an April 9, 2025 <a href="https://www.whitehouse.gov/presidential-actions/2025/04/reducing-anti-competitive-regulatory-barriers/">Executive Order</a> 14267, entitled “Reducing Anti-Competitive Regulatory Barriers,” the FTC launched a <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/P859900AnticompetitiveRegulationsRFI.pdf">request</a> for public written comments about “how federal regulations can harm competition in the American economy.” The request encourages all members of the public, including “consumers, workers, businesses, start-ups, potential market entrants, investors, and academics” to identify particular federal regulations that impose any sort of “anti-competitive restraints or distortions on the operation of the free market.” Comments may be posted on the <a href="https://www.regulations.gov/document/FTC-2025-0028-0001">Regulations.gov</a> docket until May 27, 2025. As of this writing, the posting has received 30 <a href="https://www.regulations.gov/document/FTC-2025-0028-0001/comment">comments</a>.</li> </ul> Bureau of Competition: FTC v. Meta <ul class="wp-block-list"> <li>The FTC’s well-publicized trial against Meta Platforms in relation to its acquisitions of Instagram and WhatsApp continues. Before the trial commenced, Crowell & Moring partner Kenneth Dintzer <a href="https://globalcompetitionreview.com/gcr-usa/article/ftc-readies-take-meta">commented</a> to GCR USA that there could be challenges with the FTC’s ability to prove market power. The agency has now posted a redacted version of the <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910134ftcopeningstatementslides.pdf">slide deck</a> used in its opening statement; the 109-slide deck previews numerous witnesses, documents, and arguments. The FTC is also posting all trial exhibits at <a href="https://ftcvmeta.app.box.com/s/b8m39toze8ucgmj93jjssjtp0k0w97qz">this link</a> approximately two business days after they are admitted as exhibits.</li> </ul> Wednesday, April 16, 2025 Bureau of Consumer Protection: Text Message Scams <ul class="wp-block-list"> <li>The Commission released a “<a href="https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2025/04/top-text-scams-2024">Data Spotlight</a>” report outlining the top text message scams of 2024 and related information. Interestingly, while the overall number of reported text scams declined, the amount of money lost to these scams rose to $470 million. In comparison, consumers reported $86 million in losses in 2020. The article explains the most common text scams, including texts about fake package delivery issues, job opportunities, fraud alerts, notices about unpaid tolls, and wrong numbers. The report contains advice for stopping and avoiding text scams, including forwarding the messages to the number 7726, reporting them to the FTC and within the messaging app, refraining from interacting with texts by responding or clicking on links, and applying filters or call-blocking apps. </li> </ul>
California Considering Broad Bans on Pricing Software

Fri, 25 Apr 2025 19:57:54 -0000

Two bills currently making their way through the California Legislature could, if passed, have far-reaching implications for how companies doing business in California price their goods and services. California Assembly Bill 325 (Aguiar-Curry) and Senate Bill 384 (Wahab), as drafted, seek broad prohibitions against the use, distribution of, and inputs into algorithmic pricing and supply... Continue Reading…

Two bills currently making their way through the California Legislature could, if passed, have far-reaching implications for how companies doing business in California price their goods and services. California Assembly Bill 325 (Aguiar-Curry) and Senate Bill 384 (Wahab), as drafted, seek broad prohibitions against the use, distribution of, and inputs into algorithmic pricing and supply software, even where there is no coordination among competitors on the use of such software or the setting of prices. Their enactment would reach every business that uses software applications to develop pricing, supply levels and other commercial terms in California. Crowell & Moring represents the California Chamber of Commerce (“CalChamber”) in monitoring, analyzing and responding to the proposed bills. AB325, for instance, would prohibit the use or distribution of a pricing algorithm that (1) incorporates or was trained with “nonpublic competitor data,” defined broadly to include data of a competitor in the same or a related market; or (2) is used to set prices and other commercial terms where the algorithm is being used by another business in the same or a related market. With the complexity of today’s marketplace and its rapidly changing conditions, businesses, large and small, often use software tools and technology to efficiently and dynamically price their goods and services. The technology can be licensed from third-party providers or developed internally by software engineers and pricing teams. But AB325 and SB384, as written, would largely bar use of this type of pricing technology, regardless of whether licensed or developed internally. In addition to its broad definition of data, AB325’s definition of “pricing algorithm” is similarly sweeping—encompassing “any computational process, including a computational process derived from machine learning or other artificial intelligence techniques, that processes data to recommend or set a price or commercial term.” As written, the bill would not only prohibit software used to set prices, but also technology used to measure and predict output and capacity needs. SB384 is even more expansive, prohibiting the use of any software, system, or process that collects current or historical pricing or supply level data from two or more persons or from public databases for the purposes of analyzing and creating pricing models based on that data, which has long been recognized as a legitimate, competitive method for analyzing pricing and other commercial terms. While both bills appear aimed at curbing collusion through pricing algorithms, both federal and California antitrust law already prohibit agreements between competitors to fix the prices of goods and services—whether that agreement is accomplished via an algorithm or otherwise. But the bills go even further than barring collusion among competitors by imposing liability even if competitors do not reach agreement on prices or the use of algorithms employed to set prices. These expansive prohibitions could potentially stifle in California the development and use of algorithmic and dynamic pricing technologies. With the potential to force businesses to a more manual pricing process, the bills could impede businesses’ ability to competitively price their products and services and potentially lead to higher prices for consumers. Crowell & Moring is monitoring AB325 and SB384 along with several other antitrust bills currently making their way through the state Legislature. As counsel for CalChamber, Crowell & Moring has also provided testimony to the Senate and Assembly Judiciary Committees on the likely impact of these bills, if passed. If you are interested in joining CalChamber’s coalition for common sense legal reforms or have questions about AB325 and SB384’s impact to your business, please contact the authors.
Recall Litigation Report: Trends in 2024 Continue Into 2025

Wed, 23 Apr 2025 21:30:03 -0000

The 2024 trends in recall litigation and class actions, including food recall cases, prudential mootness decisions, benefit of the bargain opinions, and PFAS litigation, continue into 2025. Click here to continue reading. Continue Reading…

The 2024 trends in recall litigation and class actions, including food recall cases, prudential mootness decisions, benefit of the bargain opinions, and PFAS litigation, continue into 2025. <a href="https://communications.crowell.com/email_handler.aspx?sid=blankform&redirect=https%3a%2f%2fwww.crowell.com%2fen%2finsights%2fclient-alerts%2frecall-litigation-report-trends-in-2024-continue-into-2025&checksum=E950F220" target="_blank" rel="noreferrer noopener">Click here to continue reading. </a>
ClassPass’ Petition for Rehearing Will Tell the Future of Sign-In Wrap Agreements on the Internet

Mon, 21 Apr 2025 22:29:39 -0000

On April 14, 2025, ClassPass, a web-based company offering subscription services to third-party fitness classes, petitioned for rehearing en banc of the Ninth Circuit’s Chabolla v. ClassPass decision, which held that ClassPass’ users were not bound by the terms of ClassPass’ “sign-in wrap” agreement. The ruling has significant consequences for online companies using sign-in wrap agreements and for online... Continue Reading…

On April 14, 2025, ClassPass, a web-based company offering subscription services to third-party fitness classes, petitioned for rehearing en banc of the Ninth Circuit’s Chabolla v. ClassPass decision, which held that ClassPass’ users were not bound by the terms of ClassPass’ “sign-in wrap” agreement. The ruling has significant consequences for online companies using sign-in wrap agreements and for online contract formation and enforcement more generally. A sign-in wrap is a type of online agreement in which the agreement is hyperlinked on the website, but the user is not required to access, review, confirm an understanding, or otherwise affirmatively “assent” to be bound. If the Ninth Circuit does not grant ClassPass’ request and issue a new ruling in Chabolla, this case may signal the death knell for sign-in wraps, resulting in significant disruption, friction, and ultimately lower conversion for online companies who will be forced to redesign their sign-up flows to be click-wrap agreements (online agreements that require the user to affirmatively accept a company’s terms of use by clicking an assent box or button). Short of that, this decision increases business risk given that there are now conflicting opinions both within the Ninth Circuit and between the various Circuits. <a href="https://www.crowell.com/en/insights/client-alerts/classpass-petition-for-rehearing-will-tell-the-future-of-sign-in-wrap-agreements-on-the-internet">Click here to continue reading</a>.
Is Section 230 Going to Change? The FTC, DOJ and FCC Signal Significant Change for Online Businesses

Tue, 15 Apr 2025 15:45:08 -0000

On April 3, 2025, the United States Department of Justice’ Antitrust Division hosted a forum on “Big-Tech Censorship” in which key Trump Administration Officials announced their desire to reform, or entirely overhaul, Section 230 of the Communications Decency Act. In March 2025, we wrote about the Federal Trade Commission’s (FTC) inquiry into “tech censorship” and its associated request for... Continue Reading…

On April 3, 2025, the United States Department of Justice’ Antitrust Division hosted <a href="https://www.youtube.com/watch?v=RPPgJ-xkjWo" target="_blank" rel="noreferrer noopener">a forum on “Big-Tech Censorship”</a> in which key Trump Administration Officials announced their desire to reform, or entirely overhaul, Section 230 of the Communications Decency Act. In March 2025, <a href="https://www.crowell.com/en/insights/client-alerts/the-ftcs-request-for-public-comment-on-online-content-moderation-are-you-ready-for-a-sea-change" target="_blank" rel="noreferrer noopener">we wrote</a> about the Federal Trade Commission’s (FTC) inquiry into “tech censorship” and its associated request for public comments from those who “may have been harmed by technology platforms that limited their ability to share ideas or affiliations freely and openly.” That RFI remains open, and its deadline is May 21, 2025. <a href="https://www.crowell.com/en/insights/client-alerts/is-section-230-going-to-change-the-ftc-doj-and-fcc-signal-significant-change-for-online-businesses">Click here</a> to continue reading.
From Capone to Corporations: Supreme Court Ruling on Civil RICO Claims Could Create Uptick in Personal Injury Lawsuits

Mon, 07 Apr 2025 20:35:18 -0000

On April 2, 2025, the U.S. Supreme Court extended the reach of Section 1964(c) of the Racketeer Influenced and Corrupt Organizations (RICO) Act by holding that a plaintiff may seek treble damages for a business or property loss resulting from a personal injury.[1] The 5-4 decision has resolved a 3-2 circuit split over whether the RICO... Continue Reading…

On April 2, 2025, the U.S. Supreme Court extended the reach of Section 1964(c) of the Racketeer Influenced and Corrupt Organizations (RICO) Act by holding that a plaintiff may seek treble damages for a business or property loss resulting from a personal injury.<a href="https://www.crowell.com/en/insights/client-alerts/from-capone-to-corporations-supreme-court-ruling-on-civil-rico-claims-could-create-uptick-in-personal-injury-lawsuits#_ftn1">[1]</a> The 5-4 decision has resolved a 3-2 circuit split over whether the RICO statute precludes relief for losses stemming from a personal injury. <a href="https://www.crowell.com/en/insights/client-alerts/from-capone-to-corporations-supreme-court-ruling-on-civil-rico-claims-could-create-uptick-in-personal-injury-lawsuits">Click here</a> to continue reading.
MoCRA Under the Trump Era: A Look at FDA’s Monitoring and Enforcement Two Months In

Thu, 27 Mar 2025 16:55:05 -0000

Despite other sweeping changes to the federal government under the Trump administration, the Modernization of Cosmetics Regulation Act of 2022 (MoCRA), passed under former President Biden, remains good law. Below, we report on recent trends in FDA’s implementation and enforcement of MoCRA in the early months of Trump’s presidency. FDA is continuing to monitor the... Continue Reading…

Despite other sweeping changes to the federal government under the Trump administration, the Modernization of Cosmetics Regulation Act of 2022 (MoCRA), passed under former President Biden, remains good law. Below, we report on recent trends in FDA’s implementation and enforcement of MoCRA in the early months of Trump’s presidency. FDA is continuing to monitor the cosmetic industry’s compliance with MoCRA. On March 13, 2025, FDA released <a href="https://www.fda.gov/cosmetics/registration-listing-cosmetic-product-facilities-and-products">data</a> summarizing the number of active facility registrations and product listings submitted pursuant to MoCRA’s requirements. As we have previously <a rel="noreferrer noopener" href="https://www.crowell.com/en/insights/client-alerts/fda-issues-final-guidance-on-facility-registration-and-product-listing-under-mocra" target="_blank">reported</a>, MoCRA requires the “responsible person” (i.e., the manufacturer, packer, or distributor of a cosmetic product whose name appears on the label) to register their facilities with FDA and to update that registration every two years. The “responsible person” is also required to submit a list of each marketed cosmetic product, including the product’s ingredients, to FDA, with annual updates. The new data shows that as of January 1, 2025, FDA has received 9,528 active facility registrations and 589,762 unique product listings, through either Cosmetics Direct, the Electronic Submission Gateway, Structure Product Labeling software, or paper submissions. Before MoCRA, FDA received voluntary cosmetic product filings and establishment registrations through the Voluntary Cosmetic Registration Program (VCRP). Under the VCRP, which ran from 1972 until it was sunset on March 27, 2023, the number of active establishment registrations was only 5,176, and the number of active product listings was only 35,102. Notably, the number of facility registrations submitted pursuant to MoCRA’s mandate is almost twice the number of registrations voluntarily submitted through the VCRP. And the number of active MoCRA product listings is more than sixteen times the number of VCRP product filings, suggesting that the largest cosmetics facilities may not have been participating in the VCRP. This large increase in facility registrations and product listings also indicates the effect of a mandatory program when compared to a program that relies on voluntary participation. As part of this same report, FDA also <a rel="noreferrer noopener" href="https://www.fda.gov/media/185782/download?attachment" target="_blank">published</a> information on the number of registered facilities in each U.S. state and territory as well as the number of foreign registered facilities in each country as of January 1, 2025. The total number of registered facilities in the U.S. is 1,800, with the highest number of registered facilities in California (373), Florida (201), New Jersey (144), Texas (120), and New York (118). Accordingly, these states likely are, and may continue to be, focal points for consumer litigation related to cosmetics. The foreign countries with the highest number of registered facilities are China (4,260), South Korea (617), India (309), Italy (273), and France (245). With more than double the number of domestic registered facilities, this report indicates that China has a dominant role in the U.S. cosmetics market. In addition, during the first two months of the Trump administration, FDA’s enforcement of MoCRA followed a similar pattern as the prior administration. During this time, FDA again warned drug manufacturers of potential MoCRA violations, issuing warning letters to three entities. Specifically, FDA warned each drug manufacturer that some of the products they manufacture may be regulated as cosmetics and that, as a result, their facilities may be subject to requirements under MoCRA. While <a rel="noreferrer noopener" href="https://www.crowell.com/a/web/a4CoYrEBpz6qxaJmxB6F8q/anticipating-direction-of-cosmetics-regulation-under-trump.pdf" target="_blank">uncertainty</a> remains regarding how the Trump regulatory agenda and priorities may impact further implementation and enforcement of MoCRA, the recent data report and warning letters indicate that, at least for the time being, FDA is continuing to monitor for compliance with MoCRA in a manner consistent with its efforts during the Biden administration. Importantly, MoCRA’s provisions remain in full force and effect, and thus far, the Trump administration has not taken steps to alter these requirements. We will continue to analyze and report on MoCRA developments going forward.
FTC Blog Updates March 10 – March 14

Mon, 24 Mar 2025 12:49:39 -0000

This week the FTC has been busy sending money to consumers harmed by unfair or deceptive business acts or practices. These stories, and more, after the jump. March 10, 2025 Bureau of Consumer Protection: Consumer Refunds; Telemarketing Bureau of Consumer Protection: Fraud March 12, 2025 Bureau of Consumer Protection: Consumer Refunds; Military March 13, 2025... Continue Reading…

This week the FTC has been busy sending money to consumers harmed by unfair or deceptive business acts or practices. These stories, and more, after the jump. March 10, 2025 Bureau of Consumer Protection: Consumer Refunds; Telemarketing <ul class="wp-block-list"> <li>The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2025/03/ftc-sends-more-255-million-consumers-impacted-tech-support-firms-scam">announced</a> that it is sending payments totaling more than $25.5 million to consumers who were lured into signing up for computer repair services through the deceptive marketing tactics of two tech support companies. The consumer refunds are based on the money the FTC obtained as part of a <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/Restoro.SignedOrder.pdf">settlement order</a> with Restoro Cyprus Limited and Reimage Cyprus Limited. The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2024/03/tech-support-firms-will-pay-26-million-settle-ftc-charges-they-deceived-consumers-buying-repair">alleged in March 2024</a> that the two companies violated the FTC Act and the Telemarking Sales Rule by deceiving consumers into buying computer repair services. The FTC sent 736,375 PayPal payments on March 13 and 14 to consumers who paid for the companies’ computer repair services. Read more about the allegations and settlement at the <a href="https://www.retailconsumerproductslaw.com/2024/03/ftc-updates-march-11-15-2024/">FTC Updates for March 11-15, 2024</a>.</li> </ul> Bureau of Consumer Protection: Fraud <ul class="wp-block-list"> <li>The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2025/03/new-ftc-data-show-big-jump-reported-losses-fraud-125-billion-2024">released</a> data showing that consumers reported losing more than $12.5 billion to fraud in 2024, which represents a 25% increase over 2023. The number of fraud reports remained stable (2.6 million), but the percentage of people who reported losing money to a fraud or scam increased from 27% in 2023 to 38% in 2024. The category with the largest amount of reported losses was investment scams, accounting for $5.7 billion, a 24% increase over 2023. The most commonly reported scam category was imposter scams, and it was the second highest amount of reported loss. Online shopping issues were the second most commonly reported in the fraud category, followed by business and job opportunities. Most of the scams were paid with bank transfers or cryptocurrency. For the second consecutive year, email was the most common way that consumers reported being contacted by scammers; phone calls were the second most commonly reported contact method, followed by text messages. This data came from the FTC’s Consumer Sentinel Network, a database that receives reports directly from consumers, as well as from federal, state, and local law enforcement agencies, the Better Business Bureau, industry members, and non-profit organizations. A full breakdown of reports received in 2024 is available on the FTC’s data analysis site at <a href="https://ftc.gov/exploredata">ftc.gov/exploredata</a>.</li> </ul> March 12, 2025 Bureau of Consumer Protection: Consumer Refunds; Military <ul class="wp-block-list"> <li>The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2025/03/ftc-sends-more-155-million-refunds-consumers-affected-career-steps-deceptive-job-placement-employer">announced</a> it is sending more than $15.5 million in refunds to consumers tricked by online career-training company Career Step’s deceptive ads and false claims about its training programs. The consumer refunds are based on the money the FTC obtained as part of a settlement and <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/CareerStep-Filed-Stipulated-Order.pdf">stipulated order</a> with Career Step, LLC. In July 2024, the FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2024/07/career-step-pay-435-million-cash-debt-cancellation-resolve-charges-it-used-deceptive-advertising">alleged</a> that Career Step, LLC targeted servicemembers and their spouses using false claims about job placement and career outcomes, externships, and hiring partnerships with prominent companies. The FTC further alleged that Career Step used deceptive incentivized reviews to promote its services and that it marketed its services through military-focused publications, such as Military.com, and events sponsored by the military. In addition to the consumer refunds, the settlement also required Career Step to cancel nearly $28 million in unpaid balances owed by current or former students who enrolled between February 2020 and February 2023. The FTC is sending checks and PayPal payments to 42,794 affected consumers who enrolled and paid for training between August 7, 2018, and September 11, 2024, and who did not get debt cancellation as part of the settlement.</li> </ul> March 13, 2025 Bureau of Consumer Protection: Consumer Refunds; Automobiles; Online Advertising and Marketing <ul class="wp-block-list"> <li>The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2025/03/ftc-sends-more-934000-refunds-consumers-harmed-vrooms-failed-delivery-promises">announced</a> it is sending more than $934,000 in refunds to consumers who were harmed by the shipment delays of Vroom, an online used car dealer. The refunds are based on the money the FTC obtained as part of a settlement with Vroom for failed delivery promises. The FTC <a href="https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-takes-action-against-online-used-car-dealer-vroom-deceiving-customers-failing-deliver-time">alleged</a> in July 2024 that Vroom failed to follow the Mail, Internet, and Telephone Order Rule, the Pre-Sale Availability Rule, and the Used Car Rule. Specifically, the FTC alleged that Vroom misrepresented that it thoroughly examined all vehicles before listing them for sale and failed to obtain consumers’ consent to shipment delays or provide prompt refunds to consumers when cars were not delivered in the time promised. The complaint also alleged that Vroom violated the Used Car Rule by not providing consumers the Buyers Guide until late in the purchase process and that the guides were often missing required information. Finally, the complaint alleged that Vroom also failed to provide warranty information required by law. The FTC is sending checks to 20,361 affected consumers. Read more about the complaint and allegations at the <a href="https://www.retailconsumerproductslaw.com/2024/07/ftc-updates-july-1-12-2024/">FTC Updates for July 1-12, 2024</a>.</li> </ul> March 14, 2025 Bureau of Consumer Protection: Consumer Refunds <ul class="wp-block-list"> <li>The FTC, as a result of enforcement actions, <a href="https://www.ftc.gov/news-events/news/press-releases/2025/03/new-report-shows-ftc-returned-3373-million-consumers-2024">announced</a> that it returned $337.3 million to consumers in 2024, according to the FTC’s <a href="https://www.ftc.gov/reports/2024-annual-report-refunds-consumers">Annual Report on Refunds to Consumers</a>. The report provides a breakdown of the total amount refunded by the FTC nationally, as well as the amount sent to consumers in each state, with Texas being the largest, followed by Florida and California. The report also includes a list of cases in which the agency sent first distribution payments in 2024. In addition, the report includes information about the FTC’s refund process, including how it determines who is eligible for a refund. As mentioned above, the FTC has more detailed information about consumer refunds at <a href="https://www.ftc.gov/exploredata">ftc.gov/exploredata</a>.</li> </ul>
Right To Repair – A Growing Trend for States Creating Compliance Challenges for Manufacturers

Thu, 20 Mar 2025 19:11:20 -0000

“Right to Repair” laws are regulations that generally require manufacturers to give consumers and independent repair providers access to tools, parts, and information to repair certain consumer products and other equipment on fair and reasonable terms. Recently, six states—California, Colorado, Minnesota, New York, Massachusetts, and Oregon—have implemented their own comprehensive right to repair regulations. Click... Continue Reading…

“Right to Repair” laws are regulations that generally require manufacturers to give consumers and independent repair providers access to tools, parts, and information to repair certain consumer products and other equipment on fair and reasonable terms. Recently, six states—California, Colorado, Minnesota, New York, Massachusetts, and Oregon—have implemented their own comprehensive right to repair regulations. <a href="https://www.crowell.com/en/insights/client-alerts/right-to-repair-a-growing-trend-for-states-creating-compliance-challenges-for-manufacturers">Click here</a> to read a summary of these states laws and what companies can expect on a state and federal level.
EU Retaliatory Trade Measures Against the U.S. – Public Consultation

Mon, 12 May 2025 13:53:54 -0000

On 8 May 2025, the European Commission published new lists of products potentially subject to EU rebalancing measures in retaliation to U.S. tariffs. These proposed measures include export restrictions and additional import customs duties. They would apply if the EU-U.S. trade negotiations fail and are designed to stand alongside the previously adopted EU countermeasures which... Continue Reading

On 8 May 2025, the European Commission published new lists of products potentially subject to EU rebalancing measures in retaliation to U.S. tariffs. These proposed measures include export restrictions and additional import customs duties. They would apply if the EU-U.S. trade negotiations fail and are designed to stand alongside the previously adopted EU countermeasures which are currently suspended until 14 July 2025. <a href="https://communications.crowell.com/e/wcuctdomlennqeg/12cc97c0-11fb-4974-be57-2f646c7969b3" target="_blank" rel="noreferrer noopener">Click here to continue reading the full version of this alert.</a>
Global Trade Talks: Automotive Tariffs

Fri, 09 May 2025 20:45:01 -0000

Crowell hosts Nicole Simonian and Dj Wolff continue their conversation with Dan Cannistra on the Trump Administration tariffs. This session focuses on recent modifications to the automotive/auto parts tariffs, including discussion about the impact of the recent Executive Order “Addressing Certain Tariffs on Imported Articles” and other related guidance. Global Trade Talks is a podcast... Continue Reading

Crowell hosts Nicole Simonian and Dj Wolff continue their conversation with Dan Cannistra on the Trump Administration tariffs. This session focuses on recent modifications to the automotive/auto parts tariffs, including discussion about the impact of the recent Executive Order “Addressing Certain Tariffs on Imported Articles” and other related guidance. Global Trade Talks is a podcast that shares brief perspectives on key global issues on international trade, current events, business, law, and public policy as they impact our lives. Listen: <a href="https://communications.crowell.com/e/xzegc9aq3ptjo1g/3823968a-a7f6-4b92-9845-794f9c481f87" target="_blank" rel="noreferrer noopener">Crowell.com</a> | <a href="https://communications.crowell.com/e/bj0qr5yfmisp8ww/3823968a-a7f6-4b92-9845-794f9c481f87" target="_blank" rel="noreferrer noopener">PodBean</a> | <a href="https://communications.crowell.com/e/ijuco0bjlhw1spg/3823968a-a7f6-4b92-9845-794f9c481f87" target="_blank" rel="noreferrer noopener">SoundCloud</a> | <a href="https://communications.crowell.com/e/7peunjibwk8x3q/3823968a-a7f6-4b92-9845-794f9c481f87" target="_blank" rel="noreferrer noopener">Apple Podcasts </a>
U.S. Department of the Treasury to Establish Fast Track CFIUS Process for Foreign Investors

Fri, 09 May 2025 18:39:52 -0000

On May 8, 2025, the U.S. Department of the Treasury (Treasury) announced that it will establish a fast track review process to facilitate greater investment in the United States from ally and partner sources. Specifically, Treasury stated that the new fast track Committee on Foreign Investment in the United States (CFIUS) review process will include... Continue Reading

On May 8, 2025, the U.S. Department of the Treasury (Treasury) <a href="https://home.treasury.gov/news/press-releases/sb0136">announced</a> that it will establish a fast track review process to facilitate greater investment in the United States from ally and partner sources. Specifically, Treasury stated that the new fast track Committee on Foreign Investment in the United States (CFIUS) review process will include the launch of a “Known Investor” portal through which the CFIUS can collect information from foreign investors in advance of a filing. Treasury noted that it will first implement the portal as a pilot program. The portal is the first step in effecting the “fast track” review process described in the February 21, 2025 <a href="https://www.whitehouse.gov/presidential-actions/2025/02/america-first-investment-policy/">National Security Policy Memorandum</a> (NSPM) as part of  the Administration’s “America First Investment Policy.”  Please see our previous client alert <a href="https://www.crowell.com/en/insights/client-alerts/president-trump-announces-america-first-investment-policy">here</a>. It remains unclear how Treasury will determine which U.S. allies and partners will be eligible to use the fast track CFIUS review process, and we anticipate additional guidance on this point in the coming months. Crowell & Moring LLP continues to monitor CFIUS developments and their potential impact on foreign investors and U.S. businesses alike.
DOJ Declines Prosecution of Company for Employee’s Unlawful Export

Thu, 08 May 2025 18:46:10 -0000

On April 30, 2025, the U.S. Department of Justice (DOJ) announced it would not prosecute the Universities Space Research Association (USRA) for alleged violations of the Export Administration Regulations (EAR). This marks the DOJ’s second declination in the last twelve months under the National Security Division’s (NSD) Enforcement Policy for Business Organizations (NSD VSD Policy),... Continue Reading

On April 30, 2025, the U.S. Department of Justice (DOJ) <a href="https://www.justice.gov/opa/pr/justice-department-declines-prosecution-company-self-disclosed-export-control-offenses#:~:text=The%20Justice%20Department%20today%20announced,its%20former%20employee%2C%20Jonathan%20Soong.">announced</a> it would not prosecute the Universities Space Research Association (USRA) for alleged violations of the Export Administration Regulations (EAR). This marks <a href="https://www.crowell.com/en/insights/client-alerts/voluntary-self-disclosure-leads-to-national-security-divisions-first-declination-to-prosecute-company-under-enforcement-policy">the DOJ’s second declination in the last twelve months</a> under the National Security Division’s (NSD)<a href="https://www.justice.gov/nsd/media/1285121/dl?inline="> Enforcement Policy for Business Organizations</a> (NSD VSD Policy), and the first since the Trump Administration came into office. This decision by DOJ underscores the importance of proactive corporate compliance measures. The case arose from a former USRA employee’s unauthorized export of U.S. Army-developed aviation software, controlled under the EAR, to a Chinese university listed on the Department of Commerce’s Entity List. The employee knowingly transferred the software without the required export license.  DOJ also <a href="https://www.justice.gov/opa/pr/justice-department-declines-prosecution-company-self-disclosed-export-control-offenses">announced</a> that the former USRA employee pleaded guilty to willfully violating the EAR, and a federal court sentenced the former employee to 20 months’ imprisonment. Despite the seriousness of the conduct, DOJ/NSD credited USRA for its timely and proactive response. According to DOJ’s press release, several factors supported its decision to decline prosecution under the NSD VSD Policy. <ol class="wp-block-list"> <li>Prompt Self-Disclosure: Within days of learning of the USRA employee’s admission of wrongdoing to USRA’s counsel, and before completing its own internal investigation, USRA self-disclosed the potential violations to NSD.</li> <li>Cooperation: USRA provided “exceptional and proactive cooperation” with the ensuing criminal investigation by proactively identifying, collecting, disclosing relevant evidence to investigators (including foreign language evidence and evidence located overseas), and providing timely responses to the government’s requests for information and evidence.</li> <li>Effective Remediation: USRA remediated the root cause of the misconduct by terminating the employee involved, disciplining his supervisor for failing to supervise appropriately, and significantly improving its internal controls and compliance program.</li> <li>Restitution: USRA compensated the government $255,000 as restitution, representing the former employee’s $94,000 salary and $161,000 in embezzled sales.</li> </ol> This outcome aligns with the revised NSD VSD Policy, which presumes a declination or non-prosecution agreement, at its discretion, for companies that voluntarily disclose potential willful violations, fully cooperate, and timely remediate—assuming there are no aggravating factors.  This declination of prosecution serves as a compelling example of the benefits of proactive compliance, self-reporting, and cooperation with NSD. <ul class="wp-block-list"> <li>Self-Disclosuring Violations: Organizations that act quickly to report potential violations can benefit from reduced penalties—or even receive declinations of prosecution.  </li> </ul> <ul class="wp-block-list"> <li>Strong Internal Controls are Crucial: Robust compliance programs can help detect and respond to potential violations before they escalate.</li> </ul> <ul class="wp-block-list"> <li>Cooperation Pays Off: Active cooperation with law enforcement agencies, particularly when it facilitates individual prosecutions of bad actors, may influence DOJ’s resolution decisions.</li> </ul> The DOJ’s decision in the USRA case reaffirms (1) the NSD VSD Policy is active and in effect, and (2) it highlights the tangible benefits of voluntary self-disclosures and in cooperating with the enforcement of export control laws.  Export compliance and international trade professionals should view this as a precedent emphasizing the value of well-functioning compliance programs and the importance of acting decisively when violations are discovered.
Client Alert: Aggressive FCA Enforcement in Customs Calls for Compliance Review

Tue, 06 May 2025 19:26:27 -0000

In a recently published Bloomberg Law article, “Aggressive FCA Enforcement in Customs Calls for Compliance Review,” Crowell’s Agustin Orozco, Jason Crawford, and Katherine Quinn discuss how importers face increased risk of False Claims Act enforcement as the Department of Justice focuses on illegal foreign trade practices. The article explains how FCA liability arises in the... Continue Reading

In a recently published Bloomberg Law article, “Aggressive FCA Enforcement in Customs Calls for Compliance Review,” Crowell’s Agustin Orozco, Jason Crawford, and Katherine Quinn discuss how importers face increased risk of False Claims Act enforcement as the Department of Justice focuses on illegal foreign trade practices. The article explains how FCA liability arises in the trade context, discusses common customs fraud enforcement actions, and highlights additional civil and criminal enforcement risks. The article also outlines steps companies can take to minimize their exposure. <a href="https://communications.crowell.com/e/j0c4biofcl4tsq/8eb2a5cf-e143-4000-8428-f921f2d6ece2" target="_blank" rel="noreferrer noopener">Click here to read the full version of this article. </a>
New UK Sanctions on Russia Targeting Technology, Software and Additional Strategic Goods

Fri, 02 May 2025 15:21:01 -0000

In a move to strengthen its sanctions regime against Russia, the UK introduced additional sanctions through the publication of The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2025. The new sanctions came into force on April 24, 2025. Key Points of Note: In parallel, the UK Government has published new guidance on complying with the new... Continue Reading

In a move to strengthen its sanctions regime against Russia, the UK introduced additional sanctions through the publication of <a href="https://www.legislation.gov.uk/uksi/2025/504/contents/made">The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2025</a>. The new sanctions came into force on April 24, 2025. Key Points of Note: <ul class="wp-block-list"> <li>Software Sanctions: The UK has introduced a new prohibition on the transfer and making available of ‘sectoral software and technology’ to a person connected with Russia or for use in Russia. These restrictions capture business enterprise software and technology (such as ERP, CRM and supply chain management software), industrial design software and technology, and oil and gas related software and technology. The restrictions do not apply to software in the public domain or used for basic scientific research. In the accompanying <a href="http://www.legislation.gov.uk/uksi/2025/504/pdfs/uksiem_20250504_en_001.pdf">explanatory memorandum</a>, the UK Government confirmed that these restrictions capture the supply of in-scope software and technology in an intangible form, e.g., by download, via the cloud or otherwise provided as Software as a Service (“SaaS”). The new software restrictions largely align with existing EU and U.S. restrictions on enterprise management software.</li> </ul> <ul class="wp-block-list"> <li>New Export Restrictions: The UK added goods to existing Russia export and supply restrictions, including various chemicals, plastics, metals, machinery and electronics which have military and industrial uses. These changes are to align the UK with measures taken by its allies, as well as to include other products the UK Government has identified as being important to the Russian war economy (such as the oil, gas, and chemical sectors). </li> </ul> <ul class="wp-block-list"> <li>Technology Transfer Sanctions: The UK already restricted the transfer of technology in relation to certain military-related goods. The UK has extended the scope of these controls to a wider set of technology, including energy-related goods, G7 dependency and further goods, and Russia’s vulnerable goods. Such information can take many forms, including IP, industrial know-how, trade secrets, and information contained in blueprints and designs.</li> </ul> <ul class="wp-block-list"> <li>Synthetic Diamonds Import Restrictions: Finally, the UK has extended an existing import ban to cover Russian synthetic diamonds (weighing 0.5 carats and above) processed in third countries. This new restriction aligns with an existing prohibition on natural diamonds and is intended to prevent potential circumvention since synthetic diamonds cannot be easily differentiated from natural diamonds.</li> </ul> In parallel, the UK Government has published new guidance on complying with the new sectoral software sanctions (<a href="https://www.gov.uk/government/publications/complying-with-sectoral-software-sanctions/complying-with-sectoral-software-sanctions">here</a>) and the technology transfer provisions (<a href="https://www.gov.uk/government/publications/complying-with-technology-transfer-sanctions/complying-with-technology-transfer-sanctions">here</a>), along with a notice to exporters on the additional trade sanctions (<a href="https://www.gov.uk/government/publications/notice-to-exporters-202511-further-sanctions-against-russia-introduced-in-april-2025/nte-202511-further-sanctions-against-russia-introduced-in-april-2025?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery">here</a>).
Global Trade Talks: Tariffs Overview and Update

Wed, 30 Apr 2025 19:22:23 -0000

Crowell hosts Nicole Simonian and Dj Wolff speak with Daniel Cannistra as he helps our listeners understand the current tariff landscape and discusses some best practices for how to navigate. Global Trade Talks is a podcast that shares brief perspectives on key global issues on international trade, current events, business, law, and public policy as... Continue Reading

Crowell hosts Nicole Simonian and Dj Wolff speak with Daniel Cannistra as he helps our listeners understand the current tariff landscape and discusses some best practices for how to navigate. Global Trade Talks is a podcast that shares brief perspectives on key global issues on international trade, current events, business, law, and public policy as they impact our lives. Listen: <a href="https://communications.crowell.com/e/beugtnocw3qj4w/19b47cec-1679-4c78-9c66-9c0af04e3f94" target="_blank" rel="noreferrer noopener">Crowell.com</a> | <a href="https://communications.crowell.com/e/sekunosbyhepg/19b47cec-1679-4c78-9c66-9c0af04e3f94" target="_blank" rel="noreferrer noopener">PodBean</a> | <a href="https://communications.crowell.com/e/y3uolhry99fnqq/19b47cec-1679-4c78-9c66-9c0af04e3f94" target="_blank" rel="noreferrer noopener">SoundCloud</a> | <a href="https://communications.crowell.com/e/pyuqahy0concya/19b47cec-1679-4c78-9c66-9c0af04e3f94" target="_blank" rel="noreferrer noopener">Apple Podcasts </a>
BIS Adds and Removes Persons from the Unverified List

Thu, 24 Apr 2025 13:27:28 -0000

On April 25, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule that added 18 new persons and removed five persons from the Unverified List (UVL). Of the 18 persons added in the UVL, five are located in China, six are located in Finland, three are located in... Continue Reading

On April 25, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule that added 18 new persons and removed five persons from the Unverified List (UVL). Of the 18 persons added in the UVL, five are located in China, six are located in Finland, three are located in Türkiye, two are in Kazakhstan, one is in Italy, and one is in the United Kingdom.  Of the five persons removed from the UVL, three are in China and two are in the United Arab Emirates. BIS explained that the persons were being added to the UVL because BIS, or federal officials acting on BIS’s behalf, were unable to verify the persons’ bona fides through the completion of an end-use check.  As a result, the use of license exceptions for exports, reexports, and transfers involving the 18 persons added to the UVL are suspended.  In contrast, BIS explained that it was able to verify bona fides for the five persons removed from the UVL. This final rule is effective April 25, 2025. Crowell & Moring, LLP continues to monitor export control developments and their potential impact on customers and businesses going forward.
Client Alert: A New Sheriff in Town: State Attorneys General Take Action To Enforce Violations of the Foreign Corrupt Practices Act

Tue, 15 Apr 2025 15:16:22 -0000

Foreign Corrupt Practices Act (“FCPA”) enforcement has been fairly predictable for many years as the Fraud Section of the Department of Justice (“DOJ”) has maintained exclusive authority over investigating claims and bringing enforcement actions in federal courts across the country. President Trump’s recent pause on FCPA enforcement, the first of its kind since the statute was... Continue Reading

Foreign Corrupt Practices Act (“FCPA”) enforcement has been fairly predictable for many years as the Fraud Section of the Department of Justice (“DOJ”) has maintained exclusive authority over investigating claims and bringing enforcement actions in federal courts across the country. <a href="https://www.crowell.com/en/insights/client-alerts/fcpa-under-fire-what-companies-need-to-consider-after-trumps-executive-order" target="_blank" rel="noreferrer noopener">President Trump’s recent pause on FCPA enforcement</a>, the first of its kind since the statute was passed in 1977, has created significant uncertainty for individuals and businesses operating internationally regarding the future of FCPA enforcement. While DOJ is in the process of assessing what the future of FCPA enforcement, state attorneys general are stepping in. On April 2, California Attorney General Rob Bonta issued a <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-alerts-businesses-it-remains-illegal-bribe-foreign" target="_blank" rel="noreferrer noopener">Legal Advisory</a> (the “Advisory) to California businesses explaining that violations of the FCPA are actionable under California’s Unfair Competition Law (UCL). The announcement signals a shift in FCPA enforcement where states may take the lead and pursue FCPA enforcement through their state unfair competition laws. <a href="https://www.crowell.com/en/insights/client-alerts/a-new-sheriff-in-town-state-attorneys-general-take-action-to-enforce-violations-of-the-foreign-corrupt-practices-act">Click here to continue reading the full version of this alert.</a>
President Trump Signs Executive Order Regarding U.S. Defense Trade

Thu, 10 Apr 2025 14:19:43 -0000

On April 9, 2025, President Trump signed and released an Executive Order (EO) to “improve speed and accountability” in the U.S. defense trade system and published an accompanying fact sheet. The EO identifies specific actions for executive branch agencies to take including: (i) reverting back to the Conventional Arms Transfer Policy that President Trump implemented... Continue Reading

On April 9, 2025, President Trump signed and released an <a href="https://www.whitehouse.gov/presidential-actions/2025/04/reducing-competitive-regulatory-barriers/">Executive Order</a> (EO) to “improve speed and accountability” in the U.S. defense trade system and published an accompanying <a href="https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-reforms-foreign-defense-sales-to-improve-speed-and-accountability/">fact sheet</a>.  The EO identifies specific actions for executive branch agencies to take including: (i) reverting back to the Conventional Arms Transfer Policy that President Trump implemented in 2018 (which was amended under the Biden Administration); (ii) reevaluating restrictions imposed by the Missile Technology Control Regime on Category I items; (iii) requesting Congress to update statutory congressional notification thresholds; and (iv) updating the Foreign Military Sales (FMS)-Only List. The EO also sets a 60-day deadline for the Secretaries of State and Defense to: (i) develop a list of priority partners for conventional arms transfers; (ii) develop a list of priority end-items for potential transfer to priority partners; and (iii) ensure the transfer of priority end-items advance the administration’s goal of strengthening allied burden-sharing.  It further mandates that the Secretaries of State and Defense review, update, and reissue the lists of priority partners and military end-items on an annual basis. The EO sets a 90-day deadline for the Secretaries of State, Defense, and Commerce to submit a plan to the President to improve the transparency of defense sales to foreign partners by: (i) developing metrics for accountability; (ii) including exportability as a requirement in the early parts of the acquisition process; and (iii) consolidating technology security and foreign disclosure approvals. Finally, the EO sets a 120-day deadline for the Secretaries of State, Defense, and Commerce to submit a plan to the Assistant to the President for National Security Affairs to develop a single electronic system to track all direct commercial sale license requests and ongoing FMS efforts throughout the FMS case life cycle. Crowell & Moring, LLP continues to monitor export control developments and their potential impact on customers and businesses going forward.
Blog 3: Unlocking Trade Secret Protection in Belgium: Key Trends in Trade Secret Protection Before Belgian Courts

Tue, 04 Feb 2025 14:28:58 -0000

Today’s blog post is the third, and last, blog post in a series focusing on trade secret law issues and trends. As announced, we will address practical questions and offer insights into how Belgian courts interpret and apply various aspects of the Belgian Trade Secrets Act[1], particularly as it relates to unlawful use, available remedies,... Continue Reading

Today’s blog post is the third, and last, blog post in a series focusing on trade secret law issues and trends. As announced, we will address practical questions and offer insights into how Belgian courts interpret and apply various aspects of the Belgian Trade Secrets Act<a href="#_ftn1" id="_ftnref1">[1]</a>, particularly as it relates to unlawful use, available remedies, and the burden of proof for trade secret misappropriation. Trend 7: distinguishing between legitimate and unlawful use of a trade secret To establish a violation of the Trade Secrets Act, it must be proven that the accused party either (1) obtained the trade secret unlawfully, (2) breached a duty of confidentiality, or (3) breached a duty to restrict the use of the trade secret. Keep in mind, however, that the burden of proof lies with the holder of the trade secret. Belgian case law gives guidance on what constitutes as unlawfully obtained data. <ul class="wp-block-list"> <li>For instance, the Brussels Enterprise Court ruled that synchronizing mailboxes of ex-colleagues after termination of employment was unlawful.<a id="_ftnref2" href="#_ftn2">[2]</a></li> <li>Also, when a former employee accesses data from their previous employer with the intent to use it in their new company, this constitutes the unlawful use of a trade secret. Such data is considered to have been obtained unlawfully, as it was accessed outside of any employment relationship and with the intent of improper use.<a id="_ftnref3" href="#_ftn3">[3]</a> In this case, the Court rules that the former employee had no authority to access this information.</li> <li>However, do not be mistaken, even within the context of an ongoing collaboration, access to a trade secret can still be considered unlawful. For instance, the Antwerp Enterprise Court found that a consultant copying files from a server to an external USB stick was acting unlawfully as there was no credible reason for the consultant to be copying a large amount of data.<a id="_ftnref4" href="#_ftn4">[4]</a></li> <li>The exact moment in time of the alleged misuse is also an important element considered by the Courts. For instance, a director who copied data onto personal hard drives did not violate the relevant provisions under the Trade Secrets Act, as he had authorized access at the time he was copying the data.<a id="_ftnref5" href="#_ftn5">[5]</a> The Ghent Enterprise Court stated that the mere fact that the company had taken precautions due to the director’s imminent dismissal did not alter the fact there it did not constitute unlawful access.</li> </ul> In this regard, the Ghent Enterprise Court provided useful guidance to distinguish between the legitimate use by a former employee of previously accumulated knowledge and an unlawful use of trade secrets by the same employee. For example, the use of previously accumulated knowledge (including the actual reconstruction of a customer list) and experience is legitimate in itself even if used to compete with a former employer. In contrast, the use of customer lists becomes unlawful when that information is far more comprehensive than the experience one can carry as personal knowledge as a former employee.<a href="#_ftn6" id="_ftnref6">[6]</a> Therefore, using a customer list for a mass solicitation campaign of 135 customers was deemed unlawful.<a href="#_ftn7" id="_ftnref7">[7]</a> The court found that the defendants could only have contacted that large number of customers on the basis of the plaintiff’s customer list. Such a solicitation campaign therefore exceeded the personally accumulated knowledge of the employee during the course of employment. Trend 8: the burden of proof remains heavy Trade secrets litigation often hinges on the availability and quality of evidence. The burden of proof lies with the holder of the trade secret, who must demonstrate both the existence of the trade secret and its misuse by the adverse party. This proof can be provided through any legal means, including presumptions.<a href="#_ftn8" id="_ftnref8">[8]</a> The court must be able to assess the nature of the information and verify whether it meets the substantive criteria of a trade secret. The purpose of the burden of proof is to enable the judge to examine the case. Courts emphasize the need for concrete evidence rather than general assertions.<a href="#_ftn9" id="_ftnref9">[9]</a> General terms like “customer lists” and “sales data” without specifying the exact nature of these lists and data are often deemed insufficient and do not meet the burden of proof.<a href="#_ftn10" id="_ftnref10">[10]</a> For example, internal policies within a company prohibiting the transfer of information to private email addresses must be proven; mere statements to this effect are, in any event, insufficient. In addition, if numerous documents or trade secrets are involved, the holder of the trade secret must specify and clearly indicate which elements qualify as trade secrets and how their use by the defendant is unlawful.<a href="#_ftn11" id="_ftnref11">[11]</a> Trend 9: evidence gathering via ex parte proceedings If the information in question is indeed secret, commercially valuable, and reasonable measures were taken to protect it, the holder of the trade secret can start enforcing it, provided it can prove a misuse. However, proving the extent of the misuse of its trade secrets often proves to be challenging in practice. Trade secrets are strictly speaking not considered intellectual property rights. Therefore, an ex parte counterfeit seizure (beslag inzake namaak / saisie-contrefaçon – article 1369bis/1 Belgian Economic Code of Law) cannot be used to gather evidence in order to substantiate the misuse of the trade secret. An ex parte request for sequestration (sekwester/ Séquestre – article (584, para. 5, 1° or 2° Belgian Judicial Code) can be used instead. A plaintiff may request the summary judge to appoint a sequestrator to seize relevant evidence from the alleged infringer’s premises. The sequestrator’s task is to collect and preserve evidence, which is then analyzed, and reported to the court. Such proceedings are not a walk in the park. <ul class="wp-block-list"> <li>the holder of a claimed trade secret seeking ex parte provisional measures must ensure absolute necessity.<a id="_ftnref12" href="#_ftn12">[12]</a></li> <li>the holder of the trade secretes must clearly define the trade secrets in its request. Therefore, specific evidence must be identified, and it must be made plausible (i.e.: not certain)<a id="_ftnref13" href="#_ftn13">[13]</a> that the listed items are with the targeted party. A request for sequestration that is too broad or vague may be rejected as it could violate fundamental rights (such as your private life, your home) .<a id="_ftnref14" href="#_ftn14">[14]</a></li> <li>The holder of the trade secret should precisely outline the expert’s task and identifying the sequestrator by name is advisable.<a id="_ftnref15" href="#_ftn15">[15]</a></li> </ul> Even with these precautions, the appointment of a sequestrator is not guaranteed if the holder already has sufficient evidence or if additional measures would be considered a fishing expedition. Indeed, the courts strike a delicate balance between the interests of the trade secret holder and the fundamental rights of the party concerned.  Trend 10: Available remedies remain traditional  Trade secret holders have the possibility of seeking different types of relief measures and remedies for misappropriation. In practice, case law continues to adhere to fairly traditional enforcement measures in trade secrets litigation with a focus on precise identification of protected information and proportionality in the measures granted. The President of the Enterprise Court in Antwerp granted an injunction to cease the use of trade secrets and an order to destroy files containing trade secrets.<a href="#_ftn16" id="_ftnref16">[16]</a> Although this measure is often requested and granted, in one singular decision, a court ruled that the order to destroy copied trade secrets lacks effectiveness, as digital data can easily be recopied and the original copy destroyed, therefore questioning its effectiveness.<a href="#_ftn17" id="_ftnref17">[17]</a> Important to note is that the court’s decision to grant the requested measures is not binary; the court can grant some measures while denying others. In a case concerning the use of trade secrets to solicit clients, the Antwerp Court had no issue with imposing an injunction to cease the use of trade secrets and an order to destroy files containing trade secrets. However, the Court ruled that the injunction should not extend to prohibiting all contact with the former employer’s clients by the ex-employee, as such an order would be disproportionate and hinder fair competition in the free market.<a id="_ftnref18" href="#_ftn18">[18]</a> Conclusion Understanding the nuances of when the use of a trade secret is unlawful, the burden of proof, and the most effective means of gathering evidence to strengthen your case is crucial for in trade secrets proceedings. The case law demonstrates the importance of concrete evidence and the careful application of sequester measures to ensure the protection of trade secrets while respecting fundamental rights. For further information or specific legal advice, please contact <a href="https://www.crowell.com/en/professionals/jan-diederik-lindemans">J.-D. Lindemans</a>, <a href="https://www.crowell.com/en/professionals/matteo-mariano">M. Mariano</a>, and <a href="https://www.crowell.com/en/professionals/eline-van-bogget">E. Van Bogget</a>. —This blog post is based on the article “Protection of trade secrets before the Belgian courts: overview of case law” by J.-D. Lindemans, M. Mariano, and E. Van Bogget, published in Revue de droit intellectuel – L’ingénieur conseil / Tijdschrift intellectuele eigendom, 2024/3 – 6 December 2024. <hr class="wp-block-separator has-alpha-channel-opacity"/> <a href="#_ftnref1" id="_ftn1">[1]</a> Act of July 30, 2018 on the protection of trade secrets, which is a transposition of Directive 2016/943 of June 8, 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. <a href="#_ftnref2" id="_ftn2">[2]</a> President of the Antwerp Enterprise Court, 3 March 3 2021, NV Martens Hout t. x and NV Byttebier Hout, Jaarboek Markpraktijken 2021, vol. 1, 274. <a href="#_ftnref3" id="_ftn3">[3]</a> President of the Ghent Enterprise Court, 10 June 2020, A/20/00248, unpub., 9. <a href="#_ftnref4" id="_ftn4">[4]</a>Antwerp Enterprise Court 9 May 2019, Govaerts Recycling, unpub. <a href="#_ftnref5" id="_ftn5">[5]</a> Ghent Enterprise Court (Ghent division), 13 August 2020, A/19/03389, unpub. <a href="#_ftnref6" id="_ftn6">[6]</a> President of Ghent Enterprise Court, 13 March 2019, A/19/00515, unpub. <a href="#_ftnref7" id="_ftn7">[7]</a> Ghent Enterprise Court (Ghent division), 13 March 13 2019, A/19/00515, unpub. <a href="#_ftnref8" id="_ftn8">[8]</a> Enterprise Court Brussels 29 July 2020, Ar A/19/04032, unpub. <a href="#_ftnref9" id="_ftn9">[9]</a> Enterprise Court. Ghent 21 December 2022 AR A/21/00341, unpub; Pres. Enterprise Court Antwerp (section Antwerp), 29 December 2021, unpub. <a href="#_ftnref10" id="_ftn10">[10]</a> Pres. Enterprise Court Ghent (section Ghent), 2 November 2022, A.R. A/21/02722, unpub. <a href="#_ftnref11" id="_ftn11">[11]</a> Enterprise Court Antwerp (section Antwerp), 17 March 2022, BV CoreTalents t. CV We and Work, unpub. <a href="#_ftnref12" id="_ftn12">[12]</a> Court of Appeal Brussels, 11 March 2021, 2020/AR/1367, unpub., 11 <a href="#_ftnref13" id="_ftn13">[13]</a> Court of First Instance West-Flanders (section Kortrijk), 19 October 2021, TBH 2022, vol. 4, 531. <a href="#_ftnref14" id="_ftn14">[14]</a> Ghent Labor Court of Appeal, 21 September 2020, RABG 2022, vol. 4, 336-344. <a href="#_ftnref15" id="_ftn15">[15]</a> Ghent Labor Court of Appeal, 21 September 2020, RABG 2022, vol. 4, 336-344. <a href="#_ftnref16" id="_ftn16">[16]</a> Pres. Enterprise Court Antwerp (section Antwerp), 3 March 2021, NV Martens Hout t. x en NV Byttebier Hout, Jaarboek Marktpraktijken 2021, vol. 1, 276. <a href="#_ftnref17" id="_ftn17">[17]</a> Enterprise Court Antwerp. Antwerpen 9 May 2019, TBH, 2020, 383. <a href="#_ftnref18" id="_ftn18">[18]</a> Pres. Enterprise Court Antwerp (section Antwerp), 3 March 2021, NV Martens Hout t. x en NV Byttebier Hout, Jaarboek Marktpraktijken 2021, vol. 1, 276.
Blog 2: Unlocking Trade Secret Protection in Belgium: Key Trends in Trade Secret Protection Before Belgian Courts

Tue, 28 Jan 2025 14:00:00 -0000

Introduction Today’s blog post is the second blog post in a series focusing on European trade secret law issues and trends. As announced, we will address practical questions and offer insights into how Belgian courts interpret and apply various aspects of the Belgian Trade Secrets Act[1], particularly as it relates to requirements for trade secret... Continue Reading

Introduction Today’s blog post is the second blog post in a series focusing on European trade secret law issues and trends. As announced, we will address practical questions and offer insights into how Belgian courts interpret and apply various aspects of the Belgian Trade Secrets Act<a id="_ftnref1" href="#_ftn1">[1]</a>, particularly as it relates to requirements for trade secret protection. Under the Trade Secrets Act, any information which (1) is secret; (2) has commercial value because it is secret; and (3) has been subject to reasonable steps to keep it secret can qualify as a trade secret.<a href="#_ftn2" id="_ftnref2">[2]</a> Belgian courts have recently provided significant clarifications regarding these requirements. This blog posts aims to distill these developments, focusing on the conditions under which information is deemed secret and possesses commercial value. Trend 4: high burden of proof to demonstrate that the information is considered secret For information to qualify as a trade secret under Belgian law, it must be secret. This requirement, while seemingly straightforward, involves nuanced considerations. <ul class="wp-block-list"> <li>Information frequently communicated to third parties cannot be secret. For example, a recruitment company’s questionnaire communicated to its customers is not secret, as the information has become generally known.<a id="_ftnref3" href="#_ftn3">[3]</a></li> <li>Information that can be accessed by the public, such as data on a public website or information required to be disclosed to clients, is not secret. For instance, published financial statements available to the public do not constitute secret information (even though these financial statements were also part of a confidential merger).<a id="_ftnref4" href="#_ftn4">[4]</a> In the same token, price lists known to customers and competitors are not considered secret.<a id="_ftnref5" href="#_ftn5">[5]</a> In contrast, detailed information about innovative production lines can be considered secret if it is not generally known or easily accessible.<a id="_ftnref6" href="#_ftn6">[6]</a></li> <li>Not all confidentially communicated information qualifies as “secret”. A confidentiality obligation is a step in the right direction but the mere presence of it is not a silver bullet either. For instance, confidentiality obligations in the context of an employment agreement is an insufficient guarantee when the holder of alleged trade secret has already disclosed it to a third party. If this is the case, the information is no longer secret, notwithstanding the confidentiality obligation contained within an employment agreement.</li> </ul> In any event, the burden of proof lies with the holder of the trade secret. Belgian case law is very strict in this respect.<a href="#_ftn7" id="_ftnref7">[7]</a> General descriptions are often found to be insufficient and precise identification and documentary evidence are required to meet this threshold.<a href="#_ftn8" id="_ftnref8">[8]</a> Analysis of the case law suggests that this is a difficult to overcome hurdle for many trade secret holders, as often claims based on trade secrets fail to meet these stringent requirements. Trend 5: broad interpretation of commercial value For information to be protected as a trade secret, it must not only be secret but also have commercial value arising from its secrecy. This is assessed on a case-by-case basis. From the case law on the subject, commercial value of information is broadly interpreted. Information has commercial value if it provides a competitive advantage to its holder, as a result of which the holder has a commercial interest in keeping it secret. This commercial interest implies that the holder of the trade secret can monetize that information. Put differently, this requirement means “that there must be a market for this information and that there must be a willingness on the part of third parties (e.g. competitors) to pay for such information.”<a href="#_ftn9" id="_ftnref9">[9]</a> For example, a customer list can hold commercial value in so far it allows for targeted sales or provides for a competitive edge. On the other hand, data that cannot be monetized, such as passwords for ex-customers, lacks commercial value. Trend 6: Legal and technical measures must be actively implemented and enforced In order for information to qualify as a trade secret, companies must take reasonable steps/measures to keep its information secret. The interpretation of what is considered “reasonable” is highly dependent on the court’s appreciation and the specific facts of each case. Despite the importance of reasonable measures, few decisions go into the nitty gritty of this requirement. This is likely because many claims based on trade secretes fail on other grounds, such as failing to meet, or sufficiently prove, the secrecy and commercial value-requirements, as discussed above. The following elements can nevertheless be distilled: <ul class="wp-block-list"> <li>Legal measures: Courts have found that including confidentiality clauses in employment contracts and having mandatory provisions in labor regulations can constitute as reasonable measures.<a id="_ftnref10" href="#_ftn10">[10]</a> Similarly, confidentiality obligations in contracts with suppliers, along with investments in data security, are reasonable measures. These clauses often only apply during the contractual term and not afterwards.<a id="_ftnref11" href="#_ftn11">[11]</a> Courts have emphasized that reasonable measures must extend beyond the period of employment to be effective.</li> <li>Examples of technical measures include: providing personal and secret passwords, providing a badge system for restricted physical access, secure environments on company laptops, deactivation of USB ports, restricted internet access, ….<a id="_ftnref12" href="#_ftn12">[12]</a> Case law also recognized the importance of control measures, such as internal alarms for abnormal file uploads or email transmissions.<a id="_ftnref13" href="#_ftn13">[13]</a> These measures, combined with legal preventive measures like detailed confidentiality clauses and internal security policies, were considered sufficient to meet the requirement of reasonable measures.</li> </ul> In any event, merely having legal or technical measures in place is not enough. These measures must be actively implemented and enforced. Courts have ruled that theoretical security measures without practical enforcement do not meet the legal standard of “reasonable measures”. In a notable case, the President of the Ghent Enterprise Court ruled that while having a confidentiality clause in place, as well encryption measures, which meant that the information was theoretically secure, the plaintiff failed to enforce these measures adequately.<a href="#_ftn14" id="_ftnref14">[14]</a> The Court found that the plaintiff was negligent in verifying access controls and acting promptly when security breaches were suspected. Therefore, both legal and technical measures must be actively enforced to meet the requirement of reasonable measures under Article I.17/1 Belgian Code of Economic Law. Companies are forewarned: gold-plated policies full of bells and whistles, do not protect your trade secrets, if people do not actually follow them. Conclusion Belgian case law on trade secrets continues to evolve, reflecting broader European trends while maintaining specific national characteristics. The distinction between confidential information and trade secrets is crucial for ensuring fair competition. Businesses should adopt preventive and control measures to safeguard their trade secrets, as well as develop effective strategies to enforce technical and legal measures. Stay tuned for our next blog post in the trade secrets series, where we will delve into unlawful use , available remedies, and the burden of proof for trade secret misappropriation. For further information or specific legal advice, please contact <a href="https://www.crowell.com/en/professionals/jan-diederik-lindemans">J.-D. Lindemans</a>, <a href="https://www.crowell.com/en/professionals/matteo-mariano">M. Mariano</a>, and <a href="https://www.crowell.com/en/professionals/eline-van-bogget">E. Van Bogget</a>. —This blog post is based on the article “Protection of trade secrets before the Belgian courts: overview of case law” by J.-D. Lindemans, M. Mariano, and E. Van Bogget, published in Revue de droit intellectuel – L’ingénieur conseil / Tijdschrift intellectuele eigendom, 2024/3 – 6 December 2024. <hr class="wp-block-separator has-alpha-channel-opacity"/> <a href="#_ftnref1" id="_ftn1">[1]</a> Act of July 30, 2018 on the protection of trade secrets, which is a transposition of Directive 2016/943 of June 8, 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. <a href="#_ftnref2" id="_ftn2">[2]</a> Article I.17/1 WER. <a href="#_ftnref3" id="_ftn3">[3]</a> Enterprise Court Antwerp 17 March 2022, BV CoreTalents/ CV We and Work, unpub. <a href="#_ftnref4" id="_ftn4">[4]</a> Dutch-speaking Enterprise Court Brussels 20 November 2023, A/19/04686, unpub. <a href="#_ftnref5" id="_ftn5">[5]</a> President of the Enterprise Court Antwerp (section Antwerp) 20 November 2019, Madzuli/ Yameco, onuitg; Enterprise Court Antwerp (section Antwerp) 24 oktober 2019, Hofline Electro & Cabling / Lectro, 7. <a href="#_ftnref6" id="_ftn6">[6]</a> Enterprise Court Antwerp 9 May 2019, Govaerts Recycling, unpub., 8. <a href="#_ftnref7" id="_ftn7">[7]</a> Enterprise Court Antwerp (section Antwerp) 29 June 2023, May Courier International BV/ Atlas Imobiliare SRL, unpub.; Court of Appeal Brussels 11 March 2021, 2020/AR/1367, unpub., 13. <a href="#_ftnref8" id="_ftn8">[8]</a> Court of Appeal Antwerp 26 mei 2021, IRDI 2021/3, 222. <a href="#_ftnref9" id="_ftn9">[9]</a> President of the Dutch-speaking Brussels Enterprise Court 5 November 2020, Netcon bv/ Digital Stewards vof, Jaarboek Markpraktijken 2020, afl. 1, 644. <a href="#_ftnref10" id="_ftn10">[10]</a> President of the Ghent Enterprise Court (section Ghent) 10 June 2020, A/20/00248, unpub., p.8. <a href="#_ftnref11" id="_ftn11">[11]</a> President of the Ghent Enterprise Court (section Ghent) 26 August 2020, A/19/02151, unpub., p. 8; confirmed on appeal: Court of Appeal Ghent, 27 juni 2022, 2020/AR/1714, unpub.. <a href="#_ftnref12" id="_ftn12">[12]</a> President of the Dutch-speaking Brussels Enterprise Court 24 February 2022, A/21/03327, unpub.. <a href="#_ftnref13" id="_ftn13">[13]</a> Ibid. <a href="#_ftnref14" id="_ftn14">[14]</a> President of the Ghent Enterprise Court (section Ghent) 13 March 2019, A/19/00515, unpub..
Blog 1: Key Trends in Trade Secret Protection Before Belgian Courts

Tue, 21 Jan 2025 16:29:40 -0000

IntroductionToday’s blog post starts a series focusing on European trade secret law issues. We will focus on practical questions and share insights on how Belgian courts use the Belgian Trade Secrets Act and interpret its rules according to the EU Trade Secrets Directive.[1] A similar blog series first came out in 2021.[2] Since then, the... Continue Reading

Introduction Today’s blog post starts a series focusing on European trade secret law issues. We will focus on practical questions and share insights on how Belgian courts use the Belgian Trade Secrets Act and interpret its rules according to the EU Trade Secrets Directive.<a href="#_ftn1" id="_ftnref1">[1]</a> A similar blog series first came out in 2021.<a href="#_ftn2" id="_ftnref2">[2]</a> Since then, the amount of decisions by Belgian courts has nearly doubled. Indeed, virtually every single aspect of the EU Trade Secrets Directive has by now been litigated in Belgian courts. Furthermore, in 2023, a pan-European study conducted by the European Union Intellectual Property Office (EUIPO) showed Belgium as one of the most ‘trade secret-friendly’ jurisdictions in the EU.<a href="#_ftn3" id="_ftnref3">[3]</a> But does that hold true in practice? This blog post series aims to explore that question. First trend – parties involved: the usual suspects The first trend is not new: most trade secret misappropriation cases usually involve former employees and self-employed contractors. This trend has remained consistent over the years. <ul class="wp-block-list"> <li>Former employees and self-employed contractors:<a id="_ftnref4" href="#_ftn4">[4]</a> these individuals often had access to sensitive information during their tenure and may use this information in their new roles or businesses. In many cases, the new employer or the company established by the ex-employee is also at fault.<a id="_ftnref5" href="#_ftn5">[5]</a></li> </ul> <ul class="wp-block-list"> <li>Companies: many cases also involve other companies, either competitors or partners to a cooperation agreement<a id="_ftnref6" href="#_ftn6">[6]</a>, joint venture<a id="_ftnref7" href="#_ftn7">[7]</a>, or acquisition negotiations<a id="_ftnref8" href="#_ftn8">[8]</a>. This happens because confidential information is often shared during business negotiations or collaborations and the temptation to inappropriately use it may prove to be irresistible.</li> </ul> Second trend – proceedings used to enforce trade secrets The Belgian Trade Secrets Act provides several procedural options to enforce trade secrets protection, namely: <ul class="wp-block-list"> <li>the imposition of a protection order and/or a provisional measures;</li> <li>proceedings on the merits;</li> <li>accelerated proceedings on the merits, in which the judge can order the same measures as on the merits (except damages) to stop the infringement or its consequences;</li> <li>summary proceedings.</li> </ul> In recent case law, cease-and-desist orders (be it in summary proceedings or in accelerated proceedings on the merits) dominate, constituting about two-thirds of the judgments. These proceedings are favored because they can quickly and effectively stop the misuse of trade secrets. Indeed, time is of the essence. In some cases, summary proceedings can also be brought ex parte, in order to blindsight the defendant.   Third trend: the enterprise court is the forum of choice for most trade secret cases Subject matter jurisdiction lies mostly with the enterprise court. In particular, the presiding judge of the enterprise court has jurisdiction over trade secret disputes. In principle, the enterprise court handles trade secret disputes between businesses.<a href="#_ftn9" id="_ftnref9">[9]</a> However, the enterprise court retains jurisdiction even when the parties involved are not businesses. This was proven in several cases where defendants claimed that they were not corporations and that therefore the enterprise court was materially incompetent.<a href="#_ftn10" id="_ftnref10">[10]</a> However, each enterprise court dismissed this plea as unfounded, emphasizing their exclusive jurisdiction over trade secret disputes. As an exception to the above, cases involving employees must be heard by the labor court, which may have exclusive jurisdiction.<a href="#_ftn11" id="_ftnref11">[11]</a> Geographically speaking, no strict rules apply. But a noticeable trend is that most cases are heard in Dutch-speaking courts in Brussels, Antwerp, and Ghent, with only a few exceptions. This concentration suggests a regional preference or expertise in handling trade secret cases in these areas. Conclusion The enforcement of trade secrets in Belgium has evolved significantly since the introduction of the Trade Secrets Act. Former employees and independent contractors remain the primary parties involved in misuse cases. Summary proceedings are the preferred method for addressing urgent cases, and the Dutch-speaking enterprise courts in Brussels, Ghent and Antwerp typically have jurisdiction over these disputes.<a href="#_ftn12" id="_ftnref12">[12]</a> Understanding these trends can help businesses better navigate the complexities of trade secret protection and enforcement in Belgium. Stay tuned for our next blog post in the trade secrets series, where we will delve into the requirements to enjoy trade secret protection under the Trade Secrets Act. Don’t miss out on this next post that could help you fortify your trade secret strategy and stay ahead of your competitors! For further information or specific legal advice, please contact <a href="https://www.crowell.com/en/professionals/jan-diederik-lindemans">J.-D. Lindemans</a>, <a href="https://www.crowell.com/en/professionals/matteo-mariano">M. Mariano</a>, and <a href="https://www.crowell.com/en/professionals/eline-van-bogget">E. Van Bogget</a>. —This blog post is based on the article “Protection of trade secrets before the Belgian courts: overview of case law” by J.-D. Lindemans, M. Mariano, and E. Van Bogget, published in Revue de droit intellectuel – L’ingénieur conseil / Tijdschrift intellectuele eigendom, 2024/3 – 6 December 2024. <hr class="wp-block-separator has-alpha-channel-opacity"/> <a href="#_ftnref1" id="_ftn1">[1]</a> Act of July 30, 2018 on the protection of trade secrets, which is a transposition of Directive 2016/943 of June 8, 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. <a href="#_ftnref2" id="_ftn2">[2]</a> J.-D. Lindemans, M. Mariano, “Belgische rechtspraak inzake bedrijfsgeheimen: 10 vragen (en antwoorden) na 1.000 dagen nieuwe wet”, ICIP 2020/3, p. 599-616. <a href="#_ftnref3" id="_ftn3">[3]</a> EUIPO, “Trade secret litigation trends in the EU”- IPR enforcement case law collection, 2023, published online (<a href="https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/2023_Trade_Secrets_Litigation_Trends_in_the_EU/2023_Trade_Secrets_Litigation_Trends_Study_FullR_en.pdf">https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/2023_Trade_Secrets_Litigation_Trends_in_the_EU/2023_Trade_Secrets_Litigation_Trends_Study_FullR_en.pdf</a>), last accessed 1 October 2024. <a href="#_ftnref4" id="_ftn4">[4]</a> President Enterprise Court Ghent (section Ghent) 5 februari 2020, A/19/01687, unpub. <a href="#_ftnref5" id="_ftn5">[5]</a> Court of Appeal Ghent 28 June 2021, Jaarboek Marktpraktijken 2021, 155; President Enterprise Court Brussels (Dutch-speaking) 5 November 2020, Netcon bv v. Digital Stewards vof, Jaarboek Markpraktijken 2020, 1, 624; Enterprise Court Ghent (section Ghent) 29 March 2019, A/19/00754, unpub.; President Enterprise Court Ghent (section Ghent) 13 March 2019, A/19/00515, unpub.; President Enterprise Court Ghent (section Ghent) 12 September 2018, A/18/01945, unpub.; Court of Appeal Antwerp 26 mei 2021, IRDI 2021/3, p. 219. <a href="#_ftnref6" id="_ftn6">[6]</a> Enterprise Court Antwerp, 29 June 2023, May Courier International BV t. Atlas Imobiliare SRL, unpub. <a href="#_ftnref7" id="_ftn7">[7]</a> Court of Appeal Brussels 11 March 2021, 2020/AR/1367, unpub. <a href="#_ftnref8" id="_ftn8">[8]</a> Enterprise Court Brussels (Dutch-Speaking), 20 November 2023, A/19/04686, unpub. <a href="#_ftnref9" id="_ftn9">[9]</a>Article XVII.21/1 Belgian Economic Code; Article XI.342/1 Belgian Economic Code. <a href="#_ftnref10" id="_ftn10">[10]</a> President Enterprise Court Ghent (section Ghent) 21 December 2022, AR A/21/00341, unpub., 7, Court of Appeal Ghent, 28 June 2021, Jaarboek Marktpraktijken 2021, 155. <a href="#_ftnref11" id="_ftn11">[11]</a> Article 578, 1° Belgian Judicial Code; Labor Court, 26 December 2022, 2022/KB/26, unpub. <a href="#_ftnref12" id="_ftn12">[12]</a> See for example: Court of Appeal Ghent 28 June 2021, Jaarboek Marktpraktijken 2021, 155; President Enterprise Court Brussels (Dutch-speaking) 5 November 2020, Netcon bv v. Digital Stewards vof, Jaarboek Markpraktijken 2020, 1, 624; Enterprise Court Ghent (section Ghent) 29 March 2019, A/19/00754, unpub.; President Enterprise Court Ghent (section Ghent) 13 March 2019, A/19/00515, unpub.; President Enterprise Court Ghent (section Ghent) 12 September 2018, A/18/01945, unpub.; Court of Appeal Antwerpen 26 mei 2021, IRDI 2021/3, p. 219.
FTC Issues Final Rule Banning Most Non-Compete Agreements

Thu, 25 Apr 2024 13:35:40 -0000

On April 23, 2024, the Federal Trade Commission (“FTC” or “the Agency”) voted 3-2 along partisan lines in a special public meeting to adopt the “Non-Compete Clause Rule” (the “Final Rule”), which will prohibit most employee non-competes with retroactive effect, except existing non-compete provisions of “senior executives.” The Final Rule will also ban future non-compete... Continue Reading

<a href="https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes">On April 23, 2024</a>, the Federal Trade Commission (“FTC” or “the Agency”) voted 3-2 along partisan lines in a special public meeting to adopt the “<a href="https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf">Non-Compete Clause Rule</a>” (the “Final Rule”), which will prohibit most employee non-competes with retroactive effect, except existing non-compete provisions of “senior executives.”  The Final Rule will also ban future non-compete agreements, including for senior executives, with limited exceptions.  The rule will not become effective until 120 days after publication in the Federal Register, and covered employers will be required to comply with the Final Rule by that effective date, which could come as early as August this year.  By the FTC’s own estimate, this ban could affect up to one-in-five American workers. The Final Rule, however, is already facing legal challenges one day after the FTC finalized the rule.  Earlier today, for example, in Texas federal court, business groups (including Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce) led by the <a href="https://www.wsj.com/politics/policy/big-business-groups-sue-to-block-ftcs-ban-on-noncompete-agreements-1bc8bcbb">U.S. Chamber of Commerce sued the FTC to block its non-compete ban</a>, arguing that the agency lacks the authority to issue rules that regulate “unfair methods of competition.”  In its <a href="chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.uschamber.com/assets/documents/Complaint-Chamber-v.-FTC-E.D.-Tex.pdf">complaint</a>, the lobby group said that while the Federal Trade Commission Act granted the Agency the ability to challenge particular practices, it did not allow the Agency to promulgate “unfair methods of competition” rulemaking.  The suit requests that the court vacate and permanently enjoin the non-compete ban, among other forms of relief.  Such challenges could further delay—or bar altogether—enforcement of the rule. Notably, the two dissenting Republican commissioners, Melissa Holyoak and Andrew N. Ferguson, vigorously questioned the FTC’s ability to promulgate such a rule at the public hearing this week.  <a href="https://kvgo.com/ftc/Open-Commission-Meeting-April-23-2024">Echoing arguments</a> previously set out in January 2023 by former Commissioner Christine S. Wilson’s detailed <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p201000noncompetewilsondissent.pdf">dissent</a> on the proposed rule, Holyoak expressed concerns that the Final Rule undermines the U.S. Constitution’s separation of powers, and that the FTC lacks legislative authority through Section 6(g) of the FTC Act to promulgate a rule designed to prevent “unfair methods of competition.”  In agreement with Holyoak, Ferguson added that the Final Rule is unlawful, arbitrary, and capricious, as it nullifies millions of preexisting contracts, preempts the laws of forty-six states, and usurps the role of Congress to regulate areas of “tremendous economic and political significance” by redistributing nearly half a trillion dollars by “regulatory fiat.”  As these legal challenges play out, however, companies should stay the course and continue to hew very close to state and local laws on non-competes, where most of the action on non-competes is happening.  Companies should also continue to work closely with antitrust, labor, or trade secrets counsel to ensure they use all tools available to protect their investments and business strategies.   <h3 class="wp-block-heading">Overview of the Final Rule</h3> After review of over 26,000 comments submitted on the FTC’s publicly proposed rule, the Final Rule is similar in many respects.  (For more information on the proposed rule, see our <a href="https://www.crowell.com/en/insights/client-alerts/ftc-proposes-rule-to-categorically-ban-non-compete-agreements">January 2023 client alert</a>.)  As with the proposed rule, the Final Rule deems virtually all non-compete agreements with workers to be “unfair methods of competition” in violation of Section 5 of the FTC Act.  Below are the key elements of the Final Rule: <ul class="wp-block-list"> <li>The rule bans all new non-competes, including with senior executives, after becoming effective.</li> <li>The rule contains a “grandfathering” exception for existing non-competes with “senior executives,” defined to include very high-level, “policy-making” officers meeting certain salary thresholds (as described below).</li> <li>The only exemption to the Final Rule is non-competes that are entered into in connection with the sale of a business.</li> <li>By the effective date of the rule, employers will be required to provide written notices to relevant employees informing them that their non-competes are unenforceable and will not be enforced.</li> <li>The Final Rule preempts conflicting state laws, thus banning otherwise lawful employee noncompete clauses in the 46 states that permit them.</li> </ul> <h3 class="wp-block-heading">Key Definitions of the Final Rule</h3> Below are key definitions in the Final Rule:  <ul class="wp-block-list"> <li>“Non-Compete” provisions are broadly defined to include “[a] term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” (a) “seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or” (b) “operating a business in the United States after the conclusion of the employment that includes the term or condition.” The Final Rule therefore does not extend to restraints on concurrent employment, but is limited to post-termination non-compete agreements. Notably, the Final Rule departs from the FTC’s original proposal to prohibit contractual terms that may be considered de facto non-compete clauses in response to vagueness concerns raised in public comments, and confirms that other types of restrictive covenants, such as non-disclosure agreements, non-solicitation agreements, and training repayment agreement provisions (or TRAPs), do not by their terms alone prevent a worker for working for another employer. However, the FTC confirmed its intention to bring any agreement deemed to “function” as a non-compete within the scope of the ban. The rule therefore retains the “functional test” to determine whether a specific term or condition that operates as a non-compete clause, even if the contractual term is not explicitly called a “non-compete clause,” such as an NDA. </li> <li>“Worker” is defined broadly to include any employee regardless of whether they are paid or unpaid, irrespective of title or status, including “independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.” </li> <li>“Senior executives” are treated differently than other workers under the Final Rule, as existing non-competes of “senior executives” are grandfathered in, but new non-competes would be banned after the Final Rule becomes effective. The Final Rule defines “senior executives” to include either: (1) a business entity’s president, Chief Executive Officer or the equivalent, or (2) an officer with “policy-making position, meaning any individual who earns more than $151,164 annually and has final authority to make controlling policy decisions on significant aspects of a business. </li> <li>Covered employers include certain sectors and entities—such as banks, non-profits not organized to carry on business for their own profit or that of their members (e.g., 501(c)(3) organizations), insurance companies, transportation and communications carriers, air carriers, and employers subject to the Packers and Stockyards Act—that fall outside of the FTC’s jurisdictional reach under the FTC Act. Notwithstanding these exemptions, Commissioner Rebecca Slaughter, who supported the ban, acknowledged that certain non-profits are exempted from the FTC Act’s reach, but suggested the ban could apply to other non-profit organizations in cases where entities “claim nonprofit tax status but are organized to the profit of [their] members who are within [their] jurisdiction and covered by the rule, which nonprofits are not,” thus, creating a grey area regarding the ban’s application with respect to certain non-profits.</li> </ul> <h3 class="wp-block-heading">Effect of the Ban on Trade Secret Protections</h3> Though non-compete agreements have been unenforceable in jurisdictions like California for many years, the FTC’s nationwide expansion of the ban on non-compete agreements nonetheless raises significant concerns around IP theft.  In particular, where non-compete agreements are enforceable, they have provided at least some deterrent to trade secret misappropriation, and without them, employers will be faced with increased risk that misappropriated trade secrets will make their way into the hands of competitors.  Companies should begin taking steps to mitigate the heightened risks that will result from a ban on non-compete agreements.  For example, companies should consider whether non-disclosure and non-solicitation agreements can be drafted to provide some protection against flagrant theft and disclosure of trade secrets. In addition, companies can begin auditing and diligently practicing good hygiene around trade secret protection through employment policies and written agreements and acknowledgments regarding the confidentiality of company information and procedures governing access to trade secrets, among other best practices.  Companies should also routinely confirm their employees’ understanding of these policies and, where possible, obtain contractual agreements from departing employees that they will return all confidential and trade secret information to the company upon their exit. Finally, companies seeking the return of misappropriated trade secrets through litigation should consider whether they can fill the gap left by the FTC’s ban on non-compete agreements through the “inevitable disclosure” doctrine.  In jurisdictions that recognize the doctrine, courts can enjoin an employee from taking on particular job responsibilities at the competitor’s company where it is “inevitable” that they will disclose trade secrets in performing those job duties.  However, there is a split in authority on whether the “inevitable disclosure” doctrine can support the issuance of an injunction.  The doctrine is currently only recognized in about half of the states, and a portion of those impose a high evidentiary burden before granting such relief.  And although the Defend Trade Secrets Act (DTSA) provides that an injunction may issue to prevent actual and “threatened” misappropriation, it does not expressly refer to “inevitable disclosure.”  Thus, although the FTC points to the DTSA as providing adequate protections against trade secret misappropriation, and the DTSA’s protections against “threatened” misappropriation may justify injunctions under the inevitable disclosure doctrine in some states, it remains to be seen whether and to what extent the doctrine will survive in the remaining jurisdictions should the FTC’s ban on non-competes take effect. <h3 class="wp-block-heading">Key Takeaways</h3> As described, the FTC’s Final Rule is already being tested in the courts by the U.S. Chamber of Commerce and certain business groups on various grounds, including on constitutional grounds, seeking to vacate and permanently enjoin the rule in its entirety, as well as other forms of relief.  In a statement following the FTC’s vote to finalize the ban, U.S. Chamber of Commerce President and CEO Suzanne P. Clark said that the FTC’s rule “to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.”  Enforcement of the rule will therefore likely be delayed or thwarted completely.  In the meantime, companies that rely heavily on non-compete agreements should review their policies and practices, focusing on determining which employees are senior or non-senior executives and what provisions in employment contracts may operate on as a non-compete agreement.   Companies should also continue to remain in compliance with the panoply of state and local laws regarding non-competes, and stay abreast of recent state law changes in this area as well, such as the California’s recent strengthening of the state’s ban on non-compete agreements and accompanying notice requirements.  (For more information on these developments, see our <a href="https://www.crowell.com/en/insights/client-alerts/california-employers-did-you-meet-the-employee-noncompete-agreement-notice-deadline">April 1 client alert</a>.) Companies that want to re-examine their existing non-compete agreements and audit their protections and controls over confidential and trade secret information can contact Crowell’s antitrust, labor, or trade secrets teams, including the contacts for this alert. <hr class="wp-block-separator has-alpha-channel-opacity"/> We would like to thank Corey Hitsch, Associate, for their contribution to this alert.
Motion to Dismiss Based on Trade Secret Disclosure in a Patent for the Birds

Thu, 22 Feb 2024 17:08:34 -0000

A perennial issue in trade secret litigation is: what factual allegations must be pled regarding what trade secrets are left when there are related patents from the same company on the same technology. The recent decision Safe Haven Wildlife Removal and Property Management Experts, LLC v. Meridian Wildlife Services LLC provides insight on this issue... Continue Reading

A perennial issue in trade secret litigation is: what factual allegations must be pled regarding what trade secrets are left when there are related patents from the same company on the same technology.  The recent decision Safe Haven Wildlife Removal and Property Management Experts, LLC v. Meridian Wildlife Services LLC provides insight on this issue at the motion to dismiss phase. In this case, the court inferred differences between the alleged trade secrets and publicly-available patent based on the owner’s general allegations, stating there were differences and that the patent covered “non-proprietary” aspects of Meridian’s technology. Under the permissive Rule 12 standard for review of a complaint, this was enough to survive dismissal and enter discovery. The case started more than two and a half years ago when Safe Haven sued Meridian for patent infringement. After a transfer of venue and a brief stay, in May 2023 Meridian filed counterclaims asserting infringement of its own two patents and trade secret misappropriation by Safe Haven and its founder Derek Tolley, a former employee of Meridian. Meridian’s asserted U.S. Patent Nos. 9,943,073 and 10,154,663 are entitled “Indoor Live Bird Capture System” and are directed to a method and device for the safe live capture of a flying bird inside a building using bird netting with adjustable height support poles. Meridian’s claimed trade secrets include (1) Meridian’s proprietary non-lethal practices, methods, and techniques for removing birds from commercial spaces and its unique application of bird behavior analysis and netting in that process; (2) Meridian’s bird behavior assessment methods, techniques, and processes; and (3) Meridian’s compiled, confidential customer and potential customer database including pricing, confidential contact information, customer buying preferences and history. Safe Haven and Tolley, in their motion to dismiss, challenged Meridian’s claim of trade secret misappropriation on several grounds, including that Meridian’s trade secrets under categories (1) and (2) relating to the bird behavior assessment and capture techniques were not “secret” because Meridian filed and obtained patents on those assessment and capture techniques. In other words, because the information was subject to patent, it was known to the public and could not be secret. The court rejected this argument, finding that Meridian explicitly described its patents as covering “non-proprietary” aspects of its bird capture systems. Taking all alleged facts as true and construing the counterclaim in a light most favorable to Meridian, the court inferred that Meridian’s allegations were that “the public filing of the patents did not contain the trade secrets implicated” which therefore does not impact their purported “secrecy.” The court took a relatively permissive view on any potential overlap between publicly-known information disclosed in a Meridian’s asserted patent and that which it claimed as trade secrets. The court inferred differences based on Meridian’s general allegations that the patents cover “non-proprietary” aspects of its bird capture systems. In effect, the court took Meridian at its word that there is a distinction. As the proceedings unfold, Meridian may be required to more specifically identify the differences between its trade secrets and its patents, or it may be subject to continued challenges from Safe Haven and Tolley.
Ninth Circuit’s Decision Sheds Light on Important Considerations in Granting Injunctive Relief

Tue, 20 Feb 2024 16:42:03 -0000

The Ninth Circuit’s decision in Perrin Bernard Supowitz, LLC v. Morales continues to highlight the high bar necessary for a motion for preliminary injunction, the evidence required to establish irreparable harm, and the limited “abuse of discretion” standard that may be applied during any appeal. Case No. 23-55189, 2023 WL 1415572 (9th Cir. Feb. 5,... Continue Reading

The Ninth Circuit’s decision in Perrin Bernard Supowitz, LLC v. Morales continues to highlight the high bar necessary for a motion for preliminary injunction, the evidence required to establish irreparable harm, and the limited “abuse of discretion” standard that may be applied during any appeal. <a href="https://www.crowelltradesecretstrends.com/wp-content/uploads/sites/19/2024/02/Perrin-Bernard-Supowitz-LLC-v.-Morales-Case-No.-23-55189-2023-WL-1415572-9th-Cir.-Feb.-5-2024.pdf">Case No. 23-55189, 2023 WL 1415572 (9th Cir. Feb. 5, 2024).</a> In Perrin, the Ninth Circuit found no abuse of discretion in the Central District of California’s decision to deny a preliminary injunction that Individual FoodService (“IFS”), a supplier of food service products, sought against two former employees who formed a competing business while still employed at IFS, for misappropriation of a trade secret – IFS’s customer list.  Although the Court noted that “there was no dispute that IFS’s customer order history qualified as a trade secret,” the Court found that any trade secrets the former employees may have misappropriated from IFS were “old and stale,” and therefore IFS was at no risk of suffering irreparable harm by being “wronged again” by their continued use.  The Court explained that this finding of staleness sufficed to deny the preliminary injunction because such a remedy should only last as long as it is necessary to preserve the rights of the parties and eliminate the commercial advantage gained through misappropriation.  The Court further reasoned that barring the two former employees from doing business with any customer they serviced while still employed at IFS was a punitive measure, “whereas the purpose of a preliminary injunction is to preserve the status quo.” The Court explained that by refusing to enjoin activity that potentially extended beyond the two former employees’ trade secret misappropriations, the lower court properly balanced the competing public interests of protecting trade secrets and allowing open competition and employee mobility. This case highlights the need to critically assess the bases for a request for preliminary relief when claims of misappropriation of trade secrets are being asserted. One should be particularly careful about the scope and strength of the trade secrets at issue and be able to articulate the various harms that may be encountered if those secrets are allowed to be misused on an ongoing basis.
VANDA Pharmaceuticals States a Fifth Amendment Claim against the Government for Taking a Trade Secret

Tue, 06 Feb 2024 17:22:49 -0000

The legal battle between VANDA Pharmaceuticals, Inc. and the United States government provides guidance on the minimum requirements that the government must meet to protect trade secrets provided during the regulatory approval process for pharmaceuticals. The case, which involves alleged unlawful disclosure of trade secrets by government officials to generic drug competitors, presents several issues of... Continue Reading

 The legal battle between VANDA Pharmaceuticals, Inc. and the United States government provides guidance on the minimum requirements that the government must meet to protect trade secrets provided during the regulatory approval process for pharmaceuticals. The case, which involves alleged unlawful disclosure of trade secrets by government officials to generic drug competitors, presents several issues of first impression. VANDA did not assert a trade secret misappropriation claim, but rather asserted a Fifth Amendment takings claim. (VANDA’s breach of implied-in-fact contract claim was dismissed). At the core of the case are two of Vanda’s brand-name drugs, Fanapt and Hetlioz. VANDA claimed that Food and Drug Administration (FDA) officials improperly shared the company’s trade secret and confidential manufacturing information with generic competitors by disclosure through the review process for generic drug manufacturers’ proposed competing products. VANDA alleges that the disclosure not only breached the FDA’s duty of confidentiality with VANDA, but also resulted in considerable economic harm to the company and violated the statute preventing the unauthorized disclosure of trade secrets by federal government officials who “obtain that information in the course of their official duties.” 18 USC § 1905. On January 18, 2024, the court denied the government’s motion to dismiss regarding the Fifth Amendment takings claim. The court stated that the FDA’s review and approval of NDAs falls squarely within the scope of the federal agency’s statutorily authorized duties. Furthermore, unlawful acts are not per se unauthorized for purposes of engaging in a Fifth Amendment takings analysis, and can still be imputed to the government. In other words, even if the government employees’ acts eventually were found to be unlawful, the actions could still constitute unauthorized taking by the agency. The court declined to determine if this was a per se or regulatory taking at this stage. The Court also left open the question of whether VANDA even had any trade secret or proprietary rights in the disclosed information. As the legal proceedings unfold, VANDA’s confrontation with the U.S. government will impact how trade secrets are handled within the pharmaceutical industry’s regulatory framework, and what remedies are available to future plaintiffs.
Tips for Santa to Maintain Trade Secrets at the North Pole

Mon, 18 Dec 2023 15:20:09 -0000

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<ol class="wp-block-list"> <li>The “Elf on a Shelf” has seen a lot from the outside.  Make sure the employment agreement prevents them from sharing within. </li> <li>If elves are working remote, make sure they know not to download the gift-wrapping procedure from the Workshop shared drive to personal devices.</li> <li>Distribute the “Naughty or Nice” list on a need to know basis only.</li> <li>No photographs of the sleigh allowed. </li> <li>Don’t forget about the NDAs with the reindeer handlers and flight navigators. </li> <li>Revisit the Workshop’s plan to limit disclosure of confidential information if a human finds their way in. </li> <li>Review the applicable law of the North Pole to ensure Confidentiality Agreements are enforceable and do not violate an elf’s right to work at a competitor. </li> <li>Do not mark gift wrapped toys as “Confidential,” since those gifts do not contain trade secret or confidential information.</li> <li>Confirm that trade secret protection is best for the innovations developed—the Workshop likely wants to keep them secret for as long as possible and not the limited lifespan patent protection offers. </li> <li>Remind Mrs. Claus not to share information at the New Year’s Magical Creature Gathering— “Loose lips can unwrap gifts!”</li> </ol>
Trade Secret Case Management Judicial Guide Released

Wed, 30 Aug 2023 21:01:08 -0000

Earlier this year the Federal Judicial Conference released its Trade Secret Case Management Judicial Guide. That paper is over 400 pages but contains comprehensive insights for courts and litigants in the various stages of a trade secret case. It is required reading for those practicing in the field. SSRN-id4360102.pdf Continue Reading

Earlier this year the Federal Judicial Conference released its Trade Secret Case Management Judicial Guide. That paper is over 400 pages but contains comprehensive insights for courts and litigants in the various stages of a trade secret case. It is required reading for those practicing in the field. <a href="file:///C:/Users/KlapoM/Downloads/SSRN-id4360102.pdf">SSRN-id4360102.pdf</a>
Client Alert: Open Questions Add Uncertainty to Scope and Impact of New Trade Secret Law

Thu, 16 Feb 2023 19:53:34 -0000

Key Takeaways On January 5, 2023, President Biden signed into law the Protecting American Intellectual Property Act, a new bill aimed at imposing sanctions on foreign individuals and entities involved in the theft of trade secrets belonging to a U.S. individual or entity. The law provides a new mechanism for the U.S., and potentially U.S. companies,... Continue Reading

<h2 class="wp-block-heading">Key Takeaways</h2> <ul class="wp-block-list"> <li>The new law has the potential to have a great impact on how domestic companies protect their IP, and how foreign companies assess theft of trade secrets.</li> <li>Many crucial issues, however, are left open. The scope and impact of the law will depend heavily on how the executive branch decides to address these issues, if at all.</li> </ul> On January 5, 2023, President Biden signed into law the <a href="https://www.congress.gov/117/bills/s1294/BILLS-117s1294enr.pdf">Protecting American Intellectual Property Act</a>, a new bill aimed at imposing sanctions on foreign individuals and entities involved in the theft of trade secrets belonging to a U.S. individual or entity. The law provides a new mechanism for the U.S., and potentially U.S. companies, to combat theft of trade secrets committed by foreign entities or individuals. Read more <a href="https://www.crowell.com/NewsEvents/AlertsNewsletters/all/Open-Questions-Add-Uncertainty-to-Scope-and-Impact-of-New-Trade-Secret-Law">here</a>.
New UK Regulations Enhance Insolvency Practitioners’ Access to Data held by Companies House

Tue, 28 Jan 2025 08:30:00 -0000

The Information Sharing (Disclosure by the Registrar) Regulations 2024 (the “Regulations“) came into force in December 2024. The Regulations enhance insolvency practitioners (including the Official Receiver) (“IPs“) powers of investigation by providing them with greater access to information held by Companies House. Previous Regime Before the Regulations came into force, Companies House had powers to... Continue Reading

The Information Sharing (Disclosure by the Registrar) Regulations 2024 (the “Regulations“) came into force in December 2024. The Regulations enhance insolvency practitioners (including the Official Receiver) (“IPs“) powers of investigation by providing them with greater access to information held by Companies House. Previous Regime Before the Regulations came into force, Companies House had powers to disclose information to public authorities to assist them with discharging their public functions. However, as IPs are not  “public authorities” carrying out “public functions” (such functions being for the private benefit of creditors), IPs could not previously obtain certain information held by Companies House without first obtaining a court order. Effects of the Regulations As a result of the Regulations, Companies House may now disclose information to certain IPs, as detailed in Regulation 3. The Registrar must be satisfied that such information is necessary for the purpose of assisting IPs to make, or determine whether to make, an application to the court for an order relating to (amongst other things) fraudulent trading, wrongful trading, transactions at an undervalue, and preference claims. Regulation 4 details the extent of non-public purposes for which such information may be disclosed to the IP. Further, the Registrar may disclose information to an IP if satisfied that the information is necessary for the purpose of assisting in  tracing, realising, or recovering property in specific circumstances. Overview The Regulations strengthen the investigative powers of IPs by permitting Companies House to disclose information to them in a far broader set of circumstances than previously. As the Regulations do not clarify what “information” falls within their scope, it is not yet clear what additional information will be disclosable to IPs than that  already available . However, as the scope is not limited, IPs can assume any information can be accessed in this way, subject to complying with applicable data protection and other legislation. The intention of the Regulations is to assist IPs in fulfilling their duties more effectively, by making more detailed financial and operational data available to them, thus facilitating the identification of wrongful trading or fraudulent activity, recovery of assets for the benefit of creditors, and ultimately holding directors accountable. The Regulations are a welcome step towards assisting  IPs in making decisions on cases and taking appropriate actions to progress claims and protect creditors’ interests without first  having to incur the costs of gaining a court order to obtain certain information. The Regulations may also deter malfeasance in the first place, as they promote transparency, supporting better corporate governance and accountability. It is likely that officeholders will be expected to deploy a request under the Regulations  prior to seeking a court order compelling Companies House to deliver up certain information. However, the ability to obtain the relevant information without incurring the expense of a court application  will be welcome news to IPs and creditors.
Bankruptcy and Restructuring in the US: A Snapshot of 2024

Tue, 07 Jan 2025 11:00:00 -0000

2024 brought a number of headline stories that will impact the bankruptcy and restructuring market in 2025 and beyond. A few of those are summarized below. LMEs (Of course). Liability management exercises — sometimes referred to as “lender-on-lender violence” — continued on their growth trajectory during 2024, with restructuring advisors looking for (and finding) gaps... Continue Reading

2024 brought a number of headline stories that will impact the bankruptcy and restructuring market in 2025 and beyond. A few of those are summarized below. LMEs (Of course).  Liability management exercises — sometimes referred to as “lender-on-lender violence” — continued on their growth trajectory during 2024, with restructuring advisors looking for (and finding) gaps in credit documents that allow for the practice.  While uptiers, drop-downs and double-dips were all the talk of the first 364 days of the year, the Fifth Circuit’s ruling in Serta coming on December 31st closed out the year with a bang (or a thud).  The Circuit Court reversed former Bankruptcy Judge David Jones’ ruling which had blessed Serta’s uptier transaction (allowing the majority lenders to leapfrog the non-participating lenders). Judge Jones’ original decision, coming from a prominent jurisdiction (Southern District of Texas) was a “stamp of approval” for many uptier transactions that came before and that followed.  Among other things, the District Court found that the exchange of existing debt for newly issued senior debt did not constitute an “open market purchase” because it was not made available to all lenders. The District Court further remanded to the Bankruptcy Court the question of whether the excluded lenders had valid counter-claims (breach of contract, etc.) against the participating lenders and the borrower. The court further stripped certain indemnification provisions that had been included in the plan to protect against such a ruling.  This brand new decision will likely have a dramatic impact on the feasibility of future LME transactions (at least until the drafting catches up). Others transactions that do not rely on open market purchases (J.Crew, for example) will be less impacted by the ruling.  Purdue Pharma.  The Supreme Court finally got an opportunity to weigh in on the lengthy saga regarding the validity of non-consensual third-party releases in favor of members of the Sackler family.  Purdue’s plan of reorganization was premised on a massive settlement with the family that would have resulted in approximately $6 billion from the family directed for creditor recoveries.  The Court considered whether the Bankruptcy Code allows a Bankruptcy Court to authorize the release of claims against non-debtors absent the consent of potential claimholders.  No, said a divided Court in the highly anticipated ruling (interestingly with Gorsuch authoring the opinion and Kavanaugh the dissent). While the ruling was limited to non-consensual releases, questions remain as to what constitutes consent and what becomes of non-consensual releases in plans that had been confirmed prior to the ruling.  Retailers.  Large big box retailers and other household brand names continued to deal with trouble in 2024. Rite Aid, Big Lots, Conn’s HomePlus, Express, Rue21, Ture Value and Sam Ash Music all filed bankruptcy.  As for restaurant chains, Red Lobster and TGI Fridays filed for bankruptcy relief as well.  Adjusting to a new retail environment due to on-line competition and changing customer behaviors continues to be difficult for many retailers and restaurants. New Jersey Bankruptcy Court.  Texas’ loss was New Jersey’s gain in 2024. The Bankruptcy Court for the Southern District of Texas had become an attractive venue for bankruptcy filings over the last nine or ten years, growing in prominence since the series of exploration and protection companies sought protection there in 2016-2017.  (Remember when a barrel of oil fell to $20?)  Concerns over the aforementioned Judge Jones’ ethics led to his resignation in 2023 and legal tangles with many, including a prominent local firm, have dominated the news from the district since.  One result has been that a the Southern District of Texas, one that had been attracting many mega bankruptcy cases, has seen those filings drop in 2024 while New Jersey has taken up the slack.  New Jersey may also benefit from rulings in the Eastern District of Virginia (e.g., Enviva) that have raised conflict issues for debtor counsel that are often brushed aside in other districts. Indeed, the Bankruptcy Court of New Jersey saw two of the largest cases of 2024 in WeWork and Rite Aid, a trend that will likely continue in 2025.   We’re looking forward to seeing which of these stories and themes influence bankruptcies and restructurings in 2025.
Continued Pain in the Retail Sector: Coming Enforcement of Forced Labor Laws

Mon, 27 Feb 2023 22:45:24 -0000

After a pause in 2022, there has been much talk of the continuation, or resumption, of a wave of retail bankruptcy cases as we begin 2023. 2022 was highlighted by Revlon’s filing (discussed here: Revlon May Signal Another Wave of Retail Bankruptcies | Retail & Consumer Products Law Observer (retailconsumerproductslaw.com)). Revlon pointed to a number... Continue Reading

After a pause in 2022, there has been much talk of the continuation, or resumption, of a wave of retail bankruptcy cases as we begin 2023. 2022 was highlighted by Revlon’s filing (discussed here: <a href="https://www.retailconsumerproductslaw.com/2022/06/revlon-may-signal-another-wave-of-retail-bankruptcies/">Revlon May Signal Another Wave of Retail Bankruptcies | Retail & Consumer Products Law Observer (retailconsumerproductslaw.com</a>)). Revlon pointed to a number of issues that led to its filing, including most prominently, supply chain issues. Severe impediments in the supply chain – whether the inability to source product or the costs and delays in received goods — have been cited by many debtors since Revlon since as a leading cause of their distress. And it may get much worse before it gets better, particularly for companies that source, directly or indirectly, from China. In December 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA) which bans goods made with forced labor located in China’s Xinjiang Uyghur Autonomous Region. Very generally, the law imposes a rebuttable presumption that a product with any nexus to Xinjiang is made with forced labor. Accordingly, an import that is produced in a third country but includes a component from Xinjiang is subject to the prohibition. In order to overcome the presumption, importers must establish by clear and convincing evidence that product was not made using forced labor.  The law took full effect on June 21, 2022. In order to defeat the law’s presumption, companies that source goods from China will have to engage in a thorough review of their supply chains from the finished product to raw materials to determine whether any goods are made in Xinjiang and, if so, whether they were made with forced labor. This is very difficult, made more challenging by the need to “prove a negative.” Tasked with enforcing the law is U.S. Customs and Border Protection (CBP) which will detain goods if there is a reasonable suspicion that goods are subject to the UFLPA. CBP will make the determination if the supply chain information provided by importers is sufficient to prove their goods falls outside the scope of the UFLPA or if goods manufactured in Xinjiang were made with forced labor. If product is detained, it could reasonably take 8-9 months to obtain and provide the necessary supply chain documents and receive a determination from CBP.  The effects of the UFLPA are likely to be wide ranging. The categories of goods exported from and around Xinjiang range from apparel, solar products, electronics, tomatoes, automotive parts, and many other consumer and industrial goods. Producers of PVC are aplenty in the region. Indeed, the effects of the law are only beginning to be felt. In 2022, almost $500 million of goods were targeted by the CBF. Just a blip given the magnitude of supply chain issues that faced retailers and others last year. Things may change rapidly in 2023. CBP has recently been allocated more than $100 million for the calendar year to enforce the law and has much improved analytics tools at its disposal. While the distortive effects that enhanced enforcement will have on the supply chain are unknown, this additional hurdle may not be factored into many projections for continued pain in the retail sector.
A Line in the Sand: Caymans Proceeding Ineligible for Chapter 15

Fri, 09 Dec 2022 20:00:00 -0000

Chapter 15 of the Bankruptcy Code provides a mechanism for United States cooperation and coordination with insolvency proceedings abroad, often affording foreign debtors wide-ranging relief and expansive rights through the United States Bankruptcy Court system. Not all proceedings in foreign jurisdictions are eligible — in order to be so, a proceeding must constitute a “foreign... Continue Reading

Chapter 15 of the Bankruptcy Code provides a mechanism for United States cooperation and coordination with insolvency proceedings abroad, often affording foreign debtors wide-ranging relief and expansive rights through the United States Bankruptcy Court system. Not all proceedings in foreign jurisdictions are eligible — in order to be so, a proceeding must constitute a “foreign proceeding” under the Bankruptcy Code. The Bankruptcy Code defines a “foreign proceeding” as “a collective judicial or administrative proceeding in a foreign country… under a law relating to insolvency or adjustment of<a href="https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=11-USC-3079315-71778047&term_occur=999&term_src="> debt </a>in which proceeding the assets and affairs of the<a href="https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=11-USC-1335742026-71778046&term_occur=999&term_src="> debtor </a>are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.” It is generally understood that the definition should be interpreted liberally. Recently, the Bankruptcy Court for the Southern District of New York tested the limits of Chapter 15, providing important guidance regarding the eligibility of proceedings that do not involve “insolvency or the identification, classification, or satisfaction of debt.” See In re Global Cord Blood Corporation, Case No. 22-11347 (December 5, 2022). Following allegations that the board of Global Cord Blood Corporation (“Global Cord”) may have misappropriated corporate funds, the Grand Court of the Cayman Islands appointed joint provisional liquidators (“JPLs”) to generally perform an investigation and seek recoveries as might be appropriate. Global Cord is a Cayman company, and was primarily operated from the People’s Republic of China. In their effort to fulfill their duties, the JPLs commenced a Chapter 15 proceeding, seeking recognition of the proceeding in the Caymans and authority to conduct expansive discovery in the US, among other things. A purported shareholder of Global Cord challenged the request, arguing that the Cayman proceeding did not satisfy or meet the necessary criteria to be a “foreign proceeding.”  Bankruptcy courts have identified the following elements that must be satisfied in order to be deemed an eligible foreign proceeding: (a) there must exist a proceeding, (b) the proceeding must be judicial or administrative, (c) the proceeding must be collective in nature, (d) it must be in a foreign country, (e) the proceeding must relate to a law that relates to insolvency or debt adjustment, (f) the proceeding subjects the debtor’s assets and affairs to the control or supervision of a foreign court and (g) it is for the purpose of reorganization or liquidation. The shareholder argued that the Cayman proceeding failed to meet factors (c), (e) and (g) above.  The Bankruptcy Court was methodical in analysis.  It concluded that, although not without question, the Cayman proceeding related to a law that itself relates to insolvency and adjustment of debts.  The court reasoned that the test is not whether the proceeding concerns insolvency or adjustment of debt, but instead whether it is brought under a law that relates thereto. The order appointing the JPLs was premised on a provision of the Cayman Islands Companies Act that that did not require that the company be insolvent, and did not address the classification, adjustment, or resolution of debts. Nonetheless, the Bankruptcy Court identified other provisions in the act that do. Although the proceeding may not itself relate to insolvency or debt adjustment, it was commenced under a law that does and therefore satisfied that criteria for a “foreign proceeding” according to the court. But that was not enough. The Cayman proceeding was not “collective” according to the Bankruptcy Court. It did not focus on the company’s creditors which Bankruptcy Courts have found to be the critical factor in determining collective status. Creditors had not received notice of the proceeding, there had been no effort to identify creditors, quantify and classify the company’s liabilities, or consider a methodology for making distribution, for example. Moreover, the Bankruptcy Court found that the proceeding was itself not for the purpose of reorganization or liquidation. Very generally, the order appointing the JPLs directed them to, among other things, (i) protect and preserve the company’s assets, (ii) to investigate and report on the company’s affairs, and (iii) to take collect and retain the company’s assets, and further barred proceedings against the company except with leave of court. Importantly, the order also authorized them to “commence winding up proceedings and/or any insolvency process in the Cayman Islands or any other country.” But they had not done so and there was no evidence that the proceeding was leading to a reorganization or liquidation. According to the Bankruptcy Court, the Cayman proceeding was “most akin to a corporate governance and fraud remediation effort, and is not a collective proceeding for the purpose of dealing with insolvency, reorganization, or liquidation” and denied recognition. Recognition was denied without prejudice, and the JPLs may, after further orders in the Caymans, return to the Bankruptcy Court for relief.   The lesson for practitioners is clear.  When the need or desire for Chapter 15 relief may be reasonably anticipated, orders appointing liquidators and administrators in foreign jurisdictions should be crafted in a manner that anticipates the key elements required for recognition in the US. They might include provisions for creditor notice and participation where such may not be otherwise required. Orders might expressly refer to relief under statutory provisions that relate directly to insolvency or refer to debt adjustment alternatives. And importantly, foreign directives, or the actions of the foreign representatives, should contemplate reorganization or liquidation in some manner.
When Is an Event of Default “Continuing”?

Mon, 07 Nov 2022 14:00:00 -0000

Over a decade after Lehman’s insolvency, the English High Court handed down a key judgement in Grant v FR Acquisitions Corporation (Europe) Ltd [1] on 11 October 2022. The judgement provides commentary on when certain Events of Default have occurred and are “continuing”. Although the court addressed these issues in the context of interest rate swaps entered into... Continue Reading

Over a decade after Lehman’s insolvency, the English High Court handed down a key judgement in Grant v FR Acquisitions Corporation (Europe) Ltd <a href="https://www.crowell.com/NewsEvents/AlertsNewsletters/all/When-Is-an-Event-of-Default-Continuing#footnotes">[1]</a> on 11 October 2022. The judgement provides commentary on when certain Events of Default have occurred and are “continuing”. Although the court addressed these issues in the context of interest rate swaps entered into pursuant to an ISDA Master Agreement (the “Transactions”) and the impact of Lehman’s UK entity, LBIE, coming out of administration, the judgement may have implications beyond the derivatives market, for example in the context of financing agreements, corporate documentation, and distressed debt trading, as well as cross-border restructuring or insolvency situations. <h3 class="wp-block-heading">The context: what are the ramifications?</h3> The appointment of administrators over LBIE in 2008 constituted an Event of Default under the relevant ISDA Master Agreements. LBIE’s counterparties could elect either (a) to terminate the Transactions, or (b) to suspend their payment obligations pursuant to Section 2(a)(iii) of the ISDA Master Agreement, which provides a condition precedent to payment that “no Event of Default … with respect to the other party has occurred and is continuing”. Where termination would have resulted in a net payment to LBIE due to the way interest rates had moved, LBIE’s counterparties elected to suspend their payments for so long as an Event of Default was continuing. However, LBIE is currently solvent and about to come out of administration, so any previously suspended payment obligations will become due (provided that no other Event of Default is continuing). LBIE would be owed principal amounts over £8m and $53m under the respective Transactions, before accounting for interest. <h3 class="wp-block-heading">The court’s analysis of certain Events of Default</h3> The court addressed a few specific Events of Default under the ISDA Master Agreement and reached the following conclusions: <ul class="wp-block-list"><li>Failure to pay: this ceased to be continuing in December 2009 by operation of mandatory set-off under UK Insolvency Rule 14.24, i.e. LBIE’s payment obligation was discharged.</li><li>Admission of inability generally to pay debts when due: this would cease to be continuing by a public statement from LBIE that it has a surplus of assets over liabilities and that it is able to pay its debts as they fall due.</li><li>Administration: this would cease to be continuing when the administrators’ appointment is terminated, because the appointment was the triggering event or “state of affairs”, notwithstanding that the “effects” of such administration continue.</li></ul> The court also considered whether a 2018 Scheme of Arrangement (the “Scheme”) constituted “a general assignment, arrangement or composition with or for the benefit of creditors”. On interpretation of the ISDA Master Agreement, the court concluded that the Scheme did not constitute a fresh Event of Default because it did not arise in an insolvency context, i.e. due to “financial distress”. LBIE was solvent at the time of the Scheme and there was no question of any deficit, but a key purpose of the Scheme was to maximise the value of LBIE’s surplus by avoiding costly litigation. However, if the court had concluded that the Scheme constituted an Event of Default, it would have followed that the default would have been “continuing” because the new state of affairs brought about by the Scheme continues to subsist. The court separately acknowledged that “one-off” Events of Default are not “continuing” even if the effects cannot be undone; on the facts, however, LBIE’s admission of inability to pay debts was not a “one-off” event because the notice speaks to a continuing inability (unless and until corrected), and the Scheme would not have constituted a “one-off” event even when all steps necessary to accomplish the Scheme have been taken. <h3 class="wp-block-heading">Going forward: what parties should consider</h3> The ISDA Master Agreement is an industry standard document, developed for common use in a variety of circumstances by a large number of participants. Accordingly, the court applied certain principles of contractual interpretation, ascribing more than usual deference to the words used. Nevertheless, one lesson from the decision is that careful attention should be paid to the drafting and wording of events that trigger Events of Default. For example, while the Scheme was not considered an “arrangement” under the ISDA Master Agreement, the conclusion may be different elsewhere; the Scheme is a “compromise or arrangement” under the UK Companies Act 2006. Consideration should also be given to the contractual implications, losses, rights or discretion that may be exercised by a non-defaulting party. While not considered in this case, an Event of Default may cease to be continuing if (or perhaps only if) it is “waived”, and parties should consider common law or equitable doctrines (e.g. the non-defaulting party may be estopped) and statutory rules (e.g. the rights must not be unlawful penalties or extortionate credit transactions under insolvency rules). All of these things will depend on the precise language, context and nature of your transactions, and parties should review the drafting of Event of Default clauses to ensure they are fit for purpose. <a href="mailto:?subject=Crowell%20%26%20Moring:%20When%20Is%20an%20Event%20of%20Default%20%E2%80%9CContinuing%E2%80%9D%3F&body=https://www.crowell.com/NewsEvents/AlertsNewsletters/all/When-Is-an-Event-of-Default-Continuing"></a>
Successor Liability and Section 363: A Broad Interpretation of an “Interest in Property”

Fri, 30 Sep 2022 13:00:00 -0000

The purchase and sale of assets by a debtor is governed by Section 363 of the Bankruptcy Code. So-called “363 sales” are typically attractive from a buyer’s perspective (and may be a primary reason for a bankruptcy filing). Perhaps the most important benefit afforded to buyers in 363 sales is the ability to acquire assets... Continue Reading

The purchase and sale of assets by a debtor is governed by Section 363 of the Bankruptcy Code. So-called “363 sales” are typically attractive from a buyer’s perspective (and may be a primary reason for a bankruptcy filing). Perhaps the most important benefit afforded to buyers in 363 sales is the ability to acquire assets “free and clear” of claims and interests of third parties. Section 363(f)(5) of the Bankruptcy Code provides that a debtor can sell property free and clear of any interest in such property when a third party “could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.” But what constitutes an “interest” remains the subject of some debate, particularly as it relates to successor liability claims. One category of successor liability claims that may arise in traditionally unionized industries are the claims of pension funds that are triggered by a participant’s withdrawal. “Withdrawal liability” arises under the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) and may, at times, be asserted against a purchaser of the participant’s assets, typically where it had notice of the claim at the time of the acquisition and where there exists a “substantial continuity” in the business operations following the purchase.  The survivability of a pension fund’s potential successor liability claim was recently tested in In re Norrenberns Foods, Inc., 2022 WL 2657213 (S.D. Ill. 2022). The Bankruptcy Court approved the sale of the debtor’s assets free and clear of all withdrawal liability claims over the objection of the United Food and Commercial Workers Unions and Employers Midwest Pension Fund (the “Pension Fund”). The debtor, the operator of a grocery store, commenced its case under Subchapter V of Chapter 11 of the Bankruptcy Code and thereafter sought approval for the sale of substantially all of its assets under Section 363. The Pension Fund asserted a multi-million dollar claim stemming from the debtor’s alleged withdrawal from the fund, Outside of bankruptcy, and without the benefit of a “free and clear” order, the purchaser might remain liable to the Pension Fund for its claim considering that it intended to operate the assets as a grocery store. In order to preserve the viability of the transaction, the debtor sought approval of the sale free and clear of all liens, claims, interests and encumbrances, including claims “related to… collective bargaining and other labor agreements.” The Pension Fund posited that the sale could not extinguish its claim, arguing that it did not constitute an “interest” in the property being sold within the meaning of Section 363(f) of the Bankruptcy Code. Given the magnitude of the potential claim, the sale would not close without the protection from successor liability, putting at risk the jobs of the debtor’s employees and greatly impairing the recovery of its secured creditor.  While the Bankruptcy Code does not define the term “interest,” the “trend seems to be in favor of a broader definition that encompasses other obligations that may flow from ownership of the property.” Id. (citations omitted).  Indeed, “the use of the term ‘any’ counsels in favor of a broad interpretation.” Id. (citations omitted). The Second Circuit, in a matter arising from General Motors’ bankruptcy case, provided guidance regarding successor liability claims: “a bankruptcy court may approve a § 363 sale ‘free and clear’ of successor liability claims if those claims flow from the debtor’s ownership of the sold assets. Such a claim must arise from a (1) right to payment (2) that arose before the filing of the petition or resulted from pre-petition conduct fairly giving rise to the claim. Further, there must be some contact or relationship between the debtor and the claimant such that the claimant is identifiable.” See In the Matter of Motors Liquidation Co., 829 F.3d 135 (2nd Cir. 2016). Despite this trend and Circuit Court guidance, the Pension Fund sought a narrow interpretation, one that would treat an “interest” similar to that of an in rem interest the property being sold (e.g., a lien or deed). Under the Pension Fund’s theory, virtually any unsecured claim that might be asserted against a successor would survive a free and clear order, impairing a debtor’s ability to maximize the value of its assets. Unfortunately for the Pension Fund, the issue was recently addressed in a similar case. That court ruled that, while a successor liability claim of a pension fund is not an in rem interest in the debtor’s property, it nonetheless constituted an interest in such property for purposes of Section 363(f). See In re K&D Industrial Services Holding Co., Inc., 602 B.R. 16 (E.D. Mich. 2019). In that case, the court went further to consider whether the public interest of protecting multi-employer pension plans (and the individuals that rely on them) trumps the protections afforded in favor of asset purchasers by Section 363(f). The court determined that, while the public policies that underly the MPPAA and ERISA are real and significant, so are those that underpin Section 363. Moreover, nothing in Section 363(f) requires a court to weigh competing public interests when determining whether to approve a sale free and clear of interests. Id. These cases provide further certainty for both debtors and the purchasers of distressed assets in bankruptcy — greater certainty both increases the value of those assets for the benefit of the debtor’s estate and provides comfort for purchasers that they will not be subject to the seller’s legacy claims. In re Norrenberns Foods is further evidence that court’s support a broader application of Section 363(f) of the Bankruptcy Code.
Your Counterparty Filed Chapter 11 – Make Sure to Check These 10 Boxes

Thu, 15 Sep 2022 13:00:00 -0000

On September 14, Crowell partners Rick Hyman and Gregory G. Plotko, together with Dawn Haghighi, General Counsel of PVC Murcor, published an article on the Association of Corporate Counsel’s ACC Docket, “Your Counterparty Filed Chapter 11 – Make Sure to Check These 10 Boxes.” The article provides valuable insight for in-house counsel who find themselves... Continue Reading

On September 14, Crowell partners Rick Hyman and Gregory G. Plotko, together with Dawn Haghighi, General Counsel of PVC Murcor, published an article on the Association of Corporate Counsel’s ACC Docket, “Your Counterparty Filed Chapter 11 – Make Sure to Check These 10 Boxes.” The article provides valuable insight for in-house counsel who find themselves dealing with a bankrupt counterparty, and are unsure of their next steps. For the full article, <a href="https://docket.acc.com/your-counterparty-filed-chapter-11-make-sure-check-these-10-boxes">view it here on the web</a>, and remember to subscribe and check back soon for more posts on Restructuring Matters.
Merchant Cash Advance Redux: Loan vs True Sale – New York Federal Courts Weigh In

Thu, 18 Aug 2022 13:00:00 -0000

In our February 14, 2022 post, we highlighted certain consequences regarding the treatment of a merchant cash advance (“MCA”) transaction as a “loan” rather than a “true sale” of receivables or future receivables and the implications of such treatment to an MCA provider. Among the takeaways was that a court’s characterization of an MCA transaction... Continue Reading

In o<a href="https://www.restructuringmatters.com/2022/02/receivables-transactions-revisited-recent-decisions-split-on-sale-vs-loan-characterization/">ur February 14, 2022 post</a>, we highlighted certain consequences regarding the treatment of a merchant cash advance (“MCA”) transaction as a “loan” rather than a “true sale” of receivables or future receivables and the implications of such treatment to an MCA provider. Among the takeaways was that a court’s characterization of an MCA transaction as a loan opens an MCA provider up to a host of potential claims by cash advance recipients (“customers”) and their successors (e.g., bankruptcy trustees) that are not otherwise available if the transaction is treated as a true sale. Recent trends in the case law appear to evidence a developing sympathy for customers<a href="#_ftn1" id="_ftnref1">[1]</a>where the underlying documentation and business practices of the MCA provider allows an opportunity for courts to characterize a transaction as a loan. MCA transactions are designed by MCA providers to achieve certain economic returns in a structure where their risk of loss is minimized.  Recent caselaw may, however, motivate MCA providers to rethink transaction terms and structures to best avoid the characterization of such transactions as loans.  Borrowers will take some comfort from these cases that, if their transaction has certain indicia of a loan, a court may be inclined to treat it as such, regardless of the label. Since our last post, at least three reported decisions from the Southern District of New York have analyzed MCA transactions in the context of claims of usury and violations of the Racketeer Influenced Corrupt Organizations Act (“RICO”).<a href="#_ftn2" id="_ftnref2">[2]</a> The underlying transactions were, for the most part, similar.  In each, the MCA provider purported to purchase its customer’s future receivables utilizing documents which stated that the transaction was a “true sale.” Pursuant to the agreements, on a daily basis the MCA provider would withdraw a contractually fixed amount from its customer’s bank account regardless of the amount of daily collections even though the MCA agreements also provided that payments to the MCA provider would be based upon an estimated percentage of daily collections.<a href="#_ftn3" id="_ftnref3">[3]</a> If there were an insufficient amount of collections on any given day, the ACH withdrawal would be rejected and the customer would be in default.  In each case the customer granted a security interest in its receivables and other non-receivable assets of the customer and there was recourse against certain guarantors.  Further, the MCA agreements enumerated events of default typically seen in loan transactions.  Economic risk allocation, based upon these contractual provisions alone, clearly points to the customer. The analyses undertaken by the three SDNY Courts followed similar paths to reach similar outcomes. a. The Fleetwood Court stated the following: “[v]iewing the [MCA] Agreement as a whole, the Court concludes that it is a loan and not a contract for the purchase of future receivables”.<a href="#_ftn4" id="_ftnref4">[4]</a>  Having come to that conclusion, the Court then analyzed claims of usury and RICO, both of which require as a predicate for liability that the underlying transaction require repayment of a debt (i.e., a loan). b. The Haymount Court described the core claim in the complaint as one where the defendants were liable under RICO, for operating “an enterprise that loans money to small businesses at criminally usurious interest rates and then uses various improper tactics to collect on those loans.”<a href="#_ftn5" id="_ftnref5">[5]</a> After a lengthy analysis of loan vs. true sale factors, Judge Rakoff concluded that that the plaintiff had adequately pled that the MCA agreements at issue functioned as loans. “Because the transactions should be treated as loans, at least at this juncture, and because defendants do not dispute that the implied interest rates on these transactions far exceed 50% per annum (twice the New York State criminal usury rate), the Court holds that the Complaint has adequately pled that the debts created by the MCA agreements that the defendants issue are unenforceable, “unlawful debts” under the RICO statute.”<a href="#_ftn6" id="_ftnref6">[6]</a>  c. The Lateral Court also analyzed RICO allegations based upon underlying claims of usury.  There too, for purposes of ruling on the defendants’ motion to dismiss, the court stated: “[o]n balance, the Complaint pleads sufficient facts to show that the transactions reflected in the Merchant Agreements are loans subject to usury laws.”<a href="#_ftn7" id="_ftnref7">[7]</a>  It allowed the RICO and usury claims to proceed. In each case, the Court took the trouble to calculate the interest rate embedded in the transaction and in each case the result would breach applicable usury laws in most states: Fleetwood – 278.5%; Haymount – in excess of 50%; Lateral – multiple agreement with interest ranging from 100% to 300%.  Further, in at least one of the cases, the MCA provider never advanced the full amount contractually promised to the customer, yet continued to withdraw the fixed daily amount from the customer’s bank account as if the full amount promised had been advanced.   The fact that collections had slowed was a risk to borne by the customer and not the MCA provider (as would be the case in a true sale). The Courts also seemed to be influenced by the business behavior of some of the MCA providers.  For example, the Fleetwood Court outlined several facts that influenced its decision.  At one point in its relationship with the MCA provider, Fleetwood requested a pause in the ACH withdrawal of the fixed daily to reflect a slowdown in collections, to which a collection agent responded “UNFORTUNATELY … WE DO NOT OFFER ‘BREAKS’. DOING THAT WOULD PUT YOU IN AUTOMATIC DEFAULT,” and [the MCA provider] continued to debit amounts from the Fleetwood Account,”<a href="#_ftn8" id="_ftnref8">[8]</a> and reconciliations were never performed to address the excessive ACH withdrawals.<a href="#_ftn9" id="_ftnref9">[9]</a>  Further, the MCA provider made no attempt to dispute similar statements in affidavits from other customers submitted to the New York Attorney General.  One customer, after advising of a seasonal slowdown in collections, requested a reduction in the daily payments and was told by the MCA provider, “We will take everything from you…. We are from New York…. Don’t mess with us.”<a href="#_ftn10" id="_ftnref10">[10]</a> Another customer requested a one-week adjustment of its payment obligations because it was awaiting payment on receivables from its clients.  The same MCA provider responded: “I don’t care about your problems,” and “I’ll default you before you can get out of the bathroom.”<a href="#_ftn11" id="_ftnref11">[11]</a>  While not dispositive, bad behavior does not help an MCA provider that may already be facing an uphill battle. What is dispositive, however, is with whom, after examination and analysis of all of the documents, business dealings between the parties, and the economics of the transaction, the ultimate economic risk lies.  If the scales tilt toward the customer, characterization as a loan is the more likely outcome.  If risk allocation scales tilt toward the MCA provider, the transaction will stand a better chance of being characterized as a purchase. The Fleetwood Court summarized the risk analysis as follows: “The ultimate question…relates to whether the transaction involves a transfer of risk. Where the putative “lender and not the [putative] borrower bears the risk of non-performance by the account debtor” and “the borrower’s debt is extinguished” by the transaction, then “the lender’s risk with regard to the performance of the accounts is direct,” and the transaction is properly characterized as the purchase of accounts receivable.  (citation omitted). By contrast, the transaction is properly characterized as a loan where “the lender holds only a security interest [and] the lender’s risk is derivative or secondary, that is, the borrower remains liable for the debt and bears the risk of non-payment by the account debtor, while the lender only bears the risk that the account debtor’s non-payment will leave the borrower unable to satisfy the loan.” (citation omitted).<a href="#_ftn12" id="_ftnref12">[12]</a> These recent decisions are a signal that Courts are taking notice of certain MCA providers’ behavior and are providing guideposts for aggrieved customers.  They are also a signal to the MCA providers that the Courts in the SDNY are willing to find their MCA arrangements are loans if the parties’ agreements are not properly allocating economic risk and if an MCA provider’s behavior is not commercially reasonable and consistent with its contractual obligations, thereby opening a path to usury and RICO claims against the MCA provider as well as disadvantageous and potentially costly treatment in the bankruptcy of the customer. <hr class="wp-block-separator"/> <a href="#_ftnref1" id="_ftn1">[1]</a> Recent legislative action also appears to be oriented toward customer protection. Several states, most notably California and New York, have adopted consumer style disclosure requirements for commercial finance transactions meeting certain thresholds and which are offered to customers by commercial finance lenders that are not otherwise exempt.  In both California and New York, the disclosure requirements are applicable to non-exempt MCA providers, factors and other providers of financing regardless of whether the non-exempt transaction is a loan or a true sale.  California’s disclosure requirements take effect on December 9, 2022 and New York’s requirements take effect at the time the New York Department of Financial Services finalizes implementing regulations. <a href="#_ftnref2" id="_ftn2">[2]</a> Fleetwood Services, LLC v. Ram Capital Funding, LLC, et al, 20-cv-5120 (LJL), 2022 WL 1998207 (June 6, 2022 SDNY) (“Fleetwood”); Haymount Urgent Care PC, et al. v. GoFund Advance, LLC, et al., 22-cv-1245 (JSR), 2022 WL 2297768 (June 27,2022 SDNY) (“Haymount”); Lateral Recovery LLC, et al. v. Queen Funding, LLC, et al., 21 Civ. 9607 (LGS), 2022 WL 2829913 (July 20, 2022 SDNY) (“Lateral”).  These cases are in various procedural postures.  Fleetwood was a decision on the plaintiff’s summary judgment motion; Haymount and Lateral were rulings on motions to dismiss filed by the defendants in each case.   <a href="#_ftnref3" id="_ftn3">[3]</a> The MCA agreements also contain a reconciliation provision designed to address over or under payments based upon actual collections and the contractual percentage.  These reconciliations provisions provide the MCA provider with multiple opportunities to avoid making the calculation.  In each of the cases cited above, failure to make such calculations formed part of the plaintiffs’ claims. <a href="#_ftnref4" id="_ftn4">[4]</a> Fleetwood at *14. <a href="#_ftnref5" id="_ftn5">[5]</a> Haymount at *4. <a href="#_ftnref6" id="_ftn6">[6]</a> Id. at 8. <a href="#_ftnref7" id="_ftn7">[7]</a> Lateral at *6. <a href="#_ftnref8" id="_ftn8">[8]</a>  Fleetwood at *5. <a href="#_ftnref9" id="_ftn9">[9]</a>  Id. <a href="#_ftnref10" id="_ftn10">[10]</a> Id. <a href="#_ftnref11" id="_ftn11">[11]</a> Id. <a href="#_ftnref12" id="_ftn12">[12]</a> Fleetwood at 10.
SDNY Bankruptcy Court Prohibits a Court Appointed Claims Agent from Selling Direct Access to Creditor Claims Register Data to XClaim

Fri, 22 Jul 2022 15:34:56 -0000

In a matter of first impression relating to an important bankruptcy claims administration issue, Judge Sean H. Lane of the United States Bankruptcy Court for the Southern District of New York, recently denied the ability of a court appointed claims agent to sell and profit from providing direct access to publicly available claims register information. ... Continue Reading

In a matter of first impression relating to an important bankruptcy claims administration issue, Judge Sean H. Lane of the United States Bankruptcy Court for the Southern District of New York, recently denied the ability of a court appointed claims agent to sell and profit from providing direct access to publicly available claims register information.  The unsuccessful purchaser of such information was XClaim Inc. (“Xclaim”), a relatively new venture that is seeking to develop a web-based claims trading platform.  Pursuant to an “access agreement” with the claims agent (which Judge ordered to be disclosed to the public), Xclaim sought exclusive access to creditor data in a digital format that is compatible with Xclaim’s platform – presumably to immediately utilize such data to solicit creditors and drive them to their claims trading website.  In exchange for providing direct access and related services, the claims agent would have received a processing fee equal to 10% of the commission collected for each transferred claim. The issue of claims agents entering into these access agreements with Xclaim was first revealed in the Pareteum case, where Judge Lisa G. Beckerman inquired whether that claims agent had a contractual relationship with Xclaim and questioned the legitimacy of such an arrangement. The issue was then raised again in the Voyager and Celsius bankruptcy cases, but those claims agents agreed to carve out the access arrangement with Xclaim and therefore avoided the issue altogether. While Judge Lane passed no judgement on the morality of such a venture, he found that the arrangement specifically violated numerous section of Federal law including 28 U.S.C. § 156(c), 28 U.S.C. § 1930(e) and SDNY Bankr. Local Rule 5075-1. Those rules and regulations govern the ability of a claims agent to act as the Clerk of the Court in providing non-exclusive access to the public claims register as well as proscribing and limiting the fees that may be charged for performing these quasi-Clerk services. Judge Lane found that Xclaim’s fee arrangement could not be reconciled with the applicable rules and regulations including the proscribed fees that may be charged. Judge Lane’s ruling can be found in the record of the hearing held on July 20, 2022 in the In re Madison Square Boys & Girls Club, Inc. bankruptcy proceeding, Case No. 22-10910-shl.
Cryptocurrency Hedge Fund Three Arrows Capital and Platform Voyager Digital Resort to Bankruptcy for Relief

Thu, 07 Jul 2022 19:46:31 -0000

The first week of July has brought with it a flurry of activity in the digital asset markets – but not the type of activity that investors in the space likely hoped for. On June 27th, Three Arrows Capital, Ltd. (“3AC”) commenced a liquidation proceeding in the British Virgin Islands, followed on July 1st by... Continue Reading

The first week of July has brought with it a flurry of activity in the digital asset markets – but not the type of activity that investors in the space likely hoped for. On June 27th, Three Arrows Capital, Ltd. (“3AC”) commenced a liquidation proceeding in the British Virgin Islands, followed on July 1st by a Chapter 15 case in the Southern District of New York. Chapter 15 generally provides for recognition by a US court of an insolvency proceeding in a non-US jurisdiction. The company, a proprietary trading fund, is now under the control of joint liquidators tasked with stabilizing the estate, preserving and winding up its assets, investigating claims and pursuing causes of action under the laws of BVI. Should the BVI proceeding be recognized as a “foreign main proceeding,” the case will provide the liquidators some stability through the enforcement of the automatic stay over the firm’s US assets, preserving the status quo. On the heels of 3AC’s filing, on July 5th, <a>Voyager Digital Holdings, Inc. </a>and certain affiliates (“Voyager”) commenced Chapter 11 cases in the Southern District of New York. Voyager operates a brokerage that allowed customers to trade digital assets, earning “rewards” on their investments, and also offered custodial services. It estimated both its assets and liabilities as between $1-10 billion. Similar to Celsius Network (discussed <a href="https://www.restructuringmatters.com/2022/06/celsius-networks-warnings-highlight-crypto-bankruptcy-risks/">here</a>), Voyager operated with little regulation and made loans and investments in other platforms in order to generate yield. One of its largest loans was to 3AC – a loan of 15,250 BTC and $350 million USDC (the “3AC Loan”). On July 1st, facing a “run on the bank,” Voyager restricted further withdrawals by its customers as Celsius Network had done weeks earlier. Unlike 3AC’s filing, however, Voyager did so with a plan in hand, filing its proposed plan of reorganization shortly after filing its case. Generally, the plan provides that customers will receive (a) digital assets purchased by, or on behalf of customers and held by the company on the petition date (although it is unclear which or how many coins will be available for distribution), (b) stock in the reorganized Voyager, (c) existing tokens that had been issued by Voyager, and (d) recovery, if any, on account of the 3AC Loan (with the appointment of a litigation agent to pursue recovery). The plan allows some flexibility to exchange stock for coins. According to the plan, 100% of the new stock of a reorganized Voyager, subject to dilution for management, will be distributed to the customers. The company says that it will continue to market the business to third-party investors during the bankruptcy case with the hope of increasing value to its creditors. Voyager’s bankruptcy case will raise issues of first impression. For example, the plan does not appear to distinguish between the claims of those customers with digital assets earning “rewards” on the trading platform from those with assets purportedly maintained in custodial accounts. As discussed <a href="https://www.restructuringmatters.com/2022/06/celsius-networks-warnings-highlight-crypto-bankruptcy-risks/">here</a>, there may be arguments that assets held in custodial accounts are not properly property of the estate. The plan also treats the claims of account holders separately from those of general unsecured creditors who are entitled to a share of the “Claims Allocation Pool,” a term left undefined in the filed plan. The plan also treats customers differently than it does a claim on account of an unsecured loan from Alameda Ventures Ltd. (which is proposed to receive no recovery). As can be expected, the first plan of reorganization in a Chapter 11 of a cryptocurrency platform incorporates standard existing legal frameworks to address creditor recovery and rehabilitation of the estate, such as conversion to equity and use of litigation trusts. It will be interesting to see how these frameworks perform in the digital assets space. Other issues may arise if there continues to be volatility in the value of digital assets (if, for example, BTC is at $20,000 when the plan is solicited but later increases dramatically in value before voting or confirmation). Given the unsettled markets, other cryptocurrency funds, platforms and exchanges may follow the paths of 3AC and Voyager in the near future. It will also be informative to track the comparative path of Voyager vs. Celsius Network, which as of July 7th, has not filed for bankruptcy. Novel issues will arise and important lessons will be learned from these and other cases and we will continue to follow them closely as they develop.
State AG News: Civil Rights, Diversity, Consumer Protection April 24-May 1, 2025

Fri, 02 May 2025 17:18:00 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Below are the updates from April 24 – May 1, 2025 Multistate• A coalition of 21 state attorneys general filed an amicus brief supporting Susman Godfrey in its lawsuit challenging... Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys Genera</a>l page for more insights. Below are the updates from April 24 – May 1, 2025 Multistate • A coalition of 21 state attorneys general <a href="https://www.atg.wa.gov/news/news-releases/washington-state-joins-coalition-ags-supporting-law-firm-singled-out-executive">filed</a> an <a href="https://agportal-s3bucket.s3.us-west-2.amazonaws.com/072_AmicusBr_MultiState.pdf?VersionId=NFGHpyqK0GiccKEwZAdoYyt6vxFFdHeo">amicus</a><a href="https://agportal-s3bucket.s3.us-west-2.amazonaws.com/072_AmicusBr_MultiState.pdf?VersionId=NFGHpyqK0GiccKEwZAdoYyt6vxFFdHeo"> brief</a> supporting Susman Godfrey in its lawsuit challenging a Trump Administration Executive Order. Like EOs issued against other law firms, the challenged order requires federal officials to suspend active security clearances held by the firm’s employees, to refuse to engage with or hire these individuals, and to deny them entry to federal buildings. The orders also directs federal contractors to disclose any business with the firm so that agencies can terminate contracts with the firm’s clients. • A coalition of 19 state attorneys general <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-sues-trump-administration-over-unlawful-conditions">filed</a> a <a href="https://oag.ca.gov/system/files/attachments/press-docs/StateofNY v DOE 4.25.2025.pdf">lawsuit</a> challenging the U.S. Department of Education’s efforts to withhold federal funding from state and local agencies unless they abandon diversity, equity, and inclusion efforts that the Trump Administration believes violate Title VI of the Civil Rights Act of 1964. The coalition seeks to bar the Department from withholding funding based on this directive. California • California Attorney General Bonta <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlements-companies-selling-seafood-products">announced </a>settlements with Clearwater Fine Foods USA Inc. (Clearwater), Seaquest Seafood Corporation (Seaquest), and Jayone Foods (Jayone), resolving allegations that the companies sold fresh or frozen seafood products in California with elevated levels of lead or cadmium without the warnings required for exposures to such contaminants, in violation of Proposition 65 and the California Unfair Competition Law. Clearwater must pay a total of $304,164.98 in civil penalties, attorneys’ fees, and costs, and must implement heavy metal reduction measures. Seaquest and Jayone must pay a total of $81,440 in civil penalties, attorneys’ fees, and costs, and must begin providing warnings. Michigan • Michigan Attorney General Nessel <a href="https://www.michigan.gov/ag/news/press-releases/2025/04/29/ag-nessel-files-lawsuit-against-roku-for-allegedly-violatiing-children">filed </a>a <a href="https://www.michigan.gov/ag/-/media/Project/Websites/AG/releases/2025/April/Roku-Complaint.pdf">lawsuit</a> against Roku, Inc. in the U.S. District Court for the Eastern District of Michigan, alleging that the television platform violates the Children’s Online Privacy Protection Act (COPPA) and the Michigan Consumer Protection Act. The complaint alleges that Roku collected (and allowed third parties to collect) the personal information of children without the required notice and without obtaining parental consent. New Hampshire • New Hampshire Attorney General Formella <a href="https://www.doj.nh.gov/news-and-media/home-health-agency-pay-100000-settlement-over-incomplete-patient-care-records">announced</a> a settlement with Maxim Healthcare Services. The New Hampshire Department of Health and Human Services determined that Maxim failed to adequately document its home health aide services and failed to correct this when ordered. As a result, Maxim must repay $28,269.50 to New Hampshire Healthy Families, plus an additional $100,000 penalty to the State. Maxim has also committed to improving its compliance by enhancing its electronic visit verification technology. New Mexico • New Mexico Attorney General Torres <a href="https://nmdoj.gov/press-release/attorney-general-raul-torrez-secures-major-legal-victory-against-snap-inc-in-fight-to-protect-children/">announced</a> that a New Mexico court denied a motion filed by Snap, Inc. to dismiss a lawsuit brought by the State. New Mexico alleges that Snapchat’s design—including disappearing messages and unmoderated content discovery features—creates a dangerous environment that predators exploit to harm children. Vermont • Vermont Attorney General Clark <a href="https://ago.vermont.gov/blog/2025/04/25/attorney-general-clark-refiles-lawsuit-against-clearview-ai-violations-consumer-protection-act">announced</a> the refiling of a lawsuit against Clearview AI. The<a href="https://ago.vermont.gov/sites/ago/files/2025-04/Clearview Complaint - 4.25.2025 Stamped Copy.pdf"> complaint</a>, filed in Vermont Superior Court, Washington Civil Division, alleges that Clearview AI violates the Vermont Consumer Protection Act by using facial recognition technology to map the faces of Vermonters, including children, without their knowledge and selling access to this data.
State AG News: Civil Rights, Tariffs, Healthcare, FTC April 17-23, 2025

Fri, 02 May 2025 16:52:00 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Below are the updates from April 17th to 23rd. Multistate• A bipartisan coalition of 40 State Attorneys General published an open letter to the Congressional Committee on Appropriations expressing support... Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys Genera</a>l page for more insights. Below are the updates from April 17th to 23rd. Multistate • A bipartisan coalition of 40 State Attorneys General <a href="https://ag.ny.gov/sites/default/files/letters/letters-to-congress-on-the-legal-services-corporation-letter-2025.pdf">published</a> an open letter to the Congressional Committee on Appropriations expressing support for the continued funding of the Legal Services Corporation (LSC). The LSC, a nonprofit organization established by Congress, is the largest provider of civil legal aid in the country. The coalition argues that the LSC is essential to many Americans’ access to justice. • A coalition of 12 State Attorneys General led by Oregon Attorney General Rayfield and Arizona Attorney General Mayes <a href="https://www.azag.gov/sites/default/files/2025-04/Multistate Tariffs 0077 PLD Complaint 4.23.25 FINAL %281%29.pdf">filed </a>a suit against the federal government to block President Trump’s tariff policy, including an additional 25% tariff on Mexico and Canada, as well as reciprocal tariffs on 57 countries. The complaint, filed in the Court of International Trade on April 23, 2025, argues that the power to levy tariffs belongs to Congress. • A coalition of 9 State Attorneys General <a href="https://oag.ca.gov/system/files/attachments/press-docs/In re MCP 191_Prison Phones Amicus_04-21-25 %28as filed%29.pdf">filed</a> an amicus brief in support of the proposed FCC rule that would cap phone and video call rates for incarcerated people and their families. This measure would protect inmates from price-gouging that exploits their need for connection beyond the carceral system — and it would save families’ money, reduce recidivism, and promote successful rehabilitation, according to the State Attorneys General in their amicus brief. • A coalition of 21 State Attorneys General led by Colorado Attorney General Weiser and Illinois Attorney General Raoul <a href="https://illinoisattorneygeneral.gov/News-Room/Current-News/2025.04.18 FTC Commissioners Amicus Brief As-Filed.pdf?language_id=1">filed</a> an amicus brief in support of two FTC commissioners who were fired without cause by the Trump administration. The brief emphasized that the disputed firings threatened both the independence and bipartisan nature of the FTC. • Illinois Attorney General Raoul and Minnesota Attorney General Ellison <a href="https://illinoisattorneygeneral.gov/news/story/attorney-general-raoul-joins-lawsuit-against-private-equity-monopolization-of-critical-health-care-companies">joined</a> the FTC’s lawsuit attempting to block an acquisition that would combine the largest manufactures of hydrophilic coatings, which are used in critical lifesaving medical devices. Arkansas • Arkansas Attorney General Griffin <a href="https://arkansasag.gov/wp-content/uploads/2025-04-23-Financial-Fraud-Task-Force-FINAL.pdf">announced</a> the formation of his office’s Financial Fraud Task Force. The task force includes the Arkansas Bankers Association and the Arkansas Credit Union Association, and will meet quarterly to share industry intelligence. Florida • Florida Attorney General Uthmeier <a href="https://www.myfloridalegal.com/newsrelease/attorney-general-james-uthmeier-takes-legal-action-against-snapchat">filed</a> a complaint against Snap Inc., owner of the social media platform Snapchat, for allegedly violating the Florida Deceptive and Unfair Trade Practices Act by including addictive design features and exposing minors to harmful content. According to the complaint, an investigator in the Attorney General’s office set up a Snapchat account using a 13-year-old’s birthday, and found examples of “frequent and intense” profanity, depictions of alcohol and drug use, and local ads for cannabis vapes, which are illegal in Florida. The complaint also notes that Snapchat’s ephemeral messaging design provides a vanishing platform that “encourages” young users to share inappropriate content or images. Idaho • Idaho Attorney General Labrador <a href="https://www.ag.idaho.gov/newsroom/ag-labrador-urges-idahoans-to-check-eligibility-for-compensation-for-inflated-generic-drug-prices/">issued</a> a press release encouraging Idahoans to find out whether they are eligible to be compensated for any overpayments they may have made on price-inflated generic drugs. This compensation would come out of the $10 million settlement a multistate coalition of Attorneys General secured from Heritage Pharmaceuticals last fall. Illinois • Illinois Attorney General Raoul <a href="https://illinoisattorneygeneral.gov/news/story/attorney-general-raoul-announces-12-million-settlement-with-alternative-retail-electric-supplier-over-deceptive-and-unfair-business-practices-4-17-25">announced</a> a $12 million settlement with Direct Energy, resolving allegations that the energy supplier engaged in deceptive business practices that misled Illinois consumers between 2013 and 2025. Direct Energy also agreed to enjoin its harmful practices, and, as part of the settlement, it must refrain from marketing or selling energy to Illinois residents for 12 months. • Attorney General Raoul <a href="https://illinoisattorneygeneral.gov/news/story/attorney-general-raoul-recovers-more-than-100-000-from-chicago-woman-who-fraudulently-received-covid-19-relief-funds">recovered</a> over $100,000 in restitution from a 39-year-old Chicago woman, Tina Tzoumas, who fraudulently filed for COVID-19 relief, including in the form of a PPP loan for a nonexistent business. Tzoumas is the latest in a line of individuals investigated by Attorney General Raoul’s office for COVID-19 fraud. New Jersey • New Jersey Attorney General Platkin <a href="https://www.nj.gov/oag/newsreleases25/2025-0423_Filed-Public-Complaint.pdf">filed</a> an antitrust suit against the property management software company RealPage and 10 of the state’s largest corporate landlords for collusion in a rent-raising scheme. The complaint explains that the landlords agreed to raise rent to match numbers generated by RealPage’s algorithm, inflating the market rate in a state already plagued by a housing shortage. These practices, according to Attorney General Platkin, violate the New Jersey Consumer Fraud Act, the Sherman Act, and the New Jersey Antitrust Act, and the lawsuit seeks an injunction, equitable relief, disgorgement, and the appointment of a corporate monitor at defendants’ expense. • Attorney General Platkin <a href="https://www.njoag.gov/ag-platkin-sues-messaging-app-discord-for-unlawful-practices-that-expose-nj-kids-to-child-predators-and-violent-sexual-content/">announced</a> a new suit against the social media platform Discord for multiple violations of New Jersey’s Consumer Fraud Act. The complaint alleges that Discord falsely claimed to automatically scan and delete explicit direct messages, and that its security and messaging design did not protect young users from strangers. New York • New York Attorney General James <a href="https://ag.ny.gov/press-release/2025/attorney-general-james-urges-drizly-delivery-workers-file-claims-receive-funds-4">announced</a> that gig workers who delivered liquor through the Uber-owned app Drizly are now able to file claims to receive funds from the $4 million settlement pool. Attorney General James secured the settlement from Drizly in December 2024 after her office found that the app encouraged customers to leave tips that went to store owners rather than delivery drivers. North Carolina • North Carolina Attorney General Jackson <a href="https://ncdoj.gov/attorney-general-jeff-jackson-watch-out-for-contractor-fraud-during-helene-rebuilding-process/?utm_source=rss&utm_medium=rss&utm_campaign=attorney-general-jeff-jackson-watch-out-for-contractor-fraud-during-helene-rebuilding-process">warned</a> homeowners to be wary of contractor fraud as they rebuild from Hurricane Helene. This reminder came shortly after the announcement of Attorney General Jackson’s Safe to Rebuild initiative, where the OAG and law enforcement across North Carolina have joined forces to provide resources, advice, and oversight to those undergoing the rebuilding process. Oregon • Oregon Attorney General Rayfield <a href="https://www.doj.state.or.us/media-home/news-media-releases/attorney-general-dan-rayfield-launches-federal-oversight-and-accountability-website-litigation-tracker/">launched</a> a federal oversight tracker which provides real-time updates showing Oregon’s efforts to block actions by the Trump administration that threaten the rule of law. The new page also includes a reporting portal for Oregonians struggling with their social security payments and a federal impact reporting portal, where Oregonians who have been fired via federal actions (such as through DOGE cuts) can report information to the state. Texas • Texas Attorney General Paxton <a href="https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-defends-texans-privacy-amid-23andme-bankruptcy-and-provides-information">filed </a>a motion to appoint a Consumer Ombudsman to protect Texans’ personal and genetic information as 23andMe proceeds in its Chapter 11 bankruptcy case in the Eastern District of Missouri. Attorney General Paxton’s announcement noted that, under the Texas Direct-to-Consumer Genetic Testing Act and the Texas Data Privacy and Security Act, all Texas consumers can request that their DNA and other data be deleted from 23andMe’s databases, which would keep 23andMe from selling Texans’ DNA to the highest bidder. Washington • Washington State Attorney General Brown <a href="https://www.atg.wa.gov/news/news-releases/ag-s-civil-rights-consumer-protection-investigation-results-180000-payment">announced</a> that he had reached an $180,000 agreement with King Fuji Ranch, ending the investigation against the Washington apple and grape grower. Attorney General Brown stated that the resolution would protect Washingtonian farmworkers, as King Fuji agreed it would cease its practice of favoring H-2A workers, those on immigrant visas whose desperation for work and limited rights tend to drive down wages and workers’ quality of life.
State AG News: Healthcare, Consumer Protection, Labor & Employment April 10-16, 2025

Thu, 24 Apr 2025 18:26:29 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Below are the updates from April 10th to 16th. Multistate• A coalition of 22 attorneys general sent a letter opposing proposed changes to the ACA that could make it... Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys Genera</a>l page for more insights. Below are the updates from April 10th to 16th. Multistate • A coalition of 22 attorneys general sent a <a href="https://www.michigan.gov/ag/news/press-releases/2025/04/15/ag-nessel-joins-multistate-effort-to-protect-affordable-health-coverage-from-federal-attack">letter</a> opposing proposed changes to the ACA that could make it more difficult for individuals to enroll in and obtain affordable healthcare coverage The proposed amendments include removing DACA recipients’ access to insurance; shortening the enrollment period for all state ACA exchanges; and granting health insurance plans the ability to deny enrollment to anyone who missed a health insurance premium payment, regardless of when the payment was missed. District of Columbia • Attorney General Schwalb <a href="https://oag.dc.gov/release/attorney-general-schwalb-secures-refunds-penalties">announced</a> a $50,000 settlement against RubiRides Technologies, Inc., a local subscription-based rideshare company, and its CEO and Founder Noreen Butler. The settlement resolves an investigation by the Office of the Attorney General under the Consumer Protection Procedures Act, which found evidence that RubiRides operated without a license, failed to provide promised refunds after halting rides, and charged customers for rides they did not take. New Hampshire • Attorney General Formella <a href="https://www.doj.nh.gov/news-and-media/former-general-manager-foundry-restaurant-pleads-guilty-multiple-felony-theft">announced</a> that a former general manager of The Foundry Restaurant, James Peretti, plead guilty in Hillsborough Superior Court Northern District to two felony theft charges. In March 2024, Peretti was charged with Theft by Unauthorized Taking or Transfer because he allegedly generated fraudulent reimbursement claims from Foundry. In June 2024, he was also charged with Theft by Deception for allegedly falsifying an employee’s clock-in entries, diverting the paychecks reflecting the falsified hours, and collecting the paychecks from the falsified hours. Peretti agreed to pay $150,633 in restitution to the Foundry. New York • Attorney General James <a href="https://ag.ny.gov/press-release/2025/attorney-general-james-sues-payday-lending-companies-exploiting-workers-illegal">sued</a> payday lenders MoneyLion Inc. and DailyPay. Inc. for allegedly violating Executive Law, General Business Law, and the Consumer Financial Protection Act by charging usurious annual interest rates to workers. The lenders allegedly used high-interest rate loans to push workers to take out new loans to cover and pay prior loans. The lawsuit seeks injunctive relief to end illegal lending practices, restitution for the affected workers, and civil penalties. Pennsylvania • Attorney General Sunday <a href="https://www.attorneygeneral.gov/taking-action/ag-sunday-files-suit-against-beaver-county-home-improvement-contractor-for-allegedly-failing-to-complete-jobs/">announced</a> a lawsuit against Martin Lawn Services, LLC, and its owner, James D. Martin for violating Pennsylvania’s Home Improvement Consumer Protection Act and Pennsylvania Unfair Trade Practices and Consumer Protection Law. The Complaint alleges that Martin Lawn Services repeatedly failed to complete contracts by either doing subpar work or no work on the contract. And that Martin Lawn Services entered into contracts after its business registration expired. The lawsuit seeks to bar Martin from doing business in Pennsylvania, as well as consumer restitution and civil penalties. • Attorney General Sunday <a href="https://www.attorneygeneral.gov/taking-action/ag-sunday-sues-york-county-contractor-for-taking-150k-in-deposits-and-failing-to-honor-contracts/">announced</a> a lawsuit against Eric Chistopher Ward, a contractor, and his business entities, American Home Solutions Corporation and Elite Remodeling, LLC, for violations of the Home Improvement Consumer Protection Act, and the Unfair Trade Practices and Consumer Protection Law. The Complaint alleges that Ward took advance payments on contracts and failed to complete the work or produced subpar work. The lawsuit seeks restitution for the consumers and to permanently bar Ward and his business entities from working as home improvement contractors in Pennsylvania. Vermont • Attorney General Clark <a href="https://ago.vermont.gov/blog/2025/04/10/georgia-resident-convicted-unlicensed-nursing-vermont">announced</a> that Corissa Laws of Georgia, was sentenced in Vermont Superior Court to three years in prison, six years of probation, and barred from working in any capacity as a Medicaid service provider. In 2022, Laws impersonated a licensed Florida nurse to gain pandemic-related emergency authorization to fraudulently register as a licensed nurse in Vermont and New Hampshire. Laws then used the license to work in residential care facilities in Vermont. Laws pled guilty to identity theft and the unauthorized practice of nursing.
Auto Dealers: Buckle-Up Enhanced State-Level Enforcement Ahead

Wed, 23 Apr 2025 23:17:27 -0000

State Attorneys General are targeting unfair trade practices in automobile sales, including many of the sales tactics that would have been prohibited under the FTC’s now-vacated CARS Rule. Click here to continue reading the full version of this alert. Continue Reading

State Attorneys General are targeting unfair trade practices in automobile sales, including many of the sales tactics that would have been prohibited under the FTC’s now-vacated CARS Rule. <a href="https://communications.crowell.com/email_handler.aspx?sid=blankform&redirect=https%3a%2f%2fwww.crowell.com%2fen%2finsights%2fclient-alerts%2fauto-dealers-buckle-up-enhanced-state-level-enforcement-ahead&checksum=5F29091F" target="_blank" rel="noreferrer noopener">Click here to continue reading the full version of this alert. </a>
State AG News: Labor & Employment, State AG Office News, Consumer Protection April 3-9, 2025

Wed, 23 Apr 2025 16:39:37 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Below are the highlights from April 3-9, 2025. Multistate• 12 state attorneys general sent letters to twenty law firms demanding that the firms comply with the U.S. Equal Employment Opportunity... Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys Genera</a>l page for more insights. Below are the highlights from April 3-9, 2025. Multistate • 12 state attorneys general sent <a href="https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-leads-multistate-coalition-joining-trump-administrations-efforts-stop">letters</a> to twenty law firms demanding that the firms comply with the U.S. Equal Employment Opportunity Commission’s (“EEOC”) March 17 <a href="https://www.eeoc.gov/sites/default/files/2025-03/Law_Firm_Letters_-_03.17.2025.pdf">letter</a> requesting information to determine whether the law firms had engaged in any illegal and discriminatory actions through their diversity, equity, and inclusion (“DEI”)-related employment policies. California • Attorney General Rob Bonta <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlement-california-based-homeoptions-over">announced</a> a <a href="https://oag.ca.gov/system/files/attachments/press-docs/People of CA v. HomeOptions_Signed Judgment.pdf">settlement</a> with HomeOptions, a realty company, resolving allegations that the company engaged in an illegal scheme harming over 500 California homeowners. According to the state’s complaint, HomeOptions lured financially vulnerable homeowners into 20-year exclusive real estate listing agent contracts in exchange for relatively small one-time payments. The state also alleged the company deceptively recorded liens against the homeowners’ homes, and forced homeowners to pay tens of thousands of dollars in illegal fees to remove those liens so that they could transfer title or obtain home loans. The settlement requires HomeOptions to pay $400,000 in restitution and $170,000 in civil penalties. It also requires the company to terminate all liens that it recorded on the homeowners’ properties and to void all contracts that it entered into with the homeowners. Idaho • Attorney General Raúl Labrador <a href="https://www.ag.idaho.gov/newsroom/attorney-general-labrador-announces-new-directors-of-consumer-protection-and-communications/">announced</a> the promotion of Dan Estes to Director of Consumer Protection and the appointment of Damon Sidur as Communications Director for the Idaho Office of the Attorney General. Estes has served as the Public Information Officer for the Attorney General’s Office since November 2023, where he led the office’s public relations and outreach efforts. Sidur most recently served as Communications Director for Congressman Michael Cloud (R-TX) and Congressman Cliff Bentz (R-OR), where he led media relations and communications outreach. Before that, he served as Digital Media Director for Congressman Bob Good (R-VA) and as Deputy Communications Director for the Colorado House Republican Caucus. Pennsylvania • Attorney General David Sunday <a href="https://www.attorneygeneral.gov/taking-action/ag-sunday-secures-more-than-500k-in-refunds-for-consumers-from-debt-settlement-businesses-that-allegedly-operated-illegally-in-pa/">announced</a> a <a href="https://www.attorneygeneral.gov/wp-content/uploads/2025/04/ADS-Filed-AVC-4-4-25.pdf">settlement</a> with Accelerated Debt Settlement, Inc. and its affiliates, resolving allegations that the businesses misled consumers into thinking they could reduce or settle debts in exchange for certain upfront payments. Under the settlement, Accelerated Debt Settlement agreed to pay $550,000, $500,000 of which will be paid to harmed consumers. • The National Association of Attorneys General (NAAG) <a href="https://www.naag.org/press-releases/pennsylvania-attorney-general-dave-sunday-appointed-co-chair-of-the-associations-consumer-protection-committee/">announced</a> the appointment of Pennsylvania Attorney General Sunday as the new co-chair of the Association’s Consumer Protection Committee. Texas • Attorney General Ken Paxton <a href="https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-announces-investigation-kelloggs-potentially-breaking-law-after-falsely">announced</a> an investigation into WK Kellogg Co. for allegedly violating Texas consumer protection laws by advertising certain cereals as “healthy.” The AG alleged that Kellogg’s cereals contain artificial food dyes and the preservative BHT, which the company had removed from products sold outside the U.S. but not those sold domestically despite past commitments to do so. Washington • Attorney General Nick Brown <a href="https://www.atg.wa.gov/news/news-releases/washington-ag-says-realpage-and-landlords-conspired-harm-tenants-violate">announced</a> that the OAG filed a lawsuit against software company RealPage and nine local landlords, alleging that RealPage and its software were central to a conspiracy and unfair competition by certain landlords that resulted in rising rent prices for their tenants. The <a href="https://agportal-s3bucket.s3.us-west-2.amazonaws.com/Real Page Complaint.pdf?VersionId=GI.BWkJl7VtcjTn.XetDI1a.axsp9zgP">complaint</a> seeks monetary and injunctive relief.
States DOGE-ing: Impact of State DOGE efforts on Government Contractors

Wed, 16 Apr 2025 22:09:09 -0000

As the Trump Administration’s Department of Government Efficiency (DOGE) efforts continue to make sweeping changes across federal agencies, more than a dozen states have followed suit, launching their own DOGE initiatives that seek to mirror or build upon the federal DOGE. Join our presenters David Ginsberg, Derick D. Dailey, and Yuan Zhou as they explore... Continue Reading

As the Trump Administration’s Department of Government Efficiency (DOGE) efforts continue to make sweeping changes across federal agencies, more than a dozen states have followed suit, launching their own DOGE initiatives that seek to mirror or build upon the federal DOGE. Join our presenters <a href="https://www.crowell.com/en/professionals/david-j-ginsberg">David Ginsberg</a>, <a href="https://www.crowell.com/en/professionals/derick-d-dailey">Derick D. Dailey</a>, and <a href="https://www.crowell.com/en/professionals/m-yuan-zhou">Yuan Zhou</a> as they explore state-led DOGE activity across the country, and the implications and collateral impacts faced by state and local government contractors. This complimentary webinar is for government contractors only, no outside law firms, government personnel, or press. <a href="https://communications.crowell.com/104/7602/landing-pages/rsvp-blank.asp">Click here</a> to register.
A New Sheriff in Town: State Attorneys General Take Action To Enforce Violations of the Foreign Corrupt Practices Act

Tue, 15 Apr 2025 14:42:37 -0000

California Attorney General Rob Bonta advised California businesses that his office will enforce the Foreign Corrupt Practices Act (“FCPA”), marking a shift towards state enforcement of the FCPA in the wake of President Trump’s Executive Order. Click here to continue reading. Continue Reading

California Attorney General Rob Bonta advised California businesses that his office will enforce the Foreign Corrupt Practices Act (“FCPA”), marking a shift towards state enforcement of the FCPA in the wake of President Trump’s Executive Order. <a href="https://www.crowell.com/en/insights/client-alerts/a-new-sheriff-in-town-state-attorneys-general-take-action-to-enforce-violations-of-the-foreign-corrupt-practices-act">Click here </a>to continue reading.
State AG News: Environment, Healthcare, Labor & Employment March 27 – April 2, 2025

Wed, 09 Apr 2025 19:53:48 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Here are last week’s updates. Multistate• A multi-state coalition of 20 state attorneys general submitted a comment letter opposing the Council on Environmental Quality (CEQ)’s interim final rule which repeals the... Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys General page</a> for more insights. Here are last week’s updates. Multistate • A multi-state coalition of 20 state attorneys general <a href="https://www.michigan.gov/ag/news/press-releases/2025/03/31/attorney-general-nessel-joins-coalition-calling-on-federal-government">submitted</a> a comment letter opposing the Council on Environmental Quality (CEQ)’s interim final rule which repeals the National Environmental Policy Act (NEPA). The NEPA requires federal agencies to conduct thorough review of the environmental implications of its projects or rules. The coalition of state attorneys general argue that NEPA’s repeal will have a negative impact on state natural resources and their residents through the adverse effects of climate change. Further, the letter argues that the repeal rule violates the Administrative Procedure Act, NEPA, and the Endangered Species Act. • A multistate coalition of 24 state attorneys general <a href="https://agportal-s3bucket.s3.us-west-2.amazonaws.com/ECF No. 1 %282025.04.01%29 Complaint.pdf?VersionId=Hx4WmmjVg8u4WqXv8r9UdVqyfiHg3vUk">filed </a>suit against the U.S. Department of Health and Human Services (“HHS”) and HHS Secretary Robert F. Kennedy Jr. for terminating $11 billion in public health grants to their states. The states allege that the grant terminations came without warning and have caused chaos for state health agencies that rely on the funds. According to HHS, the grants could be terminated “for cause” because they were appropriated through COVID-19 related laws that are no longer relevant. However, the coalition argues that the terminations violate the Administrative Procedure Act (“APA”) because the end of the COVID-19 pandemic is not a valid basis to terminate the grants “for cause.” • A multistate coalition of state attorneys general recently secured an <a href="https://oag.ca.gov/system/files/attachments/press-docs/040125_MDv.USDA_PI.pdf">injunction</a> in a lawsuit against the Trump Administration to halt the mass firing of federal probationary employees. The injunction prevents 20 federal agencies including the Department of Education, Department of Defense, and the Department of Labor from conducing mass firings during the pendency of the suit. Notably, the order only applies to “affected probationary employees” either stationed or residing in the jurisdictions that brought the suit. These jurisdictions include Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Wisconsin. California • California Attorney General Rob Bonta <a href="https://oag.ca.gov/system/files/attachments/press-docs/FCPA Legal Alert.pdf">issued</a> a legal advisory to businesses operating in California that violations of the Foreign Corrupt Practices Act (“FCPA”) are actionable under California’s Unfair Competition Law (“UCL”). Notably, the Trump Administrative announced via Executive Order that FCPA enforcement would no longer be a federal priority. The FCPA, which criminalizes the payment of bribes to foreign officials for gaining or maintaining business, has historically been enforced by the federal government. AG Bonta’s announcement marks the first warning by a state that it will seek to enforce the FCPA. California’s UCL broadly prohibits unlawful, unfair, and fraudulent business practices. AG Bonta can use the UCL as a vehicle for enforcement because the UCL treats violations of other laws as unlawful business practices that are actionable.
State AG News: Executive Orders, Labor & Employment, Consumer Protection March 20-26, 2025

Mon, 31 Mar 2025 22:16:01 -0000

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our State Attorneys General page for more insights. Here are last week’s updates. Multistate District of Columbia Florida Minnesota New Jersey New York Ohio Oregon Rhode Island Texas Continue Reading

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. See our <a href="https://www.crowell.com/en/services/practices/white-collar-and-regulatory-enforcement/state-attorneys-general#overview">State Attorneys General page</a> for more insights. Here are last week’s updates. Multistate <ul class="wp-block-list"> <li>A bipartisan multistate coalition of all 50 states, the District of Columbia, and the Northern Mariana Islands <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-stands-us-army-veterans-denied-education-benefits-under">filed</a> an amici curiae brief in Yoon v. Collins, a case before the Court of Appeals for Veterans Claims in which veterans claiming to be eligible for both the Montgomery GI Bill and the Post-9/11 Veterans Educational Assistance Act have sued the U.S. Department of Veterans Affairs regarding benefits limits. The <a href="https://oag.ca.gov/system/files/attachments/press-docs/Yoon%20v.%20Collins%20-%20Amici%20Curiae%20Brief%20of%20Virginia%2C%2049%20States%2C%20DC%20and%20CNMI.pdf">brief</a> argues that it was Congress’s intent to provide expansive education benefits to veterans and their families and that the denial of these benefits violates the Supreme Court’s recent ruling in Rudisill v. McDonough that a veteran whose length of service qualifies him for entitlements under both G.I. Bills is “separately entitled to each of [the] two educational benefits.”</li> </ul> <ul class="wp-block-list"> <li>A multistate coalition of attorneys general <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-seeks-court-order-block-mass-firings-transfer-core">filed</a> a motion for a preliminary injunction to halt the mass firing of U.S. Department of Education employees by the Trump Administration as part of its efforts to dismantle the Department entirely. The <a href="https://oag.ca.gov/system/files/attachments/press-docs/2025-30-24%20PI%20Motion%20NY%20v.%20McMahon%20ED.pdf">motion</a> argues that the mass firings violate the Administrative Procedures Act and that President Trump’s March 20 <a href="https://www.whitehouse.gov/presidential-actions/2025/03/improving-education-outcomes-by-empowering-parents-states-and-communities/">Executive Order</a> instructing the Department to take all steps possible to facilitate its own closure was an ultra vires act that violated the Separation of Powers and Take Care Clause of the U.S. Constitution.</li> <li>A multistate coalition of 23 state attorneys general <a href="https://mailchi.mp/wvago/wva-ag-supports-efforts-to-increase-use-of-coal-to-support-our-nations-growing-energy-needs">sent</a> a letter to the Secretary of the Department of the Interior Doug Burgum expressing their endorsement of Executive Order 14156 and President Trump’s recent comments in support of the coal industry. The <a href="https://ago.wv.gov/Documents/Letter%20to%20Secretary%20re%20Coal-Fired%20Energy.pdf">letter</a> argues that coal is essential to alleviate pressure on existing energy infrastructure, and that without it we will not be able to support critical tech development  in areas like Artificial Intelligence, semi-conductor manufacturing, and quantum computing.  </li> <li>A number of state attorneys general <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-urgently-issues-consumer-alert-23andme-customers">released</a> warnings to consumers regarding the recent Chapter 11 bankruptcy filing by 23andMe, a genetic testing company that stores a vast amount of genetic data subject to various state and federal privacy laws. The <a href="https://www.ag.idaho.gov/newsroom/attorney-general-consumer-alert-genetic-data-stored-by-23andme-may-be-sold-in-bankruptcy-proceeding/">various</a> <a href="https://www.doj.state.or.us/media-home/news-media-releases/attorney-general-rayfield-issues-consumer-alert-regarding-23andme-bankruptcy/">warnings</a> generally advise consumers on how to delete their data from 23andMe’s website, and informs them of their respective States’ privacy protections.</li> <li>A multistate coalition of 19 attorneys general <a href="https://www.mass.gov/news/ag-campbell-leads-multistate-brief-to-defend-temporary-protected-status-for-haitians-and-venezuelans">filed</a> an amicus brief in the U.S. District Court of Massachusetts, supporting the plaintiffs’ challenge to the Trump Administration’s early terminations of Temporary Protected Status (TPS) for Haiti and Venezuela. The <a href="https://www.mass.gov/doc/tps-amicus-brief-0/download">amicus brief</a> urges the court to postpone the terminations while litigation proceeds, arguing that the terminations would irreparably harm the coalition states’ families and economies.</li> <li>A multistate coalition of 23 State attorneys general <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-asks-court-enforce-order-against-trump-administration">sought</a> enforcement of the District Court for the District of Rhode Island’s preliminary injunction ordering the Trump administration to unfreeze Federal Emergency Management Agency funding. Despite the <a href="https://oag.ca.gov/system/files/attachments/press-docs/Order%20granting%20enforce%20TRO.pdf">preliminary injunction</a>, the administration has not yet complied with the order.</li> <li>A multistate coalition of 27 state attorneys general <a href="https://dojmt.gov/attorney-general-knudsen-joins-coalition-defending-president-trumps-efforts-to-deport-foreign-violent-gang-members/">filed</a> an amicus brief supporting President Trump’s invocation of the “Alien Enemies Act” to deport alleged members of the Venezuelan gang Tren de Aragua. The <a href="https://www.texasattorneygeneral.gov/sites/default/files/images/press/TdA%20Trump%20Amicus%20Brief%20Filed.pdf">amicus brief</a> argues that the district court decision halting the Administration’s action “failed to fully weigh the public interest” and warned that the decision would “undermine the security of the States.”</li> <li>A multistate coalition of 16 attorneys general <a href="https://oag.ca.gov/news/press-releases/attorney-general-defends-pathways-legal-immigration-those-fleeing-dangerous">filed</a> an amicus brief in Svitlana Doe, et al., v. Kristi Noem, et al., challenging President Trump’s termination of certain immigration parole processes for immigrants from Afghanistan, Ukraine, Cuba, Haiti, Nicaragua, and Venezuela. The <a href="https://oag.ca.gov/system/files/attachments/press-docs/44-1.%20Proposed%20Amicus.pdf">amicus brief</a> argues that parole pathways for vulnerable immigrants are important to prevent the separation of families and endangerment of parolees, and that immigrants from these countries hold key jobs in state and local workforces.</li> </ul> District of Columbia <ul class="wp-block-list"> <li>District of Columbia Attorney General Brian Schwalb <a href="https://oag.dc.gov/release/attorney-general-schwalb-sues-gopuff-workers">filed</a> a lawsuit against GoBrands, Inc. and GB Logistics, LLC (“Gopuff”) for allegedly violating the District’s Minimum Wage Revision Act (“MWRA”), Wage Payment and Collection Law (“WPCL”), Sick and Safe Leave Act (“SSLA”), Unemployment Compensation Act (“UCA”), Universal Paid Leave Act (“UPLA”), Workers’ Compensation Act (“WCA”), and False Claims Act (“FCA”). The <a href="https://oag.dc.gov/sites/default/files/2025-03/Gopuff_Complaint_032025.pdf">complaint</a> alleges that Gopuff, a food delivery service, unlawfully misclassified delivery workers as independent contractors and thereby gained an unfair advantage over competitors in addition to costing taxpayers by denying employment benefits and relying on District programs. The complaint seeks declaratory and injunctive relief; damages and liquidated damages payable to delivery workers; compensatory and punitive damages payable to delivery workers; statutory penalties for each violation of the MWRA, SSLA, and WPCL; UPLA contributions, interest, and penalties payable to the District; civil penalties for each violation of the WCA payable to the District; treble damages and civil penalties payable to the District for violations of the FCA; and costs and attorneys’ fees.</li> </ul> Florida <ul class="wp-block-list"> <li>Florida Attorney General James Uthmeier <a href="https://www.myfloridalegal.com/newsrelease/attorney-general-james-uthmeier-announces-investigation-glass-lewis-co-and">initiated</a> an investigation into whether proxy advisors Glass Lewis & Co. and Institutional Shareholder Services Inc. (ISS) violated the Florida Deceptive and Unfair Trade Practices Act and the Florida Antitrust Act of 1980. The investigation is based on allegations that Glass Lewis and ISS mislead clients and the public by claiming that their Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) investing policies “were not politically motivated and instead based purely on economic factors.”</li> <li>Florida Attorney General Uthmeier <a href="https://www.myfloridalegal.com/newsrelease/florida-attorney-generals-office-secures-more-4-million-and-lifetime-industry-ban">secured</a> final consent judgments permanently banning five moving brokerage companies from operating in Florida and requiring them to pay $4,139,239 in damages to the State and consumers. The companies mislead consumers by providing low quotes to secure large, up-front deposits from consumers and then outsourcing the work to unvetted subcontractors who demanded additional payment from customers.</li> </ul> Minnesota <ul class="wp-block-list"> <li>Minnesota Attorney General Keith Ellison <a href="https://www.ag.state.mn.us/Office/Communications/2025/03/25_MVRealty.asp">secured</a> a $1,000,000 settlement from MV Realty PBC, LLC, the Minnesota arm of a Florida-based company, regarding hidden oppressive terms in so-called “Homeowner Benefit Agreements” (“HBA”s) in violation of Minnesota contract law. The <a href="https://www.ag.state.mn.us/Office/Communications/2025/docs/MVRealty_ConsentJudgment.pdf">settlement</a> permanently bans MV Realty from doing business in Minnesota, prohibits the company’s main officers from engaging in residential real estate brokerage work in the state for five years, and declares the company’s HBAs null and void.</li> </ul> New Jersey <ul class="wp-block-list"> <li>New Jersey Attorney General Matthew Platkin <a href="https://www.njoag.gov/ag-platkin-and-division-on-civil-rights-announce-finding-of-probable-cause-against-housing-provider-for-discriminatory-minimum-income-requirement/">announced</a> a Finding of Probable Cause against the owner of an apartment complex, Highland Living LLC. The Finding alleges that Highland Living violated the New Jersey Law Against Discrimination by discriminating against Section 8 voucher recipients via its minimum-income requirement.</li> </ul> New York <ul class="wp-block-list"> <li>New York Attorney General James <a href="https://ag.ny.gov/press-release/2025/attorney-general-james-secures-55000-lab-worq-delivering-delayed-covid-test">secured</a> a $55,000 settlement from Lab Worq, LLC, for violating New York Executive Law § 63(12) and New York General Business Law §§ 349 and 350 by advertising that they delivered Covid-19 test results within 24 hours, but actually taking on average over 80 hours. The <a href="https://ag.ny.gov/sites/default/files/settlements-agreements/lab-worq-llc-assurance-of-discontinuance-2025.pdf">settlement</a> requires that Lab Worq cease all such misleading advertising practices.</li> </ul> Ohio <ul class="wp-block-list"> <li>Ohio Attorney General Dave Yost <a href="https://ohioattorneygeneral.gov/Media/News-Releases/March-2025/Yost-Sues-Home-Decor-Retailer-Over-$380K-in-Allege">filed</a> a lawsuit against luxury home décor retailer Burke Décor for allegedly committing unfair or deceptive acts in violation of the Ohio Consumer Sales Practices Act and the Failure to Deliver Rule. The <a href="https://www.ohioattorneygeneral.gov/Files/Briefing-Room/News-Releases/Burke-Decor-Complaint-File-Stamped.aspx">complaint</a> alleges that Burke failed to deliver goods, did not offer full refunds or replacements, and routinely mislead consumers on delivery dates and order statuses. The suit is seeking declaratory and injunctive relief, as well as civil penalties in the amount of $25,000 for each violation, reimbursement to all affected consumers, and court costs.</li> <li>Ohio Attorney General Yost <a href="https://ohioattorneygeneral.gov/Media/News-Releases/March-2025/Yost-Seeks-Lead-Role-in-Investor-Lawsuit-Against-O">filed</a> a motion seeking lead-plaintiff status in a securities class-action lawsuit against Block Inc., a financial tech company that operates Cash App and Square. The <a href="https://www.ohioattorneygeneral.gov/Files/Briefing-Room/News-Releases/2025-3-18-Block-Inc-Complaint.aspx">lawsuit</a>  alleges that Block violated the Securities Exchange Act of 1934 and Rule 10b-5 by misleading investors about widespread compliance failures on Block’s payment that enabled thousands of payments to be made for illegal activity. The suit seeks compensatory damages, attorneys’ fees and costs, and any equitable or injunctive relief deemed appropriate.</li> </ul> Oregon <ul class="wp-block-list"> <li>Oregon Attorney General Dan Reyfield <a href="https://www.doj.state.or.us/media-home/news-media-releases/diversity-equity-inclusion-and-accessibility-deia-guidance-in-education/">issued</a> guidance for educational institutions on education policy and diversity initiatives to clarify recent federal legal developments and provide actionable steps for compliance. The guidance states that educational institutions “can and should continue to promote diversity, equity, inclusion, and accessibility,” and that only certain race-based admissions policies are prohibited. The guidance recommends that schools and colleges review and revise policies, focus on holistic approaches, strengthen community and stakeholder partnerships, provide training, and advocate for equity.</li> </ul> Rhode Island <ul class="wp-block-list"> <li>Rhode Island Attorney General Peter Neronha <a href="https://riag.ri.gov/press-releases/attorney-general-neronha-sues-debt-management-group-charging-illegal-excessive-fees">filed</a> a lawsuit against a debt-management service provider, Michael Moccia and Palisade Legal Group, PLLC (“Palisade”). The suit alleges that Palisade violated the State’s Unfair and Deceptive Trade Practices Act by disguising the business as a law firm, charging illegal and excessive fees, and damaging consumers’ credit scores. The suit is seeking injunctive relief, civil penalties, and fee refunds for affected consumers.</li> </ul> Texas <ul class="wp-block-list"> <li>Texas Attorney General Ken Paxton <a href="https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-sues-coppell-isd-illegally-teaching-woke-and-hateful-critical-race">filed</a> a lawsuit against Coppell Independent School District (“CISD”) alleging that CISD violated Executive Order No. GA-55 and the Education Code. Tex. Edu. Code § 28.0022(a)(4) by instructing students on “critical race theory (CRT) and related topics.” The <a href="https://www.texasattorneygeneral.gov/sites/default/files/images/press/State%20v%20Coppell%20ISD%20Original%20Petition.pdf">filing</a> cites to a social media video uploaded by an undercover journalist from Accuracy in Media, in which CISD’s Director of Curriculum and Instruction is recorded saying that despite state prohibitions on “CRT,” “we’ve gotten around it by saying we’re not teaching it.” The suit seeks injunctive relief prohibiting CISD from teaching, using funds for, or distributing anything related to so-called “CRT.”</li> <li>Texas Attorney General Paxton <a href="https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-issues-cid-part-ongoing-investigation-real-estate-development-tied-east">announced</a> the issuance of a Civil Investigative Demand (CID) to Community Capital Partners, LP regarding its real estate development, EPIC City. The CID is part of a larger investigation into potential violations of Texas consumer protection laws and relates to the company’s affiliation with the East Plano Islamic Center.</li> </ul>
Florida Attorney General Announces Investigation Into Proxy Advisors’ ESG and DEI Policies as Unfair Trade Practices or Antitrust Violations

Thu, 27 Mar 2025 21:53:04 -0000

Florida Attorney General James Uthmeier is investigating two leading proxy advisors’ advice involving the consideration of ESG and DEI to determine if the advice constitutes deceptive or unfair trade practices under FL law or a violation of FL antitrust law. Click here to read the full alert. Continue Reading

Florida Attorney General James Uthmeier is investigating two leading proxy advisors’ advice involving the consideration of ESG and DEI to determine if the advice constitutes deceptive or unfair trade practices under FL law or a violation of FL antitrust law. <a href="https://www.crowell.com/en/insights/client-alerts/florida-attorney-general-announces-investigation-into-proxy-advisors-esg-and-dei-policies-as-unfair-trade-practices-or-antitrust-violations">Click here</a> to read the full alert.
Litigation Minute: Tough to Swallow: Increased State Regulation of and Attention on Contaminants in Food

Thu, 08 May 2025 00:00:00 -0000
What You Need to Know in a Minute or Less

Until recently, state regulators largely deferred to the US Food and Drug Administration (FDA) to scrutinize and regulate contaminants in food, such as heavy metals. In the past several years, however, states have taken an increasingly active role in regulating foods, not only from the standpoint of what can be added to food (e.g., California’s 2023 food additive ban and a broader, more impactful 2025 additive ban in West Virginia) but also from the standpoint of unwanted contaminants in food.

This edition of Litigation Minute discusses some recent state laws and introduced bills that could provide fodder to class action plaintiffs to argue that foods are, for example, labeled in a false or misleading way or unsuitable for their intended use. In a minute or less, here is what you need to know about state laws on contaminants in food.

What Contaminants Are States Targeting?

To provide a sense of the types of laws emerging at the state level on contaminants in food, consider the following examples:
- AB 899 in California and Rudy’s Law in Maryland require baby food companies to test every lot of baby food for heavy metals and publish the results on that testing on their website.
- New York state has proposed action levels for heavy metals in spices of 0.21 parts per million (ppm) lead, 0.26 ppm cadmium, and 0.21 ppm inorganic arsenic.
- Proposed legislation known as LD 130 in Maine would establish maximum levels for perfluoroalkyl and polyfluoroalkyl substances (together, PFAS) in agricultural products.
- According to Safer States, 19 states have passed 43 laws affecting substances used in food-contact materials (e.g., bisphenols, PFAS, ortho-phthalates, polystyrene); many of these laws have the aim of preventing these substances from becoming contaminants in food, as well as include goals that are environmentally focused.
How Did We Get Here?

Many of these state laws have been implemented in response to events like the WanaBana applesauce recall for lead, articles noting concerns regarding heavy metals in food in the popular press (e.g., Consumer Reports), blog postings, and social media activity.

The state laws also seek to fill a perceived void where FDA has not taken action or where its compliance with administrative procedure has led to an arguably slow response. For example, FDA initiated its Closer to Zero initiative in 2021 to identify ways to reduce exposure to heavy metals in food consumed by babies and young children. However, as of 1 May 2025, the only action level to have been finalized was lead in certain baby foods (i.e., fruit and vegetable purees, infant cereal, yogurt). FDA had planned on starting the process of setting action levels of arsenic and cadmium in 2025; however, that was prior to workforce reductions recommended by the current administration. It is not clear whether FDA will move forward on these initiatives in 2025. It is possible that continued lack of action at the FDA level will lead to more state laws in the future.

Many of these new state laws seem to have drawn some inspiration from California’s Safe Drinking Water and Toxic Enforcement Act of 1986, popularly known as Proposition 65. Proposition 65 until now had been a unique right-to-know law requiring that a company warn a consumer before exposing them to one of approximately 1,000 listed carcinogens or reproductive toxicants. However, states are now considering legislation similar to Proposition 65. For example, Missouri is currently considering a bill (HB 260) that would require warnings if certain contaminants (e.g., lead, cadmium) or FDA-approved color additives (e.g., Red 40) are in the product. Similarly, Texas has passed a law (SB 25) requiring warnings when certain ingredients (e.g., bleached flour), food additives (e.g., artificial sweeteners), or color additives are used in foods; the Texas law does not require warnings for contaminants.

Impact of State Laws on Litigation Risk

These state laws present plaintiffs with potential avenues for pursuing litigation. With respect to the AB 899 and Rudy’s Law disclosures for baby food, the publication of heavy metal test information could lead to challenges based on Proposition 65 in California. There are also examples of plaintiffs alleging that the presence of such contaminants conflicts with claims like “natural” or health-related claims. One of the earlier examples of this type of lawsuit was Doss v. General Mills, Inc., No. 19-12714 (11th Cir. May 20, 2020), in which the plaintiff alleged that claims like “packed with nutrients” and “wholesome” on Cheerios were rendered misleading by residues of glyphosate that were in compliance with federal law. Similarly, the New York proposed action limits on heavy metals in spices could be a basis for alleging that any spice exceeding those levels render the spices unsuitable for use in food. Class actions following recalls are fairly common.¹

Takeaways

States’ increased activity in regulating food provides additional fodder for private plaintiffs seeking to challenge the labeling and safety of foods based on the presence of low levels of contaminants. These laws unfortunately give credence to the position that there is cause for concern, even when exposures are very low and present at levels consistent with Current Good Manufacturing Practices (i.e., industry best practices for producing safe and high-quality foods).

The next edition in this Litigation Minute series will focus on examples of class action litigation targeting contaminants, including a recent case trying and failing to allege that chocolate violated various state unfair business practices and similar laws due to the presence of heavy metals.

Our Consumer Product Safety, Healthcare and FDA, and Class Action Litigation Defense practice group teams regularly advise and assist clients in assessing and mitigating risk posed by class action litigation trends in consumer products.

SEC Policy Shift and Recent Corp Fin Updates–Part 3

Thu, 08 May 2025 00:00:00 -0000

Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations. Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.

This is the third part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This installment will review the issuance of Staff Legal Bulletin No. 14M and what the policy changes brought by this new guidance may mean for shareholder proposals and more generally going forward.

Shareholder Proposals: Staff Legal Bulletin No. 14M

On 12 February 2025, the Corp Fin Staff issued Staff Legal Bulletin No. 14M (SLB 14M) addressing shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934 (Exchange Act). SLB 14M rescinds Staff Legal Bulletin No. 14L (which in turn had rescinded Staff Legal Bulletins Nos. 14I, J, and K) and likely presents a significant change in how both the Corp Fin Staff and companies and proponents consider no-action requests and shareholder proposals. It is noteworthy that the Corp Fin Staff issued SLB 14M less than one month after the change in presidential administration, before the appointment of a new SEC chair, and at the height of the review by the Corp Fin Staff of shareholder proposal no-action requests during the current year’s proxy season.

A Brief History

Each year, Corp Fin Staff members review the large number of no-action requests that companies make under Exchange Act Rule 14a-8 in connection with shareholder proposals received for upcoming annual meetings. The Corp Fin Staff reviews each no-action request received and determines whether it finds a basis for the company to exclude the shareholder proposal from its annual meeting proxy statement. Several months after the proxy season has ended (and, prior to the issuance of SLB 14M, never while the Corp Fin Staff was at its busiest reviewing current year no-action requests), the Corp Fin Staff had frequently issued a Staff Legal Bulletin to provide guidance on specific matters that arose during the previous proxy season’s review of no-action requests.

In November 2021, the Corp Fin Staff issued Staff Legal Bulletin No. 14L (SLB 14L), which rescinded the three prior Staff Legal Bulletins issued in connection with shareholder proposals. Those three Staff Legal Bulletins primarily provided guidance on how the ordinary business and economic relevance exceptions would be applied by the Corp Fin Staff in connection with shareholder proposals that raised significant policy issues. SLB 14L changed that guidance framework and took the approach that a shareholder proposal that raised a significant policy issue may not be excluded even if the policy issue was not significant to the company or the applicable business fell below the economic relevance thresholds. SLB 14L was issued in November 2021 when a majority of the SEC commissioners and the SEC generally had a strong focus on environmental, social, and governance (ESG) matters. As discussed below, SLB 14M reversed the guidance in SLB 14L and indicates a policy shift away from ESG-related matters.

SLB 14M

The table below provides a high-level summary of the Corp Fin Staff’s guidance issued in SLB 14M:

Exchange Act Rule	Staff Guidance
Relevance Exclusion - 14a-8(i)(5)	The Corp Fin Staff will focus on a proposal’s significance to the business of the company when the shareholder proposal relates to operations that are less than 5% of its total assets, net earnings, and gross sales. This means that even if a shareholder proposal raises a significant policy issue, it may still be excludable if the proposal, based on the particular circumstances of the company, is not “otherwise significantly related to the company.” To avoid exclusion, a shareholder proposal that raises a significant policy issue must also demonstrate a significant impact on the company’s business.
Management Functions Exclusion - Rule 14a-8(i)(7)	This rule permits the exclusion of shareholder proposals that deal with a company’s ordinary business operations. If a shareholder proposal raises a significant policy issue, such as climate change or human rights, it will no longer necessarily be included in a proxy statement simply due to the significance of the policy issue. Instead, the Corp Fin Staff will evaluate the shareholder proposal considering how the proposal impacts the company’s business operations rather than focusing solely on the significance of the policy issue it raises. Under SLB 14L, the Corp Fin Staff rescinded guidance that it could consider any limit on a company’s or board’s discretion in a shareholder proposal to constitute micromanagement. Under SLB 14M, the Corp Fin Staff returned to guidance in place prior to SLB 14L in which a proposal would be found to constitute micromanagement by probing “too deeply into matters of a complex nature if it ‘involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.’”
Board Analysis - under Rules 14a-8(i)(5) and 14a-8(i)(7)	The Corp Fin Staff will no longer expect a board analysis of the particular policy issue raised by a shareholder proposal and its significance to the company. SLB 14M noted that this is due to the board analysis not having a dispositive effect and frequently not including the information needed for the Corp Fin Staff’s analysis of the no-action request.
Use of Images – Rule 14a-8(d)	Exchange Act Rule 14a-8(d) does not prohibit the inclusion of images or graphs in proposals, but they may be excluded under other portions of Exchange Act Rule 14a-8 if they make the proposal misleading, vague or indefinite, impugn character or make charges concerning conduct, or are irrelevant to consideration of the proposal. If the proposal, including any language in an image or graphic, exceeds 500 words, exclusion would still be appropriate.
Proof of Ownership Letters – Rule 14a-8(b)	The Corp Fin Staff encourages a plain meaning approach to interpreting proof of ownership letters and discourages exclusion based on technical variances. 2020 amendments to the rule do not contemplate a change in how brokers or bankers fulfill their role. They still only need to provide confirmation as to how many shares a proponent held continuously and are not required to calculate share valuation. The rule does not require a company to send a second deficiency note if it previously sent one prior to receiving a deficient proof of ownership.
Use of Email	The Corp Fin Staff recommends that when a sender seeks to prove delivery of an email for purposes of Exchange Act Rule 14a-8, the sender should seek a reply email from the recipient with an acknowledgement. The Corp Fin Staff also recommends that companies and proponents reach out using another method of communication or emailing another contact if available. Screenshots or photos of emails on the sender’s device are not proof of delivery.

Impact of SLB 14M

Even though it was not a surprise that the Corp Fin Staff provided new shareholder proposal guidance, the timing of the issuance of SLB 14M was such that many companies had the opportunity to amend their no-action requests in response to the new guidance while shareholder proponents could not revise their proposals. The significance of the policy shift brought by the issuance of SLB 14M can be seen in a higher number of shareholder proponents withdrawing ESG-related proposals due, at least in part, to a diminished likelihood of a successful outcome with respect to the Corp Fin Staff’s review of the no-action request.

The Corp Fin Staff also found in several no-action requests after the issuance of SLB 14M that a proposal that implicated a significant policy issue sought to micromanage the company. Many of those shareholder proposals requested the company adopt a policy, issue or create a plan, or produce an impact assessment and highlights that shareholder proponents need to be crisper in proposals asking for such an action to be taken by a company. Additionally, the Corp Fin Staff found in a few no-action requests that the company had not explained whether the policy issue implicated by the shareholder proposal was significant to the company and, as a result, could not exclude the proposal from its proxy materials. This highlights the need for companies to make sure all aspects of the new guidance in SLB 14M are addressed in a no-action request.

Conclusion

As there are still many more no-action requests for the Corp Fin Staff to review under this new guidance, there is still more to be gleaned as to how the policy shift ushered in by SLB 14M will play out with respect to shareholder proposals and the overall operations of the Division of Corporation Finance. The timing of the issuance of SLB 14M demonstrates that the Corp Fin Staff will not necessarily keep with tradition when publishing new guidance. This highlights the need for companies to continue to stay on top of the new and revised guidance coming out of the Division of Corporation Finance and the SEC and be ready to respond to both anticipated and unexpected policy shifts.

EPA Announces Upcoming Plans to Address PFAS

Wed, 07 May 2025 00:00:00 -0000
On 28 April 2025, Environmental Protection Agency (EPA) Administrator Lee Zeldin announced the agency’s upcoming plans to address Per- and Polyfluoroalkyl Substances (PFAS). This marks the new administration’s most significant announcement related to PFAS since President Donald Trump returned to office, and EPA indicated there will be “more to come” regarding PFAS.

The planned actions span several EPA programs and are guided by the following stated principles: “strengthening the science, fulfilling statutory obligations and enhancing communication, and building partnerships.”¹EPA plans to designate an agency lead for PFAS to align these efforts across the agency. Some notable planned actions are as follows:
- EPA intends to “address the most significant compliance challenges” related to the national primary drinking water regulations (NPDWR) for PFAS. For more information on the NPDWRs, see our prior alert.
- The agency will also enforce Clean Water Act and Toxic Substances Control Act (TSCA) limitations on PFAS use and release to prevent further contamination.
- EPA plans to implement TSCA section 8(a)(7) to collect “necessary information [on PFAS] ... without overburdening small businesses and article importers.” The TSCA PFAS Reporting Rule has broad reporting requirements, which currently apply to article importers without de minimis exemptions. For a detailed summary of the Rule, which remains unchanged at this time, see our previous alert.
- The agency will work with Congress and industry members to establish a “clear liability framework” for PFAS based on a “polluter pays” model that protects “passive receivers.”
- EPA also plans to develop and release effluent limitations guidelines (ELGs) for “PFAS manufacturers and metal finishers” and consider other ELGs that may be necessary to reduce PFAS discharges.
EPA’s full news release is available here. The agency has not yet provided additional details or a timeline for carrying out these efforts. Our Emerging Contaminants group is tracking PFAS developments as well as developments for other newly regulated contaminants on our Emerging Contaminants web page. The Emerging Contaminants web page is also where you can find a listing of our lawyers able to assist you in navigating these issues.
European Union Adopts 16th Package of Sanctions Against Russia

Wed, 07 May 2025 00:00:00 -0000
In a bid to further increase the pressure on Russia, the Council of the European Union has adopted additional measures which have been introduced in its 16th sanctions package. The new measures amending the framework Council Regulation (EU) 833/2014 are found and included in Council Regulation (EU) 2025/395 (EU’s 16th Package). They target systemically important sectors of the Russian economy, including energy, trade, transport, infrastructure and financial services.

Additional Listings

An additional 48 individuals and 35 entities have been targeted by asset freezes and travel bans. The EU’s 16th Package adds new criteria for listing individuals and entities that are part of support or benefit from Russia’s military-industrial complex. This is in addition to any entities or individuals who are active in sanctions circumvention, maritime or Russian crypto assets exchanges.

Anti-Circumvention Measures

An additional 74 vessels, bringing the total number of listed vessels to 153, have been added. These vessels are part of the shadow fleet or contribute to Russia’s energy revenues.

Trade Measures

Ban on Primary Aluminium Imports

The EU’s 16th Package also adopts further restrictions on the trade of goods and services. An aluminium import ban on EU imports of primary aluminium from Russia has been included. The exception to this is that it includes a “phase-in period” permitting the import of 275,000 tons over a 12-month period.

Export Bans

Export restrictions have been added which target 53 new companies, which include 34 companies outside of Russia and which support Russia’s military-industrial complex.

Dual-use export restrictions have been extended to additional items in order to cut Russia’s access to key technologies, including the following:
- Dual-use chemical precursors to produce chloropicrin and other riot control agents used as chemical weapons by Russia in violation of the Chemical Weapons Convention.
- Software related to computer numerical control machine tools used to manufacture weapons and video game controllers used by the Russian army to pilot drones on the battlefield.
- Chromium ores and compounds due to their military applications.
Additional export restrictions on industrial goods, such as steel products, fireworks and certain minerals and chemicals, have been included.

Energy Measures

The EU’s 16th Package prohibits temporary storage or the placement under free zone procedures of Russian crude oil or petroleum products in EU ports, which was, until now, allowed if the oil complied with the price cap and went to a third country. This prohibition will inflict additional costs on the transport of Russian oil.

The package extends the prohibition to provide goods, technology and services for the completion of Russian liquefied natural gas projects to also crude oil projects in Russia, such as the Vostok oil project.

The package extends the existing software ban to restrict the export, supply or provision of oil and gas exploration software, which includes drilling processes, geological inspections and reservoir calculations, to Russia.

Infrastructure Measures

With immediate effect, a full transaction ban on specific Russian infrastructures—ports and airports which are believed to have been used to transport combat-related goods and technology or to circumvent the oil price cap by transporting Russian crude oil via ships in the shadow fleet—have been included in this latest package as they contribute to Russia’s military efforts.

The restrictions are broadly drafted and will apply to any transactions with relevant ports and airports (as listed in Annex XLVII of the EU’s 16th Package), even if there is no direct transaction with the port authorities themselves.

Transport Measures

One of the most notable changes under Article 5ae of the EU’s 16th Package is the imposition of a full flight ban which provides for the possibility to list any third-country airline operating domestic flights within Russia or supplying, selling, transferring or exporting, directly or indirectly, aircraft or other aviation goods and technology to a Russia air carrier or for flights within Russia.

If listed in Annex XLVI of the EU’s 16th Package, these air carriers, as well as any entity owned or controlled by them, will not be allowed to land in, take off from or fly over EU territory.

The flight ban will not apply to the following:

• In the case of an emergency landing or an emerging overflight.
• If such landing, take-off or overflight is required for humanitarian purposes.

Financial Measures

An additional 13 Russian banks and three non-Russian banks, namely Bank BelVEB, Belgazprombank and VTB Bank (PJSC) Shanghai Branch (due to their use of the system for Transfer of Financial Messages of the Central Bank of Russia), have been either disconnected from the Society for Worldwide Interbank Financial Telecommunication international payment system or subjected to a transaction ban, intensifying financial isolation of Russia.

The European Union has also extended a transaction ban to allow it to target financial institutions and crypto asset providers circumventing the oil price cap so as to further isolate Russia’s financial network.

Measures Against Disinformation

To combat media manipulation and distortion of events, further restrictive measures have been placed on broadcasting activities. Eight additional media outlets, namely EADaily, Fondsk, Lenta, NewsFront, RuBaltic, SouthFront, Strategic Culture Foundation and Krasnaya Zvezda, have had broadcasting suspended because they are under the permanent control of Russian leadership and participate in spreading misinformation and propaganda.

Concluding Remarks

These increased enforcement efforts and highlighted sanctions are not just symbolic but impactful. As the European Union strengthens its sanctions framework and expands enforcement efforts, businesses must proactively assess their compliance strategies to mitigate legal and operational risks.

Our Policy and Regulatory team will continue to monitor sanctions developments and is happy to provide support. Please reach out to the authors if you would like to discuss any of the topics mentioned in this article.
FinCEN's New Reporting Requirements for Nonfinanced Residential Real Estate Transactions

Tue, 06 May 2025 00:00:00 -0000

Effective 1 December 2025, the Financial Crimes Enforcement Network (FinCEN) will implement comprehensive nationwide regulations aimed at increasing transparency and combating money laundering in the United States residential real estate sector. These regulations were set forth in the final rule 89 Fed. Reg. 70258 (Final Rule) published on 29 August 2024, by the US Department of the Treasury.

Historically, the US residential real estate market has been vulnerable to exploitation by illicit actors who purchase residential real estate in nonfinanced (i.e., all-cash) transactions under the veil of legal entities or trusts. Such transactions are an attempt to obscure the illicit actor’s identity and to evade scrutiny from financial institutions that have anti-money laundering and countering the financing of terrorism programs (AML/CFT) and Suspicious Activity Report (SAR) requirements in place. These nonfinanced transactions have allowed criminals to integrate ill-gotten gains into the legitimate economy, posing significant threats to national security and economic integrity.

The Final Rule mandates that certain individuals in real estate closings and settlements report specific information to FinCEN about nonfinanced transfers of residential real estate to legal entities or trusts. The reporting of these transfers is an attempt to curtail the anonymous laundering of illicit proceeds by increasing transparency of nonfinanced purchases of residential real property. The Final Rule applies nationwide and is designed to address transactions that present a high risk for illicit financial activity.

A transaction becomes reportable under the following conditions:

Property Type

The property involved is residential real estate located within the United States. Under the Final Rule, residential real estate means (a) real property containing a structure designed principally for occupancy by one to four families, which includes single-family houses, townhouses, and entire apartment buildings; (b) vacant and unimproved land on which the transferee intends to build a structure designed principally for occupancy by one to four families; (c) a unit designed principally for occupancy by one to four families within a structure (e.g., a condominium); or (d) shares in a cooperative housing corporation. Additionally, a transfer of mixed-use property may be reportable if a portion is considered residential real estate (e.g., a single-family residence located above a commercial enterprise).

Financing

The transfer is nonfinanced, meaning it does not involve a loan or other forms of financing from a financial institution subject to AML/CFT programs and SAR requirements. All-cash transactions and transfers that are financed only by a lender without an obligation to maintain such programs and requirements (e.g., a nonbank private lender) are treated as nonfinanced transfers.

Transferee

The property is transferred to a legal entity or trust, rather than an individual.

Exemptions

The transaction does not fall under any specified exemptions outlined in the Final Rule—such exemptions include transfers associated with an easement, death, divorce, or bankruptcy or that are otherwise supervised by a court in the United Sates, as well as certain no consideration transfers to trusts, transfers to a qualified intermediary for purposes of 1031 Exchanges, and any transfer for which there is no reporting person.

The Final Rule identifies “reporting persons” as individuals responsible for performing specific closing or settlement functions in covered transactions. These individuals are required to submit detailed reports to FinCEN, including information about the parties involved, the property itself, and information concerning payments. To provide flexibility and reduce compliance burdens, the Final Rule incorporates a “cascade” system to determine primary filing responsibility and allows industry professionals to designate compliance duties among themselves. To illustrate this system, the reporting person may be the closing or settlement agent, or if there is no such person then the person listed to prepare the closing or settlement statement for the transfer, or if there is no such person then the person that files the deed or other transferring instrument with the recordation office, and so forth.

There has been legislative and judicial activity aimed at overturning FinCEN’s upcoming rule. On 5 February 2025, Senator Mike Lee introduced Senate Joint Resolution 15 to nullify FinCEN’s rule by expressing congressional disapproval of the Final Rule. Similarly, on 12 February 2025, Representative Andrew S. Clyde introduced House Joint Resolution 55 with the same objective. Additionally, a lawsuit, Flowers Title Companies LLC v. Bessent, has been filed in the US District Court for the Eastern District of Texas with an aim to block the upcoming reporting rule. If legislation is passed by both the House and Senate and signed by the president, or if the aforementioned lawsuit is successful, the rule on anti-money laundering regulations for nonfinanced residential real estate transactions would be rendered without force or effect.

The regulatory development outlined herein represents a significant shift in the US residential real estate sector’s approach to anti-money laundering compliance. Should you have questions regarding the Final Rule, our firm is here to help. For more information, please contact our Real Estate team.
Carbon Quarterly–Volume 11

Tue, 06 May 2025 00:00:00 -0000
Carbon Quarterly is a newsletter covering developments in carbon policy, law, and innovation. No matter your views on climate change policy, there is no avoiding an increasing focus on carbon regulation, resiliency planning, and energy efficiency at nearly every level of government and business. Changes in carbon—and, more broadly, greenhouse gas—policies have the potential to broadly impact our lives and livelihoods. Carbon Quarterly offers a rundown of attention-worthy developments.

IN THIS ISSUE

Carbon Spotlight
- The Oregon Model for Carbon Markets
Carbon Policy
- Ruled Out of Bounds—US House Republicans Seek to Roll Back CFTC Guidance Using the CRA
- Brazil Adopts Regulatory Framework for Offshore Wind
- Carbon Dioxide Pipelines Encounter Legislative Resistance in North Dakota and South Dakota With Differing Outcomes
Carbon Litigation
- Green Banks, Gold Bars, and the Future of Climate Financing
- Fun(d) in the Sun—Climate Change Superfund Laws Challenged in Court
- ESG on the No-Fly List—American Airlines Found Liable in ESG Retirement Plan Investing Case
Carbon Trading and Investment
- United Nations Paris Agreement Crediting Mechanism Makes Progress
- Washington, California, and Québec Continue Work Toward a Carbon Market Linkage Agreement
VIEW CARBON QUARTERLY – VOLUME 11 HERE
Environmental Justice Update

Mon, 05 May 2025 00:00:00 -0000
Federal

In the first few months of the second Trump presidency, the Administration took steps to roll back environmental justice (EJ) considerations in federal decision making. This included a flurry of executive orders (EOs) issued in his first hours and days in office, which effectively rescinded all federal EJ initiatives. A more in-depth review of these EOs can be found here. The Trump Administration followed these EOs by moving to terminate the Environmental Protection Agency’s (EPA) Office of Environmental Justice and External Civil Rights (OEJECR) after placing 160 employees on paid administrative leave at the beginning of February.

On 5 February, the Department of Justice (DOJ) issued a memo implementing EO: Ending Illegal Discrimination and Restoring Merit-Based Opportunity. Specifically, Pam Bondi, the new US Attorney General, stated that by 15 March, each DOJ Department needed to submit a report including the following:
- Confirming the termination, to the maximum extent allowed by law, of all DEI, DEIA, and “environmental justice” programs, offices, and positions;
- Identifying agency or department DEI, DEIA, or “environmental justice” positions, committees, programs, services, activities, budgets, and expenditures in existence on 4 November 2024, and providing an assessment of whether these positions, committees, programs, services, activities, budgets, and expenditures have been misleadingly relabeled in an attempt to preserve their pre-4 November 2024 function;
- Identifying federal grantees who received federal funding to provide or advance DEI, DEIA, or “environmental justice” programs, services, or activities since 20 January 2021; and
- Assessing the operational impact (e.g., of new DEI hires) and the cost of the prior administration’s DEI, DEIA, and “environmental justice” programs and policies.
In response, Senator Alex Padilla (D-CA) and Representative Nanette Diaz Barragan (D-CA) introduced the Empowering and Enforcing Environmental Justice Act, which would “permanently codify the Office of Environment Justice within [DOJ’s] Environment and Natural Resources Division (ENRD).” Meanwhile, the EPA (and the Department of Government Efficiency) announced the cancellation of nine contracts “related to DEI, environmental justice, and more” and the cancellation of an additional 20 grants as “the EPA puts a stop to wasteful DEI and environmental justice programs being funded by taxpayers.”

On 12 March 2025, EPA issued an internal memorandum announcing that it would shut down all EJ offices and officially end other EJ-related initiatives. Leading up to this announcement, the agency had taken down EJ-related tools such as EJScreen, an “open-source mapping and screening tool” that allowed the public to map “EJ Indexes” by combining metrics for environmental burdens with demographic indexes derived from US Census data on poverty and racial demographics.

States

Despite federal efforts to roll back Biden-era EJ initiatives, many states continue to focus on EJ. Importantly, states’ EJ laws will not be immediately impacted by the actions of the Trump administration; instead, it is expected the rollback of EJ at the federal level will likely encourage many states, particularly Democratically controlled states, to more aggressively enact and enforce EJ standards and policies. Below is a highlight of EJ updates on the state level.

Colorado

On 14 January 2025, Colorado announced the launch of its updated screening tool, “Colorado EnviroScreen 2.0.” The new EnviroScreen provides updated quantifiable measurements of combined environmental stressors, taking into account environmental exposures, environmental effects, climate vulnerability, sensitive populations, and demographics. Colorado’s EnviroScreen tool is used in a variety of contexts within the state’s regulatory programs, such as in oil and gas permitting actions. The launch of the updated tool is in tandem with the rollout of Colorado’s new tool known as the Disproportionately Impacted Communities Map, which highlights areas that meet criteria for disproportionately impacted communities, as defined by Colorado law. Permittees must include plans with their application materials that indicate whether the proposed operations are within disproportionately impacted communities, conduct outreach activities to disproportionately impacted communities, and identify potential impacts in the operators’ prepared cumulative impact evaluations for the oil and gas operators’ comprehensive area plans.

On 26 February 2025, the Colorado Department of Public Health and Environment held its final public meeting regarding the proposed Landfill Methane Rule and on 17 April 2025, the Colorado Air Quality Control Commission set a rulemaking hearing for August on the proposed rule.The proposed rule encompasses several modifications to landfill gas emissions requirements, to include earlier installation of gas collection and control systems than what federal requirements currently mandate, the inclusion of aerial monitoring and biofilters, and phasing out open flares. These modifications, in particular the phase out of open flares, are expected to have positive implications for protecting “fenceline” or EJ communities, that may otherwise be disproportionately impacted. However, even if the rule is adopted, its successful implementation remains tenuous, as Colorado was previously selected to receive from the EPA US$23 million in funding for the Air Pollution Control Division’s methane monitoring efforts, a grant that is now uncertain due to the Administration’s recent funding actions.

Illinois

On 24 March 2025, EPA’s OEJECR determined that the Illinois Environmental Protection Agency met its obligations under an Informal Resolution Agreement, dated 14 February 2024, which was issued to resolve allegations that Illinois EPA engaged in racial and national origin discrimination in its permitting process. This dispute arose following Illinois EPA’s approval of a construction permit that would have moved a scrap metal recycling facility from the Lincoln Park neighborhood of Chicago, a primarily white and wealthy area, to a low-income primarily minority community in southeast Chicago. The settlement required Illinois EPA to expand access to public participation across the full permitting lifecycle and affirmatively consider a permit applicant’s history of violations under the Illinois Environmental Protection Act and potentially implement permit restrictions based on same. On 13 January 2025, Illinois EPA notified OECRC that it had fulfilled its final obligations upon publishing a finalized Enhanced Public Participation Plan on its website.

In addition, following a yearslong battle with Illinois environmental public interest groups, the US Army Corps of Engineers recently announced it was rescinding a planned expansion of a toxic waste disposal site on the Southeast Side of Chicago, an overburdened EJ community. The proposed expansion along the Lake Michigan shoreline would have taken in an additional one million cubic yards of contaminated sediment dredged from the Calumet River. Opponents of the expansion said the area is already overburdened with toxic pollution, and they also cited the long-held promise of a lakefront park once the site was decommissioned. Leading up to withdrawing its plans, Illinois EPA sent a letter to the Corps in January stating that the expansion would violate state law, which prohibits construction or expansion of landfills in Cook County.

Maryland

On 7 February 2025, House Delegate Jazz Lewis introduced the CHERISH (Cumulative Harms to Environmental Restoration for Improving our Shared Health) Our Communities Act. The Act creates new permit application requirements for a broad spectrum of permits for “covered projects” issued by the Maryland Department of the Environment (MDE). Among other things, the bill requires a permit applicant for a covered project to submit an environmental impact analysis, and, under specified circumstances, an existing burden report with their permit application. The Act gives MDE authority to reject a permit application if it determines that the proposed project would cause or contribute to an increased potential for adverse environmental and public health impacts within a specified surrounding area. MDE may also grant conditions to a permit to reduce pollution impacts. The bill also expands the applicability of existing public participation requirements to projects identified as having an increased potential for adverse community environmental and public health impacts. Census tracts covered under the CHERISH Act are identified based on the Maryland EJ Screening tool.

New Jersey

Two appeals are pending before the Superior Court of New Jersey, Appellate Division, challenging many aspects of New Jersey’s first of its kind environmental justice rules (EJ Rules) published by the New Jersey Department of Environmental Protection (NJDEP) on 17 April 2023. These EJ Rules seek to implement Governor Murphy’s landmark environmental justice legislation, which was aimed at reducing pollution in historically overburdened communities that the Murphy administration says have been disproportionately impacted by environmental and public health stressors. The appeals challenge the EJ Rules as going beyond the scope of NJDEP’s statutory authority or as otherwise being arbitrary, capricious, and unreasonable. The appeals also challenge the EJ Rules and the Environmental Justice Mapping, Assessment and Protection Tool (EJMAP) on the grounds that they were promulgated in violation of the Administrative Procedure Act. The appeals are currently awaiting the scheduling of oral argument.

On 30 January 2025, the Department updated EJMAP, New Jersey’s tool that maps overburdened communities as defined by the EJ law and environmental and public health stressors impacting those communities. The updates incorporate new overburdened community determinations based on the 2023 American Community Survey and new stressor data made publicly available since the map’s previous release last year. Any permit application submitted on or after 31 January 2025 must use the new Overburdened Community/Adjacent Burden Group (OBC/ABG) and stressor data layers for analysis.

New Mexico

On 17 January 2025, the EPA OEJECR announced an investigation into civil rights violations by the City of Albuquerque, New Mexico in preventing the adoption of a pollutant-reducing rule. As one of the final actions of the Biden Administration, EPA took up a complaint alleging that the city council and county air quality control boards violated procedural state requirements in blocking a rule that would benefit an identified environmental justice community. Though the matter remains pending, it is unclear whether OEJECR will continue to investigate cases opened under the Biden administration or whether the substantial shift in EJ initiatives will impact EPA’s ability to investigate allegations of discrimination.

New York

On 29 January 2025, the New York State Department of Environmental Conservation (NYSDEC) announced the release of proposed amendments to the State Environmental Quality Review Act (SEQRA) regulations, to integrate EJ considerations into environmental reviews. These amendments, mandated by ECL Article 8, build upon what has become known as the Environmental Justice Siting Law (EJSL), signed by Governor Kathy Hochul on 31 December 2022.

EJSL mandates that EJ concerns be considered in environmental permitting decisions and the SEQRA review process. Specifically with respect to SEQRA, the EJSL requires the SEQR process to consider the “effects of any proposed action [subject to a determination of significance] on disadvantaged communities, including whether the action may cause or increase a disproportionate pollution burden on disadvantaged community” when making the determination of significance under SEQR (that is, the SEQR lead agency decision of whether to prepare or cause to be prepared an environmental impact statement). NYSDEC’s proposed regulations implement this requirement. The public comment period on the proposed amendments began on 29 January 2025, and NYSDEC will accept comments until 7 May 2025.

Pennsylvania

The Pennsylvania Department of Environmental Protection (PADEP) is working on a comment-response document for comments received on an Interim Final EJ Policy issued on 16 September 2023. The Interim Final EJ Policy is a significant modification and expansion of the Department’s prior EJ policy published in 2004. The policy impacts how and when major environmental permits are issued in Pennsylvania and also impacts enforcement of environmental laws in EJ areas. Unlike prior iterations of the policy, PADEP will determine whether an area constitutes an EJ area based on a weighted index of both environmental indicators and population characteristics. Permits covered by the policy will be analyzed for impacts to EJ areas and will be required to engage in additional outreach to local communities. Perhaps most interestingly, the Interim Final EJ Policy allows for enhanced civil penalties for violations that occur in EJ areas covered by the policy. PADEP will be using a mapping and screening tool known as “PennEnviroScreen” that identifies EJ communities using 32 environmental, health, and socioeconomic indicators. A more detailed update on the Interim Policy can be found here.

In addition, on 14 January 2025, State Rep. Greg Vitali (D-Delaware) introduced an EJ bill, H.B.109, which would require additional processes for permit applications in EJ areas—including the submittal of a cumulative environmental impact report and a more robust public hearing process—and would empower PADEP to “require additional conditions or mitigation measures” or “deny a permit application in an environmental justice area based on the cumulative environmental impacts.” The bill was most recently referred to the House Committee on Environmental and Natural Resource Protection.

Virginia

On 8 January 2025, Senator Lamont Bagby (D-14) introduced legislation, SB-1254, that would require municipalities with a population above 20,000 and counties above 100,000 to consider incorporating an EJ strategy into their comprehensive plans each time they are under review. EJ became codified in Virginia law in 2020 through the Virginia Environmental Justice Act, which makes it state policy to ensure that environmental justice is “carried out throughout the Commonwealth,” with a focus on low-income communities, communities of color, and especially those near major sources of pollution. A comprehensive plan is a policy document intended to set forth how a locality plans to grow and steer future development. Virginia law has required since 1980 that all local governments develop and adopt a comprehensive plan, and it also stipulates that the plans must be reviewed at least once every five years.

The bill provides that the locality's strategy shall be to identify EJ and fenceline communities within the jurisdiction of the local planning commission and identify objectives and policies to reduce health risks, to promote civic engagement, and to prioritize improvements and programs that address the needs of environmental justice and fenceline communities, as those terms are defined by the bill. The bill passed both the House and Senate but was vetoed on 24 March 2025, the very last day for the Governor to act on legislation from the 2025 General Assembly session.

Conclusion

In light of these recent developments, the Trump Administration’s approach to EJ marks a significant shift from prior federal policies. Businesses, particularly those operating in overburdened communities, should closely monitor policy shifts and enforcement trends at both the federal and state levels. The firm has assembled a task force that is closely watching these developments and is ready to work with clients to understand how these and other changes may impact their businesses.
The Serious Fraud Office's Guidance on How to Best Avoid Prosecution

Mon, 05 May 2025 00:00:00 -0000
The United Kingdom’s Serious Fraud Office (SFO) recently published updated guidance on how corporates can best avoid or reduce the risk of prosecution in cases involving economic crimes such as bribery, fraud and corruption (the Guidance). The Guidance builds upon the draft guidance published for consultation last year and updates the earlier 2019 guidance by setting out the SFO’s position on self-reporting and the meaning of “genuine” co-operation by corporates in order to secure “cooperation credit.” For the first time in this updated Guidance, the SFO has set out clearer time frames in responding to a report within 48 hours and making a decision on opening an investigation within six months of the initial report.

Corporation Credit

The Guidance stipulates that corporates who self-report suspected wrongdoing and fully and “genuinely” co-operate with investigators will receive “cooperation credit” allowing them to negotiate and enter into a Deferred Prosecution Agreement (DPA) in lieu of prosecution, subject to exceptional circumstances. These exceptional circumstances include, but are not limited to, a lack of cooperation and inadequate remedial actions, repeat offending, a violation of terms of a previous DPA agreement and where the alleged criminal conduct is so serious that it would be in the public interest to prosecute.

Under the DPAs, prosecutors will agree to suspend legal proceedings in exchange for the company agreeing to conditions such as fines, compensation payments and corporate compliance programmes.

Why Self-Report?

Prior to the publishing of the Guidance, companies who self-reported to the SFO could still run the risk of a criminal conviction if the SFO decided that a DPA was not appropriate. The updated Guidance further encourages and emphasises the necessity of self-reporting as a mark of a reasonable and reflective organisation, with a legitimate expectation that, where possible, this will result in a DPA. A failure to self-report, or a failure to do so promptly within a reasonable time, could impact the SFO’s assessment of co-operation, thereby threatening the eligibility to negotiate a DPA. What amounts to a reasonable time to self-report will depend on the circumstances and is assessed on a case-by-case basis.

Co-operation

Companies that fully and “genuinely” cooperate with SFO investigations will be eligible to be invited to negotiate a DPA. Co-operation during an investigation means providing assistance to the SFO that goes above and beyond what the law requires. This is case-specific but is likely to include behaviour such as providing access to documents (digital and hard copy) likely to be relevant to the investigation, identifying potential witnesses, identifying persons involved in the alleged misconduct and early engagement with the SFO, amongst other things. A non-exhaustive list is set out in the Guidance here. Examples of cooperation include promptly reporting suspected misconduct; preservation of data; providing information to the SFO in a structured, user-friendly manner; identifying potential witnesses; identifying money flows and briefing the SFO on the background to the issue. A corporate which maintains a valid claim of legal professional privilege (LPP) will not be penalised; however, a waiver of LLP will be a significant co-operative act and would help expedite matters. This may be a significant issue where witness accounts have been taken during any internal investigation prior to the self-report.

The Guidance also sets out what the SFO views as unco-operative. This includes seeking to overload the investigation and tactically delaying it by providing an unnecessarily large amount of material or “forum shopping” by unreasonably reporting offending to another jurisdiction for strategic reasons and thereby seeking to exploit differences between international law enforcement agencies or legal systems.

Internal Investigation and Practical Guidelines on Self-Reporting

The SFO has acknowledged that the Guidance does not specify in sufficient detail what level of investigating the corporate should undertake prior to self-reporting. However, the Guidance does set out a series of core principles. The SFO expects the corporate to follow and adhere to the below self-reporting procedures and expectations as soon as the corporate learns of direct evidence indicating corporate offending:
1. Report directly to the Intelligence Division, which includes a legal team, headed by a senior lawyer, who will manage the initial engagement with the corporate and their legal representatives. The initial contact can be made through a secure reporting form (found here). This reporting form allows the firms or their legal representatives to discuss the reporting process with an Intelligence Division representative before making a portal submission.
2. The self-report should identify all relevant known facts and preserve all evidence concerning:
  
  The suspected offences;
  
  The individuals involved (both inside and outside the organisation);
  
  The relevant jurisdiction;
  
  The whereabouts of key material and any risk associated with the destruction of said material;
  
  Any previous relevant corporate criminal conduct and how it was remediated; and
  
  If digital material is provided, the corporate should agree with the SFO on the correct digital format for such material to be received.
It is important that corporates present a thorough analysis of any and all compliance programmes and procedures in place at the time of the offending, as well as what remedial action has been taken or planned. Information that may not be available immediately during the time of the initial self-report should be provided as soon as possible thereafter to indicate full cooperation.

Self-reporting through a suspicious activity report to the National Crime Agency or to any other agency (domestic or foreign) does not equate to self-reporting to the SFO unless done so simultaneously or after self-reporting to the SFO.

Clearer Deadlines

The Guidance also makes transparent the SFO’s responsibility when receiving a secure reporting form. In return for self-reporting, a company can expect the Intelligence Division to do the following:
- Personally establish contact within 48-hours of the report or other initial contact with the Intelligence Division.
- Provide regular updates to the corporate on the status.
- Provide a decision as to whether to open an investigation within six months of a self-report.
- Conclude the investigation within a reasonably prompt time frame. The length of the investigation will depend on the complexity and level of proactive cooperation.
- Conclude DPA negotiations within six months of sending an invite.
Conclusion

This Guidance makes the SFO position clearer: The best way for corporates to avoid prosecution is through prevention, transparency, and accountability by proactively self-reporting misconduct. In return, the SFO has committed to more timely deadlines on the decision to investigate and concluding DPA negotiations, once initiated. That sharpens the timescales involved at the start and the end of the process. But what of the investigation process? The length of any SFO investigation may still take some considerable time to conclude, depending on the complexity involved.

If you have any questions on the Guidance or want further advice on whether self-reporting is in your best interest, please do not hesitate to contact the authors of this alert.
What a Relief! Co-Investments Get Easier for Interval Funds, Tender Offer Funds, and Business Development Companies

Fri, 02 May 2025 00:00:00 -0000
The US Securities and Exchange Commission (SEC) has approved a streamlined framework for co-investments involving certain closed-end funds and business development companies (together, Regulated Funds).¹This updated approach offers a more practical path for advisers managing both private funds and Regulated Funds, easing compliance burdens—particularly for boards of trustees or directors (each, a Board and collectively, Boards)—compared to the prior co-investment framework.

While the new framework does not address every challenge associated with co-investments by Regulated Funds, it represents a significant and welcome development. The relief has been well received across the industry,²and funds operating under existing co-investment orders should consider submitting amendments to align with the updated relief.

Background

The new co-investment framework is outlined in an exemptive application submitted by FS Credit Opportunities Corp. et al. (FS), seeking an order to permit certain joint transactions among affiliated FS funds.³On 3 April 2025, the SEC issued a notice of its intent to grant the requested relief, which includes streamlined terms and conditions relative to prior co-investment orders. The SEC formally granted the order on 29 April 2025.⁴

Key Changes

As noted above, the new conditions provide for significant flexibility in connection with co-investments. Among others, some of the key changes of the relief are as follows:

Streamlined Co-Investment Transaction Procedures

Pre-Existing Investments in an Issuer No Longer Outright Prohibited

Under the prior co-investment framework, Regulated Funds and their affiliates were prohibited from participating in an initial co-investment transaction if an affiliate already held a security of the same issuer.
- Under the new co-investment framework, a Regulated Fund may now participate in such a transaction where an affiliate already holds an investment in the same issuer, provided the Required Majority⁵of the Board approves the investment and makes specified findings regarding the transaction. In addition, Regulated Funds may acquire securities of issuers in which affiliates already hold interests—without Required Majority approval—if the Regulated Fund already holds the same security and all affiliated entities invest on a pro rata basis.
Reduction in Frequency of Board Approvals

Previously, a Regulated Fund’s Board was required to approve: (i) each new co-investment transaction; and (ii) any follow-on investments or dispositions, unless the transaction was allocated on a pro rata basis or involved only tradable securities.
- Under the new co-investment framework, Board approval is required only when an affiliate of a Regulated Fund has an existing investment in the issuer and either: (i) the Regulated Fund does not already hold an investment in that issuer; or (ii) the Regulated Fund and its affiliates are not participating in the transaction on a pro rata basis relative to their existing holdings.
Elimination of “Board-Established Criteria” and Reduced Board Reporting Requirements

Board-Established Criteria

Under the prior co-investment framework, investment advisers were required to offer all potential co-investment opportunities that aligned with a Regulated Fund’s investment objectives and any objective, “board-established criteria.”
- The new co-investment framework eliminates this specific requirement. Instead, investment advisers may allocate co-investment opportunities to Regulated Funds based on their fiduciary duty and in accordance with their allocation policies. A Regulated Fund may participate in such transactions so long as the Board—including a Required Majority—has reviewed and approved the fund’s co-investment policies and procedures.
Streamlined Reporting

Under the previous co-investment framework, advisers were required to submit detailed, transaction-specific quarterly reports. These reports included information on co-investment opportunities not offered to the Regulated Fund, follow-on investments and dispositions by affiliated entities, and any declined or missed opportunities.
- The new framework significantly reduces the reporting burden on advisers and chief compliance officers (CCOs). Advisers will now only need to provide periodic reports to the Regulated Fund’s Board, in the form requested by the Board, along with a summary of any significant issues related to compliance with the relief. Additionally, the CCO will deliver an annual report to the Board outlining the Regulated Fund’s participation in the co-investment program, affiliated entities’ participation, and any material changes to the investment adviser’s co-investment policies. The CCO will also be required to notify the Board of any compliance issues related to the relief.
Expanded Flexibility for Joint Ventures, Sub-Advised Regulated Funds, and 3(c) Funds

Joint Ventures

The new co-investment framework expands eligibility for participation in co-investment transactions by including joint venture subsidiaries (i.e., an unconsolidated joint venture subsidiary of a Regulated Fund, in which all portfolio decisions, and generally all other decisions in respect of such joint venture, must be approved by an investment committee consisting of representatives of the Regulated Fund and the unaffiliated joint venture partner, with approval from a representative of each required) of a Regulated Fund, formed with an unaffiliated joint venture partner. Previous co-investment relief generally did not allow such joint venture subsidiaries to participate in negotiated co-investments in reliance on the exemptive relief.

Sub-Advised Funds

Sub-advised Regulated Funds, where the primary adviser and sub-adviser are unaffiliated, can now participate in co-investment transactions. Previously, most exemptive orders did not allow these types of entities to participate in such co-investment transactions. A Regulated Fund may rely on the relief obtained by its adviser to co-invest with adviser affiliates, as well as the relief obtained by the applicable sub-adviser to invest with sub-adviser affiliates, by indicating to the Board which relief the Regulated Fund is relying on.

Broader Range of Affiliated Private Funds

The new framework extends to a broader array of affiliated private funds, permitting any entity that would be considered an investment company but for Section 3(c) of the Investment Company Act of 1940, as amended (the 1940 Act) or Rule 3a-7 thereunder to rely on the relief, provided it is advised by an adviser affiliated with the applicant. Previously, exemptive orders were generally limited to entities relying on Section 3(c)(1), 3(c)(7), or 3(c)(5)(C). Additionally, insurance company general accounts are now treated as private funds.

Takeaways for Sponsors of Interval Funds, Tender Offer Funds and Business Development Companies

Simplified Governance

The new co-investment framework adopts a more practical approach by eliminating the requirement for Board approval for nearly every investment. This change significantly reduces the governance burden, allowing Boards to focus on strategic oversight rather than routine transaction approvals. By streamlining the approval process, advisers can make investment decisions more efficiently, minimizing delays and administrative overhead.

Clearer Roles

The updates provide greater clarity regarding the respective roles of the adviser and the Board in investment decisions. This clearer delineation of responsibilities enhances governance and ensures smoother operations. More specifically, the new relief does not require that a Regulated Fund’s Board be presented with all relevant co-investment transactions that were not made available to the Regulated Fund and an explanation of why such investment opportunities were not made available. Instead, the Regulated Fund’s Board simply must (i) review the adviser’s co-investment policies to ensure they are reasonably designed to prevent the Regulated Fund from being disadvantaged by participation in the co-investment program and (ii) approve policies and procedures that are reasonably designed to ensure compliance with the terms of the new relief.

Expanded Investment Opportunities

Regulated Funds can now participate in a broader range of investment opportunities, even if an affiliate already holds an investment in the same issuer where the Regulated Fund has not previously participated. The ability to engage in follow-on investments without requiring stringent Board approval further enhances the flexibility and appeal of co-investment opportunities, broadening access to private markets for retail investors.

Efficient Allocation

The new framework eliminates cumbersome requirements for special allocation determinations, placing the allocation process squarely within the adviser’s fiduciary responsibility.

The New Co-Investment Framework Facilitates Private Fund to Regulated Fund Conversions

The updated co-investment framework removes the “pre-boarded assets” distinction, facilitating the conversion of private funds to Regulated Funds. This change reduces the burden on converted assets, lowers associated costs, and eliminates the need for independent counsel with respect to these pre-boarded assets, further alleviating financial and administrative burdens.

If you have any questions on co-investments or want further advice on taking advantage of the new relief, please do not hesitate to contact the authors listed in this alert.
New Jersey's Attorney General and Division on Civil Rights Starts 2025 With Guidance on AI Use in Hiring

Thu, 01 May 2025 00:00:00 -0000
On 9 January 2025, New Jersey Attorney General Matthew J. Platkin and the New Jersey Division on Civil Rights (DCR) announced the launch of a Civil Rights and Technology Initiative (the Initiative) “to address the risks of discrimination and bias-based harassment stemming from the use of artificial intelligence (AI) and other advanced technologies.” As part of the Initiative, the DCR issued a guidance about how the New Jersey Law Against Discrimination (LAD) applies to discrimination resulting from the use of artificial intelligence (the Guidance).¹The Guidance addresses the use of AI in several contexts but is particularly relevant for employers who use AI to help screen applicants and assess employee performance.

Overview

Algorithmic Discrimination

The Guidance explains that New Jersey’s long-standing LAD applies to “algorithmic discrimination,” meaning discrimination resulting from an employer’s use of AI or other automated decision-making tools, in the same way it applies to other discriminatory conduct. Indeed, even if the employer did not develop the AI tool and is not aware of the tool’s algorithmic discrimination, the employer can still be liable for the discrimination that results from the employer’s use of the tool under the LAD. Therefore, employers must carefully consider how they use AI to avoid potential liability for algorithmic discrimination.

Disparate Treatment and Disparate Impact Discrimination

The Guidance gives several examples of algorithmic discrimination. It notes that AI tools can engage in disparate treatment discrimination if they are designed or used to treat members of a protected class differently. Relatedly, an entity could be liable for disparate treatment discrimination if it selectively uses AI only to assess members of a particular class, such as screening only Black prospective applicants with AI but not applicants of other races. Moreover, even if an AI tool is not used selectively and does not directly consider a protected characteristic, it may impermissibly “make recommendations based on a close proxy for a protected characteristic,” such as race or sex.

AI tools can also engage in disparate impact discrimination in violation of the LAD if their facially nondiscriminatory criteria have a disproportionate negative effect on members of a protected class. The Guidance gives the example of a company using AI to assess contract bids that disproportionately screens out bids from women-owned businesses.

Reasonable Accommodations

The Guidance also cautions that an employer’s use of AI tools may violate the LAD if they “preclude or impede the provision of reasonable accommodations.” For example, when used in hiring, AI “may disproportionately exclude applicants who could perform the job with a reasonable accommodation.” And if an employer uses AI to track its employees’ productivity and break time, it may “disproportionately flag for discipline employees who are allowed additional break time to accommodate a disability.”

Liability

Notably, the Guidance takes a broad view of who can be held liable for algorithmic discrimination. Like other AI-related guidance and laws, under the LAD, employers cannot shift liability to their AI vendors or external developers. This is the case even if the entity does not know the inner workings of the tool or understand how it works.

Best Practices

To decrease the risk of liability under the LAD, employers should take certain steps to ensure the AI tools they are using to make or inform employment decisions are not engaging in algorithmic bias or otherwise violating the LAD. These steps include:
1. Creating an AI group responsible for overseeing the implementation of the AI tools that is comprised of a cross-section of the organization, such as members of the legal, human resources, privacy, communications, and IT departments.
2. Implementing AI-related policies and procedures.
3. Conducting training on the AI tools and algorithmic bias and only allowing employees who have completed the training to use the AI tools.
4. Thoroughly vetting AI vendors and tools.
5. Securing appropriate contract provisions from the AI vendors that (A) the vendor’s tools comply with all applicable laws, including, without limitation, all labor and employment laws; (B) the vendor will provide to the employer any and all information reasonably requested by employer to understand the algorithms behind the tool and how such tool complies with all applicable laws to ensure the tool is not a “black box”; (C) possibly require a third party acceptable to the employer to audit the tool for such compliance on an annual basis with costs to be shared in some agreeable way; and (D) provide full indemnification to the employer for any breach of the provisions backed by required liability insurance policies.
6. Swiftly addressing any issues identified in the audits or tests.
7. Reviewing any employment practices liability insurance or other applicable insurance policies to see if coverage is available.
8. Ensuring there is still a human element to any decision-making involving an AI tool.
Our Labor, Employment, and Workplace Safety lawyers regularly counsel clients on a wide variety of concerns related to emerging issues in labor, employment, and workplace safety law and are well-positioned to provide guidance and assistance to clients on AI developments.
NFA Proposes Guidance on Diligent Supervision of Associated Persons

Thu, 01 May 2025 00:00:00 -0000
UPDATE: On 1 May 2025, NFA withdrew Interpretive Notice 9083. The guidance remains available on NFA’s website for industry participants’ review.

On 21 April 2025, the National Futures Association (NFA) submitted to the US Commodity Futures Trading Commission (CFTC) a proposed interpretive notice entitled Compliance Rules 2-9(a) and (d), 2-36(e) and 2-51(d): Member Supervisory Obligations for Associated Persons (the Notice), which provides specific guidance and minimum standards related to NFA members’ duty to diligently supervise their Associated Persons (APs).¹The Notice, which affects NFA Compliance Rules 2-9(a) and (d), 2-36(e), and 2-51(d), provides NFA members with the necessary elements of an effective supervision program to oversee APs.²The Notice serves as a reminder of the importance of diligent supervision throughout the derivatives industry. The Notice could become effective as early as 1 May 2025. Generally, NFA issues a subsequent notice with a specific effective date. NFA members should monitor for this announcement.

In this client alert, we describe the Notice and also describe guidance from the CFTC and from CFTC-registered designated contract markets (DCMs or exchanges) concerning their duty to diligently supervise.

NFA’s Requirement of Diligent Supervision

Background: Overview of NFA Members’ Supervision Obligations Under Rule 2-9

Pursuant to NFA Compliance Rule 2-9, NFA members (i.e., futures commission merchants (FCMs), introducing brokers (IBs), commodity trading advisors (CTAs), commodity pool operators (CPOs), swap dealers, major swap participants, and their APs) must diligently supervise all aspects of their employees’ and agents’ commodity interest or swap activities.³Generally, supervision is the oversight of persons who trade in futures or other commodity interests to ensure that their trading activities are compliant with applicable rules and regulations.⁴

The failure to maintain a sufficient supervisory program may have severe consequences. Settlements between the NFA and NFA members charged with violating NFA Compliance Rule 2-9 have included fines ranging from US$10,000 to US$1 million, depending on the severity of the supervisory failures and the nature of the other charged violations.⁵Other settlements arising from alleged violations of NFA Compliance Rules, including NFA Compliance Rule 2-9, have included bans from NFA registration that range from two years to permanent.

The Notice’s New Minimum Standards for Supervisory Frameworks

The Notice sets forth in detail NFA’s expectations for the minimum standards of NFA members’ written policies and procedures governing supervision (Supervisory Framework). The Notice explains that NFA will continue to provide flexibility to NFA members since no program is one-size-fits-all.⁷Although an NFA member has flexibility to develop and implement supervisory policies and procedures tailored to its particular business and risks, the minimum components detailed in the Notice are requirements for an NFA member’s Supervisory Framework.⁸Failure to implement the minimum standards set forth in the Notice may be deemed a violation of NFA Compliance Rules.⁹

The Notice requires NFA members to have a written Supervisory Framework and to assess the Supervisory Framework to confirm that it is tailored to mitigate risks on an ongoing basis. The Supervisory Framework applies to an NFA member’s activities related to commodity interests and digital asset commodities (i.e., Bitcoin and Ether), regardless of where an AP is located. That said, different measures may be needed for APs that work remotely. The Supervisory Framework should address whether a third-party service provider assists in the NFA member’s supervisory obligations. In addition, the Supervisory Framework should identify areas within the firm that are responsible for each AP supervisory function, along with the person (by title or role) that is responsible for performing each such function. In the Notice, NFA goes on to provide that the Supervisory Framework must incorporate due diligence procedures to ensure that APs are qualified and address the NFA member’s training obligations.

For each AP activity, the Supervisory Framework must identify:
1. The specific procedures used to identify potential areas of noncompliance;
2. Procedures for escalation and resolution of noncompliance matters;
3. The frequency with which tasks in the Supervisory Framework are performed; and
4. Recordkeeping policies that evidence that the Supervisory Framework was implemented, assessed, and appropriately tailored to the risks of the firm.
The Supervisory Framework must address recordkeeping of oral and written communications. For example, along with the requirement that NFA members capture and retain pre-trade communications, the Notice specifies that the written policies and procedures should specify what communication methods are approved for an AP’s use, how the firm will retain the communications, and how the firm will prohibit communication methods that are not captured and retained.¹⁰

The Notice also highlights certain ongoing practices that NFA members should undertake to ensure compliance with the minimum standards. With regard to monitoring AP’s trading activities, for instance, an NFA member’s supervisory framework should include measures to review daily trade reports, monitor post-trade activities, and compare trading results among an AP’s customers, along with other measures, to identify potential trading misconduct and market abuses.¹¹

Other Interpretive Notices Affected by the Notice

The Notice also affects other interpretive notices. NFA has proposed to update Interpretive Notice 9019, Supervision of Branch Offices and Guaranteed IBs, to align those supervisory requirements with those included in the Notice and extend these requirements to members’ digital asset commodity activities.¹²The changes to Interpretive Notice 9037, Guidance on the Use and Supervision of Websites and Social Media, streamline supervisory requirements related to websites and social media.¹³Finally, the NFA made changes to Interpretive Notice 9053, Forex Transactions, by referring to the Notice and specifying that an adequate supervision program includes day-to-day monitoring of the firm’s operations.¹⁴

Duty of Diligent Supervision in the Derivatives Industry

The concept of “diligent supervision”—a cornerstone of customer protection—requires the creation and implementation of a compliance program that is reasonably appropriate for the business of the registrant, member, or trader.¹⁵In addition to the NFA, the CFTC and DCMs impose a duty to diligently supervise on CFTC registrants and all other market participants, respectively.¹⁶In light of the Notice, a refresher on market participants’ supervisory obligations may be instructive.

CFTC Registrants’ Duty to Diligently Supervise

The CFTC requires its registrants—which generally are also NFA members—to diligently supervise the handling of commodity interest accounts “carried, operated, advised or introduced by the registrant” and all activities relating to the registrant’s business by its partners, officers, employees, and agents.¹⁷

A violation of CFTC Regulation 166.3, which applies to all CFTC registrants except APs with no supervisory duties, is demonstrated by showing either that (1) the registrant’s supervisory system was generally inadequate, or (2) the registrant failed to perform its supervisory duties diligently.¹⁸A supervisory system’s adequacy depends on the facts and circumstances of the registrant’s activities.¹⁹The CFTC generally alleges that that supervisory systems are inadequate when there is a lack of written policies and procedures, a failure to provide adequate training on a registrant’s trading activities, or a failure to ensure that agents and employees follow the established procedures (or all of the above).²⁰

It is important to note that, according to the CFTC, a violation of Regulation 166.3 may be found even in the absence of an underlying violation of the Commodity Exchange Act (CEA) or CFTC regulations. Based on past CFTC enforcement actions, orders, and settlements, supervisory failures could be found if a registrant does not adhere to its internally developed policies and procedures.²¹For example, the CFTC filed and simultaneously settled a case where the CFTC alleged that an FCM did not ensure that its employees and agents followed written procedures in its compliance manual.²²The FCM, without admitting or denying the charge, settled the stand-alone failure-to-supervise claim for US$200,000.²³

Futures Exchange Approaches to the Duty to Diligently Supervise

As CFTC-registered DCMs, ICE Futures U.S., Inc. (ICE) and the four CME Group exchanges (CBOT, CME, COMEX, and NYMEX) (collectively, CME) are required by the CEA to establish, monitor, and enforce compliance with rules designed to prohibit abusive trading practices.²⁴Parties that trade on ICE or CME, and those that benefit from such trading, are deemed to agree to being bound by exchange rules, including those requiring diligent supervision of employees and agents.²⁵Put simply, any person who executes a trade, or even places a bid or offer, on the exchanges is deemed to consent to exchange jurisdiction.

ICE and CME have similar expectations for traders’ supervision programs.²⁶The disciplinary actions described below provide details and context about traders’ conduct that led to alleged violations of the exchanges’ rules related to diligent supervision.

Trading firms’ supervisory systems, policies, and procedures need to suit the trading activities of the trading firm.²⁷For example, if a firm engages in block trading subject to ICE’s rules, the firm must implement policies designed to address block trading or risk a disciplinary action related to a violation of ICE Rule 4.01(b).²⁸Failure to supervise charges may be brought against individuals and, thus, not only against firms. CME brought a disciplinary action against a trader who failed to diligently supervise his employee, because appropriate policies and procedures were not in place prohibiting frontrunning.²⁹

ICE and CME require that traders regularly monitor their employees and agents for compliance with their rules.³⁰Both exchanges consider fully and semi-automated trading systems (each, an ATS) to be agents of firms trading on their exchanges and, thus, subject to such firms’ supervisory obligations.³¹For example, ICE charged a trading firm with violating ICE Rule 4.01 after it allegedly deployed an ATS on ICE without adequately testing the ATS, resulting in the ATS entering orders at prices far from the prevailing bid or offer and without intent to execute bona fide transactions.³²Similarly, when a trader on CME used an ATS without monitoring it (which resulted in disruptive price movements in certain futures markets), CME charged him with a violation of CME Rule 432.W (i.e., making it an offense to fail to supervise).³³

The duty of diligent supervision on these exchanges includes the duty to take corrective action to address noncompliance and deficiencies in its supervision program.³⁴In one disciplinary action, a trading firm allegedly violated ICE Rule 4.01 when it redeployed a malfunctioning ATS that previously disrupted crude oil markets, even though the firm had knowledge that the ATS was not updated to prevent future disruptions.³⁵As another example, a trading firm allegedly violated CME Rule 432.W when its employees failed to detect account changes and trade transfers between customer accounts—despite customer complaints putting the trading firm on notice of these changes and transfers—thus allowing brokers to allocate gains to accounts they controlled and avoid losses in those same accounts for years.³⁶

Each exchange has also exercised its disciplinary authority in idiosyncratic ways that traders should be aware of. The disciplinary actions described below show circumstances that led to alleged violations of supervisory duties.

ICE has brought a disciplinary action on a stand-alone failure-to-supervise claim, similar to how the CFTC has brought claims based on stand-alone violations of CFTC Regulation 166.3.³⁷ICE may pursue failure-to-supervise charges even if it may believe that it cannot prove that other violations occurred.³⁸CME Rule 433 establishes strict liability for employers and individuals, making them liable for the acts of their employees, even if the employers themselves are not negligent.³⁹In one disciplinary action, CME charged a trader with a violation of CME Rule 433, and not CME Rule 432.W (i.e., CME’s supervisory obligation), because his employee, on multiple occasions, used credentials assigned to the employer to engage in allegedly disruptive trading.⁴⁰This CME case is unusual because it charged an individual instead of a firm with failing to diligently supervise an employee.

Conclusion

Robust compliance is good for business. It helps protect the firm, its employees, and its customers. It minimizes the risk of enforcement actions and private litigation. NFA members should review the guidance and minimum standards contained in the Notice and the revisions to Interpretive Notices 9019, 9037, and 9053 to ensure their supervisory program satisfies the minimum standards. NFA members should also remember that their duty to diligently supervise is ongoing: An adequate supervisory program requires routine assessment of the supervision framework to ensure it is appropriate to mitigate risks specific to the firm’s business.

The publication of the Notice is also a good opportunity for all derivatives market participants—not just NFA members—to review their policies and procedures and consider whether their supervisory programs align with their trading activities and satisfy regulatory requirements.
Trump Administration Dials Up Deregulation

Wed, 30 Apr 2025 00:00:00 -0000

President Donald Trump has made reducing the size and scope of the federal government a central part of his second-term agenda. Toward that end, in recent days the Trump administration has taken aggressive steps toward rescinding federal regulations it deemed unnecessary, unlawful, unduly burdensome, or unsound. As discussed below, these steps will present opportunities for some, costs for others, and will test the bounds of the President’s authority to control and direct the administrative state.

Decisions to deregulate will disparately affect stakeholders. For some, deregulation will be a welcome reprieve from unfavorable rules. For others, however, the loss of regulations will cast considerable uncertainty over significant investment and business decisions. Reflecting the Administration’s objective to deregulate, executive orders and other actions include multiple options for the public to identify regulations that should be rescinded or replaced but no comparable options to identify regulations that should be retained. The Administration’s pronouncements also suggest that it will pursue multiple paths for deregulation, including some without direct public input.

The process to deregulate will vary, depending on the issue and the agency. In some situations, it appears that typical Administrative Procedure Act (APA) notice-and-comment procedures will be followed, which take more time and solicit public input, both to oppose regulations and to offer support, depending on the interest of the stakeholder. But in other situations, it appears that the decision to rescind some rules may be made quickly and without notice. In all cases, no matter the issue or the agency, it will be important to remain vigilant over the coming weeks and months to monitor the fate of regulations important to you and your business. Against the backdrop of the President’s promise to shrink federal bureaucracy, the Administration has taken several steps to significantly reduce the regulatory footprint.

A Chronology of the Developing Deregulatory Agenda

Unleashing Prosperity Through Deregulation, Executive Order 14192, 31 January 2025

Orders that 10 existing regulations be eliminated for each new regulation. For purposes of this executive order, the term “regulation” or “rule” may include subregulatory guidance.

Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, Executive Order 14219, 19 February 2025

Orders agency heads to report within 60 days regulations under their jurisdiction that they deem are unlawful, unconstitutional, not the best interpretation of the statute, harmful to the national interest, unduly burdensome to small businesses, or that meet similar criteria.

Directing the Repeal of Unlawful Regulations, White House Memorandum, 9 April 2025

Further implements Executive Order 14219 to direct agency heads to prioritize regulations that violate a series of Supreme Court cases, including Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), West Virginia v. EPA, 597 U.S. 697 (2022), and eight others. Authorizes agency heads to rescind regulations without notice and comment, where doing so is consistent with the “good cause” exception in the APA. The good cause exception applies when the APA notice-and-comment process would be “impracticable, unnecessary, or contrary to the public interest.”

Zero-Based Regulatory Budgeting to Unleash American Energy, Executive Order 14270, 9 April 2025

Directs 10 energy and environment-focused federal agencies to incorporate a one-year sunset provision into existing covered regulations governing energy production by 30 September 2025 and a five-year sunset provision into new covered regulations.

Request for Information: Deregulation; Office of Management and Budget, 11 April 2025

Requests public comment on regulations that are unnecessary, unlawful, unduly burdensome, or unsound, with an emphasis on regulations that are inconsistent with statutory text or the Constitution, where burdens exceed benefits, or meet other criteria. Comments are due on 12 May 2025.

Deregulation Suggestions; General Services Administration Adds New Page to regulations.gov/deregulation

A template format requesting public input on ideas for cutting existing rules or regulations. Requests the background of the regulation and an explanation of why it should be rescinded.

Public Recommendations Invited on Items to be Included on the 2025-2026 Priority Guidance Plan; Internal Revenue Service (IRS) Notice 2025-19

Requests public input on regulatory projects to be prioritized by the IRS, focusing on regulations meeting the criteria of Executive Order 14219.

A Menu of Mechanisms to Rescind Regulations

Historically, traditional APA notice-and-comment rulemaking has provided the primary means of issuing and rescinding regulations. However, the actions outlined above indicate that the Trump Administration will be looking to use a much broader toolkit to effectuate its deregulatory agenda, including interim final rules, direct final rules, and enforcement discretion. These other mechanisms involve varying levels of public participation. For example, the Administration issued an interim final rule to rescind all of the Council on Environmental Quality’s implementing regulations for the National Environmental Policy Act, enabling the rescission to go into effect while allowing notice and comment after the fact to potentially inform a final rule.¹On the other hand, the Administration has also invoked the APA’s “good cause” exception as a basis for issuing direct final rules with no notice and comment, including where the President himself has—more controversially—simply ordered the repeal.²Beyond these formal mechanisms, the Administration has pressed enforcement discretion as a means of effective repeal, including through conditional sunset provisions and categorically ceasing investigative and enforcement efforts under certain regulations.³

Although unanswered questions remain about specific processes and procedures, as well as the timeline to deregulate, the recent deregulatory measures demonstrate the magnitude and the direction of Trump administration efforts to reduce the regulatory footprint. Stakeholders who want certain regulations to be repealed should seriously consider availing themselves of the opportunity to provide suggestions given the 10-1 ratio of rescissions to new rules. Likewise, stakeholders with an interest in keeping regulations in place should utilize opportunities arising from the APA notice-and-comment process to provide that input. Now is not the time to sit on the sidelines.

The firm's Policy and Regulatory team is closely monitoring updates in this area and stand ready to help you navigate the rapidly changing regulatory environment.
REBO Quarterly: Volume 2

Wed, 30 Apr 2025 00:00:00 -0000
REBO Quarterly is a newsletter showcasing legislative priorities, industry shifts, and new restrictions governing real estate and beneficial ownership at both state and federal levels in the United States. It examines bills that were introduced and successfully enacted by state legislatures, as well as ongoing bills and decisions extending into the future, so real estate owners and operators can stay informed.

In This Issue

In this second edition of REBO Quarterly, we highlight the legislative trends, industry shifts, and new restrictions governing the 2025 beneficial ownership legislative landscape, including a summary of the hundreds of bills introduced so far at both the state and federal levels, as well as the examination of a handful that have been enacted in the first quarter of 2025. This volume also looks at another component of real estate beneficial ownership restrictions that has gained steam in recent years: restrictions or prohibitions on the corporate ownership of residential real property.

State-Level Restrictions on Beneficial Ownership of Real Estate
- Successfully Enacted Bills
Real Estate Beneficial Restrictions on Residential Ownership

View REBO Quarterly – Volume 2

ESG and the Sustainable Economy Handbook

Wed, 30 Apr 2025 00:00:00 -0000

Environmental, social, and governance (ESG) and the sustainable economy are concepts that often overlap and frequently intertwine. Whether viewed separately or together, they have significantly changed global investing and business practices and will continue to evolve.

This handbook examines how investors evaluate companies based on ESG and sustainability criteria, the way companies incorporate these standards into their operating principles, and the legal and financial considerations for both groups. Whether you are an investor, an investment manager, a company owner, or board member, it will provide you with valuable insights drawn from our lawyers’ deep industry experience and keen understanding of policy, procedures, and trends.

Read or download the current sections and subscribe to our Environmental Social Governance email list to learn when new sections are available and receive other ESG-related information.


INTRODUCTION	OVERVIEW	SUSTAINABLE INVESTING


OPERATIONAL CONSIDERATIONS	INCENTIVES AND OTHER FUNDING TECHNIQUES	THE GROWING RISK OF ESG-RELATED LIABILITIES


GLOBAL SURVEY OF ESG REGULATIONS FOR ASSET MANAGERS

Our integrated environmental, social, and corporate governance approach can help you navigate ever-evolving standards, and help your company improve its longevity, financial standing, and stakeholder relationships. Learn how >

Global Survey of ESG Regulations for Asset Managers

Wed, 30 Apr 2025 00:00:00 -0000

Investment advisers offering funds in more than one country are accustomed to adapting to different regulatory requirements. However, the challenges presented by the global regulation of environmental, social, and governance (ESG) investing strategies are presenting a particularly arduous burden. Not only do investor demands differ among countries, but the regulators and other controlling bodies have imposed, or proposed to impose, different requirements that will impact approaches to investing fund assets, disclosures, and marketing, even with respect to the same strategies.

In the latest chapter of the ESG and the Sustainable Economy Handbook, our lawyers—located in the Americas (the United States), Asia (Hong Kong, Japan, and Singapore), Australia, and Europe (the United Kingdom and the European Union, including Ireland and Luxembourg)—provide an overview of their regional regulation by responding to the same eight questions regarding the existing ESG-related rules and other ESG developments impacting the investment management industry.

To access the new chapter, click here.
Central Bank of Ireland Updates its UCITS Q&A on Portfolio Transparency for ETFs

Tue, 29 Apr 2025 00:00:00 -0000
In a move that will be welcomed by asset managers conducting exchange-traded fund (ETF) business in Ireland, or those who are hoping to move into the Irish ETF space, the Central Bank of Ireland (the Central Bank) has moved to allow for the establishment of semi-transparent ETFs by amending its requirements for portfolio transparency.

In Ireland, ETFs are typically established as undertakings for collective investment in transferable securities (UCITS), and semi-transparent ETFs are actively managed ETFs that disclose their holdings on a periodic (less than daily) basis.

Previously, the Central Bank only authorised ETFs that published their holdings on a daily basis. This approach was evidenced by the Central Bank’s response to a previous version of its UCITS Q&A 1012 which posed the question, “I am a UCITS and am authorised by the Central Bank as an active ETF. Am I required to provide details of the holdings within my portfolio on a daily basis?”. The Central Bank stated that it would not authorise an ETF, including an active ETF or a UCITS ETF share class of a UCITS, unless arrangements were put in place to ensure that information is provided on a daily basis regarding the identities and quantities of portfolio holdings and that these arrangements must be disclosed in the prospectus of the UCITS.

This daily disclosure requirement had, in the past, been a blocker for certain asset managers wishing to enter the Irish ETF market due to concerns that having to publish holdings on a daily basis could potentially lead to other asset managers short-selling or even copying their investment strategies. On the back of this feedback, the funds industry in Ireland had petitioned the Central Bank to change their position in the hope that it would bring more active managers (i.e., traditional fund managers) to Europe.

The revised Q&A, published by the Central Bank on 17 April 2025, while retaining the ability for ETFs to publish holdings on a daily basis, now provides flexibility in that “periodic disclosures” are now permissible once the following conditions are adhered to:
- Appropriate information is disclosed on a daily basis to facilitate an effective arbitrage mechanism;
- The prospectus discloses the type of information that is provided in point (i);
- This information is made available on a nondiscriminatory basis to authorised participants (APs) and market makers (MMs);
- There are documented procedures to address circumstances where the arbitrage mechanism of the ETF is impaired;
- There is a documented procedure for investors to request portfolio information; and
- The portfolio holdings as at the end of each calendar quarter are disclosed publicly within 30 business days of the end of the quarter.
For asset managers who wish to stick to the status quo and continue to disclose portfolio holdings on a daily basis, they must ensure that (i) the prospectus discloses the type of information that will be provided in relation to the portfolio; and (ii) the portfolio information is made available on a nondiscriminatory basis.

Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), took a similar approach in revising its guidance in late 2024. However, the Central Bank’s updated rules are in fact more flexible than those of the CSSF in that a) they cover both active and passive ETFs and b) only “appropriate information” is required to be shared with APs and MMs of semi-transparent Irish ETFs as opposed to the requirement to disclose full portfolio holdings in Luxembourg.

These new semi-transparent ETFs will be most attractive for active asset managers who have previously been dissuaded from establishing an ETF in Ireland due to their reluctance to share their proprietary information.
Changes to US Energy and Trade Policy Could Trigger Contractual Relief Mechanisms

Tue, 29 Apr 2025 00:00:00 -0000

The Trump Administration has issued several executive orders and made numerous policy pronouncements that could alter the economics of existing contracts and cause parties to explore new risk sharing mechanisms for future contracts. The primary area of uncertainty relates to tariffs due to their direct impact on the price of materials and equipment. Other US policy changes, such as federal funding freezes and the potential repeal of Inflation Reduction Act tax credits, could also impact deals, with outsized effects in the renewable energy industry.

Due to the effects these policy changes may have on the costs and benefits of existing and future contracts, parties should be aware of potential contractual relief clauses in those agreements. From a US law perspective, what follows is a discussion of contract clauses that might serve as a basis for relief under existing contracts, or as a risk sharing tool for future contracts. Energy transactions are used for specific context. However, many different types of transactions might be impacted by US policy changes, particularly for imports. In light of these policy changes, parties should carefully consider whether to include contractual relief clauses in future contracts aimed at excusing performance or altering the price of the bargain. For existing contracts, parties should closely review their rights and determine whether they have additional contractual rights because of changes to laws and policies.

Force Majeure

Force majeure clauses are provisions that excuse a party from performance, sometimes temporarily, where extraordinary events occur, beyond a party’s control, that prevent or delay a party from performing a contractual obligation. The prevention or delay of performance must be without the fault or negligence of the non-performing party. Increased difficulty or increased cost of performance is typically not enough to sustain a force majeure defense. Even where a party’s performance becomes unduly expensive, force majeure is not usually implicated. Whether force majeure applies depends heavily on the wording of the particular contract clause. Some US jurisdictions interpret force majeure clauses narrowly and only excuse performance if the specific event preventing or delaying performance is stated in the force majeure clause.

In the current environment, parties may want to explore the applicability of force majeure where government actions operate to terminate contracts, leases, permits, or other rights necessary to the performance of the contract. The repeal or elimination of subsidies and tax credits might also constitute an event of force majeure, depending on the specific contract language, although change in law or price adjustment clauses might be a better mechanism to capture situations amounting to changed deal economics.

Change in Law

A change in law clause is designed to address any unexpected change in the legal or regulatory landscape that has a substantial impact on the obligations of a party. Such clauses are designed to offset the losses/damage due to changes in the law applicable at the time of contract execution.

Where the change is captured by the change in law clause and hinders a party’s performance, that party can claim relief in accordance with the terms of the clause. Foreseeable costs are ordinarily not included in such provisions.

In the energy industry, we have seen change in law clauses related to duties and tariffs on key equipment. The uncertain nature of import duties on solar panels has been a popular area to use this type of risk allocation tool. Changes or adjustments to production and investment tax credits under the Inflation Reduction Act are also areas where parties have liberally utilized change in law provisions to account for this risk.

Material Adverse Change/Material Adverse Effect

Material adverse change (MAC) clauses are intended to protect parties from substantial unanticipated events that adversely affect the financial or operational conditions of a business. Usually used in Mergers and Acquisitions agreements, MAC clauses allow the buyer to avoid closing where a significant decline in the target’s value occurs or is reasonably anticipated. MAC clauses are often heavily negotiated, with sellers seeking narrow exceptions and buyers seeking wide protection. Like other contractual relief mechanisms discussed herein, whether a MAC clause is enforceable and will provide relief is dependent on the specific contractual language to which the parties have agreed. It is therefore critical to carefully identify and allocate potential risks and to address those risks directly in the contract wording. MAC clauses have infrequently been held to apply. However, there is precedent within the past 10 years of courts enforcing such provisions. See, e.g., Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018).

Purchase Price Adjustment

A purchase price adjustment clause is a tool intended to alter the contract price in response to one or more triggering events. Triggering events often involve factors that are beyond the parties’ control. They can be anything that the parties deem likely to have a substantial or material impact on the value of the asset being purchased or the services being rendered. These clauses are often triggered post-closing. They allow parties to account for changing circumstances over the term of the agreement.

Purchase price adjustments are used frequently in the acquisition of power generation assets. Changes to subsidies, feed-in-tariffs, increased import duties, revision to amounts available for tax credit financing, plant capacity, and other events that alter the value of the project or project company are often the subject of price adjustment clauses.

There may also be individual commodity or equipment price adjustments for items that are critical to a project. Those are more likely to be seen in a construction or EPC contract. Adjustments based on currency fluctuations are also sometimes utilized.

Other Theories of Contractual Relief

Parties may look to other theories for contractual relief. The concepts of frustration of purpose, commercial impracticability and impossibility of performance are three examples of such theories. Frustration of purpose may lie where an unforeseen event alters a party's main purpose for entering a contract, making the performance of the contract dramatically different from the performance originally anticipated. Importantly, both parties must have known of the principal purpose at the time the contract was made. Impracticability excuses a party from a specific duty outlined in a contract when that duty has become unreasonably difficult or too expensive to perform. Impossibility refers to a case where a specific contractual obligation becomes reasonably impossible to fulfill.

Frustration of purpose, impracticability, and impossibility are not easy theories to prove. The set of circumstances to which these concepts may apply are unusual and increased expense is typically not enough to sustain such a claim in most instances.

Conclusion

The changing US policy landscape, particularly with respect to imports and domestic energy regulations, could cause the cost to perform the contract and the expected benefits of the contract to be different than originally contemplated. For future contracts, parties should carefully consider whether to include contractual relief clauses aimed at excusing performance or altering the price of the bargain. For existing contracts, parties should review their rights carefully and determine whether they have additional contractual rights because of changes to laws and policies.

Due to the changing US policy landscape and the effects these changes may have on the costs and benefits of existing and future contracts, parties should be aware of potential contractual relief clauses in those agreements.
Don't Let Strike-Through Pricing Strike Out Your DTC Website: Comparison Pricing Is Effective, but Carries Risk

Tue, 29 Apr 2025 00:00:00 -0000
As consumer brands look to expand direct-to-consumer (DTC) sales, they often seek to distinguish their online stores through comparison or strike-through pricing on a product display page where a higher reference price is listed, crossed out, and the “discounted” lower price is listed next to it. This is a great marketing tool, as it makes the price reduction more tangible to the customer. We all love to feel like we are getting a good deal.

The problem is that sometimes these promotions can be portrayed as misleading to consumers and even illegal under applicable law. To make matters more complicated, determining which law applies in this area is not straightforward, as both federal regulations and state statutes may apply, with material differences across jurisdictions. Not surprisingly, California has become a hotbed for these types of misleading pricing claims, which are typically asserted as class-action lawsuits.

What Is Comparison Pricing?

Comparison pricing, also referred to as strike-through pricing or reference pricing, is a popular marketing technique where a product’s current, discounted price is listed beside that product’s regular, former price with a line through it. In other words, the product is advertised as “on sale” or discounted from its former price by means of a visual comparison of the past and current price. Comparison pricing is regulated by both federal and state laws addressing deceptive sale pricing.

Federal Regulations

Section 233.1 of the Federal Trade Commission’s (FTC) Guides Against Deceptive Pricing addresses “Former price comparisons,” also known as comparison pricing.¹Specifically, the authority requires that the former price on a comparison pricing advertisement—the price listed with a line through it— be (1) the “actual, bona fide price” (not an artificial, inflated price) and (2) offered to the public both “on a regular basis” and for a “reasonably substantial period of time.”²Neither “actual, bona fide price” nor “reasonably substantial period of time” are defined. The authority also explains it is deceptive to temporarily raise the regular price of a product in order to support a claim that an item is discounted when the price is subsequently lowered.³

State Regulations

In addition to federal regulations, many states have enacted state-specific regulations. Some states require, for example, that the former price in a comparison advertisement be the price at which the seller (1) made a substantial number of sales in the recent, regular course of business; or (2) advertised in good faith for a reasonably substantial period of time in the recent, regular course of business. What constitutes “substantial” is often a fact-specific inquiry, the scope of which may differ from state to state. For example, Virginia defines “substantial sales” in this context as a “substantial aggregate volume of sales of identical or comparable goods or services at or above the advertised comparison price in the supplier’s trade area.”⁴In Missouri, however, there is a rebuttable presumption that a seller has not complied with the requirement that the former price be a price at which “reasonably substantial sales of the product were made” unless the seller can show sales of 10% or more of the total sales of the product not less than 30 days and no more than 12 months from the time of the advertisement.⁵

Other states specifically regulate the length of time an item must be offered at a regular price before it can be placed on sale and used in comparison. To comply with these statutes, a seller must offer an item at a regular price for a specific period of time in close proximity to the promotional period. Oregon, for example, requires that products sold at a promotional price be sold at the regular price within the preceding 30 days of the advertisement (or another time which is specifically identified).⁶In New Jersey, an advertiser may not use a fictious former price, i.e., a price that an advertiser cannot prove was offered for at least 28 days out of the immediately preceding 90 days on a rolling basis.⁷Additionally, in Connecticut, comparison pricing is considered deceptive unless (1) the former price is the price used by the seller in the last 90 days, or (2) the advertisement discloses the time when sales at the former price were made.⁸

Enforcement: Federal and State Regulations

Brands and retailers that fail to comply with these federal and state regulations may face enforcement penalties and consumer litigation. On the federal side, while FTC guidelines have not recently been enforced, it is possible that the FTC may increase its enforcement activities under the new Trump administration.

Litigation based on state regulations is far more common. Recently, there has been a rise in litigation—including both preliminary demand letters and formal lawsuits—stemming from the violation of laws surrounding comparison pricing.

For example, in Oregon in 2023, in Clark v. Eddie Bauer LLC, a plaintiff alleged that Eddie Bauer violated Oregon’s Unlawful Trade Practices Act (UTPA) by advertising garments as “40% to 70% off” a list price that had never existed.⁹The Oregon Supreme Court held that the consumer had suffered an “ascertainable loss” under the UTPA—meaning she could bring the action against Eddie Bauer—because if she had known the advertised former price was misleading, she would not have purchased the product.¹⁰

Additionally, in Gattinella v. Kors, Michael Kors was sued for advertising discounts in its outlet stores off supposed former market prices, when, in reality, it had never sold at those prices.¹¹The company was also accused of falsely comparing inferior products manufactured exclusively for its outlet stores to different products sold in its regular retail outlets. Ultimately, Michael Kors agreed to create a US$4.875 million settlement fund and pay US$975,000 in attorneys’ fees to resolve allegations.¹²

California Law and Enforcement

As most brands are aware, California has strong consumer protection laws. Notably, California operates under the California Business and Professions Code § 17501, which was designed to prevent deceptive pricing practices.¹³In a comparison advertisement, two things must be true under this statute:
1. The former price must be the prevailing market price, and
2. The former price must have been the prevailing market price within three months prior to the publication of the advertised price (or some other disclosed period).
Courts in California have consistently enforced this statute. For example, in 2014 in People v. Overstock.com, Inc., Overstock was sued by state regulators for deceptive advertising. A California court issued a US$6.8 million judgment for civil penalties, finding that Overstock engaged in comparison advertising and holding that it made false and misleading representations about the advertised prices of its products.¹⁴The court also imposed an injunction, which, in part, required Overstock to make a good faith effort in determining the prevailing market price and set a 90-day limit on the advertised former prices.¹⁵

Additionally, in 2015 in Spann v. J.C. Penney Corp., a class action was brought against J.C. Penney for violating the California Business and Professions Code § 17501.¹⁶Specifically, plaintiffs complained that the company’s advertising was deceptive because the advertised regular price of a product was not the “prevailing retail price” of that product for the preceding three months.¹⁷J.C. Penney settled for US$50 million.¹⁸

California courts continue to address this issue today. For example, in May 2023, a class action was filed against Shade Store, LLC, a manufacturer and seller of window covering products, for deceptive advertising based on the use of fake prices and discounts.¹⁹While litigation remains ongoing, in June 2024, the court denied Shade Store’s motion to dismiss, reasoning the allegations were sufficient to establish that the reference pricing and sales were likely to deceive a reasonable consumer.²⁰

In May 2024, a class action was brought against La-Z-Boy, a retailer and manufacturer of furniture and home décor products, for using strike-through pricing to mislead consumers into believing they were receiving a substantial discount.²¹In November 2024, the US District Court for the Central District of California denied La-Z-Boy’s motion to dismiss, reasoning the complaint was sufficiently detailed, showing both that strike-through pricing was used and that the strike-through benchmark prices were rarely, if ever, the sale price.²²Litigation in this case remains ongoing.

Similarly, in June 2024, a class action was brought against FullBeauty Brands Operations LLC (the owner of plus-size fashion company “Eloquii”) for Eloquii’s comparison advertisements based on alleged falsely inflated former prices.²³In January 2025, the US District Court for the Northern District of California denied Eloquii’s motion to dismiss on the claim based on California Business and Professions Code § 17501, and the litigation remains ongoing.

Generally, in addition to these cases, there are hundreds of other cases that have settled before filing or just after being filed.

Ultimately, strike-through pricing is an effective marketing strategy. However, brands and retailers must be cautious to avoid being accused of misleading pricing, which can be costly, time-consuming to dispute, and lead to negative media attention.

What Can You Do to Mitigate Risk?
- Clearly state the basis of the strike-through price on the product display page—for example, by indicating that the strike-through price refers to the list price or the manufacturer’s suggested retail price.
- Do not show fake discounts by artificially raising the strike-through price to make the deal look better.
- Limit promotion periods and return the pricing back to the higher price point at the end of promotional period.
- Regularly review your website to make sure reference pricing does not get outdated.
- Keep detailed and accurate records of past pricing and promotional periods in order to be able to defend and substantiate former pricing.
- Educate employees in charge of pricing on your DTC website.
We closely monitor developments related to strike-through pricing on both federal and state levels. We can assist you in adapting your advertising strategy to ensure your company remains in compliance.
Investment Management Update Germany–April 2025

Mon, 28 Apr 2025 00:00:00 -0000
BaFin Publishes Draft Guidance Note on the Influence by Investors

On 14 March 2025, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) published a draft Guidance Note on the possibility of investors taking influence on investment funds. The draft contains explanations and potential concerns regarding investor influence or input on investment decisions by third-party managers to investment funds. BaFin emphasizes the principle of third-party management, according to which the final decision rests with the management company (KVG) or a portfolio manager (in the case of outsourcing). BaFin views instructions as well as approval and veto rights of investors regarding individual transactions critically with regard to the principle of third-party management. BaFin also takes a critical view of acquisition initiatives (recommendations) essentially originating from the investors if the KVG no longer carries out its own evaluation. This may be particularly relevant in connection with institutional funds. The consultation ended on 31 March 2025.

ESMA Publishes Guidelines on the Classification of Crypto-Assets As Financial Instruments

On 19 March 2025, the European Securities and Markets Authority (ESMA) published guidelines on the conditions and criteria for the classification of crypto-assets as financial instruments. According to ESMA, crypto-assets can be classified as transferable securities, money-market instruments, units in collective investment undertakings, derivative contracts or emission allowances in accordance with the Markets in Financial Instruments Directive (MiFID II). In the guidelines, ESMA - like BaFin in the past - reaffirmed the principle of technological neutrality. This means that an asset classified as a financial instrument remains a financial instrument from a regulatory perspective and is primarily regulated by MiFID II even if it is tokenized. For example, a crypto-asset can be a transferable security within the meaning of MiFID II if it is not an instrument of payment, is fungible, and is negotiable on the capital market. A crypto-asset that conveys a proportional share in a portfolio managed according to an investment strategy, without providing investors with control options (e.g., voting rights), is generally a unit or share in an investment fund. In addition, the guidelines serve to further specify the types of crypto-assets. The guidelines apply from 18 May 2025.

EBA Consults on Regulatory Technical Standards for the EU Anti-Money Laundering Package

On 6 March 2025, the European Banking Authority (EBA) published drafts of four Regulatory Technical Standards (RTS) on the European Union's new anti-money laundering package (AML/TF package) for consultation. The anti-money laundering package consists of four legal acts that were published in the Official Journal of the European Union on 19 June 2024 and are to be applied or implemented in stages from 1 July 2025. Essentially, a new authority will be created that will directly supervise certain financial institutions in the EU, the approaches of national supervisory authorities and Financial Intelligence Units (FIUs) within the EU will be harmonised and a uniform set of rules for the prevention of money laundering and terrorist financing will be introduced for the first time. The consultation is open for feedback until 6 June 2025 and the EBA intends to submit its final report to the European Commission on 31 October 2025.

BaFin Supplements Interpretation and Application Guidance on the German Anti-Money Laundering Act

In March 2025, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) again revised its interpretation and application guidance on the German Anti-Money Laundering Act (Auslegungs- und Anwendungshinweise (AuA) zum Geldwäschegestz), which was last updated on 29 November 2024, and added guidance on crypto-asset service providers and certain issuers of asset-referenced tokens, following the publication of the German Financial Market Digitalisation Act (Finanzmarktdigitalisierungsgesetz) on 27 December 2024. In addition, information on increased due diligence obligations for crypto-asset transfers with self-hosted addresses has been included.

ESMA Consults on Simplification of Insider Lists

On 3 April 2025, the European Securities and Markets Authority (ESMA) published a consultation paper with draft implementing technical standards to extend the simplified format for drawing up and updating insider lists for issuers admitted to trading on Small and Medium Enterprises (SME) Growth Market to all issuers. A corresponding mandate for ESMA can be found in the EU Listing Act. The implementing technical standards are to contain three different model templates for insider lists, which differ depending on whether the respective Member State has decided against limiting insider lists to those persons who, due to the nature of their function or position with the issuer, always have access to inside information. The proposals aim to reduce the burden associated with the creation of insider lists. The consultation ends on 3 June 2025.

BaFin Studies on the Certificates‘ Market

On 12 March 2025, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) published information on two market studies in which it examined the certificates' market for retail investors, particularly with regard to distribution practices. One study explicitly dealt with interest and express certificates, the other with turbo certificates. BaFin examined both manufacturers and distributors, and also surveyed nearly 2,000 investors who had invested in the relevant products.

In the study on interest and express certificates (investment certificates) conducted from May 2024 to February 2025, BaFin initially noted that while these products had experienced increased sales since the end of the low-interest rate phase, no systematic misconduct or even serious deficiencies were found with regard to product distribution.

However, BaFin criticized the sometimes-flawed design of products with regard to the chosen target market definition and the fact that investors in express certificates often lacked an understanding of their functionality and risks. BaFin has announced, among other things, that it will focus its ongoing supervisory activities on this area.

In the study on turbo certificates covering the period from 2019 to 2023, BaFin noted a sharp increase in the market volume of such products but also came to the conclusion that almost ¾ of investors had to realize losses on their investments during the period under review, which amounted to a total of around EUR 3.4 billion. BaFin intends to publish detailed results in the second quarter of 2025; further measures to protect investors are still being examined.

ESMA Publishes Facilitation For the Provision of Research

On 8 April 2025, the European Securities and Markets Authority (ESMA) published its Technical Advice to the European Commission on the amendments to the research provisions in the MiFID II Delegated Directive. Since MiFID II, analyses (so-called “research“) are generally considered as inducements, meaning that the fees for research services must be paid by the financial service providers subject to MiFID II themselves or from a separate, client-related research payment account (so-called “unbundling regime”). Deviations from these requirements were already permitted for non-large financial service providers as part of the relief measures during the covid pandemic. Further simplifications have now become possible in connection with the EU Listing Act. ESMA therefore proposes the possibility of a joint payment of execution and research fees, regardless of the size of the financial service provider. In addition to an agreement on the part of the financial services provider, further prerequisites are that excessive payments for research and an impairment of the best possible execution of client orders are avoided.

ESMA Publishes Translations of Guidelines on the Common Classification of Crypto-Assets (MiCAR)

On 10 March 2025, the European Securities and Markets Authority (ESMA) published the official translation of the guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets under the MiCAR Regulation.

The guidelines contain the specific templates for:
- Content and form of the explanation to be attached to the white paper that the crypto-assets are not a crypto-asset exempt from MiCAR, an e-money token or an asset-referencing token;
- Content and form of the legal opinion to be submitted to the authorities for asset-referencing tokens;
- A uniform test to be applied by the authorities to classify crypto-assets.
The guidelines will apply from 12 May 2025.
SEC Policy Shift and Recent Corporation Finance Updates–Part 2

Mon, 28 Apr 2025 00:00:00 -0000

Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.

This is the second part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This installment will review the new and revised C&DIs released by the Corp Fin Staff relating to unregistered offerings.

Securities Act Rules

On 12 March 2025, the Corp Fin Staff released a number of new and revised C&DIs relating to Regulation A and Regulation D under the Securities Act and withdrew many C&DIs that were no longer applicable.

Regulation A–Nonpublic Correspondence and State Securities Laws

Regulation A is a framework that is used primarily by smaller companies to raise capital in unregistered offerings. Regulation A has two offering tiers (Tier 1 and Tier 2) that have different eligibility requirements, offering limits, and disclosure obligations.

With respect to C&DIs regarding Regulation A, and specifically Securities Act Rules 251 to 263, the Corp Fin Staff revised three C&DIs to clarify certain filing requirements, requesting confidential treatment during a review, and certain registration requirements. The Corp Fin Staff revised Question 182.01 to specify how issuers can make previously submitted nonpublic draft offering statements publicly available at the time of the first public filing of the offering statement. It also clarifies that Corp Fin Staff will make nonpublic correspondence publicly available at the end of their review of the offering statement.

Revised Question 182.02 provides that during the review of a nonpublic draft offering statement, an issuer can request confidential treatment for correspondence by utilizing Rule 83 in the same way it would during a typical registered offering review. Additionally, Question 182.10 now clarifies that even though securities initially sold in a Tier 2 offering are exempt from registration, registration and qualification requirements under state securities laws are not preempted with respect to resales of the securities purchased in that Tier 2 offering unless separately preempted.

Regulation D–Foreign Issuers, Demo Days, and Accredited Investors

Regulation D provides an exemption from the registration requirements under the Securities Act for limited unregistered offerings and sales of securities. With respect to Regulation D, the SEC revised or issued new C&DIs regarding disclosure requirements for foreign private and Canadian issuers, the interplay between Regulation D and Regulation S for foreign offerings, when “demo days” or similar events would constitute a general solicitation, and verification of accredited investor status.

A demo day is an event in which startup companies can show their product or services to prospective investors. With respect to investor accreditation, issuers are limited in the number of nonaccredited investors they can offer and sell securities to in certain Regulation D offerings, and they have greater disclosure obligations to those nonaccredited investors.

Foreign Issuers

In revised Question 254.02, the Corp Fin Staff removed the reference to disclosure requirements for foreign private issuers being set forth in Securities Act Rule 502(b)(2)(i)(C) when using Regulation D, and this C&DI now just states “yes” to the question of whether foreign issuers can use Regulation D.

Question 255.33 provides that under Securities Act Rule 500(g), as long as a foreign offering meets the safe harbor conditions set forth in Regulations S relating to offerings made outside the United States, then the offering does not need to comply with the conditions of Regulation D (which in part limit the number of nonaccredited investors that can be included). The Corp Fin Staff revised this question to specify that the 35-person limit for the number of nonaccredited investors under Regulation D applies only within any 90-calendar-day period.

The Corp Fin Staff revised Question 256.15 to clarify that under Securities Act Rules 502(b)(2)(i)(B)(1) and (2), a Canadian issuer can satisfy the information requirements of Securities Act 502(b) using financial statements contained in a multijurisdictional disclosure system (MJDS) filing. The revision captures all financial statements rather than just the issuer’s most recent Form 20-F or Form F-1 and requires preparing the MJDS filing in accordance with International Financial Reporting Standards.

Demo Days

Question 256.27 now adds that in relation to “demo days” or other similar events, communications meeting the requirements of Securities Act Rule 148 will not constitute general solicitation or general advertising, even if the issuer does not have a pre-existing, substantive relationship with the persons in attendance. Revised Question 256.33 similarly highlights that if a demo day meeting the Rule 148 requirements is not a general solicitation, then it will also not be subject to limitations on the manner of offering by Securities Act Rule 502(c) (which sets forth limits on issuers from offering and selling securities through general solicitation or general advertising). Events that do not comply with Rule 148 will continue to be evaluated based on facts and circumstances to determine if they constitute a general solicitation or general advertisement.

Accredited Investors

Newly issued Question 256.35 establishes that, aside from the verification safe harbors in Securities Act Rule 506(c)(2)(ii), taking “reasonable steps to verify accredited investor status” first involves the issuer conducting an objective consideration of facts and circumstances of each investor and the transaction. Factors that should be considered under this analysis include the nature of the purchaser and what type of accredited investor they claim to be, the type and amount of information that the issuer has about the purchaser, and the nature of the offering. These factors should be considered interconnectedly to assess the reasonable likelihood that a purchaser is an accredited investor, which then helps the issuer determine the reasonable steps needed to verify that status.

New Question 256.36, in conjunction with Question 256.35, indicates that based on the particular facts and circumstances, a high minimum investment amount for an offering may serve to allow an issuer to reasonably conclude that it took reasonable steps to verify accredited status. This aligns with Securities Act Release No. 9415 (10 July 2013) and the recent Latham & Watkins no-action letter (12 March 2025) issued by the Corp Fin Staff that provides more detail about what conditions, along with a minimum investment amount, would evidence reasonable steps that a purchaser is accredited.

Conclusion

Many of the new and revised C&DIs discussed above are welcome changes and provide greater clarity with respect to unregistered offerings and sales of securities. These C&DIs are just a handful of the new and updated guidance issued by the Corp Fin Staff since the beginning of the year and reflect a policy shift by the SEC overall that will likely be continued in the months ahead.
Impact of Tariffs on Commercial Contractual Performance: Can Tariffs Be a Force Majeure Event?

Mon, 28 Apr 2025 00:00:00 -0000
The Trump administration has adopted an aggressive trade policy, announcing a number of actions that will significantly impact global commerce. Most notably, President Donald Trump’s tariffs—and the retaliatory tariffs imposed by other nations—are already impacting suppliers’ and buyers’ ability to perform under commercial contracts. Tariffs may impact contracting parties in a variety of ways, including increasing the cost of performance. They can also cause supply chain disruptions, which, in turn, affect a party’s ability to perform under a contract, regardless of cost.

Contractual force majeure clauses may serve as a basis for relief when deals turn bad due to significant changes in trade regulations, including tariffs. Whether a force majeure clause operates to excuse a party’s performance will primarily depend upon the language of the contract. The law varies from jurisdiction to jurisdiction and country to country. For instance, some civil law jurisdictions have codified what constitutes a force majeure event. This alert addresses the subject from a US common law perspective

Force Majeure Clauses Generally

Many commercial contracts contain “force majeure” provisions, which are designed to excuse nonperformance or delayed performance of contractual obligations for extraordinary, uncontrollable events that negatively impact a party’s ability to fulfill those obligations.¹In other words, force majeure provisions allocate the risk of events outside of the control of the parties that impact performance under a contract.²There is no implied force majeure, meaning that a party can only invoke force majeure if the contract includes a force majeure provision.

While the language of force majeure clauses vary considerably, most clauses contain a list of events that will constitute a force majeure event, such as labor strikes, natural disasters, wars, or freight embargoes. Force majeure clauses often contain a “catchall,” such as “or other similar causes beyond the control of such party.”

Tariffs as a Force Majeure Event

The applicability of a force majeure clause to tariffs depends on the specific language in the contract.³Force majeure clauses are “narrowly construed” and will only excuse a party’s nonperformance if the event alleged to have prevented performance is “specifically identified” in the parties’ contract.⁴For instance, parties seeking to invoke force majeure clauses to excuse performance based on the COVID-19 pandemic were generally unsuccessful absent specific contractual language that contemplated disease, pandemics, or governmental action as a basis for excused performance. The requirement that the event must be expressly identified in the force majeure clause in order to excuse performance is “especially true where the event relied upon to avoid performance is a market fluctuation.”⁵This narrow construction also applies to a “catchall” in a force majeure clause, cabining the meaning to “things of the same kind or nature as the particular matters mentioned.”⁶

A force majeure clause may excuse performance based on new or increased tariffs if it specifically identifies tariffs, governmental action, increased costs, or words to similar effect as a force majeure event. Absent a specific reference to tariffs, governmental action, or price or cost increases, it is unlikely that a party’s failure to perform under a contract will be excused.⁷Moreover, certain force majeure clauses may specifically exclude price increases—such as those caused by new or increased tariffs—as a contingency.⁸

Effect of a Force Majeure Event on Performance

Even where new or increased tariffs can rightfully be deemed a force majeure event, performance is not necessarily excused.

If tariffs are within the scope of a force majeure clause, the question then becomes whether the tariffs affected the party’s ability to perform in the way required by the clause. Force majeure clauses often require a party to show that performance has become physically or legally impossible as a result of the event, not merely difficult or unprofitable. Where a contract requires impossibility, a change in market conditions due to tariffs is unlikely to be a force majeure event. Though tariffs will undoubtedly render performance under certain contracts more costly, a party may face challenges establishing that performance has been rendered impossible.⁹This impossibility standard may be satisfied, however, where supply chain disruptions due to tariffs prevent a party from performing under a contract, regardless of cost.

On the other hand, clauses may have less stringent requirements (e.g., that the event renders performance “impracticable” or that performance was “hindered”).

Invoking a Force Majeure Clause

Even where a force majeure clause may otherwise afford relief, a party’s failure to follow the mechanics for invoking the clause—for instance, by not complying with notice requirements—could prevent reliance on it.

Moreover, force majeure clauses often require that the party impacted by the force majeure event take reasonable steps to prevent or mitigate the effects of the event. Even if not expressly stated, such a requirement may be implied.¹⁰

Takeaways

Changes to tariffs can increase cost, risk, and uncertainty for companies trading in goods across borders or relying on international supply chains. In this rapidly evolving tariff landscape, impacted companies will want to take the following actions:
- Monitor President Trump’s executive orders issuing tariffs and his statements regarding future tariffs and trade policies to determine if your contract will be affected.
- Review contractual language and assess how tariffs may impact existing and future contractual obligations.
- Assess whether relief may be available based upon the terms of the contract or under applicable law.
- Proactively discuss the impact of tariffs with contractual counterparties before disputes arise.
- Consider whether the terms of existing contracts should be renegotiated or amended to take into account tariff volatility.
- In new contracts, expressly allocate the risk of tariffs and address whether changes to tariffs amount to a force majeure event.
Where appropriate, companies should seek legal advice as to whether existing contractual terms provide relief from unexpected customs expense. As a global firm with offices in the United States, Europe, Asia, and beyond, our lawyers are well-positioned to provide that advice.
Washington State Enacts Broad Antitrust Premerger Notification Law

Fri, 25 Apr 2025 00:00:00 -0000
On 4 April 2025, Washington became the first state to enact a broad, industry-agnostic merger control regime. Under the new law, parties submitting premerger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) must simultaneously submit their HSR filings to the Washington attorney general (AG) if they meet certain local nexus requirements or are a healthcare provider or provider organization. The law will take effect on 27 July 2025.

While many states (including Washington) have recently established notification requirements for healthcare transactions, the new Washington law is unique in its broad application to deals in any sector. Together with the new HSR rules, which took effect in February 2025, the law could increase regulatory costs and antitrust scrutiny for reportable transactions, particularly for companies with a significant presence in the state. More broadly, the legislation continues a trend of heightened state-level merger review, and underscores that states remain an important factor in the US antitrust enforcement landscape.

Washington Premerger Notification Law

On 4 April 2025, Washington Governor Bob Ferguson signed into law the Uniform Antitrust Premerger Notification Act (the Act). The Act will take effect on 27 July 2025 and apply to any HSR filings made on or after that date.

Thresholds

The Act requires any “person”¹ submitting an HSR filing to contemporaneously file an electronic copy of the HSR form with the Washington AG if any of the following applies:
- The person’s principal place of business is in Washington.
- The person, or any entity it directly or indirectly controls, had annual net sales in Washington of goods or services involved in the transaction of at least 20% of the HSR filing threshold (under the current threshold of US$126.4 million, this would mean local annual net sales of at least US$25.28 million).
- The person is a healthcare provider or provider organization (as defined in RCW 19.390.020) conducting business in Washington.
Documents

If the “principal place of business” threshold is met, or if the AG otherwise requests, then the filing party must also submit documentary attachments to the HSR form, including the transaction agreement and any other agreements between the parties, audited financials for the most recent year, and documents analyzing the transaction with respect to various competition issues.

Confidentiality

Under the Act, filings and related materials are confidential and exempt from public disclosure, other than in connection with certain administrative or judicial proceedings, subject to protective order. The AG may also disclose information to the Federal Trade Commission, US Department of Justice, or the AGs of other states that have adopted similar reciprocal legislation.

Penalties

Failure to submit filings required by the Act can trigger civil penalties of up to US$10,000 for each day of noncompliance.

Interplay With Washington Healthcare Notification Law

Like many states, Washington already has a premerger notification requirement on the books applicable to certain healthcare transactions. Under this law, both parties to “material change transactions” (mergers, acquisitions, or contracting affiliations) between two or more in-state hospitals, hospital systems, providers, or provider organizations must submit a written notice (Notice of Material Change) to the AG at least 60 days prior to closing.² This requirement applies to transactions involving an in-state and out-of-state entity where the latter generates US$10 million or more in healthcare services revenues from patients residing in Washington. The law also states that any provider or provider organization that conducts business in Washington and files an HSR form must provide a copy of the filing to the AG’s office in lieu of a Notice of Material Change.

The Act has a much broader scope, capturing HSR-reportable transactions in any industry, not just healthcare. HSR filings submitted under the Act by providers and provider organizations will be sufficient to satisfy the requirements under the healthcare transactions notification law, which will remain on the books. Note, however, that the definitions for “provider” and “provider organizations” do not specifically include hospitals or hospital systems. Therefore, absent additional guidance from the AG, hospitals and hospital systems that meet the thresholds under the Act may need to submit a copy of the HSR form and a Notice of Material Change.

What Happens Next? Premerger Notification in Other States

The Act is based on model legislation from the Uniform Law Commission, which adopted the Uniform Antitrust Pre-Merger Notification Act in July 2024. Similar bills have been introduced in Colorado, Hawaii, Nevada, Utah, West Virginia, and the District of Columbia. One of the goals of the model legislation is to “facilitate early information sharing and coordination among state AGs and the federal antitrust agencies” and encourage reciprocal adoption by states. As state AGs assume an increasingly significant role in US antitrust enforcement—including in the M&A context—the new Washington law could signal the beginning of a trend of heightened, industry-agnostic, state-level merger control.

What Should I Do Now?

In light of the new requirements under the Act, dealmakers should consider the following:
- Evaluating state-level merger control filings alongside HSR, global merger control, and foreign direct investment filing requirements as part of standard transaction diligence, as well as building these filing considerations into deal negotiations and documents, as appropriate.
- If an HSR filing is required, assessing potential filings under the Act, particularly where companies have a significant nexus to the state of Washington (in terms of principal location or local revenues).
- Closely monitoring developments in other states, including new regimes coming online or proposed amendments broadening the scope of existing requirements, and preparing for reciprocal sharing of filings between states with similar legislation.
- Assessing the impact of filings that may be required under the Act with respect to budget, timing, and the potential for increased visibility into business operations by regulators.
- Assessing potential competitive impacts on local markets when evaluating transactions and how these effects are discussed in ordinary-course documents.
Please contact a member of our Mergers and Acquisitions team or our Antitrust, Competition, and Trade Regulation team for real-time updates and guidance for navigating the new landscape.
EU Data Act Preparedness–Last Minute Fire Drill Exercise

Thu, 24 Apr 2025 00:00:00 -0000

In less than six months, on 12 September 2025, most provisions of EU Regulation no. 2023/2854 (the EU Data Act) will go into effect. In light of the challenging compliance efforts, from legal and contractual points of view as well as from operational and product development perspectives, affected companies should act soon to avoid liability and administrative fines and to update their contractual frameworks.

The below checklist provides initial level guidance to assist in companies in assessing their risk exposure and identifying mitigation steps.

While the EU Data Act covers many different data-related topics, topics that are most relevant for private companies are obligations regarding collection and use of Internet of Things (IoT) data (Section 1) and switching between cloud storage/service providers (Section 2).

For IoT Companies

Does Your Company Manufacture Connected Products (Connected Products)?

Definition: Connected Products are all categories of equipment collecting data about their use or vicinity and are able to transfer this data via internet connection, also commonly referred to as “smart devices” or “IoT devices,” such as cars, televisions, refrigerators, cleaning or lawn mowing robots, kitchen tools, etc. (Source: Art. 2(5) EU Data Act)

Does Your Company Offer Related Services (Related Services) in Connection With Connected Products?

Definition: Related Services include any digital service (usually provided via an app) essential for the intended use of a Connected Product or adding additional functionalities to a Connected Product. (Source: Art. 2(6) EU Data Act)

Who Are Your Users?

Definition: If your Connected Products or Related Services are offered to customers in the European Union, the EU Data Act will apply to such product or service, regardless of whether your customers are consumers (B2C) or commercial (B2B) customers. (Source: Art. 1.3 EU Data Act)

Does Your Connected Product or Related Service Allow Users to Access Collected Product Data (Product Data)?

Definition: Product Data is all information collected by a Connected Product or Related Service in connection with using such product or service or its environment, regardless of whether such data is considered “personal data” under GDPR or not.

Action: Users have a right to have access to Product Data in real time, either directly in the IoT device or related app, or at least separately in a machine-readable format. Technical measures for enabling this access need to be implemented.

Action: Users must be provided with core information when purchasing a Connected Product or Related Service, e.g., regarding the types and amount of usage data collected, for what purposes the data will be used, where and how long the data is stored, and how the data can be accessed and stored. Information documents need to be prepared.

Action: Users may also request to grant third parties access to their Product Data. It is recommended to assess upfront under which, if any, conditions such disclosure may be rejected and on which grounds.

Does Your Company Use the Product Data for Its Own Purposes?

Action: Any use of this data for own purposes (e.g., analytics or business intelligence or advertisement) is only permitted under permission from the user of the Connected Product or Related Service to be given in a contract, including detailed provisions on the use and protective mechanisms. These contracts must follow a strict agenda and must contain certain mandatory terms. Existing customer agreements and new customer agreements will need to be updated accordingly before either 12 September 2025 (new contracts) or 12 September 2027 (for contracts executed prior to 12 September 2025 and (i) of indefinite duration or (ii) due to expire after 11 January 2034.)

Does Your Company Share Any of the Product Data With Third Parties?

Action: Product Data may be shared by your company with third parties only on the basis of a contract between the third party and the user in addition to the contractual relationship of your company with the user.. These contracts must follow a strict agenda and must contain certain mandatory terms. Agreements need to be put in place with users and third parties receiving usage data.

Does Your Company Currently Have Contracts in Place With Customers or Third Parties Entitling or Requiring Your Company to Access or Share Product Data?

Action: Existing agreements need to be reviewed for clauses regarding access to Product Data and, if such clauses exist, need to be updated to meet the above data sharing requirements.

For Cloud Storage/Service Providers:

Does Your Company Offer Cloud Services?

Definition: These are usually services enabling customers to upload their data to cloud servers; not only cloud infrastructure providers are covered, but each provider offering services around data hosting is covered, even if the cloud infrastructure is owned by another service provider.

Who Are Your Customers?

Definition: If your Connected Products or Related Services are offered to customers in the European Union, the EU Data Act will apply to your product or service, regardless of whether your customers are consumers (B2C) or commercial (B2B) customers.

Does Your Company Enable Customers To Migrate to Another Service Provider or Replace the Service With an On-Premises Solution?

Action: The EU Data Act obliges cloud service providers to remove obstacles that could deter customers from switching to another provider or an on-premises solution, regardless of the nature of the obstacle and including in particular contractual and technical obstacles. Service providers must assess if their service setup may raise such obstacles and, if necessary, remove these.

Action: Customer contracts must provide wording regarding the procedures, rights, and obligations of the parties for switching to another service provider, including termination and migration rights.

Action: Customer data must be maintained in a file format that can easily be transferred.

Does Your Company Charge Fees for Migrating Customer Data to Another Service Provider or an On-Premises Solution?

Action: From 12 January 2027 onward, cloud service providers must not charge any fees if the customer decides to migrate to another service provider or an on-premises solution. Until then, fees may not exceed the internal costs of the service provider arising in direct context with the migration.

Our EU Data Protection, Privacy, and Security team is available to assist you in preparing your compliance with the EU Data Act. The firm is an international law firm with European offices in Brussels, France, Luxembourg, Germany, Italy, Ireland, and the United Kingdom. Our lawyers regularly advise on all fields of tech and data regulatory law, including connected fields of law, including privacy, intellectual property, and antitrust.
The Latest OFSI Property and Related Services Threat Assessment

Wed, 23 Apr 2025 00:00:00 -0000
The United Kingdom’s Office of Financial Sanctions Implementation (OFSI) has published a report detailing suspected breaches of UK financial sanctions involving UK property and related services firms since February 2022 and ongoing threats to sanctions compliance (the Assessment).

Why Did OFSI Focus on Property and Related Services?

Under the United Kingdom’s financial sanctions regime, property is an “economic resource”. Individuals and entities designated by OFSI (DPs) are prohibited from using UK financial services to execute property transactions and may also be subject to asset freezes, which include economic resources such as property.

Property and related services firms captured in the Assessment include UK firms and sole practitioners involved in the sale, maintenance or upkeep of properties. OFSI’s Assessment is a broad cross-sector assessment that considers a range of actors including: estate agents; letting agents; landlords; tenants; property managers; property investors; property developers; UK firms dealing with overseas properties; and overseas firms dealing with UK customers.

OFSI confirmed that almost half of suspected breaches related to UK residential property owned or let by DPs. The remainder of suspected breaches were linked to UK commercial properties, investments into UK properties, the use of UK property firms by DPs to facilitate overseas business interests and client relationships, and the renewal or continuation of property-related contracts (including insurance) on behalf of or for the benefit of DPs.

OFSI’s Key Findings

The Assessment sets out five key findings relevant to UK property and related services firms from February 2022 to present.

Underreporting of Breaches

OFSI found it was almost certain that UK property and related services firms have underreported suspected breaches of financial sanctions to OFSI. OFSI also observed significant delays in the identification and reporting of suspected breaches.

Noncompliance With Licence Conditions

OFSI stated it was almost certain that DPs have breached UK financial sanctions by making or facilitating transactions for the benefit of their UK properties without or outside the scope of an OFSI licence or applicable exception (further information on OFSI licencing can be found here).

OFSI found that the vast majority of suspected breaches of licence conditions related to payments made by DPs or connected entities for the maintenance of UK properties.

Russian DPs and Their Enablers

OFSI identified the use of professional and nonprofessional “enablers” who assist DPs in concealing their beneficial ownership or control of UK properties.

OFSI reports it was highly likely that property-related breaches of sanctions have been enabled by UK property firms facilitating the payment of household staff payments, council tax, utility bills, property maintenance services, letting services and more, without an applicable licence. This is particularly the case for small-scale property or related services firms or sole practitioners with high-risk appetites and longstanding relationships with DPs.

Family and Associates

OFSI found it was highly likely that DPs have used nonprofessional enablers, such as family and close associates, to frustrate UK financial sanctions by transferring ownership or control of property assets to family/associates to disguise beneficial ownership. Key giveaways are the use of family members of associates of DPs making payments for services relating to properties owned or controlled by a DP, e.g., through direct debits to settle insurance contracts, or for the maintenance of a property, or to pay for a subscription service at an address linked to a property.

OFSI encourages all UK firms to report any suspicious changes to the ownership or control of property assets linked to a Russian DP, particularly when properties are considered super prime properties, i.e., at the top 5% end of the property market.

Professional Enablers

OFSI considered it was almost certain that UK property and related services firms have acted as professional enablers for DPs, thereby facilitating sanctions breaches. Since February 2022, most professional enabler activity includes concierge and personal security services, other property-management services, or lifestyle-management services. Without a relevant OFSI licence, these payments could breach UK financial sanctions.

OFSI recommends staying alert to changes in ownership or control of a DP’s property asset, particularly if it has been recently divested to a percentage below 50% to bypass the basic due diligence checks.

Intermediary Jurisdictions

The Assessment also encouraged vigilance when “red flags” arise in conjunction with an intermediary jurisdiction nexus (i.e., a jurisdiction other than the United Kingdom or the jurisdiction to which UK financial sanctions apply). The Assessment found that Russian DPs structured their financial interests through a number of intermediary jurisdictions, some of which offer greater privacy in legal and financial systems. OFSI reported that since 2022, 22% of suspected breaches involved actors in intermediary jurisdictions including: Austria, Azerbaijan, the British Virgin Islands, the Republic of Cyprus, Jersey, Guernsey, Luxembourg, Switzerland, Türkiye, the United Arab Emirates and the United States.

Reporting

Property and related services are obliged to make Suspicious Activity Reports (SARs) to the National Crime Agency under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000 if money laundering or terrorist financing activities are known or suspected. Guidance on SARs is available here.

As of 14 May 2025, letting firms will join estate agents and other relevant firms in being required to report to OFSI if they know or have reasonable cause to suspect that a person is a DP or if a person has breached financial sanctions regulations, if the information or other matter on which the knowledge or cause for suspicion is based came to it in the course of carrying on its business. This applies regardless of the rental value of properties handled by letting agents and includes all forms of tenancies.

Practical Steps

To ensure compliance with your reporting obligations, the following practical steps are advised:
- Monitor and identify any red flags as indicated in the Assessment.
- Update client due diligence beyond basic ID checks to check beneficial owners and connected parties.
- Remind yourself of your specific reporting obligations under the Sanctions and Anti-Money Laundering Act 2018 by reading the guidance published by His Majesty’s Revenue and Customs.
- Complete a tailored risk assessment incorporating the above findings.
- Identify and comply with any applicable licence requirements.
Conclusion

OFSI’s Assessment builds on previous and related publications issued by OFSI and UK government partners, including the Financial Services Threat Assessment published by OFSI in February 2025 (see our corresponding alert here) and the Legal Services Threat Assessment published by OFSI in April 2025 (see our corresponding alert here).

If you have any questions on the Assessment or want further advice on developing your policies for UK sanctions compliance, please do not hesitate to contact the authors listed above.
Central Bank Fitness and Probity Consultation and Updates–April 2025

Wed, 23 Apr 2025 00:00:00 -0000

Following the 2024 independent review by Mr Andrea Enria (former Chair of the European Central Bank Supervisory Board) of the Central Bank of Ireland’s Fitness and Probity (F&P) assessment process, the Central Bank has published a report outlining the progress made on implementing Mr. Enria’s 12 recommendations and launched a consultation on proposed revisions to its F&P regime.

Report on Implementation of Recommendations

The report details the actions taken to date by the Central Bank to implement Mr. Enria’s recommendations across the review’s three areas of focus - (1) clarity of supervisory expectations; (2) internal governance of the process; and (3) fairness, efficiency and transparency of the process.

In response to the review’s finding that the Central Bank’s F&P standards were “fragmented across different documents and not user-friendly”, the Central Bank has proposed to update and consolidate the Central Bank’s guidance on the F&P standards into a single document.

The review also highlighted critical areas for improvement within the F&P gatekeeping process, including the need for enhanced seniority and independence in the final decision making stages. To address these gaps, the Central Bank has established a new F&P unit which has ownership of: (i) F&P gatekeeping assessment work with certain key responsibilities such as conducting assessment work across all F&P gatekeeping applications, (ii) approving F&P applications, and (iii) ensuring adherence to established process and progression of decisions in a timely manner. In addition, in cases of potential refusal, the F&P unit will now refer cases to a newly established ‘Gatekeeping Decisions Committee’ which is chaired by the Deputy Governor of Financial regulation within the Central Bank.

It was further noted that the Central Bank could make improvements to ensure that appropriate standards of fairness, efficiency and transparency are consistently achieved. To acknowledge this finding, the Central Bank has published an assessment process document which aims to codify and reflect the principle that regulatory assessments must be conducted with the utmost integrity and to ensure that applications are treated equitably.

Consultation Paper on Amendments to the Fitness and Probity Regime (CP160)

In addition to the report, the Central Bank published a consultation paper (CP160) in order to address the recommendations for increased clarity and transparency of supervisory expectations in relation to the application of the Central Bank’s F&P standards.

As part of this consultation, the Central Bank has sought feedback from stakeholders on the consolidation of and proposed enhancements to its existing guidance on the F&P standards, a draft of which is available on the Central Bank’s website (the Revised Guidance). With this Revised Guidance, the Central Bank aims to ensure industry understanding of the F&P assessment process by: (a) identifying and incorporating objective measures and role summaries for certain pre-approval controlled functions (PCFs); (b) including specific provisions on identifying, managing and mitigating conflicts of interest; (c) clarifying the way in which collective suitability and diversity within board and management teams are assessed; and (d) outlining the approach to be taken in determining the relevance of past events to an individual’s application.

The Central Bank further proposes to undertake a substantive review of PCF roles with a view to ensuring that the level of Central Bank gatekeeping is appropriate however, due to the fact that the list of PCF roles is embedded in the Senior Executive Accountability Regime Regulations, which is in its early stages of introduction, the Central Bank plans to defer this review to 2027. In the meantime however, the Central Bank has proposed to remove the sector specific categorisations so that there will be one list of PCFs applying to all regulated firms (other than Credit Unions).

Submissions to the consultation can be made via CP160@centralbank.ie until 10/07/2025.
ESMA Releases Final Draft RTS and Guidelines on Liquidity Management

Wed, 23 Apr 2025 00:00:00 -0000
ESMA Guidelines and Final Draft RTS on Liquidity Management Tools of UCITS and Open-Ended AIFs

Pursuant to the revised Directive 2011/61/EU (AIFMD) and Directive 2009/65/EC (UCITS Directive), the European Securities and Markets Authority (ESMA) was tasked with developing guidelines on the selection and calibration of liquidity management tools (LMTs) and developing regulatory technical standards (RTS) to determine the characteristics of LMTs available to managers of alternative investment funds (AIFs) (AIFMs) and of undertakings for collective investment in transferable securities (UCITS) (UCITS ManCos). On the back of this mandate, ESMA published a consultation paper (CP) on the draft guidelines and RTS.

The consultation period closed on 8 October 2024, with ESMA receiving 33 responses. Taking into account this stakeholder feedback, on 15 April 2025, ESMA published (i) its final report on the Guidelines on LMTs of UCITS and open-ended AIFs (the Guidelines) and (ii) its final report on the draft Regulatory Technical Standards on Liquidity Management Tools under the AIFMD and UCITS Directive.

Final Report on Guidelines on LMTs of UCITS and Open-Ended AIFs

On the back of feedback received during the consultation, ESMA made a number of changes to the Guidelines, deleting several sections that were previously included in the CP and amending other sections to provide more flexibility to AIFMs and UCITS ManCos. The Guidelines were also streamlined to avoid any overlaps with the RTS and the text contained in the AIFMD and UCITS Directive. Notable deletions from the Guidelines include:
- The guideline on governance principles, which previously stated that fund managers should develop an LMT policy which should document the conditions for the selection, activation and calibration of LMTs, and an LMT plan.
ESMA noted that the majority of stakeholder feedback highlighted that the LMT policy should be kept as an internal guidance document, and on the basis that the AIFMD and UCITS Directive already contain provisions mandating the implementation of policies and procedures for the activation and deactivation of LMTs and operational and administrative arrangements, ESMA deleted the sections of the Guidelines dedicated to the governance principles.
- The guideline on disclosure to investors, which mandated managers to provide disclosure to investors on the selection, activation and calibration of LMTs in the fund documentation, rules or instruments of incorporation, prospectus or periodic reports.
ESMA noted that notwithstanding the fact that the majority of stakeholders supported the principle of improving transparency to investors, they stressed the importance to strike the balance between appropriate disclosure, investor protection and unintended consequences. On the back of this, ESMA decided not to retain these sections of the Guidelines, but noted that managers should nonetheless be cognisant of the LMT disclosure obligations set down in the AIFMD and UCITS Directive for example, that a description of the AIF’s liquidity risk management shall be made available to investors by the AIFM.
- Certain other restrictive guidelines, including those that imposed more restrictive obligations on the selection, activation and calibration of LMTs, as it was noted that these guidelines limited the sole responsibility of the manager as prescribed by the AIFMD and UCITS Directive.
In contrast, ESMA retained certain guidelines that had previously been pushed back on by stakeholders including the guideline whereby managers should consider, where appropriate, the merit of selecting at least one quantitative LMT and at least one anti-dilution tool. While retaining this guideline, ESMA stressed that it is without prejudice to the ultimate responsibility of the manager for the selection of LMTs, including, where appropriate, redemptions in kind.

In light of the consultation feedback, ESMA noted that it has opted against a restrictive approach in the final Guidelines, instead emphasising the manager’s sole responsibility for selecting and implementing LMTs.

Draft Regulatory Technical Standards on Liquidity Management Tools Under the AIFMD and UCITS Directive

As was the case with ESMA’s final report on the Guidelines, ESMA, on the back of feedback received from stakeholders, made a number of updates to the draft RTS, in particular to make several changes and clarifications with regard to redemption gates, and also to remove the requirement to apply the same rules to all share classes.

Taking into account feedback from stakeholders, ESMA introduced flexibility in the way in which the activation threshold for redemption gates of AIFs can be expressed. The RTS for AIFs now stipulate that the thresholds can be expressed: (i) as a percentage of the net asset value (NAV) of the AIF, (ii) in a monetary value (or a combination of both), or (iii) as a percentage of liquid assets. For UCITS however, ESMA retained the existing language regarding activation thresholds in that they shall only be expressed as a percentage of the NAV of the UCITS. In addition to this, ESMA introduced an alternative method for the application of redemption gates for AIFs and UCITS under which redemption orders below or equal to a pre-determined redemption amount can be fully executed while redemption orders above this amount are subject to the redemption gate. This mechanism, ESMA explained, should serve to avoid small redemption orders being affected by large orders that drive the amount of redemptions above the activation threshold.

In addition, the draft RTS previously included provisions requiring the same level of LMTs to be applied to all share classes, however, given that the mandate of the RTS did not support the development of specific and comprehensive application of LMTs to share classes, these provisions have been removed.

Finally, stakeholder feedback alerted ESMA of the unintended consequences of the rules on redemption in kind for the functioning of the primary market of exchange-traded funds (ETFs). On the back of this, ESMA included a new provision in the UCITS RTS clarifying that the rule on pro-rata approach in the case of redemption in kind did not apply to authorised participants and market makers operating on the primary market of ETFs.

What Comes Next?

In terms of next steps, the final draft RTS have been submitted to the European Commission (the EC) for adoption and the EC have three months (which can be extended by one further month), to make a decision. The Guidelines shall start to apply on the date of entry into force of the RTS. Funds that existed before the entry into force of the RTS shall have 12 months to comply with the Guidelines.
AI Updates: Committees on Capitol Hill Continue Debate on Future of Emerging Technologies

Tue, 22 Apr 2025 00:00:00 -0000
“And if you study the history of the world, the nations that are the most military and economically domineer [sic] are the nations that are the most innovative,” Sen. Jon Husted (R-OH) remarked at a recent congressional hearing. This sentiment is shared by many of his colleagues on both sides of the aisle on Capitol Hill who recognize the need for America to stay at the forefront of development and deployment of artificial intelligence (AI). Lawmakers continue to be caught in a debate between promoting innovation and allowing for the creation of new technologies domestically while also safeguarding the American people from the risks they pose.

Last year, we saw action from both the Bipartisan House AI Task Force as well as the Senate AI Working Group releasing recommendations on next steps relating to AI (see here for our summary of the House’s report). Over the past few weeks, there has been renewed momentum in this new session of Congress, with numerous committees, covering a wide range of jurisdictions, holding hearings to discuss AI. The four hearings below range in jurisdiction and continue to show that AI touches nearly every industry:
- Harnessing Artificial Intelligence Cyber Capabilities, Senate Armed Services Committee
- America’s AI Moonshot: The Economics of AI, Data Centers, and Power Consumption, House Oversight Committee
- Converting Energy into Intelligence: the Future of AI Technology, Human Discovery, and American Global Competitiveness, House Energy and Commerce Committee
- Examining Trends in Innovation and Competition, House Judiciary Committee
Below we offer high level recaps for these hearings. Our team continues to track how Congress is grappling with AI and its impacts on numerous industries, with the expectation that we will continue to see a high level of interest from Capitol Hill and the Trump Administration on how to best regulate this critical technology.

Harnessing Artificial Intelligence Cyber Capabilities

On 25 March 2025, the Senate Armed Services Cybersecurity Subcommittee held a hearing titled Harnessing Artificial Intelligence Cyber Capabilities. Chaired by Sen. Mike Rounds (R-SD) and Ranking Member Senator Jacky Rosen (D-NV), the hearing gathered testimony from cyber-industry leaders and experts, focusing on the implications of integrating AI into the cyber defense and offense strategies of the Department of Defense (DOD). It also contemplated the role of human oversight in AI and the energy demands needed to support AI development.

Witnesses warned that the pursuit of artificial general intelligence (AGI) could create international tensions akin to that of the nuclear arms race. They argued that DOD will not be exempt from these dynamics. Drawing on the statements of the experts and the Senators, the message was clear: innovate or face an existential threat. As National Defense Authorization Act (NDAA) negotiations get underway for fiscal year (FY) 2026, these considerations are sure to be top of mind for many lawmakers as they have been in previous iterations of the bill. See here for our previous publication on AI in the FY 2025 NDAA.

America’s AI Moonshot: The Economics of AI, Data Centers, and Power Consumption

On 1 April 2025, the House Oversight Committee’s Economic Growth, Energy Policy, and Regulatory Affairs Subcommittee held a hearing titled America’s AI Moonshot: The Economics of AI, Data Centers, and Power Consumption. Like their Senate counterparts on the Armed Services Cybersecurity Subcommittee, the members of the House Oversight Committee warned of the consequences of falling behind in the AI arms race to foreign adversaries. There was not a clear consensus amongst the members, however, on how to meet the energy demand required by data centers used for AI. Natural gas, wind, solar, coal, and nuclear power were all floated as possible sources for energy. The members debated the tradeoffs between environmental impacts and sufficiency of the sources, especially as this relates to local communities where the data centers are or would be located.

Converting Energy Into Intelligence: The Future of AI Technology, Human Discovery, and American Global Competitiveness

On 9 April 2025, the House Energy and Commerce Committee held a hearing title Converting Energy into Intelligence: The Future of AI Technology, Human Discovery, and American Global Competitiveness, at which members echoed many of the points made during the House Oversight Committee’s hearing, especially in the debate of whether to use renewable or non-renewable energy sources. This, along with efforts from members like Rep. Julie Fedorchak (R-ND), who has started a new AI and Energy Working Group, shows the continued focus on how the US will power AI going forward. Rep. Fedorchak released a request for information in March and is working with stakeholders to develop a legislative framework for powering the future of AI.

Examining Trends in Innovation and Competition

On 2 April 2025, the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust held a hearing titled Examining Trends in Innovation and Competition. This hearing approached AI from a slightly different angle. The Subcommittee narrowed its discussion primarily to what a regulatory framework should look like. During the hearing, there was concern from witnesses that an overreaching framework could have a chilling effect on innovation. Witnesses alluded to the European model, and the GDPR and Digital Markets Act (DMA) in particular. Subcommittee Chair Scott Fitzgerald (R-WI) advocated instead for a framework more reflective of the method that the US has traditionally followed, saying “we need to stay true to what works, and that is free enterprise, open competition and light-touch regulatory approach that allows innovation to flourish.”

Momentum Continues in 2025

Although these hearings do not represent formal legislative momentum on AI, the bipartisan interest in AI is clear. With the expectation that Congress will continue to address AI writ large with a focus on energy and defense, we are expecting continued movement and robust policy efforts throughout the rest of 2025. This is a critical time for stakeholders to engage in this area, and our team is ready and available to assist.
Q1 2025 New York Artificial Intelligence Developments: What Employers Should Know About Proposed and Passed AI Legislation

Tue, 22 Apr 2025 00:00:00 -0000
In the first part of 2025, New York joined other states, such as Colorado, Connecticut, New Jersey, and Texas,¹seeking to regulate artificial intelligence (AI) at the state level. Specifically, on 8 January 2025, bills focused on the use of AI decision-making tools were introduced in both the New York Senate and State Assembly. As discussed further below, the New York AI Act Bill S01169²(the NY AI Act) focuses on addressing algorithmic discrimination by regulating and restricting the use of certain AI systems, including in employment. The NY AI Act would allow for a right of private action, empowering citizens to bring lawsuits against technology companies. Additionally, the New York AI Consumer Protection Act Bill A00768³(the Protection Act) would amend the general business law to prevent the use of AI algorithms to discriminate against protected classes, including in employment.

This alert discusses these two pieces of legislation and provides recommendations for employers as they navigate the patchwork of proposed and enacted AI legislation and federal guidance.

Senate Bill 1169

On 8 January 2025, New York State Senator Kristen Gonzalez introduced the NY AI Act because “[a] growing body of research shows that AI systems that are deployed without adequate testing, sufficient oversight, and robust guardrails can harm consumers and deny historically disadvantaged groups the full measure of their civil rights and liberties, thereby further entrenching inequalities.” The NY AI Act would cover all “consumers,” defined as any New York state resident, including residents who are employees and employers.⁴The NY AI Act states that “[t]he legislature must act to ensure that all uses of AI, especially those that affect important life chances, are free from harmful biases, protect our privacy, and work for the public good.”⁵It further asserts that, as the “home to thousands of technology start-ups,” including those that experiment with AI, New York must prioritize safe innovation in the AI sector by providing clear guidance for AI development, testing, and validation both before a product is launched and throughout the product’s life.⁶

Setting the NY AI Act apart from other proposed and enacted state AI laws,⁷the NY AI Act includes a private right of action allowing New York state residents to file claims against technology companies for violations. The NY AI Act also provides for enforcement by the state’s attorney general. In addition, under the proposed law, consumers have the right to opt out of automated decision-making or appeal its results.

The NY AI Act defines “algorithmic discrimination” as any condition in which the use of an AI system contributes to unjustified differential treatment or impacts, disfavoring people based on their actual or perceived age, race, ethnicity, creed, religion, color, national origin, citizenship or immigration status, sexual orientation, gender identity, gender expression, military status, sex, disability, predisposing genetic characteristics, familial status, marital status, pregnancy, pregnancy outcomes, disability, height, weight, reproductive health care or autonomy, status as a victim of domestic violence, or other classification protected under state or federal laws.⁸

The NY AI Act demands that “deployers” using a high-risk AI system⁹for a consequential decision¹⁰comply with certain obligations. “Deployers” is defined as “any person doing business in [New York] state that deploys a high-risk artificial intelligence decision system.”¹¹This includes New York employers. For instance, deployers must disclose to the end user in clear, conspicuous, and consumer-friendly terms that they are using an AI system that makes consequential decisions at least five business days prior to the use of such system. The deployer must allow sufficient time and opportunity in a clear, conspicuous, and consumer-friendly manner for the consumer to opt-out of the automated process and for a human representative to make the decision. A consumer may not be punished or face any other adverse action for opting out of a decision by an AI system and the deployer must render a decision to the consumer within 45 days.¹²

Further, any deployer that employs a high-risk AI system for a consequential decision must inform the end user within five days in a clear, conspicuous, and consumer-friendly manner if a consequential decision has been made entirely by or with assistance of an automated system. The deployer must then provide and explain a process for the end user to appeal the decision, which must at minimum allow the end user to (a) formally contest the decision, (b) provide information to support their position, and (c) obtain meaningful human review of the decision.¹³

Additionally, deployers must complete an audit before using a high-risk AI system, six months after deployment, and at least every 18 months thereafter for each calendar year a high-risk AI system is in use. Regardless of final findings, the deployers shall deliver all audits conducted to the attorney general.

As mentioned above, enforcement is permitted by the attorney general or a private right of action by consumer citizens. If a violation occurs, the attorney general may request an injunction to enjoin and restrain the continuance of the violation.¹⁴Whenever the court shall determine that a violation occurred, the court may impose a civil penalty of not more than US$20,000 for each violation. Further, there shall be a private right of action for any person harmed by any violation of the NY AI Act. The court shall award compensatory damages and legal fees to the prevailing party.¹⁵

The NY AI Act also offers whistleblower protections, prohibits social scoring AI systems, and prohibits waiving legal rights.¹⁶

Assembly Bill 768

Also on 8 January 2025, New York State Assembly Member Alex Bores introduced the Protection Act. Like the NY AI Act, the Protection Act seeks to prevent the use of AI algorithms to discriminate against protected classes.

The Protection Act defines “algorithmic discrimination” as any condition in which the use of an AI decision system results in any unlawful differential treatment or impact that disfavors any individual or group of individuals on the basis of their actual or perceived age, color, disability, ethnicity, genetic information, English language proficiency, national origin, race, religion, reproductive health, sex, veteran status, or other classification protected pursuant to state or federal law.¹⁷

The Protection Act requires a “bias and governance audit” consisting of an impartial evaluation by an independent auditor, which shall include, at a minimum, the testing of an AI decision system to assess such system’s disparate impact on employees because of such employee’s age, race, creed, color, ethnicity, national origin, disability, citizenship or immigration status, marital or familial status, military status, religion, or sex, including sexual orientation, gender identity, gender expression, pregnancy, pregnancy outcomes, and reproductive healthcare choices.¹⁸

If enacted, beginning 1 January 2027, the Protection Act would require each deployer of a high-risk AI decision system to use reasonable care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination.¹⁹Specifically, deployers would be required to implement and maintain a risk management policy and program that is regularly reviewed and updated. The Protection Act references external sources employers can look to for guidance and compliance, such as the “AI Risk Management Framework” published by the National Institute of Standards and Technology and the ISO/IEC 42001 of the International Organization for Standardization.²⁰

On 1 January 2027, employers deploying a high-risk AI decision system that makes or is a substantial factor in making a consequential decision concerning a consumer would also have to:
- Notify the consumer that the deployer has used a high-risk AI decision system to make, or be a substantial factor in making, a consequential decision.
- Provide to the consumer a statement disclosing: (I) the purpose of the high-risk AI decision system; and (II) the nature of the consequential decision.²¹
- Make available a statement summarizing the types of high-risk AI decision systems that are currently used by the deployer.
- Explain how the deployer manages any known or reasonably foreseeable risks of algorithmic discrimination.
- Notify the consumer of the nature, source, and extent of the information collected and used by the deployer.²²
New York City Council Local Law Int. No. 1894-A

While the NY AI Act and Protection Act are not yet enacted, New York City employers should ensure they are following Local Law Int. No. 1984-A (the NYC AI Law), which became effective on 5 July 2023. The NYC AI Law aims at protecting job candidates and employees from unlawful discriminatory bias based on race, ethnicity, or sex when employers and employment agencies use automated employment decision-making tools (AEDTs) as part of employment decisions.

Compared to the proposed state laws, the NYC AI Law narrowly applies to employers and employment agencies in New York City that use AEDTs to screen candidates or employees for positions located in the city. Similar to the proposed state legislation, bias audits and notice are required whenever an AEDT is used. Notice must be provided to candidates and employees of the use of AEDTs at least 10 business days in advance. Under the NYC AI Law, an AEDT is:

[A]ny computational process, derived from machine learning, statistical modeling, data analytics, or [AI], that issues simplified output, including a score, classification, or recommendation, that is used to substantially assist or replace discretionary decision making for making employment decisions that impact natural persons.

The NYC AI Law demands audits be completed by an independent auditor who details the sources of data (testing or historical) used in the audit. The results of the bias audit must be published on the website of employers and employment agencies, or an active hyperlink to a website with this information must be provided, for at least six months after the latest use of the AEDT for an employment decision. The summary of results must include (i) the date of the most recent bias audit of the AEDT; (ii) the source and explanation of the data; (iii) the number of individuals the AEDT assessed that fall within an unknown category; and (iv) the number of applicants or candidates, the selection or scoring rates, as applicable, and the impact ratios for all categories.²³The penalties for noncompliance with the NYC AI Law include penalties of US$500 to US$1,500 per violation, and there is no cap on the civil penalties. Further, the NYC AI Law authorizes a private right of action, in court or through administrative agencies, for aggrieved candidates and employees.

Takeaways for Employers

Employers should work to be in compliance with the existing NYC AI Law and prepare for future state legislation.²⁴

Employers should:
- Assess AI Systems: Identify any AI systems your company develops or deploys, particularly those used in consequential decisions related to employment.
- Review Data Management Policies: Ensure your data management policies comply with data security protection standards.
- Prepare for Audits: Familiarize yourself with the audit requirements and begin preparing for potential audits of high-risk AI systems.
- Develop Internal Processes: Establish internal processes for employee disclosures related to AI system violations.
- Monitor Legislation: Stay informed about proposed bills, such as AB3265²⁵and AB3356,²⁶and continually review guidance from federal agencies.
Our Labor, Employment, and Workplace Safety lawyers regularly counsel clients on a wide variety of concerns related to emerging issues in labor, employment, and workplace safety law and are well-positioned to provide guidance and assistance to clients on AI developments.

Combatting Scams in Australia, Singapore, China and Hong Kong

Thu, 17 Apr 2025 00:00:00 -0000

Key Points:

Singapore's Shared Responsibility Framework
Comparing scams regulation in Australia, Singapore and the UK
China's Anti-Telecom and Online Fraud Law
Hong Kong's Anti-Scam Consumer Protection Charter and Suspicious Account Alert Regime

The increased reliance on digital communication and online banking has created greater potential for digitally-enabled scams. If not appropriately addressed, scam losses may undermine confidence in digital systems, resulting in costs and inefficiencies across industries. In response to increasingly sophisticated scam activities, countries around the world have sought to develop and implement regulatory interventions to mitigate growing financial losses from digital fraud. So far in our scam series, we have explored the regulatory responses in Australia and the UK. In this publication, we take a look at the regulatory environments in Singapore, China and Hong Kong, and consider how they might inform Australia's industry-specific codes.

SINGAPORE

Shared Responsibility Framework

In December 2024, Singapore's Shared Responsibility Framework (SRF) came into force. The SRF, which is overseen by the Monetary Authority of Singapore (MAS) and Infocomm Media Development Authority (IMDA), seeks to preserve confidence in digital payments and banking systems by strengthening accountability of the banking and telecommunications sectors while emphasising individuals' responsibility for vigilance against scams.

Types of Scams Covered

Unlike reforms in the UK and Australia, the SRF explicitly excludes scams involving authorised payments by the victim to the scammer. Rather, the SRF seeks to address phishing scams with a digital nexus. To fall within the scope of the SRF, the transaction must satisfy the following elements:

The scam must be perpetrated through the impersonation of a legitimate business or government entity;
The scammer (or impersonator) must use a digital messaging platform to obtain the account user's credentials;
The account user must enter their credentials on a fabricated digital platform; and
The fraudulently obtained credentials must be used to perform transactions that the account user did not authorise.

Duties of Financial Institutions

The SRF imposes a range of obligations on financial institutions (FIs) in order to minimise customers' exposure to scam losses in the event their account information is compromised. These obligations are detailed in table 1 below.

Table 1
Obligation	Description
12-hour cooling off period	Where an activity is deemed "high-risk", FIs must impose a 12-hour cooling off period upon activation of a digital security token. During this period, no high-risk activities can be performed In activity is deemed to be "high-risk" if it might enable a scammer to quickly transfer a large sum of money to a third party without triggering a customer alert. Examples include: Addition of new payee to the customer's account; Increasing transaction limits; Disabling transaction notification alerts; and Changing contact information.
Notifications for activation of digital security tokens	FIs must provide real-time notifications when a digital security token is activated or a high-risk activity occurs. When paired with the cooling off period, this obligation increases the likelihood that unauthorised account access is brought to the attention of the customer before funds can be stolen.
Outgoing transaction alerts	FIs must provide real-time alerts when outgoing transactions are made.
24/7 reporting channels with self-service kill switch	FIs must have in place 24/7 reporting channels which allow for the prompt reporting of unauthorised account access or use. This capability must include a self-service kill-switch enabling customers to block further mobile or online access to their account, thereby preventing further unauthorised transactions.

Duties of Telecommunications Providers

In addition to the obligations imposed on FIs, the SRF creates three duties for telecommunications service providers (TSPs). These duties are set out in table 2 below.

Table 2
Obligation	Description
Connect only with authorised alphanumeric senders	In order to safeguard customers against scams, any organisation wishing to send short message service (SMS) messages using an alphanumeric sender ID (ASID) must be registered and licensed. TSPs must block the sending of SMS messages using ASIDs if the sending organisation is not appropriately registered and licensed.
Block any message sent using an unauthorised ASID	Where the ASID is not registered, the TSP must prevent the message from reaching the intended recipient by blocking the sender.
Implement anti-scam filters	TSPs must implement anti-scam filters which scan each SMS for malicious elements. Where a malicious link is detected, the system must block the SMS to prevent it from reaching the intended recipient.

Responsibility Waterfall

Similar to the UK's Reimbursement Rules explored in our second article, the SRF provides for the sharing of liability for scam losses. However, unlike the UK model, the SRF will only require an entity to reimburse the victim where there has been a breach of the SRF. The following flowchart outlines how the victim's loss will be assigned.

^{Source: Tamsyn Sharpe.}

HOW DOES THE SRF COMPARE TO THE MODELS IN AUSTRALIA AND THE UK?

Scam Coverage

The type of scams covered by Singapore's SRF differ significantly to those covered by the Australian and UK models. In Australia and the UK, scams regulation targets situations in which customers have been deceived into authorising the transfer of money out of their account. In contrast, Singapore's SRF expressly excludes any scam involving the authorised transfer of money. The SRF instead targets phishing scams where the perpetrator obtains personal details in order to gain unauthorised access to the victim's funds.

Entities Captured

Australia's Scams Prevention Framework (SPF) covers the widest range of sectors, imposing obligations on entities operating within the banking and telecommunications sectors as well as any digital platform service providers which offer social media, paid search engine advertising or direct messaging services. The explanatory materials note an intention to extend the application of the SPF to new sectors as the scams environment continues to evolve.

In contrast, the UK's Reimbursement Rules only apply to payment service providers using the faster payments system with the added requirement that the victim or perpetrator's account be held in the UK. Any account provided by a credit union, municipal bank or national savings bank will be outside the scope of the Reimbursement Rules.

Falling in-between these two models is Singapore's SRF which applies to FIs and TSPs.

Liability for Losses

Once again, the extent to which financial institutions are held liable for failing to protect customers against scam losses in Singapore lies somewhere between the Australian and UK approaches. Similar to Singapore's responsibility waterfall, a financial institution in Australia will be held accountable only if the institution has breached its obligations under the SPF. However, unlike the requirement to reimburse victims for losses in Singapore, Australia's financial institutions will be held accountable through the imposition of administrative penalties. In contrast, the UK's Reimbursement Rules provide for automatic financial liability for 100% of the customer's scam losses, up to the maximum reimbursable amount, to be divided equally where two financial institutions are involved.

CHINA

Anti-Telecom and Online Fraud Law of the People's Republic of China

China's law on countering Telecommunications Network Fraud (TNF) requires TSPs, Banking FIs and internet service providers (ISPs) to establish internal mechanisms to prevent and control fraud risks. Entities failing to comply with their legal obligations may be fined the equivalent of up to approximately AU$1.05 million. In serious cases, business licences or operational permits may be suspended until an entity can demonstrate it has taken corrective action to ensure future compliance.

Scope

China's anti-scam regulation defines TNF as the use of telecommunication network technology to take public or private property by fraud through remote and contactless methods. Accordingly, it extends to instances in which funds are transferred without the owner's authorisation. To fall within the scope of China's law, the fraud must be carried out in mainland China or externally by a citizen of mainland China, or target individuals in mainland China.

Obligations of Banking FIs

Banking FIs are required to implement risk management measures to prevent accounts being used for TNF. Appropriate policies and procedures may include:

Conducting due diligence on all new clients;
Identifying all beneficial owners of funds:
Requiring frequent verification of identity for high-risk accounts:
Delaying payment clearance for abnormal or suspicious transactions: and
Limiting or suspending operation of flagged accounts.

The People's Bank of China and the State Council body are responsible for the oversight and management of Banking FIs. The anti-scams law provides for the creation of inter-institutional mechanisms for the sharing of risk information. All Banking FIs are required to provide information on new account openings as well as any indicators of risk identified when conducting initial client due diligence.

Obligations of TSPs and ISPs

TSPs and ISPs are similarly required to implement internal policies and procedures for risk prevention and control in order to prevent TNF. This includes an obligation to implement a true identity registration system for all telephone/internet users. Where a subscriber identity module (SIM) card or internet protocol (IP) address has been linked to fraud, TSPs/ISPs must take action to verify the identity of the owner of the SIM/IP address.

HONG KONG

Hong Kong lacks legislation which specifically deals with scams. However, a range of non-legal strategies have been adopted by the Hong Kong Monetary Authority (HKMA) in order to address the increasing threat of digital fraud.

Anti-Scam Consumer Protection Charter

The Anti-Scam Consumer Protection Charter (Charter) was developed in collaboration with the Hong Kong Association of Banks. The Charter aims to guard customers against digital fraud such as credit card scams by committing to take protective actions. All 23 of Hong Kong's card issuing banks are participating institutions.

Under the Charter, participating institutions agree to:

Refrain from sending electronic messages containing embedded hyperlinks. This allows customers to easily identify that any such message is a scam.
Raise public awareness of common digital fraud.
Provide customers with appropriate channels to allow them to make enquiries for the purpose of verifying the authenticity of communications and training frontline staff to provide such support.

More recently, the Anti-Scam Consumer Protection Charter 2.0 was created to extend the commitments to businesses operating in a wider range of industries including:

Retail banking;
Insurance (including insurance broking);
Trustees approved under the Mandatory Provident Fund Scheme; and
Corporations licensed under the Securities and Futures Ordinance.

Suspicious Account Alerts

In cooperation with Hong Kong's Police Force and the Association of Banks, the HKMA rolled out suspicious account alerts. Under this mechanism, customers have access to Scameter which is a downloadable scam and pitfall search engine. After downloading the Scameter application to their device, customers will receive real-time alerts of the fraud risk of:

Bank accounts prior to making an electronic funds transfer;
Phone numbers based on incoming calls; and
Websites upon launch of the site by the customer.

In addition to receiving real-time alerts, users can also manually search accounts, numbers or websites in order to determine the associated fraud risk.

Scameter is similar to Australia's Scamwatch, which provides educational resources to assist individuals in protecting themselves against scams. Users can access information about different types of scams and how to avoid falling victim to these. Scamwatch also issues alerts about known scams and provides a platform for users to report scams they have come across.

KEY TAKEAWAYS

Domestic responses to the threat of scams appear to differ significantly. Legal approaches explored so far in this series target financial and telecommunications sectors, seeking to influence entities in these industries to adopt proactive measures to prevent, detect and respond to scams. While the UK aims to achieve this by placing the financial burden of scam losses on banks, China and Australia adopt a different approach by imposing penalties on entities failing to comply with their legal obligations. Singapore has opted for a blended approach whereby entities which have failed to comply with the legal obligations under the SRF will be required to reimburse customers who have fallen victim to a scam. However, where the entities involved have met their legal duties, the customer will continue to bear the loss.

Look out for our next article in our scams series.

The authors would like to thank graduate Tamsyn Sharpe for her contribution to this legal insight.

Mergers and Acquisitions in Australia in 2025

Wed, 16 Apr 2025 00:00:00 -0000
A Recap: Expectations for 2025 Versus Reality to Date

2025 began with optimism that mergers and acquisitions (M&A) activity would continue to increase this year. In Australia and globally, 2024 saw the value of M&A activity increase on the prior year, with many surveys recording cautious optimism for increased deal flow in the year ahead across sectors and regions.

The key drivers of the expected upturn in M&A were the following:
- Record levels of dry powder in private capital and private equity (PE) hands.
- An expectation of further interest rate reductions.
- The benefits of reduced regulation—cutting red tape was a mainstay of the policy promises of many of the political parties elected in 2024's election cycles around the globe.
- Greater political certainty following the unusually high number of elections globally in 2024.
- Hot sectors, including technology, especially digital transformation, and artificial intelligence starting to deliver (or not) on its transformative promise, energy transition and financial services.
However, Q1 did not deliver on these early promises in the manner expected. In the United States, the expectations of greater certainty that dealmakers looked forward to because of single-party control of the White House and both houses of Congress was tempered by a lack of clarity on implementation.

Whilst directionally it remained clear through Q1 that significantly higher tariffs will be imposed by the United States on imports from many countries in addition to China, the extent remained unpredictable and the real motivations for introducing them uncertain. Similarly, whilst the new administration's efforts to remove red tape were eagerly anticipated by many, the pace and extent of executive orders has surprised and is leading to widespread challenge, again undermining certainty.

Citing productivity and wage growth concerns, the Reserve Bank of Australia indicated at the end of March that further target rate cuts were unlikely in the near term.

Then the US "Liberation Day" tariffs were announced on 2 April, and the hopes of a more stable economic and political environment for M&A in 2025 were confounded. The sharp declines in global market indices immediately following their announcement is testament to the significant underestimation of the scope and size of the tariffs initially announced. Pauses on implementation, retaliatory and further tariffs, as well as bi-lateral tariff reduction negotiations, are set to continue to bring surprises for some time. Market sentiment will continue to decline as recessionary fears abound.

Meanwhile, Australia is gearing up for its own federal elections in May 2025, and economists currently predict that interest rate cuts of around one percentage point (in aggregate) are likely over the next 12 months, with the first cut predicted in May.

So, what for M&A in the balance of 2025?

Predictions

Trade Instability

In terms of the political forces shaping Australian M&A, Australia's federal elections have already been trumped by US tariff announcements.¹ We are at the start of the biggest reworking of international trade relations in over a century. With only 5% of our goods exports going to the United States, and (so far) the lowest levels of reciprocal US tariffs applied to Australia, the direct impacts to Australia's economy are likely to be far outweighed by the indirect effects of the tariffs applied to China and other trading partners. Capital flows, including direct investment, must shift in anticipation of and in response to these changes, but forecasting the impacts on different sectors and businesses (and their effect on valuations) will remain complex for some time, weighing heavily on M&A activity until winners and losers start to emerge.

Foreign Investment

With a weak dollar and a stable political and regulatory environment, Australia will continue to be an attractive destination for inbound investment, not least in the energy transition, technology and resources sectors. Rising defence expenditure around the globe, and AUKUS, remain tailwinds for Australian defence sector investment. We expect further increases in Japanese inbound investment driven by their own domestic pressures. However, a report prepared by KPMG and the University of Sydney² pours cold water on a further strengthening of interest from Chinese investors, despite the 43% year-on-year increase in 2024, citing Foreign Investment Review Board (FIRB) restrictions on critical minerals and, more generally, a move toward greater investment in Southeast Asia and Belt and Road Initiative countries.

FIRB

Last year, FIRB made welcome headway in shortening its response times for straightforward decisions. The recent updates to FIRB's tax guidance and the new submissions portal are likely to require front-loading of the provision of tax information by applicants, which should further support a shortening of average approval times. These changes are welcome, as is the introduction of a refund/credit scheme for filing fees in an unsuccessful competitive bid. Whilst these changes will not affect the volume of M&A, they may well facilitate an increase in the speed of execution of auction processes.

Regulatory Changes

Whilst we do not expect the outcome of federal elections to be a key driver of M&A activity in 2025 overall, the slowing of FIRB approvals during caretaker mode and the potential backlog post-election will lead some inbound deal timetables to lengthen in the short term, especially if there is a change in government. In Q2, we expect Australia's move to a mandatory and suspensory merger clearance regime will have the opposite effect. Even as full details of the new merger regime continue to be revealed, we expect some activity will be brought forward to avoid falling under the new regime at the start of 2026.

Larger Deals

Although surveys report an increase in total transaction value in 2024, they also show there were fewer transactions overall. After the rush of transaction activity in 2021 and 2022, and the proximity to the end of post-pandemic stimulus, it is perhaps too easy to characterise the current environment as one of caution. However, market perception is still that deals are taking longer to execute, with early engagement turning frequently into protracted courtship and translating into longer and more thorough due diligence processes. This favours a concentration on deals with larger cheque sizes, a trend mirrored in Australian venture capital (VC) investing in 2024 and which we see set to continue in 2025.

PE

Globally, PE deal volumes surged in 2024, with Mergermarket reporting PE acquisitions and exits exceeding US$25.3 billion and US$18.9 billion, respectively. There remains an avalanche of committed capital to deploy and a maturity wall of capital tied up in older funds to return. It is these fundamentals that are expected to drive sponsor deal activity, in spite of the ongoing global sell-off in equities. PitchBook's Q1 results for Oceania PE bear this out. Corporates looking to refocus away from noncore operations or requiring cashflow will continue to find healthy competition for carve outs among PE buyers, and an increase on the relatively low value of PE take-privates in Australia in 2024 is predicted. Family-owned companies with succession issues are also expected to provide opportunities for PE buyers. Nevertheless, we expect more secondary transactions, including continuation funds, will be required to grease the cogs in these circumstances.

VC Exits

The rising prevalence of partial exits via secondary sales is shown neatly in the State of Australian Startup Funding 2024 report.³ Whilst those surveyed still rate a trade sale as their most likely exit, secondaries were next and IPOs were considered the least likely. The report notes 59% of surveyed Series B or later founders said they had sold shares to secondary buyers, and 23% of investors said they sold secondaries in 2024. Following the success of secondaries like that of Canva and Employment Hero, secondaries will continue to provide much-needed liquidity to founders and fund investors alike. There is also a recognition of the value of such transactions in advance of an IPO, because they bring in new investors who may be expected to stay invested longer post-float. With valuations settling following their retreat from pandemic highs, PE acquisitions of Australian venture-backed companies rose in 2024 especially from overseas buyers. With the launch of more local growth funds targeting these assets, we expect that trend to increase.
What Legal Services Providers Need to Learn From OFSI's Legal Services Threat Assessment

Tue, 15 Apr 2025 00:00:00 -0000
In its first-ever threat assessment of the UK legal sector, the UK’s Office of Financial Sanctions Implementation (OFSI) has raised red flags with regards to suspected sanctions breaches involving UK legal services providers since February 2022 (the Assessment).

Why Did OFSI Focus on Legal Services Providers?

Legal services providers play a crucial role in ensuring UK and international clients (including UK Designated Persons (DPs)) comply with UK financial sanctions. All legal services providers must ensure compliance not only with the Russian sanctions regime but also other threats to compliance relevant to the United Kingdom, including the UK’s sanctions regimes applicable to Libya, Belarus, Iran and South Sudan, amongst others.

OFSI’s Key Findings

The Assessment sets out four key findings relevant to UK legal services providers from February 2022 to present.

Underreporting of Breaches

OFSI found it was highly likely that UK trust and company services providers (TCSPs) may not fully disclose suspected breaches due to inconsistent detection policies and the failure to monitor clients’ sanctions status.

Since the reporting time frame of February 2022 until the publishing of this Assessment, OFSI identified that 16% of the total number of suspected breach reports received have come from the legal services sector (compared with 65% submitted by the financial services sector). 98% of these were submitted by law firms and barristers, while TCSPs and other types of legal services providers submitted only 2%. OFSI considered this as strongly suggestive that TCSPs were under-reporting.

Compliance Failures

OFSI stated that it was almost certain that most non-compliance by UK legal services providers has occurred due to the following:

Improper Maintenance of Frozen Assets

All DPs accounts, funds and resources, including those held by entities owned or controlled by DPs, must be operated in accordance with asset freeze prohibitions and OFSI licence permissions. OFSI observed legal services providers failing to adhere to asset freeze prohibitions, including delays in freezing funds belonging to DP clients and transferring frozen funds into accounts other than those specified in OFSI licences.

Breaches of Specific and General OFSI Licence Conditions

Receiving payment for legal services rendered to DPs, including services provided on credit, requires an OFSI licence. Specific compliance issues included billing sanctioned DPs more than the value limits set in the relevant licence or receiving payments after the relevant licence has expired.

Reporting

OFSI encourages legal services providers to review licence reporting requirements, including making a report within 14 days of receiving payment under a general licence and providing relevant documentation that sets out the obligation under which the payment has been made.

Wind-down of Russia Related Operations

Many UK legal services providers, including law firms, wound down their operations in Russia following its invasion of Ukraine and advised clients regarding the same. OFSI identified that legal services providers must ensure these activities were conducted in line with general and specific licence permissions and to report any suspected breaches which may have occurred as a result. The recent financial penalty imposed on HSF by OFSI in relation to the activities of HSF Moscow highlights these risks.

Complex Ownership and Control Structures

OFSI considered it was almost certain that complex corporate structures, including trusts, linked to Russian DPs and that their family members have concealed the ownership and control of assets which should have been frozen under UK financial sanctions. The Assessment encourages legal service providers to identify and report any suspected breaches, including those arising from non-designated individuals or entities dealing with frozen assets held through these complex structures.

Post-designation Ownership and Control Transfers

OFSI considered it likely that Russian DPs have sought to recoup frozen assets and even dissipate them beyond the reach of UK financial sanctions to non-designated individuals and entities. This generally requires the involved of other parties enabling these activities, including:
- Professional enablers which provide professional services that enable criminality.
- Non-professional enablers, such as family members, ex-spouses or associates.
Legal service providers need to ensure that they are not, directly or indirectly, enabling such activity by DPs or by non-professional enablers acting in support of DPs.

Intermediary Countries

Approximately 23% of the suspected breach reports identified by OFSI as involving UK legal services providers are connected to intermediary jurisdictions. The Assessment highlights a series of red flags for lawyers to look out for when dealing with jurisdictions such as: the British Virgin Islands, Guernsey, Cyprus, Switzerland, Austria, Luxembourg, United Arab Emirates and Turkey, as well as the Isle of Man, Jersey and the Cayman Islands.

Practical Steps

Legal services providers are obliged to make Suspicious Activity Reports to the National Crime Agency (NCA) under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000 if money laundering or terrorist financing activities are known or suspected. Further information about reporting to the NCA and OFSI can be found here and here.

Legal service providers should take the following steps, amongst others, to ensure compliance with the UK sanctions regime:
- Monitor and identify any red flags;
- Update client due diligence beyond basic ID checks to check beneficial owners and connected parties;
- Screen every transaction against OFSI’s consolidated list (see here);
- Complete a tailored risk assessment, incorporating the above findings, and undertake any remedial activities; and
- Identify and comply with any applicable licence requirements.
Conclusion

OFSI’s Assessment builds on previous and related publications issued by OFSI and UK government partners, including the Financial Services Threat Assessment published by OFSI in February 2025 (see our corresponding alert here). OFSI encourages legal services providers to both report now and retrospectively, where appropriate and proportionate, if they suspect a breach linked to the content of this Assessment.

If you have any questions on the Assessment or want further advice on developing your policies for UK sanctions compliance, please do not hesitate to contact the authors listed above.
Brussels Regulatory Brief: March 2025

Tue, 15 Apr 2025 00:00:00 -0000

Antitrust and Competition

European Commission Launches Evaluation of the Geo-Blocking Regulation

On 11 February 2025, the European Commission launched a call for evidence to seek stakeholders’ views on the Geo-Blocking Regulation (EU) 2018/302 to assess its effectiveness. The Geo-Blocking Regulation prohibits geography-based restrictions that limit online shopping and cross-border sales within the European Union.

Financial Affairs

Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards

The Commission is proposing to shorten the settlement cycle under the Central Securities Depository Regulation (CSDR) while the European Securities and Market Authority (ESMA) is consulting on technical amendments to standards in relation to settlement discipline.

Omnibus Simplification Package: Parliament and Council Start Internal Discussions

Member States and Members of the European Parliament (MEPs) started examining the simplification proposal put forward by the European Commission (Commission), outlining next steps and indicative timeline for its adoption.

Other

European Commission Proposes Simplification CBAM Ahead of Full Entry into Force

The European Commission has proposed a series of measures to simplify the implementation of the EU Carbon Border Adjustment Mechanism (CBAM), which is set to take full effect in January 2026.

ANTITRUST AND COMPETITION

European Commission Launches Evaluation of the Geo-Blocking Regulation

On 11 February 2025, the European Commission (Commission) launched a call for evidence on the Geo-Blocking Regulation (EU) 2018/302 (Geo-Blocking Regulation) aimed at evaluating its effectiveness. Geo-blocking refers to the practice used by online sellers to restrict online cross-border sales based on nationality, residence, or place of establishment. This type of conduct can be implemented in different forms, such as blocking access to websites, redirecting users to country-specific sites, or applying different prices and conditions based on the user’s location.

The Geo-Blocking Regulation, which entered into force on 3 December 2018, lays down provisions that aim at preventing these practices. It implements the “shop-like-a-local” principle, under which customers from other Member States should be able to purchase under the same conditions as those applied to domestic customers. Thus, the Geo-Blocking Regulation aims at eliminating unjustified geo-blocking and other forms of discrimination based on nationality, place of residence, or establishment within the European Union (EU).

The call for evidence seeks feedback from stakeholders, including consumers, businesses, and national authorities, to assess whether the Geo-Blocking Regulation has met its objectives and to identify any remaining barriers to cross-border trade or whether further measures are needed to enhance its effectiveness. In particular, the evaluation will cover issues raised by stakeholders, such as territorial supply constraints and cross-border availability of (and access to) copyright-protected content. The call for evidence is based on the review clause set forth in Article 9 of the Geo-Blocking Regulation, which requires the Commission to report on its evaluation to the European Parliament, the Council of the EU, and the European Economic and Social Committee. The scope of the evaluation includes the period running from 3 December 2018 to 31 December 2024 and will cover the entire European Economic Area (EEA) which comprises the EU 27 Member States and Liechtenstein, Iceland, and Norway.

The evaluation should help the Commission to determine whether further measures are needed to address perceived barriers and strengthen cross-border trade in the EU. Therefore, based on the feedback received during the call for evidence, the Commission may consider changes to the current Geo-Blocking Regulation to enhance consumer protection, promote cross-border trade, and foster a more integrated and dynamic EU economy. Stakeholders were invited to provide feedback until 11 March 2025. Subsequently, the Commission will launch a public consultation consisting in the form of a questionnaire.

Geo-blocking is also relevant from a competition law enforcement perspective. In 2021, the Commission imposed a fine on Valve and five video game publishers of €7.8 million for bilaterally agreeing to geo-block video games within certain EEA Member States in breach of Article 101 of the Treaty on the Functioning of the European Union. The Commission found that the agreement between Valve and each publisher inadmissibly partitioned the EEA market. Likewise, in May 2024, the Commission fined one of the world’s largest producers of chocolate and biscuit products €337.5 million for engaging in anticompetitive agreements or concerted practices aimed at restricting cross-border trade of various chocolate, biscuit, and coffee products.

The continued focus on geo-blocking practices confirms the Commission’s strong stance against any perceived restrictions to the detriment of the EU single market.

FINANCIAL AFFAIRS

Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards

On 12 February, the Commission adopted a proposal to amend the Central Securities Depositories Regulation (CSDR) to shorten the securities settlement cycle from two business days to one.

This initiative builds on the European Securities and Markets Authority (ESMA) report, which assessed the feasibility, impact, and implementation roadmap for the transition to a shorter settlement cycle. The Commission’s proposal amends Article 5 of the CSDR, mandating that transactions in transferable securities be settled no later than the first business day after trading. Following ESMA’s recommendations, the Commission proposes that the new cycle take effect on 11 October 2027. The proposal is now under review by the European Parliament’s Economic and Monetary Affairs Committee (ECON), with Johan Van Overtveldt (European Conservatives and Reformists Group (ECR), Belgium) serving as leading rapporteur, and by Member States at the Council of the EU. Once both institutions agree on their positions, negotiations will take place with the Commission to finalize the legislative text.

In a related development, on 13 February, ESMA launched a public consultation on amendments to the regulatory technical standards on settlement discipline, addressing key operational challenges in settlement efficiency. The amendments propose stricter requirements for timely trade confirmations, automation through standardized electronic messaging formats, and improved reporting mechanisms for settlement failures. ESMA welcomes feedback and comments on the amendments by 14 April 2025.

Omnibus Simplification Package: Parliament and Council Start Internal Discussions

On 10 and 11 March, Members of the European Parliament (MEPs) and Member States representatives at the Council of the EU started internal discussions on the proposed Omnibus simplification package, which aims to (i) postpone the entry into force of the requirements under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D)—renamed “Omnibus I,” and (ii) simplify sustainability requirements under CSRD, CS3D, the Taxonomy Regulation and specific provisions of the Carbon Border Adjustment Mechanism (CBAM)—renamed “Omnibus II.”

European Parliament

During a plenary session on 10 March, MEPs held an initial exchange of views on the package highlighting the positioning of each party on the proposal. MEPs from the European People’s Party (EPP) strongly support the package and advocate for a swift adoption of the first part of the proposal postponing the application of CS3D and CSRD. For that, on 3 April, MEPs approved a request for urgent procedure introduced by the EPP.

MEPs from Renew Europe Group (Renew) expressed only limited support for the Omnibus II proposal and, while they recognize the need for simplification to foster economic growth, they emphasized the importance of ensuring that the rules remain effective through negotiations. Representatives from the Socialists & Democrats and the Greens largely opposed the proposal, expressing strong concerns about the potential dilution of previously agreed requirements. Other MEPs from the far-right ECR Patriots for Europe and Europe of Sovereign Nations supported the package but called for further deregulation, while representatives from The Left were entirely opposed to the proposal and rejected the Commission’s approach to simplification in this context.

In a related development, on 19 March, the European Parliament Committee on Legal Affairs, the Committee responsible for the Omnibus package, appointed MEP Jörgen Warborn (EPP, Sweden) as lead negotiator for the Omnibus II proposal. Pascal Canfin (France) has been appointed as shadow rapporteur for Renew, while other political groups are expected to shortly communicate shadow rapporteurs involved on the file. Other committees involved (Foreign Affairs; International Trade; ECON; Employment and Social Affairs; and Environment, Climate and Food Safety) are expected to also announce whether they will provide an opinion on the file. The next meeting on this part of the proposal has been set for 23 April 2025.

Council of the EU

On 11 March, Member States in the Economic and Financial Affairs configuration of the Council of the EU also discussed the proposal. All governments showed strong support for the postponement of the rules and welcomed the Commission’s approach in this area. However, not all Member States agreed on the substantial amendments introduced to CSRD and CS3D; France opposes eliminating civil liability rules, while the Czech Republic, Italy, and Hungary push for deeper deregulation to boost competitiveness. Trade and business ministers further examined the package on 12 March during a Competitiveness Council meeting, showing general support for the amendments put forward. While it seems that an agreement will be quickly reached for the Omnibus I, Member States will need to further negotiate on the substantial amendments introduced by the second part of the proposal (so called “Omnibus II”).

Timeline

For both proposals, Member States and MEPs will need to negotiate the final content of the directives through interinstitutional negotiations. The Omnibus I will likely be adopted in the next three to six months, with transposition into national law by end of this year, meaning that the postponement will presumably happen before an additional wave of companies would have been obliged under the directives in their current form. The substantial amendments introduced by Omnibus II will likely involve lengthier negotiations within the Council of the EU and the Parliament.

OTHER

Commission Proposes Simplification of CBAM Ahead of Full Entry Into Force

CBAM, the world’s first carbon border tariff, is set to come into full force in January next year. This means that importers of goods covered by CBAM legislation (iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen) will be required to declare the emissions embedded in their imports and surrender corresponding certificates, and be priced based on the EU Emissions Trading System (ETS). However, even before CBAM is fully implemented, the Commission has already proposed changes to the legislation in response to economic competitiveness and geopolitical challenges.

As part of the Omnibus simplification package announced on 26 February, the Commission proposed several changes to streamline CBAM implementation.

Firstly, the Commission aims to simplify CBAM requirements for small importers, primarily small and medium-sized enterprises and individuals, by introducing a new CBAM de minimis threshold exemption of 50 tons per shipment. This will exempt over 182,000 or 90% of importers from CBAM obligations, while still covering over 99% of emissions in scope.

Secondly, for importers that remain within the scope of CBAM, the proposed changes aim to simplify compliance with its obligations. Specifically, the proposal simplifies the calculation of embedded emissions for certain goods, clarifies the rules for emission verification, and streamlines the process for calculating the financial liability of authorized CBAM declarants.

These changes will now have to be approved by the European Parliament and EU Member States before they come into force.

Additionally, a comprehensive review of CBAM is expected later this year to assess the potential extension of the mechanism to additional ETS sectors (potentially including aviation and maritime shipping), downstream goods, and indirect emissions. As part of this review, the Commission will also explore measures to support exporters of CBAM-covered products facing carbon leakage risks. A legislative proposal is anticipated to follow in early 2026.
CPPA Announces Enforcement Action Against Automaker

Mon, 14 Apr 2025 00:00:00 -0000
On 12 March 2025, the California Privacy Protection Agency (CPPA) settled with an automaker that allegedly violated various aspects of the California Consumer Privacy Act (CCPA). This first-of-its-kind settlement for the agency echoes a 2022 enforcement action brought by California Attorney General Rob Bonta against an online retailer, while introducing new guidance for businesses subject to the CCPA. In this article, we will focus on the agency’s allegations regarding cookie management service providers and take-aways for businesses subject to the CCPA or similar state privacy statutes.

The CPPA alleged the automaker:
1. Required California consumers to provide more personal information than what is necessary to exercise a consumer’s right to opt-out of the sale/sharing their personal information and to limit the use of sensitive information;
2. Made it difficult for California consumers’ authorized agents to exercise their privacy rights;
3. Used an online privacy management tool that failed to offer California consumers a symmetrical way to exercise their privacy choices; and
4. Shared consumer data with ad tech companies without proper contractual safeguards.
Cookie Managers & Consent Tools

CCPA regulations require businesses to implement methods for submitting CCPA requests that are easy to understand and provide “symmetry” in choice. This means that the choices provided to a consumer with respect to opting-in to the collection or usage of personal information should be mirrored in the choices regarding their right to opt-out of those same choices. The latter may not be “longer or more difficult or time-consuming than the path to exercise a less privacy-protective option” Cal. Code Regs. tit. 11, § 7004 (2).

In the Final Stipulated Order, the CPPA noted that the automaker used OneTrust, a third-party compliance vendor, to provide website visitors with a cookie management tool. The tool allowed consumers to toggle whether they wanted to allow or disallow advertising cookies. The CPPA alleged that consumers had to follow two steps to disallow advertising cookies (first, they had to click a toggle button and second, they had to confirm their choices)—but they only needed to click one button to “Allow All” cookies, as shown below.

Image Source: American Honda Motor Co., Inc. – Case No. ENF23-V-HO-2 (2025)

The CPPA’s interpretation of symmetry in choice is quite rigid and the agency has ordered the automaker to provide consumers with a “Reject All” button that mirrors the “Allow All” button pictured above. The CPPA’s settlement underscores the agency’s proactive approach to enforcing the CCPA.

Key Takeaways

The CPPA’s strict interpretation of symmetry in choice means businesses subject to the CCPA should immediately review their cookie management solutions and review how they present the choices provided to their customers. Although the test here is simple (one-click opt-in must be accompanied by a one-click opt-out button), businesses using third-party tools should confirm with their selected service providers that the choice presented to consumers can comply with the CCPA’s symmetry in choice requirement. Similarly, businesses that have developed their own in-house solutions should consult with their teams to update their tools accordingly.

Payroll Tax, Amnesties and Related Developments for Health Practices

Fri, 11 Apr 2025 00:00:00 -0000

Health practices across Australia have been paying increasing attention to their potential exposure to payroll tax. The importance of doing so continues, particularly with new legislation bringing some further certainty.

Payroll tax has become a critical compliance and business decision-making issue for medical, dental and allied health practices. Despite intentions to have a harmonised approach, the various states have different approaches to the legislation and enforcement; further legislated differences exist regarding the applicable wages threshold before payroll tax is applied to a business.

Exceptions or amnesties exist in some states where practices meet certain criteria. Audit and enforcement activity remain as available measures to the authorities to enforce the legislation in each jurisdiction, and that activity continues.

Key Take-Aways

Health practitioners should:

Review specific legislation and rulings applicable to the states(s) in which they operate;
Determine what amnesties or relief are available under their contractual arrangements with practitioners;
Assess the merits of voluntary disclosure and associated potential benefits (where available);
Review the advantages and disadvantages of their current contractual relationship with practitioners from both a payroll tax and nonpayroll tax perspective; and
Seek legal advice to ensure they take steps appropriate to their circumstances.

Snapshot – Payroll Tax Relief for Health Practices in Australia

A range of amnesties and concessions apply from state to state for the health sector, some of which require practices to opt-in and make critical, and potentially far-reaching, disclosures to the revenue authorities.

Practices should consider whether doing so is suitable in their particular circumstances and interests, having regard to all their circumstances (and not just in respect of payroll tax).

Payroll Tax Wage Thresholds	Payroll Tax Relief for Health Practices
New South Wales
Wages threshold: AU$1.2 million	General practitioners: From 4 September 2023 to 3 September 2024, a 12-month pause on payroll tax audits (or the application of penalty interest) for general practitioner (GP) practices. More recent announcements have confirmed payroll tax on payments to contracted GPs before 4 September 2024, will be exempt. From 4 September 2024, a rebate is available for practices where at least 70% (80% in metropolitan Sydney) of GP services are bulk billed. The rebate will apply by excluding the amount of payroll tax that would have applied to the relevant amounts paid to GPs.
Queensland
Wages threshold: AU$1.3 million	General practitioners: Wages paid by a medical practice to a GP are exempt from payroll tax, following recent amendments to the Payroll Tax Act 1971 (Qld). These enshrine the amnesty previously available to GPs since 1 December 2024, under an administrative arrangement. Dental practitioners: A limited amnesty is available for payments to contracted dentists from 1 July 2018 to 30 June 2025, PROVIDED, the practice must have (among other things) registered for payroll tax and made voluntary disclosure to the Queensland Revenue Office by 30 June 2025.
Victoria
Wages threshold: AU$900,000	General practitioners: Up to 30 June 2025, relief may be available for any payments to contracted GPs by practices which have not paid payroll tax for their contracted GPs (or received advice that payroll tax was payable) before 30 June 2024. From 1 July 2025, under new legislation in Victoria, exemptions will apply for wages paid or payable to GPs, although limited to payments relating to bulk-billed consultations.
South Australia
Wages threshold: AU$1.5 million Tax is applied to total wages less a deduction of up to AU$600,000.	General practitioners: From 1 July 2018 to 30 June 2024, an amnesty is available for this period for payments to contracted GPs where practices registered for payroll tax and made voluntary disclosure to RevenueSA. From 1 July 2024, an exemption is now available for payments relating to bulk-billed consultations. Medical specialists and dentists: Up to 30 June 2024, no similar exemption or amnesty is available to medical specialists or dental practices for the period after 30 June 2024. However, retrospective relief is available to specialists or dental practices who registered with RevenueSA prior to 30 June 2024.
Australian Capital Territory
Wages threshold: AU$2 million	General practitioners: Up to 30 June 2023, unpaid payroll tax has been waived on payments to GPs prior to 30 June 2023. From 1 July 2023 to 30 June 2024: An amnesty is available for this period for payments to contracted GPs where the practice: Registered for payroll tax by 29 February 2024 Bulk billed at least 65% of GP attendances. Registered for MyMedicare.
Tasmania
Wages threshold: AU$1,250,001	Tasmania has not announced any amnesties or concessions.
Northern Territory
Wages threshold: AU$1.5 million	The Northern Territory has not announced any amnesties or concessions.
Western Australia
Wages threshold: AU$11 million	Western Australia does not levy payroll tax on payments to contractors.

Queensland Legislates Permanent Relief for GPs

On 20 February 2025, the Queensland Parliament passed new legislation enshrining relief from payroll tax for payments to any contracted GPs. This goes beyond the administrative relief or more limited legislated exemptions in other states. It does not offer assistance to practices beyond GPs, though outside the legislation there remains a more limited amnesty for Queensland dentists until 30 June 2025 (subject to some conditions).

It remains to be seen whether other states and territories will follow suit. Some have applied similar amnesties administratively but have not yet legislated to make those changes permanent. Others have legislated more limited exemptions, e.g., GP practices that bulk bill.

Payroll Tax and "Relevant Contractor" Provisions for Health Practices

Historically, though clearly no longer, industry and revenue authorities generally operated on the basis that certain contracting arrangements between practice owners and nonemployee practitioners did not attract payroll tax. This was particularly the case for clinics offering facilities and services to practitioners operating their own independent businesses. In those arrangements, clinics would usually collect patient fees (or Medicare entitlements) on behalf of those practitioners and remit the balance of those funds to the practitioners after deducting service fees charged by the clinic.

However, while the underlying legislation has not changed, the recent decisions in Optical Superstore Pty Ltd v Commissioner of State Revenue and Thomas and Naaz v Chief Commissioner of State Revenue questioned whether (or when) payroll tax should apply under the extended "relevant contractor" provisions existing in most states' legislation.

Practice owners face the task of assessing whether they have an exposure to payroll tax and what might be done to mitigate it (while being mindful of important anti-avoidance provisions). Key questions for practice owners are whether:

The practitioner is providing a service to the practice;
There is a relevant payment from the practice to the practitioner "in relation to the performance of work";
The business exceeds the applicable threshold for payroll tax (which can include consideration of other "grouped" businesses); and
Any exemptions or exceptions apply.

Broader Contracting Issues

While payroll tax issues have been a key recent focus for practices in revisiting their commercial and legal arrangements with practitioners, it is important to consider other (nonpayroll tax) issues relevant to those arrangements.

For some practices, the perennial question of whether a practitioner potentially has entitlements as an employee or an independent contractor are still relevant. While High Court decisions in 2022 (briefly) restored the focus on the written contractual terms (with some exceptions), the effect of those were largely undone by federal legislation that commenced in August 2024 to re-instate the previous "multi-factorial" test.

It is critical to have regard to other potential obligations (superannuation, leave entitlements etc.) in assessing the type of contractual arrangement to be entered into, and how it is to be implemented.

More Changes on the Horizon

More change at state and federal levels remains possible from potential new legislation and anticipated court decisions, namely:

The various state governments and revenue authorities can be expected to consider their positions regarding payroll tax for contractors, particularly in light of the recent legislative changes in Queensland.
In New South Wales, a Parliamentary inquiry has commenced to undertake a broader review of the legislated contractor provisions. The inquiry's terms of reference indicate a focus on on-demand and "gig economy" workers, but the inquiry may have broader implications for how health practices and other businesses contract and establish payment arrangements with practitioners.
In September 2024, Uber Australia Pty Ltd (Uber) successfully challenged its liability for payroll tax in New South Wales in relation to payments made to drivers. The Supreme Court of New South Wales concluded that the payment from Uber to drivers was not taxable for payroll tax purposes, taking a narrower interpretation of the legislation than in some other recent decisions (such as, in a case involving a medical practice, Thomas and Naaz Pty Ltd). However, Revenue NSW appealed that decision. The appeal has yet to be heard, and the result will be keenly followed nationally.

Case Alert: Repetitious Claims in Adjudication

Thu, 10 Apr 2025 00:00:00 -0000
Executive Summary

The South Australian Court of Appeal (Court of Appeal) in Goyder Wind Farm 1 Pty Ltd v GE Renewable Energy Australia Pty Ltd & Ors has delivered a landmark judgment.

The decision provides much needed clarity as to when, and in what circumstances, a contractor may (and may not) repeat claims made under the statutory security of payment (SoP) regime.

While this is a decision of the Court of Appeal and its direct impact will be limited to projects in South Australia (SA), the decision is likely to be applicable under the equivalent SoP regimes which exist in all other Australian states and territories (except the Northern Territory). The other interstate SoP regimes are drafted in similar, and often exactly the same, terms, albeit the various regimes also differ in other respects.

The Court of Appeal considered the following issues:
- Whether the principle of Anshun estoppel, whether described in that way or in terms of an abuse of process, applies to subsequent payment claims and adjudication applications under the SoP regime; and
- If so, whether that principle, howsoever described, applied to prevent the contractor from making and prosecuting the second payment claim for delay costs in respect of extension of time claims made by the Contractor.
The Court of Appeal held:
- There is no scope under the Building and Construction Industry Security of Payment Act 2009 (SA) (SoP Act) for the common law doctrine of issue estoppel or, consequently, the extended doctrine of Anshun estoppel to operate against a payment claim or an application for an adjudication determination under that Act. This is a finding of some significance, given there was some uncertainty about this issue following earlier authorities.
- There, however, remains scope for the operation of a doctrine of preclusion under the SA SoP Act, in regard to conduct which may be characterised as an abuse of the processes of that Act. This is again a significant finding and provides useful clarification as to the limits which may be placed on the alleged repetition of claims.
- In this case, it was not an abuse of the processes of the SA SoP Act for the Contractor to have included different categories of delay costs in subsequent payment claims. That is, there was no repetition of claims as a matter of fact, despite that the claims arose out of the same delay events. This is also despite the earlier articulation of the delay costs claim in a Notice of Arbitration.
Background

The case relates to a significant wind farm project in country SA. The joint venture Contractor claimed it was entitled to various extensions of time and delay costs attributable to Principal caused access delays. These access delays were alleged to have been caused by delays in obtaining environmental approvals.

The Contractor issued two separate payment claims (in February 2024 and April 2024) in respect of different reference dates. It subsequently made two separate applications for adjudication of those payment claims, both of which resulted in adjudication determinations. The Principal sought to quash the second adjudication determination by way of judicial review, on the basis that the second adjudication application was a reagitation of the first. Both the primary judge and the Court of Appeal found that there was no overlap between the first and second payment claims.

The judge at first instance dismissed the Principal’s application for judicial review. Whilst the judge accepted that the two claims arose from a common cause of delay, it did not follow that delay costs arising from the same delay constituted a singular claim for delay. The Principal appealed the judge’s decision.

Court’s Findings and Commentaries

The Court of Appeal dismissed the appeal. The Court of Appeal, having regard to the provisions of s32 of the SoP Act, did not consider the common law concept of issue estoppel to be applicable. It then followed that an extended doctrine of Anshun estoppel was similarly inapplicable. The Court of Appeal held that this was not to say that there is no scope for the operation of a doctrine of preclusion under the SoP Act; however, this would likely be made pursuant to an application for an abuse of process.

The Court of Appeal went on to consider whether the Contractor’s submission of two payment claims for delay costs amounted to an abuse of process, however, it could not conceive of a situation where nonoverlapping claims for delay costs amounted to an abuse. That is, there would at least need to be factual repetition of claims for there to be an abuse of process, noting, however, that repetition alone may not be sufficient.

Takeaways

For the construction industry, the key takeaways are:
- The SoP Acts themselves set certain limits on the making of claims. In particular, under s13(5), only one payment claim may be made in respect of each reference date. Under s22(4), an adjudicator must value work the same as has been previously determined, unless the value has changed. These provisions provide for some amount of “finality” in the adjudication process. The SoP Act, however, concerns progress payments and expressly does not finally determine the parties’ rights and obligations in respect of payment. The SoP Acts are therefore relevantly different to other sorts of proceedings, in which the doctrines of issue and Anshun estoppel apply. The Court of Appeal rejected the imposition of additional limitations on the making of nonoverlapping claims on the basis of these broader legal doctrines.
- A contractor may therefore claim nonoverlapping components of a delay costs claim in separate payment claims (so long as the making of such claims is otherwise within the other limitations set by the SoP Act, such as the requirement for claims to be within the six-month period mandated by s13(4)(b)).
Going Nuclear–Industry Outlook and Issues

Wed, 09 Apr 2025 00:00:00 -0000

The nuclear energy industry continues to gain momentum and has a strong outlook for 2025 and beyond. This positive forecast is buoyed by support from both major political parties, increased demand, technical advancements, and some out-of-the-box thinking for deploying existing assets. There have also been a few notable judicial and legislative developments that are contributing to what some hope will be the realization of a long-promised nuclear renaissance.

Outlook for 2025 and Beyond

The new year is already off to a good start for nuclear power generation.

Expansion of the Price-Anderson Act

First, the US Court of Appeals for the Federal Circuit recently advanced a broad interpretation of the Price-Anderson Act that will expand the definition of private parties covered for certain nuclear accidents. This positive development broadens who can take advantage of government indemnification under the Price-Anderson Act, encouraging new parties to participate in the nuclear market. We wrote about this development and its impact on limiting private liability for nuclear accidents here.

Nuclear Market Growth

Second, a dynamic nuclear market appears to be taking root. As Nuclear Business Platform reports: (1) small modular reactors (SMRs) should lead the way in 2025, with several designs under development and NuScale Power Corporation achieving US Nuclear Regulatory Commission (NRC) certification; (2) increased demand from data centers and artificial intelligence should continue to drive new generation; (3) a positive financing environment for nuclear projects also appears to be in place; (4) new technology developments in both reactors and fuels from a variety of private market players should support further growth; and (5) new market participants in India, Turkey, and Africa will also support continued advancements and efficiencies.

Nuclear-Powered Hydrogen

Third, the US nuclear industry continues to evaluate opportunities for using nuclear fuel as an electricity source to produce hydrogen following the US Department of the Treasury’s final changes to the 45V clean hydrogen production tax credit, which exempt (with some restrictions) existing and future nuclear power plants from the additionality requirements imposed on other renewable energy sources. US nuclear leaders, along with EDF Energy’s initiatives in France and Japan’s High Temperature Engineering Test Reactor, could carve out a new generation space.

Global Agreements to Support Nuclear Power

Fourth, a collection of large tech companies, financial institutions, and members of the nuclear industry announced a pledge at the CERAWeek conference to “triple global nuclear capacity by 2050.” The coalition, including Amazon, Meta, Google, key nuclear power associations, and 31 countries, committed to supporting the rapid expansion of global nuclear power through financial investment, aggressive political advocacy, and global cooperation.

Palisades Nuclear Plant Set to Restart

Fifth, on Monday, 17 March, the US Department of Energy (DOE) approved a nearly US$57 million loan disbursement to Holtec for the Palisades Nuclear Plant in Covert, Michigan. The Palisades plant, retired in 2022, could be the first commercial reactor in the country brought back into service after being previously shut down. US Energy Secretary Chris Wright called the disbursement “yet another step toward advancing President Trump’s commitment to increase domestic energy production, bolster our security and lower costs for the American people.” The Palisades plant will have to receive approval from the NRC to resume operation.

World Bank Set to Invest in Nuclear Projects

Sixth, on Thursday, 20 March, the head of the World Bank announced that he had petitioned the bank’s board of directors to reverse its policy against investing in nuclear energy projects. Ajay Banga, the World Bank president, called small nuclear reactors “transformative and safe,” and he stated that nuclear power could be a viable path to green power for developing countries.

Support for Nuclear from the Trump Administration

Finally, the Trump administration has released several statements and executive orders promoting new nuclear generation. On his first day in office, President Trump issued the “Unleashing American Energy” executive order, which directed agencies to identify, revise, or rescind any regulations that “unduly burdened” domestic energy production. Among the domestic energy sources identified as key domestic resources, nuclear energy was included. President Trump, along with Secretary of Energy Chris Wright and Secretary of the Interior Doug Burgum, have expressed public support for increasing nuclear capacity as a reliable source of baseload power for the US electrical grid.

2024 in Review

The promise of 2025, and beyond, comes on the heels of an extremely successful 2024 in the commercial nuclear industry. DOE recently summarized the major nuclear achievements from 2024.

New Reactors Come Online in Georgia

Vogtle 4 entered commercial service on 29 April 2024. Plant Vogtle is now the largest clean power generator in the country and is home to two Westinghouse AP1000 reactors. These are the first new builds in the United States in more than 30 years.

Significant Restart and Recommissioning Activity Is on the Horizon

DOE closed a US$1.52 billion loan to repower and upgrade the Palisades nuclear power plant in Michigan. This would be the first reactor ever recommissioned in the United States, if approved by the NRC. Holtec’s decision to recommission Palisades is significant because the company originally purchased the plant with plans to decommission the plant at a profit. Holtec’s decision to stick with the plant provides a clear signal as to the improved economics and demand for nuclear power generation. The DOE loan was made possible by the Inflation Reduction Act.

In addition to Palisades, Constellation Energy recently announced its plans to restart Three Mile Island Unit 1, thanks to a 20-year power purchase agreement with Microsoft to power its data centers. The plant will be renamed the Crane Clean Energy Center and is expected to be online in 2028, pending regulatory approval.

The United States Announces Nuclear Generation Goals

The Biden administration released nuclear deployment targets in 2024 to expand domestic capacity by 200 gigawatts (GW). The plan outlines more than 30 actions the US government can take to add 35 GW of new capacity by 2035 and achieve a sustained pace of 15 GW per year by 2040. Most of that capacity could come from existing power plant sites. Research also shows that US nuclear power plants could host up to 95 GW of new capacity. An additional 174 GW could also be built near US coal plants, depending on the reactor type. The Trump administration has not specifically endorsed the Biden plan, but, as discussed above, the Trump administration has expressed support for a “nuclear renaissance.”

Strides Being Made in Development of a Domestic Nuclear Fuel Supply

Multiple companies are participating in low-enriched uranium and high-assay, low-enriched uranium capacity building programs sponsored by DOE. The US$3.4 billion effort will allow the awardees to bid on future task orders to produce, store, and deconvert material that can be fabricated into fuel for current and future reactors. The United States also took crucial steps toward strengthening our domestic energy security by issuing a ban on imported uranium products from Russia.

New Technologies Are Under Development

DOE-supported projects started in 2024 will bring the United States one step closer to the deployment of new advanced small modular and microreactor systems. TerraPower started nonnuclear construction on a sodium test facility in support of its Natrium reactor in Kemmerer, Wyoming. The Department of Defense broke ground on its Project Pele microreactor at Idaho National Laboratory. X-energy, which is already developing its high-temperature, gas-cooled reactor technology with Dow in Texas, announced a commitment from Amazon for a 320-megawatt project with Energy Northwest in Washington State. Kairos Power also started construction on its Hermes reactor in Oak Ridge, Tennessee. The project is one of several projects being supported through DOE’s Advanced Reactor Demonstration Program.

DOE Launched a US$900 Million Program to Demonstrate up to Two Advanced Light-Water Small Modular Reactor Systems in the United States

The new program encourages a consortium-based approach to lower the risk of deploying new reactor technologies. It will also facilitate multi-reactor order books and provide additional support to build out the advanced light-water reactor supply chain. 

The ADVANCE Act to Address the Speed of Licensing New Reactors

Four years after President Trump signed the 2019 Nuclear Energy Innovation and Modernization Act, President Biden signed another key bipartisan bill known as the ADVANCE Act to help speed up the deployment and licensing of new reactors and fuels. The new bill helps develop a modernized approach to licensing new reactor technologies. The bill also makes strides to develop guidance for smaller reactor technologies and advanced fuel cycles.

In response to Congress’s legislation directing NRC to develop new frameworks for licensing nuclear technology, NRC is currently in the process of crafting two new regulatory processes—one for advanced reactor technology like SMRs and microreactors, and another for fusion energy machines under the byproduct materials rule. The new licensing regulations are designed to streamline applications to NRC and allow for design-specific safety reviews of first-of-a-kind reactor technology. The final rule for advanced reactor technology is expected to be issued in summer 2026, and the proposed rule for fusion machines is expected to be published in May 2025.

Further, in February 2025, NRC published its proposed fee schedule fiscal year 2025. The new fee schedule would reduce the hourly fee for advanced reactor pre-applicants and applicants by 50%, from US$146/hour to US$323 per hour. The rule is set to take effect on 1 October 2025.

New Areas of International Cooperation Were Put Forward

DOE launched the world’s first two regional Clean Energy Training Centers in Poland and Ghana this year to jump-start the countries’ domestic civil nuclear energy programs. The centers will serve the regions as training hubs for countries considering new or expanded nuclear reactor deployments and will build on previous international agreements to grow global nuclear energy capacity.

Additional Proposed Solutions to Deal with Spent Nuclear Fuel

DOE is moving forward on a project to design, build, and operate a federal consolidated interim storage facility for spent nuclear fuel that would be sited through DOE’s consent-based siting process. The facility would be licensed by NRC and initially built to store around 15,000 metric tons of spent nuclear fuel, with options to expand. It would also include the development of new modern railcars to transport the spent fuel.

The firm is actively monitoring the exciting growth of nuclear power in the United States and across the world. As nuclear policy continues to evolve, and opportunities in the nuclear industry continue to grow, the energy, policy, and regulatory professionals at the firm stand ready to help guide you through the exciting developments happening now in nuclear energy.
Litigation Minute: Emerging Contaminants: Defending Litigation

Tue, 08 Apr 2025 00:00:00 -0000

What You Need to Know in a Minute or Less

Effectively defending emerging contaminant litigation requires counsel capable of navigating extremely complex scientific issues related to causation, while also not losing sight of more common legal defenses like statutes of limitations or standing.

In a minute or less, the final edition in this three-part series highlights the importance of expert and procedural defense issues.

The Importance of Expert Relationships

A plaintiff’s alleged exposure, injury, causation, and damages are often issues at the forefront of emerging contaminant litigation, and each of those issues may require expert testimony to prepare an effective defense.

For example, for a plaintiff to establish causation under tort theories commonly asserted in cases alleging exposure to emerging contaminants, a plaintiff usually must establish both general and specific causation. For general causation, the plaintiff generally must show that the dose of the alleged chemical exposure is capable of causing the alleged injury. And for specific causation, the plaintiff generally must show that the alleged exposure is what actually caused the alleged injury, as opposed to some other cause (like hereditary risk or alternative exposures). These inquiries often rely on epidemiology and toxicology studies that examine the dose-response relationship of the chemical at issue or, more frequently in the context of emerging contaminants, the lack of such scientific studies.

Additionally, many emerging contaminant cases in the environmental context involve an alleged exposure pathway that requires expert testimony on the fate and transport of the chemical at issue—in other words, an explanation of how the chemical allegedly made its way from the defendant’s operations or products to the plaintiff. This can involve detailed engineering analyses, particularly in cases alleging an airborne or water exposure pathway. Similarly, the proper identification of chemicals of concern and potential pathways for exposure are regular issues in claims related to consumer products.

The takeaway: Companies facing emerging contaminant litigation should consider the importance of expert testimony to their overall defense strategy at an early stage, including when to draw on internal or external expertise. A defendant’s experts are often tasked with educating the judge and jury on the relevant science and therefore serve as a key part of delivering the defense narrative. It is, therefore, essential that a defendant’s counsel has the experience and understanding of the relevant scientific issues necessary to prepare experts to effectively deliver their opinions.

Don’t Forget Procedural Defenses

At the same time, companies defending litigation involving emerging contaminants should not overlook common procedural defenses despite the understandable focus on substantive scientific defenses. In particular, we have seen an increase in the success of defenses involving standing and statutes of limitations in emerging contaminant litigation.

Standing generally requires the plaintiff allege an injury that is real (as opposed to hypothetical), traceable to the defendant, and able to be redressed by the relief sought. Particularly in emerging contaminant litigation seeking medical monitoring—where a plaintiff seeks regular testing for the risk that an injury may manifest in the future (but has not yet manifested)—standing’s requirement that the plaintiff’s alleged injury be real can be a powerful tool. And for cases in which a plaintiff makes allegations against “defendants” as a group (as opposed to against each defendant specifically), defendants have recently seen success arguing that group pleadings do not meet standing’s causation requirements. Standing issues are also at the forefront of consumer product class actions where the alleged injury is remote or untenable. While best known for utility in federal courts, similar standing requirements have been adopted by many state courts.

As for statutes of limitations, the longer perceived concerns related to an emerging contaminant have been publicized, the more difficult it will be for a plaintiff alleging a stale injury to persuasively argue that a reasonable person in plaintiff’s shoes would have only recently learned of her cause of action. With emerging contaminant litigation being filed in waves at the first reports of potential risk, defendants added to litigation at later stages may have stronger statute of limitations arguments.

The takeaway: At the earliest possible stages, companies facing emerging contaminant litigation should consider the procedural defenses available to them, in addition to the substantive defenses that counter the elements of plaintiff’s claims as part of developing a comprehensive, wholistic defense strategy.

We appreciate your readership throughout this three-part series. For more insight, visit our Emerging Contaminants webpage.
FCA Backpedals: "Name and Shame" and Diversity and Inclusion Requirements Axed, and Non-financial Misconduct Rules Delayed

Tue, 08 Apr 2025 00:00:00 -0000
The United Kingdom’s Financial Conduct Authority (FCA) has announced significant changes to its regulatory approach, including dropping the obligation to “name and shame” firms under investigation, dropping the proposed “Diversity and Inclusion” (D&I) requirements, and delaying the promised reforms addressing non-financial conduct in financial services.

“Name and Shame” Dismissed

The FCA had proposed to publicly disclose investigations into firms at an early stage to adhere to the “public interest” and increase consumer confidence in their function as the United Kingdom’s public watchdog.

However, following significant criticism from the financial industry and Parliament, largely concerning premature disclosure causing irreversible damage to firms even if they were later cleared of any wrongdoing, the FCA has deserted the idea. However, it should be noted that whilst the FCA decided to abandon its controversial proposal to name the subjects of its investigations, there remains the potential that the FCA will rely on the pre-existing “exceptional circumstances” test when seeking to make its investigations public.

The parameters of what would amount to “exceptional circumstances” remains unclear. This provision should only be used in “limited cases” when the FCA believes there is a serious risk to consumers or market integrity.

The FCA will proceed with the rest of the proposal to publish information concerning investigations in the following circumstances:
1. Reactively confirm investigations that are officially announced by others, such as market announcements, disclosures made by the firms themselves, or announcements by a partner regulator;
2. Publicly notify the unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter to protect consumers or further the investigation; and
3. Anonymously Publish issues under investigation using a regular bulletin such as Enforcement Watch.
Despite aiming to balance public accountability with the risk of unfairly harming firms and individuals under investigation, the lack of transparency in the parameters of the “exceptional circumstances” test, especially with the FCA having desired to publicly “name and shame,” causes understandable concern for many within the financial industry.

D&I Dropped

In September 2023, the FCA, alongside the Prudential Regulatory Authority, aimed to improve D&I in the financial services industry by requiring firms to collect and report diversity data and set targets to incorporate and grow their D&I to ensure a more inclusive workplace. These requirements would, according to the FCA at the time of its proposal, improve outcomes for both consumers and the market.

However, in light of the criticism from the industry arguing that the imposition of D&I requirements from a regulator could cause too much of a burden on creating another “tick-box” exercise and that instead it should be a voluntary requirement, this proposal has been retracted by the FCA.

The FCA has dropped the formal D&I requirements and has fallen back to its original position: encouraging financial institutions to improve diversity on the terms they see fit on a voluntary basis.

Delays in Non-financial Misconduct Policies

Having scrapped both plans to address transparency through the “name and shame” proposal as well as having dropped the initiative to implement stronger D&I requirements, the FCA has also decided to delay its work on non-financial misconduct. Non-financial misconduct involves issues such as sexual harassment, bullying, and other workplace misconduct in the financial services industry.

This comes in response to an inquiry launched by the Treasury Select Committee named “Sexism in the City,” which found a “shocking” prevalence of sexual harassment and bullying in the financial services industry. In the three years covered by the survey, bullying and harassment made up 26% of cases, discrimination made up 23%, and 41% was categorized as other, indicating the difficulty in categorizing areas and issues of personal misconduct. Only 43% of cases had disciplinary or “other” actions taken. The committee said both the government and financial regulators have an important role to play in driving this change.

Despite the survey and recent high-profile cases, the FCA has delayed the publishing of new rules on nonfinancial misconduct until June 2025.

Despite this delay, the FCA has reaffirmed that tackling nonfinancial misconduct remains a priority, particularly under the conduct standards found within the Senior Managers and Certification Regime.

What Does This Mean for Financial Firms?

It seems the FCA is attempting to balance the need for transparency and accountability with industry concerns.

In balancing these concerns, the following position is agreed:
1. Investigations into firms will not be automatically disclosed, unless they fall within the “exceptional circumstances” test.
2. D&I will remain a voluntary initiative, rather than a regulatory requirement.
3. Non-financial misconduct rules are coming, however, with delay.
If you have any questions on the FCA’s position on any of the three beforementioned points or want further advice on how to adhere to the upcoming policy on nonfinancial misconduct, please do not hesitate to contact the authors listed above.
Natural Gas Bans: From New York to Washington, Courts Shift the Landscape on Legality of State and Local Gas Bans

Mon, 07 Apr 2025 00:00:00 -0000

Following the election wins we reported on in November 2024, state and local bans on the use of natural gas remain a highly litigated issue across the country. In this alert, we cover two recent cases dealing with local and state natural gas bans. First, we discuss a March 2025 federal district court decision upholding a New York City natural gas ban against arguments that it is preempted by the federal Energy Policy and Conservation Act (EPCA). In contrast, we reported previously on a 2023 Ninth Circuit decision striking down a City of Berkeley law prohibiting gas piping in new buildings. The recent New York decision has the potential to lead to a circuit split and potentially to the United States Supreme Court. Second, we provide an update on a March 2025 Washington state court decision that struck down a voter initiative addressing the use of gas and gas bans in the state.

The US District Court for Southern District of New York Upholds New York’s Gas Ban

In Association of Contracting Plumbers of New York, Inc. v. City of New York, the US District Court for the Southern District of New York upheld New York City’s Local Law 154, which generally prohibits the use of fossil fuel, such as natural gas, for heating in newly constructed residential buildings.¹Plaintiffs, which included six trade associations and a union whose members work in the construction, delivery, and servicing of fuel gas systems and appliances, argued that Local Law 154 is expressly preempted by EPCA.²The city moved to dismiss the complaint, arguing that EPCA does not preempt Local Law 154.³The court found that Law 154 does not “concern” “energy use” of covered products, as defined by EPCA, because Law 154 regulates the type of fuel used rather than the energy efficiency or use of the products themselves, which is what EPCA covers.⁴

In reaching this conclusion, the court took a markedly different approach to EPCA preemption than the US Court of Appeals for the Ninth Circuit in California Restaurant Association v. City of Berkeley. In Berkeley, the Ninth Circuit found that a city-level ordinance that prohibited natural gas piping in new buildings was preempted by EPCA.⁵We covered that decision here and provided an update regarding the case in February 2024. The S.D.N.Y. decision marks a victory for natural gas ban proponents. If the court’s finding is appealed and upheld by the US Court of Appeals for the Second Circuit, the circuit split could result in an appeal to the US Supreme Court for final resolution on whether EPCA preempts state and local gas bans.

The Ninth Circuit’s and S.D.N.Y.’s Different Approaches to EPCA Preemption

EPCA establishes “national energy conservation standards for major residential appliances”⁶and aims to “avoid the burdens of a patchwork of conflicting and unpredictable State regulations.”⁷EPCA preempts state regulations “concerning the . . . energy use” of covered products.⁸Faced with a lawsuit challenging a gas ban under EPCA, a court therefore must determine both the meaning of “energy use” and whether the local law at issue “concerns” “energy use” within the meaning of EPCA.⁹

Meaning of “Energy Use” Under EPCA

The court in Berkeley interpreted “energy use” broadly, including “not only from where the product rolls off the factory floor, but also from where consumers use the products.”¹⁰The Berkeley court explained that EPCA preempts regulations, including building codes, that “relate to” the quantity of natural gas directly consumed by certain consumer appliances at the place where those products are used.¹¹Because EPCA is concerned with the end-user’s ability to use installed covered products at their intended final destinations, the court concluded that the plain language of EPCA preempts Berkeley’s regulation that prohibits the installation of necessary natural gas infrastructure on premises where covered appliances are used.¹²

The federal district court in New York took a different approach, interpreting “energy use” narrowly to mean a fixed value, determined using administratively prescribed testing procedures, that represents the amount of energy a product consumes under typical conditions.¹³The district court declined to adopt the Ninth Circuit’s view, explaining that it rests on a flawed reading of the term “point of use.”¹⁴In Berkeley, the Ninth Circuit defined “point of use” broadly to mean the “place where something is used,” which led it to conclude that “EPCA is concerned with the end-user’s ability to use installed covered products at their intended final destinations.”¹⁵In contrast, the New York court determined that “point of use” is a technical term that must be interpreted in accordance with its specialized meaning.¹⁶

The New York court explained that “point of use” specifically means only that a covered product’s “energy use,” when determined in accordance with prescribed test procedures, should be measured without adjustment for any energy loss in the generation, transmission, and distribution of energy.¹⁷Such a definition neither expands EPCA’s scope to reach the actual use of covered products nor grants consumers an absolute right to use such products.¹⁸Rather, the definition fits within the statutory definition of “energy use,” which refers to a covered product’s characteristics as manufactured.¹⁹Ultimately, the New York court concluded that “energy use” refers to a “predetermined fixed value that measures the characteristics of a covered product as manufactured.”²⁰

Whether the Law “Concerns” “Energy Use”

Once a federal energy conservation standard takes effect for a covered product, state regulations concerning the product’s energy efficiency or “energy use” are preempted.²¹

In Berkeley, the Ninth Circuit determined that local bans on natural gas infrastructure on premises where covered products are used indirectly affect the use of those products and thus are preempted by EPCA.²²

The court explained that the language “concerns” has “a broadening effect, ensuring that the scope of a provision covers not only its subject but also matters relating to that subject.”²³The court took an expansive view of the term, concluding that “a building code that bans the installation of piping that transports natural gas from a utility’s meter on the premises to products that operate on such gas ‘concerns’ the energy use of those products as much as a direct ban on the products themselves.”²⁴While this ruling appears to close the door on local gas bans, the Ninth Circuit stated that EPCA’s preemption may apply narrowly to building codes that target the on-site use of natural gas and signaled that state and local governments may have broader authority to regulate utility distribution of natural gas.²⁵

In contrast, New York held that EPCA does not preempt regulations that do not directly impose energy conservation standards on products.²⁶The court explained that Local Law 154 does not have a connection with EPCA’s subject matter because it does not “focus on” the performance standards applicable to covered products.²⁷Local Law 154 indirectly regulates the type of fuel that a covered product may consume in certain settings, irrespective of that product’s energy efficiency or use. The court reasoned that it would be an absurd result if indirect regulation of this sort was preempted by EPCA.²⁸

The court said that state laws like Local Law 154 do not risk creating a patchwork of conflicting standards because they neither require anything of manufacturers nor constrain their activities.²⁹It concluded that prohibiting certain fuel types in certain settings does not impose performance standards by proxy, and therefore, Local Law 154 does not “reference” the subject matter of EPCA.³⁰Local Law 154 is not preempted because it does not “relate to” and thus does not “concern,” “energy use” within the meaning of EPCA.³¹Given that EPCA’s preemption clause does not apply, the court found that Plaintiffs failed to state a claim upon which relief can be granted and accordingly granted the motion to dismiss.³²

Implications of the Ninth Circuit’s and S.D.N.Y.’s Distinct Approaches to EPCA

The divergent applications of EPCA in these cases illustrate the current unpredictable nature of how courts will assess natural gas bans under EPCA. The Berkeley decision limits local authority to enact gas bans by reading EPCA’s preemptive scope broadly to include even indirect regulations on “energy use.” The New York decision preserves local regulatory power by focusing only on direct regulations of product standards. It remains to be seen how other courts in other parts of the country will apply EPCA to natural gas bans.

Another battle over natural gas’ future is also playing out in Washington state. On 21 March 2025, a King County Superior Court judge ruled that Washington state Initiative 2066 violates the state constitution’s single subject rule, which provides that voter initiatives can only address a single subject. Our November 2024 alert covered natural gas’ election wins and losses, including the passage of Initiative 2066, which was designed to protect natural gas access in the state and to bar local governments from banning its use. While the superior court’s decision did not directly address EPCA preemption, federal court decisions on EPCA are undoubtedly shaping these issues across the country. We are continuing to monitor this case for an appeal and are keeping a close eye on other efforts to protect or ban natural gas from New York to California and Washington. Check back on our page for updates.
March 2025 ESG Policy Update—Australia

Mon, 07 Apr 2025 00:00:00 -0000
Australian Update

Resistance to Australian Securities Exchange Corporate Governance Council’s Diversity Reforms Signals Decline in Environment, Social and Governance Commitment

The recent decision by the Australian Securities Exchange (ASX) Corporate Governance Council to close consultation and halt its proposed update to the fourth edition of the ASX Corporate Governance Principles and Recommendations has sparked significant debate within the investment community, particularly concerning environmental, social and governance (ESG) criteria. Institutional investors had supported the proposed changes, which aimed to enhance diversity and inclusion within corporate boards by requiring them to report their diversity characteristics beyond gender to include sexuality, age, Indigenous heritage and disability. However, resistance from major business groups led to the plan’s rejection, highlighting a divide between regulatory ambitions and industry readiness.

The proposed update included measures to improve document accessibility, strengthen shareholder relationships and promote diversity. Despite broad and extensive consultation since February 2024, the initiative was ultimately shelved due to concerns about increased regulatory burdens and the lack of a cost-benefit analysis, thwarting achieving consensus. This decision underscores the challenges ESG initiatives face, even as investors increasingly recognise the value of diversity in driving long-term value.

The debate reflects broader tensions in the ESG landscape, where efforts to integrate social and governance factors into investment strategies often encounter resistance. As the investment community continues to push for meaningful ESG integration, the need for clear, consistent and practical guidelines remains critical. The halted update serves as a reminder of the ongoing struggle to balance regulatory requirements with industry capabilities and appetites and the balance required to pursue sustainable, inclusive growth for all stakeholders.

Financial Bodies Endorse Australian Government’s Bipartisan Commitment to Paris Agreement Goals Towards Positive Investment Outcomes

Twelve peak financial bodies have issued a joint statement voicing their commitment to the climate goals of the Paris Agreement, noting that joint support and actions to limit climate change make “good financial sense”. The statement of commitment comes at a turbulent time for global ESG efforts, with the newly appointed Donald Trump administration withdrawing the United States from the Paris Agreement. This move has brought about further uncertainty with news of global businesses scaling back net-zero commitments and ESG-focussed initiatives.

The bodies reiterate and remind the investment industry of the potential financial upside of a net-zero economy—citing mid-range estimates which indicate global gross domestic product (GDP) being 7% higher in 2050 if emissions fall steadily to net zero when compared to a scenario in which current climate policies remain unchanged, with other estimates suggesting a 50% global GDP benefit by 2090.

The world’s push towards a net-zero economy has created financial opportunity, with global investment in the net-zero transition reaching AU$3.3 trillion in the last year.

The bodies have called for all levels of Australian government to continue supporting Australia’s transition to a clean, competitive, resilient and prosperous net-zero economy and made it clear that doing so will allow Australia to reap the financial rewards.

AU$2 Billion Investment in Clean Energy Finance Corporation

The Future Made in Australia (Production Tax Credit and Other Measures) Act 2024 (Legislation) was passed into law on 14 February 2025.

The Legislation, reported on previously by K&L Gates here, establishes two tax incentives:
1. Hydrogen Production Tax Offset (HPTI): a refundable tax offset of AU$2 per kilogram of eligible hydrogen which is produced from eligible facilities; and
2. Critical Minerals Production Tax Incentive: a refundable tax offset of 10% for eligible expenditure, incurred in the processing and refining of designated critical minerals, such as lithium and nickel.
These can be claimed for up to 10 years, for eligible minerals produced between 1 July 2027 to 30 June 2040. In relation to the HPTI, there is no cap on the amount a company can receive, although it will only be available for the specified period.

The incentives are available to companies that satisfy the eligibility requirements, which broadly includes, among other things, being a constitutional corporation, satisfying the relevant residency requirements, and meeting the community benefit principles implementation requirements.

They form part of the Government’s Future Made in Australia Policy (Policy), which was allocated AU$22.7 billion as part of the 2024–25 Budget, and a further AU$3.2 billion in the 2025–26 Budget. The Policy is aimed at enabling Australia to meet its international commitment to emission reductions and supporting the growth of a competitive renewable hydrogen industry, and other clean energy assets in Australia.

Superannuation Trustee Ordered to Pay AU$10.5 Million Penalty for Greenwashing Misconduct

On 18 March 2025, the Federal Court of Australia (Federal Court) imposed a penalty of AU$10.5 million against a superannuation trustee (Trustee) for greenwashing misconduct following a court action brought by the Australian Securities and Investments Commission.

The Federal Court found that the Trustee contravened the law by investing in securities that had been marketed as eliminated or restricted by its ESG investment screens.

The Trustee claimed it had eliminated investments that posed too great a risk to the environment and community, including gambling, coal mining and oil tar sands. The Trustee also represented that it would no longer partake in Russian investments following the invasion of Ukraine.

However, the Trustee was found to have held direct and indirect investments in a Russian entity, as well as gambling, oil tar sands and coal mining companies.

His Honour, Justice O’Callaghan, found that the Trustee:

“benefitted from misleading conduct by misrepresenting the ethical nature of a significant part of its investments, which on any view enhanced its ability to attract investors and enhanced its reputation as a provider of investment funds with ESG characteristics”.

Aggravating factors included that the conduct occurred over a two-and-a-half-year time period, the investments were substantial, the misconduct was likely to lead to a loss of confidence from investors in ESG programs, and there was a failure to have properly functioning systems and processes in place to prevent false or misleading representations.

Australian Competition and Consumer Commission Agrees to AU$8.25 Million Penalty Against Cleaning Product Manufacturer for Alleged Greenwashing Conduct

On 7 February 2025, the Australian Competition and Consumer Commission (ACCC) and a large multinational manufacturer of cleaning products (Company) agreed to a penalty of AU$8.25 million for making misleading representations that certain kitchen and garbage bags were made with “50% Ocean Plastic” or “50% Ocean Bound Plastic”. The ACCC further contended that wave imagery and the use of blue-coloured bags supported this impression.

Instead, the bags were partly made from plastic bags collected from Indonesian communities up to 50 kilometres from a shoreline, and not from the ocean.

In April 2024, the ACCC commenced Federal Court proceedings against the Company for greenwashing.

ACCC Chair, Gina Cass-Gottlieb, said the alleged conduct

“deprived consumers of the opportunity to make informed purchasing decisions and may have put other businesses making genuine environmental claims at an unfair disadvantage.”

The ACCC alleged that the conduct affected approximately 2.2 million customers.

The ACCC accepted that the conduct was not part of a deliberate strategy; however, senior management of the Company was aware of the potential issue.

The imposition of the penalty is subject to Federal Court approval.

This case underscores the ACCC’s commitment to combatting greenwashing and highlights the need for entities to scrutinise the legitimacy of their green claims.

View From Abroad

European Commission Amends Rules on Sustainability

On 26 February 2025, the European Commission published its sustainability omnibus proposals to amend the following European Union rules:
- The Corporate Sustainability Reporting Directive (CSRD);
- Delegated acts published under the Taxonomy Regulation (Taxonomy Regulation); and
- The Corporate Sustainability Due Diligence Directive (CSDDD).
The European Commission believes the proposed changes will encourage a more favourable business environment by ensuring that companies “are not stifled by excessive regulatory burdens” and continue to have access to sustainable finance for their clean energy transition.

Notable changes include:
- Removing 80% of companies from the scope of CSRD where mandatory reporting obligations would only be applicable to large companies with more than 1,000 employees and companies with a turnover of above AU$50 million;
- Postponing by two years (until 2028), the reporting obligations of companies that fall within the new scope of CSRD;
- Revising and simplifying the sustainability reporting templates that must be used to report information under the CSRD;
- Introducing an option to report on activities that are aligned with the Taxonomy Regulation to emphasise finance transition;
- Simplifying due diligence obligations of companies that fall within the scope of CSDDD to avoid unnecessary complexities and costs;
- Postponing by one year (to 26 July 2028), the application of the sustainability due diligence requirements for in-scope companies; and
- Limiting the amount of information that may be requested by large companies in relation to their value chain mapping activities to reduce the trickle-down effect and to protect small-to mid-sized enterprises.
It is estimated that the adoption of the sustainability omnibus proposals will save a total of €6.3 billion in annual administrative costs. However, although the proposals can potentially save costs and unlock more investment opportunities in the future, there is a risk that fund management companies and other financial market participants will experience data challenges if the proposed changes in the CSRD and Taxonomy Regulation reporting requirements are implemented.

The proposed changes will now be submitted to the European Parliament and the Council of the European Union. The European Commission currently invites its co-legislators to prioritise the consideration and adoption of the sustainability omnibus proposals.

President Donald J. Trump Presents America-First Energy Policy Agenda to Congress

On 4 March, President Trump presented his “America First” energy policy agenda (Agenda) in an address to US Congress. President Trump asserted that the Agenda would have wide-ranging impacts on companies operating in energy, environmental and national resources sectors.

A key motivation of this Agenda is to rapidly reduce the cost of energy in an attempt to boost the economy and reduce inflation rates by extensive deregulation.

The Agenda follows the United States’ withdrawal from the Paris Agreement and plans to develop a natural gas pipeline in Alaska to support liquefied natural gas exports to Asia, as well as the numerous executive orders and memoranda signed by President Trump shortly following his inauguration and titled as follows:
- Unleashing American Energy;
- Declaring a National Energy Emergency;
- Ensuring Accountability for All Agencies;
- Temporary Withdrawal of All Areas of the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects;
- Unleashing Alaska’s Extraordinary Resource Potential;
- Unleashing Prosperity through Deregulation; and
- Establishing the National Energy Dominance Council.
For further information on the Agenda, please see the Policy and Regulatory Alert written by our colleagues in the United States here.

The authors would like to thank graduate Aibelle Espino for her contributions to this alert.
Recent and Emerging Employment Law Changes Impacting Australian Employers

Mon, 07 Apr 2025 00:00:00 -0000
Not long after intentionally underpaying employees became a criminal offence on 1 January 2025, additional workplace changes have been announced or made by the federal Labor government to further protect workers and stimulate productivity.

Code of Practice on Sexual and Gender-Based Harassment

The Work Health and Safety (Sexual and Gender-based Harassment) Code of Practice 2025 (Code), which applies to all workplaces covered by the Work Health and Safety Act 2011 (Cth) (WHS Act), commenced on 8 March 2025.

The Code:
- Gives examples of what sexual and gender-based harassment might look like;
- Addresses 'good practice' in relation to investigations concerning sexual or gender-based harassment; and
- Outlines a four-step risk management process that employers should proactively use to eliminate or minimise the risk of sexual and gender-based harassment as far as is reasonably practicable.
While the Code is not law, it is admissible in court proceedings under the WHS Act and Work Health and Safety Regulations 2011 (Cth) and courts may look to the Code:
- As evidence of what is known about a hazard, risk assessment or control measures; and
- To determine what is reasonably practicable in the circumstances.
The Code recognises that sexual and gender-based harassment often occurs in conjunction with other psychosocial hazards and therefore the Code should be read and applied with the Work Health and Safety (Managing Psychosocial Hazards at Work) Code of Practice 2024.

Work-From-Home Term to be Added to Clerks Award

In August 2024, the Fair Work Commission commenced proceedings on its own initiative to develop a work-from-home term in the Clerks—Private Sector Award 2020 (Clerks Award). The term is intended to facilitate the making of practicable 'working from home' arrangements and to remove award impediments to such arrangements.

The Commission has identified various issues to be determined, such as how 'working from home' should be defined and how the term should interact with the right to disconnect. The term is likely to serve as a model for incorporation in other modern awards, and therefore any interested party is invited to participate in the proceedings (not just parties with an interest in the Clerks Award).

Interested parties originally had until Friday 28 March to file proposals for a working from home clause, as well as submissions and evidence. This has now been extended until a date to be determined at the directions hearing listed for 6 June 2025. In the meantime, the matter has been listed for a conference on 11 April 2025 to discuss the substantive issues that will arise in the matter.

Ban on Non-Competes

The Labor government announced in last week's 2025-26 Federal Budget that it plans to introduce a ban on non-compete clauses for workers earning less than the high-income threshold under the Fair Work Act 2009 (currently AU$175,000). Importantly, for the purposes of the high-income threshold, 'earnings' do not include incentive-based payments, bonuses or superannuation contributions. The government is still considering exemptions, penalties and transition arrangements.

At this stage, the proposed ban is just in relation to clauses preventing or restricting workers moving to a competing employer or starting a competing business. However, the Government has indicated that it will further consider and consult on non-solicitation clauses for clients and co-workers and non-compete clauses for high-income workers. The government also plans to restrict 'no-poach' agreements, where businesses agree not to hire workers from certain other businesses.

If the ban becomes law, it would take effect from 2027 and operate prospectively. In the meantime, employers should consider reviewing their employment contracts to ensure that their confidential information, trade secrets and intellectual property clauses continue to protect their business in the event the proposed ban on non-compete clauses proceeds.

Employers should also consider reviewing current notice periods, to ensure they are calibrated to provide sufficient protection, having regard to the nature of an employee's role (including their level of access to customers and confidential information).

Anti-Vilification Protections to Expand Beyond Race and Religion

On 2 April 2025, Victoria's Labor Government 's Justice Legislation Amendment (Anti-vilification and Social Cohesion) Bill 2024 (Bill) was passed by the Legislative Council and will shortly pass the Legislative Assembly without further amendment.

Currently, Victorians are protected from vilification on the grounds of their race or religion under the Racial and Religious Tolerance Act 2001. The Bill repeals the Racial and Religious Tolerance Act 2001 and a new section 'Prohibition of vilification' will be inserted into the Equal Opportunity Act 2010.

Victorians will be protected from unlawful vilification based on a broader range of attributes:
- Disability;
- Gender identity;
- Race;
- Religious belief or activity;
- Sex, sexual orientation or sex characteristics; or
- Personal association (whether as a relative or otherwise) with a person who is identified by reference to any of the above attributes.
The test to be applied will be based on whether a 'reasonable person with the protected attribute' would consider the conduct hateful or severely ridiculing. Vilification may occur in any form of communication, including for example by posting a photo on social media that severely ridicules someone with a protected attribute.

Additionally, serious vilification offences, such as threatening physical harm, will be criminalised and be punishable by up to five years' imprisonment.

Whilst this is limited to Victorian law, it is possible that other States and Territories may enact similar legislation.
Confirmation of the Territorial Scope of the Collateral Law

Thu, 03 Apr 2025 00:00:00 -0000

Key Takeaway

Luxembourg’s law of 5 August 2005 on financial collateral arrangements, as amended (Collateral Law 2005), continues to offer strong safe-harbor protections for financial collateral arrangements and is now confirmed to shield from insolvency proceedings globally.

Recent Developments

Court of Appeal Ruling

On 11 January 2024, the Luxembourg Court of Appeal ruled that the Collateral Law 2005’s safe-harbor protections were limited to European Economic Area (EEA) countries. This meant that insolvency proceedings against a collateral provider in non-EEA countries could prevent the enforcement of financial collateral arrangements subject to the Collateral Law 2005.

Legislative Clarification

In response, Luxembourg’s legislators quickly amended the Collateral Law 2005 to clarify that its safe-harbor protections apply to any country, not just those in the EEA.

Supreme Court Decision

On 19 December 2024, the Luxembourg Supreme Court overturned the Court of Appeal’s decision, confirming that the Collateral Law 2005 provides for a global safe-harbor protection.

Background—Essential Features of the Collateral Law 2005

Luxembourg has become a preferred location for security arrangements in cross-border financings, largely due to the creditor-friendly Collateral Law 2005, since implementing the European Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements (Financial Collateral Directive) into national law. The Luxembourg legislator has used all options available under the Financial Collateral Directive to provide for maximum flexibility and protection of creditors in the context of financial collateral arrangements.

Financial collateral arrangements include pledges and transfer of title arrangements.

By way of illustration, the flexibility and creditor protection of the Collateral Law 2005 are visible through the following features:

Enforcement Trigger

The enforcement trigger of a financial collateral arrangement can either be a payment default or any other event whatsoever as agreed between the parties on the occurrence of which the collateral taker is entitled to enforce the financial collateral arrangement.

Enforcement Methods

The collateral taker has the option between a number of enforcement methods. This includes, among others, the appropriation of the collateral by itself or by a third party, the assignment of the collateral by private sale in a commercially reasonable manner or on a trading venue on which the collateral is admitted, or set-off, in each case as a swift procedure without court intervention.

Insolvency Protection

Except for over-indebtedness proceedings concerning private individuals, financial collateral arrangements are safe-harbored against national or foreign insolvency or restructuring proceedings of any kind, in that those will not present an obstacle to the enforcement of a financial collateral arrangement.

Restrictive Interpretation of Territorial Scope by Court of Appeal

On 11 January 2024, the Luxembourg Court of Appeal ruled that the Collateral Law 2005’s safe-harbor protections were limited to EEA countries (Court of Appeal Judgment). This decision arose from a case involving insolvency proceedings against an Ivorian company, where the court determined that the safe-harbor protections of the Collateral Law 2005 did not apply to non-EEA countries and that, consequently, the pledge (governed by Luxembourg law) could not be enforced following the opening of insolvency proceedings against the collateral provider in a non-EEA country. This interpretation diverged from the prevailing view among legal scholars and practitioners, who had previously understood foreign proceedings to encompass any non-Luxembourg jurisdiction (including non-EEA countries).

Legislative Response

In response to the Court of Appeal Judgment, the Luxembourg legislator immediately seized the opportunity of an ongoing legislative process to clarify the Collateral Law 2005 to explicitly include any third country in the definition of “Insolvency Proceedings.”

Supreme Court Reaffirmation

The Luxembourg Supreme Court overturned the Court of Appeal’s decision on 19 December 2024, confirming that the Collateral Law 2005 protects against insolvency proceedings in both EEA and non-EEA countries. This reaffirmation ensures that financial collateral arrangements are protected throughout from insolvency proceedings, enhancing the security and predictability of financial transactions in Luxembourg.

What This Means for You

Global Safe-Harbor Protection

Financial collateral arrangements are safeguarded against insolvency proceedings in any country.

Swift Enforcement

The Collateral Law 2005 allows for quick enforcement of collateral without court intervention, providing greater certainty and efficiency.

Enhanced Security

Luxembourg remains a top choice for cross-border financings due to its stability and robust legal framework.

For more information on how the firm can assist in creating, protecting, and enforcing financial collateral arrangements, please contact any of the authors listed above.
SEC Policy Shift and Recent Corp Fin Updates–Part 1

Wed, 02 Apr 2025 00:00:00 -0000

Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.

This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.

Regulation 13D-G

On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.

New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.

Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.

For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.

Proxy Rules and Schedules 14A/14C

Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.

On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.

For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.

Tender Offer Rules

On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.

In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.

New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.

In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.

In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.

Conclusion

This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.

President Trump Announces "Reciprocal" Tariffs Beginning 5 April 2025

Wed, 02 Apr 2025 00:00:00 -0000

On 2 April 2025, President Trump announced a series of “reciprocal” tariffs on US imports from all countries. The tariffs apply at different rates by country, starting at a baseline of 10% and reaching as high as 50%.

The tariffs, which are being implemented under the authority of the International Emergency Economic Powers Act (IEEPA), will go into effect at a rate of 10% on 12:01 am ET on 5 April 2025. For some countries (see the complete list at the end of this alert), the 10% tariff baseline will increase to a higher per-country rate effective 12:01 am ET on 9 April 2025.

The latest tariffs are intended to address the customs duties and related VAT and non-tariff barriers imposed by each covered trading partner on US exports, as summarized in the National Trade Estimate Report issued by the Office of the US Trade Representative on 31 March 2025.

The reciprocal tariffs announced on 2 April 2025 will not apply to:

Certain news publications and other similar media;
Goods that are already subject to c Section 232 tariffs on steel, aluminum, and autos/auto parts;
Certain metals and minerals, pharmaceuticals, semiconductors, lumber, electronics, energy, and other products identified in Annex II to the president’s Executive Order;
Imports from countries such as North Korea and Cuba subject to “Column 2” customs duty rates; and
Any goods that later become subject to tariffs pursuant to future Section 232 trade actions.

Additionally, for goods that incorporate US content, the reciprocal tariffs will apply only to the non-US content – provided at least 20% of the value of the good is US content (defined as produced or substantially transformed in the United States). Thus, for example, a good that incorporates 15% US content will be dutiable at its entire value, whereas a good incorporating 25% US content will be dutiable at 75% of its value.

Goods from Canada and Mexico that qualify for tariff-free treatment under USMCA will not face additional tariffs. Any goods from Canada or Mexico that do not qualify for USMCA will continue to be subject to the tariffs of 10% (for certain energy and mineral products) or 25% (all other products) that were announced in February 2025. In the event the President decides to terminate these 10-25% tariffs, goods from Canada or Mexico that do not qualify for USMCA treatment will be subject to a 12% reciprocal tariff.

In addition to the latest reciprocal tariffs, goods from China and Hong Kong will continue to be subject to the 20% tariffs implemented in February and March pursuant to the President’s IEEPA authority as well as (for most products from China) existing Section 301 tariffs of 25%. Further, starting 2 May 2025 at 12:01 a.m. ET, US tariffs will apply to products from China and Hong Kong that are imported through the Section 321 “de minimis” exception for low value shipments to a single US recipient on a single day.

According to President Trump, the United States will consider removing the latest reciprocal tariffs if US trading partners lower their tariff rates on US exports and take other steps to open their markets to US products. Countries that retaliate against the latest US tariffs may face even higher tariff rates.

Companies importing goods from the covered countries should carefully evaluate the list of covered imports and consider appropriate measures to determine their tariff exposure and potentially mitigate risks arising from the tariffs.

Countries Subject to “Reciprocal” Tariffs Higher than 10% (Effective 9 April 2025)

Countries and Territories	Reciprocal Tariff Rate
Algeria	30%
Angola	32%
Bangladesh	37%
Bosnia and Herzegovina	36%
Botswana	38%
Brunei	24%
Cambodia	49%
Cameroon	12%
Chad	13%
China	34%
Côte d`Ivoire	21%
Democratic Republic of the Congo	11%
Equatorial Guinea	13%
European Union	20%
Falkland Islands	42%
Fiji	32%
Guyana	38%
India	27%
Indonesia	32%
Iraq	39%
Israel	17%
Japan	24%
Jordan	20%
Kazakhstan	27%
Laos	48%
Lesotho	50%
Libya	31%
Liechtenstein	37%
Madagascar	47%
Malawi	18%
Malaysia	24%
Mauritius	40%
Moldova	31%
Mozambique	16%
Myanmar (Burma)	45%
Namibia	21%
Nauru	30%
Nicaragua	19%
Nigeria	14%
North Macedonia	33%
Norway	16%
Pakistan	30%
Philippines	18%
Serbia	38%
South Africa	31%
South Korea	26%
Sri Lanka	44%
Switzerland	32%
Syria	41%
Taiwan	32%
Thailand	37%
Tunisia	28%
Vanuatu	23%
Venezuela	15%
Vietnam	46%
Zambia	17%
Zimbabwe	18%

Updates on SB 54: CalRecycle to Take a Second Stab at Implementing Regulations

Tue, 01 Apr 2025 00:00:00 -0000
On 7 March 2025, Governor Gavin Newsom sent the Department of Resources Recycling and Recovery (CalRecycle) back to the drawing board on proposed regulations to implement the state’s Plastic Pollution Prevention and Packaging Producer Responsibility Act (SB 54). Senate Bill (SB) 54 is one of many state extended producer responsibility laws that seek to make product manufacturers responsible for the environmental burden associated with single-use packaging and similar materials. Newsom signed SB 54 into law in 2022, and CalRecycle has been working to implement the law since 2023.

SB 54 targets single-use plastic packaging and food service ware (Covered Materials) and has the lofty goals of achieving by 2032 making 100% of Covered Materials recyclable or compostable, reducing the use of Covered Materials by 25%, and actually recycling Covered Materials at a minimum of 65%.

SB 54 mandated CalRecycle to propose permanent regulations for SB 54 by 8 March 2025. The recently rejected proposed regulations were originally released for public comment in February 2024 and underwent two rounds of public comment. After two public comment periods, CalRecycle arrived at the proposed permanent regulations that Newsom declined to accept. Newsom declined to adopt CalRecycle’s proposed regulations due to the unacceptable burdens and costs the proposed regulations would have imposed on businesses. CalRecycle will have to convene another series of stakeholder meetings and develop new regulations, but CalRecycle’s timeline for proposing these new regulations is not yet clear.

In addition to monitoring the updated rulemaking process for California’s SB 54, our firm is keeping up with several other proposed and enacted state regulations impacting food packaging and food-contact material producers, including the following:
- Expected release of CalRecycle’s final “material characterization study” required under SB 343 by 4 April 2025; the report will determine what materials are considered “recyclable” for purposes of “chasing arrows” symbols and SB 54.
- Introduced 16 January 2025, Minnesota’s Senate File 188/House File 44 would require food-packaging manufacturers and brand owners to test for and report ortho-phthalates. If enacted, the law would take effect 1 July 2026.
- On 20 February 2025, California introduced the Safer Food Packing Act of 2025 to regulate antimony trioxide, bisphenols, and ortho-phthalates in food packaging.
- Introduced 3 February 2025, Illinois House Bill 2516 will prohibit the sale or distribution of any cookware and food packaging that contains potentially added per- and polyfluoroalkyl substances (PFAS). If passed, this regulation will take effect 1 January 2026.
- Introduced 13 February 2025, Hawaii SB 683 will prohibit the sale or distribution of any cookware and food packaging that contains potentially added PFAS. If passed, this regulation will take effect 1 January 2028.
Our Healthcare and FDA team is ready to assist with questions and will continue to monitor for updates.
Important New Safe Harbors and Other Clarifying Changes to Delaware Corporate Law

Mon, 31 Mar 2025 00:00:00 -0000
The governor of the State of Delaware—consistent with his pledge to protect the “Delaware franchise”—recently signed into law amendments to Section 144 of the Delaware General Corporation Law (the DGCL) relating to certain acts or transactions involving directors, officers, controlling stockholders, and members of a control group, and Section 220 of the DGCL relating to stockholder demands for inspection of corporate books and records.

The amendments to Section 144 are intended to provide greater predictability and clarity to Delaware corporations considering acts or transactions that may implicate the fiduciary duties of directors, officers, controlling stockholders, and members of a control group. The amendments to Section 220 are intended to provide clarity and certain limits on stockholder inspection of books and records given the increasing growth in volume and scope of stockholder actions for inspection brought in the Delaware Court of Chancery.

Amendments to Section 144

The amendments to Section 144 provide safe harbor procedures for acts or transactions involving one or more directors, officers, controlling stockholders, and members of a control group that might, absent compliance with the safe harbor procedures, give rise to breach of fiduciary duty claims. The amendments to Section 144 also exculpate controlling stockholders and members of a control group from liability for duty of care violations.

The safe harbor provided by amended Section 144 is protection from equitable relief or an award of damages by reason of a claim based on a breach of fiduciary duty.

Safe Harbor for Acts or Transactions Solely Involving Directors or Officers

Acts and transactions involving one or more directors or officers or in which one or more directors or officers have an interest get the benefit of the safe harbor under amended Section 144(a) if:
- The material facts as to the relationship or interest and the act or transaction are disclosed or known to all members of the board or a committee of the board and the act or transaction is authorized in good faith and without gross negligence by (i) the affirmative votes of a majority of the disinterested directors (see below) on the board (except where less than a majority of directors on the board are disinterested directors) or (ii) a majority of the disinterested directors on a committee (where less than a majority of the directors on the board are disinterested directors, the committee must consist of at least two disinterested directors), even though the disinterested directors constitute less than a quorum; or
- The act or transaction is approved by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders (see below); or
- The act or transaction is fair as to the corporation and its stockholders.
Safe Harbor for Acts or Transactions (Other Than Going Private Transactions) Involving a Controlling Stockholder or Control Group

Acts or transactions between the corporation or one or more of the corporation’s subsidiaries on the one hand and a controlling stockholder (see below) or control group (see below) on the other hand and acts or transactions from which a controlling stockholder or control group receives a financial or other benefit not shared with the stockholders generally (each a Controlling Stockholder Transaction) get the benefit of the safe harbor under amended Section 144(b) if:
- The material facts as to the Controlling Stockholder Transaction are disclosed or known to all members of a committee of the board (consisting of at least two disinterested directors) that has been expressly delegated by the board the authority to negotiate or oversee the negotiation of and reject the Controlling Stockholder Transaction and the Controlling Stockholder Transaction is approved or recommended for approval in good faith and without gross negligence by a majority of the disinterested directors then serving on the committee (Disinterested Committee Approval); or
- The Controlling Stockholder Transaction is conditioned—by its terms (as in effect at the time it is submitted to stockholders for approval or ratification)—on approval or ratification by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders and such approval or ratification is obtained (Disinterested Stockholder Approval); or
- The act or transaction is fair as to the corporation and its stockholders.
Safe Harbor for Going Private Transactions Involving a Controlling Stockholder or Control Group

A “going private transaction”—defined as a Rule 13e-3 transaction (for a corporation having a class of stock listed on a national securities exchange) or a Controlling Stockholder Transaction in which all of the capital stock held by disinterested stockholders is canceled, converted, purchased, or otherwise acquired or ceases to be outstanding (a Going Private Transaction)—gets the benefit of the safe harbor under amended Section 144(c) if:
- The Going Private Transaction receives Disinterested Committee Approval and Disinterested Stockholder Approval; or
- The act or transaction is fair as to the corporation and its stockholders.
Defining a “Controlling Stockholder,” “Control Group,” “Disinterested Director,” and “Disinterested Stockholder”

For purposes of applying the above safe harbor procedures, amended Section 144 defines the foregoing key terms as follows:

A “controlling stockholder” means a person that, together with affiliates and associates:
- Owns or controls a majority in voting power of stock entitled to vote generally in the election of directors or in the election of directors having a majority in voting power of all directors; or
- Has the right (by contract or otherwise) to cause the election of its nominees to the board and such nominees constitute a majority of all directors or a majority in voting power of all directors; or
- Has the power functionally equivalent to that of a stockholder owning or controlling a majority in voting power of stock entitled to vote generally in the election of directors by virtue of ownership or control of at least 1/3 in voting power of stock entitled to vote generally in the election of directors or in the election of directors having a majority in voting power of all directors and power to exercise managerial authority over the corporation’s business and affairs.
- A “control group” means two or more persons that are not controlling stockholders but by virtue of “an agreement, arrangement, or understanding” between or among them constitute a controlling stockholder.
- A “disinterested director” means a director who is not party to the relevant act or transaction and does not have a material interest in, or a material relationship with a person that has a material interest in, the relevant act or transaction. Amended Section 144 also contains a rebuttable presumption as to the “disinterestedness” of directors satisfying the independence criteria of the national securities exchange (modified as provided in amended Section 144) on which a class of the corporation’s shares are listed.
- A “disinterested stockholder” means a stockholder that does not have a material interest in the relevant act or transaction or a material relationship with either the relevant controlling stockholder or a member of the relevant control group or any other person with a material interest in the relevant act or transaction.
Defining a “Material Interest” and “Material Relationship”

Section 144 also defines the key terms “material interest” and “material relationship” as follows:
- A “material interest” means an actual or potential benefit (including avoidance of a detriment), other than one devolving on the corporation or the stockholders generally, that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, approval, or authorization of the relevant act or transaction and, (ii) in the case of a stockholder or other person that is not a director or officer, would be material to the stockholder or other person.
- A “material relationship” means a financial, employment, familial, professional, or other relationship that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, approval, or authorization of the relevant act or transaction and, (ii) in the case of a stockholder, would be material to such stockholder.
Amendments to Section 220

The amendments to Section 220 define the scope of books and records that a stockholder may demand to inspect and set forth conditions that must be satisfied for the stockholder to inspect a corporation’s books and records.

Scope of Books and Records That May Be Inspected by a Stockholder

Amended Section 220 generally defines the “books and records” of the corporation that a stockholder may inspect as the certificate of incorporation, bylaws, minutes of meetings (or consents in lieu of meetings) of stockholders (for the preceding three years) and the board or committees of the board, communications with stockholders generally (within the prior three years), materials provided to the board or committee in connection with action taken by the board or committee, annual financial statements (for the preceding three years), D&O questionnaires, and contracts made by the corporation with one or more current or prospective stockholders (or one or more beneficial owners of stock), in its or their capacity as such, entered into under Section 122(18) of the DGCL.

Where the corporation does not have any minutes or consents of stockholders (for the preceding three years) or the board or committee, annual financial statements (for the preceding three years), or, in the case of a corporation having a class of stock listed on a national securities exchange, D&O questionnaires, the Delaware Court of Chancery may order the corporation to produce the functional equivalent of these books and records if the stockholder has complied with the conditions to inspection set forth in Section 220(b) and only to the extent necessary and essential to fulfill the stockholder’s proper purpose.

In addition, the Delaware Court of Chancery may order the production of other specific records if and to the extent (i) the stockholder has complied with the conditions to inspection set forth in Section 220(b), (ii) the stockholder has demonstrated a compelling need for the inspection of the records to further such stockholder’s proper purpose, and (iii) the stockholder has demonstrated by clear and convincing evidence that the specific records are necessary and essential to further the proper purpose.

Conditions to Stockholder Inspection

Amended Section 220(b) requires a stockholder demanding inspection of the corporation’s books and records to:
- Make its demand in good faith and for a proper purpose (e.g., a purpose reasonably related to the stockholder’s interest as a stockholder); and
- Describe with reasonable particularity in its demand for inspection the stockholder’s proper purpose and the books and records sought to be inspected (which books and records must be specifically related to the stockholder’s proper purpose).
Amended Section 220(b) expressly permits the corporation to:
- Impose reasonable restrictions on the confidentiality, distribution, and use of the books and records inspected;
- Require that the stockholder agree to incorporate information contained in the books and records inspected by the stockholder by reference in any complaint filed by or at the direction of such stockholder relating to the subject matter of demand; and
- Redact portions of the books and records not specifically related to the stockholder’s purpose.
Effective Date of the Amendments

The amendments to Section 144 and Section 220 became effective upon signature by the governor on 25 March 2025 and apply to acts and transactions occurring before, on, or after such date, except for actions or proceedings that are completed or pending, or any demands for inspection made, on or before 17 February 2025.

Conclusion

As a fully integrated law firm with offices in Wilmington, Delaware, and nearly 30 other key cities in the United States, we regularly advise our publicly traded and privately held clients with respect to complex corporate governance matters. Please reach out to any of the listed authors or your regular K&L Gates contact in our nearly 500-lawyer Corporate practice area if you would like to discuss further.
Australian Mandatory Merger Clearance: Regime Details starting to Emerge–Government publishes Draft Determination, ACCC publishes Draft Guidelines

Mon, 31 Mar 2025 00:00:00 -0000
On 28 March 2025, the Australian Government (the Government) published its draft Determination providing the beginnings of detail about the acquisitions that are the subject of mandatory notification, some of the exceptions to notifications, the position regarding supermarket acquisitions and the draft notification forms.

On the same day, the Australian Competition and Consumer Commission (ACCC) published its draft merger process guidelines, following on from its earlier analytical, and transition guidelines.

This Insight is part of a series of publications designed to guide clients through the upcoming Australian mandatory merger clearance regime, as the details becomes available.

In Brief

Whilst this Insight focuses on the key definitions in the Government's draft Determination, We will shortly publish additional articles focusing on the ACCC's draft guidelines. The determination:
- Confirms or defines the types of acquisitions that are the subject of the regime.
- Clarifies that the test for whether an acquisition is to be notified is based on the turnover of the acquirer and the target – and no other measure.
  
  It then clarifies that the relevant measure of turnover of each of the acquirer and the target is the current Goods and Services Tax (GST) Turnover of the relevant entity and connected entities (being associated entities and controlled entities).
As a practical matter, this means the following for parties seeking to enter into negotiations for mergers and acquisitions (M&A), including considering the broader meaning of "acquisition", at an early stage of the proposed acquisition or deal:
- The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
- The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million or the AU$500 million threshold;
- The above calculation will also be relevant to the calculation of the AU$50 million or AU$10 million threshold; and
- The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction for assessment of the AU$250 million transaction value threshold.
The same assessment in respect of serial or creeping acquisitions is set out below.
- It provides detail about exceptions from notification under the regime, namely acquisitions:
  
  Of land in certain circumstances;
  
  By liquidators/administrators etc;
  
  In the context of succession; and
  
  Of financial securities, exchange traded derivatives, in money lending situations and in trust circumstances.
- Mandatory notifications in the case of acquisitions by Coles or Woolworths.
- The information requirements in Notification Forms – short and long-form.
In More Detail

As previously mentioned, the Government recently released the exposure draft of the Competition and Consumer (Notification of Acquisitions) Determination 2025 (Determination) and related draft explanatory memorandum.

Additionally, on 28 March 2025, the ACCC published its draft merger process guidelines, building on its earlier draft analytic guidelines and transition guidelines.

As clients are focused on what amounts to a notifiable acquisition and if a transaction is notifiable, and what information is required to be provided to the ACCC, this insight focuses on the Determination. We will shortly publish a follow-up insight focusing on the process of interaction with the ACCC both informally and once a formal application is made.

What is an Acquisition

The Determination confirms that acquisitions are mandatorily notifiable in the following circumstances:
- The acquisition is of shares in the capital of a body corporate or assets;
- The shares or assets are "connected with Australia";
- The acquisition satisfies the combined acquirer/target turnover test on the contract date or the accumulated acquired shares or assets turnover tests (set out in more detail below); and
- The acquisition is not covered by the exceptions.
We elaborate on these issues below, apart from confirming that the term "assets" is very broad, including:
- Any kind of property;
- Any legal or equitable interests in tangible assets such as options for land, leases etc;
- Any legal or equitable right that is not property or intangible assets such as intellectual property, goodwill etc;
- Any interest in an asset of a partnership, or an interest in a partnership that is not an interest in an asset of the partnership; and
- Interests in unit trusts and managed investment schemes.
What is an Acquisition That is "Connected to Australia"

An acquisition is notifiable if it meets the thresholds (below) and it is an acquisition of shares or assets connected with Australia. This means in relation to:
- A share: the share is in the capital of a body corporate that carries on business in Australia or intends to carry on business in Australia; or
- An asset that is an interest in an entity: the entity carries on business in Australia or intends to carry on business in Australia.
How the Turnover Tests are Assessed

General or Economy Wide Turnover

The general or economy wide turnover test for mandatory notification is as follows:
- The acquirer or acquirer group and target have a combined Australian turnover of at least AU$200 million; and either
- The Australian turnover of the target is at least AU$50 million (for each of at least two of the merger parties); or
- The global transaction value is at least AU$250 million.
The Determination has clarified how the turnover is to be calculated:
- In relation to the acquirer or target turnover test, if the sum of all of the following is AU$200million or more:
  
  The current GST turnover of each of the principal party or acquirer, together with each connected entity of the principal party;
  
  Where the target acquisition is in shares of a body corporate, the current GST turnover of the body corporate and each connected entity of the body corporate; and
  
  Where the target is an asset, the current GST turnover of the target attributable to the asset,
AND
- In relation to the target, the acquired shares or assets turnover test is the sum of all of the following is AU$50 million or more:
  
  Where the acquisition is in shares in a body corporate, the current GST turnover of the body corporate together with the current GST turnover of each connected of the body corporate; and
  
  Where the acquisition is of an asset, the current GST turnover of the target to the acquisition to the extent that is attributable to the asset.
In relation to the above:
- Connected entity meaning an associated entity as per section 50AAA of the Corporations Act, and any entity controlled by the principal party as per section 50AA of the Corporations Act; and
- Current GST turnover (which is well understood by business given it is used by business to report the value of their taxable and GST free supplies) has the same meaning as section 188-15 of A New Tax System (Goods and Services Tax) Act.
In relation to the assessment of the AU$250 million transaction value, an acquisition will meet this threshold if the greater of the following is AU$250 million or more:
- The sum of all market values of all of the shares and assets being acquired as part of the contract or arrangement; or
- The consideration received or receivable for all of the shares and assets being acquired as part of the contract or arrangement.
As a practical matter, this means the following for parties seeking to enter into negotiations for M&A, including considering the broader meaning of "acquisition", at an early stage of the proposed acquisition or deal:
- The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
- The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million threshold;
- The above calculation will also be relevant to the calculation of the AU$50 million threshold; and
- The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction.
Very Large Corporate Group Turnover

The very large corporate group turnover test for mandatory notification is as follows:
- The acquirer or acquirer group (i.e. the principal acquirer party and each connected entity) have a combined Australian current GST turnover of at least AU$500 million; and
- The Australian current GST turnover of the target (the same approach to the assessment being the same as above) is at least AU$10 million (for each of at least two of the merger parties).
The Assessment of Serial or Creeping Acquisition

An acquisition satisfies the AU$50 million or AU$10 million threshold for accumulated acquired shares or assets turnover test for notification if:
- The acquisition is of shares or assets; and
- The principal acquirer or each connected entity have acquired other shares or assets in the three years ending the date of entering into the agreement or arrangement; and
- Both the current acquisition (of shares or assets) and the previous acquisition, related directly or indirectly to the carrying on of a business involving the supply or acquisition of the same or substitutable or otherwise competitive with each other (disregarding geographic factors or limitations); and
- The acquisition of the previous shares or assets and the current shares or assets, if treated as a single acquisition would satisfy the AU$50 million or AU$10 million acquired shares or assets turnover test; unless
- The current GST turnover of the target of the current acquisition (and as relevant connected entities) is less than AU$2 million.
Exceptions to the Requirement Make a Mandatory Notification

In addition to the exception to the requirement to notify in respect of acquisition of partial shareholdings that was included in the amending Act, the Determination sets out that acquirers are not required to notify in the following circumstances:

Certain Land Acquisitions
- Land acquisitions made for the purposes of developing residential premises; and
- Acquisitions by businesses primarily for engaging in buying, selling or leasing land, where the acquisition is for a purpose other than operating a commercial business on land (i.e. the exemption is for property development or operating a property development business rather than operating a commercial business on the premises).
Liquidation, Administration or Receivership
- An acquisition by a person in the person's capacity as an administrator, receiver, and manager, or liquidator (within the meaning of the Corporations Act).
Financial Securities
- An acquisition that results from a rights issue, a dividend reinvestment and underwriting of fundraising or buybacks, or an issue of securities (as per the Corporations Act).
Money Lending and Financial Accommodation
- An acquisition of shares or assets that is a security interest taken or acquired in the ordinary course of business of the person's business of the provision of financial accommodation (as long as the person whose property is subject to the security interest is not an associate of the acquirer).
Nominees and Other Trustees
- An acquisition of an asset, that is an interest in securities, by a person as a bare trustee, if a beneficiary under the trust has a relevant interest in the securities.
Exchange-Traded Derivatives
- An acquisition of an asset in the form of exchange-traded derivative and if at the time, the derivative confers an equitable interest in a share or assets, the acquisition of that equitable interest.
Notification Requirements for Coles and Woolworths

The Determination requires Coles and Woolworths (major supermarkets) and connected entities to make a notification for any acquisition of shares or assets that results in:
- Coles or Woolworths acquiring in whole or in part, a supermarket business (a supermarket business as defined in section 5 of the Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2024; or
- Coles or Woolworths acquiring a legal or equitable interest in land (in whole or in part), either existing land that has a building with a gross lettable area of 700sqm or if it does not have an existing building, the land is 1,400sqm,
UNLESS
- The acquisition is not the extension or renewal of a lease for land upon which Coles or Woolworths was already operating a supermarket on the land.
Notification Forms – Information and Documentary Requirements

The Determination sets out the requirements for each of Short-Form Notifications (for acquisitions that were unlikely to raise competition concerns) and Long-Form Notifications (for acquisitions that required greater consideration of their effect on competition).

The Determination sets out in more detail the requirements and form of each of these notification forms, but in brief, the following are required (identifying the additional requirements for long-form application):

Documents
- The final or most recent version of the transaction documents (including sale and purchase agreements, heads of agreement, offer documents/letters of intent and any other agreements between the transaction parties related to the acquisition);
- For each party, the most recent audited financial statements and income statements that relate to the supply of goods or services most relevant to the competition analysis; and
- An organisational chart to show structure of ownerships of each party and connected entities.
In addition, for Long-Form Applications, documents from each of the parties prepared for or received by the Board, Board Committee, or equivalent (possibly Executive or senior leadership team), or the shareholders meeting within the three years prior to the date of the notification regarding:
- The rationale for the acquisition, including the business case for the acquisition or divestment;
- The assessment of acquisition including the valuation of the target; and
- Industry reports, market reports etc provided to the Board or equivalent within the previous three years describing competitive conditions, competitors, market shares and business plans (unrelated to the acquisition).
Information
- The party names, contact details and law firms representing the parties;
- An overview of:
  
  The goods or services supplied (or acquired) by the parties, including brands, most relevant to the acquisition;
  
  The transaction or transaction structure;
  
  The rationale for the acquisition;
  
  The consideration for the acquisition; and
  
  If relevant, any foreign filings relevant to the transaction.
- Tables for each of the parties setting out:
  
  Connected entities in each of the previous three years; and
  
  Acquisitions made by the parties (including connected entities in each of the last three years);
- Details of the competitive effects of the acquisition, including:
  
  The relevant goods and services and the geographic areas in which they are supplied;
  
  The other key suppliers of the goods/services;
  
  The markets that are affected and estimate of market shares (by volume, capacity or turnover in each of the previous three years); and
  
  The contact details of the five closest competitors, five largest customers, five customers closest to the median spend of customers.
Additional Requirements for Long-Form Applications
- Details regarding barriers to entry including:
  
  The costs of entry or the infrastructure required to supply the relevant goods or services and time required to put these in place, as well as the extent of these costs that are sunk or not recoverable;
  
  Other barriers such as access to inputs, intellectual property issues, legal and regulatory requirements, customer switching costs and time required to "win" contracts, and overall revenues to achieve minimum viable scale; and
  
  The entry of new competitors, as well as the exits in the previous three years.
The long-form application requires significant additional information for different types of transactions – horizontal and vertical acquisitions etc.
- Other relevant information, particularly:
  
  Identifying any goodwill protection provisions and the reasons that these provisions are necessary to protect the goodwill of the purchaser.
The Government has foreshadowed additional Determination, with the Determination itself having "placeholders" regarding waiver applications and the Acquisition Register – which unfortunately will now not be progressed until after the Federal election.

We are happy to provide additional details on any of the above issues.

We will also shortly publish additional Insights focusing on the ACCC's Guidelines.
Rule 506(c) Unchained? The SEC Loosens Requirements for Advertising in Private Capital Raises

Thu, 27 Mar 2025 00:00:00 -0000
On 12 March 2025, the US Securities and Exchange Commission (SEC) staff issued a no-action letter that provides private fund sponsors with a concrete, streamlined approach to relying on Rule 506(c),¹ based on minimum investment amounts and investor representations. This guidance has the potential to unlock Rule 506(c)’s advantages for private fund sponsors more than a decade after its passage.

Background on Rule 506(c)

Implemented in 2013 pursuant to the Jumpstart Our Business Startups Act, Rule 506(c) provides an alternative to the traditional prohibition on general solicitation in private offerings. Specifically, Rule 506(c) permits issuers to engage in general solicitation and advertising when selling securities, provided they take “reasonable steps” to verify that all purchasers are accredited investors. While enacted in order to give issuers the opportunity to increase their fundraising abilities through marketing to a public audience, Rule 506(c) has been only sparingly used over the last decade. This past November, SEC Commissioner Hester Peirce commented that issuers had “raised around $169 billion annually under Rule 506(c) compared to $2.7 trillion under 506(b), which does not permit general solicitation.”²

The “reasonable steps” verification requirement has presented operational challenges for many issuers. Prior methods qualifying as “reasonable steps” included reviewing tax returns, bank statements, or obtaining verification letters from professionals such as lawyers or accountants. Because of the additional administrative burdens imposed by these verification methods, Rule 506(c) has not been widely utilized, despite its potential to access a much wider audience for capital raising.

The Alternative Verification Method

The no-action letter provides a far less labor-intensive approach to satisfying Rule 506(c)’s verification requirements by streamlining the process issuers must follow to verify an investor’s accredited investor status. Specifically, the SEC mandates that an issuer relying on the no-action letter:
- Impose minimum investment amounts of US$200,000 for individuals and US$1 million for legal entities;³
- Receive written, self-certified representations from an investor that they are an accredited investor and that their investment is not financed by a third party for the specific purpose of making the particular investment;⁴ and
- Have no actual knowledge of facts contrary to the two above bullets.
This test for determining whether an issuer has taken reasonable steps to verify accredited investor status is objective and depends on the specific facts and circumstances of each investor and transaction.

Practical Considerations for Private Fund Sponsors and Other Issuers

What are the practical implications for private fund sponsors now that the SEC has loosened the verification restrictions? Will private fund sponsors now jump into the fray and begin to advertise on social media, at sporting events, and elsewhere? There remain a number of considerations notwithstanding the less burdensome verification process. The SEC’s no-action letter addressed only this aspect of using Rule 506(c). The Marketing Rule (defined below), antifraud provisions, and other provisions of the Investment Advisers Act of 1940 the (Advisers Act) of course remain in full force and effect. Private fund sponsors considering an offering under Rule 506(c) will need to not only comply with the Advisers Act’s requirements, but be prepared to do so in front of a much wider investor and regulator audience.

Private fund sponsors considering Rule 506(c) offerings should note several additional considerations:

Update Policies and Procedures

Managers should adopt policies and procedures to accommodate Rule 506(c) offerings.

Marketing Rule

Registered investment advisers must continue to consider Rule 206(4)-1⁵ under the Advisers Act the (Marketing Rule) when marketing their funds. While advisers may widely distribute marketing materials, such materials must comply with the Marketing Rule. For example, under the Marketing Rule, advisers are generally prohibited from including hypothetical performance, such as performance targets and projected returns, in advertisements to the general public.⁶

Switching Exemptions

Managers that want to change to a Rule 506(c) offering should file an updated Form D with the SEC and review offering materials for any necessary updates (e.g., remove representations regarding no general solicitation from subscription agreements and other documents).

What Is Next for Private Fund Sponsors and Rule 506(c)?

The easing of the investor verification process under Rule 506(c) will undoubtedly renew interest in pursuing this alternative path to capital raising. It is no secret that the fundraising environment over the last several years has been challenging, particularly for mid-market and emerging manager sponsors. For those managers, there are good reasons to explore general solicitation under Rule 506(c), bearing in mind the need to comply with the SEC’s recent guidance on verification and the requirements of the Advisers Act. Time will tell whether the SEC’s no-action letter will actually open the floodgates of advertising for private fund sponsors. Watch this space for further insights as the industry’s approach to using Rule 506(c) unfolds.
Corporate Debtors and Transactions at an Undervalue–Lessons From the UK Supreme Court: El-Husseini and Another v Invest Bank PSC

Wed, 26 Mar 2025 00:00:00 -0000
The UK Supreme Court’s recent decision in El-Husseini and another v Invest Bank PSC [2025] UKSC 4 has clarified the circumstances in which section 423 of the Insolvency Act 1986 (the Act) provides protection against attempts by debtors to “defeat their creditors and make themselves judgment-proof.” This is a critical decision for insolvency practitioners, any corporate or fund which is involved in distressed deals and beyond to acquirers who were not aware they were dealing in distressed assets. It is potentially good news for the former, improving or fine-tuning weapons deployed for the benefit of creditors. It is potentially awkward news for the latter, who may have to look rather more broadly at insolvency issues when acquiring assets not only from distressed vendors but potentially also from vendors with distressed owners.

The case concerned an individual debtor, Mr Ahmad El-Husseini, but the decision has ramifications for corporate debtors. It confirms a broad interpretation of “transactions at an undervalue” applicable to section 423 (transactions defrauding creditors) of the Act and gives clear guidance that this interpretation applies to section 238 (transactions at an undervalue) of the Act, such that the assets which are the subject of the transaction do not need to be legally or beneficially owned by the debtor to be subject to these provisions. Instead, they can catch transactions in which a debtor agrees to procure a company which they own to transfer an asset at an undervalue.

Section 423 and Section 238 of the ACT

Section 423 of the Act (which applies to both individuals and corporates, whether or not they are or later become insolvent) is engaged where a party enters into a transaction at an undervalue for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing their interests.

Section 238 of the Act (which applies to companies in administration or liquidation) is engaged where a company enters a transaction at an undervalue within two years of the onset of insolvency and the company was insolvent at the time of the transaction or became insolvent as a result of the transaction.

If a claim pursuant to section 423 or 238 of the Act is successful, the court has the power to restore the position as if the transaction had not been entered into.

The Facts in El-Husseini and Another V Invest Bank PSC

Seeking to enforce a United Arab Emirates (UAE) judgement in the sum of approximately £20 million, Invest Bank PSC (the Bank) identified valuable assets linked to Mr El-Husseini. In its judgment, the Supreme Court proceeded on the basis that Mr El-Husseini was the beneficial owner of a Jersey company which owned a valuable central London property. Further, that Mr El-Husseini had arranged with one of his sons that he would cause the Jersey company to transfer the property to the son for no consideration. As a result, the value of Mr El-Husseini’s shares in the Jersey company was reduced and the Bank’s ability to enforce the UAE judgement was prejudiced. The Bank brought claims under section 423 of the Act.

Defining A "Transaction" Falling Within Section 423 and the Ramifications For Section 238

The fundamental issue for the Supreme Court was whether, as asserted by the Bank, section 423 of the Act could apply to a transaction where the relevant assets were not legally or beneficially owned by the debtor but instead by a company owned or controlled by the debtor.

The Supreme Court ruled in the Bank’s favour, including on grounds that:
- The plain language of section 423 strongly supports the conclusion that the provision contains no requirement that a transaction must involve a disposal of property belonging to the debtor personally.
- A restrictive interpretation of “transaction” such that it was limited to transactions directly involving property owned by the debtor would undermine the purpose of section 423.
- It was appropriate to rely on the purpose of section 423 to construe a provision which was common to section 423, 238 and 339 (which provides a remedy in the case of transactions at an undervalue where the debtor has subsequently been declared bankrupt) of the Act. These sections share a common purpose: to set aside or provide other redress when transactions at an undervalue have prejudiced creditors. The Supreme Court considered it impossible to think of circumstances in which a “transaction” was held to be within section 423 when it would not fall within section 238 and 339 of the Act. In any event, there was no reason as a matter of policy or purpose why a transfer by a company owned by an insolvent company or individual should not fall within those sections.
Thus, not only does the judgment confirm the broad interpretation of “transactions at an undervalue” applicable to section 423, but it also gives clear guidance that this interpretation applies equally to section 238.

Key Takeaways

Debtors Cannot Hide Behind Corporate Structures

The ruling confirms that a corporate structure does not shield debtors who procure the transfer at an undervalue of assets belonging to companies owned by them to evade their obligations to creditors.

Stronger Protections For Creditors

Creditors will welcome the decision, which makes it harder for debtors to circumvent enforcement.

Greater Clarity

The judgment provides clear guidance that the broad interpretation of “transactions at an undervalue” applicable to claims under section 423 of the Act can be relied upon for the purposes of claims under section 238.

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm’s clients.
New Office of Financial Sanctions Implementation Financial Services Threat Assessment

Wed, 26 Mar 2025 00:00:00 -0000
On 13 February 2025, the Office of Financial Sanctions Implementation (OFSI) published its assessment of suspected sanctions breaches involving financial services firms since February 2022 (the Assessment). The Assessment forms part of a series of sector-specific assessments by OFSI that address threats to UK financial sanctions compliance by UK financial or credit institutions.

The Assessment highlights three areas of main concern:
1. Compliance;
2. Russian-Designated Persons (DPs) and enablers; and
3. Intermediary Countries.
This alert provides a summary of these concerns and suggests action financial services firms can take to combat these threats when developing their risk-based approach to compliance.

Compliance

OFSI has identified several compliance issues and advised steps that firms can take to improve and strengthen their compliance. These include:

Improper Maintenance of Frozen Assets

All DPs accounts and associated cards, including those held by entities owned or controlled by DPs, must be operated in accordance with asset freeze prohibitions and OFSI licence permissions. Financial institutions should review existing policies or contracts as these can often automatically renew, resulting in debits from DP accounts.

Breaches of Specific and General OFSI Licence Conditions

Firms need to carefully review permissions when assisting with transactions they believe are permitted under OFSI licences. Firms must ensure that OFSI licenses are in date, bank accounts are specified in OFSI licences and licence reporting requirements are adhered to.

Inaccurate Ownership Assessments

Firms must be able to identify entities that are directly owned by Russian DPs, and subsidiaries owned by Russian conglomerates that are themselves designated or majority owned by a Russian DP. Firms should conduct increased due diligence where necessary and regularly update due diligence software.

Inaccurate UK Nexus Assessments

Firms should take extra care to understand the involvement of UK nationals or entities in transaction chains when assessing the application of a UK nexus. They must also ensure they understand the difference between United Kingdom, European Union and United States sanctions regimes to make correct assessments of how UK sanctions might be engaged.

Russian DPs and Enablers

OFSI defines an enabler as “any individual or entity providing services or assistance on behalf of or for the benefit of DPs to breach UK financial sanctions prohibitions.” Broadly, there are two types of enablers:
- Professional enablers that provide professional services “that enable criminality. Their behaviour is deliberate, reckless, improper, dishonest and/or negligent through a failure to meet their professional and regulatory obligations”; and
- Non-professional enablers, such as family members, ex-spouses or associates.
Maintaining Lifestyles and Assets

Most identified enabler activity has been in relation to maintaining the lifestyles of Russian DPs and assets as they face growing liquidity pressures from UK sanctions.

OFSI urges firms to scrutinise the following red flags:
- New individuals or entities making payments to satisfy obligations formerly met by a DP;
- Individuals connected to Russian DPs receiving funds of substantial value;
- Regular payments between companies owned or controlled by a DP;
- Crypto-asset to fiat transactions involving close associates of a Russian DP;
- Family member of a DP that is an additional cardholder on a purchasing card that uses the card for personal expenses and overseas travel; and
- Deposits of large sums of cash without sufficient explanation;
Fronting

With a significant value of the assets of DPs having been frozen in the United Kingdom, an increasing amount of enablers are attempting to front on behalf of DPs and claim ownership of frozen assets. The links between enablers fronting on behalf of DPs are not always clear, and so OFSI has outlined several red flags for firms to be aware of:
- Individuals with limited profiles in the public domain, for instance, those with limited related professional experience;
- Inconsistent name spellings or transliterations;
- Recently obtained non-Russian citizenships; and
- Repeated or unexplained name changes or declared location of operation.
Utilising Alternative Payment Methods to Breach Prohibitions

Financial services firms need to remain diligent when assessing the threat posed by the increasingly sophisticated methods employed by DPs and enablers to evade UK financial sanctions prohibitions. Particular attention should be paid to attempts at money laundering on behalf of Russian DPs, including any indications of high value crypto-asset to cash transfers.

Intermediary Countries

Emphasis is placed on the use of intermediary jurisdictions in suspected breaches of UK financial sanctions prohibitions. The following jurisdictions are utilised most often: British Virgin Islands, Guernsey, Cyprus, Switzerland, Austria, Luxembourg, United Arab Emirates and Turkey. These jurisdictions offer secrecy or particular commercial interests.

There has also been a change in the third countries referenced in suspected breach reports, with increased activity in the Isle of Man, Guernsey, United Arab Emirates and Turkey. Indeed, the United Arab Emirates accounted for the largest section of suspected breaches reported to OFSI in the first quarter of 2024. This shift has likely been caused by various factors, including capital flight by Russians to jurisdictions that do not have sanctions on Russia.

The Assessment helpfully outlines a non-exhaustive list of specific activities in various countries that could be indicative of UK financial sanctions breaches. Financial institutions are encouraged to review and familiarise themselves with this list so that they can identify potential threats to sanctions compliance. Businesses should then consider the involvement of these jurisdictions when conducting due diligence, and evaluate the risks associated with various transactions.

Conclusion

The recent expansion of the United Kingdom’s financial sanctions regime, particularly in relation to Russia’s invasion of Ukraine, has resulted in sanctions evasion becoming increasingly sophisticated and widespread. Considering the scale of evasion being conducted, financial institutions need to remain proactive and vigilant in identifying transaction activity that may be indicative of attempts to circumvent UK sanctions regimes.

When designing sanctions compliance programmes, financial institutions should refer to the Assessment to account for methodologies of evasion and recognise specific behaviours that might present warning signs. By taking a proactive approach to prevent their services from being exploited as instruments of circumvention, financial institutions will contribute to efforts to combat sanctions evasion, whilst avoiding the financial and reputational repercussions of non-compliance.

If you have any questions on the Assessment or want further advice on developing your policies for UK sanctions compliance, please do not hesitate to contact our Policy and Regulatory practice.
Litigation Minute: Emerging Contaminants: Minimizing and Insuring Litigation Risk

Tue, 25 Mar 2025 00:00:00 -0000

What You Need to Know in a Minute or Less

As the scientific and regulatory landscape surrounding various emerging contaminants shifts, so too do the options that companies can consider taking to minimize and insure against the risk of emerging contaminant litigation.

The second edition in this three-part series explores considerations for companies to minimize that risk and provides consideration for potential insurance coverage for claims arising from alleged exposure to emerging contaminants.

In a minute or less, here is what you need to know about minimizing and insuring emerging contaminant litigation risk.

Minimizing Litigation Risk

As we discussed in our first edition of this series, regulation of emerging contaminants often drives emerging contaminant litigation. For example, in emerging contaminant litigation that alleges an airborne exposure pathway, plaintiffs’ complaints often prominently feature information from the US Environmental Protection Agency’s (EPA’s) Air Toxics Screening Assessment (AirToxScreen) screening tool and its predecessor, the National Air Toxics Assessment (NATA). AirToxScreen, and NATA before it, is a public mapping tool that can be queried by location, specific air emissions, and specific facilities to identify census tracts with potentially elevated cancer risks associated with various air emissions. Despite these tools’ many limitations, their simplicity and the information they provide have served as a foundation for many civil tort claims.

The takeaway: Since NATA and AirToxScreen use the EPA’s National Emission Inventory (NEI) as a starting point, companies with facilities that have emissions tied into NEI should carefully consider the implications of their reported emissions. For example, in some situations for some companies, it could be appropriate to consider whether to examine reported emissions and control technologies to determine whether adjustments can be made to reduce reported emissions to better reflect reality on a going-forward basis. In addition, requests for emerging contaminants sampling and reporting by regulatory agencies may be made publicly available.

Regulatory compliance is not always an absolute defense in tort litigation, but in most situations, compliance with existing regulations will be relevant to whether a company facing emerging contaminant litigation met the applicable standard of care. Companies should examine applicable regulations against established compliance efforts and, as appropriate and applicable to any given company, consider whether it may be appropriate to closer examine compliance programs for continued improvements or audit established protocols to substantiate safety.

Insurance Coverage Considerations

Policyholders facing potential liability for claims arising out of alleged exposure to emerging contaminants should consider whether they have insurance coverage for such claims.

Commercial general liability insurance policies typically provide defense and indemnity coverage for claims alleging “bodily injury” or “property damage” arising out of an accident or occurrence during the policy period. While some insurers are now introducing exclusions for certain emerging contaminants (and most policies today have pollution exclusions), the underlying claim(s) may trigger coverage under occurrence-based policies issued years or decades earlier, depending on the alleged date of first exposure to the contaminant and the alleged injury process.

These older insurance policies are less likely to have exclusions relevant to emerging contaminants, and policies issued before 1986 are more likely to have a pollution exclusion with an important exception for “sudden and accidental” injuries, or no exclusions at all. In addition, some courts have ruled that pollution exclusions do not apply to product-related exposures or permitted releases of certain emerging contaminants.

In deciding whether there is potential insurance coverage for claims alleging exposure to emerging contaminants, policyholders should also consider whether they have potential coverage for such claims under insurance policies issued to predecessor companies. If insurance records are lost or incomplete, counsel can often coordinate an investigation, potentially with the assistance of an insurance archaeologist, and may be able to locate and potentially reconstruct historical insurance policies or programs.

The takeaway: Do not overlook the possibility of insurance coverage for potential liability regarding claims arising out of alleged emerging contaminant exposure. To maximize access to potential coverage, policyholders should act promptly to provide notice under all potentially responsive policies in the event of emerging contaminant claims. Our experienced Insurance Recovery and Counseling lawyers can help guide policyholders through this process.

Our final edition will touch on considerations for companies defending litigation involving emerging contaminants. For more insight, visit our Emerging Contaminants webpage.

Australian Federal Budget 2025-2026–Key Tax Measures and Instant Insights

Tue, 25 Mar 2025 00:00:00 -0000

The Australian Federal Government has just released its budget for 2025-26. The K&L Gates tax team outlines the key announced tax measures and our instant insights into what they mean for you in practice.

In summary, with an upcoming Australian federal election, the budget is light on substantive tax changes (other than personal income tax cuts), and largely defers measures to raise further revenue or amend the tax system until after the election. Whilst there will be some relief that there have not been further targeted tax measures (e.g. on multinationals), there is also likely to be disappointment that there has been no attempt at tax reform or addressing the large number of outstanding matters requiring clarification.

Key Announced Tax Measure	K&L Gates Instant Insights
Personal Income Tax Cuts From 1 July 2026 The Government has announced reductions in the first tax rate from 16% to 15% from 1 July 2026 and from 15% to 14% from 1 July 2027. The Government has also increased the income threshold for where the 2% Medicare levy applies.	These will no doubt be welcome for individuals, and will likely form a key part of the Government's campaign for re-election. These changes have been largely targeted at low to middle income earners, although the tax cuts will apply to all taxpayers. Given the higher rates of inflation and wage growth, this essentially returns some (but not all) of the higher income tax take from "bracket creep" to taxpayers. There is no relief however for businesses, small or large.
Managed Investment Trust (MIT) "Clarifications" The Government is proposing to legislate to allow foreign widely held pension funds and sovereign funds to get access to the reduced MIT withholding tax rates on eligible income for "captive" MITs (i.e. where they are the sole actual or beneficial member of the MIT). This is intended to "complement" the Australian Taxation Office's (ATO's) Taxpayer Alert TA 2025 / 1 which focused on restructuring to access MIT benefits and using structures to implement captive MITs.	This is a pre-announced, welcome change that confirms existing industry practice, and addresses a difference between the rules to qualify as a MIT and the rules to apply reduced withholding tax. However, it was only necessary due to the ripple of serious concerns started by TA 2025/1 and focusing on "captive MITs" without sufficient clarity on the ATO's concerns. It remains clear that the ATO has a focus on foreign collective investment vehicles (i.e. funds) accessing MIT withholding concessions where they are the sole ultimate owner (even though they may themselves by widely held).
No Changes to Address Taxation of "Digital" Assets–Handball to the ATO The Government has confirmed it will not legislate any amendments to the taxation laws to deal with the array of digital assets, such as "decentralised finance" (DeFi), gaming finance (GameFi) and non-fungible tokens (NFTs). It also (in a fairly luke-warm way) endorsed the principles developed by the Board of Taxation (BoT) to guide taxation of digital assets, whilst also indicating that further ATO guidance will be available to address uncertainty.	Whilst the lack of a specific tax regime for digital assets is consistent with the BoT's recommendations, the tepid endorsement of the BoT's policy framework for digital assets provides little guidance on how the ATO is to develop further tax guidance to address the taxation of these novel assets, leaving the ATO to largely continue to act as policy formulator and implementor as well as revenue collector. Based on the existing guidance, it is unlikely this will result in much relief for digital asset providers, platforms or investors.
No Further Guidance on Corporate Tax Residency The Government has provided no update on the changes (promised back in Federal Budget 2020/21) on clarifying corporate residency laws, particularly following hardening of ATO guidance on corporate residency.	This means the ATO's views in TR 2018/5 and PCG 2018/9 continue to be applied (notwithstanding the Government's previously stated intent to address some of the challenges associated with those rules). Foreign entities with Australian directors etc continue to face heightened risks of the ATO trying to allege Australian tax residency.
Announced but Unenacted Measures The budget largely provides no clarity on a number of previously announced but unenacted measures, including: Changes to increase scope of foreign resident CGT withholding tax – other than that this has been delayed until after legislation is enacted; Clean building MIT rates for data centres and warehouses has been delayed until after legislation is enacted; Small business instant asset write-off extension to 30 June 2025; Part IVA amendments to deal with withholding tax; CGT rollovers and response to the BoT's review; Additional taxation of superannuation balances over AU$3 million, including whether this incorporates unrealised gains; and Changes to Division 7A (i.e. removal of distributable surplus requirement).	The list of announced but unenacted tax measures continues to grow and provides real uncertainty for the tax system and all taxpayers. Whilst there are some positive amendments, including deferring the commencement of the unreleased changes to foreign resident capital gains withholding, it largely leaves these matters unresolved. Some of the measures, such as taxation of superannuation balances, are clearly baked into the budget revenue forecasts, and so although the Government has not succeeded in getting legislation passed, the intent remains to do so (pending its re-election). The Government also appears to be in wait and see mode as to what the ultimate outcome is in the Bendel litigation to determine next steps on Division 7A. However, there has been little or no clarity provided on most measures, and so taxpayers continue to face uncertainty. Whether we see some measures proceed will ultimately depend on the outcome of the election.
Continued Focus on Tax Integrity by the ATO The Government has provided further funding to the ATO to address tax integrity and target tax avoidance arrangements, particularly focused on multinationals. The Government has also provided additional funding to the ATO to address non-payment of superannuation contributions and amounts PAYG withheld on account of tax.	This will see the ATO continue to target key concerns – based on our experiences, in recent years this has involved multinationals, foreign investors (including private equity funds) and intellectual property arrangements. The continued focus on entities using the PAYG withholding and superannuation contribution regimes as a source of funding is unsurprising, and we have seen dramatically increased ATO activity in this space. This has led to increased insolvencies in small to medium businesses.

EEOC and DOJ Clarify the Federal Government's Enforcement Priorities as to DEI-Related Workplace Discrimination

Fri, 21 Mar 2025 00:00:00 -0000
On 19 March 2025, the US Equal Opportunity Commission (EEOC) and Department of Justice (DOJ) issued two technical assistance documents clarifying what workplace diversity, equity, and inclusion (DEI) programs and practices the federal agencies may consider to be “discriminatory.” Importantly, the federal government also has confirmed that DEI initiatives, policies, programs, or practices can lawfully exist. While the technical assistance documents are not binding, they serve as interpretive guidelines for enforcement agents and are expressly intended to “increase public awareness of how existing rules apply to DEI programs.”¹

Clarifying Meaning of DEI-Related Workplace Discrimination

Following multiple executive orders (EOs) from President Donald Trump pertaining to DEI, employers have awaited agency guidance to answer key questions regarding the scope and meaning of “illegal DEI”—an undefined concept in the EOs that has been the subject of multiple legal challenges.² Initial guidance now has been provided with the issuance by the EEOC and the DOJ of a one-page technical assistance document, “What To Do If You Experience Discrimination Related to DEI at Work” and a longer question-and-answer technical assistance document, “What You Should Know About DEI-Related Discrimination at Work” (Q&A) (together, Technical Assistance Documents).

In the publication titled, “What To Do If You Experience Discrimination Related to DEI at Work,” the EEOC provides information to individuals in the United States who believe they have “experienced discrimination related to DEI at work” in violation of Title VII of the Civil Rights Act of 1964 (Title VII). Employees, interns, applicants, and training or apprenticeship program participants who believe their rights have been violated under Title VII by private sector employers must exhaust their administrative remedies under Title VII by filing charges of discrimination with the EEOC.³ The publication specifically identifies the unlawful use of “quotas” and “balancing” of an employer’s workforce as examples of potential “DEI-related discrimination.” Further, it notes that individuals may have colorable hostile work environment claims related to DEI training if such training becomes “so frequent or severe that a reasonable person would consider it intimidating, hostile, or abusive.” The publication also notes that individuals may engage in legally protected conduct pursuant to Title VII if they are “objecting to or opposing discrimination related to DEI” or engaging in “reasonable opposition to a DEI training.” However, the EEOC did not provide further details as to the type or content of such trainings that may be unlawful.

In the Q&A, the EEOC confirms that DEI-related initiatives, policies, programs, and practices are lawful under Title VII as long as they do not involve “taking an employment action motivated—in whole or in part—by an employee’s or applicant’s race, sex, or another protected characteristic.” The Q&A further emphasizes that Title VII’s protections apply to all workers, not only individuals who are part of a “minority group,” “diverse,” or “historically underrepresented group.” Moreover, workers or applicants not otherwise part of a minority group are subject to the same burden of proof as those in minority groups when asserting unlawful workplace discrimination claims. The Q&A also notes that, to allege a colorable claim of discrimination, workers only need to show “some injury” or “some harm” affecting their “terms, conditions, or privileges” of employment.⁴

According to the EEOC in the Q&A, “DEI-related disparate treatment” may include disparate treatment in the terms and conditions of employment (e.g., hiring, firing, work assignments, promotion, demotion, compensation, and fringe benefits), as well as disparate treatment in:
- Access to training (including leadership development programs);
- Access to mentoring, sponsorship, or workplace networking/networks;
- Internships/fellowships; and
- Selection for interviews, including placement or exclusion from a candidate “slate” or pool.
In line with prior statements by the EEOC’s Acting Chair Andrea Lucas, addressing “race-restricted internships” and “race-restricted mentoring,”⁵ the Q&A advises employers to offer “training and mentoring that provides workers of all backgrounds the opportunity, skill, experience, and information necessary to perform well, and to ascend to upper-level jobs.” It also notes that employees must ensure that “employees of all backgrounds... have “equal access to workplace networks.”

The EEOC further cautions in the Q&A that an employer cannot justify taking an employment action based on race, sex, or another protected characteristic because the employer has a business necessity or interest in “diversity,” which includes client or customer preferences. The Q&A clarifies and reaffirms, however, that employers may raise a “bona fide occupational qualification” as an affirmative defense in very limited circumstances to excuse hiring or classifying employees based on religion, sex, or national origin.

The EEOC notes that affinity groups, sometimes called employee resource groups or (ERGs), may be problematic if they are not open to everyone or limit terms and conditions of employment to only certain members with certain protected characteristics. The EEOC underscores that Title VII also prohibits employers from “limiting, segregating, or classifying employees or applicants based on race, sex, or other protected characteristics in a way that affects their status or deprives them of employment opportunities.” This prohibition applies to all “employee activities which are employer-sponsored (including by making available company time, facilities, or premises, and other forms of official or unofficial encouragement or participation), such as employee clubs or groups.”

Key Takeaways for Employers

The Technical Assistance Documents do not materially alter the compliance landscape for employers or resolve all the unanswered questions regarding the permissible scope of private sector DEI programs. Instead, the Technical Assistance Documents provide some useful guidance to employers regarding the Trump administration’s interpretation of lawful and unlawful DEI initiatives, policies, programs, and practices and reflect the agencies’ enforcement priorities.

As private employers prepare for increased DEI-related enforcement activity, they should consider, with assistance of counsel:
- Conducting internal audits of existing DEI initiatives, policies, programs, and practices, especially as related to recruitment, mentorship/sponsorship, training, and hiring;
- Restructuring or ending DEI internship and career development programs, including mentorship and networking programs, if such programs have eligibility criteria—as written or as applied—based on protected characteristics;
- Suspending “diverse slate” hiring practices and focusing instead on widescale recruiting to attract a large pool of applicants; and
- Reviewing the purpose and impact of employer-sponsored ERGs and ensuring that such groups are inclusive and open to everyone.
Conclusion

Employers in the United States should bear in mind that various state and local law requirements also impact the nature and content of many of their DEI-related initiatives, policies, programs, and practices. As the Technical Assistance Documents emphasize that Title VII’s protections apply to all workers, employers must ensure that they continue to comply with their nondiscrimination obligations to all personnel. Employers should work with counsel to ensure hiring and retention practices, equal employment opportunity policies, and DEI initiatives, policies, programs, and practices comply with applicable law in light of the updated enforcement guidance to reduce the risk of government investigation while maintaining compliance with applicable law.

There are likely to be many more developments in the coming days and weeks. Our Labor, Employment, and Workplace Safety practice can assist with any questions regarding these developments.
SEC Marketing Rule FAQs Yield New Guidance

Thu, 20 Mar 2025 00:00:00 -0000
On 19 March 2025, the Securities and Exchange Commission staff issued updated frequently asked questions (FAQs) relating to Rule 206(4)-1 under the Investment Advisers Act of 1940 (the Marketing Rule) (available here). Broadly, the updated FAQs permit the use of extracted performance (including for individual positions) and certain performance-related characteristics on a gross basis in advertisements without also showing corresponding net-of-fee information, subject to certain conditions.

This guidance comes as a welcome relief to investment advisers who have been struggling with how to present this type of information on a net-of-fee basis.

Background

The Marketing Rule, adopted in 2021, included new standardized performance presentation requirements, including that gross “performance” must always be presented with equal prominence as net-of-fees performance for the same time period. This requirement has created uncertainty for investment advisers about the presentation of information related to or derived from performance information (e.g., yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, and other similar metrics) (Performance-Related Characteristics), as “performance” is not defined in the Marketing Rule. Specifically, investment advisers were often unsure whether a given Performance-Related Characteristic was or was not “performance” for the purposes of the Marketing Rule, and, in many circumstances, there was no clear appropriate methodology to calculate net-of-fees performance for many Performance-Related Characteristics.

In addition, under the prior version of the FAQs from 11 January 2023, the staff had taken the view that the performance of any subset of a portfolio, including a single security or position, would be considered “extracted performance” under the Marketing Rule and therefore subject to the requirement that gross performance information be accompanied by net-performance information. This requirement also created challenges for investment advisers, as it was not clear how fees and expenses should be applied to a single investment and resulted in divergent industry practices.

The new FAQs clarify the circumstances in which investment advisers may present Performance-Related Characteristics and extracted performance (e.g., the performance of individual investments) on a gross-of-fees basis without also showing the corresponding net-of-fees performance, subject to the following conditions, which are the same for both FAQs:
- The Performance-Related Characteristic or extracted performance is clearly identified as being calculated on a gross basis without the deduction of fees and expenses;
- The Performance-Related Characteristic or extracted performance is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the rule;
- The total portfolio’s gross and net performance is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the gross Performance-Related Characteristic or extracted performance; and
- The gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the Performance-Related Characteristic or extracted performance is calculated.
The FAQs also provide the following important clarifications:
- The staff noted that it was not taking a position on whether any particular Performance-Related Characteristic is “performance” under the Marketing Rule, and that nonperformance characteristics would not be subject to the Marketing Rule’s conditions on performance. In other words, nonperformance characteristics do not need to be shown on a gross basis. At the same time, however, the staff made clear that total return, time-weighted return, return on investment, internal rate of return, multiple on invested capital, and total value to paid-in capital are considered “performance” under the Marketing Rule, regardless of how they are labeled.
- Gross and net performance of the total portfolio does not need to be shown on the same page as the Performance-Related Characteristics or extracted performance so long as the presentation facilitates a comparison of that information with the gross and net performance of the total portfolio (e.g., presented on a page prior to the Performance-Related Characteristics).
- Advisers may present Performance-Related Characteristics calculated from the gross performance of a representative account without showing the representative account’s net performance if accompanied by the gross and net performance of the representative account’s composite.
- Performance-Related Characteristics and extracted performance are not required to be calculated under the one-, five-, and 10-year (or since inception) periods, provided the information presented is calculated over a single, clearly disclosed period.
Going Forward

Advisers seeking to avail themselves of this new flexibility should review the presentation of Performance-Related Characteristics and extracted performance in their advertisements and update their disclosure and policies and procedures to ensure that their advertisements align with the new conditions.
February 2025 ESG Policy Update—Australia

Thu, 20 Mar 2025 00:00:00 -0000
Australian Update

ASIC's Key Issues Outlook for 2025

On 24 January 2025, the Australian Securities and Investments Commission (ASIC) released its key issues outlook for 2025 which provides insights for Australian businesses and consumers on the most significant current, ongoing and emerging issues within ASIC's regulatory remit.

ASIC emphasised its desire to be a proactive regulator, ensuring a safe environment for Australian businesses and markets whilst safeguarding consumers. ASIC noted that key factors influencing its perspective on the issues facing Australia's financial system included:
- Increased market volatility;
- Geopolitical changes;
- The global accumulation of debt to drive growth;
- Perceived and real inequality of wealth;
- Shifts in the way capital is invested; and
- Advances in artificial intelligence, data and cyber risk.
Among other issues, ASIC identified poor quality climate-related disclosures as leading to misinformed investment decisions. ASIC noted that informed decision making by investors is facilitated by the provision of high quality, consistent and comparable information regarding a reporting entities' climate related risks and opportunities.

Furthermore, ASIC emphasised the importance of reporting entities having appropriate governance and reporting processes to comply with new mandatory climate reporting obligations introduced as part of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth), which took effect on 1 January 2025. Please refer to our earlier summary of the regime here.

ASIC also noted it will continue to scrutinise disclosures which misrepresent the green credentials of a financial product or investment strategies. Please refer to our summary of ASIC's guidelines to prevent greenwashing here.

AU$2 Billion Investment in Clean Energy Finance Corporation

On 23 January 2025, the Australian Government announced it is providing an additional AU$2 billion to the Clean Energy Finance Corporation (CEFC). This is Australia's specialist investor in the nation's transition to net zero emissions.

The investment aims to enable the CEFC to support Australian households, workers and businesses who are making the shift to renewable energy by offering significant savings.

The investment aims to also help deliver reliable, renewable, cost-saving technologies to the Australian community by generating an expected AU$6 billion in private investment. It is anticipated that this will come from global and local organisations looking to capitalise on the nation's future renewable energy plan.

This follows the CEFC's announcement on 16 January 2025 that it had invested AU$100 million in a build-to-rent strategy to facilitate the design and delivery of affordable, sustainable and high-quality homes. These homes will harness the benefits of clean energy technologies, by aiming to be highly efficient, fully electric and powered by renewable energy.

Since its establishment in 2012, the CEFC has played a key role in helping Australia strive towards its emissions reduction targets. In 2024, the CEFC invested over AU$4 billion in local projects which the Australian Government claims unlocked around AU$12 billion in private investment and supported over 4,000 Australian jobs.

Superannuation CEO Roundtables Emphasise Importance of Consistent Climate Risk Disclosures

The Australian Prudential Regulation Authority (APRA) and ASIC recently hosted two Superannuation CEO Roundtables in November and December of 2024, attended by 14 chief executive officers (CEOs) and other executives from a cross-section of superannuation funds. Climate and nature risks were the key focus of discussions, given the recent legislation mandating climate-related financial disclosures and the introduction of the Australian Sustainability Reporting Standards.

The CEOs collectively acknowledged the importance of consistent climate risk disclosure whilst emphasising the need for clear and practical guidance from regulators and calling for standardised metrics, methods and scenarios to ensure comparability across the industry. The CEOs also outlined the current challenge of aligning different reporting standards across jurisdictions. The host regulatory bodies recognised the value of consistency with international standards of climate risk reporting. They noted that appropriate alignment can avoid duplication of efforts, ensure Australian superannuation funds remain in line with global best practices and provide for effective disclosures for members through which informed investment decisions may be made. In turn, discussions further touched on the impact of climate risk on investment strategies and the selection of investment managers and custodians, highlighting the impact on investment decision-making by participants across the industry.

The discussion also covered nature risk, with APRA interested in understanding how superannuation trustees are addressing nature risk given it is a topic of growing importance. It was acknowledged this was a topic that should continue to be explored.

Participants also discussed the role of industry bodies, and all agreed these bodies can play a crucial role in supporting trustees navigate the complexities of the data. ASIC and APRA expressed their commitment to support the superannuation industry and collaborate with industry bodies to drive consistent and accurate disclosures, effective communication with members and alignment with global standards.

Australian Government Announces Green Iron Investment Fund

On 20 February 2025, the Australian Government announced an AU$1 billion Green Iron Investment Fund to support green iron manufacturing and its supply chains by assisting early mover green iron projects and encouraging private investment at scale. "Green iron" refers to iron products made using renewable energy.

Australia is the world's largest iron ore producer, earning over AU$100 billion in export income in the 2023-24 financial year. The iron and steel industry supports more than 100,000 jobs within Australia.

An initial AU$500 million of the Green Iron Investment Fund will be used to support the Whyalla Steelworks (Whyalla) after the Premier of South Australia, Peter Malinauskas, placed Whyalla into administration on 19 February 2025. The funding is proposed to transform Whyalla into a hub for green iron and steel.

Whyalla is considered strategically important for Australia due to its manufacturing capacity, highly skilled workforce, and access to a deep-water port, high-grade magnetite ore reserves and renewable energy sources.

The remaining AU$500 million will be available for nationwide green iron projects, targeting both existing facilities and new developments. Several companies within the industry are already exploring low-carbon iron production from the Pilbara ores in Western Australia.

The Green Iron Investment Fund is the latest initiative from the Australian Government aimed at bolstering Australia's green metals sector. Existing initiatives include:
- An AU$2 billion investment in Australian-made aluminium;
- Passing legislation to deliver Production Tax Credits for hydrogen and critical minerals;
- Investing in major critical minerals and rare earth projects through the Critical Minerals Facility;
- An AU$3.4 billion investment in Geoscience Australia to accelerate the discovery of resources; and
- Funding Hydrogen Headstart to support Australia's hydrogen and clean energy industries.
View From Abroad

CFOs Expect Higher Returns from Sustainability Initiatives than Traditional Investments

A new report from Kearney, 'Staying the Course: Chief Financial Officers and the Green Transition' (Report), released on 17 February 2025, reveals that chief financial officers (CFOs) across the world are prioritising sustainability investments.

Despite recent speculation that investments in the green economy would face a slowdown, this Report clearly indicates that out of more than the 500 CFO respondents across several jurisdictions, including the United Kingdom, United States, United Arab Emirates, and India, 92% noted their intention to increase current investments in sustainability. This Report also found that of all the CFOs surveyed:
- 69% expected a higher return from sustainability initiatives than from traditional investments;
- 93% saw a clear business case for investing in sustainability; and
- 61% saw sustainability investments primarily as a cost decision rather than as something that creates value.
This commitment to increasing climate investments indicates that sustainability investment is not viewed as merely an arm of corporate social responsibility but is also seen as an integral means to maximise efficiencies and returns, take advantage of market opportunities and navigate rapidly evolving regulatory landscapes.

Decision to Scrap DEI Policies May Be Indicative of a Broader Trend

The recent omission of diversity, equity, and inclusion (DEI) commitments from numerous listed companies in their annual filing with the US Securities and Exchange Commission may be a harbinger of a broader global trend which could have repercussions for Australia's environmental, social and governance (ESG) investment landscape.

Many of Australia's largest funds currently hold significant capital under management which is invested based on ethical criteria.

DEI policies are integral to a company's ESG rating, as determined by third-party analytics firms, particularly through the lens of social responsibility practices. By demonstrating a commitment to DEI, companies not only fulfil ethical obligations but also align with investor expectations for responsible corporate behaviour, thereby positively influencing their ESG rating. Contrastingly, deprioritising DEI commitments may result in reduced investor demand and potential exclusion from ESG-focused indices.

In the weeks since President Donald Trump signed executive orders to remove DEI hiring initiatives in the US government and its federal contractors, several US companies have begun withdrawing from similar commitments, potentially signalling a broader global trend that other companies might follow. Companies who withdraw from DEI-related commitments may face the possibility of a decrease in their ESG ratings. Broader market consequences include potentially increased volatility in the ESG indices and long-term negative impacts on corporate performance and investor confidence in sustainable economic growth.

Funds with active ESG investment strategies will need to monitor this trend to ensure that their investment portfolios maintain any positive or negative screens and that any ESG disclosures are not misleading or deceptive. ASIC has shown through its recent enforcement activity targeting greenwashing that it will pursue fund managers who do not have appropriate measures in place to ensure the effectiveness of its ESG-related representations.

The authors would like to thank graduates Daniel Nastasi, Katie Richards, Natalia Tan and clerk Juliette Petro for their contributions to this alert.

SEC Extends Compliance Period for the Amended Names Rule

Tue, 18 Mar 2025 00:00:00 -0000

On 14 March 2025, the Securities Exchange Commission (SEC) extended the compliance dates for the amendments to Rule 35d-1 (Amended Names Rule) under the Investment Company Act of 1940, as amended (1940 Act), by six months. However, as discussed below, some funds may have much longer to comply.

In response to requests submitted by the Investment Company Institute and Investment Adviser Association, highlighting challenges that funds and their service providers are experiencing associated with the timing of the initial compliance dates, the SEC extended the compliance dates as follows:

From 11 December 2025 to 11 June 2026 for fund groups with net assets of US$1 billion or more and
From 11 June 2026 to 11 December 2026 for fund groups with less than US$1 billion net assets (New Compliance Dates).

The SEC also aligned the compliance dates with the timing of certain annual disclosure and reporting obligations that are tied to the end of a fund’s fiscal year, for example the on-cycle annual update for an existing open-end fund (or other continuously offered fund) or annual report for a closed end fund or non continuously offered business development company (BDC). Compliance for these funds will be their first relevant filing following the New Compliance Dates.

As a result, depending on the type of fund, size of its fund group, its fiscal year end, and the date of its next on-cycle annual update or annual report (in the case of closed end funds or non continuously offered BDCs) following the New Compliance Dates, some funds may have significantly more than an additional six months to comply.

For example, an existing open-end fund or other continuously offered fund in a larger fund group with a fiscal year end of 31 January would be required to comply with the Amended Names Rule in May of 2027 (120 days following its fiscal year end) or such earlier date that it files its first annual update on or following 11 June 2026. An existing open-end fund or other continuously offered fund in a smaller fund group with a fiscal year end of 31 July would be required to comply with the Amended Names Rule in November of 2027 (120 days following its fiscal year end) or such earlier date that it files its first annual update on or following 11 December 2026. The table below illustrates the applicability of this extension based on the type of fund being considered.

Type of Fund	Compliance Date
New fund	Effective date of initial registration statement on or following the New Compliance Dates.
Existing open-end fund or other continuously offered fund (larger fund groups)	At the time of the effective date of its first “on-cycle” annual prospectus update filed on or following 11 June 2026.
Existing open-end fund or other continuously offered fund (smaller fund groups)	At the time of the effective date of its first “on-cycle” annual prospectus update filed on or following 11 December 2026.
A fund solely registered under the 1940 Act that does not rely on Rule 8b-16(b)	As of the date the fund files its annual update required by Rule 8b-16(a) on or following the New Compliance Dates.
Existing closed end fund that relies on Rule 8b-16(b)	As of the time of the transmittal of its first annual report to shareholders on or following the New Compliance Dates.
Existing BDC (not continuously offered)	As of the time of the filing of its first annual report on Form 10-K on or following the New Compliance Dates.
Privately offered BDC	As of the effective date of the BDC’s filing on Form 10, or the filing of its election to be regulated as a BDC on Form N-54A, on or following the New Compliance Dates.

The SEC reports their belief that the extension and ability to make disclosure changes “on-cycle” will balance the benefits to investors of the amended names rule framework with the timing needs of a fund to implement the Amended Names Rules properly.

Why Financial Institutions Should Stay the Course

Tue, 18 Mar 2025 00:00:00 -0000
Introduction

Many regulated businesses believe that the only thing worse than strict regulations is a wholly uncertain regulatory environment. With many rule changes on hold and enforcement actions and investigations being terminated or limited, how do banks, payments program managers, processors, and fintechs move forward? Do they “take their gloves off” and take advantage of a possible enforcement void to maximize profits, or do they stay the course given that there are 50-year-old laws on the books that still apply and probably are not going anywhere?

We say, continue to innovate with the expectation that certain fundamental laws and rules are unlikely to change and that consumers still want and need financial services and products.

The Resilience of Statutes and Regulations

Most financial institutions, payments companies, and fintechs have always designed their products and services for compliance. When new rules and orders come out, they often do not have to make changes because they had a robust compliance program in place and had already been using best practices. Similarly, they are not quick to take advantage of a “bad” ruling, knowing instinctively that a new statute, order, or ruling will soon restore the status quo.

Even in a time of regulatory uncertainty, the primary federal consumer protection rules that have existed since the late 1960s and 1970s are likely to stay in place. These include the following:
- The Truth in Lending Act (TILA) and its Regulation Z, which, among other things, require loan disclosures, periodic statements for open-end credit, and prepaid account disclosures, and provide consumers with protections from unauthorized credit card transactions.
- The Electronic Fund Transfers Act (EFTA) and its Regulation E, requiring initial disclosures, regulating electronic fund transfer (EFT) arrangements, and providing significant consumer protections from unauthorized EFTs.
- The Equal Credit Opportunity Act (ECOA) and its Regulation B, prohibiting impermissible forms of credit discrimination and requiring “adverse action” notices or other notifications regarding credit applications and existing extensions of credit. While the scope of the impermissible discrimination rules may change from time to time, including as a result of court decisions, the basic credit notification requirements are unlikely to change.
- The Truth in Savings Act and its Regulation DD, which requires initial disclosures for consumer deposit accounts and, if statements are provided, requires specific information to be included in such statements (this law and regulation are from the early 1990s).
- The Real Estate Settlement Procedures Act (RESPA) and its Regulation X. In addition to requiring certain mortgage loan disclosures, Section 8 of RESPA prohibits referral fee and kickback arrangements involving “settlement services.” Here is one area for which the rules might be relaxed. For many years, the ability to enter into marketing services agreements and similar arrangements has been severely limited due to the Section 8 interpretations and enforcement actions of the Consumer Financial Protection Bureau (CFPB). With the CFPB being under new leadership and its future uncertain, marketing arrangements that survived Section 8 scrutiny prior to the CFPB might again be viable.
For all of the above, while enforcement by federal regulators might be reduced, enforcement by plaintiffs’ lawyers likely will not. This seems particularly likely for those laws such as TILA, the EFTA, and ECOA that provide for class-action liability.

State laws governing credit interest rates, loan and other product and service fees, and consumer disclosures also are likely to stay in place. Those laws might shift in some states, particularly those laws that were made more burdensome in recent years, but they are unlikely to go away entirely.

States May Fill the Void

All of the federal laws listed above are “federal consumer financial laws” under the Dodd-Frank Act, and state attorneys general and state regulators are empowered by that act to bring a civil action to enforce any of these laws. The main exception is that a state attorney general or regulator generally may not bring such civil actions against a national bank or federal savings association.

Conclusion

Although there may be some regulatory uncertainty, some things remain constant. Lawyers will be lawyers and lawsuits will be brought, and state attorneys general and regulators can enforce the federal consumer financial laws against most banks and nonbank businesses.

It is just a question of complying with the existing laws, applying common sense rules, and developing attractive consumer options. We are not without regulatory guardrails, but old-fashioned banking with modern innovations still provides routes to develop and market consumer products and services and build customer relationships. Those businesses that continue to innovate can take the lead.
SEC Expands Nonpublic Review Process for Draft Registration Statements

Mon, 17 Mar 2025 00:00:00 -0000
On 3 March 2025, the Division of Corporation Finance of the Securities and Exchange Commission (the SEC) announced that it is expanding the scope of availability for companies to submit draft registration statements for nonpublic review. The SEC initially created the option in 2012 as part of the Jumpstart Our Business Startups Act to enable emerging growth companies to submit draft registration statements for staff review on a confidential basis for initial public offerings. In 2017, the SEC expanded eligibility to include all issuers and follow-on offerings taking place within 12 months of an initial public offering.

Key Changes

The SEC announced the following:
- The nonpublic review process is now also available for Forms 10, 20-F, or 40-F filed to register a class of securities under Section 12(g) of the Exchange Act.
- Companies can now submit a draft registration statement for nonpublic review at any time, rather than being limited to the 12 months following their initial public offering.
- Companies can now submit a nonpublic draft registration statement for a de-SPAC transaction as if it were an initial Securities Act registration statement, so long as the co-registrant target would otherwise be independently eligible to submit a draft registration statement.
- Companies can now omit the name of the underwriter(s) on the draft registration statement, so long as it is included in subsequent submissions and public filings.
While the SEC’s guidance continues to require any company using the draft registration process for a follow-on offering to publicly file its registration statement and nonpublic draft submission no later than 48 hours prior to any requested effective date and time, the updated policy notes that the staff “will consider reasonable requests to expedite this two business-day period and encourage issuers and their advisors to review their transaction timing with the staff assigned to the filing review.”

Since its initial adoption, the nonpublic draft registration statement submission process has proven useful to many companies. The recent enhancements, particularly the elimination of the one-year limitation for follow-on offerings, will further facilitate capital formation by allowing more companies to reduce the risk of prolonged exposure to market fluctuations during the offering process. These accommodations are immediately available, and companies may submit questions regarding their eligibility to CFDraftPolicy@sec.gov.
Expanded Interpretation of Price-Anderson Act Is Another Positive Sign for Commercial Nuclear Development in the United States

Mon, 10 Mar 2025 00:00:00 -0000

On 10 February 2025, the US Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision in Cotter Corp. v. United States that solidified a broad interpretation of the applicability of contractual and statutory indemnity under the Price-Anderson Act (PAA) for nuclear accidents.¹The Federal Circuit’s decision is a positive development for the commercial nuclear industry because it takes a broad view of when a noncontracting party can take advantage of an indemnification issued under a government contract.

Originally enacted in 1957, the PAA was designed to address the risk of substantial liability following a nuclear incident, as such liability was viewed as a major disincentive to private industry investment in nuclear power generation. The PAA authorized the federal government to “make funds available for a portion of the damages suffered by the public from nuclear incidents and to limit the liability of those persons liable for such losses.”²The PAA also added several provisions concerning government indemnification of persons liable for harm from nuclear incidents, authorizing the federal government “to enter into agreements of indemnification with its contractors for the construction or operation of production or utilization facilities or other activities under contracts for the benefit of the United States involving activities under the risk of public liability for a substantial nuclear incident.”³

Cotter Corporation (N.S.L.) (Cotter), which conducts mining and milling, incurred liability through a settlement based on allegations that it injured members of the public in the St. Louis area by releasing, between 1969 and 1973, radioactive materials and residues originally produced by another company, Mallinckrodt, pursuant to a contract with the federal government. That contract, to which Cotter was not a party, obligated the government to indemnify Mallinckrodt for nuclear accidents. Cotter filed a claim against the United States for statutory and contractual indemnification seeking the benefit of this indemnity.

In 2023, the US Court of Federal Claims dismissed Cotter’s claims.⁴The Claims Court interpreted the PAA narrowly, effectively requiring “(a) a contemporaneous relationship between the liability-generating acts of the non-contractor indemnity claimant (Cotter) and the performance of the contract (by Mallinckrodt or the government) and, seemingly, (b) that the indemnity claimant’s activities (generating liability to others) were related to the contractual activities in the particular sense of contributing to the performance of the contract.”⁵According to the Claims Court, Cotter’s activities occurred years after the contract at issue was terminated and did not sufficiently relate to the performance of the government contract.⁶“[M]ere later ownership and possession of radioactive material that resulted from [such a] Contract” was not sufficient to claim indemnity, according to the Claims Court.⁷

Cotter appealed the decision to the Federal Circuit, which rejected this narrow interpretation, holding that “‘persons indemnified’ [under the PAA] is defined broadly to cover not just the contractor but ‘any other person who may be liable for public liability.’”⁸The Federal Circuit further held that “[p]ublic liability, in turn, broadly reaches the public by embracing ‘any legal liability arising out of or resulting from a nuclear incident,’... and that] ‘nuclear incident’ covers ‘any occurrence within the United States causing bodily injury... arising out of or resulting from the radioactive, toxic, explosive, or other hazardous properties of source, special nuclear, or byproduct material.’”⁹

The Federal Circuit concluded that none of the statutory definitions “limit indemnity to the period before the government contract ended or includes a requirement that the indemnity claimant’s (exposure-causing) activity was contributing to the contracting parties’ performance.”¹⁰Instead, the Federal Circuit held that the statutory scheme is “focused simply on the hazard from the material—a hazard that is not limited in time to the period of performance of a particular contract and may be long lasting, for at least some of the covered nuclear materials.”¹¹The Federal Circuit concluded that “a contract-termination temporal limit (i.e., excluding government compensation if and when harm occurred after termination) would undermine the declared statutory purposes ‘to protect the public’ and remove an important deterrent to private investment in nuclear energy.”¹²

The Federal Circuit concluded that causation was a requirement for indemnity purposes and that there needed to be a sufficient causal connection between the contract containing the indemnity and the claim. However, because the contract here dealt with the creation of the hazardous material that was the source of the damages—a radioactive release—the Federal Circuit found sufficient causation.

With the relatively recent renewed focus on nuclear power as a reliable baseload power solution (particularly to power data centers), the Cotter Corp. decision clarifies the expansive nature of indemnification under the PAA and will likely further encourage nuclear projects underway in the United States.
Brussels Regulatory Brief: February 2025

Mon, 10 Mar 2025 00:00:00 -0000
Antitrust and Competition

The French Competition Authority Launches Public Consultation Addressing Below-Threshold Transactions

On 14 January 2025, the French Competition Authority (Autorité de la concurrence, FCA) launched a public consultation on the introduction of a new merger control framework aimed at addressing below-threshold transactions that could harm competition in France.

The FCA’s initiative follows the Illumina/Grail judgment issued by the Court of Justice of the European Union (CJEU) on 3 September 2024. In that judgment, the CJEU clarified that referrals to the Commission under Article 22 of the EU Merger Regulation can only be accepted when national competition authorities (NCAs) themselves have jurisdiction to review transactions. As a result, NCAs cannot refer to the Commission transactions that fall below their national merger filing thresholds. Thus, the CJEU’s judgment invites national legislatures to legislate accordingly if national thresholds do not allow their NCAs to review below-threshold transactions when antitrust concerns are raised. A number of EU Member States have call-in powers to review below-threshold transactions, including Cyprus, Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia, and Sweden.

In particular, the FCA is asking to comment on three options to supplement the current French merger filing thresholds:

Option 1

The creation of a targeted call-in power to review below-threshold transactions based on qualitative and quantitative criteria. The call-in power would concern transactions that: (i) exceed certain thresholds based on the parties’ cumulative turnover in France; and (ii) threaten to significantly affect competition in France. This power will be subject to a time limit which remains unknown at this stage.

Option 2

The introduction of a mandatory notification for companies holding a degree of market power in circumstances where such companies:
- Have previously been part of a transaction reviewed by the FCA or the Commission and subject to: (i) a prohibition; or (ii) a clearance subject to commitments; or
- Have previously been fined for abuse of dominant position by the FCA or the Commission or made commitments in relation to an alleged abuse of dominant position; or
- Have been designated as gatekeepers by the Commission under the Digital Markets Act.
Option 3

No change to the current regime and the FCA could continue to intervene ex-post through its antitrust enforcement powers, namely it could rely on the prohibition to enter into anticompetitive agreements and abuse of a dominant position.

Stakeholders were able to submit their feedback by 16 February 2025. The competition could publish the results. Moreover, the consultation is occurring alongside the legislative process to increase the national turnover thresholds. The French Senate has passed the legislative proposals on first reading, which are now being debated in the French National Assembly.

The outcome of this public consultation is important for dealmakers and companies given the potentially far-reaching FCA’s powers to review below-threshold transactions, which would add France to the growing number of EU Member States that have call-in powers, including Cyprus, Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia, and Sweden.

Financial Affairs

Platform on Sustainable Finance Proposes Categorization of Financial Products under SFDR

On 17 December 2024, the Platform on Sustainable Finance (the Platform) published a report proposing a new categorization framework for financial products under the Sustainable Finance Disclosure Regulation (SFDR).

The report suggests classifying products into three main categories: ‘Sustainable,’ for those investing in taxonomy-aligned or sustainable assets with no significant harm; ‘Transition,’ for investments supporting the shift to a net-zero economy while avoiding carbon lock-ins; and ‘Environmental, Social, and Governance Collection,’ which includes funds that integrate environmental, social, and governance considerations through exclusions or positive screening. Products that don’t meet these criteria would remain unclassified.

The proposal aims to address confusion in the SFDR framework by providing a clear structure that aligns with investor preferences. For each category, the Platform has defined minimum criteria to be met, covering exclusions for harmful activities and sustainability indicators to measure compliance. ‘Sustainable’ products must invest a minimum percentage in taxonomy-aligned or sustainable investments, while ‘Transition’ products must demonstrate credible transition pathways for their investments. The scheme also considers multi-option products and funds of funds, stressing the need for further assessments due to their diverse underlying assets.

The report recommends the Commission expand the categorization of products beyond SFDR to cover all investment products under the Market in Financial Instruments Directive and the Insurance Distribution Directive. The Platform also highlights the need for further work on impact investing, calling on the Commission to develop a common understanding of how impact investments fit into the EU sustainable finance framework.

The Commission is expected to put forward a proposal to review SFDR and the categorization of financial products under this regulatory framework. It’s not yet clear when this proposal will be presented and the amendments it will include.

EU Affairs

Commission Work Program: Drive for Simplification and Competitiveness

On 11 February 2025, the Commission unveiled its 2025 work program, titled “Moving forward together: A Bolder, Simpler, Faster Union.” This annual document sets out upcoming legislative and policy initiatives and is set to implement broader EU political priorities.

Two major themes stand out for companies this year: the push toward simpler, leaner, and more effective legislation and a renewed drive to boost Europe’s competitiveness.

A central aim is to streamline the European Union’s regulatory environment to reduce administrative burdens by at least 25% overall and 35% for SMEs. This effort will come to life through omnibus proposals—a set of comprehensive packages designed to simplify existing legislation by eliminating redundant or overly complex requirements. The first series of omnibus proposals focuses on sustainability (e.g., aligning reporting obligations under different sustainability frameworks) and was published on 26 February 2025, while the second addresses investment simplification. A third omnibus package targets, among other aspects, small mid-caps and the removal of paper-based processes in favor of digital alternatives. These bundled reforms reflect the Commission’s pledge to make rules “faster and simpler” for businesses operating in multiple EU countries.

The European Union’s drive for competitiveness focuses on improving the business environment in the European Union through:
- A Single Market Strategy to further eliminate cross-border barriers.
- The Clean Industrial Deal and Industrial Decarbonization Accelerator Act, both of which seek to reconcile decarbonization with industrial growth.
- A proposed Digital Networks Act and new frameworks (e.g., EU Space Act) to enhance infrastructure and innovation.
- Additional guidance on investment and savings, via the Savings and Investments Union, to help businesses and individuals tap into funding more effectively.
Our lawyers will keep you informed about the key details of the proposals and their impacts to business in Europe. A comprehensive firm client alert on the Omnibus Directive I and II is forthcoming.

Green, But Lean: EU Eases Sustainability Rules Without Ditching Climate Goals

Fri, 07 Mar 2025 00:00:00 -0000

On 26 February 2025, the European Commission published the Omnibus Simplification Package, a set of proposals designed to streamline key EU sustainability regulations, eliminate redundancies, and reduce administrative burden and compliance costs for companies — while preserving the EU’s ambitious environmental objectives.

If adopted in the currently proposed form, companies will have more time to comply with the CSRD reporting requirements and the CSDDD supply chain due diligence obligations. In fact, the Omnibus Simplification Package proposes postponing by two years the entry into application of the CSRD reporting requirements for companies that have not yet started implementing the CSRD (i.e. large companies and listed SMEs), while the new CSDDD framework is postponing by one year the transposition deadline (to 26 July 2027) and the first phase of the application of the sustainability due diligence requirements covering the largest companies (to 26 July 2028).

The Omnibus Simplification Package also proposes to revise the scope of the CSRD and the CSDDD. The reporting requirements under CSRD would only apply to large undertakings with more than 1,000 employees (i.e. undertakings that have more than 1,000 employees and either a turnover above €50 million or a balance sheet total above €25 million) and the CSDDD due diligence obligations would be significantly narrowed down, in particular by limiting them to direct contract partners.

While many businesses welcome the reduced regulatory burden as well as its postponement, some critics argue that it weakens corporate accountability and dilutes transparency efforts. In any event, the Omnibus Simplification Package is still at a proposal stage and is set to spark intense debate in the EU Parliament and Council, with global stakeholders—including the U.S.—closely monitoring the developments and trying to influence them to meet their own goals.

This alert provides insights into the most relevant proposed changes to CSRD and CSDDD and what those mean for businesses operating under the EU’s evolving sustainability framework.

The Omnibus Simplification Package presented by the European Commission includes:

A proposal for a Directive, the sole content of which is to postpone the application of reporting requirements in the CSRD for certain groups of companies and the transposition deadline as well as the first wave of application of the CSDDD (Omnibus Directive I).
A second proposal for a Directive amending the actual content of and obligations under the CSRD and the CSDDD (Omnibus Directive II).
A draft Delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts subject to public consultation.
A proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation.
A proposal for a Regulation amending the InvestEU Regulation.

Proposed changes to the CSRD

Postponement of the Starting Date for Reporting for Certain Companies

The Omnibus Directive I proposes a two-year postponement of the implementation of reporting requirements for companies in the second and third waves (see table below) This is to allow the European co-legislators to find agreement on the Commission's proposal for substantive changes as provided in the Omnibus Directive II.

This postponement is intended to give companies some legal certainty and prevent a scenario where companies would be required to report for the financial year 2025 (second wave) or 2026 (third wave), only to be later relieved from reporting duties if and when the Omnibus II Directive with its higher thresholds is approved. No amendments to the timeline have been proposed for wave four non-EU ultimate parent companies; as a result, those companies continue to be required to report for the first time in 2029 for financial year 2028 (but may opt to report on a consolidated group basis before). Companies already covered in the first wave seem to have to continue reporting on the basis of the existing CSRD – the Omnibus Proposal does not mention any postponement of their duties.

According to Article 3 of the proposed text of the Omnibus Directive I, Member States shall implement the provisions of the Directive by 31 December 2025 at the latest. This indicates that the Commission is assuming that the Omnibus Directive I will be approved quickly by the European legislators – while the content-related Omnibus Directive II may well take considerably longer to get through the legislative process.

In this framework, wave 2 companies currently required to report in 2026 for FY 2025 will have to consider the timing of their preparations for CSRD readiness: once the Omnibus I Directive is approved the postponement will still need to be transposed into national laws to become effective, but (a) we expect Member States to be fairly quick since there seems to be broad agreement about the postponement (in contrast to the content related proposals of the Omnibus Directive II) and (b) we would argue that the postponement would have a pre-effect, which would make it very difficult for Member States to implement current CSRD obligations and impose fines before the new starting date.

New Scoping Thresholds

According to the proposed text of the Omnibus Directive II, only large companies or parent companies of large groups with more than 1,000 employees (individually or in the case of a holding company on a consolidated basis) will be required to prepare sustainability reports under Article 19a and 29a of the Accounting Directive.

That change in itself would reduce the number of undertakings subject to mandatory sustainability reporting requirements by about 80%. In comparison to the current requirements (see table below for details), the new employee threshold would lead to some of the undertakings in the first and second wave and all undertakings in the third wave (listed SMEs) falling out of the scope of the CSRD should Omnibus Directive II be approved.

In addition, the threshold for EU turnover for non-EU parent companies has been raised from €150 to €450 million, and the threshold for an EU branch from €40 to €50 million. These amendments in the reporting thresholds are meant to more closely align the CSRD with the CSDDD, which already only applies to companies above the 1,000 employee and €450 turnover threshold.

Wave	Type of Company	Current Thresholds and Due Date for Reporting	Proposed Thresholds
1 (Current kick-off date for reporting: 2025 for FY 2024 – not changed by the postponement proposal in Omnibus Directive I)	Public interest entities (e.g. credit institutions, insurance undertakings and others) already subject to the NFRD	More than 500 employees	With average 1,000 employees
2 (Current kick-off date for reporting: 2026 for FY 2025 – may be postponed by Omnibus Directive I to 2028 for FY 2027)	EU companies/parent companies of a group Companies (EU or non-EU) with securities listed on EU regulated markets	Exceeding at least two of the following three thresholds (on a consolidated basis at a group level): Balance sheet total: > €25 million Net turnover: > €50 million Average number of employees: > 250	With average 1,000 employees and exceeding one of the following two thresholds (on a consolidated basis at a group level): Balance sheet total: > €25 million Worldwide net turnover: > €50 million
3 (Current kick-off date for reporting: 2027 for FY 2026, with opt-out option for two years - may be postponed by Omnibus Directive I to 2029 for FY 2028)	SMEs with securities listed on an EU regulated market	Below the thresholds for the second wave companies (see above). Reporting in 2027 for financial year 2026, with the possibility to opt out for a further two years.	Out of scope
4 (Current kick-off date for reporting: 2029 for FY 2028 - not changed by the postponement proposal in Omnibus Directive I)	Non-EU ultimate parent companies	Generating a net EU turnover of at least €150 million (at group level) and with at least one large subsidiary in the EU (i.e., exceeding two out of three of: balance sheet of €25 million and/or turnover of €50 million and/or 250 employees) or a branch in the EU that generated a net turnover of €40 million	Generating a net EU turnover of at least €450 million (at group level) and with at least one large subsidiary in the EU (as defined in the Accounting Directive, i.e., exceeding two out of three of: balance sheet of €25 million and/or turnover of €50 million and/or 250 employees) or a branch in the EU that generated a net turnover of €50 million

Reducing the Trickle-Down Effect by Limiting the Information That Companies Within Scope May Request From Smaller Companies in Their Value Chain

The CSRD requires undertakings to report value-chain information to the extent necessary for understanding their sustainability-related impacts, risks and opportunities.

The current CSRD establishes a so-called value-chain cap, which states that the European Sustainability Reporting Standards (ESRS) may not contain mandatory reporting requirements that would require undertakings to obtain information from SMEs in their value chain that exceeds the information to be disclosed under the proportionate standard for listed SMEs.

The proposed Omnibus Directive II extends this value chain cap from SMEs to companies up to 1,000 employees. In turn the Commission is proposing to adopt simplified standards for voluntary use by out of scope companies having fewer than 1,000 employees, based upon the current simplified standard prepared for non-listed SME by EFRAG, that such companies can use as a shield to limit their response to information requests from banks, large companies and other stakeholders in scope of the CSRD.

Revision of the ESRS

The range of sustainability topics covered by the current ESRS is not changed by the proposed Omnibus Directive II and, despite speculation, the double materiality requirement is not removed. The Commission has proposed to revise the delegated regulation (EU) 2023/2772 establishing the ESRS with the aim to reduce the number of mandatory ESRS datapoints, by removing those deemed least important for general purpose sustainability reporting and further distinguishing between mandatory and voluntary datapoints, and to further enhance the already very high degree of interoperability with global sustainability reporting standards.

According to the text of the Omnibus Directive II, the Commission will adopt the revised ESRS delegated act in time for those undertakings in wave 2 - which according to the proposed new timelines would be required to start reporting under the CSRD in 2028 for FY 2027 - to apply the revised standards.

Deletion of Sector Specific Standards

The Omnibus Directive II proposes to delete the empowerment for the Commission to adopt sector-specific reporting standards (currently due on 30 June 2026) to avoid a further increase in the number of prescribed datapoints that undertakings should report on and facilitate the reporting process. Should undertakings require additional guidance to report on sustainability matters common to the specific sector in which they operate, the Commission specifies that they may have recourse to existing international sustainability reporting standards and sectoral sustainability reporting initiatives.

No Move to Reasonable Assurance

The Commission is currently mandated to adopt reasonable assurance standards by October 1, 2028, based on an assessment of their feasibility for companies. However, the draft of Omnibus Directive II is intended to eliminate this requirement, ensuring that no reasonable assurance standards are introduced and that assurance over CSRD reports remains at the limited assurance level.

Since the amount of work for a limited assurance engagement is significantly less than for a reasonable assurance engagement, this is designed to save companies cost and time: a limited assurance engagement is usually provided in a negative form (stating that no matter has been identified by the assurance provider to conclude that the subject matter is materially misstated) while the conclusion of a reasonable assurance engagement would have to be provided in a positive form (providing an opinion on the measurement of the subject matter against previously defined criteria). In addition, the Commission committed to issue targeted assurance guidelines by 2026.

Voluntary Taxonomy and Partial Taxonomy-Alignment Reporting Option

By virtue of Article 8 of the Taxonomy Regulation undertakings reporting under the CSRD also publish information about the eligibility and alignment of their economic activities with the EU Taxonomy. The proposed provisions in the Omnibus Directive II create a derogation for companies with more than 1,000 employees and an EU turnover below EUR 450 million by making the Taxonomy reporting voluntary. However, companies that have made progress toward sustainability targets but only partially meet EU Taxonomy requirements may choose to voluntarily report their partial alignment. This allows them to showcase their efforts, demonstrate progress toward full compliance, and gain recognition for their commitment to sustainability.

Proposed changes to the CSDDD

Postponement of Applicability of CSDDD and Scope

With respect to CSDDD, the Omnibus Directive I proposes to postpone the transposition deadline by one year to 26 July 2027 (instead of 2026). The Omnibus Directive I also postpones the compliance deadline for the first wave of companies (i.e. those that have more than 5,000 employees and report a net annual worldwide turnover of more than €1.5 billion), which would therefore have to comply with the CSDDD from 26 July 2028 onwards. There is however no change regarding companies that were already meant to comply with the CSDDD from 26 July 2028, or later from 26 July 2029. In addition, the Commission proposes to bring forward the publication of its guidelines for compliance with due diligence obligations under the CSDDD to July 2026, instead of January 2027.

Indirect Business Partner Assessment No Longer Required and Suspension of the Business Relationship as Last Resort

The Omnibus Directive II limits the due diligence measures to the companies’ own operations, those of their subsidiaries and, where related to their chains of activities, those of their direct business partners thus excluding the assessment at the level of indirect business partners.

However, such assessments of indirect business partners will still be required if the company has plausible information that suggests that adverse impacts have arisen or may arise at the level of the operations of an indirect business partner. According to the recitals of the Omnibus Directive II, ‘plausible information’ means information of an objective character that allows the company to conclude that there is a reasonable likelihood that the information is true, for example if it has received a complaint or is in the possession of information, notably via credible media or NGO reports about harmful activities at the level of a business partner, reports of recent incidents, or where the company through its business contacts knows about problems at a certain location (e.g., conflict area).

In addition, the proposal Omnibus Directive II removes the duty to terminate the business relationships in the case of both actual and potential adverse impacts. Should a company assess that the business operations of such a supplier are linked to severe adverse impacts, for instance child labour or significant environmental harm, and the company has unsuccessfully exhausted all due diligence measures to address these impacts, as a last resort the company should suspend the business relationship while continuing to work with the supplier towards a solution, where possible using any increased leverage resulting from the suspension. Irrespective of the termination duty being removed, companies can of course still decide to terminate for severe breaches.

Extended Interval for Periodic Assessments and Updates

In order to reduce the burden on companies and their business partners (which are often SMEs), the Omnibus Directive II proposes to extend to five years (instead of each year) the requirement that companies carry out a periodic assessment of their (and their business partners’) operations and measures to assess the adequacy and effectiveness of due diligence measures.

However, companies will still be required to conduct such assessments ad hoc whenever there are reasonable grounds to believe that the measures are no longer adequate or effective, or that new risks of occurrence of adverse impacts may arise.

Reduced Requirements for Climate Change Mitigation Plans

As a result of the Omnibus Directive II, while companies will still be required to adopt a climate change mitigation plan, such a plan would no longer have to be “put into effect” as required by the CSDDD but rather include an “outline of implementation actions planned and taken”.

Reducing the ‘Trickle-Down’ Effect on SMEs

To avoid unnecessary burdens on SMEs, the Omnibus Directive II intends to limit the information that companies may request in the context of their risk-mapping obligations from their direct business partners with fewer than 500 employees, to the information covered by the voluntary sustainability reporting standards (VSME) set out under the CSRD.

Extension of Maximum Harmonization Requirements

In order to ensure a more uniform transposition of the CSDDD, the Omnibus Directive II extends the scope of maximum harmonization of the CSDDD to several additional provisions that regulate the core aspects of the due diligence process. In practice, this means that Member States will be prohibited from enacting diverging national provisions regarding certain key requirements, including the identification duty, the duties to address adverse impacts that have been or should have been identified, and the duty to provide for a complaints and notification mechanism.

Changes to the Civil Liability Provisions

The Omnibus Directive II proposes to remove the specific EU-wide civil liability regime provided in the CSDDD, including the obligation for Member States to allow representative actions by trade unions or NGOs. Instead, under the Omnibus Directive II, Member States would remain free to provide such rules in their national laws.

Financial Penalties

The Omnibus Directive II removes the minimum cap for financial penalties (5% of net worldwide turnover in the preceding financial year) currently stated in the CSDDD and the requirement that the fine be assessed based on the company’s net worldwide turnover. The Commission will issue guidance to assist Member States’ supervisory authorities to set the appropriate level of penalties to be imposed, provided that Member States are prohibited from setting maximum limits of penalties that would prevent the imposition of penalties in accordance with the principles and factors set out in the CSDDD.

Deletion of the Review Clause for Financial Services

The Omnibus Directive II proposes to remove the CSDDD’s financial services review clause, which currently commits the Commission to submit by 26 July 2026 a report to the European Parliament and to the Council on the necessity of setting up due diligence requirements for the financial services sector. Indeed, according to the European Commission, this review clause did not leave enough time to take into account the experience on the general due diligence framework under the CSDDD.

Omnibus Directive II and policy considerations on the future of simplification measures

With respect to all the simplification measures and changes proposed in the Omnibus Directive II, which would substantially impact the scope and way of reporting under the CSRD and conducting due diligence under the CSDDD as explained above, Article 5 of the current proposal text provides for a deadline of 12 months for Member States to implement the directive into national law once the Directive enters into force. However, the European Commission’s publication of the proposal initiates a complex and lengthy process involving negotiations, amendments, and further discussions across multiple EU institutions, which creates uncertainty around the legislative timeline.

In particular, the proposal will need to be debated and approved by Members of the European Parliament and Member States at the Council of the EU. The political landscape in Europe has deeply changed since CSRD and CSDDD were adopted (respectively, November 2022 and May 2024), and there is a much stronger focus on competitiveness, economic growth, and simplification.

In the European Parliament, the majority center-right European People’s Party welcomed the Omnibus Proposal and supports the process of cutting regulatory burdens on companies. Members of the second largest group, the Socialists&Democrats, oppose significant rollbacks of sustainability regulations, emphasizing the importance of environmental protection and corporate accountability. In particular, Lara Wolters, CSDDD rapporteur, stated that the group “cannot accept the watering down of sustainability, labour and human rights standards in the CSDDD and CSRD”. The debate in the European Parliament is likely to be lengthy and heated.

In Council, most of the Member States are aligned with the Commission’s approach of simplifying EU regulations. Germany and France have previously advocated for delaying and easing the implementation of the rules, calling for a concrete postponement of CSRD and suggesting increasing thresholds for company size and turnover in both CSRD and CSDDD. In contrast, Spain supports maintaining robust environmental reporting standards, underlining the importance of due diligence requirements: while the Spanish government support delaying the application of CSRD, it insists that these rules become mandatory for all companies eventually. Italy has also shown limited opposition to the proposed amendments, suggesting that rules should immediately apply to larger companies and delays and more favorable requirements should be adopted for smaller businesses. However, and given Council’s position on CSDDD in the previous legislative term, it is possible that Member States will adopt a negotiating mandate in line with the Commission’s proposal.

European policymakers will inevitably need to keep an eye on the potential actions of the U.S. government. Twenty-six U.S. states have sent a letter to President Trump urging retaliatory measures against the CSDDD due to its extraterritorial impact beyond Europe. The letter calls on the United States Trade Representative to launch an investigation under Section 301 of the Trade Act of 1974 to assess whether the CSDDD constitutes an unreasonable or discriminatory measure that burdens or restricts U.S. commerce.

Additionally, another letter sent to Congress urges U.S. officials to push for an indefinite suspension of the directive’s implementation based on the following argumentation lines: The directive mandates extensive supply chain due diligence based on UN and OECD principles, which have not been ratified by the U.S. Congress. It also disregards U.S. corporate governance standards. Finally, US companies are not bound by net zero transition plans akin to those imposed on the UE companies, as requested under the CSDDD.

At K&L Gates, we have direct access to the latest developments within EU institutions and closely monitor evolving legislative processes. We can assist you in influencing EU policy and regulatory developments, and adapting your compliance strategy to ensure your company remains prepared for new requirements and deadlines.

What Is "Illegal DEI?" Key Takeaways for Employers in Light of Litigation and Guidance Issued by the Federal and State Governments

Fri, 07 Mar 2025 00:00:00 -0000
This alert will explore what the federal government may consider to be “illegal DEI” in light of legal challenges to President Trump’s multiple executive orders (EO’s) pertaining to diversity, equity, inclusion, and accessibility (DEI)¹ and provide employers with some best practices with respect to DEI initiatives.

Legal Challenges to the DEI EOs

The enforceability and constitutionality of the DEI EO’s have been challenged in numerous federal lawsuits, including Nat’l Assoc. of Diversity Officers in Higher Ed., et al. v. Donald J. Trump, et al.² On 21 February 2025, the United States District Court for the District of Maryland (the Court) issued a nationwide preliminary injunction (Order) enjoining the following directives in the DEI EO’s (1) canceling or freezing any awards, contracts, or obligations for government contractors engaging in illegal DEI; (2) requiring contractors to make certifications with respect to illegal DEI; and (3) bringing False Claims Act enforcement actions against federal contractors based on such certifications. The Court found that the DEI EOs failed to define “operative terms” such as “DEI,” “illegal DEI,” “illegal DEI policies,” or “illegal discrimination or preferences.”³ The Court also noted that the government was unable to clarify what type of actions constituted “illegal DEI” when asked direct questions and presented with hypotheticals during the hearing.⁴

Notably, the Order did not enjoin the US Attorney General from preparing a report containing recommendations for enforcing federal civil-rights laws, “encouraging the private sector to end illegal discrimination and preferences,” including DEI, and identifying up to nine potential civil compliance investigations per federal agency of publicly traded corporations, large nonprofit corporations or associations, or foundations with assets of US$500 million or more. Also, the Order did not apply to a number of agencies, including the Equal Employment Opportunity Commission (EEOC).

As anti-DEI efforts are a top enforcement priority for the Trump administration, the administration has appealed the Order to the Fourth Circuit Court of Appeals (Fourth Circuit) and filed a motion to stay the Order pending appeal, which was denied by the Court.

Valuable Resources for Defining Illegal DEI

In light of the federal government failing to define “illegal DEI” in the DEI EOs or related legal challenges, employers’ approaches to current DEI initiatives should be informed by current federal antidiscrimination law, communications from federal agencies thus far on this topic, and applicable state law guidance. While awaiting more tailored guidance from the federal government, private employers can glean some do’s and don’ts of DEI from the following resources, explained in more detail herein.
- The memorandum issued by the US Office of Personnel Management (OPM) regarding the future of federal agencies’ DEI programs (Memo);⁵ and
- Multi-state guidance issued by the Attorneys General of 15 states⁶ addressing DEI employment initiatives (the Multi-State Guidance).
The OPM Memo identifies certain DEI initiatives and practices that are no longer permitted in the federal agencies and in some cases, are considered illegal. For example, “diverse slate” hiring⁷ is included as an example of an “unlawful diversity requirement” that considers an applicant’s protected characteristic as part of the hiring process.⁸ The OPM Memo also directs agencies to reorganize and eliminate “Special Emphasis Programs” (SEPs) that promote DEI based on protected characteristics. SEPs were established to remove barriers to equal employment opportunity for traditionally underrepresented groups in the workforce,⁹ not unlike diversity internships and career development programs in the private sector. Further, the OPM Memo directs all agencies to disband employee resource groups (ERGs) that “advance employment opportunities based on protected characteristics,” and to ensure membership in ERGs is not restricted based on any protected characteristic.

The Multi-State Guidance takes the position that the DEI EOs do not prohibit lawful practices and policies that promote DEI in the private sector. As such, the Multi-State Guidance recommends that employers continue lawful DEI practices, including: prioritizing widescale recruitment efforts to attract a larger pool of applicants; setting standardized evaluation criteria to reduce the impact of biases on the interview process; ensuring equal access to all aspects of professional development; conducting training on topics such as unconscious bias, inclusive leadership, and disability awareness; and establishing working groups to participate in creating strategies that support more inclusive behaviors and practices.

Key Takeaways for Employers

The OPM Memo and Multi-State Guidance provide helpful guidance to private employers as they prepare for increased scrutiny and potential government investigations. Specifically, private employers should consider:
- Suspending “diverse slate” hiring practices and focusing instead on widescale recruiting to attract a large pool of applicants.
- Reviewing the purpose and impact of any employer-recognized ERGs and ensuring that such groups are inclusive and open to everyone.
- Reorganizing or ending DEI internship and career development programs based on protected characteristics.
- Conducting internal audits of DEI policies and procedures, especially as to recruitment and hiring.
- Providing trainings on topics like unconscious bias and disability awareness.
Conclusion

As evidenced by the ever-changing DEI landscape, employers should keep in mind that various state law requirements and enforcement priorities under anti-discrimination laws may be in tension with the federal directives in the DEI EOs and US Department of Justice and EEOC enforcement priorities, which will increase uncertainty surrounding compliance. Employers should work with counsel to ensure hiring and retention practices and equal employment opportunity policies comply with applicable law in light of the updated enforcement guidance provided by the federal government to reduce the risk of government investigation while maintaining compliance with applicable law.
President Trump Touts America First Energy Dominance Agenda to Congress

Fri, 07 Mar 2025 00:00:00 -0000
On 4 March, President Donald J. Trump touted his America First energy dominance agenda in an address to a joint session of Congress. He promised “swift and unrelenting action” and noted that within his first 43 days in office, he signed nearly 100 executive orders and took more than 400 executive actions.¹ He highlighted several actions impacting energy, environmental, and natural resources policies that will have wide-ranging consequences for companies operating in those sectors.

President Trump announced his intention to boost the economy and fight inflation by “rapidly reducing the cost of energy.” He promoted his “drill, baby, drill” strategy for restoring robust oil and natural gas production in the United States as a primary mechanism for achieving this goal. He simultaneously promised aggressive deregulation of the energy sector, noting that he imposed “a freeze on all new federal regulations,” ended Biden-era environmental restrictions, and directed that “for every one new regulation, 10 old regulations must be eliminated.”

President Trump claimed credit for withdrawing from the Paris climate agreement, terminating the Biden administration’s “electric vehicle mandate,” and working on a natural gas pipeline in Alaska that is “all set to go” and “among the largest in the world, where Japan, South Korea and other nations want to be our partner with investment of trillions of dollars each.” The natural gas pipeline is a key component of a larger project being prioritized by President Trump to produce and ship liquified natural gas (LNG) from Alaska to Japan and other Asian allies.

President Trump teased that “later this week,” he will “take historic action to dramatically expand production of critical minerals and rare earths here in the USA.” He read a letter he received earlier in the day from President Zelensky stating that Ukraine is “ready to sign” an agreement on minerals and security “at any time that is convenient.” He also repeated his interest in acquiring or otherwise partnering with Greenland, which he described as “very important” for military, national, and international security, and which offers a wealth of critical minerals.

The America First energy dominance agenda portions of President Trump’s address continued to build on the foundation he began to lay on the day of his inauguration with the following executive orders and memoranda:
- Unleashing American Energy;
- Declaring a National Energy Emergency;
- Ensuring Accountability for All Agencies;
- Temporary Withdrawal of All Areas of the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects;
- Unleashing Alaska’s Extraordinary Resource Potential;
- Unleashing Prosperity through Deregulation; and
- Establishing the National Energy Dominance Council.
These executive orders and executive actions establish specific directives that the Department of Energy, the Department of the Interior, the Environmental Protection Agency, and other agencies are tasked with implementing in service of President Trump’s America First energy dominance agenda. As President Trump did in his address to Congress, his executive orders and executive actions similarly focus on elevating domestic oil and natural gas production, reducing regulations impacting energy production, and prioritizing critical minerals. In addition, they encourage energy production on federal lands, direct agencies to use emergency authorities to produce energy and build energy infrastructure, make permitting processes more efficient, reconsider what is required and permissible in environmental reviews, and review funding and contracts associated with implementation of the Infrastructure Investment and Jobs Act and Inflation Reduction Act.

President Trump has already begun to implement these executive orders and memoranda. He has established the National Energy Dominance Council, conditionally approved a project to export liquefied natural gas (LNG) to allies overseas, and lifted the previous administration’s ban on oil and gas development on 625 million acres in federal waters. President Trump’s executive actions will be further supported by Republicans in Congress who will seek to use their legislative power, oversight and investigations prerogatives, and control of the gavel at committees to support the President’s America First energy dominance agenda.

There is much more to come—and if the last few weeks are any guide, change will continue to come fast and furious. The firm would be delighted to help you navigate opportunities and challenges in legal, regulatory, and policy matters in Washington, D.C., as they reshape the energy, environment, and natural resources sectors for the foreseeable future.
First Circuit Adopts But-For Causation Standard for Kickback-Premised False Claims Act Actions

Thu, 06 Mar 2025 00:00:00 -0000
On 18 February 2025, the First Circuit Court of Appeals issued its decision in United States v. Regeneron Pharmaceuticals, Inc., determining that “but-for” causation is the proper standard for False Claims Act (FCA) actions premised on kickback and referral schemes under the Anti-Kickback Statute (AKS). This issue has divided circuits in recent years, with the Third Circuit requiring merely some causal connection, and the Sixth Circuit and Eighth Circuit requiring the more defendant-friendly proof of but-for causation between an alleged kickback and a claim submitted to the government for payment.

This issue has major implications for healthcare providers, pharmaceutical manufacturers, and other entities operating in the healthcare environment. Both the government and qui tam relators have frequently brought FCA actions premised on alleged kickback schemes, and these actions pose significant potential liability. A higher but-for standard for proving causation represents a key tool for FCA defendants to defend against such actions. There is a good chance that the government petitions the US Supreme Court to review the First Circuit’s decision, and, given the growing split, there is certainly a possibility that this becomes the next issue in FCA jurisprudence that finds itself before the high court.

Background on AKS-Premised FCA Actions and the Growing Circuit Split

To establish falsity in an AKS-premised FCA action, a plaintiff has historically needed to show that the defendant (1) knowingly and willfully, (2) offered or paid remuneration, (3) to induce the purchase or ordering of products or items for which payment may be made under a federal healthcare program. In 2010, Congress added the following language to the AKS at 42 U.S.C. § 1320a-7b(g): “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].” (Emphasis added). Courts have generally agreed that the AKS, therefore, imposes an additional causation requirement for FCA claims premised on AKS violations. However, courts have been divided on how to define “resulting from” and the applicable standard for proving causation.

In 2018, the Third Circuit was faced with this issue and explicitly declined to adopt a but-for causation standard. Relying on the legislative history, the Third Circuit determined that a defendant must demonstrate “some connection” between a kickback and a subsequent reimbursement claim to prove causation.

Four years later, the Eighth Circuit declined to follow the Third Circuit and instead adopted a heightened but-for standard based on its interpretation of the statute. The court noted that the US Supreme Court had previously interpreted the nearly identical phrase “results from” in the Controlled Substances Act to require but-for causation. In April 2023, the Sixth Circuit joined the circuit split, siding with the Eighth Circuit and adopting a but-for causation standard.

Eyes Turn Toward the First Circuit

In mid-2023, two judges in the US District Court for the District of Massachusetts ruled on this causation issue as it related to two different co-pay arrangements, landing on opposite sides of the split. In the first decision, United States v. Teva Pharmaceuticals USA, Inc., the district court adopted the Third Circuit’s “some connection” standard. The court indicated it was following a prior First Circuit decision—Guilfoile v. Shields—though Guilfoile had only addressed the question of whether a plaintiff had adequately pled an FCA retaliation claim, as opposed to an FCA violation. In the second decision, Regeneron, the district court declined to follow Guilfoile (given Guilfoile dealt with the requirements for pleading an FCA retaliation claim); instead, the district court in Regeneron followed the Sixth Circuit and Eighth Circuit in applying a but-for standard. These dueling decisions set the stage for the First Circuit to weigh in on the circuit split.

First Circuit Adopts But-For Standard

On 18 February 2025, the First Circuit issued its opinion in Regeneron, affirming the district court’s decision and following the Sixth Circuit and Eighth Circuit in adopting a but-for standard. The court first determined that Guilfoile neither guided nor controlled the meaning of the phrase “resulting from” under the AKS. Turning to an interpretation of the statute, the First Circuit noted that “resulting from” will generally require but-for causation, but the court may deviate from that general rule if the statute provides “textual or contextual indications” for doing so. After a thorough analysis of the textual language and its legislative history, the First Circuit concluded that nothing warranted deviation from interpreting “resulting from” to require but-for causation. The court also rejected the government’s contention that requiring proof of but-for causation would be such a burden to FCA plaintiffs that the 2010 amendments to the AKS would have no practical effect.

Notably, the First Circuit made clear that its decision was limited to FCA actions premised on AKS violations under the 2010 amendments to the AKS. The court distinguished such actions from FCA actions premised on false certifications, where a plaintiff asserts that an FCA defendant has falsely represented its AKS compliance in certifications submitted to the government.

Takeaways
1. The growing confusion and disagreement among district and circuit courts over this issue, coupled with the issue’s import to FCA jurisprudence, creates the potential that this could be the next FCA issue decided by the US Supreme Court.
2. Until this split is resolved, FCA practitioners must pay close attention to the choice of venue for AKS-premised FCA actions.
3. But-for causation presents an important tool for FCA defendants in AKS-premised FCA actions. But-for causation may allow a defendant to argue that even if it had acted with an intent to induce referrals, no actual referrals resulted from the conduct, which would allow a defendant to avoid FCA liability altogether. Alternatively, but-for causation may allow a defendant to argue that FCA damages are lower than the total referrals made where the plaintiff is unable to prove all referrals “resulted from” the improper arrangement.
4. While this is a significant win for FCA defendants, its impact may be somewhat limited for FCA actions that are not premised on AKS violations. It also remains to be seen whether the government and relators will begin bringing FCA actions premised on alleged false certifications of compliance with the AKS (rather than solely relying on an alleged AKS violation itself).
The firm's Federal, State, and Local False Claims Act practice group practitioners will continue to closely monitor developments on this issue, and we are able to assist entities operating in the healthcare environment that are dealing with AKS-premised FCA actions.
President's Remarks Keep the Pressure on Congress to Deliver on Taxes

Wed, 05 Mar 2025 00:00:00 -0000

President Trump used his 4 March 2025 address to the joint session of Congress to remind the American public and Congressional leaders that he is serious about adding his imprimatur to the tax code—and in the process adding to the pressure that Republican leadership and tax committee chairs already face as they attempt to extend the 2017 tax cuts using budget reconciliation.

The President highlighted several tax policies he has championed during his campaign and in the weeks following his inauguration. On the business side, he advocated for a reduced tax rate on US manufacturers and 100% full expensing retroactive to 20 January 2025, (Inauguration Day). In addition to making the 2017 Tax Cuts and Jobs Act tax cuts permanent, he listed eliminating taxes on tips, overtime, Social Security, and deductibility of car loan interest if the vehicle is produced in the United States, for individuals among his other priorities. Notably, he did not mention his proposal to lift the cap on state and local taxes (SALT), an issue that continues to divide the Republican caucus.

Each of these proposals has a cost, increasing the amount of revenue offsets that the tax writers must find to pay for them, or increasing the deficit if they do not, assuming a current law baseline. Indeed, some of the President’s other proposals would be offsets, which he also did not mention during his remarks. These include scaling back on the ability of sports team owners to amortize the cost of player contracts and taxing carried interest as ordinary income.

Congressional Republicans are in the midst of the arcane budgetary practice called budget reconciliation to enact tax reform without having to negotiate with or rely on Democrats. Because it is, in fact, a budgetary maneuver, the cost of tax reforms will be restricted by budget reconciliation instructions included in a budget resolution. The House resolution limits a decrease in revenue to US$4.5 trillion—barely enough to extend the 2017 tax cuts let alone accommodate the President’s own priorities, which House members view as something that they must address, especially after the President highlighted them in his joint session remarks. They do have some flexibility since President Trump has not yet offered more specific details on his proposals, but when they have no room to spare to begin with, that may be a distinction without a difference. These challenges are exacerbated by extremely tight margins in the House, intraparty tensions about potential cuts in benefits, adding to the deficit, and other assumptions that are part of the budget reconciliation process.

Although he did not specifically mention taxes of foreign jurisdictions during his remarks about imposing reciprocal tariffs—as some of his executive orders do—the President may have indirectly implicated certain foreign taxes and information-reporting regimes when he referred to “non-monetary” tariffs. He gave Speaker Johnson permission to use tariff revenues to reduce the deficit or for “anything you want to;” perhaps to help pay for tax cuts in budget reconciliation.

The President’s remarks reinforced his commitment to his campaign and post-inaugural tax proposals. It will be up to his House and Senate counterparts to sharpen their pencils and their elbows to successfully figure out how to accommodate President Trump’s priorities as part of the budget reconciliation process.
Flick the Switch Board: Get Plugged into the Latest UK Guidance on EEE and WEEE

Tue, 04 Mar 2025 00:00:00 -0000
Waste treatment, recycling and take back obligations in relation to electrical and electronic equipment (EEE) and waste of such electrical and electronic equipment (WEEE) have long been a focus area for EU regulators, and now we are seeing increased enforcement in the United Kingdom. Although the European Union and United Kingdom are largely aligned in some intention behind the reuse, recycling and recovery obligations applicable to electronic brands, there are also notable differences in implementation which companies should be alive to when operating across both jurisdictions.

To assist with this, the Environment Agency of the United Kingdom recently published four sets of guidance on EEE and WEEE, namely:
1. Guidance on when EEE becomes WEEE for the purposes of the UK WEEE regulations, to properly classify and manage waste;
2. Guidance for waste operators and exporters on how to classify some items of WEEE, waste components and wastes from their treatment in England, focusing on identifying hazardous chemicals and persistent organic pollutants;
3. Guidance on shipping WEEE into and out of England from 1 January 2025; and
4. Guidance on reporting the placing of EEE on the UK market.
We highlight some key points for consumer electronics brands in this alert. Our team is here to assist if you have any questions in this area and on developing a strong compliance roadmap and internal processes.

Practical Tips

The recent UK guidance on EEE and WEEE is helpful in clarifying certain aspects of its reuse, classification and associated export and import requirements. EEE brands or companies dealing with such equipment should familiarise themselves with these latest rules to ensure compliance, at the risk of prosecution and an unlimited fine from a magistrates’ court or Crown Court.
As a first step, producers should consider:
- If anticipating the reuse of EEE, make sure they satisfy all of the reuse conditions to avoid it becoming WEEE;
- Reviewing their current processes for classifying and handling EEE and WEEE;
- Specific classification lists and guidance applicable to the particular WEEE they have or handle;
- Before exporting or importing WEEE or its components, verify the requirements for notification of transit and destination countries; and
- Keep accurate records of the amount of EEE placed on the UK market and report quarterly for B2C or annually for B2B.
What Products Does the New Guidance Apply To?

EEE is broadly defined as any product that is dependent on electric currents or electromagnetic fields to work properly, and which is designed for use with a voltage rating of 1,000 volts or less for alternating current and 1,500 volts or less for direct current.

This definition therefore includes a wide variety of consumer products, such as large and small household appliances, information technology and telecommunications equipment, lighting, tools, toys, leisure and sports equipment, medical devices and many others. The most recent guidance notes are therefore relevant to many consumer products.
For the latest UK guidance on what qualifies as EEE under the regulations, see here.

1. Guidance on When EEE Becomes WEEE

The primary aim of this guidance is to help companies, that hold EEE they no longer need, to prevent that EEE from inadvertently becoming WEEE. These parties include EEE producers as well as treatment facilities, collection facilities, producer compliance schemes and waste carriers. According to the legal definition of WEEE, any EEE which the holder discards, intends to discard or is required to discard becomes WEEE.

However, the guidance provides that EEE intended to be reused can avoid becoming WEEE if all the reuse conditions as described in the latest guidance are satisfied. This is relevant as it could potentially avoid triggering WEEE obligations in some cases (such as registering and reporting the EEE as WEEE, organising or financing its collection, treatment and recycling and so forth).
The reuse requirements for this exemption are:
- The EEE is reused for the same purpose for which it was designed (the use must not be subordinate or incidental to the original use);
- The previous holder intended for it to be reused;
- No repair, or no more than minor repair, is required to it when it is transferred from the previous holder to the new holder, and the previous holder knows this;
- Any necessary repair is going to be done;
- Its use is lawful; and
- It is not managed in a way that indicates that it is waste, for example, it is not transported or stored in a way that could cause it to be damaged.
Ultimately, the assessment of whether a substance or object is waste should be made by taking into account all the relevant circumstances.

2. Guidance on How to Classify Some Items of WEEE, Waste Components and Wastes From Their Treatment in England, Focusing on Identifying Hazardous Chemicals and Persistent Organic Pollutants

This guidance is relevant to waste operators and exporters who must classify all the WEEE leaving their premises by way of a waste transfer note or a consignment note.

Certain types of WEEE are known to include hazardous chemicals or persistent organic pollutants, and guidance on classifying such waste has already been produced by the UK Environment Agency previously.

However, there are certain items of WEEE which require the producer or distributor to carry out a self-assessment, for which guidance is provided. These include:
- Office equipment – non-household types such as photocopiers and printers;
- Medical devices – Category 8;
- Monitoring and control instruments – Category 9; and
- Automatic dispensers – Category 10.
3. Guidance for Importing and Exporting WEEE

This third guidance, which is intended to ensure compliance with environmental regulations and proper waste management practices, requires companies that are exporting or importing WEEE into or from England, to notify all WEEE shipments for recovery in the European Union and Organisation for Economic Co-operation and Development (OECD) countries using new codes for hazardous and non-hazardous WEEE. Some of the existing waste shipment classification codes will cease to exist from the beginning of 2025. In addition, the guidance reiterates that hazardous WEEE and wastes must not be shipped to non-OECD countries. It is also noted that if any EEE is being exported with a purpose of reusing it, such EEE should not be classified as waste. For any WEEE to be exported out of the United Kingdom, the import requirements of a destination country should also be carefully considered.

4. Guidance on Reporting the Placing of EEE on the UK Market

This guidance details the duty to report how much EEE you place on the market either to your producer compliance scheme or on the WEEE online service if you are a small producer. Placing on the market refers to when EEE becomes available for supply or sale in the United Kingdom. This occurs by sale, loan, hire, lease or gifting of EEE by UK manufacturers, UK distributors, importers and customers. It is important to understand the regulatory obligations at each level of the supply chain and to what extent those can be transferred by way of contractual clauses. This does not encompass EEE products which are made or imported in the United Kingdom and then exported without being placed on the UK market.

If you have placed EEE on the UK market, you must keep accurate records to report the amount of EEE tonnage you placed on the market and exported. Evidence can be taken in the form of invoices, delivery notes and export documentation like bills of lading, customs documents and receipts. You must report your business-to-consumer (B2C) EEE quarterly, and your business-to-business (B2B) EEE annually.
Litigation Minute: Emerging Contaminants: What's on the Horizon?

Tue, 04 Mar 2025 00:00:00 -0000
What You Need to Know in a Minute or Less

Emerging contaminants are synthetic or natural chemicals that have not been fully assessed from a health or risk perspective and are reportedly finding their way into consumer products and the environment. These include chemicals that have been widely used throughout society for decades but are now being targeted due to scientific developments and public scrutiny regarding their uses. Across industries, we are seeing increased regulation of consumer products, manufacturing processes, and industrial emissions, as well as new waves of litigation against unsuspecting businesses, putting their operations and financial stability at risk.

The first edition in this three-part series underscores the impact of the regulatory regime on the legal landscape and forecasts what lies ahead with a new regime and the substances likely in line for increased scrutiny, particularly ethylene oxide (EO) and perfluoroalkyl or polyfluoroalkyl substances (PFAS), as well as other chemicals.

In a minute or less, here is what you need to know about what is on the horizon for emerging contaminants litigation and regulation.

Regulation Drives Litigation

EO is a versatile compound used to make ethylene glycol and numerous consumer products, including household cleaners and personal care items. Also used to sterilize medical equipment and other plastics sensitive to heat or steam, its uptick in litigation was largely driven by regulators’ positions surrounding EO’s alleged carcinogenic risk.

In 2016, the US Environmental Protection Agency (EPA) released its Integrated Risk Information System (IRIS) Assessment, finding that EO was 60 times more toxic than previous estimates and “carcinogenic to humans.”¹ Widespread litigation soon followed, despite:
- the EPA recognizing that its assessment included several uncertainties;²
- state agencies, such as the Texas Commission on Environmental Quality, concluding that the EPA significantly overestimated EO’s carcinogenic risks;³ and
- state agencies, such as the Tennessee Department of Health, finding no evidence for the clustering of high numbers of cancers near facilities that emit EO.⁴
The takeaway: A lack of robust science does not minimize litigation risk. Immature and incomplete scientific information will drive early litigation, particularly when it receives regulatory attention and is widely publicized on social media and the popular press.

Where Federal Efforts Slow, States Pick Up the Slack

With Republicans taking control of the Senate, House of Representatives, and White House in November, expect that some legislation and regulation concerning emerging contaminants will be scaled back or unlikely to gain traction. This includes the EPA’s regulation of EO under the Clean Air Act and requirements for the use of EO as a pesticide, as well as bills introduced in Congress to phase out certain uses of PFAS, which are used in firefighting foams, personal care products, food packaging, and other consumer product applications.

But where federal legislation and regulation slow, expect state-level efforts and private litigation such as citizen suits to increase. For example, more than 20 states identified PFAS as an immediate, mid-, or long-term focus for 2025, and President Donald Trump’s first term saw a significant increase in environmental citizen suits.

The takeaway: Do not expect that the new administration will result in a lack of focus on emerging contaminants nationwide. Companies with products or intermediaries that become the focus of emerging contaminant legislation or regulation should consider whether it is appropriate to participate in legislative meetings, hearings, stakeholder sessions, and opportunities to comment and testify; meet with regulators and representatives in critical states; or contribute to the development of model legislation for use in various states.

Other Chemicals “Emerging” as Emerging Contaminants

With increased scientific scrutiny and regulatory activity acting as catalysts for litigation involving emerging contaminants, many other ubiquitous chemical substances may get caught up in the next waves of regulation and litigation—including, for example, microplastics, formaldehyde, and phthalates.

Microplastics

Microplastics can come from several sources, such as cosmetics, glitter, clothing, or larger plastic items breaking down over time. While a definitive correlation between microplastic exposure and adverse health effects has not yet been established, and the EPA states that “[m]icroplastics have been found in every ecosystem on the planet, from the Antarctic tundra to tropical coral reefs, and have been found in food, beverages, and human and animal tissue,” recent petitions to the EPA have called for increased monitoring of microplastics in drinking water. Examples of early litigation involving microplastics include consumer fraud and greenwashing claims.

Formaldehyde

Used in the production of construction materials, insulation, and adhesives, and as a preservative in cosmetics and personal care products, formaldehyde has seen an uptick in the filing of personal-injury claims and class actions alleging harm due to alleged exposure. These cases draw on the EPA’s August 2024 IRIS Toxicological Review of Formaldehyde and December 2024 final risk evaluation for formaldehyde under the Toxic Substances Control Act, despite high-profile challenges to the EPA’s assessments that have highlighted concerns with its scientific shortcomings.

Phthalates

The use of ortho-phthalate plasticizers in industrial applications and consumer products such as cosmetics, plastics, and food packaging has recently diminished. However, the listing of numerous phthalates as alleged reproductive toxicants and carcinogens under California’s Proposition 65, combined with Consumer Product Safety Commission restrictions on the use of phthalates in children’s toys and articles and the US Food and Drug Administration’s removal of 25 ortho-phthalate plasticizers from the Food Additive Regulations, are keeping phthalates in the spotlight. Recent phthalate litigation includes mislabeling and false advertising claims for food and childcare products containing trace phthalate residues.

The takeaway: Although litigation and regulatory developments related to EO and PFAS continue to capture headlines, more is on the horizon. Again, immature science can drive early litigation.

Subsequent editions will touch on what companies can do to prevent, insure, and defend against the risks emerging contaminants pose. For more insight, visit our Emerging Contaminants webpage.
Pest Practices: EPA Uses FIFRA to Adopt Additional Operational and Workplace Controls on Ethylene Oxide

Tue, 04 Mar 2025 00:00:00 -0000

Having adopted stringent air emission controls on commercial sterilizers that use ethylene oxide (EtO), the Environmental Protection Agency (EPA) has now adopted further controls on workplace exposure to EtO, including adopting new employee exposure limits, limiting the use of EtO in sterilizing food products and cosmetics, establishing requirements for operating commercial sterilizers that use EtO and new recordkeeping and training requirements. These controls represent the next step in EPA’s campaign to control exposure to what it considers a toxic chemical.

Unlike its prior emission regulations, EPA issued these controls as an Interim Registration Review Decision (ID) under its Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) authority to regulate pesticides. Since its primary purpose is anti-bacterial, EtO has been regulated as a pesticide since 1966 and was registered under FIFRA in 1984. FIFRA gives EPA the authority to review and reregister pesticides and to confirm the allowed uses and warning on their required labels. It also allows EPA to issue interim findings and requirements even though it has not completed its registration process.

EPA began the reregistration process for EtO in 2013 but has yet to complete it. In 2021, however, as EPA began its focus on control of EtO, it began considering an ID to limit exposure. In 2023, it issued a draft ID, inviting comments from the regulated and environmental communities. On 5 January 2025, EPA issued its final ID, which is not published in the Federal Register but is on EPA’s website.

In the ID, EPA imposes stringent limits on commercial sterilizers. It limits the applicable uses for EtO by stating that EtO can no longer be used for museum, library and archival materials, cosmetics, or musical instruments. The ID also limits EtO uses for food sterilization stating that it can no longer be used generally on whole or ground spices or seasoning materials, although it can be used for a specified list of such materials and used to treat another list of such materials only if additional treatment is necessary. The ID further imposes concentration limits to be applied by 2035, limiting concentration for medical device sterilization to 600 mg/L unless the device design requires greater concentration levels or has US Food and Drug Administration (FDA) approvals for greater levels. Finally, commercial sterilization facilities are required to have separate heating, ventilating and air conditioning systems for offices and control rooms and for EtO processing areas.

The ID adds significant rules regarding employee exposure. It goes beyond the Occupational Safety and Health Administration’s (OSHA) Permissible Exposure Limits and applies an eight-hour time weighted average exposure limit that ratchets down over time. Through 31 December 2027, facilities are required to assure that the eight-hour time weighted limit is no greater than 1.0 ppm, but by 1 January 2035, the exposure limit must be reduced to 0.1 ppm. EPA adopts similar reductions for the short-term exposure limit and the EPA action levels. Similarly, EPA imposes requirements to workers to use either air/airline respirators or self-contained breather apparatus when engaged in tasks involving direct exposure to EtO such as connecting and disconnecting EtO containers or unloading product from the sterilization chamber or aeration area. Finally, the ID requires continuous monitoring devices in both process and non-processing areas.

The ID also imposes enhanced training and recordkeeping requirements. Training must include a discussion of the health effects of EtO exposure and specific language that EtO is a carcinogen and describe symptoms of acute and chronic exposure. Recordkeeping includes monitoring sterilizer EtO concentrations, worker exposure data, indoor monitoring results, and worker training.

The ID imposes similarly stringent rules for sterilizers in healthcare facilities, including hospitals, veterinary facilities, and dental offices. Such facilities may only use EtO in single chamber sterilization devices that utilize emission capturing systems that limit worker and public exposure. The ID also imposes similar worker exposure requirements and similar rules on respirators. The rule on training and recordkeeping are similar as well.

The ID establishes numerous new requirements for EtO use for both commercial sterilizers and healthcare facility sterilizers and each of these requirements have different start and compliance dates. Since the ID is not subject to publication in the Federal Register, these requirements may not have been subject to the broad attention applied to EPA regulations but are just as dramatic and far reaching. EPA issued the ID in the last days of the Biden administration, and it is not clear if the Trump administration is reviewing the ID, along with other late adopted EPA regulations. What is clear is that users of EtO face significant additional requirements as a result of the ID and need to review and understand them.

Our Emerging Contaminants Group is tracking EtO developments as well as developments for other newly regulated contaminants. You can follow these developments and reach us at our Emerging Contaminants web page.
President Trump's 4 March Tariffs Against Canada, Mexico, and China

Tue, 04 Mar 2025 00:00:00 -0000
Today, President Trump announced the implementation of new tariffs targeting imports from Canada, Mexico, and China, making good on his promise last month in the event measures were not taken by these countries to stem the tide of fentanyl and illegal migration into the United States.

Details of the Tariffs

The newly enacted tariffs are as follows:

Canada
A tariff of 25% will be imposed on all imports from Canada. This includes a broad range of goods, notably steel, aluminum, and various manufactured products, significantly impacting industries that rely on Canadian materials and components.

Mexico
Similar to Canada, imports from Mexico will face a 25% tariff. This measure affects key sectors, including automotive parts, electronics, and agricultural products, posing challenges for businesses that have integrated supply chains spanning both countries.

China
All imports from China will now be subject to a 20% tariff which will be in addition to the Section 301 and Section 232 tariffs. This figure reflects an increase of an additional 10% on top of the 10% duty that was already imposed on Chinese goods last month. This elevated rate applies to various goods, including electronics, machinery, and consumer products, signaling the administration's intensified focus on addressing unfair trade practices and protecting American manufacturing.

Key Implications for Businesses
1. Supply Chain Disruptions: The tariffs may cause disruptions to existing supply chains. Companies should assess their current sourcing strategies to identify alternative suppliers and mitigate risks associated with higher costs and import delays.
2. Compliance and Regulatory Challenges: Importers must navigate new compliance requirements associated with the tariffs. Businesses should ensure they have the correct documentation for customs and be prepared for increased scrutiny regarding product classifications and valuations.
3. Potential for Retaliation: These tariff measures will likely lead to retaliatory actions from Canada, Mexico, and China, potentially impacting US exports to these markets. Companies should anticipate possible trade barriers that could disrupt their international operations.
Recommendations
1. Assess Impact on Cost Structures and Explore Supply Chain Alternatives: Consider diversifying your supplier base to include domestic sources or suppliers from other countries, reducing reliance on imports from Canada, Mexico, and China and minimizing exposure to tariffs.
2. Monitor Trade Developments: Stay informed about future regulatory changes and potential retaliatory measures from Canada, Mexico, and China that could further impact your business landscape and operations.
Conclusion

The implementation of tariffs against Canada, Mexico, and China represents the core tenants imbedded in the America First US Trade Policy with broad implications for businesses engaged in imports. Companies must quickly adapt to these changes to mitigate risks and seize potential opportunities. For further assistance and guidance on navigating these tariffs, please do not hesitate to contact us.
Retail Competition and Fair Trading, Cost of Living Measures, Unfair Contract Terms, Mergers: ACCC Releases Its 2025-26 Compliance and Enforcement Priorities

Tue, 04 Mar 2025 00:00:00 -0000
In Brief

Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb has just announced the ACCC’s Compliance and Enforcement priorities for 2025-2026.

Ms Cass-Gottlieb highlighted the ACCC’s particular focus on cost of living pressures on consumers by stating that the ACCC:

"Would conduct dedicated investigations and enforcement activities to address competition and consumer concerns in the supermarket and retail sector”, including a new priority of addressing “misleading surcharging practices and other add-on costs"; and

Focus on “fair trading issues in the digital economy”, including “promoting choice, compliant sales practices and removing unfair contract terms such as subscription traps in online sales.”

The ACCC has announced a number of new priorities, as well as confirming its 2024 priorities and its enduring priorities, including its focus on:
- Consumer, fair trading and competition concerns in relation to environmental claims and sustainability, particularly greenwashing;
- Unfair contract terms in consumer and small business contracts, with a focus on harmful cancellation terms, automatic renewals, early termination fee clauses and noncancellation clauses;
- Improving industry compliance with consumer guarantees, with a particular focus on consumer electronics;
- Any conduct that is harmful to consumers experiencing vulnerability or disadvantage;
- Cartels and other anticompetitive arrangements, including misuse of market power that may affect any level of a supply chain;
- Promoting competition in, and ensuring enforcement in the event of misleading pricing in relation to, essential services; and
- Although not being strictly a compliance and enforcement priority, on the successful implementation of mandatory merger clearance that will be in place from 1 January 2026 (and voluntarily from 1 July 2025). In this regard:
  
  Before the end of March 2025, the ACCC will commence consultation on draft process guidelines and analytical guidelines; and
  
  The ACCC has reiterated its expectation that ~80% of notified mergers will be approved within 15-20 business days (following a period of informal pre-application engagement with the ACCC).
Overall, Ms Cass-Gottlieb noted that the ACCC’s

“…complementary mandates across competition, fair trading and consumer law compliance and enforcement support the community to participate with trust and confidence in commercial life and promote the proper functioning of Australian markets.”

We have produced a one-page summary that outlines these priorities and the key takeaways for businesses (click here).

See the full list of the ACCC’s 2025-2026 compliance and enforcement priorities here and Ms Cass-Gottlieb’s speech here.
No Harm, No Foul–CIPA Claims Dismissed for Lack of Standing

Mon, 03 Mar 2025 00:00:00 -0000

The deluge of lawsuits and demand letters under the California Invasion of Privacy Act (CIPA) has prompted courts to scrutinize CIPA claims more rigorously, including the threshold question of whether CIPA plaintiffs have standing to sue. Recent federal and state court decisions have now answered the standing question in the negative, and the resulting dismissals of CIPA litigation may indicate some relief from the CIPA onslaught.

For example, in Gabrielli v. Insider, Inc., No. 24-cv-01566 (ER), 2025 WL 522515 (S.D.N.Y. Feb. 18, 2025), plaintiff claimed that the defendant violated CIPA’s restrictions as to pen registers by deploying technology on its website that captured and sent plaintiff’s IP address to a third party. As is typical in CIPA litigation, plaintiff argued that the mere statutory violation itself was sufficient to confer standing. The district court disagreed. Citing TransUnion LLC v. Ramirez, 594 U.S. 413 (2021), the district court found that plaintiff had failed to identify any harm from the alleged sharing of an IP address that was analogous to privacy interests protected under common law, rejecting plaintiff’s position that an IP address necessarily implicates “a legally protected privacy interest[.]” The district court also rejected plaintiff’s argument that CIPA’s pen register restrictions codified any substantive privacy right, holding that the alleged violation was at most a “bare procedural violation, divorced from any concrete harm.” Finding that these deficiencies could not be cured by amendment, the court dismissed the complaint without leave to amend.

Although California state courts apply a slightly different analysis, these courts generally require that a plaintiff allege a concrete injury or allege the violation of a statute that authorizes public interest lawsuits by plaintiffs not injured by the statutory violation. See, e.g., Muha v. Experian Info. Sols., Inc., 106 Cal. App. 5th 199, 208-09 (2024). A series of trial court decisions have recently concluded that CIPA is not such a statute and have dismissed lawsuits based on the premise that a mere statutory violation is insufficient to support standing. See, e.g., Rodriguez v. Fountain9, Inc., No. 24STCV04504, 2024 WL 4905217 (Cal. Super. Ct. L.A. Cty. Nov. 21, 2024). Although these decisions are not citable in California state court, they can be invoked in response to demand letters—or their reasoning deployed in motions to dismiss.

This trend further suggests that courts will continue to challenge individual and putative class action litigation brought on the premise that any CIPA violation confers sufficient standing. These decisions may stem the tide of further litigation in this area and provide companies with an additional basis to reject increasingly indiscriminate CIPA claims.

Our Litigation and Dispute Resolution lawyers have extensive experience advising businesses facing CIPA claims and are well-positioned to provide guidance and assistance to any companies subjected to them. For more information on how the firm can assist in navigating a CIPA claim, please contact the authors listed above.
Abu Dhabi Court of Cassation Confirms Exclusivity of Grounds for Set Aside of Arbitral Awards

Thu, 27 Feb 2025 00:00:00 -0000

Introduction

In a decision that became public recently, the Abu Dhabi Court of Cassation (Court of Cassation) in Case No. 1115 of 2024 (issued on 25 November 2024) confirmed the exclusivity of the grounds to set aside arbitral awards contained in Article 53 of the United Arab Emirates (UAE) Federal Arbitration Law No. 6 of 2018 (Arbitration Law). Those grounds do not include reconsideration of the arbitral tribunal’s evaluation of the evidence.

Background

An award debtor (claimant in the arbitration) filed application No. 16 of 2024 in the Abu Dhabi Court of Appeal (Court of Appeal) seeking to set aside an arbitral award issued in an arbitration under the rules of the Abu Dhabi Commercial and Conciliation Centre (since reorganized and renamed as the Abu Dhabi International Arbitration Centre). The basis for the application was that the arbitral tribunal adopted a different method in assessing the award debtor’s claims to that adopted in assessing the award creditor’s claims (counter claimant in the arbitration), and the burden-of-proof requirements applied to the award debtor were more onerous than those applied to the award creditor. In its judgment issued on 16 October 2024, the Court of Appeal dismissed the application.

The award debtor filed an appeal to the Court of Cassation, relying upon the same arguments raised before the Court of Appeal.

Judgment of the Court of Cassation

The Court of Cassation upheld the Court of Appeal’s judgment. It confirmed that it is established that the court hearing an application to set aside an arbitral award shall not be allowed to reconsider the merits of the arbitration case or to supervise the application and interpretation of the law by the arbitral tribunal. The Court of Cassation held that the assessment of evidence in an arbitration proceeding is within the purview of the arbitral tribunal. It is not admissible as a ground for setting aside an arbitral award, as it is not a procedural defect listed in the grounds for setting aside an arbitration award in Article 53 of the Arbitration Law. The Court of Cassation further noted that the validity of arbitral awards in terms of reasoning is not to be measured by the same standards as state court judgments. The Court of Cassation held that the award debtor had not established that it was denied the opportunity to present its case by the arbitral tribunal or that there had been any breach of the principles of due process.

Comment

The Court of Cassation’s judgment reaffirms the UAE courts’ supportive position of arbitration, emphasizing the exclusivity of the statutory grounds for setting aside arbitral awards and that those grounds shall be interpreted narrowly.

About the Firm

Our Litigation and Dispute Resolution practice has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the UAE and wider Middle East region.
HSR Overhaul Takes Effect: A New Era For Dealmakers

Wed, 26 Feb 2025 00:00:00 -0000
On 10 February 2025, the Federal Trade Commission’s (FTC) overhaul of the rules implementing the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) became effective. The new rules now apply to all reportable transactions. As explained in our prior alert, the new HSR rules (Rules) transform the premerger notification process, requiring parties to provide several new categories of documents and information in their filings. For many transactions, the new Rules will significantly increase the cost and time required to prepare HSR filings. While there are several pathways through which the Rules could be challenged, they are likely here to stay for the foreseeable future. This alert discusses the outlook for the new Rules and provides updates on how they are being implemented.

REGULATORY FREEZE ISSUED BY PRESIDENT TRUMP

On 20 January 2025, President Trump issued a regulatory freeze ordering all executive departments and agencies to consider postponing for 60 days the effective date of any final rules that were published in the Federal Register but had not yet taken effect. Similar requests have been made by recent administrations and have usually been followed by the agencies. Here, the FTC commissioners did not vote to toll the effective date of the new Rules, and the Rules went live on 10 February 2025.

WILL THE NEW HSR RULES SURVIVE?

Now that the Rules are live, there are three main pathways through which they could be struck down or modified: (1) agency action, (2) litigation, or (3) an act of Congress. Although it is difficult to predict outcomes as the Trump administration floods the zone, it seems unlikely that the Rules will be nullified through these channels, at least for the foreseeable future.

Agency Action

The FTC commissioners could vote to rescind or modify the new Rules, then go through a lengthy, formal rulemaking process to change them. This seems unlikely for several reasons.
- First, the FTC approved the final Rules by a unanimous, bipartisan 5-0 vote, following efforts to address concerns from the Republican commissioners and commenters to the proposed rules NPRM. In a concurring statement accompanying the announcement of the final Rules, Republican Commissioner (and current FTC Chair) Andrew Ferguson called the Rules “a lawful improvement over the status quo,” adding that while “[t]he Final Rule is not perfect, nor is it the rule I would have written if the decision were mine alone … it addresses important shortcomings … and is ‘necessary and appropriate’ to enable the Antitrust Agencies to determine whether proposed mergers may violate the antitrust laws.” Voting to rescind or significantly alter the Rules would involve backtracking on such public statements.
- Second, on 11 February 2025, Chair Ferguson took to social media to give a resounding endorsement of the new Rules, noting on X that “updates were long overdue,” and that the new Rules are a “win-win” that will “ensure that parties provide the appropriate information so law enforcement can fulfill Congress’s mandate and prevent unlawful deals from slipping through the cracks.” These statements make an about-face by the FTC even less likely. Along similar lines, in a memorandum to FTC staff issued on 18 February 2025, Chair Ferguson stated unambiguously that the agencies’ 2023 Merger Guidelines will remain in place, representing “the framework for [the FTC’s] agency’s merger-review analysis.” He characterized the guidelines as “a restatement of prior iterations … and a reflection of what can be found in case law” and emphasized the importance of stability and reliance, warning that “if merger guidelines change with every new administration, they will become largely worthless to businesses and the courts.”
- Third, former Chair Lina Khan has not yet exited the FTC, leaving a continuing 3-2 Democrat majority that is unlikely to undo its own regulations. Even after Commissioner Khan leaves, there will be a 2-2 Democrat-Republican deadlock that could hamstring votes on any new rulemaking until her replacement is confirmed.
Litigation

On 10 January 2025, the US Chamber of Commerce (Chamber) and a coalition of business groups sued the FTC and then-Chair Khan in federal district court alleging that the Rules violate the Administrative Procedure Act (APA) and should be struck down. The Chamber’s main allegations are that (1) the FTC exceeded its statutory authority under the HSR Act by requiring information that is beyond “necessary and appropriate” to enable the agencies to determine, during the initial 30-day waiting period, whether a transaction may harm competition; (2) the FTC failed to engage in proper cost-benefit analysis; and (3) the agency failed to identify a problem with the prior rules that would justify a departure from the status quo. While the Chamber’s claims are well-argued and the case is before a Trump-appointed judge, the FTC took great pains in the several-hundred-page final Rule to lay a foundation to anticipate and fend off an APA challenge. So far, the Chamber has not sought a temporary restraining order or preliminary injunction to halt the Rules while the litigation is pending, and the docket has been quiet.

Act of Congress

The Congressional Review Act (CRA) requires agencies to submit final rules to Congress and the Government Accountability Office before they take effect. Once a rule is submitted, any member can introduce a joint resolution disapproving the rule. A simple majority vote in both houses of Congress is required to move the measure to the president’s desk. If the president signs off (subject to veto by a two-thirds majority vote in both chambers), the rule is nullified, and the agency is prohibited from reissuing the same or a substantially similar regulation. The CRA has a look-back mechanism that allows Congress to review the new Rules even though they have already gone into effect. On 11 February 2025, Congressman Scott Fitzgerald (R-WI) introduced a CRA resolution of disapproval to repeal the new Rules. It is unclear whether the resolution will see the light of day given other legislative priorities and Congress’s narrow window of opportunity under a unified Republican government. Moreover, the CRA has seldom been successfully used to void regulations. Members have introduced over 200 joint resolutions of disapproval for more than 125 rules since the CRA’s enactment in 1996 and only 19 rules have been overturned.

IS THERE A SILVER LINING FOR DEALMAKERS?

On the bright side, the rollout of the new Rules has been accompanied by steady guidance and engagement from the FTC Premerger Notification Office (PNO), a departure from its general approach under the Biden administration. Moreover, early termination of the 30-calendar-day HSR waiting period is back on the table. It is also worth noting that the PNO received a deluge of filings just before the new Rules took effect. According to Chair Ferguson, the PNO “typically sees between 35 and 50 transactions per week. But during the last week under the old notification rules, the PNO received 394 filings accounting for about 200 transactions.”

WHAT SHOULD I DO NOW?

The new Rules are in effect, govern all HSR filings, and are unlikely to be nullified for the foreseeable future. As such, dealmakers should:
- Continue to work with counsel to understand the new requirements.
- Consider budget, timing, and the potential for increased visibility into business operations.
- Consider the new regime in determining deal timetables and negotiating transaction agreements, particularly for deals involving horizontal overlaps or vertical supply relationships, which trigger additional filing requirements.
- Conduct internal training for relevant personnel regarding document creation best practices and implement document-management protocols to limit exposure and filing burdens.
Please contact a member of our Antitrust, Competition, and Trade Regulation team for real-time updates and guidance for navigating the new landscape.
Trump Administration Directs CFIUS to Tighten Restrictions on Investment From Certain Countries While Easing National Security Reviews of Investments From Allies and Partners

Wed, 26 Feb 2025 00:00:00 -0000

On 21 February 2025, President Donald J. Trump signaled his administration’s approach to foreign investment policy with a presidential memorandum, “America First Investment Policy” (The Policy). Among the most significant priorities, The Policy directs the Committee on Foreign Investment in the United States (CFIUS or the Committee) to ease foreign investments by allied and friendly countries and to further restrict Chinese investment in critical sectors. This policy will substantially revise CFIUS’s approach under the Biden Administration by, among other things, instructing the Committee to rationalize the process for mitigation of national security threats. The Policy in general signals a shift to a more flexible atmosphere for investors from countries that the United States considers to be allies and partners, while requiring more in-depth reviews of investments from adversarial countries.

Key Changes to CFIUS and Investment Policies:

Facilitating Investments From Allies

Streamlined Processes

To encourage investments from allied nations, The Policy proposes a “fast-track” process for investors from key partner countries (to be identified). This initiative aims to ensure that such investments directly bolster US economic growth and innovation. Previous attempts to streamline friendly country investments through the “Excepted Investor” provision in the CFIUS regulations have been narrowly tailored and challenging to navigate.

A more expansive process could significantly impact CFIUS reviews, especially since most transactions over the past five years have involved investors from countries such as the United Kingdom, European Union member states, Canada, Japan, and the United Arab Emirates. The policy seemingly aims to create clearer guidelines, which might better distinguish between genuine national security threats and investment opportunities that pose limited risk.

The policy stipulates that the “fast-track” process will include conditions to prevent foreign investors from friendly countries partnering with investors from China.

For instance, companies engaged in significant joint ventures or joint research operations in China, particularly those that may benefit Chinese military development, may face exclusion from fast-track treatment.

Crucially, the policy directs “more administrative resources” toward facilitating investments from key partner countries to avoid the “overlay bureaucratic, complex, and open-ended ‘mitigation’ agreements for US investments from foreign adversaries.”

Additionally, the policy directs the federal government to expedite environmental reviews for any investment over US$1 billion.

Encouraging Passive Investment From All Sources

The policy appears to direct CFIUS to reverse a trend we have observed in the past four years toward increasingly difficult reviews of strictly passive investments, with no control or access to material nonpublic technical information, especially investments from China with no apparent connection to or control by the Chinese government. The policy notes that “the United States will continue to encourage passive investments from all foreign persons.” To the extent this includes investments from China or other countries of concern this could be a significant development in encouraging more access to capital for many US companies.

Enhanced Scrutiny of Chinese Investments

At the same time, the policy does signal additional restrictions on Chinese investments in key areas:

Targeted Sectors

CFIUS is instructed to intensify its review of foreign investments, particularly those originating from countries the US government considers to be adversaries or potential adversaries, such as China, in sectors such as sensitive technology, critical infrastructure, healthcare, agriculture, energy, and raw materials.

Real Estate

The policy emphasizes protecting US farmland and properties near sensitive facilities, and aims to expand CFIUS’s authority over “greenfield” investments to prevent foreign adversaries from gaining control over essential US assets. As a result of the Foreign Investment Risk Review Modernization Act of 2018, CFIUS jurisdiction was already expanded to real estate acquisitions and greenfield developments within proximity of certain military bases and other sensitive facilities such as maritime ports and airports.

Restrictions on Outbound Investments

Sensitive Technologies

According to the policy, the Administration is considering new or expanded restrictions on US outbound investments involving China, especially those related to sensitive technologies like semiconductors, artificial intelligence, quantum computing, biotechnology, hypersonics, and aerospace. These outbound investment restrictions will likely build on the Outbound Investment Program regulations under Executive Order 14032, which came into effect on 2 January 2025, and already restrict or requirements notification of investments in Chinese entities engaged in certain semiconductor, quantum, and AI development and production activities.

Increased Securities Oversight

The policy further expressed a policy emphasis on “auditing of foreign companies on US exchanges” including “reviewing their ownership structures and any alleged fraud.” Presumably, this would entail greater scrutiny to ensure that foreign issues listed on US exchanges accurately and full identify their direct and indirect shareholders. Although not mentioned, presumably the focus will be on Chinese companies, which will build on enhanced scrutiny of auditing and reporting methodology of Chinese issuers on US exchanges.

Implications for Investors

Opportunities for Allied Investors

Overall, the policy signals a shift in US policy to favor investments from allied and other nonadversarial nations, especially the “NATO plus” countries. Such investments could benefit from fast track review process as well as increased scrutiny of China and other countries considered by CFIUS to be of concern. However, such investors may still attract scrutiny if they maintain significant commercial operations in China, especially those in the critical technologies space. Rulemaking to implement the policy may be crafted in such a way to discourage friendly country investors from continuing significant operations in China.

Increased Compliance Requirements

Deals that involve any connections to Chinese investors should anticipate more rigorous CFIUS reviews. The scope of industries that may be considered to have a national security impact will also be broader, to the point that almost any China-connected investment should be carefully assessed for CFIUS considerations. The need to drill down into any potential connection to investors from China will be crucial for transactions aiming to benefit from the more open environment for allied and partner countries.

Strategic Investment Planning

US entities considering outbound investments in sectors like technology and infrastructure should stay informed about potential restrictions to avoid unintentional violations.

Next Steps

While some of the policy changes in the policy can be accomplished through a shift in enforcement priorities at CFIUS and other relevant agencies, other changes will require regulatory rule writing and even legislative changes. Proposed regulations should be issued shortly via an advance notice of rulemaking, which may give interested parties the opportunity to submit comments on final rules. The firm will have further updates via alert or its National Security and International Trade Update blog (https://www.nationalsecurityandinternationaltradeupdate.com/).

The lawyers in the firm's International Trade: CFIUS, Sanctions, and Export Controls practice group can assist with any questions you may have about the policy.
EDGAR Next: The Next Era in Filing

Wed, 26 Feb 2025 00:00:00 -0000
Introduction

On 27 September 2024, the Securities and Exchange Commission (SEC) adopted “EDGAR Next,” a collection of rule and form amendments intended to improve access to, and management of, accounts on the SEC’s filing portal, the Electronic Data Gathering, Analysis, and Retrieval system, or “EDGAR.” The collection of amendments includes amendments to Rules 10 and 11 of Regulation S-T, Form ID, and the EDGAR Filer Manual, Volume I. EDGAR Next is expected to have a disruptive effect on the SEC filing process, but ultimately result in a smoother overall filing system for all electronic filers, including public companies, investment funds, certain shareholders, Section 16 officers and directors, and filing agents. Compliance with EDGAR Next is required by 15 September 2025.

Background: EDGAR “Now”

EDGAR is the current system through which filers submit filings required by various federal securities laws to the SEC. Historically, EDGAR assigned each filer a set of access codes that could be used by different individuals to make submissions on the filer’s behalf. Specifically, filers are assigned central index keys, or CIKs, and a set of login credentials, including a password, passphrase, CIK confirmation code (CCC), and password modification authorization code (PMAC) (the EDGAR Codes). A first-time filer obtains EDGAR Codes by submitting a Form ID application through EDGAR, which sets up their account.

Looking Ahead: EDGAR Next

EDGAR Next aims to enhance the SEC’s investor protection mission by improving EDGAR’s security, enhancing management of EDGAR accounts by filers, and modernizing EDGAR connections.

Accordingly, EDGAR Next seeks to improve security by requiring individual account credentials to log in to EDGAR, allowing identification of the individual making each submission, and employing multifactor authentication. As a practical matter, EDGAR Next will require anyone attempting to act on behalf of a filer to (i) present individual account credentials obtained from Login.gov, a US government sign-in service, and (ii) complete multifactor authentication to access EDGAR accounts and submit filings. EDGAR Next’s access protocols will limit access to a filer’s account to only those individuals directly authorized by the filer and requiring such individuals to have their own personal EDGAR accounts.

Additionally, EDGAR Next will continue using CIKs and CCCs but will no longer assign passwords, PMACs, and passphrases. As such, in order to access an EDGAR account, filers, or individuals authorized to file on the filer’s behalf, will need to log in to EDGAR using the credentials obtained from Login.gov, complete multifactor authentication, and enter the filer’s CIK and CCC.

Per the SEC, EDGAR Next is meant to enhance filers’ ability to manage their EDGAR accounts by requiring filers to authorize at least two individuals (or one if the filer is an individual or single-member company) to manage their accounts on a new EDGAR Filer Management dashboard (the EDGAR Next Dashboard) as “account administrators.” Their duties are as follows:
- Manage the filer’s EDGAR account;
- Confirm annually on EDGAR that all individuals and entities reflected on the EDGAR Next Dashboard for its EDGAR account are authorized by the filer to act on its behalf, and that all information about the filer on the dashboard is accurate;
- Maintain accurate and current information on EDGAR concerning the filer’s account, including but not limited to accurate corporate and contact information; and
- Securely maintain information relevant to the ability to access the filer’s EDGAR account, including but not limited to access through any EDGAR Application Programming Interfaces (APIs).
Additionally, EDGAR Next will roll out optional APIs, which will allow filers to make submissions, retrieve information, and perform account management tasks on a machine-to-machine basis. The optional APIs are meant to enhance the efficiency and speed of many filers’ interactions with EDGAR.

Key Dates

Adopting Beta: 30 September 2024–19 December 2025

It is never too early to start preparing to comply with EDGAR Next. The “Adopting Beta” launched on 30 September 2024, and will remain live until at least 19 December 2025, giving filers and authorized users ample time to get comfortable with EDGAR Next in a testing environment that is separate from the actual EDGAR system.

EDGAR Next Dashboard: 24 March 2025

The EDGAR Next Dashboard will go live on 24 March 2025 (while still allowing the submission of filings in accordance with the legacy EDGAR filing process until 12 September 2025). Existing filers will obtain access by enrolling in EDGAR Next on the EDGAR Next Dashboard while new filers (and existing filers unable to enroll) must apply for EDGAR access by completing the new amended Form ID (also on the EDGAR Next Dashboard), the application for access to EDGAR. Existing filers or authorized persons will need to use their current EDGAR Codes (those used for the legacy EDGAR system) to enroll in EDGAR Next.

EDGAR Next Deadlines: 15 September 2025 and 19 December 2025

Beginning 15 September 2025, compliance with EDGAR Next is required in order to submit filings. The legacy EDGAR system will remain available for enrollment purposes until 19 December 2025, after which the legacy EDGAR system will be deactivated altogether. Thus, filers that have not enrolled in EDGAR Next or received access through submission of an amended Form ID by 19 December 2025 must submit a new amended Form ID to request access to their existing accounts.

Key Tips and Takeaways

Below is a checklist of action items as filers and account administrators assess and plan their compliance efforts over the coming months. While enrollment does not begin until late March, filers and account administrators are encouraged to prepare well in advance of EDGAR Next’s official inception, including:
- Take advantage of the Adopting Beta
- Obtain Login.gov credentials
- Gather current EDGAR Codes (CIKs / CCCs / Passphrases)
- Determine your account administrators, users, and technical administrators
- Identify individuals who have beneficial ownership reporting obligations with client entities (Section 16 and Form 144 filings, for example)
- Contact financial printer (if applicable)
- Review SEC guidance
- Coordinate compliance efforts
- Enroll on EDGAR Next (once live)
Our lawyers will continue to monitor developments and SEC statements regarding the amendments and provide updates, as necessary. Contact any of the authors or our Asset Management and Investment Funds and Capital Markets lawyers with any questions.
FERC Moves Forward Quickly on Generator Co-Location With Large Loads

Wed, 26 Feb 2025 00:00:00 -0000
During last week’s 20 February 2025 open meeting, the Federal Energy Regulatory Commission (FERC) initiated a show cause proceeding, directing grid operator PJM Interconnection, L.L.C. (PJM) and PJM’s transmission-owning utilities (Transmission Owners) to address the need for tariff changes to govern rates, terms, and service conditions for co-location arrangements.¹The order is likely to have implications nationwide given the growth of data centers and other large loads seeking dedicated energy sources. Co-location, as defined by the order, is a configuration through which end-use customer load is physically connected to the facilities of an existing or planned generator on the interconnection customer’s side of the point of interconnection to the interstate electric grid.²Data centers and other large loads may use co-location arrangements with various configurations, including grid connections, to arrange for energy supplies.

Chairman Mark Christie’s remarks during the open meeting recognized FERC action to be imperative “because there’s not only billions of dollars of investment waiting for us to act... issues of reliability are directly implicated.”³He also added, “[t]here’s no question a key utility principle is serve all customers... but [that] has to be done in a way that’s fair and [consistent with] cost causation.”⁴

The show cause order is directed at PJM following several co-location-related disputes involving entities in PJM. PJM is the largest grid operator in the nation, covering 13 states and the District of Columbia, and is home to the largest concentration of data centers in the nation. PJM is expecting 30 gigawatts of peak load to be added over the next five years.⁵

While the show cause proceeding focuses on the PJM region, industry is expected to track these developments closely given the broad scope of issues to be addressed. FERC’s decisions here will likely shape the federal regulatory framework governing co-location of data centers and other large loads in those regions or, at a minimum, guide the development of co-location rules adopted by other regional grid operators.

The expansive scope of the show cause proceeding covers issues concerning federal-state jurisdiction, operational reliability of the electric grid, generation resource adequacy, and interconnection study processes, including, e.g.:
- Whether modifications to the tariff, market rules, or interconnection procedures and agreements would be necessary to address the identified issues of jurisdiction, cost causation, the beneficiary pays principle, reliability, and resource adequacy;
- Whether and to what extent different co-location configurations benefit from or rely upon the transmission system, ancillary services, and black start services;
- Whether and to what extent different co-location arrangements impose costs on the transmission system;
- Whether co-located load configurations should be required to take transmission service, such as Network Integration Transmission Service, Point-to-Point Transmission Service, pay for ancillary services even if not taking traditional transmission service, or take a new form of transmission service;
- Whether PJM’s necessary study process for proposed interconnections adequately addresses potential impacts or capabilities of co-location arrangements;
- Whether it would be appropriate to establish an interconnection study process outside of PJM’s interconnection queue process for newly interconnecting co-location arrangements that do not exchange power with the transmission system and do not require network upgrades;
- Whether revisions to PJM’s capacity market rules would be necessary to appropriately reflect the unique physical and operational characteristics of the co-location arrangement; and
- Whether the PJM planning process should be modified to plan for and address resource adequacy impacts of co-location arrangements, particularly whether PJM should consider changes to its load forecasting methods.⁶
Although FERC has not committed to a date by which it will issue an order in the show cause proceeding, a press release issued 21 February 2025 commits that the agency will act as “quickly... as feasible,”⁷and, during the open meeting, the four Commissioners participating in the decision pledged to act quickly. Further, the show cause order itself sets a fast-moving schedule, directing PJM and the Transmission Owners to submit their responses within 30 days, by 24 March 2025, and interested entities to submit comments 30 days later, by 23 April 2025.⁸The order also consolidates the show cause proceeding with two other dockets,⁹providing a supplement to the record upon which to take action in the show cause proceeding.

On the same day that FERC initiated the show cause proceeding, it also announced that it will convene a two-day Commissioner-led technical conference in Docket No. AD25-7-000 to address resource adequacy issues in regional transmission organization and independent system operator regions, to be held at FERC on 4 June 2025 and 5 June 2025.

The energy regulatory landscape is rapidly changing. The firm is closely monitoring these developments to assist its clients in navigating these evolving laws, regulations, and policies. Members of our Power practice group can assist in better understanding the regulatory issues surrounding the co-location of large loads with generation facilities, as well as the specific regulatory challenges facing data centers’ access to reliable electricity supplies.
Trump Administration Asserts Control Over Independent Agencies

Tue, 25 Feb 2025 00:00:00 -0000

The Trump administration has taken two actions that will dramatically increase White House control over federal commissions, boards, and officials that were previously considered independent. These actions are likely to impact a wide range of industries and sectors of the American economy, including energy, financial services, transportation, healthcare, and many others.

First, President Trump issued an Executive Order (EO) to increase presidential supervision over the “so-called independent agencies.” The EO, entitled “Ensuring Accountability for all Agencies,” is a fundamental change to historical practice where independent agencies like the Securities and Exchange Commission, National Labor Relations Board, and Federal Energy Regulatory Commission fell outside the White House’s regulatory oversight. This EO sets forth new requirements that would formally subject the actions taken by these and other independent agencies to White House control for the first time. The new requirements include:

Regulatory Review

Section 1 of the EO extends to “independent regulatory agencies” the pre-existing requirement that Executive Departments and agencies submit for review all proposed and final significant regulatory actions to the Office of Information and Regulatory Affairs in the Executive Office of the President, before publication in the Federal Register.

Agency Performance

Section 4 of the EO requires the Director of the Office of Management and Budget (OMB) to establish “performance standards and management objectives” for independent agency heads, and to periodically report to the president on these agencies’ progress in meeting the standards.

Funding

Section 5 of the EO requires the OMB director to “adjust” the independent regulatory agencies’ “apportionments” as necessary to advance the president’s policies and priorities. The EO contemplates that OMB may prohibit spending on particular activities.

Regular Consultation With the White House

Section 6 of the EO requires independent regulatory agencies to establish a White House liaison within each agency, who will regularly consult and coordinate with the Executive Office of the President on policies and priorities.

Singular Legal Interpretations

Section 7 provides that the president and the attorney general shall set forth the authoritative and binding interpretations of the law for the entire executive branch.

These requirements are largely aimed at “independent regulatory agencies” as defined by 44 U.S.C. 3502(5), which identifies nineteen independent agencies and includes a catchall clause for “any other similar agency designated by statute.”¹A 2019 opinion from the Justice Department’s Office of Legal Counsel notes that there are potentially several other agencies (beyond those listed) that would fall into the catchall clause, including the United States International Trade Commission.

In a related move, the administration also asserted greater authority to fire certain federal commissioners and other officials “at will” who could previously only be terminated by the president “for cause.” For nearly a century, the prevailing view was that although the president enjoys absolute authority to remove the singular head of an executive agency, Congress could condition the removal of multimember heads of “independent” boards or commissions that Congress designed to be balanced along partisan lines and in which it vested quasi-judicial and quasi-legislative power. That view dates back to the 1935 Supreme Court case of Humphrey’s Executor v. United States; however, many believe that this view may no longer be favored by the current Supreme Court.

The Solicitor General of the United States recently informed Congress that the federal government will “no longer defend the[] constitutionality” of “certain for-cause removal provisions that apply to members of multimember regulatory commissions”—specifically the Federal Trade Commission, National Labor Relations Board, and the Consumer Product Safety Commission—that were permitted under Humphrey’s Executor. Instead, the Department of Justice “intends to urge the Supreme Court to overrule [Humphrey’s Executor], which prevents the President from adequately supervising principal officers in the Executive Branch who execute the laws on the President’s behalf, and which has already been severely eroded by recent Supreme Court decisions.”

These two steps—the “Ensuring Accountability for all Agencies” EO and the Justice Department’s rejection of Humphrey’s Executor—would dramatically increase White House control over federal commissions, boards, and officials which were previously considered independent and insulated from such control.

Article II of the U.S. Constitution vests the president with somewhat opaque “executive” powers. These powers include ensuring that the laws of Congress are “faithfully executed,” which requires some degree of oversight of the officers who actually execute them. The Constitution also permits the president to “require the Opinion” of executive department heads on any subject relating to their duties. While other presidents have not required this level of consultation by independent agency heads, some view the more hands-off approach to regulatory review to be a matter of executive discretion rather than a lack of legal authority. Together, these recent steps by the Trump administration highlight the likely hallmarks of the new legal frontier—one that will test the limits of the president’s constitutional powers.

Key Takeaways

Possible Regulatory Delays While Independent Agencies Adjust to the New Normal

The increased coordination and consultation that is now expected from the White House could result—at least initially—in some delays to the normal decision-making processes of independent regulatory agencies. These agencies will now need to build in an additional layer of review to ensure that certain policy decisions are aligned with those of the administration.

Fewer Open Interagency Disputes

President Trump intends to interact with independent agency heads in the same way as other federal agency heads. Subject to congressional or judicial intervention, it is expected that independent agencies will follow the White House’s lead, particularly given that President Trump has asserted authority to terminate board and commission members without cause. This will likely result in fewer—if any—open interagency disputes, like that which arose in the Bostock case, where the Justice Department and Equal Employment Opportunity Commission took conflicting legal positions on the scope of Title VII. The White House will aim to resolve more policy disputes in the interagency process, perhaps without the regulated community even learning of such disputes.

The Likely Rise of Executive Deference Arguments

Look for the White House to argue that this EO is entitled to deference from the courts, as it relates to the president’s core constitutional powers. While the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo put an end to Chevron deference for agency interpretations of the law, it did not address a different strain of deference where core presidential power is concerned. That form of deference—traditionally invoked to support the executive branch’s preferred national security policies—may well be increasingly invoked by the president and attorney general. President Trump may also assert that the EO should take precedence over existing regulations to the contrary, as the administration has maintained in other contexts.

Increased Opportunities for Engagement

In making these changes, the White House’s stated goal is to increase the public accountability of agencies that have historically exercised significant regulatory control over the American people. By requiring these agencies to coordinate with the White House at an unprecedented level, there may now also be an increased opportunity for regulated parties to be heard on important policy matters.
President Trump Takes Additional Actions on Reciprocal Tariffs, Shipping, and Digital Services Taxes

Mon, 24 Feb 2025 00:00:00 -0000
On 21 February 2025, President Trump ordered three additional steps to implement the America First Trade Policy announced on 20 January 2025:
1. Establish a notice and comment process for the US Trade Representative (USTR) to collect input from interested parties on the proposed “reciprocal tariffs” announced 13 February.
2. Initiate a process for USTR to collect input on potential trade actions to address what USTR under the prior administration found to be China’s “targeting” of the maritime, logistics, and shipbuilding sectors in the United States and globally.
3. Direct the Treasury Secretary, working with USTR, Commerce, and the White House advisor to the President on trade and manufacturing, to formulate and impose tariffs and other measures to respond to other countries’ access barriers to and taxes on American digital services.
Each of these three steps launches parallel administrative proceedings before the relevant agencies that will culminate in recommendations to the President to impose tariffs or other trade measures. Companies and investors with interests impacted by the above topics should carefully review these announcements and the schedules for submitting comments and consider whether and how best to participate.

Notice and Comment Process Regarding Reciprocal Tariffs

USTR is requesting comments by 11 March 2025 regarding any unfair trade practices maintained by other countries and what steps USTR should take to address these practices. Comments should include the foreign country or economy concerned, the practice or trade arrangement of concern, a brief explanation of the operation of the practice or trade arrangement, and an explanation of the impact or effect of the practice or trade arrangement on the interested party or on US interests generally.

Of particular interest are comments on the trading practices and other tariff and non-tariff barriers and practices of Argentina, Australia, Brazil, Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Switzerland, Taiwan, Thailand, Türkiye, United Kingdom, and Vietnam. According to USTR, these countries cover 88 percent of total goods trade with the United States.

Submissions should quantify the harm or cost (including actual cost or opportunity cost) to American workers, manufacturers, farmers, ranchers, entrepreneurs and businesses from the practice or trade arrangement of concern – ideally ascribing a dollar amount to the harm or cost and describing the underlying methodology. Information that is business confidential can be submitted in confidence to USTR and separate from this specific process, USTR is also interested in ongoing engagement with and information from interested parties regarding unfair foreign trade practices of US trading partners.

Comments on Proposed Trade Remedies to Address China’s Maritime, Logistics, and Shipbuilding Practices

Separately, USTR is seeking comments from interested parties on how it should implement the findings of the Biden Administration pursuant to Section 301 of the Trade Act of 1974 that China was engaged in practices that targeted the maritime, logistics, and shipbuilding sectors in pursuit of what USTR found to be goals to dominate those sectors. Written comments are due by 24 March 2025. USTR will also hold a hearing on this matter on 24 March–requests to appear at the hearing are due by 10 March 2025. Additional written comments in rebuttal can be submitted no later than seven calendar days after the last day of hearings.

Action Against Foreign Countries’ Digital Services Taxes

In a 21 February 2025 memorandum, President Trump has separately directed the US Treasury Department, working with Commerce, USTR, and White House stakeholders, to formulate tariff and other responses to digital services taxes and related practices imposed by other countries. According to the memorandum, such practices are hindering the success of American digital services companies and investors in other markets and imposing unfair costs, barriers and risks on American companies, data, and jobs. Reports and recommendations on these issues are due to the president by 1 April 2025.

Among the actions contemplated by the memorandum are:
- Renewal of Section 301 trade actions from 2019 and 2020 against the digital services taxes of Austria, France, Italy, Spain, Turkey and the United Kingdom;
- Consideration of dispute settlement against Canada and Mexico pursuant to the US-Mexico-Canada Agreement;
- Recommended tariffs against US imported goods and services from countries imposing such taxes and other measures;
- Actions to address mandates by other countries with regard to the content or content monitoring of US social media and other digital platforms and services;
- A determination of whether to impose tariffs of up to 50% in response to tax measures that discriminate against US citizens and companies;
- A moratorium on the levying of customs duties by other countries on electronic transmissions; and
- A mechanism for American businesses to report to USTR on the foreign tax and regulatory practices of other nations that are believed to harm US companies.
New York Proposal to Protect Workers Displaced by Artificial Intelligence

Thu, 20 Feb 2025 00:00:00 -0000

On 14 January 2025, during her State of the State Address (the Address), New York Governor Kathy Hochul announced a new proposal aimed at supporting workers displaced by artificial intelligence (AI).¹This proposal would require employers to disclose whether AI tools played a role in mass layoffs or closings subject to New York’s Worker Adjustment and Retraining Notification Act (NY WARN Act). Governor Hochul announced that she is directing the New York State Department of Labor (DOL) to enact and enforce this requirement. The DOL does not have a timeline for implementing the new requirement.

In the Address, Governor Hochul acknowledged the benefits of AI, stating, “[innovations in AI] have the ability to change the way businesses operate, leading to greater efficiency, fewer business disruptions, and increased responsiveness to customer needs.” However, the implementation of AI tools in the workplace leads to increased automation, which may result in increased job loss, wage stagnation or loss, reduced hiring, lack of job satisfaction, and skill obsolescence—all of which are major concerns for US workers.²

The primary goals of imposing these employer disclosures are to: (i) aid transparency and gather data on the impact of AI technologies on employment and employees; and (ii) ensure the integration of AI tools into the workforce creates an environment where workers can thrive.

Implications for Employers

Disclosure Requirement

Employers covered by the NY WARN Act will need to disclose in their NY WARN Act notices whether layoffs are due to the implementation of AI tools replacing employees.³

Scope

While specific details about the scope of the new disclosure requirement are not yet available, employers should prepare for this additional obligation as part of the existing complex notice requirements under the NY WARN Act.⁴

Compliance

Employers contemplating a NY WARN Act-triggering event should consult with legal counsel to ensure compliance with these disclosure requirements and expanded NY WARN Act obligations.

NY WARN Act

The Worker Adjustment and Retraining Notification Act (WARN Act) is a federal law that requires covered employers to provide employees with 60-day advance notice before closing a plant or conducting a mass layoff.⁵The purpose of the WARN Act is to give workers and their families time to adjust to potential layoffs and to seek or train for new jobs.⁶New York is one of 18 states with its own “mini-WARN Act.” The NY WARN Act imposes stricter requirements than the federal WARN Act. For example, the NY WARN Act applies to employers with 50 or more employees while the federal WARN Act applies to employers with 100 or more employees. The NY WARN Act also requires a 90-day advance notice, compared to the 60-day notice required under federal law. The early warning notices of closures and layoffs are provided to affected employees, their representatives, and the Department of Labor and local officials. If Governor Hochul’s proposal is enforced, NY WARN Act notices will also need to include the required AI disclosure.

Takeaways for Employers

Employers should be well versed in how AI tools are being used and the impact they are having on workers, especially if such impacts may lead to mass layoffs. Specifically, legal and human resources leaders should understand how the business is automating certain processes through AI tools and the implications the tools have on headcount requirements, employee job satisfaction and morale.

Our Labor, Employment, and Workplace Safety lawyers regularly counsel clients on a wide variety of issues related to emerging issues in labor, employment, and workplace safety law, and are well-positioned to provide guidance and assistance to clients on AI developments.

January 2025 ESG Policy Update—Australia

Thu, 20 Feb 2025 00:00:00 -0000

Australian Update

Mandatory Climate-Related Financial Disclosures Come Into Effect

The first phase of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (Bill) commenced on and from 1 January 2025. The Bill amends the Corporations Act 2001 (Cth) to mandate that sustainability reporting be included in annual reports.

The first phase requires Group 1 entities to disclose climate-related risks and emissions across their entire value chain. Group 2 entities will need to comply from 2026, followed by Group 3 entities from 2027.

First Annual Reporting Period Commences on	*Reporting Entities Which Meet Two out of* Three of the Following Reporting Criteria**			National Greenhouse and Energy Reporting (NGER) Reporters	Asset Owners
First Annual Reporting Period Commences on	Consolidated Revenue for Fiscal Year	Consolidated Gross Assets at End of Fiscal Year	Full-time Equivalent (FTE) Employees at End of Fiscal Year		Asset Owners
1 Jan 2025 (Group 1)	AU$500 million or more.	AU$1 billion or more	500 or more.	Above the NGERs publication threshold.	N/A
1 July 2026 (Group 2)	AU$200 million or more.	AU$500 million or more.	250 or more.	All NGER reporters.	AU$5 billion or more of the assets under management.
1 July 2027 (Group 3)	AU$50 million or more.	AU$25 million or more.	100 or more.	N/A	N/A

Mandatory reporting will initially consist only of climate statements and applicable notes before expanding to include other sustainability topics, including nature and biodiversity when the relevant International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards are issued by the International Sustainability Standards Board (ISSB).

Entities are also not required to report Scope 3 emissions, being those generated from an entity's supply chain, until the second year of reporting. Further, there is a limited immunity period of three years for Scope 3 emissions in which actions in respect of statements made may only be commenced by the Australian Securities and Investments Commission (ASIC) or where such statements are criminal in nature.

Further information on the mandatory climate-related disclosures can be found here.

New Vehicle Efficiency Standard Comes into Effect

On 1 January 2025, the New Vehicle Efficiency Standard (NVES) came into effect.

The NVES aims for cleaner and cheaper cars to be sold in Australia and to cut climate pollution produced by new cars by more than 50%. The NVES aims to prevent 20 million tonnes of climate pollution by 2030.

Under the NVES, car suppliers may continue to sell any vehicle type they choose but will be required to sell more fuel-efficient models to offset any less efficient models they sell. Car suppliers will receive credits if they meet or beat their fuel efficiency targets.

However, if a supplier sells more polluting cars than their target, they will have two years to trade credits with a different supplier or generate credits themselves before a penalty becomes payable.

The NVES aims to bring Australia in line with the majority of the world’s vehicle markets, and global manufacturers will need to comply with Australia's laws. This means that car suppliers will need to provide Australians with cars that use the same advanced fuel-efficient technology provided to other countries.

For Australians who cannot afford an electric vehicle, it is hoped the NVES will encourage car companies to introduce more inexpensive options. There are approximately 150 electric and plug-in hybrids available in the US, but less than 100 on the market in Australia. There are also currently only a handful of battery electric vehicles in Australia that regularly retail for under AU$40,000.

Inaugural Australian Anti-Slavery Commissioner Appointed

On 2 December 2024, Mr Chris Evans commenced a five-year term as the inaugural Australian Anti-Slavery Commissioner (Commissioner), having been appointed in November 2024.

Mr Chris Evans previously served as CEO of Walk Free's Global Freedom Network "Walk Free". He and Walk Free played a significant role in campaigning for the introduction of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act).

Prior to his time at Walk Free, Mr Evans was a Senator representing Western Australia, serving for two decades.

The Australian Government has committed AU$8 million over the forward estimates to support the establishment and operations of the Commissioner.

Among other functions, the Commissioner is to promote business compliance with the Modern Slavery Act, address modern slavery concerns in the Australian business community and support victims of modern slavery. We expect the Commissioner will take a pro-active role in implementing the McMillan Report's recommendations for reform of the Modern Slavery Act supported by the Australian Government including penalties on reporting companies who fail to submit modern slavery statements on time and in full and the Commissioner's disclosure of locations, sectors and products considered to be high-risk for modern slavery.

For more information on the role of the Commissioner, you can read our June 2024 ESG Policy Update – Australia.

View From Abroad

Trump Administration Provides Early Insight Into Their Position on ESG-Related Regulations

On 20 January 2025, shortly after new US President Donald Trump was inaugurated, the White House published the America First Priorities (Priorities). Several of these priorities are relevant to ESG-related policies and have been incorporated into Executive Orders and Memoranda issued by President Trump.

These Priorities, Executive Orders and Memoranda provide an insight into the new administration's position on ESG-related regulations and include the following:

Reviewing for rescission numerous regulations that impose burdens on energy production and use, including mining and processing of non-fuel minerals;
Empowering consumer choice in vehicles, showerheads, toilets, washing machines, lightbulbs and dishwashers;
Declaring an "energy emergency" and using all necessary resources to build critical infrastructure;
Prioritising economic efficiency, American prosperity, consumer choice and fiscal restraint in all foreign engagements that concern energy policy;
Withdrawing from the Paris Climate Accord;
Withdrawing from any agreement or commitment under the UN Framework Convention on Climate Change and revoking any financial commitment made under the Convention;
Revoking and rescinding the US International Climate Finance Plan and policies implemented to advance the US International Climate Finance Plan;
Freezing bureaucrat hiring except in essential areas; and
Ordering those officials tasked with overseeing diversity, equity and inclusion (DEI) efforts across federal agencies be placed on administrative leave and halting DEI initiatives taking place within the government.

It is expected that the Trump administration will continue to prioritise economic growth over the perceived costs of ESG-related initiatives. Corporate ESG obligations may decrease, potentially creating short-term reporting relief and less shareholder pressure on companies to adopt ESG-focused policies.

Any relaxation of ESG-related regulations in the US may have extra-territorial effects on other jurisdictions as they determine whether to pause, roll-back or expand their reform programs in response. Multinational enterprises may find it difficult to navigate these potentially increasingly divergent national regimes.

UK Accounting Watchdog Recommends Sustainability Reporting Standards

On 18 December 2024, the Financial Reporting Council, as secretariat to the UK Sustainability Disclosure Technical Advisory Committee (TAC), recommended the UK Government adopt International Sustainability Standards Board reporting standards, IFRS S1 (Sustainability-related financial information) and IFRS S2 (Climate-related disclosures) (the Standards).

The purpose of these Standards is to provide useful information for primary users of general financial reports. Broadly:

IFRS S1 provides a global framework for sustainability-related financial disclosures and addresses emissions, waste management and environmental risks; and
IFRS S2 focuses on climate risks and opportunities.

Adopting these Standards in tandem ensures that companies account for their full environmental impact. TAC has also recommended minor amendments to the Standards for better suitability to the UK's regulatory landscape. For example, extending the 'climate-first' reporting relief in IFRS S1 will allow entities to delay reporting sustainability-related information, by up to two years. This will allow companies to prioritise climate-related reporting.

This endorsement comes after the TAC was commissioned by the previous government to provide advice on whether the UK Government should endorse the international reporting Standards. Sally Duckworth, chair of TAC, stated that the adoption of these reporting standards is "a crucial step in aligning UK businesses with global reporting practices, promoting transparency and supporting the transition to a sustainable economy".

With more than 30 jurisdictions representing 57% of global GDP having already adopted the Standards, the introduction of these Standards in the UK will align UK companies with international reporting standards and provide greater transparency and accountability, which is important for achieving sustainability goals and setting strategies going forward.

Sustainable Investing Spotlight for 2025

Whilst Europe has dominated the sustainable investing charge with regulators prioritising disclosure and reporting initiatives, 2025 is set to be a challenging year with the Trump administration expected to reorder priorities in the US that are likely to impact the sustainability landscape going forward. Investment data analytics from Morningstar predicts that there will be six themes that will shape the coming year:

Regulations

The US Securities and Exchange Commission (SEC) may reverse rules requiring public companies in the US to disclose greenhouse gas emissions and climate-related risks and roll back a number of other sustainability related initiatives. This is at odds with the European Union and a number of other jurisdictions globally who are focusing on rolling out climate and sustainability disclosures.

Funds Landscape

Fund-naming guidelines that have been introduced by the European Securities and Markets Authority will see a large number of sustainable investment funds across the EU rebrand, which is likely to reshape the landscape. Off the back of the de-regulation occurring in the U.S., there is an expectation that the number of sustainable investment funds will shrink. It will be interesting to see how the market responds and what investor appetite for these products across the rest of the world, will be.

Transition Investing

Investors will look to invest in opportunities arising out of the energy transition. Institutional investment is vital to meet targets, with focus predicted to be on renewable energy and battery production.

Sustainable Bonds

It is predicted that sustainability related bonds will outstrip US$1 trillion once again. Institutional investors have been targeting sustainability related bonds to aid their net zero efforts. Global players like the EU are poised to play a critical role in the global energy transition and boost the sustainability bond markets by implementing regulatory frameworks to encourage investment.

Biodiversity Finance

Nature will increasingly be recognised as an asset class, thanks to global initiatives aimed at correcting the flawed pricing signals that have contributed to biodiversity loss. These efforts seek to acknowledge the true value of nature and address the ongoing degradation of biodiversity. There is an appetite for nature-based investment, but regulatory uncertainty and uncharted pathways remain a deterrent.

Artificial Intelligence

This prominent investment theme in 2024 is likely to continue well into this year. However, there are risks associated with this asset class. The rapid adoption and volatile regulations are proving costly, along with the immense amount of energy generation required to run artificial intelligence fuelled data centres.

Canada Releases First Sustainability Disclosure Standards in Alignment with ISSB Global Framework

The Canadian Sustainability Standards Board (CSSB) has released its first Canadian Sustainability Disclosure Standards (CSDS), which align closely with IFRS Sustainability Disclosure Standards whilst also addressing considerations specific to Canada.

Broadly, and similar to IFRS Sustainability Disclosure Standards:

CSDS 1 establishes general requirements for the disclosure of material sustainability-related financial information; and
CSDS 2 focuses on disclosures of material information on critical climate-related risks and opportunities.

The CSSB has also introduced the Criteria for Modification Framework which outlines the criteria under which the IFRS Sustainability Disclosure Standards developed by the ISSB may be modified for Canadian entities.

CSSB Interim Chair, Bruce Marchand has stated that the introduction of these standards "signifies our commitment to advancing sustainability reporting that aligns with international baseline standards – while reflecting the Canadian context. These standards set the stage for high-quality and consistent sustainability disclosures, essential for informed decision-making and public trust".

Other features of the CSDS include:

Transition relief through extended timelines for adoption;
Its voluntary adoption by entities, unless mandated by governments or regulators in the future; and
Its role in being the first part of a multi-year strategic plan by the CSSB which includes building partnerships with First Nations, Métis and Inuit Peoples to ensure Indigenous perspectives are integrated into sustainability-related standards.

The authors would like to thank lawyer Harrison Langsford and graduates Daniel Nastasi and Katie Richards for their contributions to this alert.

The Rules That Apply to Foreign Persons Purchasing Established Homes in Australia are Going to Change on 1 April 2025...So, You May Need to Act Now

Wed, 19 Feb 2025 00:00:00 -0000
The Hon. Jim Chalmers MP, Federal Treasurer and the Hon. Clare O'Neil MP, Minister for Housing, Minister for Homelessness issued a joint media release on 16 February 2025 titled "Albanese Government clamping down on foreign purchase of established homes and land banking".

The media release foreshadows changes to the rules that apply when a foreign person buys an established dwelling or undertakes a land development.

Parts of the media release are extracted below:

The Albanese Government will ban foreign investors from buying established homes for at least two years and crack down on foreign land banking.
……..
This is all about easing pressure on our housing market at the same time as we build more homes.
………
We’re banning foreign purchases of established dwellings from 1 April 2025, until 31 March 2027. A review will be undertaken to determine whether it should be extended beyond this point.
The ban will mean Australians will be able to buy homes that would have otherwise been bought by foreign investors.
Until now, foreign investors have generally been barred from buying existing property except in limited circumstances, such as when they come to live here for work or study.
From 1 April 2025, foreign investors (including temporary residents and foreign owned companies) will no longer be able to purchase an established dwelling in Australia while the ban is in place unless an exception applies.
………
We will also bolster the Australian Taxation Office’s (ATO) foreign investment compliance team to enforce the ban and enhance screening of foreign investment proposals relating to residential property by providing $5.7 million over 4 years from 2025–26.
This will ensure that the ban and exemptions are complied with, and tough enforcement action is taken for any non‑compliance.
………
We’re cracking down on land banking by foreign investors to free up land to build more homes more quickly.
Foreign investors are subject to development conditions when they acquire vacant land in Australia to ensure that it is put to productive use within reasonable timeframes.
………

Here are some initial observations:
- The consequences of contravening Australia's foreign investment laws are serious. The media release raises a number of questions, and the full implications will naturally depend upon the precise wording of the changes.
- The media release notes "The ATO and Treasury will publish updated policy guidance prior to the commencement of the changes" (i.e. before 1 April 2025).
- The existing rules already tightly limit the classes of foreign buyer who can acquire established homes. Currently this is essentially limited to:
  
  A temporary resident (or their spouse) who is going to use the dwelling as their place of residence while in Australia and who applies for and obtains approval;
  
  A buyer who is planning to redevelop the dwelling where the redevelopment will genuinely increase Australia's housing stock and who applies for and obtains approval; and
  
  Foreign controlled companies who are planning to purchase an established dwelling to house an Australian based employee and who apply for and obtain approval.
- It seems clear the Government is also removing the ability for foreign companies to buy established dwellings to house their Australian based staff. While the Government may allow exceptions as it has flagged in the media release, this detail is yet to be seen.
- We query whether there are other alternatives to an outright ban, such as only a ban on housing below a prescribed price threshold (area by area).
- It is unclear from the media release if the Government is going to change the rules applicable to holders of an Australian permanent resident visa. But we suspect changes are not proposed for holders of an Australian permanent resident visa.
- The message from the media release is that where a foreign person has already acquired or intends to acquire vacant land or an established dwelling for redevelopment, the foreign person should assume there is going to be:
  
  More active monitoring of compliance with conditions (eg vacant residential land approvals require construction of all dwellings to be completed within four years of the date of the notice of approval); and
  
  More rapid application of existing enforcement options.
- If you currently have a Foreign Investment Review Board (FIRB) approval, make sure you are in complying with the conditions and seek advice if you are not.
- We query whether the Government intends to revisit the rules when a foreign person rents a residential dwelling or whether the foreshadowed changes will just apply to purchases.
- If a foreign person is unable to acquire an established dwelling, then that person will need to either acquire a new dwelling or access the rental market. The changes may increase still further the demand for dwellings to rent.
- If a foreign person is planning on acquiring an established dwelling, take advice and seriously consider doing so before 1 April 2025.
Foreign Investor Surcharges

All six Australian States impose transfer duty surcharges on acquisitions of residential related property acquired by a foreign person (including a foreign company or trust). Typically, the surcharge duty rate is 7% or 8% and applies in addition transfer duty at general rates.

Further, some States and the Australian Capital Territory also impose surcharge land tax on foreign persons that own residential related property.
If foreign buyers are prohibited from acquiring existing homes, this may have some impact on the level of surcharge duty and surcharge land tax revenue that will be collected at a State and Territory level.

Caution on Australian Citizens Buying for Foreign Persons

There are some circumstances in which family members (say, as a spouse or adult child) who are Australian citizens or permanent residents may want to acquire and hold property for family members who are foreign. The intention may be to avoid existing FIRB restrictions as well as the above- mentioned foreign investor surcharges.

Such arrangements are high risk and caution should be exercised.

Typically, such arrangements will create a trust relationship between the "apparent purchaser" (i.e. the Australian citizen) and the "real purchaser" (i.e. the foreign person who provides the money for the purchase).

Most Australian States and Territories now require a purchaser of land to provide a declaration which sets out:
- Whether the purchaser is acquiring the land for their own purposes (or on trust for another person); and
- If the purchaser is acquiring as trustee for another person, whether the beneficiaries of the trust are foreign.
Further, the duties and land tax legislation in most jurisdictions will apply to such arrangements. For example, section 104T in the Duties Act 1997 (NSW) expressly captures "apparent purchaser arrangements" such as those described above for surcharge purchaser duty purposes.

We note that a written agreement is not required to create a treat relationship. A verbal agreement can suffice.

A purchaser who provides a false declaration and does not disclose they are acquiring and holding a property on trust for a foreign person may commit an offence.

There are also risks for the foreign person on whose behalf the property has been purchased. If there is a break down in the relationship between the parties, it may be difficult for the foreign person to demonstrate that they are the real owner of the property (and the party entitled to the benefit of any rents or sale proceeds).

All tax and legal risks should be fully considered if any such arrangements are contemplated.

How can we Help?

We will continue to monitor changes to the rules that apply to acquisitions of established dwellings by foreign persons in Australia and will provide a further update when the new policy is released.

K&L Gates advises on all aspects of Australia's foreign investment laws and the required approvals.
Combatting Scams in Australia and the United Kingdom

Wed, 19 Feb 2025 00:00:00 -0000
In response to the growing threat of financial scams, the Australian Government has passed the Scams Prevention Framework Bill 2025. The Scams Prevention Framework (SPF) imposes a range of obligations on entities operating within the banking and telecommunications industries as well as digital platform service providers offering social media, paid search engine advertising or direct messaging services (Regulated Entities). In the first article of our scam series, Australia's Proposed Scams Prevention Framework, we provided an overview of the SPF. In this article, we compare the SPF to the reimbursement rules adopted by the United Kingdom and consider the likely implications of each approach.

UK Model

The United Kingdom is a global leader in the introduction of customer protections against authorised push payment (APP) fraud. A customer-authorised transfer of funds may fall within the definition of an APP scam where:
1. The customer intended to transfer the funds to a person, but was instead deceived into transferring the funds to a different person; or
2. The customer transferred funds to another person for what they believed were legitimate purposes, but which were in fact fraudulent.
Reimbursement Requirement

A mandatory reimbursement framework was introduced on 7 October 2024 (the Reimbursement Framework) and applies to the United Kingdom’s payment service providers (PSPs). Under the Reimbursement Framework, PSPs are required to reimburse a customer who has fallen victim to an APP scam. The cost of reimbursement will be shared equally between the customer’s financial provider and the financial provider used by the perpetrator of the scam. However, PSPs will not be liable to reimburse a victim who has been grossly negligent by failing to meet the standard of care that PSPs can expect of their consumers (Consumer Standard of Caution) (discussed below), or who is involved in the fraud. Where the customer is classed as ‘vulnerable’, failure to meet the Consumer Standard of Caution will not exempt the PSP from liability.

Consumer Standard of Caution

The Consumer Standard of Caution exception consists of four key pillars:
1. Intervention - Consumers should have regard to interventions made by their PSP or a competent national authority such as law enforcement. However, a nonspecific ‘boilerplate’ warning will not be sufficient to shift the risk onto the customer.
2. Prompt reporting - Consumers, upon suspecting they have fallen victim to an APP scam, should report the matter to their PSP within 13 months of the last authorised payment.
3. Information sharing - Consumers should respond to reasonable and proportionate requests for information made by their PSP in assessing the reimbursement claim. Any requests for information must be limited to essential matters taking into account the value and complexity of the claim.
4. Involvement of police - Consumers should consent to their PSP reporting the matter to the police on their behalf. PSPs must consider the circumstances surrounding a customer’s reluctance in reporting their claim to the police before relying on this exception.
Failure to meet one or more of the above pillars will only exempt the PSP from liability where the customer has been grossly negligent. This is a higher standard of negligence than required under the common law and requires the customer to have shown a ‘significant degree of carelessness’.

Vulnerability

A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm. Personal circumstances relevant to determining whether a customer is ‘vulnerable’ include:
- Health conditions or illnesses that affect one’s ability to carry out day-to-day tasks;
- Life events such as bereavement, job losses or relationship breakdown;
- Ability to withstand financial or emotional shocks; and
- Knowledge barriers such as language and digital or financial literacy.
The Consumer Standard of Caution is not applicable to vulnerable customers. Accordingly, where the victim has been classified as a vulnerable customer, PSPs cannot avoid liability on the grounds of gross negligence for failing to meet the Consumer Standard of Caution.

Limit on Reimbursement

PSPs will not be required to reimburse amounts above the maximum level of reimbursement, which is currently £415,000 per claim.

Key Distinctions Between the SPF and the UK Model

Financial Burden of Scams

Both the UK and Australian models seek to incentivise entities to adopt policies and procedures aimed at lowering the risk of scams. By requiring PSPs to reimburse scam victims, the UK’s model shifts the economic cost of scams from customers onto PSPs. A similar purpose is achieved under the SPF, which provides for harsh financial penalties for entities that fail to develop and implement appropriate policies to protect customers against scams. However, a significant point of difference is the extent to which these financial burdens benefit victims of scams directly.

Under the UK model, a victim of an APP scam will be able to recover the full amount of their loss (up to the prescribed maximum amount) so long as:
1. They were not grossly negligent in authorising the payment;
2. They were not a party to the fraud;
3. They are not claiming reimbursement fraudulently or dishonestly;
4. The amount claimed is not the subject of a civil dispute or other civil legal action;
5. The payment was not made for an unlawful purpose; and
6. The claim is made within 13 months of the final APP scam payment.
In contrast, there is no indication that any funds paid under Australia’s SPF civil penalty provisions will be directed towards the reimbursement of victims. However, under the Scams Prevention Framework Bill 2025, where a Regulated Entity has failed to comply with its obligations under the SPF and this failure has contributed to a customer’s scam loss, the customer may be able to recover monetary damages from the Regulated Entity.

Possible Effect on Individual Vigilance

The UK’s Reimbursement Framework recognises that PSPs, as opposed to individuals, have greater resources available to combat the threat of scams. However, there is a risk that by passing the economic cost of scams onto PSPs, individuals will become less vigilant. Where an individual fails to make proper inquiries which would have revealed the true nature of the scam, they may still be eligible for reimbursement so long as they have not shown a ‘significant degree of carelessness’. With this safety net, individuals may become complacent about protecting themselves from the threat of scams.

In contrast to the UK model, individuals will continue to bear the burden of unrecoverable scam losses under Australia’s SPF unless a Regulated Entity’s breach of SPF obligations has contributed to the loss. As a result, individuals will continue to have a financial incentive to remain vigilant in protecting themselves against the threat of scams.

Scope of Framework

Australia

The SPF applies to entities across multiple industries, reflecting Australia’s ‘whole of the ecosystem’ approach to scams prevention. Upon introduction, the SPF is intended to apply to banking and telecommunications entities as well as entities providing social media, paid search engine advertising or direct messaging services. It is noted in the explanatory materials that the scope of the SPF is intended to be extended to other industries over time to respond to changes in scam trends.

The purpose of this wider approach is to target the initial point of contact between the perpetrator and victim. For example, a perpetrator may create a social media post purporting to sell fake concert tickets. Successful disruptive actions by the social media provider, such as taking down the post or freezing the perpetrator’s account, may prevent the dissemination of the fake advertisement and potentially reduce the number of individuals who would otherwise fall victim to the scam.

United Kingdom

In contrast, the UK’s Reimbursement Framework only applies to PSPs participating in the Faster Payments Scheme (FPS) that provide Relevant Accounts.

FPS

The FPS is one of eight UK payment systems designated by HM Treasury. According to the Payment Systems Regulator, almost all internet and telephone banking payments in the United Kingdom are now processed via FPS.

Relevant Account

A Relevant Account is an account that:
- Is provided to a service user;
- Is held in the United Kingdom; and
- Can send or receive payments using the FPS,
but excludes accounts provided by credit unions, municipal banks and national savings banks.

Effect of Single-Sector Approach

Due to the United Kingdom’s single-sector approach, different frameworks need to be developed to combat scam activity in other parts of the ecosystem. This disjointed approach may create enforcement issues where entities across multiple sectors fail to implement sufficient procedures to detect and prevent scam activities. Further, it places a disproportionate burden on the banking sector, failing to acknowledge the responsibility of other sectors to protect the community from the growing threat of scams.

Key Takeaways

While both the United Kingdom and Australia have demonstrated a commitment to adopting tough anti-scams policies, they have adopted very different approaches. Time will tell which approach has the largest impact on scam detection and prevention.

Look out for our next article in our scams series.

The authors would like to thank paralegal Tamsyn Sharpe for her contribution to this legal insight.
Dubai Court of Cassation Holds Clause Providing for Court Provisional Measures Not a Waiver of Arbitration Agreement

Tue, 18 Feb 2025 00:00:00 -0000

Introduction

The Dubai Court of Cassation (Court of Cassation) in Case No. 296 of 2024 vacated the decision of the Dubai Court of Appeal (Court of Appeal) in Commercial Appeal No. 2284/2023, in which the Court of Appeal issued a decision on the merits of a claim despite the existence of an arbitration agreement. Relying upon an inaccurate translation of the arbitration agreement, the Court of Appeal found that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and had therefore waived the right to arbitration. In vacating the Court of Appeal’s decision, the Court of Cassation confirmed that the Dubai courts have the authority to look to the original text of an arbitration agreement, and disregard any inaccurate translation, to ascertain the intent of the parties.

Background

The claimant filed proceedings in the Dubai Court of First Instance seeking a monetary judgment against the defendant arising out of alleged breaches of contract. The defendant did not appear before the Court of First Instance, and the Court of First instance dismissed the claim due to lack of evidence.

The claimant (appellant) filed an appeal to the Court of Appeal. The respondent to the appeal (the defendant in the lower court proceedings) argued that the claim should be dismissed on the grounds of lack of jurisdiction due to the existence of an arbitration agreement between the parties. The Court of Appeal dismissed this argument and found, based on the Arabic translation of the arbitration agreement, that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and therefore, the Dubai courts had jurisdiction over the dispute.

The defendant appealed this judgment to the Court of Cassation relying upon the existence of an arbitration agreement to argue that the Dubai courts lacked jurisdiction.

Judgment of the Court of Cassation

The Court of Cassation noted that the arbitration agreement was concluded in English and therefore, the intent of the parties had to be considered in light of the original text of the arbitration agreement and not any Arabic translation thereof. The Court of Cassation held that the original text is clear that either party may apply to any competent court for “injunctive relief” or other “provisional remedies” (but not in respect of the determination of the substantive claim). The Court of Cassation noted that these are common law terms and the closest concepts under UAE law are “provisional orders” and “provisional or precautionary measures”. The Court of Cassation confirmed that the parties’ agreement is consistent with the right of the parties, set forth in Article 18(2) of Federal Law No. 6 of 2018 (UAE Arbitration Law), to seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings. Accordingly, the Court of Cassation held that the parties’ agreement did not constitute a waiver of the agreement to resolve the substantive dispute in arbitration and therefore the Court of Appeal decision must be vacated.

Analysis

This judgment confirms that, under the UAE Arbitration Law, parties may seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings and that any express agreement to this effect does not constitute a waiver of the arbitration agreement. It also serves as a reminder to ensure that translations into Arabic for the use in onshore court proceedings are accurate.

About The Firm

Our Litigation and Dispute Resolution practice has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the United Arab Emirates and wider Middle East region.
UK Appeal Court Provides Authoritative Guidance on Construction All Risks Insurance Policies

Tue, 18 Feb 2025 00:00:00 -0000
In the UK Court of Appeal decision in Sky UK Limited and Mace Limited v. Riverstone, authoritative guidance has been provided on certain key principles that apply to Construction All Risks insurance policies.

The decision is of great importance to those involved with the insurance of construction projects because it provides helpful clarification on: (i) the meaning of “damage” under these policies, (ii) recovery of foreseeable damage occurring outside of the policy period, (iii) the recoverability of investigation costs, and (iv) the mechanics of aggregation and deductibles.

Background

From 2014 to 2016, Sky’s global headquarters (Sky Central) was constructed by Mace Limited (Mace) as the main contractor under a Design and Build Contract. For the purpose of the construction, Mace alongside Sky UK Limited (Sky) were insureds under a Construction All Risks (CAR) insurance policy, which ran from 1 February 2014 (commencement of the project) to 15 July 2017 (one-year post-completion).

Sky Central’s roof covers an area of about 16,000 square metres and is said to be the largest timber flat roof in Europe. The roof is made up of 472 individual wooden cassettes, which were installed between December 2014 and May 2015. Following installation, the cassettes were left waiting for permanent waterproofing, and it later became apparent that rainwater had entered the cassettes from an early stage. By March 2015, standing water was found inside the gutter compartments of 27 cassettes which had entered these cassettes and remained there, leading to a wetting of internal timbers. The ingress of water mostly occurred during the construction and therefore within the policy period. The appeal concerned crucial issues under the CAR policy arising from this extensive water damage.

Court of Appeal decision

The Meaning of “Damage” Within the Insuring Clause

The insuring clause in the CAR policy provided that insurers would “indemnify the Insured against physical loss or damage to Property Insured, occurring during the Period of Insurance, from any cause whatsoever…”¹ The parties disagreed on whether the wetting of the internal timbers was itself “damage”. The insurers argued that, to constitute “damage”, the timbers needed to have reached a condition where they required immediate replacement or repair. They argued that wetting that could be cured by drying out was not “damage”.

The Court disagreed and determined that, in line with criminal law authorities, “damage” amounted to “any change to the physical nature of tangible property which impair[s] its value or usefulness to its owner or operator.”² There was no reason to take a different approach—this was the natural and ordinary meaning of “damage”.

It followed that the insurers’ position—that “damage” required the cassettes to have reached a stage which impaired their structural performance and integrity—was rejected. The entry of moisture into the cassettes was a tangible physical change to the cassettes as long as the presence of water, if left unattended, would affect the structural stability, strength, functionality, or useable life of the cassettes (or would do so if left unremedied).

Recovery of Foreseeable Development and Deterioration Damage Occurring Outside the Policy Period

The Court noted that, by a well-established line of authority, a property insurance claim is a claim for unliquidated damages, which means the measure of recovery is based on the common law principles governing damages for breach of contract. The general objective of damages for breach of contract is to put the innocent party back in the position they would have been in had the breach not occurred. While it is open to the parties to the insurance contract to modify the measure of damages that the general law provides for, the exclusion of the usual remedies must be expressed in clear words. As a result, the cost of remedying the foreseeable deterioration and development damage—which occurred after the policy period but resulted from insured damage occurring during the policy period—was within the measure of recovery under the policy.

The Court also noted that this conclusion accords with business common sense. A businessperson in the shoes of the insured would “reasonably expect to be compensated for the consequences of the insured damage deteriorating or developing, absent a contract term excluding such recovery.”³ If this was not the case, there would be “serious and unacceptable adverse consequences” because it would make deterioration and development damage occurring after the policy period uninsurable under any subsequent insurance cover.⁴

Investigation Costs

Concerning the recoverability of investigation costs, the Court determined that, as a matter of principle, where insured damage has occurred for which damages are recoverable under the policy of insurance, the costs of investigating the extent and nature of the damage (including any development and deterioration damage) are recoverable if they are “reasonably incurred in order to determine how to remediate it”.⁴ Thus, the reasonable costs of investigation of what is reasonably necessary to remedy insured damage was “self-evidently” part of the “full cost of repairing or reinstating” insured damage.⁶

Aggregation and Deductibles

Lastly, the Court considered whether a deductible of £150,000 “any one event” (the Retained Liability Provision) applied once to the whole of the claim or applied separately in respect of damage to each individual cassette. At first instance, the judge had decided that one deductible of £150,000 applied to Sky’s claim because the proximate cause of the water ingress was the deficient design of the works that failed to provide for a temporary roof over the cassettes during construction. The decision not to provide this roof was therefore the “any one event” for the application of the deductible.

The insurers appealed on the basis that the judge had erred in his construction and application of the Retained Liability Provision by: (a) treating the relevant single “event” as the design decision not to use a temporary roof; and (b) in failing to identify each individual cassette as the “part” or “parts” of the property insured to which the Retained Liability Provision applied. The insurers argued that the term “event” applies to the damage suffered not the cause of the damage—meaning there were numerous “events” for the purposes of this deductible.

The Court dismissed the insurers’ appeal, noting that “any one event” is an expression used in aggregation clauses both for the purposes of deductibles and policy limits and, in this context, has a well-established meaning, which both parties were taken to have been aware of. “Event” refers to the cause of the damage, not the damage itself, and a decision (in this case not to provide a temporary roof) could amount to an “event” for these purposes. “Any one event” is a classic term for the aggregation of losses by reference to the cause of the losses.

Conclusion

The key points for policyholders to note from this decision are:
- Damage can involve any change to the physical nature of tangible property that impairs its value or usefulness. Property can be damaged even if such damage is capable of remedy.
- Recovery is not necessarily confined to damage physically present at the time the policy expires. Unless the policy provides otherwise, the costs of remedying the foreseeable deterioration and development damage are recoverable under the contractual principles that govern common law damages, even if such damage extends beyond the policy period.
- Once it is established that there is insured damage, reasonable investigation costs incurred in investigating the cause and extent of the damage should be recoverable.
- Lastly, reference to “any one event” in the context of an aggregation clause determining the number of policy deductibles meant the event causing the damage—not the damage itself.
The firm's renowned Insurance Recovery and Counseling practice group is dedicated to assisting policyholders in reviewing policy terms, managing the notification process, and maximizing recoveries on insurance claims, seeking to avoid litigation and other costly dispute resolution processes where possible.
President Trump Directs US Trade Agencies to Formulate Reciprocal Tariffs

Mon, 17 Feb 2025 00:00:00 -0000
On 13 February 2025, President Trump announced that he is directing the US Commerce Secretary and US Trade Representative to report to him by 1 April 2025 on specific tariffs the United States should impose to address bilateral trade deficits with countries that maintain higher tariffs on US exports than the level of tariffs that the United States imposes on their products. These “reciprocal” tariffs are expected to be finalized soon after the Commerce and USTR reports are finalized, but the date on which they may be implemented has yet to be announced.

Key points to remember concerning this latest tariff announcement are:
1. There will be no additional tariffs immediately as a result of this latest announcement.
2. US trade agencies (primarily Commerce and USTR) are to study tariffs imposed by other countries on US exports and recommend whether the United States should impose comparable tariffs against US imports from those countries.
3. Value-Added Tax and other tax regimes that US trading partners use but the US does not are potentially going to be included in the tariff rate calculations for those countries. Also potentially addressed will be distortions in exchange rates caused by currency policies of some countries and “non-tariff barriers” such as regulatory requirements (e.g., country-specific product standards) that are found to restrict market access opportunities for US exporters.
4. The US trade agencies must provide their recommendations to the president by 1 April 2025, the same date as originally set in the “America First Trade Policy.”
5. Thereafter, the US trade agencies are to use their respective statutory authorities (e.g., Section 232, 301, etc.) to impose relevant and necessary remedies such as tariffs, quotas, or other measures. Such remedies are likely to be in addition to the 10% tariffs on imports from China and 25% tariffs on imports of steel and aluminum that President Trump announced earlier this month. They are also likely to include new Section 232 tariffs on semiconductors, autos, and pharmaceuticals.
6. On its face, the Executive Order applies to all countries, but we may see exemptions for some (e.g., Australia) with which the United States maintains relatively balanced trade in goods.
Overall, this latest trade action signals the form that eventual additional US trade measures may take–e.g., tariffs and quotas under existing statutory authorities–as well as, most importantly, that there will be a process and longer time horizon for interested parties to comment before such measures go into effect. Companies and investors with interests impacted by these issues should use this time to prepare data and other analyses and advocacy to support their interests.
Texas Senate Bill 6 and Impacts on Large Load Development in ERCOT

Mon, 17 Feb 2025 00:00:00 -0000
On 12 February 2025, Texas Senate Bill 6 (SB6), authored by Sen. Phil King and Sen. Charles Schwertner, was filed. The low bill number on this indicates it is a priority bill and will likely have momentum. If passed, this bill will directly impact entities currently in or contemplating a co-location arrangement in the Electric Reliability Council of Texas (ERCOT) region. A co-location arrangement is where generation and load are located at the same point on the grid.

If passed, SB6 would require the Texas Public Utility Commission (PUC) to, "implement minimum rates that require all retail customers in that region [ERCOT] served behind-the-meter to pay retail transmission charges based on a percentage of the customer's non-coincident peak demand from the utility system as identified in the customer's service agreement." Many large load entities have pursued co-location arrangements to avoid transmission costs so if passed this will result in a shift. The bill would require the PUC to develop standards for interconnecting large loads in a way to “support business development” in Texas “while minimizing the potential for stranded infrastructure costs.”

Additionally, SB6, if passed, would require the PUC to establish standards for interconnecting large load customers at transmission voltage in ERCOT. SB6 would have these interconnection standards apply to facilities with a demand of 75 MW or more but allows the PUC to determine a lower threshold if necessary. As part of these interconnection standards, the large load customer must disclose to the utility whether the customer is pursuing a duplicate request for electric service in another location (both within and outside of Texas), the approval of that duplicative request would cause the customer to change or withdraw their interconnection request. This likely would result in the utility having a better sense of which large load will move forward in the interconnection queue versus those that are duplicative. The large load customer would also be required to disclose information about its on-site backup generating facilities. The bill would allow ERCOT, after reasonable notice, to deploy the customer’s on-site backup generating facility. As part of the PUC standards for interconnection, the large load customer would have to provide proof of financial commitment which may include security on a dollar per MW basis, as set by the PUC.

SB6 also requires a co-located power generation company, municipally owned utility, or electric cooperative, to submit a notice to the PUC and ERCOT before implementing a new net metering arrangement between a registered generation resource and an unaffiliated retail customer if the retail customer’s demand exceeds 10% of the unit’s nameplate capacity and the facility owner has not proposed to construct an equal amount of replacement capacity in the same general area. Additionally, SB6 would require a new net metering arrangement be consented to by the electric cooperative, electric utility, or municipally owned utility certified to provide retail electric service at the location. The PUCT would have 180 days to approve, deny, or impose reasonable conditions on the proposed net metering arrangement, as necessary to maintain system reliability. Such conditions may include:
- That behind-the-meter load ramp down during certain events;
- That generation reenter energy markets in the ERCOT power region during certain events; and
- That the generation resource will be held liable for stranded or underutilized transmission assets resulting from the behind-the-meter operation.
If the PUC does not act within the 180-day period, the arrangement would be deemed approved.

SB6 would also require large load that is interconnected after 31 December 2025 to install equipment that allows the load to be remotely disconnected during firm load shed. Finally, SB6 would require the PUC to study whether 4 Coincident Peak transmission cost allocation is appropriate.
Fashion Law Update–February 2025

Mon, 17 Feb 2025 00:00:00 -0000

In this edition of Fashion Law, we have compiled thought leadership published on our blogs and website throughout 2024—providing an overview of significant legal and regulatory updates in the fashion industry over the past year.

From Chanel's legal victory win against a reseller selling counterfeit goods to controls against anti-money laundering in Australia, we touch on relevant fashion topics all over the world. We also mention notable recognitions and events that our lawyers were a part of in the past year.

The updates featured in the publication reflect the evolving legal landscape in the fashion industry, emphasizing the need for brands to stay informed and compliant with new regulations and legal precedents.

Click here to read this edition of Fashion Law.

Global Employer Guide

Wed, 12 Feb 2025 00:00:00 -0000

This publication is issued by K&L Gates in conjunction with K&L Gates Straits Law LLC, a Singapore law firm with full Singapore law and representation capacity, and to whom any Singapore law queries should be addressed. K&L Gates Straits Law is the Singapore office of K&L Gates, a fully integrated global law firm with lawyers located on five continents.

We are pleased to make available the 10th anniversary of the Global Employer Guide. Created to complement our Global Employer Solutions^® service, the guide provides a concise, yet comprehensive, summary of the most notable employment laws across the globe.

In the past decade, we have witnessed incredible swings between stability and disruption, global mobility and lockdowns, and standard work models and a gig economy. Heightened awareness surrounding issues such as diversity, equity, and inclusion; work-life balance; employee mental health; and, more recently, the impact of artificial intelligence on the workplace has changed the complexion of employment policies and regulations around the world.

GLOBAL EMPLOYER GUIDE 2025

Click on the images below to view and download your country of interest.


GLOBAL	AUSTRALIA	BELGIUM	BRAZIL


CHINA	FRANCE	GERMANY	HONG KONG


ITALY	JAPAN	KOREA	NEW ZEALAND


QATAR	SINGAPORE	TAIWAN	UNITED ARAB EMIRATES


UNITED KINGDOM	UNITED STATES

Lessons From 2024 Anti-Money Laundering Enforcement Actions

Wed, 12 Feb 2025 00:00:00 -0000
In 2024, FinCEN and the federal bank regulators announced more than three dozen enforcement actions against banks and individuals arising from alleged Bank Secrecy Act (BSA), anti-money laundering (AML), and countering the financing of terrorism (CFT) compliance failures. One of these enforcement actions resulted in record-breaking civil and criminal monetary penalties.

In this article, we summarize certain key compliance failures and issues indicated by these enforcement actions against banks. Rather than focusing on any specific institutions, we focus on broader industry issues. The aim of this article is to provide guidance to BSA officers and the boards of directors and senior management of banks as they consider ways in which their institution’s BSA/AML compliance program might need improvement.¹

The Five Pillars

BSA/AML enforcement actions typically cite failures with respect to one or more of the five “pillars” of an effective BSA/AML program: (1) a system of internal controls to assure ongoing compliance; (2) independent testing for compliance; (3) designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance; (4) training for appropriate personnel; and (5) appropriate risk-based procedures for conducting ongoing customer due diligence (CDD), including, but not limited to, (a) understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (b) conducting ongoing monitoring to identity and report suspicious transactions and, on a risk basis, maintaining and updating customer information, including customer beneficial owner information. A significant portion of the 2024 enforcement actions cited deficiencies in all of the first four of these pillars, and in many other cases, the bank was required to adopt an improved CDD program.

These are the pillars of an effective BSA/AML compliance program because a failure in any of them is likely to cause a failure in an institution’s overall BSA/AML compliance obligations. The whole foundation can collapse when any pillar is weak. Perhaps most important is the failure to file suspicious activity reports (SARs) when required, which in the end is the primary reason for many of the BSA’s regulatory requirements.

The following discussion of compliance issues does not track the five pillars in the same order as listed in the applicable regulation, because we believe that results in a more logical flow. For example, a discussion of suspicious activity monitoring systems logically follows after discussing institutional risk assessments and customer due diligence because the activity monitoring systems should take these other requirements into account.

Internal Controls

When an examiner cites an institution for weak internal controls, that generally reflects a determination that the institution has weak policies, procedures, or processes to mitigate and manage money laundering and terrorist financing risks. This can mean anything from a poor reporting structure, unclear assignments of compliance responsibilities, poor risk assessments, failures to update policies and processes in response to regulatory changes or changes in the institution’s risk profile, weak suspicious activity monitoring systems, or weak risk rating of customers, among other issues. A bank’s system of internal controls, including the level and type, should be commensurate with the bank’s size, complexity, and organizational structure. When an institution is experiencing BSA/AML compliance weaknesses, that often reflects weak internal controls. In the summaries below, we note which of the deficiencies reflect an internal control weakness.

Board and Management Oversight

The Examination Manual states that the board of directors of each bank is responsible for approving the institution’s BSA/AML compliance program and overseeing the structure and management of the institution’s BSA/AML compliance function. The boards of about half of the banks subject to enforcement actions in 2024 were directed to enhance their oversight of their bank’s BSA/AML compliance program. The board also is responsible for setting an appropriate “culture of compliance” with respect to BSA/AML matters, and when an institution is subject to a particularly serious enforcement action, the directors and senior managers may be fined individually.

Oversight by the board requires that the board receive regular reports from compliance staff on the institution’s BSA/AML program, which reports are part of the institution’s internal controls. This would include, among other things, reports from the BSA officer as to SAR filings, reports on any negative findings in compliance audits, reports on remediation steps to address negative audit results, reports on any changes to the institution’s risk assessments, and reports on any deficiencies in the resources that are allocated to the compliance function.

BSA Officer Deficiencies

The BSA officer is central to the effective function of a BSA/AML compliance program. A few of the enforcement actions in 2024 noted that the bank had designated an ineffective BSA officer or one with no prior banking or BSA officer experience.

Other enforcement actions raised these concerns:
- BSA/AML staffing that is not proportionate to the bank’s size, risk profile, and ongoing compliance concerns.
- BSA officer without appropriate authority or independence. For example, one institution was criticized for having a BSA officer who did not have unilateral authority to file SARs, such as where a senior manager or a committee consisting of business managers made the ultimate decisions. This authority and independence is important to a sound compliance system, in part to avoid any conflicts of interest.
- AML monitoring and compliance staff reporting through business line management rather than directly to the BSA officer, thereby weakening the BSA officer’s authority and independence.
It also is important that all AML compliance staff, even if not designated as an “AML officer,” have appropriate experience in BSA and AML matters.

Training

Banks must provide BSA/AML training to appropriate personnel, including all persons whose duties require knowledge or involve some aspect of BSA/AML compliance. This training should be tailored to the specific functions and positions of each individual within the institution. For example, the board of directors and certain staff may receive more general training than that provided to compliance staff and those individuals processing transactions or new accounts. Training generally should address higher-risk customers and activities, depending on the role of the individual to receive such training. In addition, targeted training may be necessary for specific money laundering, CFT, and other illicit financial activity risks for certain business lines or operational units.

Many of the banks entering into consent orders in 2024 were required to develop and implement a new training program. Banks were cited in 2024 for failure to tailor training for frontline retail branch personnel, to train staff on the “AML typologies and risks” associated with the bank’s products and services, and to train on the specialized red flags for specific business lines or higher-risk activities. At least one bank was criticized for inadequate training on the completion and filing of currency transaction reports (CTRs), resulting in the filing of incomplete or inaccurate CTRs. A robust training program for all aspects of BSA/AML compliance is clearly required for every bank.

Inadequate Compliance Resources

A common finding when an institution is subject to an enforcement action is that the institution did not dedicate sufficient financial and personnel resources to BSA/AML compliance. Multiple institutions were cited in 2024 for this failure, and in at least one case for the failure to invest in improvements to address compliance gaps when those investments were deemed to be too costly. At least one institution was accused of maintaining a compensation system that appeared to provide a disincentive for the BSA officer to incur costs to ensure compliance.

AML staffing also should be proportionate to the bank’s size, risk profile, and any ongoing compliance concerns. When these factors change, an increase in staffing and other resources is often called for.

Inadequate staffing and resources can result in failures in numerous areas of BSA/AML compliance. These failures can include having significant backlogs in addressing suspicious activity alerts, an inability to adequately investigate alerts, and backlogs of customers for whom their relationship with the bank should be severed.

Initial and Ongoing Risk Assessments

Banks’ BSA/AML compliance programs should be risk-based. A well-developed BSA/AML risk assessment assists the bank in identifying its money laundering, CFT, and other illicit financial activity risks and then developing and maintaining appropriate internal controls to address the identified risks. A risk assessment generally involves the identification of specific risk categories (e.g., products, services, customers, and geographic locations) unique to the bank and the bank’s analysis of such risks.

A bank should update its risk assessment from time to time, particularly when there are changes in the bank’s products, services, customers, or geographic locations, when the bank expands through mergers or acquisitions, and in response to regulatory changes, alerts, or negative compliance findings.

Many of the recent enforcement actions directed the bank to develop, implement, and adhere to a revised and ongoing BSA risk assessment methodology. Those risk assessments were to address the risks outlined above and include an analysis of the volumes and types of transactions and service by geographic location and the numbers of customers that typically pose higher or elevated BSA risk for the institution.

All risk assessments then should be used by the institution to develop and implement appropriate risk-mitigating strategies and internal controls. The results of each risk assessment should be reported to the board and appropriate senior management, and they then should require progress reports from the BSA officer with respect to any steps needed to reduce risks to appropriate levels.

Customer Due Diligence, Risk Assessments, and Monitoring

The Examination Manual notes that “[t]he cornerstone of a strong BSA/AML compliance program is the adoption and implementation of risk-based CDD policies, procedures, and processes for all customers….” Conducting ongoing CDD is the fifth pillar of an effective BSA/AML compliance program. Its objective is to enable a bank to understand the nature and purpose of customer relationships, including understanding the types of transactions in which a customer is likely to engage. These processes assist the institution in determining when transactions are suspicious and when a SAR might need to be filed.

CDD should enable the bank to assign risk ratings to each customer, and those risk ratings then should be taken into account when establishing customer transaction monitoring systems, with higher risk customers being subject to more stringent transaction monitoring. Customer risk ratings also should be taken into account in the institution’s overall BSA/AML compliance risk assessments.

If a bank determines through ongoing CDD and transaction monitoring that its information on a particular customer has materially changed, that customer information and risk rating should be updated accordingly. In the event a bank discovers that it failed to identify a customer as being a higher risk customer, the bank should revise its risk rating of the customer and consider conducting a transaction review to determine if suspicious activities were not identified.

A large majority of the banks subject to enforcement actions in 2024 were required to develop and implement a new CDD program. The actions often stated that the CDD program must ensure appropriate collection and analysis of customer information when opening new accounts, when renewing or modifying existing accounts, and when the bank obtains “event-driven information” indicating that it should obtain updated information to better understand the nature and purpose of its customer relationships and generate and maintain an accurate customer risk profile.

Suspicious Activity Monitoring Systems and Processes

Having an effective suspicious activity monitoring system and reporting system is a critical internal control and essential to ensuring that a bank has an adequate and effective BSA/AML compliance program. Without such, an institution is more likely to miss suspicious activities and file appropriate SARs.

Per the Examination Manual, the sophistication of a monitoring system should be dictated by the bank’s risk profile, with particular emphasis on the composition of higher-risk products, services, customers, entities, and geographies. It likely would be inappropriate, however, to use a monitoring system that wholly disregards domestic and supposedly lower-risk transactions, and at least one institution was criticized for that in 2024.

The five key components to an effective monitoring and reporting system are:
- Identification or alert of unusual activity, which may include employee identification, law enforcement inquiries, other referrals, and transaction and surveillance monitoring system output.
- Managing alerts.
- SAR decision making.
- SAR completion and filing.
- Monitoring and SAR filing on continuing suspicious activity.
A transaction monitoring system may have manual elements. These systems may target specific types of transactions, such as large cash transactions or transactions from foreign geographies, with a manual review of reports generated by the bank’s systems. The type and frequency of reviews and resulting reports used should be commensurate with the bank’s BSA/AML risk profile and appropriately cover its higher-risk products, services, customers, entities, geographic locations, and methods of delivering its products and services.

Automated monitoring systems also are appropriate for most or all banks. These systems, sometimes called “surveillance monitoring systems,” include rule-based systems that apply transaction parameters, scenarios, and filters. In all cases, however, those parameters, scenarios, and filters should be tailored to the bank’s risks, and they should be tested periodically to ensure that they are effective.

We therefore have seen enforcement actions criticizing banks for relying on “off-the-shelf” scenarios provided by its vendor without consideration as to whether those scenarios needed to be tailored to the bank’s business. Some enforcement actions also criticized the bank for failure to conduct appropriate testing and gap assessments of their transaction monitoring system.

Finally, we should note that at least one institution was criticized for appearing to have designed at least portions of its monitoring system to focus more on operational burdens and risks rather than BSA/AML compliance.

Failures to File SARs; Potential Consequences

Not surprisingly, those institutions that were cited for having weak CDD or transaction monitoring programs also were often cited for failures to identify suspicious transactions and file SARs as warranted. At least 16 banks were ordered in 2024 to conduct reviews of prior transactions to determine if any SAR filing might have been missed, sometimes referred to as a “look back” review.

When a look back is required, the institution generally must hire an independent consultant to conduct a review and provide a written report on the bank’s suspicious activity monitoring, investigation, decisioning and reporting, identifying any instances in which the bank failed to file a SAR. The regulator then uses this information to decide what fines it will impose and whether to increase any prior fines. If the results of the look back are very negative, the regulator might also order an expanded look back, going further back in time.

Independent Testing

Banks are required to conduct independent testing or audits (the Examination Manual uses these terms interchangeably) of the bank’s BSA/AML compliance program. The testing can be conducted by the bank’s internal audit department or by qualified third parties, but the auditor never should be involved in business operations or BSA-related functions due to the potential for conflicts of interest or lack of independence. The results of all independent testing should be reported directly to the board of directors or a designated committee thereof that is composed primarily or completely of outside directors.

The Examination Manual directs examiners to obtain and review the independent testing reports, including any scope and workpapers. If the examiner finds that the testing was adequate given the bank’s risk profile, that can comfort the examiner and might lead to a softer-touch examination. If the examiner concludes that the testing was deficient, the bank can expect a rigorous examination.

Several of the banks subject to enforcement actions in 2024 were found by the examiner to have deficient independent testing. In one instance, the examiner concluded that the testing was insufficient in scope given the institution’s risk profile and that it only determined whether controls existed and not if they were in fact being used. In certain other instances when the enforcement action did not specifically criticize prior testing, the bank still was required to perform new independent testing and provide the results to the examiner.

Many other banks were directed to establish a new independent audit program that would address and determine, among other things, the bank’s money laundering, terrorist financing, and other illicit financial activity risks; whether the bank’s policies, procedures, and processes for BSA/AML compliance were appropriate for the bank’s risk profile; whether the bank actually adhered to such policies, procedures, and processes; and whether management took appropriate and timely action to address any deficiencies.

Next Steps

In light of these enforcement actions, there are a number of steps that a bank might want to consider and questions that it might want to ask of itself.

Risk Assessments

Is the assessment of your institution’s money laundering, CFT, and sanctions risks appropriately tailored to your products, services, customers, geographic locations, and your methods of delivering your products and services? Have any of these factors changed since your last risk assessment such that a new risk assessment is advisable? Some institutions might decide that it is appropriate to engage a third party to conduct a new risk assessment, both to obtain an independent view of your risk assessment and so as not to over-burden internal resources who need to focus on day-to-day compliance matters.

Customer Due Diligence

Is your customer due diligence thorough and ongoing? Are customers appropriately risk rated, and is that risk rating adjusted when new information about the customer is obtained? Is customer information and their risk rating incorporated into your transaction monitoring systems? If you rely on a fintech partner or other third party for customer due diligence, you might want to confirm that they are obtaining and updating customer information as needed to ensure BSA/AML compliance.

Transaction Monitoring

Are your transaction monitoring thresholds, filters, and scenarios appropriately tailored to your products, services, customers, geographic locations, and your methods of delivering your products and services? If you are relying on third-party monitoring systems, have you reviewed their thresholds, filters, and scenarios and confirmed that they are appropriate for your institution? Have these thresholds, filters, and scenarios been tested recently?

Independent Testing

Unless your institution recently performed or had performed thorough independent testing, you might want to consider new testing. As with your risk assessments, it might be best to engage a third party to conduct this testing, both to obtain an independent opinion of your organization and so as not to overburden your internal resources who need to focus on day-to-day compliance matters.

Resources

Has your BSA officer or any independent testing provider suggested that additional resources are needed, and have these suggestions been heeded?

Voluntary SAR Look Back

If the results of independent testing or testing of your transaction monitoring system suggests that the institution might have failed to identify suspicious transactions or file SARs, you might want to consider voluntarily conducting a SAR look back. In this way, you might be able to reduce the negative impacts of your next BSA/AML compliance program.

BSA/AML compliance is not inexpensive, but enforcement actions can cost far more. In addition to needing to spend time and money to address the issues raised in the action, and potentially paying fines, banks with serious BSA/AML compliance deficiencies may be blocked for a period of time from offering new products or services, opening new branches, or engaging in acquisitions. A bank that is subject to a consent order or a formal written agreement with its regulator also generally is not an “eligible bank” for purposes of corporate applications, meaning that expedited treatment of those applications is unavailable. For all of these reasons, we recommend that banks take heed to the lessons that can be gleaned from 2024’s round of enforcement actions so as to avoid being a target in 2025 or beyond.
President Trump Orders FCPA Freeze; DOJ Announces Major Policy Realignment De-Emphasizing Corporate Investigations and Enforcement

Wed, 12 Feb 2025 00:00:00 -0000
The much-heralded end to prosecutions brought pursuant to the Foreign Corrupt Practices Act (FCPA)¹never materialized during the first Donald Trump administration, but Trump 2.0 has the potential to bring major change to the US Department of Justice’s (DOJ) approach to FCPA enforcement.

On 10 February 2025, President Trump issued an executive order²freezing the initiation of all new FCPA investigations and enforcement actions for 180 days. The executive order also instructs newly confirmed Attorney General (AG) Pam Bondi to promulgate guidelines on FCPA enforcement and conduct a comprehensive review of existing and historical FCPA investigations and resolutions.

President Trump’s directive comes on the heels of more than a dozen policy memoranda³issued by AG Bondi on 5 February 2025, that will fundamentally realign DOJ’s operations and enforcement priorities during the second Trump administration. Two key DOJ directives—the memorandum on “Total Elimination of Cartels and Transnational Criminal Organizations” (TCO Memo) and DOJ’s new “General Policy Regarding Charging, Plea Negotiations, and Sentencing” (General Policy Memo)—when taken in concert with the new executive order, have the potential to bring about a seismic shift in DOJ’s approach to corporate investigations and enforcement.

What will the new FCPA guidelines look like? How will DOJ implement the FCPA guidelines and its other recent policy announcements? How will DOJ integrate them into forthcoming changes to the DOJ’s Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy? The answers to these questions will largely define the corporate enforcement landscape for the second Trump administration and perhaps beyond.

Freezing FCPA Enforcement

The 10 February 2025, executive order, entitled “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security,” rests on two fundamental claims: (1) “Current FCPA enforcement impedes the United States’ foreign policy objectives and therefore implicates the President’s Article II authority over foreign affairs;” and (2) “[O]verexpansive and unpredictable FCPA enforcement against American citizens and businesses…actively harms American economic competitiveness and, therefore, national security.” According to the fact sheet accompanying the executive order, aggressive FCPA enforcement has imposed “a growing cost on our Nation’s economy” and harmed the ability of US companies to obtain “[s]trategic advantages in critical minerals, deep-water ports, and other key infrastructure or assets around the world [that] are critical to American national security.” Given the weighty constitutional, economic, and national security implications at stake, the executive order directs DOJ to:
- Immediately cease initiation of any new FCPA investigations or enforcement actions for the next 180 days, unless the Attorney General determines that an individual exception should be made;
- Review in detail all existing FCPA investigations or enforcement actions and take appropriate action with respect to such matters to restore proper bounds on FCPA enforcement and preserve presidential foreign policy prerogatives; and
- Within 180 days, adopt a “Policy of Enforcement Discretion” by issuing updated guidelines or policies, as appropriate, to adequately promote the president’s Article II authority to conduct foreign affairs and prioritize American interests, American economic competitiveness with respect to other nations, and the efficient use of federal law enforcement resources.
The executive order then prescribes that FCPA investigations and enforcement actions initiated or continued after issuance of the revised guidelines or policies “must be specifically authorized by the Attorney General.” The Attorney General also must comprehensively review DOJ’s FCPA enforcement actions from a historical perspective in order to “determine whether additional actions, including remedial measures with respect to inappropriate past FCPA investigations and enforcement actions, are warranted and shall take any such appropriate actions or, if Presidential action is required, recommend such actions to the President.”

Shifting Enforcement Priorities From Corporates to Cartels

A few days before issuance of the executive order on the FCPA, DOJ issued the TCO Memo and General Policy Memo, which aim to implement President Trump’s goal of attacking the operation of cartels and transnational criminal organizations (TCOs) in the United States and abroad by shifting DOJ’s priorities away from corporate enforcement to four new areas of focus: (1) illegal immigration; (2) transnational organized crime, cartels, and gangs; (3) human trafficking and smuggling; and (4) protecting law enforcement personnel.

Narrowing and Shifting FCPA Enforcement

The TCO Memo also orders a major redirection of resources and focus at DOJ’s FCPA Unit, perhaps the preeminent weapon in DOJ’s corporate enforcement arsenal.

The TCO Memo directs FCPA Unit prosecutors to “prioritize investigations related to foreign bribery that facilitates the criminal operations of Cartels and TCOs, and shift focus away from investigations and cases that do not involve such a connection.” For example, the TCO Memo describes hypothetical cases in which bribery of foreign officials occurs to facilitate human smuggling or narcotrafficking. Historically, such cases represent a tiny minority of DOJ’s overall anti-corruption enforcement activity. In instances where the underlying investigations and prosecutions are related to cartels and TCOs, the TCO Memo suspends the requirement that FCPA investigations and prosecutions, as well as those under the newly enacted Foreign Extortion Prevention Act (FEPA),⁴be led by Fraud Section prosecutors.

Deprioritizing Antikleptocracy

The operational and policy shifts at another key DOJ corporate enforcement component, the Criminal Division’s Money Laundering and Asset Recovery Section, are even more drastic. The TCO Memo shutters various high-profile antikleptocracy initiatives, including the Kleptocracy Asset Recovery Initiative⁵and Task Force KleptoCapture,⁶DOJ’s marquee unit tasked with enforcing sanctions on Russian oligarchs in response to the 2022 Ukraine invasion. Federal prosecutors assigned to those initiatives are instructed to return to their prior posts, and resources formerly devoted to those initiatives will be redirected to the “total elimination of Cartels and TCOs.”

Expanding Corporate Enforcement Authority for US Attorney’s Offices Nationwide

The TCO Memo also authorizes US attorney’s offices nationwide to independently initiate FCPA/FEPA investigations and prosecutions in matters related to cartels and TCOs as part of an effort to remove “bureaucratic impediments” to implementation of DOJ’s new policy objectives. Other bureaucratic impediments removed by AG Bondi include the elimination of the preindictment review requirement for capital-eligible offenses for cases where the defendants are alleged to be members or associates of cartels or TCOs.⁷Similarly, approval requirements from DOJ’s National Security Division (NSD) for terrorism and International Emergency Economic Powers Act (IEEPA) charges,⁸search warrants, and material witness warrants are also suspended when the matter involves members or associates of any cartel or TCO designated as a foreign terrorist organization. Approval requirements for the filing of racketeering charges⁹are likewise suspended for matters involving cartels and TCOs.

Analysis

The executive order and the Bondi policy memoranda are high-level directives that prescribe an unmistakable shift in DOJ’s programmatic focus away from anti-corruption and antikleptocracy enforcement—at least for now. If taken at face value, the actions mandated by the executive order are comprehensive: DOJ must not only promulgate new enforcement guidelines but must also systematically review all historical FCPA resolutions and determine whether any “remedial measures with respect to inappropriate past FCPA investigations and enforcement actions” are warranted.

How Will the Forthcoming DOJ Guidelines Define the “Proper Bounds” on FCPA Enforcement?

The executive order is predicated on the dual imperatives to “preserve Presidential foreign policy prerogatives” and return US companies to a globally competitive footing. Accordingly, the forthcoming guidelines will undoubtedly contain a requirement to consider and analyze the potential foreign policy implications of a proposed FCPA enforcement action—a constitutional “deconfliction” provision of sorts. Where the Bondi DOJ views a prior FCPA action brought forth by the prior administration’s DOJ to have significant geopolitical sensitivities, don’t be surprised if these matters are restructured or even dismissed under this executive order. The guidelines can also be expected to incorporate DOJ’s new enforcement priorities related to elimination of TCOs and cartels. Federal prosecutors will also likely be directed to consider any potentially adverse consequences to US national security like access to critical rare-earth minerals, deep-water ports, and the other key strategic and infrastructural considerations similar to those enumerated in the fact sheet.

The “Pipeline Effect”

Federal corporate investigations typically take many years from initiation to resolution, a timeline that can be significantly dilated by DOJ’s use of mutual legal assistance requests to its international partner agencies. Per the executive order, the dozens of FCPA investigations currently in the “pipeline” will be re-evaluated and are all potentially subject to discontinuation and declination. It is unclear what proportion of ongoing FCPA investigations and enforcement actions will be deemed incompatible with the forthcoming guidelines and discontinued after expiration of the 180-day freeze.

Whither the SEC?

Conspicuously absent from the executive order is any directive to the US Securities and Exchange Commission (SEC) related to its civil enforcement jurisdiction over the FCPA for issuers.¹⁰The fact sheet accompanying the executive order mentions the SEC only once when citing statistics for investigations and enforcement actions initiated in 2024. As of this writing, it is unclear whether the SEC will receive an analogous directive to fundamentally re-evaluate its application of the statute and remediate any “inappropriate” FCPA resolutions from years past.

Who Will Exercise Enforcement Authority?

The executive order specifies that the Attorney General must authorize all FCPA investigations that are initiated or continued following promulgation of the new guidelines. This directive is seemingly at odds with the TCO Memo’s grant of authority to each of DOJ’s 94 US attorney’s offices to independently investigate and charge FCPA/FEPA cases related to TCOs and cartels. It is worth noting that similar requirements have been relaxed for preclearance of IEEPA and Racketeer Influenced and Corrupt Organizations Act (RICO) cases, too, a move that could expand the kinds of charges DOJ brings in corporate enforcement investigations with a cartel or TCO nexus. Time will tell how tight the nexus between the alleged foreign bribery and the cartel or TCO must be, but it is possible that unleashing hundreds of additional federal prosecutors on the FCPA and FEPA statutes will lead to a more robust—albeit significantly modified—enforcement landscape. Ironically, the TCO Memo’s loosening of approval requirements in FCPA and FEPA cases may have the effect of increasing the volume of FCPA enforcement across DOJ’s many subdivisions in this administration’s new priority areas of focus.

Global Enforcement Activity Remains Strong

DOJ routinely works its cross-border investigations with international partner agencies, some of whom have already signaled¹¹that they will continue their aggressive enforcement posture irrespective of DOJ’s policy realignment. Over the years, the United States has worked closely with partner nations and international organizations, like the Organization for Economic Co-operation and Development, to persuade countries around the world to enact and enforce domestic bribery laws. And even if US enforcers take their foot off the anti-corruption gas pedal, global enforcement of similar anti-corruption laws from authorities like the UK Serious Fraud Office, India’s Central Bureau of Investigation, Brazil’s Federal Prosecution Office, Singapore’s Corrupt Practices Investigation Bureau, and others will continue.

Key Takeaways

Prudent companies should not take the recent executive order and DOJ memoranda as an invitation to relax antibribery and other forms of corporate compliance. Despite the ostensible shift at DOJ, regulators and enforcement agencies across the federal government will continue work in related areas, like economic sanctions and export controls that present complex regulatory and enforcement risks. And even in the FCPA space, certain core prosecutions will likely continue following the review mandated by the executive order, especially in cases where significant violative conduct is directed from the United States.

Additionally, the statute of limitations for a violation of the FCPA is five years, which can be extended by up to three years in instances where DOJ is pursuing evidence from a foreign authority by way of a mutual legal assistance treaty request. In other words, a bribe paid today could ultimately be prosecuted under future administrations well after President Trump has left office. Moreover, the scope and nature of DOJ’s policy shift remains to be seen, and the nexus to cartels and TCOs that DOJ will regard as sufficient to warrant bringing FCPA, FEPA, and RICO charges against companies may be quite attenuated. Accordingly, companies doing business in jurisdictions with a higher presence of cartels and other forms of transnational organized crime should consider stepping up their compliance and due diligence efforts, especially with respect to third-party engagements to ensure no direct or indirect links to problematic entities.

More broadly, effective compliance programs can be an especially powerful prophylactic tool, even given the coming shift in DOJ’s priorities and resource allocation. In enforcement areas that are being deprioritized by DOJ, companies may now enjoy unprecedentedly favorable odds of avoiding prosecutions if they can demonstrate that allegedly problematic conduct was an isolated incident that the company promptly investigated and effectively remediated. As always, robust and proactive compliance policies that are regularly tested and improved can pay huge dividends over the long haul.
President Trump Resets US Tariffs on Imports of Steel and Aluminum From All Countries

Tue, 11 Feb 2025 00:00:00 -0000

On 10 February 2025, President Trump announced that he was increasing tariffs on US imports of aluminum from 10% to 25% and ending various exemptions and exclusions to the US tariffs of 25% on imports of steel. The tariffs were first imposed in President Trump’s first term under the authority of Section 232 of the Trade Expansion Act of 1962, which permits the President to impose import restrictions (tariffs and/or quotas) based on an investigation and affirmative determination by the US Commerce Department that certain imports threaten to impair US national security. Section 232 tariffs on aluminum and steel were originally imposed by President Trump in 2018 and continued under President Biden.

This latest tariff action revokes agreements with Argentina, Australia, Brazil, Canada, the European Union, Japan, Mexico, South Korea, Ukraine, and the UK that had suspended tariffs on certain aluminum and steel products imported from those countries. It also terminates the company and product-specific exclusions that had been granted by the US Commerce Department since 2018. Accordingly, unless further changes are implemented, effective 12 March 2025 at 12:01 am Eastern Time all steel and aluminum products identified in the President’s proclamations will be subject to 25% tariffs. Further, such tariffs will be extended to certain “derivative” steel and aluminum products (i.e., products made by further manufacturing basic steel and aluminum shapes) not previously covered by Section 232 tariffs.

President Trump’s decision to reset and increase tariffs is based on finding that the original Section 232 tariffs were not being effective in addressing findings that the global steel industry suffered from massive overcapacity. According to the original investigation and the latest findings, this global overcapacity is primarily due to China’s policies to promote its aluminum and steel industries and the spillover effects this build-out was continuing to have on third country markets, which, in turn, were channeling their own excess aluminum and steel to the US market.

Notably, in his press conference announcing the tariffs, President Trump indicated that countries may have room to negotiate potential settlements or modifications of the tariffs – especially if they are able to achieve relatively balanced trade with the United States or otherwise demonstrate economic benefits to the United States from trade and investment. When asked about the return of tariffs to imports of steel and aluminum from Australia, the President noted that the US has enjoyed a moderate trade surplus with Australia primarily due to that country’s purchases of aircraft from the United States and that he was in discussions with Australia’s prime minister about the tariffs and other issues.

The President also signaled that the tariffs may be extended to additional downstream products made from aluminum or steel. Specifically, the President’s action calls on the US Commerce Department to establish a process for interested parties to request that additional derivative aluminum or steel products be subject to Section 232 tariffs. This process must be in place by 12 May 2025.

The impending reset of aluminum and steel tariffs underscores the importance for companies and investors in sectors that produce or utilize these products to assess the impact on their own supply chains, pricing, business plans, and contractual and customer relationships. Companies and investors should also consider options under US law and contractual agreements to mitigate the potential impacts of the tariffs.

Australia's Proposed Scams Prevention Framework

Tue, 11 Feb 2025 00:00:00 -0000

In response to growing concerns regarding the financial and emotional burden of scams on the community, the Australian government has developed the Scams Prevention Framework Bill 2024 (the Bill). Initially, the Scams Prevention Framework (SPF) will apply to banks, telecommunications providers, and digital platform service providers offering social media, paid search engine advertising or direct messaging services (Regulated Entities). Regulated Entities will be required to comply with obligations set out in the overarching principles (SPF Principles) and sector-specific codes (SPF Codes). Those failing to comply with their obligations under the SPF will be subject to harsh penalties under the new regime.

Why Does Australia Need a SPF?

Australian customers lost AU$2.7 billion in 2023 from scams. Whilst the monetary loss from scams is significant, scams also have nonfinancial impacts on their victims. Scams affect the mental and emotional wellbeing of victims—victims may suffer trauma, anxiety, shame and helplessness. Scams also undermine the trust customers may have in utilising digital services.

Currently, scam protections are piecemeal, inconsistent or non-existent across the Australian economy. The SPF is an economy-wide initiative which aims to:

Halt the growth in scams;
Safeguard the digital economy;
Provide consistent customer protections for customers engaging with Regulated Entities; and
Be responsive and adaptable to the scams environment.

What is a Scam?

A scam is an attempt to cause loss or harm to an individual or entity through the use of deception. For example, a perpetrator may cause a target to transfer funds into a specified bank account by providing the target with what appears to be a parking fine. However, financial loss caused by illegal cyber activity such as hacking would not be a scam as it does not involve the essential element of deception.

SPF Principles

The Bill sets out six SPF Principles which Regulated Entities must comply with. The SPF Principles will be enforced by the Australian Competition and Consumer Commission (ACCC) as the SPF General Regulator.

The SPF Principles are outlined in table 1 below.

SPF Principle	Description
1. Governance	Regulated Entities are required to ‘develop and implement governance policies, procedures, metrics and targets to combat scams’. In discharging their obligations under this principle, entities must develop and implement a range of policies and procedures which set out the steps taken to comply with the SPF Principles and SPF Codes. The ACCC is expected to provide guidance on how an entity can ensure compliance with their governance obligations under the SPF.
2. Prevent	Regulated Entities must take reasonable steps to prevent scams on or relating to the service they provide. Such steps should aim to prevent people from using the Regulated Entity’s service to commit a scam, as well as prevent customers from falling victim to a scam. This includes publishing accessible resources which provide customers with information on how to identify scams and minimise their risk of harm.
3. Detect	Regulated Entities must take reasonable steps to detect scams by ‘identifying SPF customers that are, or could be, impacted by a scam in a timely way’.
4. Report	Where a Regulated Entity has reasonable grounds to suspect that a ‘communication, transaction or other activity on, or relating to their regulated service, is a scam’, it must provide the ACCC with a report of any information relevant to disrupting the scam activity. Such information is referred to as ‘actionable scam intelligence’ in the SPF. Additionally, if requested by an SPF regulator, an entity will be required to provide a scam report. The appropriate form and content of the report is intended to be detailed in each SPF Code.
5. Disrupt	A Regulated Entity is required to take ‘reasonable steps to disrupt scam activity on or related to its service’. Any such steps must be proportionate to the actionable scam intelligence held by the entity. As an example, for banks, appropriate disruptive activities may include: Contacting customers to warn them of popular scams; Introducing confirmation of payee features on electronic banking services; and Placing a hold on payments directed to an account associated with scam activity to allow the bank time to contact the customer and provide them with information about the suspected scam.
6. Respond	Regulated Entities are required to implement accessible mechanisms which allow customers to report scams and establish accessible and transparent internal dispute resolution processes to deal with any complaints. Additionally, Regulated Entities must be a member of an external dispute resolution scheme authorised by a Treasury Minister for their sector. The purpose of such an obligation is to provide an independent dispute resolution mechanism for customers whose complaints have not been resolved through initial internal dispute resolution processes, or where the internal dispute resolution outcome is unsatisfactory.

Table 1

What are ‘Reasonable Steps’?

We expect that SPF Codes will provide further clarification regarding what will be considered ‘reasonable steps’ for the purposes of discharging an obligation under the SPF Principles. From the explanatory materials, it is evident that whether reasonable steps have been taken will depend on a range of entity-specific factors including, but not limited to:

The size of the Regulated Entity;
The services of the Regulated Entity;
The Regulated Entity’s customer base; and
The specific types of scam risk faced by the Regulated Entity and their customers.

Disclosure of Information Under the Reporting Principle

As indicated in table 1 above, the SPF reporting principle requires disclosure of information to the SPF regulator. It is clear from the explanatory materials that, to the extent this reporting obligation is inconsistent with a legal duty of confidence owed under any ‘agreement or arrangement’ entered into by the Regulated Entity, the SPF obligation will prevail. However, it is not expressly stated how this obligation will interact with statutory protections of personal information.

The Privacy Act 1988 (Cth) (Privacy Act) imposes obligations regarding the collection, use and disclosure of personal information. Paragraph 6.2(b) of Schedule 1 to the Privacy Act allows an entity to use or disclose information for a purpose other than which it was collected where the use or disclosure is required by an Australian law. Arguably, once the SPF is enacted, disclosure of personal information in accordance with the obligations under the reporting principle will be ‘required by an Australian law’ and therefore not in breach of the Privacy Act.

Safe Harbour Protection for Disruptive Actions

As noted in table 1, SPF Principle 5 requires entities to take disruptive actions in response to actionable scam intelligence. This may leave Regulated Entities vulnerable to actions for breach of contractual obligations. For example, where a bank places a temporary hold on a transaction, the customer might lodge a complaint for failure to follow payment instructions. To prevent the risk of such liability from deterring entities from taking disruptive actions, the SPF provides a safe harbour protection whereby a Regulated Entity will not be liable in a civil action or proceeding where they have taken action to disrupt scams (including suspected scams) while investigating actionable scam intelligence.

In order for the safe harbour protection to apply, the following requirements must be met:

The Regulated Entity acted in good faith and in compliance with the SPF;
The disruptive action was reasonable and proportionate to the suspected scam;
The action was taken during the period starting on the day that the information became actionable scam intelligence, and ending when the Regulated Entity identified whether or not the activity was a scam, or after 28 days, whichever was earlier; and
The action was promptly reversed if the Regulated Entity identified the activity was not a scam and it was reasonably practicable to reverse the action.

The assessment of whether disruptive actions were proportionate will be determined on a case-by-case basis. However, relevant factors may include:

The volume of information received or available;
The source of that information; and
The apparent likelihood that the activity is associated with a scam.

SPF Codes

As a ‘one-size-fits-all’ approach across the entire scams ecosystem is not appropriate, the SPF provides for the creation of sector-specific codes. These SPF Codes will set out ‘detailed obligations’ and ‘consistent minimum standards’ to address scam activity within each regulated sector. The SPF Codes are yet to be released.

It is not clear whether the SPF Codes will interact with other industry codes and, if so, how and which codes will prevail.

It appears from the explanatory materials that the SPF Codes are intended to impose consistent standards across the regulated sectors. It is unclear whether this will be achieved in practice or whether there will be a disproportionate compliance burden placed on one regulated sector in comparison to other regulated sectors. For example, because banks are often the ultimate sender/receiver of funds, will they face the most significant compliance burden?

SPF Regulators

The SPF is to be administered and enforced through a multiregulator framework. The ACCC, as the General Regulator, will be responsible for overseeing the SPF provisions across all regulated sectors. In addition, there will be sector-specific regulators responsible for the administration and enforcement of SPF Codes.

Enforcement

The proposed Bill sets out the maximum penalties for contraventions of the civil penalty provisions of the SPF.

There are two tiers of contraventions, with a tier 1 contravention attracting a higher maximum penalty in order to reflect that some breaches would ‘be the most egregious and have the most significant impact on customers’. A breach will be categorised based on the SPF Principle contravened as indicated in table 2 below.

Tier 1 Contravention	Tier 2 Contravention
SPF principle 2: prevent SPF principle 4: detect SPF principle 5: disrupt SPF principle 6: respond	An SPF Code SPF principle 1: governance SPF principle 3: report

Table 2

In addition to the civil penalty regime, other administrative enforcement tools will be available including:

Infringement notices;
Enforceable undertakings;
Injunctions;
Actions for damages;
Public warning notices;
Remedial directions;
Adverse publicity orders; and
Other punitive and nonpunitive orders.

Assistance

The SPF is expected to commence later this year. In the meantime, Regulated Entities need to prepare for the commencement of their SPF obligations. K&L Gates is well equipped to assist Regulated Entities to understand the SPF requirements and update internal governance, policies and processes to reflect new obligations. To find out more about how we can support you, reach out to one of our skilled team members listed below.

The authors would like to thank paralegal Tamsyn Sharpe for her contribution to this legal insight.

Asset Management Regulatory Year in Review 2024

Fri, 07 Feb 2025 00:00:00 -0000

The Singapore section of this publication is issued by K&L Gates Straits Law LLC, a Singapore law firm with full Singapore law and representative capacity, and to whom any Singapore law queries should be addressed. K&L Gates Straits Law is the Singapore office of K&L Gates LLP.

2024 was a year of meaningful regulatory change for asset managers globally. The regulatory activity was wide ranging and without a particular unifying theme. In fact, the wide, and in cases diverging focuses of key global regulators requires asset managers to closely review what has happened, and potentially more importantly, keep tabs on what is likely to happen going forward.

This year, we expanded our overview of the legal and regulatory actions beyond the borders of the United States to include Australia, Hong Kong, Japan, Qatar, Singapore, the United Arab Emirates, and the United Kingdom. A brief summary of select regulatory developments by region is provided, followed by a more detailed overview. The summaries include key developments throughout the year that may impact the future of the asset management industry, addressing topics such as cryptocurrency, ESG, enforcement actions, fiduciary responsibilities, and more.

To access the Asset Management Regulatory Year in Review 2024, click here.
US Tariff and Trade Update: Temporary Pause on Canada and Mexico, Tariffs on China, China Retaliation, and What's Next

Fri, 07 Feb 2025 00:00:00 -0000

Canada and Mexico

On 3 February 2025, the United States reached agreements with Canada and Mexico to pause tariffs on imports from those countries in exchange for actions on border security, illegal drugs, and immigration. As a result of these steps, tariffs of 25% on imports from Mexico, 10% on certain energy and critical mineral imports from Canada, and 25% on all remaining imports from Canada will be paused for 30 days, through 12:01 am ET on 4 March 2025. Retaliatory tariffs and other retaliatory measures by Canada and Mexico are also on hold through that date.

Companies and investors with interests in North America should use this pause in tariffs to review their supply chains, investments, and business plans. There is particular urgency for those companies with cross-border operations and for those dealing in energy and energy products from Canada.

China and Hong Kong

US tariffs of 10% on imports from China and Hong Kong went into effect on 4 February 2025 at 12:01 am ET. Goods that were on a vessel at a port in China or Hong Kong or in transit to the United States on a ship or plane prior to 12:01 am ET on 1 February 2025 are excluded from the additional tariffs, provided they enter the United States before 12:01 am ET on 7 March 2025. These tariffs are on top of tariffs previously imposed on imports from China under the Section 232 and Section 301 measures implemented in President Trump’s first term and continued by President Biden.

In addition, upon completion of changes to US Customs and Border Protection processing procedures, the latest tariff action will end duty-free eligibility for individual shipments of goods from China and Hong Kong under the so-called “de minimis” provision of 19 USC Section 1321(a)(2)(C). That provision normally exempts from tariffs and US customs entry requirements any individual shipment imported by one person on one day having an aggregate fair retail value in the country of shipment of not more than US$800.

In response to the US tariffs, China put in place a 15% tariff on US coal and LNG and a 10% tariff on over 70 products, including crude oil, agricultural machinery, cars, and pickup trucks imported into China after 10 February 2025. China also restricted exports to the United States of metals and critical minerals like tungsten, tellurium, bismuth, molybdenum and indium.

These latest actions underscore the importance of developing contingency plans to reduce supply chain risk and manage the impact of the tariffs and retaliatory measures on contracts, investments, and revenues. While the possibility of a pause of the tariffs on China (and China’s retaliatory trade measures) cannot be ruled out entirely, based on the latest announcements from the White House and Chinese government, companies and investors should anticipate that these and other tariff and trade measures may continue to impact US-China trade for the foreseeable future.

What’s Next

This week in Washington also saw the President and his senior trade advisors signal further actions to implement the remaining planks of the America First Trade Policy memorandum signed by President Trump on 20 January 2025. Prominent among these are potential new tariffs on imports from countries with which the United States runs persistent merchandise trade deficits (including the European Union and Vietnam) and new Section 232 and Section 301 investigations of steel, aluminum, critical minerals, and essential medicines (which foreshadow potential additional tariffs on those products). The administration and a bipartisan group in Congress have also proposed legislation that would revoke China’s “most favored nation” status under US trade laws and reset normal US customs duties on imports from China to the much higher Smoot-Hawley tariff rates (e.g., 35% or more).

While the America First Trade Policy calls for reports on these and other issues to be submitted to the President by 1 April 2025, statements by President Trump and his trade advisors this week indicated that some of these reports may be largely complete and actions (including additional tariffs) may be introduced before 1 April. In a 7 February press conference, for example, President Trump indicated that he plans to announce details on actions to address US bilateral trade deficits and introduce possible “reciprocal tariffs” as early as “next week” (i.e., the week of 9-15 February 2025).
Implementation of the Mobility Directive: Significant Changes for Mergers, Divisions and Conversions With the Introduction of a New Dual Regime

Thu, 06 Feb 2025 00:00:00 -0000

On 23 January 2025, Luxembourg enacted a bill implementing the EU Mobility Directive (2019/2121) for cross-border conversions, mergers and divisions, featuring (i) a harmonised legal framework for these transactions across the European Union, and (ii) a distinct set of rules for transactions not covered by the EU special regime.

Transposition of the EU Mobility Directive and Introduction of the EU Special Regime

The Luxembourg legislator has leveraged all available options under the EU Mobility Directive to create a favourable regime for company mobility within the transposition of the EU special regime. It applies to cross-border operations involving companies based in at least two EU member states, with the Luxembourg company being an SA (société anonyme), SCA (société en commandite par actions), or SARL (société à responsabilité limitée). This regime enhances consistency and clarity in the applicable EU cross-border operations while ensuring adequate protection, including:

Minority Shareholders Rights

Shareholders who voted against the European cross-border transaction may exercise exit rights and claim cash compensation. Those who did not exercise this right can challenge the share exchange ratio.

Information Rights

Rights to information include detailed explanatory reports from the management body for the benefit of employees and shareholders. Additionally, shareholders, creditors and employee representatives may submit comments on the draft terms.

Role of the Luxembourg Notary

The notary scrutinizes the transaction to ensure the legality of the planned cross-border operations.

General Regime Applicable to Domestic Transactions and Cross-Border Transactions Not Covered by the EU Special Regime

The general regime builds on the existing framework and simplifies procedures for conversions, mergers and divisions. Key points include:

Mergers Between Sister Companies

A simplified merger process has been introduced that does not require the issuance of new shares applicable when one party directly or indirectly owns all shares in both companies or when the same parties hold the same proportion of shares in each of the merging companies.

Domestic and Non-EU Cross-Border Mergers and Divisions

Draft Terms

The draft terms and board report need less-detailed information, and the merger or division might be contingent upon a condition precedent.

Independent Expert’s Report

Report is no longer mandatory for single-shareholder companies in case of mergers and divisions.

Non-EU Cross-Border Conversions

Unless there are employees and specific assets involved, only an extraordinary general meeting of the company’s shareholders before a Luxembourg notary is required to approve the conversion.

When Do the New Regimes Come Into Effect?

The new law will come into force on the first day following the month of its publication in the Luxembourg Official Journal. Once the new provisions come into effect, they will apply to all new restructurings. However, the new rules will not affect ongoing projects where the draft terms were published before the first day of the month following the law’s entry into force.
Competition and Consumer Law Round-Up

Wed, 05 Feb 2025 00:00:00 -0000
What’s Inside This Issue?

This edition of the K&L Gates Competition & Consumer Law Round-Up provides a summary of recent and significant updates from the Australian Competition and Consumer Commission (ACCC), as well as other noteworthy developments in the competition and consumer law space. If you wish to have any more detail about the issues outlined in this newsletter or discuss them further, please reach out to any member of the K&L Gates Competition and Consumer Law team.

Enforcement
- NDIS Providers Warned Against Misleading Advertising
- Misleading Pricing Alleged Against Woolworths NZ
Mergers and Acquisitions
- Divestiture Required for Blackstone’s Acquisition of I’rom
Consultations
- Treasury Consults on ACL Reform for AI-Enabled Goods and Services
- Treasury Further Consults on ACL Prohibitions Against Unfair Trading Practices
Noteworthy Developments
- Mandatory Merger Clearance Regime to Commence on 1 January 2026
- ACCC Releases Sustainability Collaborations Guidelines for Businesses
- ASIC’s Enforcement Priorities Focus on Cost-of-Living Pressure
Click here to view the Round-Up.
We Need to Keep a Real Estate Purchase in Australia Confidential. Can This Be Done?

Tue, 04 Feb 2025 00:00:00 -0000
Ours is an age of identity fraud, data breaches, public registers, and political and media interest in the ownership of Australian real estate.

Take a moment to consider the real estate-related data that can be readily accessed through a land titles office and online property platforms or even purchased for a relatively modest sum.

While steps are being taken to put in place a framework for the creation of a register of the beneficial ownership of ASX-listed entities, Australia does not have a general register of information as to the beneficial ownership of land.

Unsurprisingly, there are many legitimate reasons why a buyer or seller of real estate in Australia may want to either keep a transaction, their identity or the key commercial terms private and confidential or to manage when this information becomes known.

These reasons could include the following:
- A risk that the identity of the buyer may inflate the seller’s price expectations.
- A risk that the identity of the buyer may produce an adverse reaction from neighbours.
- A plan to acquire multiple parcels of land, in the same location, from different entities where confidentiality is an imperative.
- A desire to avoid a person’s financial capacity being subject to media scrutiny.
- A desire to not be included in the various Australian and global lists of wealthy individuals and families for reasons of privacy or personal security.
- A past history between the buyer and the seller that could make the transaction more difficult to complete.
There is no silver bullet or simple solution that will guarantee anonymity, but there are steps that can be taken to minimise the information that makes its way into the public domain. The suggestions below will not guarantee anonymity, but if a level of confidentiality or anonymity is required, then the below list will give you the best chance of achieving that objective.

Make Your Expectations Clear

It cannot be assumed that all parties to a transaction and advisors have the same objectives or priorities in relation to confidentiality. Communicate and emphasise your requirements. Be specific and provide examples of what can and cannot be done.

Use Confidentiality Agreements

Confidentiality agreements at any early stage of discussions are an effective step to both securing confidentiality and setting expectations for the parties involved. To protect against unwanted disclosure, parties should clearly define the information or categories of information to be protected and the scope of each party’s nondisclosure obligations. Confidentiality obligations should be included in a terms sheet/heads of agreement (and expressed to be binding), even if the balance of the document is expressed to be nonbinding.

Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91 considered whether a signed letter constituted a binding contract for the sale of land. One of the relevant issues in this case was whether the confidentiality obligations outlined in a confidentiality deed poll were effective in requiring the parties to keep confidential information—specifically, the terms of the proposed land sale—until either a written agreement terminated the deed or the confidential information became generally available to the public. Ultimately, the court determined that the confidentiality obligations were part of ongoing negotiations, noting that the purpose of the confidentiality deed poll was to prevent a third-party bidder from learning the commercial terms of the transaction, particularly the price.

Engage a Real Estate Agent to Act for the Buyer

The use of a buyer’s agent partly removes the buyer from the transaction. It becomes unnecessary for the buyer to engage directly with the seller or the selling agent.

Appoint an Agent to Enter into the Contract

A person (the agent) can enter into an agreement to acquire real estate on behalf of another person (the principal). For example, the buyer could be “Mr Smith as agent.”

It is not essential that the agent discloses to the seller that the agent is acting on behalf of an undisclosed principal. However, caution is necessary to ensure that such arrangements do not contravene any warranties or representations made in the contract.

There should be a separate written agreement between the principal and their agent in relation to the appointment to act as agent and the scope of the rights and obligations of the principal and the agent. This document is also needed to make clear to the revenue and taxing authorities the capacity in which the agent (named buyer) was acting.

When adopting an agent/principal structure, the identity of the principal becomes known when the transfer of land form is created, because the principal is named on the transfer form. This means the seller will come to know the identity of the actual buyer before completion.

Duty advice must be taken when using an agency structure to ensure a “double duty” liability is not accidentally triggered.

The Use of a Bare Trustee

A bare trust is an arrangement where one person (the trustee) holds assets, such as real estate, on behalf of another person (the beneficiary). The trustee has no interest in the real estate and must follow the directions of the beneficiary in relation to the assets of the trust and must transfer the real estate to the beneficiary when requested to do so or sell the real estate to a third party if directed by the beneficiary to do so. Because the trustee has no beneficial interest in the real estate, there is usually no duty on the transfer of the real estate from the trustee to the beneficiary.

As explained by the High Court of Australia in CGU Insurance Limited v One.Tel Limited (in liq) [2010] HCA 26 at [36], the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their discretion.¹

A bare trust can be a useful mechanism for ensuring privacy and maintaining the anonymity of the beneficiary. If real estate is purchased by a trustee of a bare trust, the identity of the beneficiary is not disclosed and does not become public. The bare trustee contracts to buy the real estate and takes title to the real estate at settlement/completion.

A bare trust structure is one arrangement by which a professional trustee, lawyer, accountant, real estate agent or other advisor may acquire real estate and hold that real estate (usually on a temporary basis) on behalf of another person.

Use of an AFSL or Custodian

An Australian Financial Services Licensee (AFSL) or a custodian structure may also provide useful mechanisms in maintaining the confidentiality of a real estate buyer’s identity. An AFSL is a license granted by the Australian Securities and Investments Commission that is necessary for any business dealing in financial products, including managed investment schemes. An AFSL holder may operate a managed investment scheme, which can involve holding property and making investment decisions on behalf of investors.

A custodian structure, on the other hand, involves appointing a custodian to hold legal title to a property on behalf of a managed investment scheme or other entity. The custodian’s primary role is to safeguard and administer the property, ensuring it is held separately from the custodian’s own assets and appropriately accounted for. This structure can be particularly useful for preserving the confidentiality of the real estate buyer’s identity, as the custodian holds the legal title while the beneficial ownership remains with the investors or the managed investment scheme.²

The Name, Ownership or Structure of the Buyer

Simple matters such as the name of the buyer, the shareholder(s) and the directors can readily enable the buyer to be identified.

It can assist with the maintenance of confidentiality to use professional advisors as directors of an entity (either permanently or for a discrete period of time).

Off-Market Transactions

On-market transactions are often associated with a significant sales and marketing campaign. These campaigns generate interest in both the real estate itself and the identity of the buyer. In contrast, off-market transactions are conducted with greater discretion and do not result in the creation of the same volumes of information, data and market interest as on market campaigns.

Include a Confidentiality Obligation in the Transaction Documents

A confidentiality obligation in real estate transaction documents generally requires that certain information shared between the parties remain confidential and is not disclosed to third parties. Some of the pertinent questions which need to be addressed include the following:
- Does the transaction document include an obligation to maintain confidentiality?
- What is the extent of the confidentiality obligation?
- Are the parties required to ensure that their respective advisors also maintain confidentiality?
- Are media announcements permitted?
- Does the wording of any media announcement need to be mutually agreed upon?
- Can the selling agent retain details of the transaction to use in valuation reports and comparable transactions analysis?
It is not uncommon for high-value real estate transactions to be recorded using the “industry standard terms and conditions.” For example, in Western Australia the general conditions for the sale of land contain no obligations in relation to privacy, confidentiality or media statements.

It is important to check that the transaction document expressly address confidentiality.

Back-to-Back Transactions and Inadvertent Disclosures

A back-to-back transaction arises where there are two sale and purchase contracts concerning the same property in place at about the same time, as follows:
- One contract between the seller and Buyer 1 at a purchase price of AU$X.
- A second contract between Buyer 1 (as seller) and Buyer 2 at a purchase price greater than AU$X.
Usually, the following is true:
- The seller is unaware of the second contract.
- Buyer 1 will be anxious to ensure that the seller does not become aware of the second contract.
- If the seller becomes aware of the second contract, the seller may refuse to complete the first contract or renegotiate the price.
Care must be taken to ensure that the following occurs:
- There is strict compliance with laws, including those in relation to misleading and deceptive conduct.
- There is strict compliance with duties to government agencies.
- Parties are properly briefed as to the transaction and the necessity of confidentiality.
- Ordinary actions as part of the settlement process do not inadvertently breach confidentiality (subject to the first two bullet points above).
- Due diligence by Buyer 2 may need to be limited and is undertaken in a discrete manner (subject to the first two bullet points above).
Timing for Lodgement of the Transfer of Land Form at the Land Titles Office

There is no general legal requirement to lodge the transfer of land form at the relevant land tiles office immediately following settlement/completion. Of course, there is usually a contractual obligation to do so.

There are a number of sound legal reasons why a buyer should proceed to quickly lodge the transfer of land form at the relevant land tiles office.

But a buyer and seller can do the following:
- Agree that the buyer has a longer period of time after settlement/completion within which to lodge the transfer of land form at the relevant land tiles office.
- Take steps to protect the buyer’s position, given the purchase price has been paid, until the transfer of land form is lodged.
Until the transfer is registered, the change of ownership will not become public and the seller will still appear to be the owner of the property.

Name Redaction at the Land Titles Office

All Australia states operate a searchable public register of information in relation to real estate transactions and land ownership.

For example, in Western Australia the Transfer of Land Act 1893 does not provide for the redaction of parts of registered instruments for commercial or other considerations. However, Landgate (the Western Australian land registry) does offer name suppression in limited circumstances. Name suppression is generally available only to people who can prove they are at risk of harm should their details be easily discoverable. Such individuals may include high-profile figures or high net-worth individuals who face security threats.

In New South Wales (NSW), the Real Property Act 1900 similarly does not allow for the automatic suppression of names from the land title register for privacy or commercial reasons. However, name suppression may be granted in specific circumstances, and NSW Land Registry Services may suppress personal information from its public registers in response to a direction from the Office of the Registrar General. Such circumstances would be limited to situations where an individual faces significant risk to personal well-being or safety.

Understand the Personality of Your Counterparty

An agreement in relation to confidentiality is of limited value if the counterparty is unlikely to adhere to it. Knowledge of the counterparty can be a powerful tool to preserve your confidentiality.

If you buy from an unsuitable seller or sell to an unsuitable buyer, agreements as to confidentiality and privacy obligations may be of limited value. Due diligence of the counterparty is a vital aspect of all land transactions.

How are Disputes to be Resolved?

Australian court processes are relatively public. Preserving confidentiality in the event of a dispute over a land sale and purchase agreement is more likely if the parties are required to resolve any disputes by confidential arbitration or confidential mediation followed by confidential arbitration. But for confidential arbitration to apply, a suitable clause needs to be included in the sale and purchase agreement.

For example, in Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82, the dispute resolution clause in the deed required the parties to first attempt to resolve their dispute through confidential mediation. If mediation was abandoned, the matter would then be automatically referred to confidential arbitration. The arbitration was to take place at a location chosen to maintain confidentiality, and the decision of the arbitrator(s) was to be binding and specifically enforceable.

Anti-Avoidance

In Australia, buyers of real estate have a raft of obligations to state and federal government agencies. These obligations must be strictly complied with, and the matters identified in this article are not a way of avoiding these obligations. For example, foreign investment approvals must be obtained when required and foreign ownership disclosures must still be made.

Also, taxing and revenue authorities can share information.

The matters raised in this article are designed to assist with maintaining privacy and confidentiality to the extent possible. It is important to note however that the techniques outlined in this article may not always preserve confidentiality.

How can K&L Gates help you?

We are focused locally and connected globally.

At K&L Gates, our lawyers have a deep understanding of all aspects of real estate and land development law.

We advise private and public corporations as well as family offices on a wide range of issues in the real estate sector.

We can assist with:
- Buying and selling assets in a variety of sectors.
- Preparing and negotiating confidentiality agreements.
- Setting up family offices.
- Direct and indirect tax advice.
- Transaction structuring.
- Due diligence.
- AFSL advice.
EEOC Acting Chair Issues Statement Announcing Commission's Plans to Remove Gender Ideology and Return to Mission of "Protecting Women in the Workplace"

Tue, 04 Feb 2025 00:00:00 -0000

On 28 January 2025, the Acting Chair of the Equal Employment Opportunity Commission (EEOC or Commission), Andrea Lucas (Acting Chair Lucas) issued a statement announcing that the Commission is returning to its “mission of protecting women from sexual harassment and sex-based discrimination in the workplace by rolling back the Biden administration’s gender identity agenda.”

This statement followed President Trump’s issuance of Executive Order 14168 (EO 14168), which, among other things, directs federal agencies to enforce “the freedom to express the binary nature of sex and the right to single-sex spaces in the workplace” and remove all existing statements, policies, forms, communications, or messages promoting gender ideology. EO 14168 states that the federal government shall recognize only two sexes—male and female.

Acting Chair Lucas has already taken several actions to enforce the terms of EO 14168.

First, one day after President Trump issued EO 14168, she announced several priorities for the EEOC’s compliance, investigations, and litigation—one being to “defend the biological and binary reality of sex and related rights, including women’s rights to single sex spaces at work.”¹

Acting Chair Lucas has also removed materials promoting gender ideology from the EEOC’s internal and external websites and documents. This review remains ongoing. She also began a content review of the EEOC’s “Know Your Rights” poster, which all covered employers are required to post in their workplaces, removed the display of EEOC employees’ pronouns in internal and external communications, and removed the “X” and “Mx.” gender markers from the Commission’s charge and related forms and intake process.

Acting Chair Lucas has indicated that she cannot unilaterally remove or modify certain gender identity-related documents, as doing so requires a majority vote of the full Commission. And notably, after President Trump’s unprecedented termination of two sitting Democratic EEOC commissioners on 27 January 2025, the EEOC lacks a voting quorum with only two of its five members in place—Acting Chair Lucas and Democratic Commissioner Kalpana Kotagal.

These documents include the Commission’s “Enforcement Guidance on Harassment in the Workplace” (issued by a 3-2 vote in 2024) (Harassment Guidance), which EO 14168 specifically requested be rescinded, as well as the EEOC Strategic Plan 2022-2026 (issued by a 3-2 vote in 2023), and the EEOC Strategic Enforcement Plan Fiscal Years 2024-2028 (issued by a 3-2 vote in 2023). Acting Chair Lucas voted against each of these documents. She has been particularly vocal about her opposition to portions of the Harassment Guidance that state that harassing conduct under Title VII includes “denial or access to a bathroom or other sex-segregated facility consistent with [an] individual’s gender identity” and “repeated and intentional use of a name or pronoun inconsistent with [an] individual’s known gender identity.”

Looking Ahead

While Acting Chair Lucas has made clear the Commission’s priority to enforce the “binary reality of sex,” including by removing guidance and references to “gender identity,” this new priority may be in tension with current federal law. Indeed, in Bostock v. Clayton County,² the US Supreme Court held that Title VII prohibits discrimination and harassment based on gender identity and sexual orientation. It is certainly possible that the Supreme Court could revisit this ruling and reach a different conclusion—as its makeup has changed since the Bostock decision. However, unless and until the court does so or Congress amends Title VII, employment discrimination against transgender and gender nonconforming individuals remains illegal under federal law.

Additionally, more than half of the states in the United States have laws explicitly prohibiting, or have interpreted other laws to prohibit, discrimination and harassment based on sexual orientation and gender identity. These laws remain in effect.

We are likely to see an increase in workplace disputes on this issue in the future—including disputes involving “single sex spaces” in the workplace, such as bathrooms and locker rooms—which the court specifically avoided discussing in Bostock, but are addressed at the state and local level. For example, guidance from the California Civil Rights Department provides that “[a]ll employees have a right to safe and appropriate restroom and locker room facilities . . . [which] includes the right to use a restroom or locker room that corresponds to the employee’s gender identity, regardless of the employee’s sex assigned at birth.”³ Additionally, according to published guidance, the New York City Human Rights Law requires that employers permit employees “to use single-gender facilities, such as restrooms or locker rooms, and to participate in single-gender programs, that most closely align with their gender, regardless of their gender expression, sex assigned at birth, anatomy, medical history, or the sex or gender indicated on their identification.”⁴

Employers may also see an increase in challenges to gender-identity-related policies and practices—including policies that permit or require employees to designate or use pronouns in communications to comply with state or local law,⁵ as well as an increase in religious accommodation requests related to such policies.⁶ Given the current conflicting legal landscape, employers should consider a review of any such policies with counsel to ensure compliance with applicable law. Moreover, with the change in federal guidance, states and municipalities may adopt additional regulations addressing gender identity protections in the workplace. Despite the shift in enforcement priorities, employers should continue to implement anti-discrimination, anti-harassment, and equal opportunity policies as well as conduct workplace trainings consistent with applicable law; and monitor developments at the state and federal level. Employers should also continue to emphasize workplace respect, civility, and anti-bullying expectations generally for their workforce.

There are likely to be many more developments in the coming days and weeks. Our Labor, Employment, and Workplace Safety practice can assist with any questions regarding these developments.
D.C. Circuit Vacates PHMSA's LNG-by-Rail Rule

Tue, 04 Feb 2025 00:00:00 -0000

On 17 January 2025, the D.C. Circuit Court of Appeals vacated a 2020 Pipeline and Hazardous Materials Safety Administration (PHMSA) rule—the “Hazardous Materials: Liquefied Natural Gas by Rail Rule” (the LNG-by-Rail Rule)—that allowed for the transportation of liquefied natural gas (LNG) on rail cars.¹ The LNG-by-Rail Rule was challenged by a collection of environmental organizations, state governments, and tribal governments for failing to adequately consider the environmental impact of allowing LNG transport by rail. The decision to limit the domestic transportation of LNG conflicts with President Trump’s “American Energy Dominance” agenda and the stated intentions of the nominee for secretary of energy to expand US LNG infrastructure.² In light of the D.C. Circuit vacating a PHMSA natural gas pipeline safety rule in August 2024 and the published-but-paused 17 January 2025 PHMSA final rule on pipeline methane emission detection requirements, this decision adds yet another element of regulatory uncertainty for domestic natural gas transportation as the second Trump administration prepares to implement its energy agenda.³

History of the LNG-by-Rail Rule

The LNG-by-Rail Rule was first promulgated by PHMSA during the Trump administration in October 2019 and permitted LNG to be transported subject to specific rail car tank requirements and operational controls.⁴ PHMSA determined that the LNG-by-Rail Rule would not trigger the preparation of an environmental impact statement (EIS) pursuant to the National Environmental Policy Act (NEPA).⁵ The final rule was published in July 2020 but was promptly suspended in 2021 by President Biden in a series of executive actions that reconsidered various Trump administration rules and actions that were deemed inconsistent with the Biden administration’s climate policies.⁶ PHMSA implemented the suspension before LNG transport by rail could occur, and directed that the suspension would last until 30 June 2025 or until PHMSA completed rulemaking amending the LNG-by-Rail Rule, whichever occurred first.⁷

Despite the suspension of the LNG-by-Rail Rule, the Biden administration continued to defend the LNG-by-Rail Rule against challenges from environmental groups, state governments, and tribal governments.⁸ During oral argument, the federal government claimed that it had no intention of modifying the LNG-by-Rail Rule—meaning that the suspension would lift in 2025 and the LNG-by-Rail Rule would retake effect. Petitioners challenged, among other issues, PHMSA’s decision to forgo the preparation of an EIS as arbitrary and capricious. The D.C. Circuit agreed, vacating the LNG-by-Rail Rule and remanding to PHMSA for further proceedings.⁹

Summary of the LNG-by-Rail Rule

In October 2019, PHMSA issued the Notice of Proposed Rulemaking in consultation with the Federal Railroad Administration after the Association of American Railroads (AAR) petitioned for a review of existing regulation concerning the transportation of LNG by rail.¹⁰ In its petition, the AAR cited the commercial interest in shipping LNG by rail, specifically from Pennsylvania to New England and between the US-Mexico border.¹¹ The AAR noted that shipment by rail was “undeniably safer” that over-the-road transportation of LNG and compared LNG to the other, similar cryogenic liquids that PHMSA permits to be transported by rail.¹² The petition specifically suggested that the DOT-113C120W (DOT-113) rail car be used for the shipment of LNG.¹³

Nine months later, PHMSA published the final rule authorizing the transportation of LNG by rail in DOT-113 tank cars.¹⁴ DOT-113 cars are designed to carry cryogenic liquids and have “numerous safety features that reduce the risk of an explosion or the release of cargo.”¹⁵ DOT-113 rail cars have typically been used to transport refrigerated ethylene and argon, and PHMSA required a number of safety and operational updates for DOT-113 cars used for transporting LNG.¹⁶ First, The LNG-by-Rail Rule required several physical updates to tank cars transporting LNG, including increased tank thickness, improved steel quality, the installation of remote monitoring devices, and advanced braking technology.¹⁷ Second, the LNG-by-Rail Rule increased the maximum filling density of each tank to reduce the number of rail cars needed for LNG transport and required railroads to adopt routing safety requirements for analyzing LNG transportation routes.¹⁸ Notably, the LNG-by-Rail rule did not include speed limits or tank car-per-train limits for trains transporting LNG.

PHMSA published an Environmental Assessment (EA) that “touted the demonstrated safety record” of the DOT-113 tank car and determined that the LNG-by-Rail Rule did not have a “significant impact on the human environment” and would therefore not require an EIS under Section 102(2) of NEPA.¹⁹

Challenges to the LNG-by-Rail Rule

A group of environmental petitioners, a collection of 15 states, and the Puyallup Tribe all petitioned the D.C. Circuit Court of Appeals to review the LNG-by-Rail Rule.²⁰ The D.C. Circuit consolidated the appeals and reviewed petitioners’ arguments against the LNG-by-Rail Rule. Although the petitioners challenged the LNG-by-Rail Rule on multiple grounds, the D.C. Circuit only ruled on the question of whether PHMSA’s decision to forgo an EIS was arbitrary and capricious.²¹

Petitioners argued that PHMSA “disregarded” the DOT-113 tank car’s history of failure and ignored significant risk by failing to include car limits or speed limits for rail cars transporting LNG.²²

The D.C. Circuit Court Ruling

The D.C. Circuit sided with petitioners and vacated the LNG-by-Rail Rule. Judge Florence Pan authored the opinion, joined on the panel by Judges Patricia Millet and A. Raymond Randolph. Even though the LNG-by-Rail Rule was suspended and there was at least the theoretical possibility of pending rulemaking, the court concluded that the case was ripe for review. The court found that transporting LNG by rail poses a “low-probability but high-consequence risk” to the environment in the case of a derailment.²³ The spread of a “suffocating vapor cloud” or an “explosion” of the flammable material were “real possibilities” that PHMSA failed to consider in its EA, according to the decision.²⁴ The court held that PHMSA should have considered the history of DOT-113 car derailments—two derailments in the last four years—and concluded that the risk of another derailment was “neither remote nor speculative.”²⁵ Given the small number of DOT-113 cars in use and the history of failure, the court held that PHMSA’s assessment of environmental risk was insufficient.

Additionally, The D.C. Circuit held that by failing to impose a speed limit on rail cars transporting LNG or limit the number of LNG tank cars per train, the LNG-by-Rail Rule increased the risk of environmental impact from derailment.²⁶ Although PHMSA did impose additional safety controls and mandated upgrades to the DOT-113 car, the court was unsatisfied by the safeguards and noted that PHMSA failed to explain how specific procedures were “adequate to address the extreme dangers associated with a derailment.”²⁷

The D.C. Circuit concluded that the risk of an accident while transporting LNG by rail under the LNG-by-Rail Rule was sufficiently significant to require an EIS and remanded the LNG-by-Rail Rule to PHMSA for further proceedings.²⁸ The court noted that the LNG-by-Rail Rule “raise[d] substantial environmental questions” that may require further review once an EIS was prepared, but expressed no opinion on the “wisdom of any particular set of safety protocols” for transporting LNG by rail.²⁹

Revisiting the LNG-by-Rail Rule: The Trump Administration

The D.C. Circuit’s ruling—which came down the Friday before President Trump’s inauguration—will add another layer of complexity to any effort to reinstate the LNG-by-Rail Rule. For now, this hurdle remains procedural. To reinstate the LNG-by-Rail Rule, PHMSA will have to prepare an EIS and take into account the environmental risks before approving the transportation of LNG by rail. And while the D.C. Circuit expressed “no opinion on the wisdom of any particular set of safety protocols,” it left the door wide open to later challenges, explaining that “future legal challenges to the substance of that decision would . . . be brought under some other statute, not NEPA.”³⁰

The Trump administration has not made any comment on the D.C. Circuit ruling or the LNG-by-Rail Rule specifically. However, the new administration has taken several actions indicating a substantial departure from the Biden position on natural gas. President Trump’s day-one executive orders have directed federal agencies to begin reviewing any policies that affected domestic energy production. The “Unleashing American Energy” and the “Declaring a National Energy Emergency” executive orders identify the development, transportation, and export of natural gas as a top priority.³¹

As the second Trump administration begins to take form and implement its “American Energy Dominance” agenda, regulating the domestic and international transportation of natural gas will remain a prominent focus. Over the coming months, the incoming leadership at the Departments of Energy, Interior, and Transportation are likely to act on a series of pressing natural gas policy questions. PHMSA will likely review major pipeline-related policies like the “Pipeline Safety: Gas Pipeline Leak Detection and Repair” rule finalized in the last days of the Biden administration but paused subject to President Trump’s “Regulatory Freeze Pending Review” executive order.³² Agencies have been granted emergency authority to “facilitate” domestic energy transportation, specifically on the West Coast, in the Northeast, and in Alaska.³³ The Firm will continue to monitor this rapidly developing area of policy and provide relevant updates on our page.
Trump Administration Rolling Back Consideration of Environmental Justice in Federal Decision-Making

Tue, 04 Feb 2025 00:00:00 -0000
President Donald Trump issued a flurry of executive orders (EOs) in his first hours and days in office. The numerous EOs cover a range of topics, many of which impact environmental regulation and related areas. While many of President Trump’s EOs will be—and already are—facing litigation challenges, and others will require congressional approval prior to full implementation, the EOs nevertheless signal the intention and direction of the Trump administration in the environmental law realm and beyond. One key area at the center of these policy changes is the dismantling of environmental justice (EJ) initiatives and related policymaking. The Trump administration is widely gutting consideration of EJ in federal decision-making, primarily through EO: Ending Illegal Discrimination and Restoring Merit-Based Opportunity and EO: Initial Rescissions of Harmful Executive Orders and Actions, as well as through rescinding a swath of prior EOs, including:
History of Pursuing EJ

EJ has been defined as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations and policies.”¹In 1994, President Bill Clinton issued EO 12898, which was the first time federal agencies were directed to develop strategies for implementing EJ. Clinton’s EO has long been seen as the backbone of modern EJ policymaking in the United States. On 20 January 2025, President Trump revoked Clinton’s EO as part of an overall directive under EO: Ending Illegal Discrimination and Restoring Merit-Based Opportunity, which has a stated purpose of protecting Americans from discrimination by ending the use of diversity, equity, and inclusion (DEI) policies and programs. In repealing the Clinton-era mandate, President Trump said the policies violate federal civil rights laws and “deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identity-based spoils system.”

Biden’s EJ Legacy Dismantled

President Joe Biden and his administration enacted unprecedented and sweeping EJ policy reforms, including an expansion of President Clinton’s EO. This expansion established the “Justice40 Initiative” aimed at ensuring that marginalized or disadvantaged communities received at least 40% of federal benefits relating to the environment, housing, economic development, and other areas. Additionally, the expansion required federal agencies to develop equity action plans to detail their efforts to advance DEI to the agencies’ internal and external activities. On his first day back in office, President Trump rescinded a swath of Biden administration EOs aimed at promoting federal EJ programs. These include: EO 13985, EO 13990, EO 14008, EO 14091, EO 14096, EO 14052, and EO 14082. Some key highlights of these now-rescinded EOs are:
- EO 13985 is President Biden’s day-one initiative establishing government-wide initiatives to advance racial equity and support for underserved communities in federal policies and programs.
- EO 14008 established the Justice40 Initiative and created the White House Environmental Justice Advisory Council and the White House Interagency Environmental Justice Advisory Council. It also required the Council on Environmental Quality to create the Climate & Economic Justice Screening Tool to spatially define “disadvantaged communities” based on various climate, public health, transportation, and energy justice indicators.
- EO 14091 directed federal agencies to undertake additional efforts to advance EO 13985 and required federal agencies to assemble agency equity teams led by a senior official to support equity training and leadership development for staff.
- EO 14096 focused on incorporating EJ into the decision-making of all executive branch agencies and established the White House Office of Environmental Justice, which is responsible for coordinating EJ efforts across the federal government.
Key Takeaways

As expected, President Trump’s return to the White House is substantially shifting the federal government's approach to EJ. While additional future federal efforts to roll back Biden-era EJ initiatives are likely, the focus on EJ by many states will continue. Importantly, states’ EJ laws will not be immediately impacted by the actions of the Trump administration; instead, we expect the rollback of EJ at the federal level will likely encourage many states to more aggressively enact and enforce EJ standards and policies. Indeed, the regulated community should prepare for “blue state”-led regulators and attorney generals to pursue a vigorous counter-response to the Trump administration’s policies, which may include heightened enforcement actions, new state and local EJ rules, and added staffing for state environmental agencies. The firm has assembled a task force that is closely watching EJ developments under the new administration, including impacts at the state level, and is ready to work with clients to understand how these and other changes may impact their businesses.
Loper Bright Strikes Again: Eleventh Circuit Hangs Up on FCC's One-to-One Consent Rule, Calling the Validity of Other TCPA Rules Into Question

Mon, 03 Feb 2025 00:00:00 -0000

The Eleventh Circuit Court of Appeals recently vacated the Federal Communications Commission’s 2023 “one-to-one consent rule” under the Telephone Consumer Protection Act (TCPA). In Insurance Marketing Coalition, Ltd. v. Federal Communications Commission,¹ the Court struck down the order that (1) would have limited businesses’ ability to obtain prior express consent from consumers to a single entity at a time, and (2) would have restricted the scope of such calls to subjects logically and topically related to “interaction that prompted the consent.”² In particular, the Court held that the FCC exceeded its authority under the plain language of the statute.³ In the wake of the IMC decision, other TCPA regulations may well face the chopping block.

The FCC’s order sought to curtail the practice of “lead generation,” which offers consumers a “one-stop means of comparing [for example] options for health insurance, auto loans, home repairs, and other services.”⁴ In its ruling, the Court looked to the authority Congress had extended to the FCC through the TCPA. In general, the TCPA prohibits calls made “using any automatic telephone dialing system or an artificial or prerecorded voice” without “the prior express consent of the called party.”⁵ The statute does not define “prior express consent.”⁶ Congress gave the FCC authority to “prescribe regulations to implement” the TCPA, and to exempt certain calls from the TCPA’s prohibitions.⁷ In its 2023 order, the FCC sought to restrict telemarketing calls by imposing the one-to-one consent restriction and the logically-and-topically related restriction.⁸

Applying the Supreme Court’s decision in Loper Bright Enters. v. Raimondo,⁹ the Eleventh Circuit ruled that in promulgating the 2023 order, the FCC exceeded its statutory authority. The Court found that the plain meaning of the term “prior express consent” nowhere suggests that a consumer can only give consent to one entity at a time and only for calls that are “logically and topically related” to the consent. Rather, the Court ruled, in the absence of a statutory definition, the common law provides that the elements of “prior express consent” are “permission that is clearly and unmistakably granted by actions or words, oral or written,” given before the challenged call occurs.¹⁰ Nothing under the common law restricts businesses from obtaining consent from consumers to receive calls from a variety of entities regarding a variety of subjects in which they are interested.

In the wake of the IMC decision, other TCPA regulations may be ripe for challenge, including the FCC’s 2012 determination that calls introducing telemarketing or solicitations require prior express written consent. For example, in IMC, the Court held that the FCC cannot create requirements for obtaining prior express consent beyond what the plain language of that term will support. And the Court delineated the common law elements of prior express consent, which the Court found can be “granted by actions or words, oral or written.”¹¹ Under this reasoning, the Court held that “the TCPA requires only ‘prior express consent’—not ‘prior express consent’ plus.”¹² This reasoning may well support a challenge to the prior express written consent rules. After all, nothing in the plain meaning of the term “prior express consent” requires a writing versus oral consent, and the common law does not appear to support such a distinction. Rather, the requirement of written consent clearly adds to the statutory requirement and for that reason, appears to exceed the FCC’s authority.

Notwithstanding the fact that the FCC imposed the prior express written consent rule more than 10 years ago, another recent decision from the Supreme Court suggests that new entrants to the lead-generation industry have standing to file a challenge. In Corner Post, Inc. v. Board of Governors of Federal Reserve System,¹³ the Supreme Court ruled that new market entrants impacted by federal rules have standing to challenge those rules within the statutory period that runs from the date of market entry. The firm will continue to follow challenges to the FCC’s rulemaking authority, including any challenges to the prior express written consent rule.
REBO Quarterly: 2024 in Retrospect

Mon, 03 Feb 2025 00:00:00 -0000

REBO Quarterly is a newsletter showcasing legislative priorities, industry shifts, and new restrictions governing real estate and beneficial ownership at both state and federal levels in the United States. It examines bills that were introduced and successfully enacted by state legislatures, as well as ongoing bills and decisions extending into the future, so real estate owners and operators can stay informed.

IN THIS ISSUE

State-Level Real Estate Beneficial Restrictions on Ownership

•   Successfully Enacted State Beneficial Ownership Bills
•   Corporate Ownership Spotlight
•   Ongoing Rulemaking and Court Challenges

Federal-Level Restrictions on Beneficial Ownership of Real Estate

2025 Forecast

•   Federal Level
•   State Level

View REBO Quarterly – Volume 1
President Trump Orders Additional Tariffs on Imports From Canada, China, and Mexico

Sun, 02 Feb 2025 00:00:00 -0000
On 1 February 2025, President Trump announced that the United States plans to impose additional tariffs on imports from Canada, China, and Mexico to address “the sustained influx of illicit opioids and other drugs” into the United States which is having “profound consequences on our Nation, endangering lives and putting a severe strain on our healthcare system, public services, and communities.”

In sum, the US tariffs will:
- Increase tariffs on goods from Canada and Mexico to 25% (oil imports from those countries will be subject to a 10% additional tariff);
- Increase existing tariffs on imports from China (such as normal customs duties and Section 301 duties) by a 10% additional tariff; and
- Should Canada, China, or Mexico impose retaliatory tariffs, the US tariffs will be increased further.
The US tariffs will go into effect at 12:01 am ET on 4 February 2025. Goods in transit as of 12:01 am ET 1 February will not be subject to the additional tariffs.

Duty drawback will not be allowed on subject imports, and subject imports will not be eligible for the Section 321 “de minimis” exception for small shipments to individual consumers valued at less than $800.

Retaliation by the impacted countries is likely to also take effect shortly, pending a resolution of the disputes.

The text of the first of the Executive Orders (EO) to be released, addressing tariffs on imports from Canada, is available here. A fact sheet issued by the White House explaining the rationale for the tariffs is available here.

Of particular note for companies and investors with interests in US energy, metals, transportation, and manufacturing markets, the Canada tariff EO defines the scope of “energy” and “energy resources” covered by the 10% duty rate by reference to section 8 of EO 14156 of 20 January 2025. EO 14156, in turn, defines “energy” and “energy resources” as:

Crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals, as defined by 30 U.S.C. 1606 (a)(3).

“Critical minerals” within the meaning of 30 U.S.C. 1606(a)(3), in turn, are currently defined by regulations issued by the US Geological Survey (via determination issued in 2022) as any of:

Aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium.

Thus, the latest EO has the effect of re-imposing 10% duties on aluminum imports from Canada. It also means that the 25% duties on steel products from Canada have returned (because steel is not currently defined as a “critical mineral.”) In 2018, President Trump imposed tariffs of 25% and 10%, respectively, on steel and aluminum imports from Canada and Mexico under the authority of Section 232 of the Trade Expansion Act of 1962. Those Section 232 tariffs were withdrawn in 2018 following agreements with Canada and Mexico.

Lastly, in a late-night press conference on 1 February outgoing Canadian Prime Minister Trudeau gave some details on the retaliatory measures Canada will take. These will reportedly include 25% tariffs on $155 billion (Canadian) in US imports into Canada. $30 billion of these tariffs will be imposed on 4 February 2025. A further $125 billion will be imposed on 21 February to allow Canadian companies to find alternatives to US sources. The tariffs will be “far reaching” and will specifically target imports that Canada believes to be politically sensitive in the United States, including Canadian imports of US beer, wine, and bourbon, fruits, orange juice, consumer products, appliances, lumber, and plastics. In addition, Canada is considering with the governments of the Canadian provinces and territories several non-tariff measures including several related to critical minerals. Canada is coordinating with Mexico in response to US tariffs. Lastly, Prime Minister Trudeau called for Canadians to avoid purchasing US products and going to the United States for travel.

Our Washington, D.C., international trade team is closely monitoring these developments. Please reach out with any questions.
The Changing Landscape of AI: Federal Guidance for Employers Reverses Course With New Administration

Fri, 31 Jan 2025 00:00:00 -0000

In the midst of the multiple executive orders issued in the first days of the Trump administration, on 23 January 2025, the White House issued an executive order entitled Removing Barriers to American Leadership in Artificial Intelligence (AI EO). At a high level, President Trump issued the AI EO to (1) implement the revocation of President Biden’s executive order on artificial intelligence (AI), entitled the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (EO 14110) and (2) create President Trump’s AI action plan to ensure that AI systems are “free from ideological bias or engineered social agendas.” As a result of the AI EO, the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL) pulled or updated a number of AI-related publications and other documents from their websites. This alert provides an overview of the AI EO as well as the changes to guidance from the EEOC and DOL. It also outlines best practices for employers to ensure compliance at both the federal and state levels.

Revocation of President Biden’s EO 14110

Similar to the White House’s executive order entitled Protecting Civil Rights and Expanding Individual Opportunity (DEI EO)¹ issued on 21 January 2025, the AI EO implemented the revocation of an executive order on the same subject issued during the Biden administration, EO 14110. EO 14110 required the implementation of safeguards (i) for the development of AI and (ii) to ensure AI policies were consistent with the advancement of “equity and civil rights.” EO 14110 also directed agencies to develop plans, policies, and guidance on AI, which they did before the end of 2024.

In connection with rescinding EO 14110, the White House issued a fact sheet and asserted that EO 14110 “hinder[ed] AI innovation and impose[d] onerous and unnecessary government control over the development of AI”. It directed executive departments and agencies to revise or rescind all actions, including policies, directives, regulations, and orders, taken under EO 14110 that are inconsistent with the AI EO. Further, the AI EO mandates that the director of the Office of Management and Budget (OMB) revise OMB Memoranda M-24-10 and M-24-18 (which address the federal government’s acquisition and governance of AI) within 60 days. To the extent that an action cannot be immediately suspended, revised, or rescinded, then the AI EO authorizes agencies to allow exemptions until the actions may be suspended, revised, or rescinded.

AI Action Plan

As part of its stated goal to “enhance America’s global AI dominance in order to promote human flourishing, economic competitiveness, and national security,” the AI EO directs the assistant to the president for science and technology, the special advisor for AI and crypto, and the assistant to the president for national security affairs to develop an AI action plan within 180 days. Such AI action plan will be developed in coordination with the assistant to the president for economic policy, the assistant to the president for domestic policy, the director of the OMB, and any relevant heads of executive departments and agencies.

Updates to Existing Federal Agency Guidance on AI

Dovetailing with the AI EO, on 27 January 2025, the EEOC removed AI-related guidance² from its website. This guidance, published in May 2023, addressed how existing federal anti-discrimination law may apply to employers’ use of AI when hiring, firing, or promoting employees.

Similarly, the DOL noted on its website that the “AI & Inclusive Hiring Framework"³ published in September 2024 by the Partnership on Employment & Accessible Technology, and the DOL’s October 2024 “Artificial Intelligence Best Practices”⁴ guidance may now be outdated or not reflective of current policies. Both publications are also unavailable in certain locations in which they were previously accessible.
While the DOL and the EEOC updated and removed their AI-related guidance respectively, the Office of Federal Contract Compliance (OFCCP) website still maintains its 29 April 2024 nonbinding guidance on how federal contractors and subcontractors should use AI to ensure compliance with existing equal employment opportunity obligations under federal law.⁵

Best Practices for Employers

As with any change to executive branch and federal agency guidance, employers should continue to monitor developments that may impact AI-related policies. Further, employers should review current AI policies for compliance with the recent executive branch equal employment guidance related to diversity, equity, and inclusion.⁶ While guidance and enforcement priorities at the federal level have changed, employers must still comply with the various state-level regulations on AI, as many states have passed regulations addressing the use of AI in employment decisions.⁷ For example, in 2019, Illinois enacted the Artificial Intelligence Video Interview Act, whereby employers who use AI to analyze video interviews must provide notice to the candidate, obtain their consent, and provide an explanation of the AI technology used. Illinois also amended the Illinois Human Rights Act⁸ to prohibit discrimination by employers who utilize AI in recruitment, hiring, promotion, professional development, and other employment decisions. More recently, in 2024, Colorado enacted a law in 2024 that prohibits algorithmic discrimination in “consequential decisions,” which is defined to include those related to employment or employment opportunity.⁹ Moreover, with this shift in guidance at the federal level, employers should anticipate increased state and local regulation of AI in employment.¹⁰

Conclusion

There are likely to be many more developments in the coming days and weeks. Our Labor, Employment, and Workplace Safety practice regularly counsels clients on the issues discussed above and is well-positioned to provide guidance and assistance to clients on these significant developments.
Trump 2.0 Executive Orders; Shock and Awe

Thu, 30 Jan 2025 00:00:00 -0000

Overview

Since his inauguration on 20 January 2025, President Donald J. Trump has signed dozens of executive orders and presidential memoranda on topics including, but not limited to, energy and the environment; immigration; international trade; foreign policy; diversity, equity and inclusion (DEI); transforming the civil service and federal government; and technology. These presidential actions include recission orders of Biden-era regulations, withdrawal orders from international organizations and agreements, and orders implementing the administration’s affirmative policy objectives. These actions are indicative of the broader “America First” policy agenda set forth by President Trump throughout his campaign and signal key priority areas for his administration in the coming months.

In response to the evolving environment of the Executive Branch, K&L Gates has launched an initiative, entitled Guiding Through Change: Understanding Policy Shifts in the Trump Administration, in order to monitor the ongoing developments from the Trump White House.

End of the Biden Era

It is typical for an incoming president to issue a series of executive orders rescinding prior executive actions that conflict with the new administration’s agenda. For example, in former President Biden’s first 100 days in office, he reversed 62 of President Trump’s executive orders from his first term in office. In his first week back in office, President Trump has rolled back over 50 of President Biden’s executive actions. These Biden-era policies included topics such as ethics requirements for presidential appointees, COVID-19 response mechanisms, the enactment of health equity task forces, labor protections for federal workers, and efforts to mitigate climate change, among others.

In addition to rescinding former President Biden’s executive orders, President Trump issued a series of orders that temporarily suspended pending rules and programs of the Biden administration. First, President Trump instated a regulatory freeze pending review on all proposed, pending, or finalized agency rules that have not yet been enacted. The freeze includes finalized rules that went unpublished in the Federal Register before the end of the Biden administration, published rules that have not yet taken effect, and any “regulatory actions . . . guidance documents . . . or substantive action” from federal agencies. President Trump also issued a hiring freeze on any new federal civilian employees, exempting military and immigration enforcement positions.

Moreover, the Office of Management and Budget (OMB) issued an internal memo on Monday temporarily pausing federal grants, loans, and other financial assistance programs. However, the OMB later clarified that the pause only applies to programs implicated by seven of President Trump’s executive orders, and was particularly meant to target, among other things, ending policies such as “DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” Shortly before it was to take effect, a temporary stay was issued by the U.S. District Court for the District of Columbia through 3 February 2025. On Wednesday, OMB announced that the original memo has been rescinded in light of widespread confusion on its potential implications. The seven individual EOs originally mentioned still remain effective.

Looking Ahead: President Trump’s Agenda

Through this round of executive actions, President Trump has demonstrated his intention to utilize the full power of the presidency, in tandem with Republican control of Congress, to quickly enact his “America First” agenda. President Trump has identified key policy areas he plans to address in his second term, which primarily include energy dominance, immigration enforcement, global competition, undoing “woke” Biden-era policies, and American independence.

In keeping with these campaign priorities, he has ordered the end of DEI within the federal government and directed federal agencies to investigate DEI efforts in the private sector, declared national emergencies on energy and immigration, ordered a review of U.S. trade imbalances in preparation for widespread tariffs, delayed the ban on TikTok, withdrew from the World Health Organization and Paris Climate Agreement, elevated domestic artificial intelligence (AI) technology, and renamed the Gulf of Mexico to the “Gulf of America.”

Conclusion

Although the Trump administration has a clear and focused policy and regulatory agenda, and can work alongside a Republican-led Congress, narrow margins of majority remain in both chambers which will, at times, necessitate bipartisanship. As such, we expect President Trump to continue working to take action on issues in which he can act unilaterally so as to narrow the scope of policies that congressional Republicans must work to either enact via the budget reconciliation process, or build consensus with their Democrat counterparts.

K&L Gates: Tracking Updates From the Trump Administration

K&L Gates is well positioned to continue assisting clients in navigating this rapidly evolving federal policy and regulatory landscape. The K&L Gates’ Guiding Through Change initiative is continuing to monitor new actions from the White House and federal agencies to provide analysis on widespread industry ramifications. We will update the initiative’s landing page on an ongoing basis to provide insights on the latest updates.

To find executive actions from the Trump White House as they are released, as well as more detailed information and fact sheets, visit the White House Presidential Actions page here .
How to Successfully Transfer Your Manufacturing Plant From Mexico to the United States

Thu, 30 Jan 2025 00:00:00 -0000

President Trump’s promise to impose a new 25% tariff on goods produced in Mexico has prompted many companies to consider alternatives to their current or planned operations in Mexico. The decades following the 1994 North American Free Trade Agreement (NAFTA) saw enormous industrial investment in Mexico, especially in northern cities like Monterrey, Tijuana, Chihuahua, and Baja California.¹ The benefits of producing goods in Mexico were clear – low labor costs, modest transportation costs to the United States, and reduced tariffs under NAFTA. These benefits, however, could be eclipsed by a new 25% tariff on Mexican origin goods. Companies with industrial plants that have tight profit margins are in a precarious position, so it is not surprising that many are now “looking to shift operations to the US to avoid these additional costs and reroute cargo from Mexican ports to US ports.”²

The automotive sector is a prime example of an industry that will be significantly impacted by the proposed tariffs, if implemented. The United States imported more than US$86 billion worth of motor vehicles from Mexico and more than US$63 billion of auto parts from Mexico last year, according to US Department of Commerce data, excluding December.³ This reflects the major investments automotive manufacturers and their suppliers made in Mexico in the years since NAFTA. It also reflects the extent to which Production in Mexico and the US became highly integrated, with producers in both countries (and Canada) relying on a free flow of parts and finished goods across borders. New tariffs, therefore, pose a major challenge to the status quo.

The question of whether to shift operations from Mexico to the United States requires a careful cost-benefit analysis to determine if there is an opportunity to increase profits by relocating to the United States. But, once this analysis is complete, how does one evaluate the opportunity? Proactive planning is essential. For example, when evaluating potential moves, it is important to: (1) select an ideal site that meets the utility and labor needs of the plant; (2) negotiate and maximize economic incentives; (3) conduct real estate due diligence and analyze real estate documents for the facility and its operations; (4) review the tax and corporate considerations with respect to the transaction; and (5) analyze supply chains to ensure products produced or processed in the United States will meet US country of origin standards.

For companies facing these challenges, the firm can assist in finding a successful solution. The firm has an internationally recognized Global Location Strategies practice and an experienced Policy and Regulatory practice with special capabilities in international trade regulation. We have strong relationships with federal, state, and local economic development and government officials all over the United States. This enables our clients to gain government assistance with evaluating when and where to move their operations in the United States. The firm has obtained incentives up to a billion US dollars for our clients and has assisted with finding the perfect site for our clients through our strong relationships with federal, state, and local governments and agencies.

Now is the perfect time to explore relocating to the United States, as doing so will better position your company to navigate future disruptions and obtain the best incentives possible when making use of the firms' years of experience and success in obtaining those incentives.

For more information on ways we can help you with global location strategies, please contact our Real Estate team.
Guide to the 119th Congress

Thu, 30 Jan 2025 00:00:00 -0000

The national election produced a historic result in which Donald J. Trump was elected President a second time by winning key battleground states such as Pennsylvania, Wisconsin, Michigan, Georgia, Arizona, Nevada, and North Carolina.

The election will significantly change the power balance of Congress, as Republicans have regained control of the US Senate with 53 Republican Senators following GOP flips in West Virginia, Ohio, Pennsylvania, and Montana. This Senate GOP margin will allow Republicans to control the agenda in the Senate as all the committee chairs and Senate leadership positions will be filled by Republicans.

Republicans have also maintained their majority in the US House, as vulnerable incumbent Republicans largely defended their seats and Republican losses in California and New York were matched with four wins in Democratic-held districts in Colorado, Michigan, and Pennsylvania. This win results in Republicans achieving the long-sought-after governing trifecta, enabling Congress to use a special expedited legislative process called “reconciliation” to advance high-priority budget and tax measures.

To help you assess the 2024 election, we have prepared a comprehensive guide that summarizes the results and their impact on the 119th Congress, which convened in January 2025. The election guide lists all new members elected to Congress, updates the congressional delegations for each state, and provides a starting point for analyzing the coming changes to the House and Senate committees.

Please click here to download the most up-to-date version of the guide.

For additional information regarding how the 2024 election will affect Congress, please contact Tim Peckinpaugh or any member of the K&L Gates Public Policy and Law practice.
2025 Global Corporate Practice Transaction Highlights

Wed, 29 Jan 2025 00:00:00 -0000

The 2025 Global Corporate Practice Transaction Highlights publication presents a comprehensive overview of significant deals executed across our five-continent platform over the past year. This annual release features client spotlights and emphasizes our global, cross-industry approach to delivering value-driven solutions that align with our clients' business goals. The publication covers a range of transactions, including mergers and acquisitions, joint ventures, public offerings, and various financings.

As a globally integrated firm with a client-focused, solutions-driven Corporate practice, we are dedicated to providing pragmatic legal advice that enhances our clients' businesses in the expanding global economy. Serving as primary outside legal counsel to numerous middle-market enterprises, we address critical issues across diverse industries such as health care, life sciences, manufacturing and industrials, technology, financial services, energy, food and beverage, and consumer products.

To view the tombstone publication, please click here.

Our transaction highlights brochure is released annually and reflects transactions completed in the previous calendar year.
Brussels Regulatory Brief: Winter 2024-2025

Tue, 28 Jan 2025 00:00:00 -0000

Antitrust and Competition

European Commission Imposes a Total Fine of €5.7 Million for Restricting Cross-Border Sales

On 28 November 2024, the European Commission imposed a total fine of €5,737,000 million on a company active in the fashion industry and its largest licensee for breaching Article 101(1) of the Treaty on the Functioning of the European Union by restricting cross-border sales of the fashion brand’s products, as well as sales of such products to specific customer.

Sanctions

Additional Clarity on Obligation to Ensure Sanctions Compliance of Subsidiaries

The European Commission has published clarifications on EU companies’ obligation to undertake best efforts to ensure that also their non-EU subsidiaries do not participate in activities that undermine EU sanctions.

Financial Affairs

European Supervisory Authorities (ESAs) Release Joint Report on Principal Adverse Impact Under Sustainable Finance Disclosures Regulation (SFDR)

The three EU financial supervisory authorities issued their annual report on the functioning of SFDR and the disclosure of principal adverse impacts by financial market participants.

European Commission Adopted Delegated Regulation Postponing Basel III Implementation

The European Commission adopted a delegated regulation postponing the applicability of Basel III funds requirements to 1 January 2026.

ANTITRUST AND COMPETITION

European Commission Imposes a Total Fine of €5.7 Million for Restricting Cross-Border Sales

On 28 November 2024, the European Commission (Commission) imposed a total fine of €5,737,000 million on a company active in the fashion industry (Company), which received a fine of €2,237,000, and to its largest licensee (Licensee), which received a fine of €3,500,000, for breaching Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).

Article 101(1) TFEU prohibits agreements and concerted practices that may affect trade and prevent or restrict competition within the European Union Single Market (EU Single Market). The Commission decision follows its investigation launched in January 2022 into alleged sales restrictions under licensing agreements for the production and distribution of the Company’s products. The Commission’s investigation was initiated following unannounced inspections (also known as “dawn raids”) conducted on 22 June 2021, at the premises of the Licensee.

The Commission found that, for more than 10 years, the Company and the Licensee entered into anticompetitive agreements and concerted practices in order to prevent other licensees from selling the Company’s branded clothing both offline and online: (i) outside their licensed territories; or (ii) to low-price retailers (e.g., discounters) that offered the clothing to consumers at lower prices. The Commission stated that these practices prevented retailers from being able to freely source products in EU Member States with lower prices and artificially partitioned the EU Single Market. It also found that the ultimate objective of such coordination was to ensure that the Licensee benefited from absolute territorial protection in the countries covered by its licensing agreements. The Commission calculated the fine according to various factors, such as the serious nature of the infringement, its geographic scope, and its duration. Moreover, the Commission stated that, further to a claim for inability to pay the fine, it granted a reduction of the fine to one of the companies involved. This may explain why the Licensee’s fine was higher than the Company’s fine.

This investigation is in line with two other investigations into the fashion industry that the Commission launched with unannounced inspections in May 2022 and April 2023. Due to priority reasons, the 2022 investigation was closed in 2024 whereas the other investigation is still ongoing. The Commission’s decision in the present case is consistent with its recent enforcement trends regarding price differences and territorial supply constraints impacting the EU Single Market. On 23 May 2024, the Commission imposed a fine on one of the leading manufacturers of chocolate, biscuits, and coffee products of €337.5 million for restricting cross-border trade within the EU Single Market. In addition, shortly after this decision, the Commission announced that it will launch an EU fact-finding investigation to assess perceived territorial supply constraints that could impact cross-border trade between the EU Member States. As it was the case with the energy and pharmaceutical EU sector inquiries, the Commission’s sector inquiry into territorial supply restraints is expected to lead to enforcement actions and legislative measures aimed at tackling the identified barriers.

SANCTIONS

Additional Clarity on Obligation to Ensure Sanctions Compliance of non-EU Subsidiaries

On 24 June 2024, the European Union adopted its 14th package of sanctions against Russia. A notable addition was made to Article 8a of Council Regulation (EU) No 833/2014, which introduced the requirement that EU operators “undertake their best efforts to ensure that any legal person, entity, or body established outside the [European] Union that they own or control does not participate in activities that undermine the restrictive measures provided for in [the] Regulation.” A similar clause has been included also in the Belarus sanctions framework.

On 22 November 2024, the Commission published frequently asked questions (FAQs) to clarify the “best efforts” obligation. The Commission explained that EU operators will in principle be liable if they are aware of, and accept, that any non-EU entities that they own or control are undermining EU sanctions, since they cannot be considered as having undertaken their “best efforts” in ensuring compliance, i.e., undertaking all necessary, suitable, and feasible actions to prevent such undermining. However, the efforts requested should only be those that are considered “feasible”, depending on the “nature… size and the relevant factual circumstances” of the EU operator, particularly the extent of “effective control over the legal person, entity or body.” EU operators will not be expected to exercise control over their subsidiaries when they do not have a power to effectively influence the subsidiary’s behavior. However, this will not apply if the loss of control was caused by the EU operator itself, such as due to inadequate risk assessments or unnecessary risk-prone decisions.

EU operators may be able to show they undertook their “best efforts” for example by establishing and operating internal compliance programs, regular sharing of compliance standards and adopting mandatory training and reporting requirements for all their subsidiaries.

The FAQs reaffirm the European Union’s determination to broaden and strengthen the application of sanctions in order to hinder Russia’s military action in Ukraine. Whilst the FAQs do not represent binding obligations, they are reflective of the Commission’s intentions and could be relied upon by EU enforcement agencies. Operators are, therefore, encouraged to take a proactive approach to ensure adherence to compliance measures also by their non-EU subsidiaries.

FINANCIAL AFFAIRS

ESAs Release Joint Report on Principal Adverse Impact under SFDR

On 30 October 2024, the European Supervisory Authorities (ESAs) comprising the European Securities and Markets Authority, the European Banking Authority, and the European Insurance and Occupational Pensions Authority, published a joint report on principal adverse impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR).

The report examines the quality and compliance of disclosures provided by financial market participants, highlighting significant improvements in this area. Many firms have adopted clearer templates and methodologies for reporting adverse sustainability impacts, making their disclosures more accessible to investors. Best practices include the use of dedicated sustainability sections on company websites, explicit descriptions of actions taken to mitigate adverse impacts and detailed methodologies for data collection and indicator calculations.

However, the ESAs underline that smaller firms, which can voluntarily disclose PAI information, continue to lack full alignment with SFDR requirements. Common issues include vague or incomplete information, unclear methodologies, and a lack of quantifiable targets. The ESAs also identified several challenges in implementing and supervising PAI disclosures. Disparities in data availability, inconsistent methodologies, and resource constraints among smaller financial market participants limit the comparability and reliability of their disclosures.

To address these issues, the authorities have proposed several recommendations for both the Commission and national competent authorities, including reducing the frequency of ESAs’ reports from annual to biennial or triennial frequency to allow more in-depth analysis, refining proportionality thresholds for mandatory disclosures to better reflect the size and impact of investments rather than employee counts, and enhancing supervisory tools such as technology-driven data analysis and targeted outreach programs.

In a related development, on 1 December 2024 the new Commissioner for Financial Stability, Financial Services and Capital Markets Union, Maria Luís Albuquerque, took office. President von der Leyen specifically tasked her to explore ways to promote a transparent categorization of financial products and services with sustainability features. During her mandate, she will therefore lead the review of SFDR, for which a public consultation was conducted in September 2023.

Commission Adopted Delegated Regulation Postponing Basel III Implementation

On 31 October 2024, the Commission adopted a delegated regulation amending the Capital Requirements Regulation and delaying the implementation of the Basel III reforms in the Fundamental Review of the Trading Book (FRTB) standards for calculating own funds requirements by one year.

The FRTB standards, developed by the Basel Committee on Banking Supervision, were introduced to improve the risk sensitivity and robustness of market risk frameworks for banks. These standards were transformed into binding calculation requirements for banks in 2024, however, with several global jurisdictions delaying their implementation, the EU faced competitive disadvantage risks for its financial institutions. The delegated regulation thus postpones the FRTB’s application to 1 January 2026, while requiring institutions to continue reporting market risk exposures under pre-FRTB approaches until then.

The postponement also aligns related disclosure requirements, ensuring consistency while maintaining market discipline. Institutions will continue to disclose pre-FRTB market risk metrics during the transitional period to support transparency and investor confidence. The postponement underlines the Commission’s strategic approach to balance prudential stability with global regulatory alignment.
Carried Interest and Co-Investment Plans: A Primer for Asia-Based Private Fund Managers

Mon, 27 Jan 2025 00:00:00 -0000

This publication is issued by K&L Gates in conjunction with K&L Gates Straits Law LLC, a Singapore law firm with full Singapore law and representation capacity, and to whom any Singapore law queries should be addressed. K&L Gates Straits Law is the Singapore office of K&L Gates, a fully integrated global law firm with lawyers located on five continents.

Management team participation in the performance of the funds they manage—through carried interest and co-investment plans—has long been a regular feature for private equity, real estate, venture capital, and other private funds in the US funds industry. Increasingly in recent years, many Asia-based private fund managers have implemented similar programs.

Fund manager carried interest and co-investment plans offer several advantages, including (a) attracting and retaining top talent, (b) providing “skin in the game” to align participant interests with the interests of the manager and external investors, (c) maximizing upside potential for participants while reducing the out-of-pocket costs and downside risk of higher fixed compensation, (d) fostering a long-term commitment by participants to the manager, and (e) potential tax efficiencies, as further discussed herein.

This article summarizes the key characteristics of fund manager carried interest and co-investment plans from the perspective of an Asia-based manager, including structuring alternatives, key terms and market practice, and tax and regulatory considerations.

Comparison of Carried Interest and Co-Investment Plan Components

Under a “carried interest plan,” each participant shares in the carried interest (i.e., profit distributions) distributed by one or more of the manager’s funds without necessarily needing to make a passive investment. On the other hand, under a “co-investment plan,” the fund manager typically requires each participant to make a passive investment in one or more of the funds managed by the manager, thereby entitling participants to a return of capital and any profits from such investment(s).

Many managers combine the elements of a “co-investment plan” and a “carried interest plan” into a single plan, so that participants would both (a) make a passive investment in one or more of the manager’s funds, thereby benefiting from the investment returns; and (b) hold a right to receive a portion of the carried interest distributed in respect of such fund(s).

Participant Co-Investment Plans vs Limited Partner Co-Investment Rights

The term “co-invest” often has a different meaning in the context of a participant plan as compared to a third-party limited partner (LP)’s co-investment right in a fund. A third-party LP’s “co-investment right” in a fund typically confers on the LP, which will separately hold exposure to a fund’s portfolio investments through its capital commitment to the fund, the option to invest additional capital into specific portfolio investments of the fund. This allows the LP to increase its exposure to certain investments of choice.

In contrast, the term “co-investment” in the context of a participant plan (and as used generally in this article) often refers to a participant’s passive investment in a fund (i.e., its capital commitment), which typically exposes the participant to the performance of all of the fund’s portfolio investments. Similarly, many managers use the term “GP co-invest” to describe the capital commitment (i.e., the “sponsor commitment”) of a general partner (GP) or its affiliates to a fund. Market practice varies on this point, as further discussed in “Fund-Wide vs Deal-by-Deal Participation” below.

Structuring Alternatives

A carried interest and co-investment plan could be structured as either (a) an equity arrangement, where participants hold equity in the vehicle that receives carried interest (the Carry Vehicle); or (b) a contractual arrangement, under which participants are contractually entitled to receive payments of cash based on a fund’s performance.

In an equity arrangement, a participant would subscribe for an interest in a designated Carry Vehicle, which could be either the GP of the relevant fund or another entity established for the specific purpose of receiving the fund’s carried interest and making the team’s investment to the fund. Any such specially formed entity typically would invest into the fund as an LP and would be known as a special limited partner (SLP). A participant’s co-investment pursuant to an equity arrangement typically would also form a part of the GP’s required “sponsor commitment” to the fund.

It can be simpler and less costly to run a carried interest and co-investment plan through the GP entity itself, rather than through an SLP. That being said, using an SLP is more common for established managers because (a) a fund’s GP has unlimited liability for the fund’s obligations, while an SLP (as an LP of the fund) does not; (b) admitting plan participants into an SLP (rather than the GP) allows the manager to keep the economics of the plan separate from the “control”decision-making rights and function of the GP; (c) a manager may wish to structure the SLP differently (e.g., in a different jurisdiction) from the fund and the GP for administrative or other reasons; and (d) while a new GP should be established for each successive fund, some managers will continue to use the same SLP for multiple funds.

Alternatively, a manager could structure the plan as a contractual arrangement (rather than an equity arrangement) between the manager and each participant, whereby each participant holds a contractual right to receive an amount of cash as determined by reference to the timing and amounts of carried interest or other amounts distributed by the fund. A contractual approach is generally lower cost and administratively more convenient, as a participant’s contractual rights could be memorialized in the participant’s standard employment or consulting agreement, or a simple letter agreement, rather than requiring full-form documentation for an equity interest in a vehicle. However, in certain jurisdictions (including Hong Kong and Singapore), a contractual approach would likely be less tax efficient, as further discussed in “Tax Considerations” below.

Key Terms and Market Practice

A manager should consider the following key terms when structuring a carried interest and co-investment plan:

Source of Funding for Co-Investment

A key aspect of a co-investment plan is the source of funding for each participant’s co-investment, typically among the following options:

The “Standard” Cash Approach

Each participant funds the co-investment out of pocket in the form of capital contributions over time, in the same manner as other investors in the relevant fund(s). This is the simplest approach, but it also could be burdensome for participants and the manager. For example, for a participant with a modest commitment, it may be inconvenient to fund many small capital calls. With this in mind, a common variation would be for each participant to make periodic cash contributions (e.g., quarterly or annually) independent of the fund’s normal capital call schedule.

The “Deemed Loan” Approach

The manager extends a loan to the participant representing all or a portion of the participant’s investment amount. Under this approach, the loan is typically repaid to the manager out of future distributions in priority over payments to the participant until the loan is fully repaid. It is also possible for the loan to be “nonrecourse,” such that the loan is subject to repayment only out of distributions, and the participant would not be required to pay in any capital, even if distributions are insufficient to pay out the loan. Of course, this nonrecourse approach would add more downside risk to the manager.

The “Free Share” Approach

The manager would fund a participant’s co-investment amount on the investor’s behalf, potentially representing a key component of the participant’s compensation package. This approach could align incentives between a manager and a participant by more efficiently tying compensation to fund performance than cash compensation. In addition, vesting conditions could further incentivize the participant to remain with the firm. However, in addition to manager-funded contributions being taxable to the co-investor, this approach also could reduce the likelihood of favorable tax treatment on the participant’s carried interest. See “Tax Considerations” below.

In any case, participants in a co-investment plan will typically be entitled to receive a share of the fund distributions equal to their pro rata interest in the relevant fund(s) in the same manner as other investors, either directly from such fund(s) or indirectly through the Carry Vehicle.

Fund-Wide vs Deal-by-Deal Participation

As noted above, participation in a co-investment plan would typically provide for exposure to the entire portfolio of each relevant fund (i.e., fund-wide exposure) in the same manner as any other passive investor in the fund. However, some co-investment plans—particularly for larger managers—provide participants the option to increase their exposure to specific portfolio investments (i.e., deal-by-deal exposure).

External investors typically would prefer that any participant’s co-investments be fund-wide (and not deal by deal) to reduce conflicts of interest and the perception that a participant could “cherry-pick” exposure only to the best investments. LPs are particularly concerned because the participants typically include the deal team members with the greatest access to information on each investment.

A manager should separately consider whether participation in carried interest would be on a “fund-wide” or “deal-by-deal” basis, though a “fund-wide” approach is much more common for most types of managers. In the case of a fund-wide participation, a participant’s share of the carried interest would be based on the aggregate carried interest of the fund, regardless of which investments such participant has been involved with. In the case of a deal-by-deal participation, a participant would share in carried interest that is allocable to specific investments.

Key factors driving this decision include (a) the size of the firm and the depth of its infrastructure, (b) the number of participants in the program, and (c) whether or not participants are responsible for only specific deals or a fund’s entire portfolio.

A fund-wide program can better incentivize each participant’s efforts toward the performance of the entire fund, whereas deal-by-deal exposure can allow a manager to incentivize each deal team more efficiently. A fund-wide program is easier to manage administratively than a deal-by-deal program, which requires allocating carried interest (calculated with reference to the entire portfolio across deals) across investments and tracking each participant’s exposure separately. Further, actual carried interest distributions are typically backloaded due to a fund’s standard “distribution waterfall,” which can make it prohibitively difficult to determine how much carried interest to allocate to early dispositions until later in the fund’s life. Some managers will offer a hybrid program whereby participants have exposure to all investments and, in some cases, may have additional exposure to specific investments.

Carry Points

A participant’s right to share in carried interest of a fund is typically quantified in terms of “points,” which correspond to a specified percentage of the overall carried interest distributions with respect to the applicable fund(s) or the specific investments in such fund(s).

Market practice varies widely on the portion of the overall carried interest share to be allocated to the pool of participants, on the one hand, and the founder or institutional manager, on the other hand. Key factors typically include the size and type of a firm, the region or country it is based in, and the firm’s organizational structure and culture. For example, state-owned firms or larger firms would often adopt a more conservative approach to profit sharing, resulting in a lesser carry share allocated to participants. In many cases, firms that offer lower fixed compensation (e.g., new managers that may not yet generate significant management fees) often would look to carried interest allocation as a significant element of the participant’s overall compensation arrangement.

In addition to the founders, carry participants typically include senior officers and investment professionals. Some carried interest plans include a broader range of personnel, such as consultants (e.g., venture partners), junior investment professionals, and potentially even administrative and clerical staff. By carefully considering all available factors, managers can allocate carry points in a manner that incentives peak performance while maintaining a collaborative team environment.

Dilution of Carry Points

Participants in a carried interest plan may be subject to dilution in respect of their share of the carried interest, often subject to limits. Some carried interest plans permit a manager to issue additional points in the future without limitation (i.e., an unlimited pool), which would allow for limitless dilution. However, it is also common for a carried interest plan to establish a fixed number of carry points, such that (a) a portion would be issued to initial participants, and (b) a “reserve pool” (i.e., a portion of the initial fixed number of carry points) would remain available for the manager to issue to existing or new participants.

Any carried interest distributions attributable to carry points in the reserve pool that have not been allocated to participants would typically be for the benefit of the principal(s). In addition, any carry points that are forfeited (due to failure to vest or other reasons, as described in “Vesting of Carry Points” below) would be added back to the reserve pool.

Some carried interest plans provide for two classes of interests: one for founders and other senior executives, and another for rank-and-file team members. In such cases, carry points that are attributable to rank-and-file team members often would not be subject to dilution.

Key interests to balance when considering dilution are (a) the manager’s need for flexibility to scale and bring on new talent, and (b) the participants’ desire for certainty as to their percentage interest in the fund’s carried interest. As carry points are typically allocated fund by fund, a manager with multiple funds or frequent successor funds may have more flexibility to manage this issue over time.

Vesting of Carry Points

Carry points are often subject to “vesting,” permitting participants to retain their points and receive the corresponding carried interest distributions only if they remain involved with the manager or the fund over a particular span of years (i.e., vesting period). Accordingly, vesting arrangements are designed to align participants with the long-term performance of the fund(s) that they manage. While vesting terms (or similar provisions) are standard for carried interest plans, co-investments would not be subject to vesting unless funded by the manager (such that the participant has not put capital at risk).

Vesting provisions are typically structured as follows:

For-Cause Departure

If a participant is required to depart involuntarily and for cause, the participant will typically forfeit all vested and unvested carry points.

Voluntary Departure or Involuntary Departure Without Cause

If a participant departs voluntarily or involuntarily without cause, the participant typically would be entitled to retain any vested carry points but would forfeit any unvested carry points.

Death or Permanent Disability

In the unfortunate event of a participant’s death or permanent disability, the participant (or his or her estate) would typically retain all vested carry points, and all or a portion of any unvested carry points might be deemed vested and retained.

The duration and schedule of vesting periods vary significantly across funds. Conceptually, the vesting period should correlate with the time during which a participant contributes meaningfully to the establishment and ongoing operations of the fund and its investments. Arguably, this period often spans from the start of the fund’s marketing activities to its liquidation date. However, many carried interest plans provide for a vesting period commencing at a fund’s initial closing and ending around the end of the fund’s investment period.

While some vesting schedules provide for “straight line” vesting, whereby entitlements vest in equal instalments over time, other arrangements (e.g., cliff vesting) are also common. For example, some funds would provide for 15% vesting over the first four years (i.e., 60% total), followed by 20% vesting over each of years five and six (i.e., the remaining 40%).

In lieu of a vesting arrangement, some carried interest plans provide for a buy-back mechanism, giving the manager an option to repurchase a participant’s carry points (and, potentially, co-investment) based on a preagreed formulation upon certain triggering events (e.g., the participant ceases to be involved in the management of the relevant portfolio investments).

Restrictive Covenants

Participants in carried interest and co-investment plans are often subject to restrictive covenants that are similar to those commonly included in employment or consulting agreements, typically including (a) noncompete and nonsolicitation provisions, often surviving for six to 12 months following termination of employment; (b) nondisparagement provisions, which prohibit participants from speaking negatively about the firm or its management; and (c) confidentiality obligations. Nondisparagement and confidentiality restrictions often remain in effect for years.

A breach of these restrictive covenants would typically be a “cause” event that, as discussed above, would trigger forfeiture of all vested and unvested carried interest, among other consequences. Even a former participant who had previously ceased to be involved with the manager and the fund on good terms could forfeit any retained carried interest upon subsequent violation of any such restrictive covenant. In addition, such a breach often triggers an option for the manager to repurchase any co-investment interest held by the participant.

Discounts on Management Fee and Carried Interest for Participant Co-Investments

Many managers reduce, or waive entirely, the amount of management fee and carried interest to be borne by the participants in respect of their co-investments, taking the view that it is beneficial for the fund and the manager to have greater team participation. Some larger managers will follow a hybrid approach, offering reduced/waived fees and carried interest for participants for only the funds they are involved in, or only up to a certain investment size.

Compliance With Fund Documents and LP Side Letters

Fund investors will often expect to see provisions in a fund’s governing agreement (e.g., a limited partnership agreement (LPA)) or may proactively request side letter provisions, which restrict or otherwise influence certain dynamics of a carried interest and co-investment plan, as follows:

Minimum Sponsor Commitment

A fund’s LPA typically will require that the manager and its related persons make capital commitments to the fund of at least a specified percentage of the fund’s aggregate commitments. The minimum is often in the range of 1%–5% but could be higher depending on the type of fund and the extent to which the manager is also viewed as a capital partner. A key benefit of a carried interest and co-investment plan is that participant co-investments typically would count toward this minimum sponsor commitment amount.

Clawback Guarantees

A fund’s LPA typically will provide that if the fund receives more carried interest than it should have, measured over the fund’s lifespan, the carried interest recipient(s) must return any excess (net of taxes) for distribution to the fund’s LPs. Often, the LPA will also require that the fund’s GP require each indirect recipient of carried interest to guarantee such recipient’s portion of this obligation. Accordingly, many carried interest plans will require each participant to agree to a “back-to-back” guarantee with respect to such participant’s share of the carried interest.

Change-of-Control Provisions

Some investors in the market will ask the fund’s GP to agree that one or more named persons—or categories of related persons—continue to hold the right to receive a minimum (e.g., 50% or 75%) of the carried interest, in addition to maintaining decision-making control over the GP itself. Such provisions, including whether specific carried interest plan participants would be considered part of this permitted control group, need to be accounted for when budgeting for the future allocation (or transfers) of carried interest rights under the plan.

Anchor Investor Rights

Some investors in the market, in consideration of making a large investment in the fund (e.g., 20% or more of the manager’s first fund), will request to share in a portion of the carried interest borne by all of the fund’s other investors. Similar to the change-of-control provisions described above, a manager will need to account for any such anchor investor allocation when budgeting for future allocation (or transfers) of carried interest rights under the plan.

Tax Considerations

In many jurisdictions, including Hong Kong and Singapore, the tax treatment of income derived by participants from carried interest and co-investment plans can vary based on the structure of such plans and the specific circumstances.

While income in consideration of services is taxable in Hong Kong and Singapore, capital gains are not taxable in Hong Kong or Singapore (unlike in the United States, where capital gains are taxed at a reduced rate).

Accordingly, returns derived from a Hong Kong or Singapore participant’s passive investment (i.e., co-investments funded by the participant) generally should not be taxable in Hong Kong or Singapore (as applicable), though co-investments funded by the manager rather than by the participant (via a deemed loan or free share approach) could raise unique tax issues. Similarly, carried interest often takes the form of a return on investment, the income of which could potentially be treated as capital gains.

Under a contractual approach where a participant holds a contractual right to share in the carried interest, any such distributions would likely be deemed income constituting compensation for services—rather than as return on investment—which would be taxable in Hong Kong and Singapore. An exception for Hong Kong participants is that carry returns allocated to them may be exempt from salaries tax under Hong Kong’s tax concession regime for carried interest, provided the relevant conditions are met. Singapore, however, does not have any similar tax concession regime.

In addition, the timing of granting carried interest rights to a participant (e.g., before or after (a) the fund has made investments, (b) appreciation in value of investments, and (c) distributions) can affect the tax analysis. Managers and participants should also consider the relationship between any vesting provisions and the relevant tax treatment.

The considerations described above similarly impact how carried interest is taxed in Japan, although a manager should discuss any specific Japan tax issues with its Japan tax advisor.

In any case, it is important for both managers and participants to consult with their tax advisors to ensure compliance with local regulations while maximizing the tax efficiency of their carried interest and co-investment plans, taking into account the applicable jurisdiction(s) and the specific facts and circumstances.

Regulatory Considerations

Depending on the structure of the carried interest and co-investment plan, regulations governing the licensing of fund managers and the offering of plan interests may apply in certain jurisdictions. For example, each of Hong Kong, Singapore, and Japan have licensing rules and investor suitability tests that can apply with respect to carried interest and co-investment plan participants depending on the specific circumstances. These rules would not necessarily limit a manager from inviting participants into a plan, but they should be considered on a case-by-case basis with advisors.

Conclusion

As the private funds sector in Asia continues to grow, understanding the nuances of structuring carried interest and co-investment plans is crucial for managers to implement effective team incentive programs. By navigating key terms and tax considerations effectively, managers can establish robust incentive structures to retain top talent, align participant interests with the manager’s long-term goals, and drive growth in an increasingly competitive market.
The Regulation on Markets in Crypto-Assets Becomes Fully Applicable in All Member States of the European Union

Fri, 24 Jan 2025 00:00:00 -0000
Application of Markets in Crypto-Assets Phase I and Phase II

Starting on 30 June 2024, with the application of the first of two introduction phases of the Regulation on Markets in Crypto-assets (MiCA)¹across all member states of the European Union (EU), the EU has introduced for the first time a harmonized regulatory framework as well as accompanying passporting rights for service providers of the crypto-asset market, affecting both traditional institutions of the financial sector and new players emerging in the crypto-ecosystem.²

As of 30 December 2024, the second phase of MiCA, and therefore MiCA in its entirety, is directly applicable throughout the EU.

With the first phase of MiCA’s introduction, the provisions of Titles III and IV of MiCA, governing the authorisation and supervision of both: (i) crypto assets that aim to maintain a stable value by referencing several currencies that are legal tender, one or several commodities, one or several crypto-assets, or a basket of such assets (asset-referenced tokens or ART); and (ii) crypto assets that are intended primarily as a means of payment and that aim to stabilize their value by referencing only one fiat currency (e-money tokens or EMT), became applicable.

The second introduction phase has activated the remaining elements of MiCA regulating crypto-assets other than ART and EMT and regarding providers offering crypto-asset services, referred to as crypto-asset service providers (CASPs).

Several items of second-level legislation (delegated acts) have been either prepared by the European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, as final drafts or have already been issued by the European Commission in December 2024, regarding points such as own funds and qualified holding requirements, stress testing programmes and remuneration policy of issuers of ART and EMT.

Supersession by MiCA of the Local Virtual Asset Service Provider Regime and Transition Period

Prior to the general application of MiCA in all EU member states, providers of services with respect of virtual assets were subject to the supervisory regime under their applicable national law. In Luxembourg, the national legislator introduced the virtual asset service provider (VASP)³regime, supervised by Luxembourg’s financial sector supervisory authority (CSSF). An entity contemplating to provide virtual asset services in Luxembourg is required to register upfront with the CSSF.

With the entry into force of MiCA, the VASP regime is no longer available for first-time registration. As of 30 December 2024, service providers seeking to carry out crypto-asset activities will be required to seek authorisation from their national competent authority (NCA) as a CASP (governed by MiCA). For certain entities already subject to prudential supervision, such as credit institutions and investment firms, it is sufficient to notify their NCA of their intention to provide crypto-asset services. Unlike the VASP regime, which is a purely national (Luxembourg) regime, the CASP regime grants the benefit of EU-wide passporting of activities under MiCA. Service providers already registered in Luxembourg as VASPs benefit from a transitionary regime, permitting them to be treated as CASPs in most respects until 1 July 2026, at which time they will be required to have become authorised CASPs.

ESMA Issues Statement on MiCA Transitional Measures

The 18-month transitional period provided for Luxembourg VASPs is the maximum window permitted by MiCA. MiCA permits EU member states to adopt a transitional period shorter than 18 months for local service providers. To date, 15 EU member states have taken that step and adopted five-, six-, nine- or 12-month transitional periods.⁴

Transitional periods that deviate between EU member states might create uncertainty for VASPs registered as such and providing covered services in multiple EU member states. A statement released by ESMA on 17 December 2024, clarifies that each EU member state’s transitional period will only apply to the provision of covered services provided in that relevant EU member state.⁵

For example, an entity, which is registered as a VASP and seeking a MiCA authorisation as a CASP in a first EU member state with a 12-months transition period, while also serving clients in a second EU member state with a six-month transition period, should take action to ensure compliance at all times with the applicable law of the EU member state with the shorter transition period. In particular, if the authorisation as CASP is granted in the first EU member state only after the transition period in the second EU member state has ended, the entity will not be able to provide crypto-asset services to clients in that second EU member state until it has obtained its authorisation as CASP and can rely on the passporting granted under MiCA.

In its statement, ESMA reminds NCAs across the EU to maintain a thorough picture of the cross-border activities of those service providers applying for a CASP status and to engage in early and continuous dialogue with their counterparts in relevant jurisdictions to mitigate the risk of disruptions in services that could cause harm to such service providers’ clients.

European Supervisory Authorities Joint Guidelines on Standardised Classification of Crypto-Assets

In advance of the entry into force of the second part of, and as contemplated by, MiCA, the three European supervisory authorities (ESAs): (i) the European Banking Authority; (ii) the European Insurance and Occupational Pensions Authority; and (iii) ESMA released on 10 December 2024⁶, a set of joint guidelines to promote the consistent application of MiCA across the EU.

The guidelines intend to facilitate consistency in the regulatory classification of crypto-assets, noting that MiCA does not apply to crypto-assets that are unique and not fungible with other crypto-assets; or which qualify as financial instruments, deposits, insurance and pension products or similar products which are in scope of the relevant sectoral legal framework.

The guidelines include a standardised test for the classification of crypto-assets as well as templates market participants should use when communicating the regulatory classification of a crypto-asset to their relevant NCA.

ESMA Encourages Investor Prudence With Respect of Crypto-Assets

In the context of the full entry into force of MiCA and the sharp rise in value of certain crypto-assets in November 2024, ESMA issued a warning on 13 December 2024⁷, reiterating the inherent risk of investing in crypto-assets and reminding investors that the safeguards provided by MiCA are less extensive than those for traditional investment products.

Comparing MiCA with the frameworks regulating the provision of traditional investment services, ESMA in particular notes, that:
- Crypto-assets are not to be covered by an investor compensation scheme and, consequently, investors face the risk of a total loss, if a CASP is unable to return a crypto-asset to them;
- MiCA does not require all providers of crypto-asset services to collect clients’ information to assess their ability to understand the crypto-asset products they wish to trade;
- Crypto-asset service providers have no obligation to periodically report to clients the crypto-assets they hold on clients’ behalf with their updated or current value; and
- The above-noted transitional period may leave investors without some of the investor-protection resources provided by MiCA until the relevant CASP’s authorisation as a CASP, as, under the VASP regime, an NCA’s power may be restricted to the enforcement of antimoney laundering rules.
Conclusion

The full implementation of MiCA heralds a new era of harmonised supervision for crypto-assets across the EU to provide legal certainty through a flexible legal framework for CASPs and protection for holders of crypto-assets (while remaining less extensive than those in place for traditional investment products), as well as to ensure the overall integrity of the crypto-asset market. The delegated acts in preparation and already issued by the European Commission, along with the supplementary guidance provided by ESMA and the ESAs promise to flesh out the MiCA framework.

For more information on how K&L Gates can assist in ensuring MiCA compliance and navigating through the evolving European crypto-asset regime, please contact any of the authors listed above.
Uncharted Waters: Employers Brace for Significant and Unprecedented Changes to Employment Law Enforcement Under New Administration

Fri, 24 Jan 2025 00:00:00 -0000

As the Trump administration transitioned into power, the White House issued over 25 executive orders in the first days in office addressing a variety of topics including many focused on employment laws. While the flurry of executive orders was more or less expected, the scope of the employment-related orders surpassed that of prior administrations. This alert provides an overview of President Trump’s recent executive order on diversity, equity, and inclusion (DEI) in the federal workforce and private sector, as well as the shift in enforcement priorities for the Equal Employment Opportunity Commission (EEOC). It also outlines certain steps employers can take to adjust to this changing regulatory landscape.

Executive Order on Protecting Civil Rights

On 21 January 2025, in one of his first employment-related actions, President Donald J. Trump issued an Executive Order entitled Protecting Civil Rights and Expanding Individual Opportunity (DEI EO). The DEI EO revokes Executive Order 11246 (EO 11246), issued in 1965 by President Lyndon B. Johnson, which established requirements for nondiscriminatory practices in hiring and employment by federal contractors and required federal contractors to engage in specified affirmative action to ensure equal employment opportunity.¹Prior to the issuance of DEI EO, covered businesses could not discriminate on the basis of, and were required to take affirmative steps to ensure equal employment opportunity with respect to, race, color, religion, sex, sexual orientation, gender identity, and national origin. In addition to revoking EO 11246, the DEI EO directed the Office of Federal Contract Compliance Programs (OFFCP) to cease doing all of the following: “promoting diversity;” holding federal contractors responsible for taking “affirmative action”; and allowing or encouraging federal contractors to engage in “workforce balancing” based on race, color, sex, sexual preference, religion, or national origin. Further, the DEI EO will require federal contractors to certify in their agreements to federal contracts that they do not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws. The DEI EO provides a safe harbor provision permitting covered federal contractors to continue to comply with EO 11246 for a period of 90 days on a voluntary basis.

Notably, the restrictions for the OFCCP derived from the DEI EO are not directed at ceasing efforts for the benefit of those with veteran status and or recognized disabilities. While the DEI EO proposed sweeping action, it does not address federal contractor requirements under Section 503 of the Rehabilitation Act of 1973, related to affirmative action and nondiscrimination based on disability, or the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, related to affirmative action and nondiscrimination as to protected veterans. Both of those statutes remain in effect, and OFCCP released a public message on 23 January 2025 indicating those will continue to be enforced.

In addition to its directives to federal contractors, the DEI EO encourages the private sector to end “illegal DEI discrimination” and ordered “all agencies to enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” To support enforcement of the private sector mandate, the DEI EO requires the Attorney General, in conjunction with the heads of Executive Branch agencies, to submit a report within the next 120 days containing recommendations for enforcing federal civil-rights laws, “encouraging the private sector to end illegal discrimination and preferences,” including DEI, and identifying up to nine potential civil compliance investigations of publicly traded corporations, large nonprofit corporations or associations, foundations with assets of US$500 million or more, state and local bar and medical associations, and institutions of higher education with endowments over US$1 billion.

Underpinning the DEI EO is the president’s position, as stated in the DEI EO, that employers have adopted and actively used “dangerous, demanding and immoral race-and sex-based preferences under the guise of terms such as diversity; diversity and inclusion; diversity, equity, and inclusion (DEI); or diversity, equity, inclusion, and accessibility (DEIA).” The DEI EO states that “illegal DEI” policies “undermine our national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identity-based spoils system.”

A Shift in EEOC Enforcement Priorities

In addition to the sweeping changes under the DEI EO, the new Acting Chair of the EEOC, Andrea Lucas (Acting Chair Lucas), announced on 21 January 2025, the enforcement priorities for the EEOC, which dovetailed with the DEI EO. In the EEOC’s press release, Acting Chair Lucas highlighted that her focus would be “rooting out unlawful DEI-motivated race and sex discrimination; protecting American workers from anti-American national origin discrimination; defending the biological and binary reality of sex and related rights, including women’s rights to single sex spaces at work; protecting workers from religious bias and harassment, including antisemitism; and remedying other areas of recent under-enforcement.” Acting Chair Lucas stated that, in recent years, the EEOC had “remained silent in the face of multiple forms of widespread overt discrimination” and that the agency would work to restore “evenhanded enforcement” of federal civil rights laws. The EEOC is charged with enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person’s race, color, religion, sex, national origin, age (40 years or older), disability, or genetic information.

Looking Ahead

As an initial matter, although significant in ending affirmative action in employment, neither the DEI EO nor the EEOC enforcement priorities change current federal equal employment statutes or the case law interpreting them. While changes in enforcement priorities are expected with a change in presidential administrations, the DEI EO represents a sharp turn in the enforcement of equal employment laws and regulations, specifically that there will be a significant focus on enforcement activities relating to DEI programs that utilize, encourage, or facilitate discriminatory preferences. All employers—covered contractors and private employers alike—should take these legal developments seriously, as it is possible they will be debarred from federal contracting or receive sustained EEOC complaints if they defy these laws and engage in “illegal DEI discrimination.” Currently, federal contractors are required to certify on an annual basis through the OFCCP Contractor Portal that they are meeting their requirements to develop and maintain annual affirmative action programs. It seems likely that this certification will be revised to require covered contractors to certify annually instead that they are not operating programs promoting DEI that violate applicable federal anti-discrimination laws. The certifications, presumably, will still include representations of efforts focused on employment of people with disabilities and veterans.

Among other things, in light of these legal developments, employers can expect an uptick in “reverse discrimination” complaints from both applicants and employees—i.e., claims brought by individuals who are not minorities or otherwise underrepresented in the employer’s workforce—as well as in government investigations. Employers also may experience “discrimination testing” by applicants, if they have not already, where applicants submit multiple resumes with similar education and experience information but varied demographic indicators to see whether applicants with the certain personal characteristics are favored in the employer’s selection process. Employers should ensure that their internal human resource team members are trained on how to properly respond to and investigate such allegations. Employers should also ensure that their talent acquisition team members and hiring managers are trained regarding lawful selection and interviewing criteria.

The DEI EO contains directives that are substantially distinct from current federal contractor obligations, however, additional guidance is expected in the coming weeks as to how federal contractors should comply. Federal contractors should work with counsel to evaluate existing compliance programs as well as pending audits in the context of the DEI EO. The EEOC’s enforcement priorities dovetail with the DEI EO, and while the DEI EO does not contain a directive for private employers outside of the federal contracting area, it signals that it will seek to eradicate “illegal DEI” in the private sector. Moreover, while the EEOC may also seek to roll back enforcement of rights for transgender and non-binary individuals under Title VII of the Civil Rights Act of 1964, to be in line with the Trump administration’s executive order on sex and gender identity², three of the current Democratic commissioners³released a statement confirming that, in their view, transgender workers remain protected by federal law.

Although EEOC enforcement priorities will be implemented gradually, all employers should take note regarding the federal government’s new focus, and conduct internal audits of their DEI policies and procedures, especially as to recruitment and hiring (including with respect to internship programs), to ensure they are nondiscriminatory. Further, employers should work with counsel to ensure hiring and retention practices and accommodation and anti-harassment policies comply with applicable law, such as Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act, and revise policies that are not in compliance. Employers should keep in mind that various state law requirements under anti-discrimination laws may be contrary to the federal directives in the DEI EO, the Gender EO, and the EEOC enforcement priorities, which will increase uncertainty surrounding compliance.

As noted above, federal contractors will be required to certify in their government contracts, subject to the False Claims Act, that they do not have any DEI-related programs that violate Title VII. In order to confidently make that certification, employers should ensure that benefits and employment opportunities within the workplace (including mentorship programs, affinity groups/employee resource groups, etc.) are inclusive, open to everyone, and have no exclusions based on race, gender, or other protected class bases. Employers should also ensure that training programs do not include stereotypes or generalizations based on race or gender. Unconscious bias training likely remains permissible (as indicated by OFCCP in the first Trump administration relating to Executive Order No. 13950 (EO 13950)), but employers should ensure that training requirements are applied neutrally across the workforce and such training covers unconscious bias from all angles.

Notably, the DEI EO includes an express provision indicating that contractors and other entities covered by the DEI EO may continue to engage in First Amendment protected speech. This provision was likely included to help defend against any potential challenge to the DEI EO that would be similar to the challenges to EO 13950 in the prior Trump administration. While there is still much uncertainty around the scope of the DEI EO, it appears to emphasize that its focus is on prohibiting exclusionary or discriminatory practices that violate federal anti-discrimination law—rather than on efforts to change organizational missions or advocacy, which may raise First Amendment concerns. Of course, the scope of what is “illegal DEI” may be more clearly defined as more guidance related to the DEI EO is released in the coming weeks.

Finally, subject to further guidance from the Executive Branch and EEOC, employers may consider renaming current DEI programs to something more in line with the federal government’s new focus, such as an Equal Employment Opportunity program.⁴Equal employment opportunity is the touchstone of Title VII and the EEOC’s mission, and is plainly consistent with the EEOC’s own name.

Conclusion

There are likely to be many more developments in the coming days and weeks. Our Labor, Employment, and Workplace Safety practice can assist with compliance for private employers and federal contractors. Stay tuned for updates as well as more information regarding an upcoming webinar on this topic.
Proposed Texas Senate Bills Have Potential Negative Impacts on Wind and Solar

Thu, 23 Jan 2025 00:00:00 -0000

Renewable energy developers should be aware of the proposed legislation in Texas that, if passed, will significantly impact existing wind and solar facilities as well as development-stage projects. Senate Bill 819 (SB 819) was filed on 16 January 2025, and if approved unchanged, would impose additional permitting requirements for Texas wind and solar projects. Also, Senate Bill 714 (SB 714) was filed recently and, if enacted, would require the Electric Reliability Council of Texas (ERCOT) and the Public Utility Commission of Texas (PUCT) to adopt rules, operating procedures, and protocols to eliminate or compensate for any distortion in electricity prices in ERCOT caused by federal tax credits under 26 U.S.C. § 45.

Senate Bill 819 repackages failed Senate Bill 624 from last year’s session

SB 819 appears to be an updated version of Senate Bill 624 (SB 624), which was introduced during the 2023 Texas legislative session, but ultimately failed. SB 624 would have: 1) required all (including existing) renewable facilities in the state to obtain a permit from the Texas Commission on Environmental Quality, which included submitting detailed plans, conducting various studies, and complying with strict regulations, and 2) afforded local governments more authority to approve or deny permits for renewable energy projects.

SB 624 proposed several burdensome requirements that would have been costly to the renewable energy industry, and experts at the time anticipated that a similar bill would be reintroduced potentially in a future legislative session.

As proposed, Senate Bill 819 would impact existing and new wind and solar projects

Similar to SB 624, SB 819 proposes several new restrictive requirements on wind and solar (renewable) energy generating facilities. Renewable energy facilities with a capacity of 10 MW or more would have to obtain a previously unrequired permit to interconnect to a transmission facility, unless the PUCT approves the construction by order. A wind or solar facility interconnected prior to 1 September 2025, must apply for a permit if that facility increases its electricity output by 5 MW or more, or if there are any material changes to the placement of the facility.

The application to obtain this permit would require key information, including the location and type of facility and an environmental impact review prepared by the Parks and Wildlife Department. Details around the scope of the environmental impact review are to be determined by the PUCT, but at a minimum, the format of review must establish certain processes for application, criteria for the PUCT to evaluate the environmental impact, methods to determine an environmental impact score, fees to conduct the review, and guidelines for use of mapping applications.

After receipt of the permit application, SB 819 would require the PUCT to provide public notice of the application to county judges within 25 miles of the boundary of the renewable energy facility, hold a public meeting, and publish two consecutive publications in a newspaper in each county in which the renewable energy facility will be or is located. The proposed bill provides further instructions to the PUCT on information to be provided and other minimum requirements for the public notice and public meeting.

When considering the permit application, the PUCT would assess the applicant’s compliance history, whether the issuance of the permit would violate any state or federal law, and whether the permit holder has any vested right in the permit. Permits are to be issued with several conditions prescribed by the PUCT, including boundary lines, the maximum number of renewable energy generation facilities authorized under the permit, and monitoring and reporting requirements.

SB 819 also considers decommissioning and removal of renewable energy generation facilities. Each permit holder would be required to pay an annual environmental impact fee, which would be deposited into a new renewable energy generation facility cleanup fund, assessed by the PUCT based on several factors including the efficiency and the area and size of the renewable energy generation facility, the environmental impact score provided under the environmental impact review, and any expenses necessary to implement the renewable energy generation facility cleanup fund. This bill also allows the PUCT to seek funding from the US Environmental Protection Agency for costs to remove decommissioned facilities.

Finally, SB 819 would prohibit the governing body of a taxing unit to exempt from taxation a portion of the value of real property on which a renewable energy generation facility is located or of tangible personal property located or planned to be located on the real property during the life of the facility.

Senate Bill 714

Separately, Senate Bill 714 (SB 714) was also recently filed, and if enacted, would require ERCOT and the PUCT to adopt rules, operating procedures, and protocols to eliminate or compensate for any distortion in electricity prices in ERCOT caused by federal tax credits under 26 U.S.C. § 45, which provides tax credits for renewable energy produced. Essentially, the bill would require rules to be adopted to ensure that costs imposed on the ERCOT system by the sale of electricity from facilities eligible for a section 45 federal tax credit are paid by the parties that impose those costs. As an example, the bill cites “costs of maintaining sufficient capacity to serve load at the summer peak caused by the loss of new investment from below-market prices”. SB 714 specifically authorizes the PUCT and ERCOT to eliminate any rules or protocols that “attempt to adjust electricity prices to reflect the value of reserves at different reserve levels based on the probability of reserves falling below the minimum contingency level and value of lost load”. If enacted, SB 714 would take effect on 1 September 2025.

Conclusion

If passed, SB 819 and SB 714 are likely to stifle renewable development at a time when the state cannot keep up with increased energy demands. SB 819 would impose costly regulatory burdens on the renewable energy industry in Texas. If passed in its current form, SB 819 is likely to have a chilling effect on investors’ appetites to finance new projects or expand existing facilities and will likely negatively impact renewable projects that are operating within the state. SB 714 would erode the pricing benefits that correspond to the tax credit, including the ability of renewable facilities to offer negative pricing to the ERCOT market. Both bills would slow the growth of the renewable energy industry in Texas.
7th Edition of the SIAC Rules: Defining the Future of SIAC Arbitration

Thu, 23 Jan 2025 00:00:00 -0000

This publication is issued by K&L Gates Straits Law LLC, a Singapore law firm with full Singapore law and representation capacity, and to whom any Singapore law queries should be addressed. K&L Gates Straits Law is the Singapore office of K&L Gates, a fully integrated global law firm with lawyers located on five continents.

Introduction

The Singapore International Arbitration Centre (SIAC) has launched the 7th Edition of its Arbitration Rules (the 2025 Rules), which took effect on 1 January 2025. The 2025 Rules represent a major update of the 6th Edition (the 2016 Rules) and were developed following a consultation process with various stakeholders. This updated framework introduces a substantial number of new provisions—expanding from 41 to 65 rules—and includes redrafted provisions aimed at enhancing clarity and better aligning with the procedural flow of a typical arbitration. Relative to other arbitral institutions, the 2025 Rules introduce significant innovations, particularly in the areas of emergency arbitrations and third-party funding.

The 2025 Rules apply (unless otherwise agreed by the parties) to any arbitration conducted under the SIAC Rules commenced on or after 1 January 2025 (Rule 1.5). Parties to existing SIAC arbitration agreements, as well as those who regularly include SIAC arbitration clauses in their contracts, are encouraged to familiarize themselves with the updates in the 2025 Rules.

We set out below a summary of some key amendments introduced in this latest edition.

Streamlined and Expedited Procedures

The 2025 Rules introduce a new “streamlined procedure” (Rule 13 and Schedule 2) aimed at providing a quick and cost-effective resolution for low-value disputes of low complexity. This procedure is automatically applicable to disputes where the amount in dispute is S$1 million or less (around US$740,000, at current exchange rates), though the SIAC president retains discretion to determine its suitability in individual cases, absent a written agreement by the parties to apply the streamlined procedure. Parties can also agree to opt out entirely.

Under the streamlined procedure, arbitration is conducted by a sole arbitrator (Schedule 2, para 1). Unless the tribunal determines otherwise, after considering the views of the parties, the arbitration shall be decided on the basis of written submissions and any accompanying documentary evidence with no entitlement to make requests for document production or to file any fact or expert witness evidence (Schedule 2, para 11). The final award must also be issued within three months of the tribunal’s constitution, unless the registrar extends the time for making such final award (Schedule 2, para 15). Further, the tribunal fees and SIAC fees shall not exceed 50% of the maximum limits based on the amount in dispute in accordance with SIAC’s Schedule of Fees, unless the registrar determines otherwise (Schedule 2, para 16). The streamlined procedure does not provide a cap on the amount of recoverable legal costs.

For disputes exceeding S$1 million in value, the 2025 Rules preserve the previous six-month expedited procedure (Rule 14 and Schedule 3), with one key modification: the upper-value threshold for application of the expedited procedure has been raised from S$6 million in the 2016 Rules (around US$4.4 million, at current exchange rates) to S$10 million (around US$7.4 million, at current exchange rates) (Rule 14.2). Additionally, one of the possible conditions for its use (i.e., cases of “exceptional urgency” under the 2016 Rules) has been expanded to include disputes in which “the circumstances of the case warrant” its application. This broader criterion is expected to increase the frequency of the expedited procedure’s use.

While both the streamlined and expedited procedures aim to expedite arbitration, they differ in terms of applicability, complexity, and timelines. The streamlined procedure (for disputes under S$1 million) is designed for low-value, low-complexity disputes and is more restrictive, with no provision for document production or witness evidence unless determined otherwise by the tribunal. It also mandates a final award within three months. In contrast, the expedited procedure (for disputes between S$1 million and S$10 million) allows for more flexibility, such as the possibility of a hearing and limited document production, but still emphasizes speed with a final award required within six months. The expedited procedure offers broader criteria for its application, including circumstances warranting its use, making it more adaptable to varying dispute complexities.

Although SIAC does not disclose the number of smaller claims filed annually, its 2023 annual report reveals that from 2010 to the end of 2023, there have been 896 applications for the expedited procedure, of which 514 were accepted. Given the recent increase in the eligibility threshold from S$6 million to S$10 million, it is likely that a greater number of cases will now qualify for this expedited process, although the actual impact remains to be seen.

Emergency Arbitration

The emergency arbitration procedure (Rule 12.1 and Schedule 1) has also been revamped to expedite the process and potentially reduce legal costs. Some of the key amendments include the ability for applicants to file for emergency arbitration before submitting the Notice of Arbitration (the Notice), with the Notice required within seven days (Schedule 1, paras 2 and 6) to avoid the withdrawal (without prejudice) of the application for appointment of an emergency arbitrator. A 24-hour deadline has also been introduced for challenging the appointment of an emergency arbitrator, from the date of receipt of the notice of appointment (Schedule 1, para 9). The timeline for the emergency arbitrator to issue an order or award continues to be 14 days from the date of appointment (Schedule 1, para 17).

Importantly, for the first time, a party may seek a “protective preliminary order” (PPO) application from an emergency arbitrator without notifying the other parties to the arbitration until after the issuance of an order by the emergency arbitrator (i.e., notice and accompanying documentation is required to be delivered “promptly and, in any event, within 12 hours of the transmission by the SIAC Secretariat of the emergency arbitrator’s order in respect of the protective preliminary order application”) (Schedule 1, paras 25 and 29). A decision on the PPO application must be issued within 24 hours following the emergency arbitrator’s appointment (Schedule 1, para 27). PPOs will remain in effect for a maximum duration of 14 days (Schedule 1, para 33). SIAC reports that “[t]he introduction of this procedure recognizes the potential need for immediate and urgent relief to parties in the early stages of a dispute while balancing the need to preserve procedural integrity and fairness.”

The PPO procedure makes SIAC one of the first major international arbitration institutions to expressly permit ex parte emergency interim relief and illustrates SIAC’s interest in pioneering procedures to address the needs of users of the arbitration process. Other institutions such as the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) do not presently permit parties to file ex parte applications for emergency relief.

Preliminary Determination

The 2025 Rules codify the tribunal’s authority to resolve issues on a preliminary basis, provided that (a) the parties agree, (b) the applicant can demonstrate that such a determination will contribute to savings in time and costs and “a more efficient and expeditious resolution of the dispute,” or (c) the tribunal finds that the circumstances of the case warrant preliminary determination (Rule 46.1). Rule 46.4 states that any preliminary determination must be issued within 90 days of the application being filed, unless the Registrar extends the time.

The codification of this procedural mechanism is likely to encourage parties to consider seeking preliminary determination of key issues in cases where it is deemed appropriate, facilitating a more efficient and streamlined resolution process.

The preliminary determination procedure (Rule 46) complements the early dismissal procedure (Rule 47) by providing distinct but related mechanisms for improving the efficiency of arbitration. Rule 47, on the other hand, enables the tribunal to dismiss claims or defenses early if they are manifestly without merit or outside the tribunal’s jurisdiction.

While the introduction of the preliminary determination procedure marks a significant advancement for SIAC, its acceptance by courts at the enforcement stage remains uncertain. A losing party may argue that being denied the opportunity to raise a particular matter prevented them from fully presenting their case, an issue expressly recognized under Article V(1)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as New York Convention).

Coordinated Proceedings

Under the 2016 Rules, parties in multicontract, multiparty disputes have available consolidation and joinder to reduce the risks of parallel proceedings and inconsistent decisions. Rule 17 of the 2025 Rules introduces a further option: coordinated proceedings, which allows multiple arbitrations involving common questions of law or fact to be conducted concurrently or sequentially with aligned procedural steps. While the tribunal will issue separate decisions, rulings, orders, and awards (Rule 17.3), this mechanism aims to mitigate conflicting outcomes and duplication of costs. It is important to note that coordinated proceedings are available only when the same tribunal is constituted in two or more arbitrations (Rule 17.1). For comparison, the concurrent conduct of arbitrations is already expressly permitted under Article 22A of the LCIA Rules 2020.

Third-Party Funding

Rule 38 introduces a significant change by requiring parties to disclose the existence of any third-party funding agreements, along with the identity and contact details of the third-party funder, in its notice or response or as soon as practicable upon concluding a third-party funding agreement.

After the constitution of the tribunal, the parties are prohibited from entering into a third-party funding agreement, which may give rise to a conflict of interest with any member of the tribunal, and, in such circumstances, the tribunal may direct the party to withdraw from the third-party funding agreement (Rule 38.3).

Tribunals may also order the disclosure of additional details, including the funder’s interest in the outcome of the proceedings and whether the funder has committed to undertake adverse costs liability (Rule 38.4). The 2025 Rules also make clear that the disclosure and existence of a third-party funding agreement on its own shall not be taken as an indication of the financial status of a party (Rule 38.5).

In comparison with other institutional rules, the 2025 Rules deal more comprehensively with third-party funding, showing SIAC’s recognition of the importance of addressing what is an increasingly important feature of international arbitration. For example, under Article 11(7) of the ICC Rules 2021, parties are only required to disclose the “existence and identity” of any third-party funder to help arbitrators fulfil their disclosure obligations regarding potential conflicts of interest. Furthermore, the LCIA Rules 2020 are silent on the issue of the third-party funding.

SIAC Gateway and Information Security

SIAC has also updated its rules to incorporate various technological advancements. A key change is the requirement for parties, tribunals, and the SIAC secretariat to upload communications to the SIAC Gateway, a new web-based platform designed to centralize filing, online payment, in-system document upload and storage, and case management, upon the direction of the Registrar (Rules 4.2 and 4.3). For example, the 2025 Rules make clear that the claimant, subject to compliance with Rule 4, will be able to file its Notice through the SIAC Gateway (Rule 6.1).

Lastly, the 2025 Rules incorporate provisions aimed at safeguarding data protection. Notably, after the commencement of the arbitration, any party may propose and seek to agree on reasonable measures to protect the information that is shared, stored, or processed in relation to the arbitration (Rule 61.1). The tribunal shall discuss with the parties the information security measures described in Rule 61.1 and may give directions to the parties in that regard, considering the circumstances of the case and relevant best practices in information security, including cyber security and cyber resilience (Rule 61.2). The tribunal also has “the power to take appropriate measures, including issuing an order or award for sanctions, damages or costs, if a party does not take necessary steps to comply with the information security measures agreed by the parties and/or as directed by the tribunal” (Rule 61.3).

Conclusion

The 2025 Rules represent an important development in the evolution of SIAC arbitration, offering a broader range of options and increased flexibility for both parties and tribunals. These amendments aim to improve the efficiency and effectiveness of the arbitration process while strengthening SIAC’s position as a key player in the global arbitration landscape. The specific application of the above innovations in the 2025 Rules will only become clear with practice. As always, appropriate legal counsel will be critical in this time of transition as well as in the judicious application of the 2025 Rules as a matter of legal strategy moving forward.

For more information on this topic, please feel free to reach out to our authors or our wider International Arbitration team.
Identity Verification—What You Need to Know

Thu, 23 Jan 2025 00:00:00 -0000
Background

The Economic Crime and Corporate Transparency Act 2023 (the Act) seeks to prevent economic crime and to enhance the transparency of companies and other legal entities.

It is part of a wider policy of government to tackle corporate abuse, money laundering, fraud and identity theft. The Act provides greater powers to the registrar of companies (the Registrar) and (together with the Economic Crime (Transparency and Enforcement) Act 2022) underpins the government’s commitment to strengthen the corporate registration framework and transform the role of Companies House.

Identity Verification

A key component of the reforms set out in the Act is the introduction of an identity verification regime, with the objective of improving the accuracy and reliability of the information held by the Registrar and preventing fraudulent appointments.

Who Will Be Subject to the Identity Verification Process?

New and existing company directors, people with significant control of a company (PSCs)¹ and those presenting documents for filing at Companies House will need to comply with the provisions of the Act and verify their identity with the Registrar.²

How to Comply With Identity Verification

There are two methods for complying with identity verification:
- Directly with Companies House.
- Indirectly through an authorised corporate service provider (ACSP).
Direct verification with Companies House will be, in the main, via a digital service and the verified person will be linked to a document such as a passport or driving licence (a primary identity document). Technology will be used to match a photograph taken by the individual to their likeness in the primary identity document. Companies House will provide alternatives for those without access to, or otherwise unable to use, the digital service.

Indirect verification will involve using a third party such as a legal adviser or formation agent authorised by the Registrar as an ACSP. The ACSP regime requires such third parties to be registered with a supervisory body for anti-money laundering purposes (for example, the Solicitors Regulation Authority for solicitors in England and Wales) and, therefore, have an existing obligation to conduct due diligence on their clients. An ACSP will be able to provide a service to verify the identity of those individuals subject to the regime. ACSPs must carry out verification in accordance with the required standards set out in legislation and this must be confirmed in a statement by the ACSP to the Registrar. K&L Gates LLP intends to register to become an ACSP.

An individual (including an ACSP) will be given a unique identifier number once verified. It is expected that individuals will only be required to verify their identity once (unless Companies House requires otherwise) but individuals will need to confirm their identity for each new appointment.

When Do the Identity Verification Provisions Come Into Effect?

Companies House published a policy paper on 24 October 2024 (updated on 21 January 2025), outlining a transition plan for the changes set out in the Act with the following expected timelines in relation to identity verification (the timeline is subject to parliamentary time being available):
- From 25 February 2025, introduce the steps to allow professional service providers to register to become ACSPs. This will allow them to carry out identity verification services for their clients. Additionally, Companies House will allow individuals to complete voluntary identification verification.
- By autumn 2025, commence the new identity verification requirements where all directors and PSCs for new incorporations will be required to verify their identity as part of the incorporation process. Identity verification will also be compulsory for all newly appointed directors and new PSCs. There will be a transition period of 12 months for existing directors of existing companies to comply with identity verification (companies will be required to provide identity verification credentials for their directors when their confirmation statement is due) and existing PSCs will also be subject to identity verification by way of transitional arrangements.
- By spring 2026, Companies House will require identity verification for those presenting documents for filing (including the requirement for a third-party service provider filing on behalf of a company to be registered as an ACSP).
- By the end of 2026, it is expected that the transition period will be completed for all those subject to the identity verification regime and Companies House will start sanctions for any noncompliance.
Next Steps

The Act introduces some of the most significant changes to Companies House since corporate registrations were established and the identity verification regime is a key part of the reforms.

Companies should prepare by ensuring that the board is up to date with the timetable for the reforms and ensure that directors, PSCs (and relevant officers of relevant legal entities) and those presenting documents for filing at Companies House have identity documentation readily available.
The State of Play for Reverse Stock Splits by Nasdaq- and NYSE-Listed Issuers

Thu, 23 Jan 2025 00:00:00 -0000

Introduction

Issuers listed on the Nasdaq Stock Market and the New York Stock Exchange (NYSE) often conduct reverse stock splits to maintain compliance with each exchange’s US$1.00 minimum share price requirement. A reverse stock split typically increases the price for a share of stock by consolidating outstanding shares at a ratio selected by the issuer such that, following the reverse split, each stockholder maintains its approximate ownership percentage and overall investment value, but the issuer has fewer shares outstanding with a higher price per share. Over the past several years, Nasdaq has implemented a series of rule changes making it more difficult to use reverse stock splits to regain compliance with its minimum share price requirement and that otherwise impact the process for executing a reverse split. Recently, the NYSE proposed a new rule of its own that restricts an issuer’s ability to use a reverse split to regain compliance with its minimum share price requirement. Issuers with stock prices near or below US$1.00 per share need to understand how these rule changes may affect whether, when, and how they can implement a reverse stock split to maintain their stock exchange listings.

Nasdaq Stock Market Rules

A Nasdaq-listed issuer’s primary equity security must maintain a minimum bid price of US$1.00. If the trading price of a primary equity security closes under US$1.00 per share for 30 consecutive business days, the issuer will generally have 180 days to regain compliance with the minimum bid price requirement. At the end of the 180-day compliance period, the issuer can be granted an additional 180-day compliance period by notifying Nasdaq of its intent to cure the deficiency, including by effecting a reverse stock split. Prior to recent rule changes, if the issuer had not cured the minimum bid price deficiency by the end of the second compliance period, it could appeal delisting of its stock by requesting a review by a hearings panel. Such a request would automatically stay any suspension or delisting action, up to an additional 180 days, pending the hearing and the expiration of any additional compliance period granted by the hearings panel following the hearing. Under the prior Nasdaq rules, it was possible for a company to be out of compliance with the bid price requirement for 540 days, or approximately 18 months, if all the possible compliance periods were exhausted.

Removal of Stay Period After Second 180-Day Compliance Period

Nasdaq’s most recent rule change relating to reverse stock splits was approved by the US Securities and Exchange Commission (SEC) on 17 January 2025. Under the new Nasdaq Listing Rule 5815(a)(1)(B)(ii)d, when an issuer has been afforded a second 180-day compliance period and does not regain compliance by the bid price of its stock closing at US$1.00 per share or greater for a minimum of 10 consecutive business days prior to the end of the second 180-day period, a request for a hearing no longer stays the suspension and delisting of the security pending the Nasdaq panel’s decision. Instead, effective upon the expiration of the second 180-day compliance period, trading of the issuer’s securities on Nasdaq will be automatically suspended and move to the over-the-counter (OTC) market while any appeal is pending.

Reduced Availability of Compliance Periods for Use of Multiple Reverse Splits

An amendment to Nasdaq Listing Rule 5810(c)(3)(A)(iv) included in the 17 January 2025 rule changes provides that an issuer is not eligible for any compliance period to cure a deficiency under the minimum bid price requirement if it has effected a reverse stock split over the prior one-year period. This change follows another recent amendment to Rule 5810(c)(3)(A)(iv), effective in 2020, not allowing a compliance period in the event the issuer has effected one or more reverse stock splits with a cumulative ratio of 250 shares or more to one during the two-year period preceding noncompliance with the minimum bid price requirement. Any issuer that receives a delisting determination under these circumstances can appeal for a hearing before a Nasdaq panel (during which time the suspension of trading of its securities will be stayed).

Accelerated Delisting for Trading Price at or Below US$0.10

Rule 5810(c)(3)(A)(iii), which was included in the 2020 rule changes, provides that Nasdaq will issue a delisting determination with respect to a security that has a closing share price of US$0.10 or less for 10 consecutive business days. Under these circumstances, the issuer is ineligible for any compliance period, but suspension of trading of its securities will be stayed while any appeal is pending.

Updated Process for Effecting Reverse Stock Split

In November 2024, the SEC approved an amendment to Nasdaq Listing Rules 5250(e)(7) and IM-5250-3, advancing the deadline by which an issuer executing a reverse stock split must submit a Company Event Notification Form to Nasdaq to no later than 12:00 PM ET at least 10 calendar days prior to the proposed market effective date of the split. Previously, the rules only required the form to be submitted five business days in advance. The Company Event Notification Form is required to include, among other things, the dates of board approval and stockholder approval of the reverse stock split, the ratio for the reverse stock split, and the new CUSIP number for the post-split stock, as well as a draft of the public disclosure of the reverse stock split, which must be issued by 12:00 PM ET at least two business days prior to the effective date of the split. Nasdaq will not process a reverse stock split, and will halt trading in the stock, if an issuer does not satisfy the requirements of Rules 5250(b)(4) and (e)(7). This amendment becomes effective on 30 January 2025.

New York Stock Exchange Rules

Under Section 802.01C of the NYSE Listed Company Manual (Manual), an issuer is out of compliance if the average closing price of its listed security is less than US$1.00 per share over a consecutive 30 trading-day period (Price Criteria). The issuer can regain compliance with the Price Criteria if, on the last trading day of any calendar month during a six-month cure period, the listed security has a closing share price of at least US$1.00 and an average closing share price of at least US$1.00 over the prior 30 trading-day period. If an issuer determines to cure the Price Criteria deficiency by a reverse stock split, it must obtain shareholder approval by no later than its next annual meeting. The Price Criteria deficiency will be cured if the price remains above US$1.00 for at least 30 trading days following the split.

On 15 January 2025, the SEC approved a rule amendment proposed by the NYSE to address concerns over the excessive use of reverse stock splits to maintain minimum listing prices. Specifically, Section 802.01C of the Manual is amended to provide that an issuer that fails to meet the Price Criteria is not eligible for any compliance period if it has effected a reverse stock split over the past one-year period or has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one, and in such case the NYSE will instead immediately commence suspension and delisting procedures. Additionally, the amendment precludes issuers from conducting a reverse stock split if it would result in the company’s security falling out of compliance with any of the continued listing requirements of Section 802.01A of the Manual.

Conclusion

Issuers listed on the Nasdaq or NYSE that are out of compliance with the minimum bid price rule or at risk of falling below a US$1.00 share price should be proactive in confirming that a reverse stock split will be effective to cure the deficiency in the event that their stock price does not increase organically. Additionally, these issuers should prepare a timeline for the reverse stock split prior to scheduling their shareholder meetings in order to accommodate the more complex processes and advance notice requirements under stock exchange rules.

Our Public Companies lawyers are happy to discuss how these rule changes impact our clients as they consider how to address low share prices and potential delisting issues.
New Franchising Code to Commence in April

Thu, 23 Jan 2025 00:00:00 -0000
The Competition and Consumer (Industry Code–Franchising) Regulations 2024 (Cth) (the New Code Draft), which replaces the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (the Old Code), is now in force and will commence on 1 April 2025. While it appears that the Australian Government has proceeded with many of the proposed changes that were contemplated in the Exposure Draft (see our previous update here), it is also important for franchisors to be aware that the New Code contains a number of transitional provisions.

When Does the New Code Apply?

The New Code will apply to:
- Franchise agreements entered into, transferred, renewed or extended on or after 1 April 2025; and
- Conduct engaged in on or after 1 April 2025 in relation to these agreements.
The Old Code will continue to apply to:
- Franchise agreements entered into before 1 April 2025 until those agreements are terminated, transferred, renewed or extended; and
- Conduct relating to those agreements that is engaged in on or after 1 April 2025 (other than conduct relating to the transfer, renewal or extension of those agreements).
However, there are some significant transitional provisions in relation to the application of aspects of the New Code which we have outlined below.

What is the Position in Relation to Compensation for Early Termination and Reasonable Opportunity for Return on a Franchisee's Investment?

Two of the more significant changes introduced by the New Code are the placing of the following new obligations on franchisors:
- A requirement under section 43 to provide some compensation to a franchisee in certain circumstances on early termination of a franchise.
- An obligation under section 44 not to enter into a franchise agreement, unless the agreement provides the franchisee with a reasonable opportunity to make a return during the term of the agreement on any investment required by the franchisor as part of entering into, or under, the agreement.
However, these sections will not apply to a franchise agreement entered into, transferred, renewed or extended before 1 November 2025. The delayed application of sections 43 and 44 is said to be intended to allow time for franchisors proposing to enter franchise agreements that are not new vehicle dealership agreements to adjust to these new requirements. New vehicle dealership agreements will though be subject to similar obligations in sections 45 and 46 from the commencement of the New Code (which are based on clause 46A and 46B of the Old Code respectively).

What are the Implications for Disclosure?

The New Code provides that:
- A disclosure document created before 1 November 2025 is not required to include the information in subitems 14(1A) and (1B) of Schedule 1 of the New Code, which deal with new requirements relating to significant capital expenditure; and
- The obligation to update a disclosure document annually under section 21 of the New Code will not apply before 1 November 2025 in relation to a disclosure document given to a prospective franchisee before 1 April 2025 under clause 9 of the Old Code. This does not affect the requirement to update a disclosure document on request under section 33 and if a financial year ends before 1 November 2025, the franchisor is obliged to update the disclosure document under the Old Code.
Accordingly:
- If a franchise agreement is entered, renewed, extended or transferred prior to 1 April 2025, the Old Code applies to the agreement and disclosure obligations under Old Code apply.
- If a franchise agreement is entered into on or after 1 April 2025, the franchise agreement would need to comply with the New Code, provided however that sections 43 (relating to compensation on early termination) and 44 (relating to reasonable opportunity for return on franchisee's investment) would not have to be complied with in relation to a franchise agreement entered before 1 November 2025.
- If a franchise agreement is entered into, renewed, extended or transferred on or after 1 November 2025 though, sections 43 and 44 would apply and would need to be complied with.
- If a franchise agreement is entered, renewed, extended or transferred on or after 1 April 2025:
  
  If a disclosure document has been given to a prospective franchisee before 1 April 2025, this existing disclosure document will be taken to be a disclosure document for the purpose of the New Code.
  
  If a disclosure document has not been given to a prospective franchisee before 1 April 2025, a disclosure document compliant with the New Code would need to be given (unless the prospective franchisee is permitted to opt out from receiving the disclosure document and does so). However, the disclosure document is not required to include the information in sub items 14(1A) and (1B) of Schedule 1 of the New Code if the disclosure document is created before 1 November 2025.
  
  The prospective franchisee would also need to be given a copy of the New Code (unless the prospective franchisee is permitted to opt out from receiving the New Code and does so).
  
  If:
  
  the franchisee has, or has recently had, another franchise agreement with the franchisor that is the same or substantially the same as the new franchise agreement; and
  
  the business that is the subject of the new franchise agreement is the same or substantially the same as under the other agreement, the prospective franchisee can opt out by written notice from receiving a copy of a disclosure document and the New Code.
  
  Unless the prospective franchisee opts out from receiving a copy of a disclosure document and the New Code, the obligations in the New Code apply in relation to receiving from a prospective franchisee a written statement that a prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and the New Code. Independent advice statements would also need to be received by the franchisor but are not required for renewal or extension of term or scope of a franchise agreement.
  
  No Key Facts Sheet is required to be given to the prospective franchisee.
What are the Implications for Specific Purpose Funds and Marketing Funds?

Requirements relating to specific purpose funds that are not marketing funds or other cooperative funds have also been delayed. In this regard:
- For a specific purpose fund that is not a marketing fund or other cooperative fund controlled or administered by or for a franchisor or a master franchisor, the requirements in section 31 of the New Code (requiring a franchisor to provide financial statements in relation to specific purpose funds if a franchise agreement requires the franchisee to pay money into such a fund) and section 61 (dealing with payments to and from a specific purpose fund) will only commence on and from 1 November 2025.
- A disclosure document created before 1 November 2025 is not required to include the information in item 15 of Schedule 1 in relation to a specific purpose fund that is not a marketing fund or other cooperative fund controlled or administered by or for a franchisor or a master franchisor (whether the franchisee is a franchisee or subfranchisee of the franchisor or master franchisor). However, this will not affect the requirements to update a disclosure document under section 21 or 33 of the New Code.
Section 100 of the New Code also deems compliance with the Old Code from 1 April 2025 to 31 October 2025 to be compliance with the New Code in relation to a specific purpose fund that is a marketing fund or other cooperative fund controlled or administered by or for the franchisor or a master franchisor (whether the franchisee is a franchisee or subfranchisee of the franchisor or master franchisor), in certain circumstances.

What are Some of the Key Takeaways for Franchisors?

Some of the key takeaways for franchisors in relation to the New Code are:
- Franchisors will need to prepare a form of franchise agreement and disclosure document compliant with the New Code.
- Franchisors will need to be ready to comply with sections 43 (relating to compensation on early termination) and 44 (relating to reasonable opportunity for return on franchisee's investment) of the New Code on and from 1 November 2025.
- Franchisors will need to prepare for eligible prospective franchisees to be able to opt out from receiving a disclosure document and a copy of the New Code and applicable cooling off periods.
- Franchisors will no longer be required to create, maintain, or provide a Key Facts Sheet to prospective franchises on and from 1 April 2025.
- Franchisors will need to prepare for compliance with the new obligation to advise franchisees of their right to request a disclosure document. A franchisor has two months (instead of 14 days) to provide a disclosure document when it is requested (which request may be made once every 12 months).
- In updating franchise agreements, matters for franchisors to consider would include the following:
  
  The New Code has made changes to the provisions relating to termination of a franchise agreement. In particular:
  
  For certain kinds of serious breaches, the franchisor would not be able to terminate unless it has provided the franchisee seven days’ written notice of the proposed termination and grounds. These include findings by a Court that the franchisee has committed a Fair Work serious contravention of a Fair Work civil remedy provision and/or certain provisions of the Migration Act 1958 (Cth).
  
  For termination in cases where the franchisee voluntarily abandons the franchised business, operates the franchised business in a way that endangers public health or safety, or acts fraudulently in connection with the operation of the franchised business, a franchisor must not terminate the agreement before a notice period of seven days passes without a dispute notice being given. If a dispute notice is given, the agreement cannot be terminated until the end of 28 days after the day the dispute notice is given.
  
  A franchisor would also have certain rights to require a franchisee not to operate the business or part of a business if the franchisor is proposing to take action to terminate for these special termination grounds and specified serious breaches.
  
  A franchisor will now be prohibited from entering a franchise agreement that includes a restraint of trade clause that is inconsistent with the applicable requirements (as well as restricted from relying on a restraint of trade clause in certain circumstances where a franchise agreement is not extended).
  
  The definition of “motor vehicle dealership” in the New Code is expanded to include servicing or repairing of motor vehicles.
- In updating disclosure documents, additional disclosure would need to be made regarding:
  
  Proceedings against a responsible franchisor entity or holding company under subsection 558(1) and (2) of the Fair Work Act 2009 (Cth);
  
  “Specific purpose funds” (instead of only marketing funds) from 1 November 2025; and
  
  The rationale, amount, timing, nature, outcomes, benefits, and risks of any significant capital expenditure that may be required of the franchisee from 1 November 2025.
How we can Help

We would be very pleased to assist franchisors by:
- Providing advice regarding obligations under the New Code and how the transitional provisions will affect specific franchise networks;
- Assisting existing networks to modify processes to facilitate compliance under the New Code; and
- Preparing amendments to template documentation to comply with the New Code.
Flying Taxis Brisbane 2032—Olympic Dream or Reality?

Wed, 22 Jan 2025 00:00:00 -0000
Over the next eight years as elite athletes train with their eyes on winning gold at the 2032 Olympic and Paralympic Games in Brisbane, there is another Olympic dream that edges closer to reality—that of flying taxis transporting competitors and spectators around South East Queensland to Olympic venues.

It was hoped that a small fleet of flying taxis would make their Olympic debut at the 2024 Paris Olympics. Unfortunately, flying taxis 'missed the flight' in Paris as there were delays in obtaining the requisite air safety certifications from the European Union Aviation Safety Agency (EASA) in time for the Games. Nevertheless, a test flight was carried out on the last day of the 2024 Olympics over Versailles palace, carrying luggage but no people.¹

Now air taxi manufacturers have turned their hopes towards the Los Angeles Games in 2028.² In a positive step forward, in October 2024, the US Federal Aviation Administration (FAA) issued a final rule for operating air taxis and how pilots will be trained to fly them.³ If flying taxis are successfully integrated into the airways for the Los Angeles Games, then in a further four years' time, they could play an important role at the Brisbane Games.

Flying taxis could assist in managing congestion, with the RACQ Red Spot Congestion Survey 2023 raising concerns about how Queensland roads would cope in 2032.⁴ Flying taxis could also support Queensland's tourism industry to allow fast access to regions from Brisbane. The recent Brisbane Olympic and Paralympic Games Arrangements and Other Legislation Amendment Act 2024 inserted a new requirement on the Games Independent Infrastructure and Coordination Authority that the Games deliver legacy benefits for all of Queensland, including regional areas.⁵

The last few months of 2024 have seen flying taxis progress further towards becoming a reality at the Brisbane Olympics:
- In November 2024, it was announced that Archerfield Airport Corporation (AAC) and Wisk Aero had signed a Strategic Alliance Agreement to support electric vertical take-off and landing aircraft (eVTOL) air taxis at Archerfield Airport, Queensland. AAC Executive General Manager Rod Parry said at the time that the airport was uniquely well-placed to service the emerging advanced air mobility (AAM) sector given “Archerfield’s central location only 11 kilometres from Brisbane’s CBD and between three 2032 Olympic and Paralympic zones." He further noted that “By the time of Brisbane’s Olympic Games, eVTOLs will likely be providing essential emissions-free transport services from vertiports around the region, keeping traffic off our busy roads and ensuring the efficient transfer of personnel to key sites throughout South East Queensland.”⁶
- November 2024 also saw AMSL Aero announce that it had completed the first free flight of Vertiia, its passenger-capable, emission-free, long range eVTOL aircraft. The flight was heralded a landmark as it was the first made by an Australian-designed and built eVTOL.⁷
- In December 2024, it was reported that three Civil Aviation Safety Authority (CASA) senior certification engineers had travelled to Santa Cruz, California, to look at how the FAA and Joby Aviation (Joby) are working together to certify the company's eVTOL Advanced Air Mobility aircraft, the JAS4-1. Joby has applied for the aircraft to be certified by CASA for use in Australia. CASA is collaborating with other aviation authorities on standardising type certification of AAM aircraft.⁸
- Also in December 2024, CASA issued its updated 'RPAS and AAM Strategic Regulatory Roadmap' which charts a path for safely integrating remotely piloted aircraft systems and advanced air mobility into Australian airspace and the future regulatory program.⁹
Over the last three years since it was announced that Brisbane would host the 2032 Games, a lot of conjecture has focused on the location of the stadium. Whichever venue is ultimately selected, to deliver an Olympic legacy that will be fit for purpose for years to come, the stadium and indeed any new infrastructure built for the Games like new hotels and transport hubs, will need to incorporate vertiports and other facilities to cater for flying taxis as they become a way of life in the future.

There is a complex web of Australian laws that govern the innovative technologies of AAM, including flying taxis. AAM operations fall within the domain of regulation by CASA to ensure aviation safety under the Civil Aviation Safety Act 1988 (Cth) and the Civil Aviation Safety Regulations 1988 (Cth).

Beyond CASA requirements, AAM operations and their vertiports are also governed by a broad but fragmented system of different pieces of legislation ranging from town planning to environmental, privacy, safety, property damage, personal injury and radio-communications.

We have extensive experience in assisting clients comply with CASA requirements and advising on the rapidly evolving legal framework that governs AAM operations.
House Bipartisan Task Force on Artificial Intelligence Report

Wed, 22 Jan 2025 00:00:00 -0000
In February 2024, the House of Representatives launched a bipartisan Task Force on Artificial Intelligence (AI). The group was tasked with studying and providing guidance on ways the United States can continue to lead in AI and fully capitalize on the benefits it offers while mitigating the risks associated with this exciting yet emerging technology. On 17 December 2024, after nearly a year of holding hearings and meeting with industry leaders and experts, the group released the long-awaited Bipartisan House Task Force Report on Artificial Intelligence. This robust report touches on how this technology impacts almost every industry ranging from rural agricultural communities to energy and the financial sector to name just a few. It is clear that the AI policy and regulatory space will continue to evolve while being front and center for both Congress and the new administration as lawmakers, regulators, and businesses continue to grapple with this new exciting technology.

The 274-page report highlights “America’s leadership in its approach to responsible AI innovation while considering guardrails that may be appropriate to safeguard the nation against current and emerging threats.” Specifically, it outlines the Task Force’s key findings and recommendations for Congress to legislate in over a dozen different sectors. The Task Force co-chairs, Representative Jay Obernolte (R-CA) and Representative Ted Lieu (D-CA), called the report a “roadmap for Congress to follow to both safeguard consumers and foster continued US investment and innovation in AI,” and a “starting point to tackle pressing issues involving artificial intelligence.”

There was a high level of bipartisan work on AI in the 118th Congress, and although most of the legislation in this area did not end up becoming law, the working group report provides insight into what legislators may do this year and which industries may be of particular focus. Our team continues to monitor legislation, Congressional hearings, and the latest developments writ large in these industries as we transition into the 119th Congress. See below for a sector-by-sector breakdown of a number of findings and recommendations from the report.

Data Privacy

The report’s section on data privacy discusses advanced AI systems’ need to collect huge amounts of data, the significant risks this creates for the unauthorized use of consumers’ personal data, the current state of US consumer privacy protection laws, and recommendations to address these issues.

It begins with a discussion of AI systems’ need for “large quantities of data from multiple diverse sources” to perform at an optimal level. Companies collect and license this data in a variety of ways, including collecting data from their own users, scraping data from the internet, or some combination of these and other methods. Further, some companies collect, package, and sell scraped data “while others release open-source data sets.” These collection methods raise their own set of issues. For example, according to the report, many websites following “a voluntary standard” state that their websites should not be scraped, but their requests are ignored and litigation ensues. It also notes that some companies “are updating their privacy policies in order to permit the use of user data to train AI models” but not otherwise informing users that their data is being used for this purpose. The European Union and Federal Trade Commission have challenged this practice. It notes that in response, “some companies are turning to privacy-enhanced technologies, which seek to protect the privacy and confidentiality of data when sharing it.” They also are looking at “synthetic data.”

In turn, the report discusses the types of harms that consumers frequently experience when their personal and sensitive data is shared intentionally or unintentionally without their authorization. The list includes physical, economic, emotional, reputational, discrimination, and autonomy harms.

The report follows with a discussion of the current state of US consumer privacy protection laws. It kicks off with a familiar tune: “Currently, there is no comprehensive US federal data privacy and security law.” It notes that there are several sector specific federal privacy laws, such as those intended to protect health and financial data and children’s data, but, as has become clear from this year’s Congressional debate, even these laws need to be updated. It also notes that 19 states have adopted state privacy laws but notes that their standards vary. This suggests that, as in the case of state data breach laws, the result is that they have “created a patchwork of rules and regulations with many drawbacks.” This has caused confusion among consumers and resulted in increased costs and lawsuits for businesses. It concludes with the statement that Federal legislation that preempts state data privacy laws has advantages and disadvantages.” The report outlines three Key Findings: (1) “AI has the potential to exacerbate privacy harms;” (2) “Americans have limited recourse for many privacy harms;” and (3) “Federal privacy laws could potentially augment state laws.”

Based on its findings, the report recommends that Congress should: (1) help “in facilitating access to representative data sets in privacy-enhanced ways” and “support partnerships to improve the design of AI systems” and (2) ensure that US privacy laws are “technology neutral” and “can address the most salient privacy concerns with respect to the training and use of advanced AI systems.”

National Security

The report highlights both the potential benefits of emerging technologies to US defense capabilities, as well as the risks, especially if the United States is outpaced by its adversaries in development. The report discusses the status and successes of current AI programs at the Department of Defense (DOD), the Army, and the Navy. The report categorizes issues facing development of AI in the national security arena into technical and nontechnical impediments. The technical impediments include increased data usage, infrastructure/compute power, attacks on algorithms and models, and talent acquisition, especially when competing with the private sector in the workforce. The report also identifies perceived institutional challenges facing DOD, saying “acquisition professionals, senior leaders, and warfighters often hesitate to adopt new, innovative technologies and their associated risk of failure. DOD must shift this mindset to one more accepting of failure when testing and integrating AI and other innovative technologies.” The nontechnical challenges identified in the report revolved around third-party development of AI and the inability of the United States to control systems it does not create. The report notes that advancements in AI are driven primarily by the private sector and encourages DOD to capitalize on that innovation, including through more timely procurement of AI solutions at scale with nontraditional defense contractors.

Chief among the report’s findings and recommendations is a call to Congress to explore ways that the US national security apparatus can “safely adopt and harness the benefits of AI” and to use its oversight powers to hone in on AI activities for national security. Other findings focus on the need for advanced cloud access, the value of AI in contested environments, and the ability of AI to manage DOD business processes. The additional recommendations were to expand AI training at DOD, continue oversight of autonomous weapons policies, and support international cooperation on AI through the Political Declaration on Responsible Military Use of AI. The report indicates that Congress will be paying much more attention to the development and deployment of AI in the national security arena going forward, and now is the time for impacted stakeholders to engage on this issue.

Education and the Workforce

The report also highlights the role of AI technologies in education and the promise and challenges that it could pose on the workforce. The report recognizes that despite the worldwide demand for science, technology, engineering, and mathematics (STEM) workers, the United States has a significant gap in the talent needed to research, develop, and deploy AI technologies. As a result, the report found that training and educating US learners on AI topics will be critical to continuing US leadership in AI technology. The report notes that training the future generations of talent in AI-related fields needs to start with AI and STEM education. Digital literacy has extended to new literacies, such as media, computer, data, and now AI. Challenges include resources for AI literacy.

US leadership in AI will require growing the pool of trained AI practitioners, including people with skills in researching, developing, and incorporating AI techniques. The report notes that this will likely require expanding workforce pathways beyond the traditional educational routes and a new understanding of the AI workforce, including its demographic makeup, changes in the workforce over time, employment gaps, and the penetration of AI-related jobs across sectors. A critical aspect to understanding the AI workforce will be having good data. US leadership in AI will also require public-private partnerships as a means to bolster the AI workforce. This includes collaborations between educational institutions, government, and industries with market needs and emerging technologies.

While the automation of human jobs is not new, using AI to automate tasks across industries has the potential to displace jobs that involve repetitive or predictable tasks. In this regard, the report notes that while AI may displace some jobs, it will augment existing jobs and create new ones. Such new jobs will inevitably require more advanced skills, such as AI system design, maintenance, and oversight. Other jobs, however, may require less advanced skills. The report adds that harnessing the benefits of AI systems will require a workforce capable of integrating these systems into their daily jobs. It also highlights several existing programs for workforce development, which could be updated to address some of these challenges.

Overall, the report found that AI is increasingly used in the workplace by both employers and employees. US AI leadership would be strengthened by utilizing a more skilled technical workforce. Fostering domestic AI talent and continued US leadership will require significant improvements in basic STEM education and training. AI adoption requires AI literacy and resources for educators.

Based on the above, the report recommends the following:
- Invest in K-12 STEM and AI education and broaden participation.
- Bolster US AI skills by providing needed AI resources.
- Develop a full understanding of the AI workforce in the United States.
- Facilitate public-private partnerships to bolster the AI workforce.
- Develop regional expertise when supporting government-university-industry partnerships.
- Broaden pathways to the AI workforce for all Americans.
- Support the standardization of work roles, job categories, tasks, skill sets, and competencies for AI-related jobs.
- Evaluate existing workforce development programs.
- Promote AI literacy across the United States.
- Empower US educators with AI training and resources.
- Support National Science Foundation curricula development.
- Monitor the interaction of labor laws and worker protections with AI adoption.
Energy Usage and Data Centers

AI has the power to modernize our energy sector, strengthen our economy, and bolster our national security but only if the grid can support it. As the report details, electrical demand is predicted to grow over the next five years as data centers—among other major energy users—continue to come online. These technologies’ outpacing of new power capacity can “cause supply constraints and raise energy prices, creating challenges for electrical grid reliability and affordable electricity.” While data centers only take a few years to construct, new sources of power, such as power plants and transmission infrastructure, can take up to or over a decade to complete. To meet growing electrical demand and support US leadership in AI, the report recommends the following:
- Support and increase federal investments in scientific research that enables innovations in AI hardware, algorithmic efficiency, energy technology development, and energy infrastructure.
- Strengthen efforts to track and project AI data center power usage.
- Create new standards, metrics, and a taxonomy of definitions for communicating relevant energy use and efficiency metrics.
- Ensure that AI and the energy grid are a part of broader discussions about grid modernization and security.
- Ensure that the costs of new infrastructure are borne primarily by those customers who receive the associated benefits.
- Promote broader adoption of AI to enhance energy infrastructure, energy production, and energy efficiency.
Health Care

The report highlights that AI technologies have the potential to improve multiple aspects of health care research, diagnosis, and care delivery. The report provides an overview of use to date and its promise in the health care system, including with regard to drug, medical device, and software development, as well as in diagnostics and biomedical research, clinical decision-making, population health management, and health care administration. The report also highlights the use of AI by payers of health care services both for the coverage of AI-provided services and devices and for the use of AI tools in the health insurance industry.

The report notes that the evolution of AI in health care has raised new policy issues and challenges. This includes issues involving data availability, utility, and quality as the data required to train AI systems must exist, be of high quality, and be able to be transferred and combined. It also involves issues concerning interoperability and transparency. AI-enabled tools must be able to integrate with health care systems, including EHR systems, and they need to be transparent for providers and other users to understand how an AI model makes decisions. Data-related risks also include the potential for bias, which can be found during development or as the system is deployed. Finally, there is the lack of legal and ethical guidance regarding accountability when AI produces incorrect diagnoses or recommendations.

Overall, the report found that AI’s use in health care can potentially reduce administrative burdens and speed up drug development and clinical diagnosis. When used appropriately, these uses of AI could lead to increased efficiency, better patient care, and improved health outcomes. The report also found that the lack of standards for medical data and algorithms impedes system interoperability and data sharing. The report notes that if AI tools cannot easily connect with all relevant medical systems, their adoption and use could be impeded.

Based on the above, the report recommends the following:
- Encourage the practices needed to ensure AI in health care is safe, transparent, and effective.
- Maintain robust support for health care research related to AI.
- Create incentives and guidance to encourage risk management of AI technologies in health care across various deployment conditions to support AI adoption and improve privacy, enhance security, and prevent disparate health outcomes.
- Support the development of standards for liability related to AI issues.
- Support appropriate payment mechanisms without stifling innovation.
Financial Services

With respect to financial services, the report emphasizes that AI is already and has been used for decades within the financial services system, by both industry and financial regulators alike. Key examples of use cases have included fraud detection, underwriting, debt collection, customer onboarding, real estate, investment research, property management, customer service, and regulatory compliance, among other things. The report also notes that AI presents both significant risks and opportunities to the financial system, so it is critical to be thoughtful when considering and crafting regulatory and legislative frameworks in order to protect consumers and the integrity of the financial system, while also ensuring to not stifle technological innovation. As such, the report states that lawmakers should adopt a principles-based approach that is agnostic to technological advances, rather than a technology-based approach, in order to preserve longevity of the regulatory ecosystem as technology evolves over time, particularly given the rapid rate at which AI technology is advancing.

Importantly, the report notes that small financial institutions may be at a significant disadvantage with respect to adoption of AI, given a lack of sufficient resources to leverage AI at scale, and states that regulators and lawmakers must ensure that larger financial institutions are not inadvertently favored in policies so as not to limit the ability of smaller institutions to compete or enter the market. Moreover, the report stresses the need to maintain relevant consumer and investor protections with AI utilization, particularly with respect to data privacy, discrimination, and predatory practices.

A Multi-Branch Approach to AI/Next Steps

The Task Force recognizes that AI policy will not fall strictly under the purview of Congress. Co-chair Obernolte shared that he has met with David Sacks, President Trump’s “AI Czar,” as well as members of the transition team to discuss what is in the report.

We will be closely following how both the administration and Congress act on AI in 2025, and we are confident that no industry will be left untouched. We are here to assist stakeholders in all of the areas outlined above.
Trump Issues Sweeping Executive Order Declaring National Energy Emergency

Wed, 22 Jan 2025 00:00:00 -0000

On 20 January 2025, President Trump issued an Executive Order declaring a National Energy Emergency (Order).¹Under the National Emergencies Act,²the president may declare a national emergency that allows the government to use statutory authorities that are reserved for times of national emergencies. In other words, a national emergency declaration does not suspend or change the law except as permitted by applicable statutory emergency authorities. The relevant statutory emergency authorities are discussed below.

In summary, the Order directs agencies to utilize their statutory emergency powers to speed up development and authorization of energy projects. Notably, however, the Order defines “energy” as: “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals.” As such, the Order does not apply to solar, wind, batteries, or other energy sources not contained in the definition of “energy.”

The Order contains six substantive provisions:

Emergency Approvals

The Order directs the heads of executive departments and agencies to identify authorities to facilitate domestic energy production on Federal and other lands, including Federal eminent domain authorities and authorities under the Defense Production Act.³This provision also directs the Environmental Protection Agency (EPA) to consider issuing emergency fuel waivers to allow the year-round sale of E15 gasoline.⁴

Expediting the Delivery of Energy Infrastructure

The Order directs agencies to use all relevant lawful emergency and other authorities to: (a) expedite the completion of authorized and appropriate energy projects; (b) facilitate energy production and transportation through the West Coast, Northeast, and Alaska; and (c) report on these activities to the Assistant to the President for Economic Policy.

Emergency Regulations and Nationwide Permits Under the Clean Water Act and Other Statutes Administered by the Army Corps of Engineers

The Order directs the heads of all agencies to identify planned or potential actions to facilitate energy production that may be subject to the Army Corps emergency permitting provisions and use these authorities to facilitate the nation’s energy supply.⁵The Order also requires agencies to report on evaluations under this provision and directs the Army Corps and EPA to promptly coordinate with agencies regarding application of Army Corps permitting provisions.

Endangered Species Act (ESA) Emergency Consultation Regulations

The Order directs the heads of all agencies to identify planned or potential actions to facilitate energy production that may be subject to ESA emergency permitting provisions and use these authorities to facilitate the nation’s energy supply.⁶The Order also requires agencies to report on evaluations under this provision and directs the US Fish and Wildlife Service and National Marine Fisheries Service to promptly coordinate with agencies regarding application of ESA emergency permitting provisions.

Convening the ESA Committee

The Order directs the ESA Committee to meet quarterly to review applications for exemption from requirements of the ESA (or to identify obstacles to domestic energy infrastructure, if the ESA Committee has no pending applications for review). This provision requires the Secretary of the Interior to determine an applicant’s eligibility for an ESA exemption within 20 days of receipt and the ESA Committee to grant or deny the application within 140 days of the Secretary’s eligibility determination.

Coordinated Infrastructure Assistance

The Order directs the Secretary of Defense, in collaboration with the Secretaries of Interior and Energy, to conduct an assessment of the Department of Defense’s ability to acquire and transport the energy, electricity, or fuels needed to protect the homeland and conduct operations abroad, with a focus on the Northeast and West Coast. This provision notes that the Secretary of the Army may address any of these vulnerabilities under the Army’s authority to undertake military construction projects in the event of a national emergency.⁷

While the Order clearly expresses the Trump Administration’s policy to encourage development of domestic conventional energy production, the affected agencies must still act within prescribed statutory limits. As such, it will take time to see how future legal challenges will shape the Order’s ultimate impact on the permitting and siting of future conventional energy projects throughout the United States.

Our multidisciplinary teams are advising a wide range of clients across the energy industry on the critical changes announced and soon-to-be-implemented by the new Trump Administration, including policy priorities, impacts to permitting and regulatory processes, environmental reviews, and the impacts of recent Supreme Court decisions like Loper Bright on future agency actions.
Dubai Court of Cassation Recognises the Concept of Without Prejudice Settlement Discussions

Wed, 22 Jan 2025 00:00:00 -0000

Introduction

In a recent judgment in Case No. 486 of 2024 (issued on 22 October 2024), the Dubai Court of Cassation (Court of Cassation) upheld the decision of the Dubai Court of Appeal (Court of Appeal) (issued on 3 April 2024 in Case No. 31 of 2024) that parties’ unsuccessful settlement discussions are inadmissible as evidence of a party’s liability.

Background

The claimant filed a case in the Dubai Court of First Instance (Court of First Instance) arising out of an agreement to purchase cryptocurrency. The claimant alleged that the agreed amount of cryptocurrency had not been transferred following payment and claimed compensation, plus interest. The Court of First Instance only awarded a small part of the claimed amount and dismissed the rest of the claim. The claimant appealed to the Court of Appeal on the basis that the Court of First Instance had failed to take into consideration WhatsApp communications between the parties during settlement discussions in which the defendant admitted to owing the claimed amount. The Court of Appeal held that statements made during amicable settlement discussions are not evidence of liability, as they are given on a “without prejudice” basis and such statements are protected from being used as evidence of liability. The claimant appealed that judgment to the Court of Cassation.

Judgment of the Court of Cassation

The Court of Cassation upheld the decision of the Court of Appeal and dismissed the appeal. The Court of Cassation reiterated that settlement discussions, if unsuccessful, are inadmissible as evidence of a party’s liability.

Analysis

Although the concept of without prejudice communication is well established in common law jurisdictions, the laws of the United Arab Emirates (UAE) do not expressly recognise the concept, and the onshore UAE courts have historically been open to receiving evidence of parties’ settlement discussions. As there is no system of binding precedent in the UAE, it remains to be seen whether this judgment marks a change in approach by the onshore UAE courts. If followed, this would be a welcomed development, as it would allow contracting parties to seek to negotiate a settlement without the risk of any settlement offers being used as evidence of liability. It is also worth noting that none of the judgments at any level are clear as to whether the correspondence at issue was marked “without prejudice.” This may suggest that no specific designation is required, provided the correspondence was sent as part of a genuine effort to settle the dispute. Nonetheless, parties may have more success asserting privilege over correspondence that has been clearly marked as such.

About The Firm

Our Litigation and Dispute Resolution practice group has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the UAE and wider Middle East region.
Managing Artificial Intelligence: The Monetary Authority of Singapore's Recommendations on AI Model Risk Management

Wed, 22 Jan 2025 00:00:00 -0000
This publication is issued by K&L Gates Straits Law LLC, a Singapore law firm with full Singapore law and representation capacity, and to whom any Singapore law queries should be addressed. K&L Gates Straits Law is the Singapore office of K&L Gates, a fully integrated global law firm with lawyers located on five continents.

Introduction and Background

On 5 December 2024, as part of the Monetary Authority of Singapore’s (MAS) incremental efforts to ensure responsible use of artificial intelligence (AI) in Singapore’s financial sector, MAS published recommendations on AI model risk management in an information paper¹ following a review of AI-related practices of selected banks.

In the information paper, MAS stressed that the good practices highlighted in the information paper should apply to other financial institutions. This alert briefly outlines key recommendations in the information paper, with three key focus areas that MAS expects banks and financial institutions to keep in mind when developing and deploying AI, which covers (1) oversight and governance of AI, (2) key risk management systems and processes for AI, and (3) development, validation and deployment of AI.

Key Focus Area 1: Oversight and Governance of AI²

Existing risk governance frameworks and structures (such as those related to data, technology and cyber; third-party risk management; and legal and compliance) remain relevant for AI governance and risk management. In tandem with these existing control functions, MAS deems it good practice for banks to do the following:
- Establish cross-functional oversight forums to avoid gaps in AI risk management and ensure that the bank’s standards and processes are aligned across the bank and kept in pace with the state of the bank’s AI usage.
- Update control standards to keep pace with the increasing use of AI or new AI developments, policies and procedures relating to performance testing of AI for new use cases and clearly setting out roles and responsibilities to address AI risk.
- Develop clear statements and guidelines to govern areas such as fair, ethical, accountable and transparent use of AI across the bank to prevent potential harms to consumers and other stakeholders arising from the use of AI.
- Build capabilities in AI across the bank to support both innovation and risk management.
Key Focus Area 2: Key Risk Management Systems and Processes³

MAS also recognised from most banks the need to establish or update key risk management systems and processes for AI, particularly in the following areas:
- Policies and procedures for identifying AI usage and risk across the bank, so that commensurate risk management can be applied to the respective AI model.
- Systems and processes to ensure the completeness of a bank’s AI inventories, which also capture the approved scope of use for that particular AI (e.g., the purpose, use case, application, system and other relevant conditions) and provide a central view of AI usage to support oversight.
- Assessment of the risk materiality of AI that covers key risk dimensions, such as AI’s impact on the customer, bank and stakeholders; the complexity of AI model or system used; and the bank’s reliance on AI, which takes into account the autonomy granted to AI and the involvement of humans, so that relevant controls can be applied proportionately.
Key Focus Area 3: Development and Deployment of AI⁴

Most banks have established standards and processes for development, validation and deployment of AI to address key risks. MAS deems it good practice for banks and financial institutions to do the following:
- In relation to the development of AI, to focus on data management, model selection, robustness and stability, explainability and fairness, as well as reproducibility and auditability.
- In relation to the validation of AI, to require independent validations or reviews of AI of higher risk materiality prior to deployment and to ensure that development and deployment standards have been adhered to. For AI of lower risk materiality, most banks conduct peer reviews that are calibrated to the risks posed by the use of AI prior to deployment.
- In relation to the deployment, monitoring and change management of AI, to perform predeployment checks, closely monitor deployed AI based on appropriate metrics, and apply the appropriate change management standards and processes to ensure that AI would behave as intended when deployed.
Generative AI and Third-Party AI⁵

MAS has noted that the use of generative AI is still in its early stages in banks and financial institutions. However, MAS suggests that banks and financial institutions should generally try to apply existing governance and risk management structures and processes where relevant and practicable. Innovation and risk management should be balanced by adopting the following:
- Strategies and approaches, in which a bank leverages on the general-purpose nature of generative AI for key enabling modules or services, but limits the current scope of generative AI to use cases for assisting or augmenting human and operational efficiencies that are not directly customer-facing.
- Process controls, such as setting up cross-functional risk control checks at key stages of the generative AI’s life cycle and requiring human oversight for generative AI decisions with attention on user education and training on the limitations of generative AI tools.
- Technical controls, such as selection, testing and evaluation of generative AI models in the bank’s use cases; developing reusable modules to facilitate testing and evaluation; assessing different aspects of generative AI model performance and risks; establishing input and output filters as guardrails to address toxicity, bias and privacy issues; and mitigating data security risk via measures such as the use of private clouds or on-premise servers and limiting the access of generative AI to sensitive information.
In relation to third-party AI, existing third-party risk management standards and processes continue to play an important role in banks’ efforts to mitigate risks. As far as practicable, MAS suggests that banks extend controls for internally developed AI to third-party AI. Banks should also supplement controls for third-party AI with other approaches to mitigate additional risks. These include the following:
- Conducting compensatory testing to verify the third-party AI model’s robustness and stability and detect potential biases.
- Developing robust contingency plans to address potential failures, unexpected behaviour of third-party AI or discontinuing support by vendors.
- Updating legal agreements and contracts with third-party AI providers to include clauses that provide for performance guarantees, data protection, the right to audit and notification when AI is introduced in third-party providers’ solutions to the banks and financial institutions.
- Improving the staff training on AI literacy, risk awareness and mitigation.
Conclusion

In conclusion, MAS has highlighted that robust oversight and governance of AI, supported by comprehensive identification, recording of AI inventories and appropriate risk materiality assessment, along with development, validation and deployment standards, are important areas that financial institutions and banks will need to focus on when using AI. Financial institutions and banks will need to keep in mind that the AI landscape will continue to evolve, and existing standards and process will need to reviewed and updated in consultation with MAS and industry best practices to ensure proper governance and risk management of AI and generative AI.
FDA Proposes Front-of-Package Labeling Requirements

Tue, 21 Jan 2025 00:00:00 -0000

On 14 January 2025, the US Food and Drug Administration (FDA) issued a proposed rule to be published on 16 January, which, if finalized, will require a front-of-package (FOP) nutrition label on most packaged foods. This FOP nutrition label consists of a “Nutrition Info box,” detailing the relative Percent Daily Values (% DV) of saturated fat, sodium, and added sugars (undesirable nutrients) in a serving of the packaged food. The Nutrition Info box for most foods will: (1) include a description of the serving size; (2) include the % DV of the undesirable nutrients; (3) include a characterization of such values as “Low,” “Med,” and “High;” and (4) appear in at least eight-point font or be no smaller than the size of the required net quantity of contents declaration specified in 21 C.F.R. §§ 101.7(h) and (i). The Nutrition Info box will have to be prominently displayed in the upper-right corner of the Principal Display Panel.

The proposed rule would require that most packaged foods for children aged four and older and the general population bear a Nutrition Info box, a sample image of which is shown below:

^{Image Source: US Food and Drug Administration Website}

Levels 5% or less of the % DV of saturated fat, sodium, and added sugars would be considered “Low,” while levels 6% to 19% of the % DV are “Med.” Levels of 20% or more of the % DV are considered “High.”

FDA noted that these numbers are generally consistent with the levels in the “low” (21 C.F.R. § 101.62(b)(2)) and “high” (21 C.F.R. § 101.54(b)) nutrient content claims. However, it is relevant to note that these terms have historically been associated with marketing claims of favorable nutrients (e.g., high in dietary fiber and low in sodium). This proposed rule marks the first time FDA is regulating the mandatory use of the “high” term for undesirable nutrients.

FDA tested with consumers Nutrition Info boxes that used red for High, yellow for Med, and green for Low to designate which nutrients to limit and consume enough of. However, FDA ultimately declined to include colors as study participants found the scheme confusing.

FDA has invited comments on several facets of this proposed rule. Notably, FDA has invited comments on how these requirements are impacted by the nutritional needs of subpopulations, such as children aged one to three years, and the need for or value of interpretive nutrition information for these subpopulations. FDA also invited comment on the inclusion of a mandatory or voluntary quantitative statement of calories in the Nutrition Info box and ways to interpret quantitative calorie information. Additionally, FDA is seeking feedback on use of the “Low” categorization for products that declare a 0% DV for any of these three nutrients, and whether a fourth categorization, such as “Zero” or “Free,” would better indicate that the product is not simply “Low” for that nutrient but contributes 0% to the % DV for that nutrient.

In addition to creating a Nutrition Info box regulation under 21 C.F.R. § 101.6, the proposed rule would revise the requirements for “low sodium” under 21 C.F.R. § 101.61 and “low saturated fat” nutrient content claims under 21 C.F.R. § 101.62. Notably, the permissible limit for “low sodium” claims would be 115 mg, as compared to the current 140 mg level.

FDA will accept comments on the proposed rule until 16 May 2025, at regulations.gov under docket number FDA-2024-N-2910. If and when the proposed rule is finalized, most businesses will have three years after the effective date to comply; small businesses with less than US$10 million in annual food sales will have four years after the effective date to comply.

Our Health Care and FDA team is ready to assist with questions on the proposed rule and will continue to monitor for updates.
Abu Dhabi Court of Cassation Reiterates the Exceptional Nature of Arbitration Agreements

Tue, 21 Jan 2025 00:00:00 -0000

Introduction

A recent judgment from the Abu Dhabi Court of Cassation (Court of Cassation) in Case No. 902 of 2024 (issued on 23 December 2024) reiterates the importance of ensuring that a signatory to a contract containing an arbitration agreement has specific authority to bind the company to arbitration.

Background

An award debtor filed proceedings in the Abu Dhabi Court of Appeal (Court of Appeal) seeking to set aside an arbitral award issued in an arbitration under the rules of the Abu Dhabi Commercial and Conciliation Centre (an institution that has since been reorganized and renamed as the Abu Dhabi International Arbitration Centre) on the basis that the signatory to the agreement, the award debtor’s chief executive officer (CEO), was not authorised to bind the company to arbitration. The award debtor argued that, as it is a public joint stock company (PJSC), only an authorized signatory can bind the company to arbitration. The company’s Articles of Association authorized the Chairman of the Board of Directors to enter into arbitration agreements on behalf of the company. However, there was no express delegation of those powers to the CEO. The Court of Appeal dismissed the claim and upheld the validity of the arbitral award. The award debtor appealed this decision to the Court of Cassation.

Judgment of the Court of Cassation

The Court of Cassation accepted the appeal and set aside the arbitration award on the basis that the arbitration agreement was void. The Court of Cassation held that it was a matter of public order (which can be invoked by a party at any time or by the court on its own volition) that an arbitration agreement shall only be valid if it fulfils the mandatory requirements set by the legislature. In addition to the requirement for the arbitration agreement to be in writing (Article 7(1) of UAE Federal Law No. 6 of 2018 (UAE Arbitration Law)), the Court of Cassation emphasised that signatories to an arbitration agreement must have the necessary legal capacity to bind the respective party to arbitration. This requirement is reflected in Article 4 of the UAE Arbitration Law, which provides that an arbitration agreement may only be entered into by a representative of a corporate entity who is authorized to conclude the arbitration agreement, or, otherwise, the arbitration agreement shall be null and void. The Court of Cassation also noted that a deficiency in the signatory’s authorisation could not be remedied by demonstrating that an authorised representative of the corporate entity had participated in the arbitration, as the requirement in Article 4 relates to execution of the arbitration agreement and not what occurred thereafter. Similarly, general rules (such as those relating to a principal’s subsequent ratification of an act performed by an agent outside of the agent’s scope) do not apply as this is a special rule that is specific to arbitration agreements.

Analysis

This judgment confirms that a representative of a PJSC must have clear and specific authority to enter into an arbitration agreement on behalf of the company. It also serves as a reminder of the importance of ensuring, upon execution of a contract, that the parties’ signatories have authority to bind the company to arbitration and not simply authority to enter into the contract.

About The Firm

Our Litigation and Dispute Resolution practice group has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the United Arab Emirates and wider Middle East region.
New Year's Resolutions for Employment, Industrial Relations, and Work Health and Safety

Mon, 20 Jan 2025 00:00:00 -0000

A few New Year’s Resolutions from an employment, industrial relations and work health and safety perspective as we kick off 2025.

See how many of these can be completed or substantively advanced by the end of March 2025:

Payroll Compliance

Conduct or review your modern award mapping and classifications across the business. Ensure that all employees are receiving correct pay and entitlements under applicable industrial instruments and workplace laws. Criminal wage theft laws are now in place for intentional underpayments. Severe civil penalties also remain in place for underpayments which are not intentional in nature.

Preventing Sexual Harassment (Queensland)

Prepare, consult and implement a prevention plan to manage an identified risk to the health or safety of workers, or other persons, from sexual harassment and sex or gender-based harassment at work. This needs to underway from March 2025.

Positive Duty to Prevent Sexual Harassment (All Australian States and Territories)

Review current measures in place to prevent sexual harassment and sex or gender based harassment at work, generally. Are the measures effective? Does more need to be done to prevent such conduct? There is an expectation of ongoing positive and active attention to this important area.

Psychosocial Hazards and Risks

Review current risk assessments and ensure that psychosocial hazards and risks have been appropriately identified and recorded. Review control measures. Are the measures effective? Does more need to be done in this area?

Work Health and Safety

Review risk assessments holistically across the business. Are they up to date? Do they reflect current business operations and any changes to operations? Are control measures effective? Do they reflect applicable laws, standards, codes of practice and/or best practice? Do they need revision? Have workers been consulted with and trained on hazards, risks and control measures?

Board Briefings

If not already on the agenda, include the above key areas of importance into quarterly updates to the Board. Consider conducting board briefings / training on these matters periodically.

Contractor Classifications

Review each contractor engagement within the business against the new definition of employee. Is there a risk of misclassification or sham contracting (adopting a multi factor test)? Are practical arrangements for contractors in place to reduce this risk? Are opt out notices being used where appropriate? Misclassification or sham contracting can lead to severe consequences – including criminal and civil penalties for underpayments of minimum employment entitlements under applicable industrial instruments.

Industrial Relations Strategy

Review your present Industrial Relations strategy. Does it reflect best practice? Does it incorporate 2023/2024 changes to industrial relations laws?

With the range of criminal sanctions now expanded in the employment law, industrial relations and safety space, and the significant reform over the last year or two, there has never been a more important time to ensure a deliberate and focused plan to manage employment, industrial relations and work health and safety across every business in every industry. Not doing so could expose a company, its directors and other officers and other workplace participants.

How can we Help?

If you’d like further advice or assistance on any of the above, or if you need additional resources to assist checking off these items, please do not hesitate to reach out.
US Department of Justice Announces US$2.9 Billion in Fiscal Year 2024 False Claims Act Recoveries

Fri, 17 Jan 2025 00:00:00 -0000

On 15 January 2025, the US Department of Justice (DOJ) published its report (Report) announcing civil recoveries under the False Claims Act (FCA) for Fiscal Year (FY) 2024. The recoveries for FY 2024 exceeded US$2.9 billion, approximately US$1.7 billion of which involved the health care industry. The US government has now collected over US$78 billion in recoveries under the FCA since the statute was amended in 1986 to allow for treble damages and increased incentives for whistleblowers. Notably, the 979 qui tam lawsuits filed in FY 2024 marked the highest number in a single year; and the 558 settlements and judgments trailed only just behind the record number set in FY 2023.

As with FY 2023, qui tam cases comprised the largest portion of recoveries, with over 83% (US$2.4 billion) stemming from whistleblower actions. The government paid over US$400 million to whistleblowers in relation to these FY 2024 recoveries. Of the record-setting 979 qui tam suits that were filed in FY 2024, 370 were health care focused.

DOJ also highlighted its “key enforcement priorities” for FY 2024 and provided representative examples. The enforcement priorities included health care fraud, military procurement fraud, pandemic fraud, and cybersecurity fraud. As with prior years, health care fraud was the principal source of FCA recoveries, which included recoveries relating to Medicare Advantage fraud, billing for unnecessary services and substandard care, opioid epidemic-related fraud, kickback schemes, and Stark Law violations.

Health Care Fraud

With Medicare Advantage, also known as Medicare Part C, having become the largest component of the Medicare program, the government continued its focus on Medicare Advantage fraud. In FY 2024, the government secured a substantial recovery from a provider that allegedly paid kickbacks to third-party insurance agents in exchange for recruiting senior citizens to the provider’s primary care clinics. DOJ also highlighted that it is continuing to litigate a number of cases against Medicare Advantage Organizations.

DOJ obtained substantial recoveries from providers who allegedly improperly billed for medically unnecessary services and substandard care. Additionally, the government has continued to focus on opioid crisis-related fraud, with several substantial recoveries against pharmaceutical companies and individual physicians.

In a carry-over from FY 2023, some of the largest health care recoveries in FY 2024 resulted from alleged unlawful kickback schemes and Stark Law violations. The kickback schemes ranged from payments to purportedly induce referrals of dialysis patients, to medical directorships that were intended to induce patient referrals. As to the Stark Law, DOJ highlighted a US$345 million settlement to resolve allegations that a health care network paid compensation to certain physician groups far above fair market value and awarded bonuses tied to referral volume.

Other Enforcement Priorities

In addition to health care-specific recoveries, the government recovered significant funds stemming from military procurement fraud, pandemic fraud, and cyber fraud. The military procurement fraud recoveries included a US$70 million settlement against a contractor to resolve allegations that they overcharged the US Navy for spare parts and materials needed to repair and maintain aircraft used to train naval aviators. Of note, military procurement fraud recoveries could have been much higher in FY 2024, however, a US$428 million settlement with a defense contractor occurred on 16 October 2024, putting that recovery in FY 2025.

The government also resolved an estimated 250 cases, totaling over US$250 million, in connection with pandemic-related fraud. As with FY 2023, the pandemic fraud largely stemmed from the submission of inaccurate information in PPP loan applications, though the DOJ also highlighted a US$12 million recovery that resolved allegations of false claims for COVID-19 testing that were billed to the Health Resources and Services Administration’s Uninsured Program.

In October 2021, DOJ announced its Civil Cyber-Fraud Initiative with the goal of pursuing companies who receive federal funds while failing to follow required cybersecurity standards. In FY 2024, the government entered into several recoveries under the Civil Cyber-Fraud Initiative. DOJ also highlighted a complaint-in-intervention that was filed against a research institution alleging that the defendants had failed to meet cybersecurity requirements in connection with Department of Defense contracts.

Whistleblower Suits

Given the record-setting number of qui tam cases filed in FY 2024, it will be important to continue to monitor developments regarding the constitutionality of the qui tam provisions. On 30 September 2024, a judge in the US District Court for the Middle District of Florida held that the qui tam provisions of the FCA violate the Appointments Clause of Article II of the US Constitution. This first-of-its-kind decision has sparked a wave of filings by the defense bar. With the Middle District of Florida’s decision on appeal, there are sure to be many developments on this issue in the coming months.

The FY 2024 settlements and judgments provide an insight into the government’s enforcement priorities and potential future enforcement areas. The firm’s forthcoming article The False Claims Act and Health Care: 2024 Recoveries and 2025 Outlook will provide an in-depth analysis of the 2024 recoveries, as well as some key enforcement areas to look out for in 2025.
California Wildfires—Insurance Tips for Policyholders

Fri, 17 Jan 2025 00:00:00 -0000
The recent wildfires in California have clearly had a catastrophic impact, destroying a vast number of homes and business premises across the region. Homeowners and businesses may have limited means to protect against nature’s forces, but, in this alert, we provide tips on steps that can be taken to protect against denials of coverage by insurers. Careful and proactive attention to insurance coverage considerations could be the key to restoring homes and business operations and weathering the financial storms that follow from such disastrous events.

Potentially Relevant Insurance Policies

It is vital for affected homeowners and businesses to review all relevant or potentially relevant insurance policies promptly, including excess-layer policies, and to comply with loss notification procedures. The most common source of coverage for most individuals and businesses is likely to be first-party property coverage insuring the damaged premises and other assets, including against the risk of fire, smoke, and related damage. In many cases, this insurance will be supplemented by specialty coverages that apply to specific situations.

For businesses, the coverage will typically include the following:
- Property damage where losses are caused to the business premises and assets, including computers and machinery.
- Business interruption (BI) where the business experiences loss of earnings or revenue due to property damage or loss of use caused by an insured peril, for a specified period of time after the insured event or until normal business operations have been resumed.
- Contingent BI which generally covers loss of revenue arising from damage to the property of a supplier, customer, or other business partner.
- Denial of access, where use or access to the insured property is prevented or restricted for a specific period of time, for example, if roads or bridges leading to the property have been blocked or destroyed.
- Civil authority coverage, which covers losses arising from an order made by a civil or government authority that interferes with normal business operations.
- Service interruption coverage, which typically covers the insured for losses related to electricity or interruption of other utilities or supplies.
- Extra expense incurred to enable business operations to be resumed or to mitigate other losses.
When presenting an insurance claim, it is important that policy provisions are considered against the backdrop of potentially applicable insurance coverage law to ensure that the policyholder is taking the steps necessary to maximize coverage. Many property policies are written on an “all risks” basis, but there will typically be exclusions, sublimits, or restrictions applicable to certain perils or circumstances. Some coverages may be subject to different policy limits and policy deductibles that impact the amount of coverage available. A proper analysis of the policy wording is vital to enable the insured to take full advantage of the coverage provided.

Practical Tips to Maximize Coverage

There are several steps policyholders should consider when making an insurance claim arising from natural disasters like the California fires:

Be Proactive in Notifying Insurers

Most policies identify specific procedures to be followed in presenting a claim, and there are likely to be timing deadlines associated with them. Failure to comply may result in insurers seeking to restrict or deny coverage for a claim otherwise covered by the policy. Policyholders should carefully consider any notice requirements, including any clause allowing for notice of a loss or an event that may or is likely to give rise to a claim. Prompt notification may assist policyholders in securing early access to loss mitigation resources and related coverages.

Early Assessment of Coverage

There are significant benefits in evaluating coverage at an early stage to understand any issues that may impact the way in which the claim is presented. Consultation with experienced coverage lawyers will assist in identifying and analyzing responsive policies as well as anticipating coverage issues or exclusions insurers might seek to rely upon.

Collate and Preserve Relevant Documents

Insurers typically require proof of loss and damage along with extensive supporting documentation. It is critical to take steps early on to ensure that potentially relevant documents and electronic records are located and preserved. In particular, insurers may argue that some part of the revenue loss is attributable to other causes, such as poor business decisions or economic downturn, such that historical records often must be examined and relied upon.

Preparation of Proof of Loss

The preparation of a detailed inventory and proof of loss is a time-consuming and challenging process but can prove invaluable in seeking to challenge any settlement offers made by the insurers or any loss adjustors appointed on their behalf. Many commercial policies include claim preparation coverage, which covers costs associated with compiling a detailed claim submission. The appointment of independent loss assessors or forensic accountants can prove particularly beneficial for collating BI losses, which are often challenged by insurers. For example, insurers may adopt a narrow view of what constitutes “interruption” to the business, particularly where certain business activities are ongoing.

Advance Payments

Any delays by insurers in making appropriate and periodic payments will delay the rebuilding of premises and the resumption of business operations. Insureds should consider requests for interim or advance payments, prior to completion of the loss adjustment process, particularly if the policy expressly provides for this.

Evaluating and Challenging Insurer Positions

The validity of any coverage defenses or limitations raised by insurers will be impacted by the precise wording of the insurance contract and by the applicable governing law. Experienced coverage counsel will be able to assist an insured in assessing the merit and viability of any coverage issues raised by insurers, or by their appointed loss adjusters, and in maximizing the insured’s potential recovery.

We have a global Insurance Recovery and Counseling practice, acting exclusively for policyholders on coverage matters. If you or your business have been directly impacted by the California wildfires, or if you have queries in connection with policy terms that could be relevant in the event of natural disasters, please contact Mike Nelson, Sarah Turpin, or any of the lawyers in our Insurance Recovery and Counseling team.
Department of the Treasury and the Internal Revenue Service Issue Final Regulations on Section 45V Clean Hydrogen Production Tax Credit

Fri, 17 Jan 2025 00:00:00 -0000

On 3 January 2025, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released final regulations (Final Rules) implementing the Section 45V Clean Hydrogen Production Tax Credit (Section 45V tax credit) pursuant to the Inflation Reduction Act of 2022 (IRA). These much-anticipated Final Rules arrive over a year since the holiday-adjacent publication of the proposed regulations on 26 December 2023 (Proposed Rules). Treasury and IRS received approximately 30,000 written comments on the Proposed Rules and conducted a three-day public hearing that included testimony from over 100 participants. Adding to this long saga, the Biden Administration in its waning days has attempted to build upon the Final Rules and promote clean hydrogen production well into the future, announcing a US$1.66 billion loan guarantee by the Department of Energy (DOE) for Plug Power to produce and liquify clean hydrogen fuel. However, these actions come within days of the new Trump Administration and a Republican-controlled Congress, casting some uncertainty over the future of the Final Rules, DOE spending, and, more generally, the Section 45V tax credit.

In the Final Rules, Treasury and IRS made numerous modifications to the Proposed Rules—including notable changes to the controversial “three pillars” (incrementality, deliverability, and temporal matching) of the Energy Attribute Certificate (EAC) framework—largely in an effort to provide flexibility in response to industry concerns without sacrificing the integrity of the credit, while at the same time addressing concerns that substantial indirect emissions would not be taken into account. The Final Rules enable tax credit pathways for hydrogen produced using both electricity and certain methane sources, intending to provide investment certainty while ensuring that clean hydrogen production meets the IRA’s lifecycle emissions standards.

The Final Rules, and primary differences between the Proposed and Final Rules, are discussed below.

EAC Requirements for Electrolytic Hydrogen Production – The Three Pillars

Under both the Proposed and Final Rules, EACs are the established means for documenting and verifying the generation and purchase of electricity to account for the lifecycle greenhouse gas emissions associated with hydrogen production. Under this framework, a taxpayer must acquire and retire qualifying EACs to establish, for purposes of the Section 45V tax credit, that it acquired electricity from a specific electric generation facility (and therefore did not rely on electricity sourced via, e.g., the regional electric grid). Like in the Proposed Rules, the Final Rules require that taxpayers seeking to use EACs attribute electricity use to a specific generator that meets certain criteria for temporal matching, deliverability, and incrementality.

Incrementality

As in the Proposed Rule, the Final Rules define electric generation as “incremental” if the generator begins commercial operations within 36 months of the hydrogen facility being placed in service, or is uprated within that period. Treasury and IRS declined to extend the 36-month time frame for eligibility, but, within that 36-month time frame, Treasury and IRS provided more pathways for eligibility. The expanded pathways are as follows:

Uprates

The Final Rules modify the uprate rules to provide additional flexibility to taxpayers in determining “uprated” production capacity from generation facilities. The Final Rules provide that the term “uprate” means the increase in either an electric generating facility’s nameplate capacity (in nameplate megawatts) or its reported actual productive capacity.

Restarted Electric Generation Facilities

Under the Final Rules, EACs can meet the incrementality requirement with electricity from an electric generation facility that is decommissioned or is in decommissioning and restarts. The Final Rules clarify that these facilities can be considered to have additional capacity from a base of zero if that facility was shut down for at least one year.

Qualifying Nuclear Reactors

The Final Rules allow EACs to meet the incrementality requirement with electricity produced from a qualifying nuclear reactor up to 200 MWh per operating hour per reactor. A qualifying nuclear reactor is a “merchant nuclear reactor” or a single-unit plant that competes in a competitive market and does not receive cost recovery through rate regulation or public ownership.

Qualifying States

The Final Rules allow EACs to meet the incrementality requirement if the electricity represented by the EAC is produced by an electric generating facility physically located in a “qualifying state,” i.e., a state that has stringent clean energy standards (for now, California and Washington), and the hydrogen production facility is also located in the qualifying state.

Carbon Capture and Sequestration (CCS)

As authorized by the Final Rules, the “CCS retrofit rule” allows an EAC to meet the incrementality requirement if the electricity represented by the EAC is produced by an electric generating facility that uses CCS technology and the CCS equipment was placed in service no more than 36 months before the hydrogen production facility.

Temporal Matching

The Final Rules maintain the proposed hourly-matching requirement, which requires that the electricity represented by the EAC be generated in the same hour as the hydrogen facility’s use of electricity to produce hydrogen. The Proposed Rules required hourly matching to go into effect in 2028, but the Final Rules have delayed this requirement until 2030. Annual matching is required through 2029. The Final Rules note that this two-year postponement does not prohibit a hydrogen producer from voluntarily implementing hourly matching prior to 2030. Changes in the Final Rules also provide additional flexibility by allowing hydrogen producers to deviate from the annual aggregation of emissions to an hourly basis so long as the four kg CO2e per kg of hydrogen is met on an aggregate annual basis for the facility. This affords a hydrogen producer the ability to optimize the tax credit amount when it is unable to secure EACs during all hours of operation, without suffering severe penalties in the form of lower credit amounts across the entire year. Additionally, each electrolyzer is considered to be an individual qualified facility, which allows a producer to allocate EACs across electrolyzers and time periods to optimize tax credit values for a site.

Reliance Rule

In the Final Rules, Treasury and IRS declined to include a “reliance rule” (i.e., grandfathering) that would allow facilities that meet certain milestones (such as beginning of construction, being placed in service, or commencing commercial operations) by a certain date to continue to use annual matching instead of hourly matching.

Energy Storage

The Final Rules allow hydrogen producers and their electric suppliers to use energy storage, such as batteries, to shift the temporal profile of EACs based on the period of time in which the corresponding electricity is discharged from the storage device. The storage system must be located in the same region as both the hydrogen production facility and the facility generating the electricity to be stored. Storage systems need not themselves meet the incrementality requirement, but the EACs that represent electricity stored in such storage systems must meet the incrementality requirement based on the attributes of the generator of such electricity. EAC registries must be able to track the attributes of the electricity being stored.

Deliverability

As in the Proposed Rules, the Final Rules provide that an EAC meets the deliverability requirement if the electricity represented by the EAC is generated by a facility that is in the same region as the hydrogen production facility. Also, as in the Proposed Rules, the Final Rules establish that, for the duration of the Section 45V tax credit, “region” for purposes of deliverability will be based on the regions delineated in the DOE’s National Transmission Needs Study. Those regions are based on the balancing authority to which the electric generating source and the hydrogen facility are both electrically connected. The table published in the Final Rules is the authoritative source regarding the geographic regions used to determine satisfaction of the deliverability requirement.

Dynamic Deliverability Regions

Treasury and IRS intend to update the regions in future safe harbor administrative guidance published in the Internal Revenue Bulletin.

Interregional Connections

The Final Rules allow some flexibility on interregional delivery, acknowledging that interregional electric transfers commonly occur. Accordingly, the Final Rules allow an eligible EAC to meet the deliverability requirement in certain instances of actual cross-region delivery where the deliverability of such generation can be tracked and verified. The Final Rules provide specific rules to meet this standard.

Eligibility for Methane-Based Hydrogen Production

The Final Rules also provide pathways for receiving Section 45V tax credits for hydrogen production using biogas, renewable natural gas (RNG), and fugitive sources of methane (collectively, natural gas alternatives). Most notably, the Final Rules dispense with the “first productive use” requirement proposed in the draft regulations, which would have required that the RNG or biogas used to produce hydrogen was not previously used, likening this requirement to the incrementality requirement of the Three Pillars for electrolytic hydrogen. Instead, the Final Rules rely on “alternative fates,” which refer to the assumptions used to estimate emissions from the use or disposal of natural gas alternatives were it not for the natural gas alternative’s new use of producing hydrogen. Under the Final Rules, alternative fates are determined on a categorical basis, rather than adopting a single alternative fate for all natural gas alternatives or adopting alternative fates on an entity-by-entity basis. The alternative fate associated with natural gas alternatives feeds into the “background data” that is entered into the 45VH2-GREET Model. The 45VH2-GREET Model uses that background data to calculate the estimated lifecycle greenhouse gas emissions associated with the specific hydrogen production process.

Alternative Fates, as Applied to Sectors

For landfills, coal mine methane, and wastewater sources, flaring is considered the primary alternative fate. For animal waste, the alternative fate is based on a national average of all animal waste management practices for the sector as a whole. For fugitive methane from fossil fuel activities other than coal mining, the alternative fate is the emissions that would otherwise be generated from productive use.

Venting

The Final Rules reject venting as an alternative fate across all sources of natural gas alternatives because it does not account for the prevalence of flaring and productive use, nor does it address the risk of induced emissions due to the incentives provided by the Section 45V tax credit. In taking this position, Treasury and IRS recognize that venting will likely be increasingly prohibited at local, state, and federal levels.

It is worth noting that Treasury’s failure to issue actual draft regulations for a methane-pathway 45V tax credit could increase the likelihood of a successful legal challenge to the 45V Final Rules. It is unclear at this time whether Treasury’s solicitation of comments in response to the questions the agency posed related to RNG as a viable pathway to secure the 45V credit is sufficient to satisfy proper notice-and-comment requirements under the Administrative Procedure Act. The Biden Administration’s inclusion of Final Rules related to RNG could be part of a strategic effort aimed at minimizing attacks against the Final Rules by bringing RNG developers to the table.

Other Considerations

Determining Lifecycle Greenhouse Gas Emissions Rates

The Final Rules clarify that the annual determination of the tax credit amount is made separately for each hydrogen production process conducted at a hydrogen production facility during the taxable year. The Final Rules clarify that “process” means the operations conducted by a facility to produce hydrogen (for example, electrolysis or steam methane reforming) during a taxable year using one primary feedstock. CCS equipment that is necessary to meet the 45V emissions thresholds is considered part of the facility for purposes of the credit.

Construction Safe Harbor

The Final Rules allow taxpayers to make an irrevocable election to treat the 45VH2-GREET Model available on the date of construction commencement of the hydrogen production facility as the applicable 45VH2-GREET Model.

Third-Party Disclosure Requirement

As in the Proposed Rules, the Final Rules require that an unrelated third party certify the annual verification report submitted as part of the election to treat qualified property as energy property for purposes of the Section 45V tax credit.

Effective Date

The Final Rules become effective immediately upon their publication in the Federal Register.

Outlook

There is still a great deal of political uncertainty surrounding the Section 45V tax credit due to the incoming Trump Administration and Republican-controlled Congress, which could nullify these regulations through the Congressional Review Act or reduce or eliminate the credits by modifying or rolling back the IRA as part of the budget reconciliation process. There is additionally the potential for litigation challenges to the Final Rules under the new Loper Bright standard for judicial review of agencies’ interpretations of statute.¹

Regardless, the Final Rules attempt to lay a foundation for hydrogen development for years to come. Barring political disruption, the Final Rules settle many uncertainties that may have acted as an obstacle to investment in the clean hydrogen sector and the progress of planned projects, including the DOE-funded hydrogen hubs. The Final Rules also generate new questions. As noted above, these Final Rules are effective immediately upon publication in the Federal Register. The immediate effectiveness and rollout of the Final Rules could contribute to the momentum needed to keep these rules and relevant IRA provisions in place even as administrations change. Strong industry reliance upon these rules may make it less politically palatable or practical to uproot and discard them entirely.
FDA Revokes Authorization for the Use of Red Dye No. 3 in Food and Ingestible Drugs

Fri, 17 Jan 2025 00:00:00 -0000

On 15 January 2025, the US Food and Drug Administration (FDA) announced that it will revoke the color additive authorization for use of FD&C Red No. 3 in food (including dietary supplements) and ingestible drugs. This ban responds to a 2022 color additive petition submitted by several interested parties and filed by FDA in 2023.

In support of the revocation, FDA is relying on the Delaney Clause of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 379e(b)(5)(B)), which requires FDA to ban color additives that are found to cause or induce cancer in humans or animals. Specifically, FDA is invoking the Delaney clause as a result of data that shows FD&C Red No. 3 causes cancer in male rats via a sex- and species-specific hormonal mechanism. In fact, according to the preamble of the final rule, “the carcinogenicity of FD&C Red No. 3 was not observed when tested in other animals including female rats and either sex of mice, gerbils, or dogs.” In other words, there is no demonstrable link between consumption of the food additive and cancer in any animal other than male rats, and most importantly, between consumption of the food additive and cancer in humans. The Delaney clause nevertheless requires the revocation of the clearance for FD&C Red No. 3 based on the male rat carcinogenicity data.

Food manufacturers will have until 15 January 2027 to reformulate products containing FD&C Red No. 3, whereas drug producers will have until 18 January 2028. California’s ban on FD&C Red No. 3 in food (along with three other additives) under AB 418 goes into effect a few weeks before FDA’s ban, on 1 January 2027. Our Health Care and FDA team continues to monitor FDA’s post-market review of cleared substances and is well-equipped to advise clients on questions.
Proposed Rule by the Federal Acquisition Regulatory Council Would Ban the Use of Salary History Data by Federal Contractors and Require Disclosure of Salary Ranges in Job Postings

Fri, 17 Jan 2025 00:00:00 -0000

UPDATE: On 8 January 2025, the Federal Acquisition Regulatory Council (FAR Council) officially withdrew its proposed rule that would have (1) barred federal contractors from seeking and using job applicants’ compensation history in decisions on hiring and setting pay and (2) required contractors to disclose salary ranges in job postings. The FAR Council’s announcement states that “[i]n light of the limited time remaining in the current Administration,” it “decided to withdraw the proposed policy and rule and focus [its] attention on other priorities.”

Despite the withdrawal of the FAR Council’s proposed rule, contractors should generally still refrain from asking about and considering applicants’ prior compensation history—which is consistent with OFCCP guidance and many state and local laws. Additionally, contractors who are seeking to be proactive in this area may also wish to consider implementing some of the best practice recommendations detailed in the article below, including reviewing job applications, interview materials, and processes for setting compensation and handling applicant and employee complaints and inquiries regarding pay.

On 29 January 2024, the Federal Acquisition Regulatory Council (FAR Council) issued a Notice of Proposed Rule Making (NPRM) that would prohibit federal contractors and subcontractors from seeking and considering information about applicants’ compensation history when hiring or setting pay for individuals working on or in connection with a government contract. On the same day, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued Frequently Asked Questions expressing its view that salary history is not a legitimate non-discriminatory reason for pay disparities.

These actions echo actions by states including California, New York, and Washington that have banned employers from considering salary history when making employment decisions and enacted pay transparency laws requiring inclusion of salary ranges in job postings.

Federal contractors should take note of these developments and adjust pay systems accordingly. This area remains a significant focus of federal and state action.

Proposed FAR Rule

Compensation History Ban

The NPRM would prohibit federal contractors and subcontractors from seeking and considering information about applicants’ compensation history when hiring or setting pay for individuals working on or in connection with a government contract. The NPRM defines “work on or in connection with a federal contract or subcontract” to mean work called for by or necessary to perform the covered contract. It defines “compensation history” to include compensation an applicant is currently receiving or has been paid in a previous job. It defines “applicant” as a “prospective employee or current employee applying for a position to perform work on or in connection with the contract” (emphasis added). As such, this would prevent employers from considering a current employee’s salary when determining compensation for that employee’s new role within the company.

Similar to many state¹ and local laws banning consideration of compensation history in employment decisions passed in recent years, the NPRM would prohibit contractors from seeking compensation history, either orally or in writing, directly from the applicant or their current or former employer or agent and from requiring disclosure of such history as a condition of the applicant’s candidacy. The NPRM also would prohibit contractors from retaliating against or refusing to interview, consider, hire, or employ an applicant for failing to provide their compensation history in response to an inquiry.

Notably, the NPRM’s prohibitions apply at any stage of the recruitment and hiring process, even if the applicant volunteers their compensation history without prompting. This differs from many state and local laws, which allow for consideration of salary history if the applicant voluntarily discloses it.

Compensation Disclosure Requirements

The NPRM would also require federal contractors and subcontractors to disclose the expected compensation in all job postings for roles involving work on or in connection with a government contract. This is again similar to many state and local pay transparency laws, in that it would require contractors to disclose the salary or wages, or range thereof, that the contractor in good faith believes it will pay for the position, as well as a general description of the benefits and other forms of compensation that will apply. The salary or wage range may reflect the contractor’s pay scale for the position, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position.

The NPRM defines “compensation” broadly to include any payments made to an employee “as remuneration for employment, including but not limited to salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.” For positions where at least half of the expected compensation is derived from commissions, bonuses, and/or overtime pay, the contractor must specify the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation, as applicable, that it in good faith believes will be paid for the position.

Notice Requirement

The NPRM would also require that contractors provide covered applicants with a notice of their rights, either as part of the job posting or application process. Further, the NPRM includes specific language for the notice, including informing applicants of the agency that issued the solicitation or awarded the contract. The language also includes details on how to file a discrimination complaint with the OFCCP.

The proposed rule includes a 60-day comment period, which ends on 1 April 2024.

OFCCP Guidance on Compensation History

Also on 29 January 2024, the OFCCP issued guidance in the form of Frequently Asked Questions (FAQ Guidance). The FAQ reiterates that agency’s position that it will not treat compensation history as a legitimate, job-related factor that could justify a salary disparity based on race or gender. The FAQ Guidance broadly defines “compensation history” to include both an individual’s current compensation as well as compensation received from prior employers. Thus, even a usual salary progression may be treated as suspect when there is a pay disparity. In other words, current or past pay at the same employer will not be a legitimate justification unless supported by another factor, such as tenure.

Whether consideration of compensation history is supported by other non-discriminatory factors can be subject to debate or negotiation during an audit, particularly in situations involving highly competitive positions or a candidate with unique skills or experience that might justify a higher salary to exceed their prior pay (such as for a tenured faculty member who may be the leading expert in a particular area of scholarship). Additionally, many employers have struggled with rising wage rates due to market pressures in the recent pandemic-related “war for talent” and “great resignation.”

For some employers, rising market wage rates have led to wage compression, which occurs if a position’s market rate outpaces a company’s internal salary-increase practices. In this situation, in order to fill a needed role, an employer may offer candidates starting salaries close to (or even above, in some cases) the salary of longer tenured employees, particularly where they are seeking to match or exceed candidates’ current salary in order to recruit them effectively. While courts have historically deferred to an employer’s decisions to base compensation on market factors such as rising wage rages², OFCCP may be less likely to do so if the practice is effectively used as a substitute or proxy for considering salary history or causes adverse impact leading to pay disparities based on race or gender. Ultimately, if OFCCP is not controlling for salary history but is controlling for tenure (which can be adversely related to salary where wage compression is present), the existence of wage compression can contribute to an OFCCP finding of a pay disparity. Thus, as a best practice, covered contractors should ensure their policies and practices address wage compression by timely assessing and adjusting incumbent pay.

The FAQ Guidance further indicates that although “a private employer’s reliance on compensation history to set pay may not itself be prohibited under federal law … the practice may contribute to unlawful discrimination, depending on the specific facts and circumstances at issue.” Finally, OFCCP indicates that even compensation history that is proffered by the applicant may cause a discriminatory impact and would also be prohibited by some state laws and the FAR Council’s NPRM.

Next Steps

While the FAR Council’s NPRM is only at the notice and comment stage, it is likely to become a final rule later this year.³ As such, federal contractors and subcontractors should begin assessing how they will comply with its requirements. In doing so, contractors should ensure that all current processes and practices where compensation history is considered at any stage of the recruiting and hiring process comply with applicable federal and state nondiscrimination law as well as state pay transparency laws. One method of doing so would be to conduct an annual pay equity self-audit (consistent with OFCCP obligation) to determine whether any such practices, including wage compression, have caused pay disparities.

For example, contractors should consider, at minimum, the following steps: (1) review job applications and interview materials to ensure there are no questions seeking prior compensation history; (2) review any processes for setting compensation (along with related materials) to ensure compensation history is neither requested nor considered at any stage; (3) confirm they have a clear process for applicant or employee inquiries or complaints about pay, so they can be timely and appropriately addressed; and (4) prohibit retaliation against applicants and employees for any such inquiries or complaints, and train managers accordingly.

Although the NPRM would apply only to positions that will perform “work on or in connection with a federal contract or subcontract,” this may be difficult to determine at the time of recruitment or hire. Moreover, as a practical matter, during an audit, the OFCCP reviews all employees at an establishment (not only those working on a federal contract or subcontract), and if salary history cannot be considered for some employees, as a matter of pay equity, it is likely OFCCP will be reluctant to consider salary history for any employees so as to maintain a consistent statistical approach among all employees. Accordingly, contractors should consider applying the NPRM’s requirements to other positions, including those that the contractor reasonably believes could perform work on or in connection with a covered contract. Contractors should begin the process now of identifying these positions so they are ready for when the rule is adopted.

Finally, contractors operating nationwide must comply with various and differing state and local laws banning consideration of salary history and requiring inclusion of salary ranges in job postings. Therefore, they should consider adopting a consistent nationwide approach to simplify and ensure compliance.

The lawyers of our Labor, Employment, and Workplace Safety practice regularly counsel clients on the issues discussed herein and are well-positioned to provide guidance and assistance to clients on these significant developments.

FTC Announces New HSR Notification Thresholds for 2025

Thu, 16 Jan 2025 00:00:00 -0000

On 10 January 2025, the Federal Trade Commission (FTC) announced new, increased reporting thresholds and filing fees for transactions requiring premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR). Under the adjustments, the minimum “size of transaction” threshold will increase to US$126.4 million from US$119.5 million in 2024. The new thresholds will likely take effect in mid-February, 30 days after they are published in the Federal Register. The new thresholds are independent from the new HSR Rules, which are scheduled to take effect on 10 February 2025, unless delayed by a regulatory “freeze” requested by the incoming administration or ongoing legal challenges.

NEW HSR FILING THRESHOLDS

The HSR Act requires premerger notification of transactions that meet the size of transaction and size of person tests to the FTC and the Antitrust Division of the US Department of Justice, unless an exemption applies. HSR filings trigger a 30-calendar-day initial waiting period that the parties must observe before closing, during which the reviewing agency conducts its preliminary antitrust review of the transaction.¹

Size of Transaction Test

Under the new thresholds, the size of transaction test is met if, as a result of a transaction, the acquiring “person” at the ultimate parent entity (UPE) level will hold voting securities, assets, or noncorporate interests of the acquired “person”:²

With an aggregate value of more than US$505.8 million; or
With an aggregate value of more than US$126.4 million but less than US$505.8 million, if the size of person test is also met.

For HSR purposes, transaction value includes the value of voting securities or noncorporate interests of the acquired person that the acquiring person already holds (for instance, through one or more prior acquisitions).

Base Threshold³	2024	2025
US$50 million	US$119.5 million	US$126.4 million
US$200 million	US$478 million	US$505.8 million

Size of Person Test

Under the new thresholds, the size of person test is met if one party (at the UPE level) has annual net sales or total assets of US$252.9 million or more and the other party (at the UPE level) has annual net sales or total assets of US$25.3 million or more.⁴

Base Threshold	2024	2025
US$10 million	US$23.9 million	US$25.3 million
US$100 million	US$239 million	US$252.9 million

NEW HSR FILING FEE SCHEDULE

The updated filing fee schedule for 2025 is as follows:

Filing Fees
Transaction Value	Fee
More than US$126.4 million but less than US$179.4 million	US$30,000
At least US$179.4 million but less than US$555.5 million	US$105,000
At least US$555.5 million but less than US$1.111 billion	US$265,000
At least US$1.111billion but less than US$2.222 billion	US$425,000
At least US$2.222 billion but less than US$5.555 billion	US$850,000
US$5.555 billion or more	US$2,390,000

PENALTIES FOR FAILURE TO FILE

Failure to submit an HSR filing and observe the waiting period for a reportable acquisition may result in significant civil penalties. As of 10 January 2025, the penalty for failure to comply with the HSR Act remains up to US$51,744 for each day of non-compliance.

NEW HSR RULES – WHAT’S NEXT?

On 12 November 2024, the FTC published final changes to the rules implementing the HSR Act. As we explained in a prior alert, the new rules represent a significant overhaul of the US premerger notification process, which will increase the time and cost required for many HSR filings. The new rules are scheduled to become effective on 10 February 2025. However, the effective date could be pushed back if the new administration requests a “freeze” on new regulations to allow an opportunity for review and approval. A 60-day regulatory freeze was requested by the incoming Trump administration in January 2017, and similar requests have been made (and usually followed) by recent administrations. In addition, on 10 January 2025, the US Chamber of Commerce and other business groups filed a lawsuit in the Eastern District of Texas against the FTC and Chair Lina Khan seeking to block enforcement of the new rules.

While the fate of the new rules remains uncertain, companies should nonetheless move quickly to understand the new requirements and implement internal processes to be in a position to comply by 10 February 2025. Please contact a member of our Antitrust, Competition, and Trade Regulation team for real-time updates and guidance for navigating the new landscape.

California Court of Appeal Ends Headless PAGA Actions in Leeper v. Shipt

Wed, 15 Jan 2025 00:00:00 -0000

The California Court of Appeal, Second Appellate District, in Leeper v. Shipt, Inc., No. B339670, 2024 WL 5251619 (Cal. Ct. App. Dec. 30, 2024) (Leeper) issued a significant decision benefiting employers seeking to enforce arbitration agreements in cases involving the Private Attorneys General Act (PAGA). Ever since Balderas v. Fresh Start Harvesting, Inc., 101 Cal. App. 5th 533 (2024) (Balderas), a decision concerning PAGA standing by the same appellate district, plaintiffs began to artfully plead “headless” PAGA actions, wherein they allege PAGA claims purely on behalf of the state and other employees to avoid arbitration of their individual PAGA claim. However, in Leeper, the court confirmed that by statute, every PAGA claim includes both an individual and representative claim and, thus, a plaintiff cannot choose to abandon the individual component to avoid arbitration.

Balderas v. Fresh Start Harvesting: Rise of the Headless PAGA Actions

In Balderas, the plaintiff’s complaint alleged that she was “not suing in her individual capacity” but “solely under the PAGA, on behalf of the State of California for all aggrieved employees.” 101 Cal. App. 5th at 536. Balderas did not involve an arbitration agreement. Nonetheless, the trial court, on its own motion and in accordance with the US Supreme Court’s analysis of PAGA standing in Viking River Cruises, Inc. v. Moriana, 596 US 639 (2022), struck the plaintiff’s complaint for lack of standing because she had not specifically and separately alleged an individual claim under PAGA. Id. at 536-537.

The Second District reversed and held that the trial court improperly relied on the US Supreme Court’s “observations about PAGA standing,” which had since been corrected by the California Supreme Court in Adolph v. Uber Technologies, Inc., 14 Cal. 5th 1104 (2023) (Adolph). Id. at 538-539. The Second District further noted that, under Adolph, “the inability for an employee to pursue an individual PAGA claim does not prevent that employee from filing a representative PAGA action.” Id. at 537. Plaintiffs have since pointed to this language to support headless PAGA actions to circumvent arbitration of their individual PAGA claim.

Leeper v. Shipt

As with other headless PAGA actions, Plaintiff Christina Leeper (Plaintiff) filed a PAGA lawsuit against Shipt, Inc. (Shipt) in “a representative, non-individual” capacity only. Leeper, 2024 WL 5251619 at *2. Accordingly, when Shipt moved to compel Plaintiff’s individual PAGA claim to arbitration, Plaintiff argued that her arbitration agreement did not apply because she did not seek any individual claims against Shipt. Id. Plaintiff relied on Balderas to argue that she can choose not to bring or abandon her own individual PAGA claim. Id. at *5. The trial court, in denying Shipt’s motion, agreed and found that there were no individual claims to compel to arbitration because the “action [was] solely a representative PAGA suit without any individual causes of action.” Id. at *2.

The Second District reversed and confirmed that the plain language of the statute requires a PAGA action to be “brought by an aggrieved employee on behalf of the employee and other current or former employees.” Id. at *3 (emphasis added). The court noted that the word “and” unambiguously requires all PAGA actions to be brought on both an individual and representative basis. Id. at *4. The Second District further clarified that while Balderas, Adolph, and Kim v. Reins International California, Inc., 9 Cal. 5th 73 (2020) (Kim) addressed various issues of PAGA standing, they did not endorse a plaintiff’s ability to excise their individual claim from PAGA actions. Id. at *5-6.

Leeper rejects the argument that a PAGA plaintiff may disclaim the individual component of their PAGA action to avoid arbitration. Id. at *6. But it does not conflict with Balderas. Balderas does not disturb the statutory requirement that an aggrieved employee must bring the PAGA action on behalf of themselves in order to do so on behalf of other employees. Rather, Balderas implicitly recognized that a representative complaint under PAGA includes both components, thereby eliminating the need to separately file an individual claim to maintain standing. 101 Cal. App. 5th at 538-539.

Leeper marks a pivotal moment for California employers defending PAGA claims, effectively putting an end to the “headless” PAGA cases and loophole to circumvent mandatory arbitration.
What the Future May Hold for the Consumer Financial Protection Bureau's Open Banking Rule

Wed, 15 Jan 2025 00:00:00 -0000
Will the Consumer Financial Protection Bureau’s (CFPB) recently promulgated open banking rule survive under the new Congress and incoming presidential administration? Two upcoming proceedings may hold the answer.

On 22 October 2024, the CFPB finalized a rule to govern personal financial data rights, known colloquially as the open banking rule.¹ In promulgating the open banking rule, the CFPB relied on Section 1033 of the Dodd-Frank Act for authority. In general, the open banking rule requires banks to establish electronic facilities for the reliable and accurate transmission of consumer data to authorized third parties at the consumer’s request and for a specified purpose and time period. Under the new Congress and incoming presidential administration, the rule may face two significant challenges to its existence in the coming months.

The first challenge may occur rapidly now that the 119th Congress is in session. Under the Congressional Review Act (CRA), Congress may disapprove of any rule finalized by the CFPB within the last six months of the outgoing presidential administration. To do so, both the Senate and the House must pass an identical joint resolution of disapproval. All votes under the CRA are simple majority votes, and under most circumstances, the resolution is not subject to filibuster in the Senate. Whether Congress will reject the open banking rule remains to be seen. To disapprove of a rule under the CRA, Congress must act within a 60-day period that commences in mid-January. This review period overlaps with the first weeks of the new administration when the Senate is typically focused on confirming the president’s cabinet nominees. The CFPB also issued a flurry of rules in the final months of the outgoing administration, so the new Congress may need to pick and choose which ones to consider jettisoning during the short CRA review window.

The second challenge to the open banking rule is playing out in a lawsuit filed by a Kentucky-based national bank and the Bank Policy Institute in federal court in Lexington, Kentucky. In their amended complaint, the plaintiffs allege that the open banking rule exceeds the congressional grant of rulemaking authority in at least six ways, which include the following:
1. The rule purports to regulate the provision of data to third parties, but the statute only permits rulemaking with respect to banks’ obligations to “make available to a consumer, upon request, information in the control or possession of the [bank] concerning the consumer financial product or service that the consumer obtained” from the bank.²
2. The rule increases risk to consumers by forcing banks to make available information enabling third parties to initiate payment from a consumer’s account and tasks banks with ensuring that unsupervised third parties can be trusted with the data they receive.
3. The rule seeks to outsource the task of establishing standards for compliance to private entities.
4. The rule imposes vague and confusing performance standards for the developer interfaces that data providers are required to establish.
5. The rule would require compliance before any of the standard-setting bodies are convened, much less able to promulgate standards for compliance.
6. The rule prevents data providers from recouping any of the substantial costs that compliance with the rule will impose.³
The CFPB filed an answer to the amended complaint on 27 December 2024, and the court directed the parties to confer regarding a case schedule. The incoming CFPB director will have wide latitude to use the lawsuit to determine the fate of the rule. The new director could, for example, consent to an injunction that would prevent the rule from taking effect. Whether the open banking rule will meet this fate remains to be seen. The proposed rule drew bipartisan support, including from former US Representative Patrick McHenry, the then-chair of the House Financial Services Committee. And the final rule, though controversial in many respects, appears to have avoided the ire of at least some members of the incoming administration.

Regardless of what happens to the rule, open banking is likely here to stay. Data providers have already established private, though largely unregulated, facilities for the electronic sharing of consumer data. Consumers and market participants who take issue with the manner in which data is shared, or allegedly misused, have several legal remedies available to them, regardless of whether open banking is regulated by the CFPB.

While it is impossible to predict the ultimate fate of the open banking rule, this much is likely certain: it will meet its destiny sooner rather than later. The firm will continue to provide updates on the fate of the rule.
Litigation Minute: A Look Back and Ahead

Tue, 14 Jan 2025 00:00:00 -0000

What You Need to Know in a Minute or Less

Throughout 2024, we published three series highlighting emerging and evolving trends in litigation. From generative AI to ESG litigation, our lawyers continue to provide concise, timely updates on the issues most critical to our clients and their businesses.

In a minute or less, find our Litigation Minute highlights from the past year—as well as a look ahead to 2025.

Beauty and Wellness

Our first series of the year covered trends in the beauty and wellness industry, beginning with products categorized as “beauty from within,” including oral supplements focused on wellness. We outlined the risks of FDA enforcement and class action litigation arising from certain marketing claims associated with these products.

We next reviewed the use of “clean” and “natural” marketing terminology. We assessed these labeling claims across a range of potentially impacted products and brands, as well as regulatory and litigation risks associated with such claims.

Alongside these marketing-focused issues, companies also face increased regulatory scrutiny, including new extended producer responsibility laws and the FTC Green Guides. We concluded our series by assessing product packaging and end-of-life considerations for beauty and wellness brands.

Generative AI

One of the most-discussed developments of 2024, generative AI was the focus of our second series of the year, which examined key legal, regulatory, and operational considerations associated with generative AI. We outlined education, training, and risk management frameworks in light of litigation trends targeting these systems.

2024 also saw several new state statutes regulating generative AI. From mandatory disclosures in Utah to Tennessee’s ELVIS Act, we examined how new state approaches would remain at the forefront of attention for companies currently utilizing or considering generative AI.

With the need for compliance and training in mind, we next discussed the potential for generative AI in discovery. With the ability to rapidly sort through data and provide timely requested outputs, we provided an overview of how generative AI has created valuable discovery tools for lawyers as well as their clients.

ESG Litigation

2024 highlighted the impacts of extreme weather, as well as the importance of preparation for such natural disasters. With extreme weather events expected to increase in both frequency and intensity around the world, we provided insurance coverage considerations for policyholders seeking to restore business operations following these events and weather the consequential financial storms.

Further ESG headlines this year focused on the questions surrounding microplastics—including general definition, scientific risk factors, potential for litigation, and the hurdles complicating this litigation.

Greenwashing claims continued apace in 2024, with expanded claims targeting manufacturers, distributors, and retailers of consumer products. Alleging false representation of companies or their products as “environmentally friendly,” we reviewed how the risk of such claims can be mitigated through proper substantiation and documentation of company claims and certifications.

Looking Ahead

With the imminent change in administrations, our 2025 series will focus on litigations most likely to be impacted by a change in regulatory regimes—including environmental and toxic tort litigation and food and beverage cases. This summer, our appellate and administrative law teams will assess the impact of Loper Bright one year later. We look forward to sharing our latest thought leadership—in a minute or less—throughout the year.
SEC Updates Names Rule FAQs

Tue, 14 Jan 2025 00:00:00 -0000
On 8 January 2025, the staff of the Division of Investment Management of the US Securities and Exchange Commission (the SEC) released an updated set of Frequently Asked Questions (the FAQs) related to the amendments to Rule 35d-1 (Names Rule) under the Investment Company Act of 1940, as amended (the 1940 Act) and related form amendments (collectively, the Amendments) adopted in 2023. The FAQs modify, supersede, or withdraw portions of FAQs released in 2001 (the 2001 FAQs) related to the original adoption of the Names Rule. In addition to the FAQs, the SEC staff also released Staff Guidance providing an overview of the questions and answers withdrawn from the 2001 FAQs (Staff Guidance). Together, the FAQs and the Staff Guidance on the withdrawn FAQs are intended to provide guidance to the various implementation issues and interpretative questions left unclear by the adopting release of the Amendments to the Names Rule (2023 Adopting Release). While the FAQs and the Staff Guidance do not address all key issues and questions related to the Names Rule, they do provide new guidance on certain areas and suggest interpretive frameworks that can be more universally applied.

Revisions to Fundamental Policies

In the revised FAQs the SEC staff updates certain FAQs, broadening the reach of those FAQs’ applicability. For instance, the SEC staff modifies the 2001 FAQ relating to the shareholder approval requirement for a fund seeking to adopt a fundamental 80% Policy to also provide guidance in instances where an 80% investment policy (an 80% Policy) that is fundamental is being revised. The SEC staff provides clarification concerning the process required to revise fundamental investment policies. The FAQ states that a fundamental 80% Policy may be amended to bring such policy into compliance with the requirements of the amended Names Rule without shareholder approval, provided the amended policy does not deviate from the existing policy or other existing fundamental policies. The FAQs restate that individual funds must determine, based on their own individual circumstances, whether shareholder approval is necessary within this framework. Accordingly, funds may take the position that clarifications or other nonmaterial revisions to a fundamental 80% Policy in response to the amended Names Rule would not require shareholder approval. If it is determined that nonmaterial revisions have been made to a fundamental 80% Policy, notice to the fund’s shareholders is required.¹Funds should also continue to provide 60 days’ notice (as required by amended Rule 35d-1) for any changes to nonfundamental 80% policies. A similar analysis can be applied in determining whether a post-effective amendment filed pursuant to rule 485(a) under the Securities Act of 1933 is required in connection to the Names Rule implementation process.

Guidance on Tax-Exempt Funds

The FAQs provide insight into the SEC staff’s view of the applicability of the Names Rule to funds whose names suggest their distributions are exempt from both federal and state income tax. According to the FAQs, such funds fall within the scope of the Names Rule and, per Rule 35d-1(a)(3), must adopt a fundamental policy to invest, under normal circumstances, either:
- At least 80% of the value of its assets in investments, the income from which is exempt from both federal income tax and the income tax of the named state.
- Its assets so that at least 80% of the income that it distributes will be exempt from both federal income tax and the income tax of the named state.
With respect to the 80% Policy basket of single-state tax-exempt funds (e.g., a Maryland Tax-Exempt Fund), the FAQs reiterate that those funds may include securities of issuers located outside of the named state. For such a security to be included in the fund’s 80% Policy basket, the security must pay interest that is exempt from both federal income tax and the tax of the named state, and the fund must disclose in its prospectus the ability to invest in tax-exempt securities of issuers outside the named state.

Additionally, with respect to the terms “municipal” and “municipal bond” in a fund’s name, the FAQs reiterate that such terms suggest that the fund’s distributions are exempt from income tax and would be required to comply with the requirements of Rule 35d-1(a)(3) described above. It further reconfirms that securities that generate income subject to the alternative minimum tax may be included in the 80% Policy basket of a fund that includes the term “municipal” within its name but not a fund that includes “tax-exempt” within its name.

Specific Terms Commonly Used in Fund Names

In addition, the FAQs provide some insight as to the SEC staff’s view of the application of the Names Rule with respect to a number of other terms such as:

High-Yield

The FAQs affirm the SEC staff’s view that funds with the term “high-yield” in the name must include an 80% Policy tied to that term. The FAQs note that the term “high-yield” is generally understood to describe corporate bonds with particular characteristics, specifically, that a bond is below certain creditworthiness standards. However, the SEC staff made an exception for funds that use the term “high-yield” in conjunction with the term “municipal,” “tax-exempt,” or similar. Based on historical practice and as the market for below investment grade municipal bonds is smaller and less liquid, the SEC staff asserts that it would not object if such funds invested less than 80% of their assets in bonds with a high yield rating criteria.²

Tax-Sensitive

The SEC staff confirms in the amended FAQs that “tax-sensitive” is a term that references the overall characteristics of the investments composing the fund’s portfolio and would not require the adoption of an 80% Policy.

Income

The FAQs confirm that the term “income,” is not alluding to investments in “fixed income” securities, but rather when used in a fund’s name, it suggests an objective of current income as a portfolio-wide result. The FAQs declare that the term “income” would not, alone, require an 80% investment policy.

While SEC staff’s guidance when considering the three terms noted above does not provide an overview of how all terms should be treated because an amount of judgment is required for certain terms, they do confirm the general framework should be used when analyzing the applicability of Rule 35d-1 to other terms. Specifically, and consistent with the 2023 Adopting Release, the examples reiterate that terms describing overall portfolio characteristics are outside the scope of the Names Rule, while the terms describing an instrument with “particular characteristics” are within scope of the Names Rule.

Money Market Funds

The FAQs also confirm that funds that use the term “money market” in their name along with another term or terms that describe a type of money market instrument must adopt an 80% Policy to invest at least 80% of the value of their assets in the type of money market instrument suggested by its name. The FAQs further explain that a generic money market fund, one where no other describing term is included in its name, would not be required to adopt an 80% Policy. The FAQs also cite relevant information included in frequently asked questions related to the 2014 Money Market Fund Reform.

Withdrawals from 2001 FAQs

In addition to the modification of certain questions within the FAQs, the SEC staff also withdrew a number of key questions from the 2001 FAQs. The SEC staff stated that certain questions were removed for several reasons, including the fact that certain questions were no longer relevant as they addressed circumstances that were specific to the 2001 adoption of the Names Rule, or that they believed the questions were already addressed in the 2023 Adopting Release. Below is a discussion of certain questions that were removed:
- The SEC staff withdrew the outdated 2001 FAQ discussing revising former 65% investment policies to 80% Policies.
- The FAQs also withdrew a question related to notice to shareholders of a change in investment policy as the Amendments and the 2023 Adopting Release both clearly describe the requirements for Rule 35d-1 notices.
- The 2001 FAQs’ guidance regarding terms such as “intermediate-term bond” was also withdrawn. This guidance in the 2001 FAQs set forth the SEC staff position that a bond fund with the terms “short-term”, “intermediate-term”, or “long-term” in its name should have a dollar-weighted average maturity of, respectively, no more than three years, more than three years but less than 10 years, or more than 10 years and an 80% investment policy to invest in bonds. The FAQs removal of the definition suggests the potential for expanding the definition of such terms.
- The 2001 FAQs’ guidance also removed several FAQs related to specific terms:
  
  The question regarding the use of terms such as “international” and “global” was removed as the 2023 Adopting Release states that such terms describe an approach to constructing a portfolio and thus not requiring an 80% investment policy. However, the SEC staff would often require funds to adopt certain policies reflecting “international” or “global” investing in practice prior to the 2023 Adopting Release, so whether that reference changes the review staff practice will remain to be seen.
  
  The question related to the use of “duration” was also removed as the 2023 Adopting Release states that such term references a characteristic of the portfolio as a whole.
Although the FAQs may be helpful, many uncertainties regarding the implementation and application of the Amendments to the Names Rule exist and additional guidance will be necessary to more clearly understand and implement the Amendments. Additionally, this guidance comes on the heels of the Investment Company Institute’s letter to the SEC in late December 2024 requesting that the SEC delay implementation of the Names Rule. Given that the development and finalizing of the FAQs requires a significant amount of time and effort, the timing of their release does not suggest that the SEC will or will not act on that request.

Our Asset Management and Investment Funds lawyers will continue to monitor developments regarding the Names Rule and provide updates, as necessary. Please contact us with any questions that you may have.
Third-Party Litigation Funding in England and Wales Post-PACCAR: Where Are We Now?

Mon, 13 Jan 2025 00:00:00 -0000
In our earlier alert on third-party funding (TPF) and the UK Supreme Court’s decision in PACCAR, we discussed the initial industry reaction, subsequent litigation, and legislative reform proposals (at the time, through the remit of the Digital Markets, Competition and Consumers Bill (DMCC Bill) - introduced by the former, Conservative UK government under then Prime Minister, Rishi Sunak).

This alert provides an update on where we are now, following the publication of the Civil Justice Council (CJC) interim report and consultation on litigation funding, which confirmed that the current UK government will not be re-introducing the Litigation Funding Agreements (Enforceability) Bill (LFA Bill) any time soon—instead, looking at legislative reform in the round after the CJC’s final report is published in summer.

We therefore discuss the early indications around the CJC’s direction of travel and recent industry reaction as we await these all-important clarifications.

Recap

In July 2023 in PACCAR, the UK Supreme Court held that litigation funding agreements (LFAs) that entitle funders to payments based on the amount of damages recovered would be classified as damages-based agreements (DBAs). In turn, they would have to comply with the Damages-Based Agreements Regulations 2013 (DBA regime) or risk being deemed unenforceable. The decision brought the enforceability of many pre-existing LFAs into question and created large scale uncertainty within the TPF market. This was a particular problem for opt-out collective proceedings in the Competition and Appeals Tribunal (CAT), where DBAs are strictly prohibited (s.47C(8), Competition Act 1998).

Originally, there were proposals to restore the pre-PACCAR position through a last minute amendment to the DMCC Bill. By March 2024, this was a bill of its own—the LFA Bill. The LFA Bill was to be an integral part of the last government’s commitment to restoring the pre-PACCAR status quo, passing second reading in the House of Lords on 15 April 2024. However, it did not survive the pre-election wash up ahead of the dissolution of parliament on 30 May 2024, remaining indefinitely postponed under the new administration.

CJC Review of the TPF Market in England and Wales

In spring 2024, prompted by the PACCAR decision, the then Lord Chancellor called upon the CJC to conduct a wider review of the TPF market. At this time, the PACCAR decision was to be reversed via the LFA Bill, which, as above, later fell through on change of governments.

On 31 October 2024, the CJC published its much-anticipated interim report and consultation on litigation funding, as the first phase of the CJC review process. Being interim in nature, it seeks to identify the concerns within the current system of TPF in England and Wales and set up the key issues that the CJC is consulting on. Whilst only interim in nature, it does give an indication of the CJC’s (and, subsequently, the government’s) direction of travel.

Broadly, the interim report covers the development of TPF in England and Wales and the current self-regulatory model, approaches to the regulation of TPF across different jurisdictions, the relationship between costs and funding, and existing funding options.

There are 39 consultation questions that the CJC seeks input on, located at Appendix A.

In sum, these questions cover:
- The benefits of TPF (namely, access to justice and equality of arms between parties to litigation).
- The extent to which the current model of self-regulation works and whether there should be one homogenous regulatory framework applied to (i) all types of litigation and (ii) English-seated arbitration.
- Whether and, if so, to what extent, a funder’s return on any third-party funding agreement should be subject to a cap.
- How TPF should best be deployed relative to other sources of funding (including legal expenses insurance and crowd funding).
- The role of the court in controlling the conduct of litigation support by TPF or similar funding arrangements.
- What provision (including provision for professional legal services regulation), if any, needs to be made for the protection of claimants whose litigation is funded by TPF.
- The extent to which the availability of TPF encourages specific forms of litigation.
Responses to the consultation are sought by 11:59 pm on Friday 31 January. The CJC will then issue a final report in summer with outcomes and recommendations.

Direction of Travel

Whilst the CJC report is only interim in nature, it does give us an indication of the CJC’s early thinking and the potential direction of travel. Some of these key themes are discussed below.

Self-Regulation

A large section of the CJC interim report focuses on the self-regulation of TPF in England and Wales through voluntary subscription to the ‘Code of Conduct for Litigation Funders’ published by the Association of Litigation Funders (ALF Code) and how this compares with other jurisdictions. The report notes that the current model of self-regulation was introduced in 2011, at a time when the TPF market was still beginning to develop, and notes that the TPF market has since expanded very significantly, especially in respect of funding collective proceedings and group litigation. On take up of the ALF Code, the report suggests that whilst an estimated 44 funders operate in England and Wales, only 16 are members of the ALF and thereby party to the ALF Code. Of these 16 members, eight are also members of the International Litigation Funders Association. Many commentators suggest that the interim report’s discussion of the current model of self-regulation may be indicative of the introduction of new legislation to regulate the TPF industry in the future.

PACCAR

The interim report doesn’t address the resolution of PACCAR specifically, which has sparked some criticism. Some commentators have referred to the fact that when the CJC’s original Terms of Reference were set in spring 2024, PACCAR was to be resolved via legislation which has since fallen away. The interim report offers no indication of whether PACCAR would be addressed in light of this.

The co-chair of the CJC review, Dr John Sorabji, has since suggested that whilst consideration of a litigation funding bill falls outside of the Terms of Reference, the CJC’s wider review of TPF industry includes consideration of the DBA regime, for which PACCAR will inevitably be considered.

Several challenges to LFAs are currently stayed in the Court of Appeal as the TPF market awaits a legislative solution to PACCAR. Many funders have since adopted some combination of the ‘multiples’ approach linked to sums invested, internal rates of return and compound interest rates, and creatively drafted clauses that seek to pre-empt a legislative resolution to PACCAR. For now, the TPF market will have to eagerly await the final report and any legislative solution that follows.

Funder Involvement in the Settlement of Disputes

The interim report notes that the nature of TPF means, on the one hand, that the ‘risk exists that funders will control the litigation’ and that ‘TPF discourages and undermines just settlement’. On the other hand, the report explains how the ALF Code makes provision for a dispute resolution procedure in these instances. Here, under the ALF Code the funder and funded are required to instruct a Kings Counsel (either jointly instructed, or as nominated by the Chairman of the Bar Council) to provide a binding opinion on the settlement proposal.

The debate around funder involvement in settlement has also been accelerated by recent headlines around the long running collective action in Merricks v Mastercard, in which the class representative, Walter Merricks, is said to have accepted a £200m settlement offer, much below the original claim value. The funder, Innsworth, has since publicly criticised the decision and written to the CAT ahead of the tribunal reviewing the terms of the settlement early this year.

There is currently no clarity as to whether—and if so to what extent—a funder’s interests will be considered a relevant factor in deciding whether a settlement is just and reasonable. Indeed, this may be the first case to decide the point.

Conclusion

The interim report has therefore provided much food for thought around the future direction of travel. Whilst only indicative at this stage, it looks as though we may be moving away from the model of self-regulation that has existed since 2011, that PACCAR is likely to be addressed in the context of a wider discussion of the existing DBA regime, and that Courts will soon be tasked with considering funder submissions around settlement terms.

Responses to the CJC consultation are open until 31 January. Consultees do not need to answer all questions if only some are of interest or relevance. The full list of consultation questions is available here.

K&L Gates regularly assists clients in obtaining litigation funding and is presently representing clients pursuing claims before courts and arbitral tribunals with the support of litigation funding.
The Texas Responsible AI Governance Act and Its Potential Impact on Employers

Mon, 13 Jan 2025 00:00:00 -0000
On 23 December 2024, Texas State Representative Giovanni Capriglione (R-Tarrant County) filed the Texas Responsible AI Governance Act (the Act),¹adding Texas to the list of states seeking to regulate artificial intelligence (AI) in the absence of federal law. The Act establishes obligations for developers, deployers, and distributors of certain AI systems in Texas. While the Act covers a variety of areas, this alert focuses on the Act’s potential impact on employers.²

The Act’s Regulation of Employers as Deployers of High-Risk Intelligence Systems

The Act seeks to regulate employers’ and other deployers’ use of “high-risk artificial intelligence systems” in Texas. High-risk intelligence systems include AI tools that make or are a contributing factor in “consequential decisions.”³In the employment space, this could include hiring, performance, compensation, discipline, and termination decisions.⁴The Act does not cover several common intelligence systems, such as technology intended to detect decision-making patterns, anti-malware and antivirus programs, and calculators.

Under the Act, covered employers would have a general duty to use reasonable care to prevent algorithmic discrimination—including a duty to withdraw, disable, or recall noncompliant high-risk AI systems. To satisfy this duty, the Act requires covered employers and other covered deployers to do the following:

Human Oversight

Ensure human oversight of high-risk AI systems by persons with adequate competence, training, authority, and organizational support to oversee consequential decisions made by the system.⁵

Prompt Reporting of Discrimination Risks

Report discrimination risks promptly by notifying the Artificial Intelligence Council (which would be established under the Act) no later than 10 days after the date the deployer learns of such issues.⁶

Regular AI Tool Assessments

Assess high-risk AI systems regularly, including conducting a review on an annual basis, to ensure that the system is not causing algorithmic discrimination.⁷

Prompt Suspension

If a deployer considers or has reason to consider that a system does not comply with the Act’s requirements, suspend use of the system and notify the system’s developer of such concerns.⁸

Frequent Impact Assessments

Complete an impact assessment on a semi-annual basis and within 90 days after any intentional or substantial modification of the system.⁹

Clear Disclosure of AI Use

Before or at the time of interaction, disclose to any Texas-based individual:
1. That they are interacting with an AI system.
2. The purpose of the system.
3. That the system may or will make a consequential decision affecting them.
4. The nature of any consequential decision in which the system is or may be a contributing factor.
5. The factors used in making any consequential decisions.
6. Contact information of the deployer.
7. A description of the system. ¹⁰
Takeaways for Employers

The Act is likely to be a main topic of discussion in Texas’s upcoming legislative session, which is scheduled to begin on 14 January 2025. If enacted, the Act would establish a consumer protection-focused framework for AI regulation. Employers should track the Act’s progress and any amendments to the proposed bill while also taking steps to prepare for the Act’s passage. For example, employers using or seeking to use high-risk AI systems in Texas can:
1. Develop policies and procedures that govern the use of AI systems to make or impact employment decisions:
2. Include in these policies and procedures clear explanations of (i) the systems’ uses and purposes, (ii) the system’s decision-making processes, (iii) the permitted uses of such systems, (iv) the approved users of such systems, (v) training requirements for approved users, and (vi) the governing body overseeing the responsible use of such systems.
3. Develop and implement an AI governance and risk-management framework with internal policies, procedures, and systems for review, flagging risks, and reporting.
4. Ensure human oversight over AI systems.
5. Train users and those tasked with overseeing the AI systems.
6. Ensure there are sufficient resources committed to, and an adequate budget assigned to, overseeing and deploying AI systems and complying with the Act.
7. Conduct due diligence on any AI vendors and developers before engagement and on any AI systems before use, including relating to how AI vendors and developers and AI systems test for, avoid, and remedy algorithmic bias, and to ensure AI vendors and developers are compliant with the Act’s requirements relating to developers of high-risk AI systems.
Our Labor, Employment, and Workplace Safety lawyers regularly counsel clients on a wide variety of concerns related to emerging issues in labor, employment, and workplace safety law and are well-positioned to provide guidance and assistance to clients on AI developments.

Complying With the New "Open Banking" Regime: Primer and Fact Sheet

Thu, 09 Jan 2025 00:00:00 -0000

The Consumer Financial Protection Bureau (CFPB) finalized its “open banking” rule in late 2024. As required by Section 1033 of the Consumer Financial Protection Act, the CFPB promulgated the rule to require certain financial services entities to provide for the limited sharing of consumer data and to standardize the way in which that data is shared. The CFPB has stated that the open banking rule will “boost competition” by facilitating consumers’ ability to switch between banks and other financial service providers.

In general, the open banking rule:

Provides consumers with control over their data in bank accounts, credit card accounts, and other financial products, including mobile wallets and payment apps;
Allows consumers to authorize third-party access to consumers’ data including transaction information, account balance information, and information needed to initiate payments; and
Requires financial providers to make this information in accurate, machine-readable format and with no charge to consumers.

For more background on the history and policy of open banking, please review our prior alert.

Compliance Deadlines

Numerous comments to the proposed rule urged the CFPB to lengthen the period of time for businesses to comply with the rule. The CFPB responded to those comments by extending the original six month compliance date for the largest affected institutions to provide a 1.5 year implementation period. The table below summarizes the compliance schedule by which different sized entities must operate in compliance with the rule:

Compliance Timeline	Depository Institutions	Nondepository Institutions
1 April 2026 (~1.5 years)	At least US$250b total assets	At least US$10b in total receipts as of either 2023 or 2024
1 April 2027 (~2.5 years)	At least US$10b total assets, but less than US$250b total assets	Less than US$10b in total receipts in both 2023 and 2024 (this is the final compliance date for nondepository institutions)
1 April 2028 (~3.5 years)	At least US$3b total assets, but less than US$10b total assets	-
1 April 2029 (~4.5 years)	At least US$1.5b total assets, but less than US$3b total assets	-
1 April 2030 (~5.5 years)	Less than US$1.5b total assets, but more than US$850m (depositories holding less than US$850m are exempted from compliance)	-

Making Consumer Financial Data Available

Under the final rule, a “data provider” must provide, at the request of a consumer or a third party authorized by the consumer, “covered data” concerning a consumer financial product or service that the consumer obtained from the data provider. The rule defines data provider to include depository institutions, electronic payment providers, credit card issuers, and other financial services providers. The rule defines covered data to include transaction information, account balances, and other information to enable payments.

A data provider’s obligations regarding covered data arise only when holding data concerning a consumer financial product or service that the consumer actually obtained from that data provider. Notwithstanding third-party obligations, merely possessing data from another data provider does not implicate the rule. The CFPB revised the definition of covered data in a manner that offers some clarity for the consumer reporting agencies (CRAs), which typically gather data for other entities for consumer credit reports.

	Electronic Payments	Credit Cards	Other Products and Services
Data Provider	A financial institution, as defined in Regulation E.	A card issuer, as defined in Regulation Z.	Any other person that controls or possesses information concerning a covered consumer financial product or service that the consumer obtained from that person.
Covered Consumer Financial Product or Service	A Regulation E account.	A Regulation Z credit card.	Facilitation of payments from a Regulation E account or Regulation Z credit card.

Data Provider Interfaces

As part of the provision of data, data providers must create both consumer and developer interfaces to enable the efficient provision and exchange of consumer data. In addition to various technical requirements, data providers must also establish and maintain written policies and procedures to ensure the efficient, secure, and accurate sharing of consumer data. Data providers are prohibited from charging fees for providing this service.

	Consumer Interface	Developer Interface
When to Provide Data	Data provider receives information sufficient to: (1) authenticate the consumer’s identity; and (2) identify the scope of the data requested.	Data provider receives information sufficient to: (1) authenticate the consumer’s identity; (2) authenticate the third party’s identity; (3) document the third party is properly authorized; and (4) identify the scope of the data requested.
Data Format	Machine-readable file	Standardized and machine-readable file
Interface Performance	Strict requirement to provide data	Minimum 95% success rate
Data Request Denials	Unlawful, insecure, or otherwise unreasonable requests may be denied	Unlawful, insecure, or otherwise unreasonable requests may be denied

Authorizing Third Parties

To lawfully access covered data, a third party must generally do three things, namely: (1) provide the consumer with an authorization disclosure; (2) certify that the third party complies with various restrictions on the use of the data; and (3) obtain the consumer’s express approval to access the covered data.

The rule prohibits three uses of data: (1) targeted advertising; (2) cross-selling of other products or services; and (3) selling covered data. While commenting on the proposed rule, several CRAs requested that the CFPB allow for use of covered data for internal purposes such as research and development of products. The CFPB found this reasonable and permitted “uses that are reasonably necessary to improve the product or service the consumer requested.”

Conclusion

The open banking rule establishes a robust framework for the exchange and transmission by certain entities regarding certain types of consumer data and the safeguarding of that data. Although the final rule extends the implementation deadlines beyond those originally proposed, implementation will require careful coordination among various functions of affected data providers’ businesses and by entities authorized to receive covered data. Please reach out to a member of our team for further information.

The FCA's Part 2 of Its "Name and Shame" Proposals: What You Need to Know

Wed, 08 Jan 2025 00:00:00 -0000
On 27 February 2024, the Financial Conduct Authority (FCA) published its Consultation Paper CP24/2, which revealed the FCA’s new intended approach to publicised enforcement action. This was quickly dubbed the “name and shame” plan, and experienced extensive resistance across the market.

As a result of the widespread feedback received on the initial consultation, in November 2024 the FCA released its follow up Consultation Paper CP24/2, Part 2 (the Consultation Paper) on its proposals for greater transparency of enforcement investigations. The Consultation Paper outlines the FCA’s engagement with responses to its initial proposals and seeks to reiterate its reasoning for the proposed changes.

Whilst the FCA accepts that its initial “proposals came as a surprise and [it] should have introduced them in a better way”, the Consultation Paper seeks to refine and clarify many of the proposals to assure the wider market of their intended benefits. Overall, the FCA has stated that it hopes the proposals will more effectively serve the public interest in only a small number of cases.

There is an opportunity for interested parties to provide feedback on the consultation by responding to the FCA’s online questionnaire. The deadline to respond is 17 February 2025.

The Main Changes to the FCA’s Proposals

The FCA has proposed four main changes to the proposals. They are as follows:
- Expanding the public interest test to include the impact of an announcement on a firm. This would be a key factor when considering whether to announce the investigation or name the firm.
- Providing firms with 10 days’ notice before an announcement is made, as opposed to the one day’s notice as originally proposed, in which time firms could make representations to the FCA. A further two business days’ notice would be allowed if the FCA decided to announce the investigation.
- Expanding the public interest test to include the possibility of an announcement seriously disrupting public confidence as a new factor of consideration.
- Clarifying that the FCA will not announce investigations that have begun before the proposals come into effect. If, however, there is an ongoing investigation that is already public knowledge, the FCA will be able to confirm such an investigation is ongoing.
How Might the Proposals Work in Practice?

The FCA has explained that it intends to take decisions in stages, depending on “what is reasonable and proportionate.”

First, the FCA will decide whether an announcement of an investigation would be in the public interest. It will consider the impact on those under investigation and the overall impact on the market. It also intends to remove the general reference to “otherwise advancing one or more of our statutory objectives” as a factor of consideration.

Secondly, when deciding at what point to make the announcement, the FCA will take into consideration a variety of factors, such as whether the information is already publicly available, whether it could proactively announce or reactively confirm an investigation, and at what point reassurance, harm minimisation or education would be most effective. It has been suggested that the three-month point of an investigation is the earliest stage at which making an announcement would be contemplated.

Last, with regards to what might be announced, the FCA has stated that it would carefully deliberate the content of an announcement and assess whether naming the firm would be in the public interest.

Impact on Firms

Whilst the FCA has attempted to address wider concerns raised by respondents about impacts to firms’ ongoing viability, market value and share price, and the adverse impact on competitiveness, the proposals still retain the underlying principles many objected to at the time of the FCA’s first consultation.

The FCA has tried to argue that many investigations already end up in the public domain, often as a result of firms having to disclose investigation as part of their wider disclosure requirements. However, the vast majority of firms under investigation by the FCA are not listed and do not have wider disclosure requirements.

The FCA seeks to dissuade concerns on the impact of share prices, pointing out that it is not possible to assess the impact of an announcement on share prices in isolation, as there are multiple factors that can cause share prices to move. This appears to be self-serving and whilst the announcement of the conclusion of an investigation can have a positive impact on a company’s share price, an open ongoing investigation will almost inevitably have a detrimental impact.

The FCA has also sought to argue that such announcements would act as an educational opportunity for firms to learn from and adapt their conduct to be in compliance, thereby fostering a competitive and credible market environment. This not only suggests an assumption at the outset that there are things to learn from any firm under investigation relating to its presumed misconduct.

This highlights that the presumption of being innocent until proven guilty is not something the FCA supports, contrary to well-established legislation and judicial precedent. This was an issue raised by many in response to the FCA’s first consultation, highlighting that the key objections to the FCA’s proposals remain.

Next Steps

Whether the Consultation Paper’s attempts at assurance prove effective at curtailing market concerns remains to be seen. However, it is clear from the Consultation Paper that the FCA still hopes to progress with its future approach to publicised enforcement action. Regulated firms should engage with the consultation and any industry bodies in relation to ensuring any objections are submitted to the FCA.

As stated, all responses to the Consultation Paper must be submitted to the FCA’s online questionnaire by 17 February 2025. The FCA board is expected to decide on the new proposals by the end of the first quarter of 2025.

If you have any questions regarding the FCA’s proposals as outlined in this alert, please do not hesitate to contact us.
Article 8a "Best Efforts" Explained

Wed, 08 Jan 2025 00:00:00 -0000
On 24 June 2024, the European Union (EU) implemented its 14th package of sanctions against Russia to combat its continued aggression against Ukraine. The package introduced new anti-circumvention measures to strengthen existing sanctions. A notable addition was made to Article 8a of Council Regulation (EU) No 833/2014, which introduced the requirement that EU operators “undertake their best efforts to ensure that any legal person, entity or body established outside the [EU] that they own or control does not participate in activities that undermine the restrictive measures provided for in [the] Regulation.” A similar clause has also been included in the Belarus sanctions framework.

When first established, only limited guidance (contained in particular in Recitals 27, 28, 29 and 30 of Regulation 2024/1745) was provided for a measure that could have potentially far-reaching implications. However, on 22 November 2024, the European Commission (the Commission) published an FAQ to clarify the “best efforts” obligation (the FAQs).

This alert provides a brief summary of the Commission’s much anticipated answers to the most frequently asked questions regarding the parameters of “best efforts.”

Summary of FAQs and Answers

What Does the Concept of “Best Efforts” Mean?
- It means “all actions that are suitable and necessary” to prevent the undermining of Regulation (EU) No 833/2014.
- However, efforts should only be those that are considered “feasible”, depending on the “nature… size and the relevant factual circumstances” of the EU operator, particularly the extent of “effective control over the legal person, entity or body established outside the [EU].”
What Does the Concept of “Undermining” Mean?
- “Undermining” includes efforts that result in an outcome that the restrictive measures specifically seek to prevent.
- This is different to “circumvention”, which has as its aim the bypassing of certain measures to avoid the constituent elements of an infringement.
How Can EU Operators Show They Undertook Their “Best Efforts”?
- This will be decided on a case-by-case basis.
- Various factors will be taken into account when assessing what amounts to best efforts, including the relevant market sector, company turnover, risk profile and available compliance resources.
- Operators should ensure that they are aware of the activities of non-EU entities that they own or control. They should also aim to improve the entities’ own knowledge of activities that might risk undermining EU sanctions.
- This might include operating internal compliance programs, regular sharing of compliance standards and establishing mandatory training and reporting requirements.
How Is Article 8a to Be Applied if Prevented by the Laws of the Third Country Where the Owned or Controlled Entity Is Incorporated?
- The scope of “best efforts” will depend on each individual case.
- As such, different factors will be taken into account, including situations whereby the legislation of a third country means the EU operator cannot exercise control over a legal person, entity or body that it owns.
- This means that an EU operator will not be expected to exercise control when such power to do so is impossible.
- However, this mitigating factor will not apply if the loss of control was caused by the EU operator itself, such as inadequate risk assessments or unnecessary risk-prone decisions.
Will EU Operators Be Liable if They Are Aware Of, and Accept, Any Non-EU Entities That They Own or Control Undermining EU Sanctions?
- Yes – the operator will be in breach of Article 8a as they will not be considered as having performed all necessary, suitable and feasible actions to prevent such undermining.
Does Article 8a Cover Russia-Based Entities Owned or Controlled by an EU Operator?
- Yes.
If an EU Operator Owns or Controls an Entity in Russia, Which Produces And/or Exports Goods Covered by an EU Import Ban, Would the EU Operator Breach Article 8a if the Entity Supplied Such Goods to Non-EU Entities? Do Intra-Group Transfers Count?
- Yes – if non-EU entities owned or controlled by EU entities continue to trade EU restricted goods produced in Russia, a stream of revenue for the Russian economy is continued, thereby defeating the aim of the relevant EU sanctions ban.
- This means that should the EU operator not discontinue the supply (or block the use), it will not be regarded as having performed all necessary and feasible actions to prevent the undermining of EU sanctions by related non-EU entities.
If an EU Operator Owns or Controls an Entity Which Produces And/or Exports Goods Covered by an EU Export Ban, Would the EU Operator Breach the “Best Efforts Clause” if Such Goods Were to End up in Russia/Belarus?
- Yes – if the EU operator does not try to prevent the supply of such goods by the entity it owns or controls, then the EU operator will not be considered as having taken all necessary and feasible steps to prevent the entity from undermining EU sanctions.
- Even if the transfer to Russia/Belarus occurred before the prohibition came into force, the undermining of EU sanctions by a non-EU entity as a result of the prior transfer would render the owning or controlling EU operator in violation of the best efforts clause should the EU operator not discontinue the supply or block the use of the goods.
Concluding Remarks

The FAQs reaffirm the EU’s determination to broaden and strengthen the application of sanctions in order to hinder Russia’s military action in Ukraine. The onus is on operators to ensure that any entities they control or own do not engage in activities that undermine EU sanctions. This will pose particular challenges to those that function in high-risk regions.

Whilst the FAQs do not represent binding obligations, they are reflective of the Commission’s intentions and could be relied upon by EU Member States enforcement authorities. The Commission has also committed to engaging with EU Member States to prepare a clear set of expectations, to ensure legal certainty and a level playing field across the EU. In the meantime, operators are encouraged to take a proactive approach to ensure adherence to compliance measures, such as continuous risk assessments, compulsory and tailored training, and transparent policies and procedures for the reporting of violations.

If you have any questions regarding the various elements of the “best efforts” obligation as outlined in this alert, please do not hesitate to contact our Policy and Regulatory group. The firm continuously analyses and reports on developments across various sanctions regimes, including the EU, United Kingdom and United States.
Carbon Quarterly–Volume 10

Wed, 08 Jan 2025 00:00:00 -0000
Carbon Quarterly is a newsletter covering developments in carbon policy, law, and innovation. No matter your views on climate change policy, there is no avoiding an increasing focus on carbon regulation, resiliency planning, and energy efficiency at nearly every level of government and business. Changes in carbon—and, more broadly, greenhouse gas—policies have the potential to broadly impact our lives and livelihoods. Carbon Quarterly offers a rundown of attention-worthy developments.

IN THIS ISSUE

Carbon Spotlight
- All Carbon Markets Publicity Is Good Publicity, Except When It Is Fraud
Carbon Policy
- Incoming Trump Administration Likely to Roll Back Climate Policy
- US Federal Government Continues to Invest in Clean Energy Projects
- Bureau of Land Management Releases Updated Western Solar Plan, Identifies 31 Million Acres for Solar Development in 11 Western States
- Bipartisan Interest Grows for Carbon Tariffs
- Illinois Enacts Landmark Carbon Capture Bill
Carbon Litigation
- Ramifications of Loper Bright Still Unfolding for Carbon Markets
- Can Investor-State Dispute Settlement Align With Climate Obligations?
Carbon Trading and Investment
- TotalEnergies Invests in Forestry-Based Carbon Credits
- ESG Roundup—The United States Ebbs and Europe Sees Inflows
- SBTi Finds Offsetting With Carbon Credits Poses “Clear Risks”
- Direct Air Capture Competes With Data Centers for Clean Energy
- Zillow Introduces Climate Risk Data on For-Sale Listings Across the United States
VIEW CARBON QUARTERLY – VOLUME 10 HERE
Key Changes to Consumer Protection Laws and Subscription Contracts in the United Kingdom That You Need to Know

Thu, 02 Jan 2025 00:00:00 -0000

The landscape of subscription contracts is changing around the world, with a heavy focus on consumer protection. In the United States, the recently released "Rule Concerning Recurring Subscriptions and Other Negative Option Programs," was reported on 16 October 2024 and aimed at bringing transparency and simplicity for consumers entering into subscription agreements (see full update here). In the United Kingdom, the Digital Markets Competition and Consumers Act (DMCC) was passed in May 2024 and, whilst we continue to await explanatory secondary legislation, it is set to cause a stir in the world of consumer facing subscriptions in the United Kingdom.

Although this blog post focuses on the key takeaways regarding consumer protection and subscriptions, there are plenty of competition law updates to be aware of too. Keep an eye out for part 3 of this series setting out the key changes for your business.

Background

The DMCC has been introduced to amend the existing Competition Act 1998 and the Enterprise Act 2002 with aims to (i) expand UK competition laws, (ii) provide for the regulation of competition in digital markets and, (iii) update provisions relating to the protection of consumer rights. It has been described in a government press release as being designed to "stamp out unfair practices and promote competition in digital markets."

Many of the consumer aspects of the DMCC require secondary legislation to provide clarity and as such, new measures will likely not enter into force before 2026 once additional legislation has been put in place. Until this time, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 will continue to apply. However, prudent businesses will ensure that their subscription contracts start to comply with the DMCC rules as soon as possible to avoid heavy penalties.

Key Takeaways For Subscription Contracts

Crucially, the DMCC will grant new direct consumer enforcement powers to the Competition and Markets Authority (CMA) and to the courts to impose wide ranging civil penalties for breaches of UK consumer law that are expected to come into force in 2025. The CMA will have the power to impose turnover based fines for breaches of consumer law up to 10% of a company’s global annual turnover.

For subscription contracts, the aim of the DMCC is to avoid consumers falling into so-called "subscription traps." A subscription under the DMCC is a contract for goods, services or digital content which automatically renews for either a fixed or indefinite period and means that consumers continue to incur liability to pay until the contract is terminated. The DMCC provisions will mean that businesses offering subscription services will need to provide:

Pre-Contract Information

Specific information about the subscription will need to be clearly available to customers prior to entering into the subscription (and confirmed in a durable medium post-contract). Certain “key” information will need to be provided separately and more clearly, alongside a document of “full” information.

This includes frequency of payments and reminders, cancellation steps and cooling off information.

A Cooling-Off Period

In line with consumer protection provisions for distance contracts, subscription consumers must be given the right to cancel and obtain a full refund within 14 days of entering into the subscription for any reason without incurring any penalties. Consumers will also benefit from such cooling-off period on any renewal which commits the consumer to a further period of 12 months or more. And businesses must alert consumers to this right by providing them notice of the same.

Reminder Notices

Notices must be issued to consumers to remind them of the auto-renewing nature of a subscription contract after any free trial period or introductory period and at least every six months after that.

Easy Cancellation

Customers must be able to cancel a subscription without taking any more steps than are reasonably necessary. A customer will now be able to leave a subscription by making a clear statement that they wish to bring the subscription to an end.

Other Consumer Law Changes

The DMCC will also introduces changes to a range of practices deemed to be automatically unfair, including:

Drip Pricing

This is where a would-be consumer is shown an initial price for a product or service and then additional fees are added as they progress through the transaction. For example, this could include booking fees, transaction fees and administrative fees added and applies to both mandatory and optional fees. The DMCC will prohibit businesses from offering a “headline” price to consumers that does not incorporate any mandatory fees or at least disclose that there are mandatory fees payable.

Fake Reviews

The DMCC aims to stamp out fake reviews that are either commissioned, submitted or published. In instances where a company has not taken “reasonable and proportionate steps” to prevent fake reviews being published for their brand, brands will be subject to the CMA’s new direct enforcement powers and subject to civil enforcement risks. The CMA has already taken action against fake reviews, and it is likely that those targeted by their enforcement powers will be brands who are consistently and regularly allowing fake and misleading reviews to be published.

How to Prepare for the Dmcc

Although secondary legislation is awaited, now that the DMCC has been passed into law it is advisable that businesses offering subscription contracts and consumer products start to work towards compliance with the DMCC terms.

This may include updating policies and consumer terms, preparing entirely new subscription terms, reassessing customer purchase flows and introducing reminder notices where they may not currently be in place.

By reviewing compliance with the DMCC now, businesses will avoid a last-minute rush to implement when the new measures enter into force and instead allow time to perfect their subscription terms.
Key Provisions on Artificial Intelligence in Fiscal Year 2025 NDAA

Thu, 02 Jan 2025 00:00:00 -0000
On 7 December 2024, the House and Senate Armed Services committees released the long-awaited text of the National Defense Authorization Act (NDAA), legislation that will guide how defense funding can be spent and what defense policy priorities will be for the next year. The recently released text is the final compromise between the House and Senate versions of the bill, and it caps defense spending at US$895 billion. This bipartisan piece of legislation passed both the House and the Senate and was signed into law prior to the end of the year. See here for the full text of the bill, which is an amendment to H.R. 5009, the WILD Act.

The NDAA was expected to be the last potential vehicle for artificial intelligence (AI) bills this Congress. Many bills on AI were left out of the compromise bill, including the CREATE AI Act, which would have codified the National AI Research Resource. The final text, which is over 1,800 pages, does, however, include several other key provisions on AI.

KEY TAKEAWAYS
- The FY2025 NDAA prioritizes research on emerging AI and quantum computing technologies to enhance defense operations.
- AI will be used to support cybersecurity, biotechnology, operations, and workflow.
- Under the act, the Department of Defense (DOD) will seek to cooperate with industry, international, and interagency partners to optimize its employment of AI in a variety of functions.
- The act establishes provisions to mitigate the risk of adversaries employing AI to threaten the United States, including new guidelines for the Chief Digital and AI Officer Governing Council.
Broadly, the bill prioritizes funding AI research and development and aims to use AI to strengthen defense and cybersecurity operations. The key sections on AI are discussed in more detail below.

Pilot Programs

FY2025 NDAA provides for the establishment of two pilot programs (Sec. 236 and Sec. 237) for evaluating the feasibility of developing AI for security-related biotechnology applications and the optimization of workflow at DOD facilities. Both programs will be overseen by the Secretary of Defense, who will consult with applicable agency leaders and make yearly evaluations to track progress. The act also empowers DOD to use AI for certain business operations, including the audits of financial statements for FY2025 (Sec 1007).

International and Industry Partnerships

Under Section 1087, the Secretary of Defense would be directed to establish a working group to develop AI initiatives for defense with allies of the United States. The group would operate as a mutually beneficial partnership between member states by comparing tools and practices, identifying solutions to accelerate interoperability, developing shared strategies and regulations, testing the capabilities of members, and sharing best practices to advance innovation efforts. The Secretary of Defense is directed to work to ensure that the technical data produced by a country under a cooperative project is controlled by export control laws and general regulations of that country.

Human Factors, Infrastructure, and Cost-Budgeting

FY2025 NDAA establishes initiatives to integrate human factors (Sec. 1531), enable advanced AI capabilities through advanced computing infrastructure (Sec. 1532), and develop a plan to streamline the budgeting process for necessary data acquisition (Sec. 1533). These initiatives are aimed at expanding the operability of AI systems to meet the security needs of DOD and would be evaluated on a yearly basis. Additionally, the Secretary of Defense would be required to submit reports to the House and Senate Committees on the Armed Services for reviews of the initiatives’ progress.

Center(s) of Excellence

Section 1534 creates an initiative for the Secretary of Defense to evaluate the feasibility of establishing a center, or centers, of excellence to support the development and maturation of AI-enabled weapons systems. If established, functions of the center would include capturing, analyzing, assessing, and sharing lessons learned across and facilitating collaboration between DOD and foreign partners, industry leaders, academic institutions, and nonprofit organizations, and providing tools and solutions based on these practices and benchmarks. This section of FY2025 NDAA specifically mentions Ukraine as an international partner that would benefit from this initiative. The Secretary of Defense would report to the congressional defense committees if establishing a center is deemed feasible.

Chief Digital and AI Officer Governing Council

Section 225 of the compromise bill expands the duties of the Chief Digital and AI Officer Governing Council (the Council). Specifically, with respect to AI models and advanced AI technologies, the bill directs the Council to:
- identify and assess AI models and advanced AI technologies that could pose a national security risk if accessed by an adversary of the United States;
- develop strategies to prevent unauthorized access and usage of potent AI models by countries that are adversaries of the United States; and
- make recommendations to Congress and relevant federal agencies for legislative or administrative action in the field of AI.
The House bill originally did not contain these extended guidelines; it originated in the Senate committee-reported bill and was included in the final text.

Congressional Perspectives on AI

The drafters of the bill recognize the opportunities that AI presents to strengthen critical strategic communications, reduce the risk of collateral damage, and enhance US capabilities for modeling weapons functionality (Sec. 1638). However, they also recognize the risk of compromising US strategic assets, including nuclear safeguards. As such, the bill advises that particular care be taken to mitigate the risks associated with developing AI.

THE NDAA COMPROMISE BILL BECOMES LAW

The House passed the NDAA compromise bill on 11 December 2024, and sent it to the Senate for consideration. On 18 December 2024, the Senate passed the NDAA by an overwhelming margin in an 85 to 14 vote. President Joe Biden signed the bill into law the following week.

DEPARTMENT OF DEFENSE AI INITIATIVES

DOD is not waiting for the passage of the NDAA to launch its AI programs. The agency recently announced that it is kickstarting its US$100 million AI initiatives with the formation of the AI Rapid Capabilities Cell (AI RCC). The AI RCC is a partnership between DOD’s Chief Digital and AI Office (CDAO) and the Defense Innovation Unit. The funding will go to a variety of pilot projects, including:
- Generative AI pilots focused on warfighting;
- Computation and digital “sandboxes” for AI experimentation, development, and testing;
- Rapid user-centric experimentation; and
- Opportunities for emerging companies to work with the Pentagon on generative AI
CDAO is looking to partner with the private industry, saying “the US commercial sector is at the cutting edge when it comes to AI, and digital solutions.” DOD has invited companies looking to work with DOD on these initiatives to pitch their innovative AI solutions as part of an “all-hands-on-deck approach to accelerate development and deployment of these tools.” More information can be found in the press release and a fact sheet about AI RCC.

Although the CDAO’s efforts will continue past the Biden administration, we expect to see staff turnover, and for many of the senior officials involved in these AI initiatives to be selected by the incoming Trump administration. President-elect Donald Trump has also pledged to repeal President Biden’s Executive Order on AI (EO 14110) and replace it with “AI Development rooted in Free Speech and Human Flourishing.” See here for President-elect Trump’s 2024 policy platform. We are continuously monitoring developments and appointments in this space.

LOOKING TO 2025

Although the NDAA contains limited provisions on AI, this bipartisan package, along with administrative actions like DOD’s initiatives, will move the ball forward some and generate momentum on emerging technologies. Congress is just beginning to address AI writ large but essentially in defense applications, and we are expecting much more movement and robust policy efforts in 2025. This is a critical time for stakeholders to engage in this area, and our team is ready and available to assist.
The DOL Publishes Best Practices That Employers Can Follow to Decrease the Legal Risks Associated With Using AI in Employment Decisions

Thu, 26 Dec 2024 00:00:00 -0000
UPDATE: Please note, as a result of President Donald Trump’s repeal of former President Joe Biden’s Executive Order 14110 and President Trump’s issuance of the executive order entitled “Removing Barriers to American Leadership in Artificial Intelligence,” as of 23 January 2025, information in the below alert may be out of date or not reflect current federal executive branch policies, and certain links may be inaccessible.

Despite these changes, employers must still comply with existing federal and state laws and should stay up to date on developments relating to artificial intelligence (AI) in the workplace. Employers should continue to regularly monitor and audit the AI systems they use for algorithmic bias, maintain a form of human oversight over consequential decisions, and have policies in place for training employees on AI tools.

The firm will continue to publish alerts to keep employers informed on this ever-evolving topic.

On 16 October 2024, the Department of Labor (DOL) published a comprehensive guidance regarding the use of artificial intelligence (AI) tools in employment. The guidance, entitled “Artificial Intelligence and Worker Well-being: Principles and Best Practices for Developers and Employers”¹ (the DOL AI Guidance), builds on the DOL’s May 2024 AI guidance (the May Guidance) and fulfills the agency’s obligations under President Biden’s October 2023 executive order on AI.² The DOL AI Guidance also follows the agency’s endorsement of the Partnership on Employment & Accessible Technology (PEAT)’s AI & Inclusive Hiring Framework,³ as well as publications by DOL subagencies like the Equal Employment Opportunity Commission (EEOC)⁴ and the Office of Federal Contract Compliance Programs (OFCCP).⁵

The DOL makes clear in its disclaimer that the DOL AI Guidance is not binding and does not supersede, modify, or direct an interpretation of any statute, regulation, or policy. However, the publication is the DOL’s most comprehensive AI publication to date, and following the guidance will help employers use AI without running afoul of existing equal employment opportunity and other laws.

Principles and Best Practices

The DOL AI Guidance expands on the eight AI principles (Principles) contained in the May Guidance by providing best practices (Best Practices) that employers⁶ can follow to implement these Principles.

Centering Worker Empowerment

First, to “center worker empowerment” by ensuring that “[w]orkers and their representatives, especially those from underserved communities, [are] informed of and have genuine input in the design, development, testing, training, use, and oversight of AI systems in the workplace,” employers should regularly integrate input from workers. By incorporating the worker into the process, from design to use, employers can balance the benefits of AI with worker protection and strive to use AI to improve workers’ job quality and enable businesses success.

Ethically Developing AI

Second, to ethically develop AI, employers should develop a strong foundation consisting of ethical standards, guidelines, and an internal review process to help “ensure AI and automated systems…meet safety, security, and trustworthy standards for their customers, customers’ workers, and the public.” To do this, employers should do the following:
- Carry out impact assessments and independent audits of the AI programs and publish the results.
- Assess the risks of algorithmic discrimination.
- Document negative impacts on workers’ job quality and well-being.
- Monitor the AI programs on an ongoing basis and prioritize human oversight over the tools and employment decisions that involve those tools.
- Ensure that any jobs created to review and analyze AI comply with domestic and international labor standards.
Establishing AI Governance and Human Oversight

Third, to establish sufficient AI governance and appropriate human oversight of AI tools, employers should do the following:
- Establish empowered governance structures to incorporate input from workers in the decision-making process to continually review and evaluate worker-impacting AI systems.
- Offer appropriate training on AI systems to a broad range of employees, including processes for raising concerns.
- Not rely solely on AI and automated systems, or the information collected through them, to make significant employment decisions.
- Identify and document the types of significant employment decisions informed by AI systems, including procedures for human consideration and remedies for decisions that adversely impact employees.
Ensuring Transparency in AI Use

Fourth, to ensure transparency in AI use, employers should do the following:
- Provide workers and representatives advance notice and appropriate disclosure that AI systems are in use. This information should be clear and accessible, conspicuously notify workers what data will be collected and stored about them, and what that data will be used for.
- Allow employees to view, dispute, and submit corrections for their individually identifiable data without fear of retaliation.
According to the DOL, this transparency will “foster greater trust and job security, prepare workers to effectively use AI, and open channels for workers to provide input to improve the technology or correct errors.”

Protecting Labor and Employment Rights

Fifth, to ensure AI tools do not interfere with employees’ labor organizing, cause reductions in employees’ wages, or put employees’ health and safety at risk, employers should do the following:
- Not use AI tools to reduce wages, break time, or benefits.
- Audit AI systems for disparate or adverse impacts on individuals with protected characteristics to comply with anti-discrimination requirements, including offering reasonable accommodations when requested.
Using AI to Enable Workers

Sixth, to use AI to enable workers, employers should do the following:
- Create AI pilot programs for employees to use and test tools before conducting large-scale rollouts to ensure the tools are assisting and complementing workers and improving job quality.
- Not use AI tools to engage in invasive monitoring of employees, especially when assessing worker performance.
- Consider how to balance enhanced productivity through the use of AI tools while benefiting workers, such as through “increased wages, improved benefits, increased training, fair compensation for the collection and use of worker data or reduced working hours without loss of pay.”
Supporting Workers Impacted by AI

Seventh, to support workers impacted by AI, employers should do the following:
- Train employees on AI systems to upskill workers instead of replacing them.
- Work to preserve jobs for those at risk of displacement due to AI by offering training, education, and professional development opportunities for workers to learn how to use and work with AI systems.
Ensuring Responsible Use of Worker Data

Eighth, to ensure responsible use of worker data, employers should do the following:
- Develop safeguards for protecting employee data from internal and external threats, with an emphasis on mitigating privacy risks for workers.
- Ensure that AI tools have “safeguards for securing and protecting data.”
- Avoid collecting unnecessary data.
- Not share data outside of the business.
Takeaways

The DOL stresses that employers should utilize each of these eight Principles “during the whole lifecycle of AI – from design to development, testing, training, deployment and use, oversight, and auditing.” Further, the DOL clarified in its DOL AI Guidance that the eight Principles and the Best Practices it outlined are not intended to be an “exhaustive list” and, as noted above, are not binding. However, the document provides an integral “guiding framework” employers can follow as they refine how best to use AI in employment decisions.

Recommendations

Employers that are implementing or considering implementing AI systems and procedures should examine the DOL AI Guidance to ensure their systems and procedures track the purposes and policies outlined in the Principles and Best Practices. Employers also should continue examining requirements of other federal agencies—such as the EEOC and the OFCCP, if applicable—as well as state laws to ensure their systems meet all appropriate legal requirements.

Our Labor, Employment, and Workplace Safety practice group lawyers regularly counsel clients on a wide variety of topics related to emerging issues in labor, employment, and workplace safety law, and they are well-positioned to provide guidance and assistance to clients on AI developments.
Arbitration World

Mon, 23 Dec 2024 00:00:00 -0000
To view the Arbitration World publication, click here.

From The Editors

We are proud to mark the publication of the 40^th edition of Arbitration World. In this is a notable edition, we have taken the opportunity to look back at the stories featured in the very the first edition in 2005 and reflect on how the practice of international arbitration has developed across 20 years.

This edition includes our usual update on developments in international arbitration, including reports on recent cases and changes in arbitration laws from regions around the globe, as well as reporting on some developments with respect to arbitration institutions. Also included is our usual investor-state arbitration update, with a roundup of some of the recent developments of note in international investment law and practice.

Details are provided of topics covered in our most-recent podcasts in our Arbitration World podcast series and where to access those.

This edition also includes a compendium of articles previously published as Arbitration World alerts. In particular:
- An important recent (October 2024) decision of the Dubai Court of Cassation on the enforceability of unilateral arbitration agreements under United Arab Emirates (UAE) law.
- A case from the English Commercial Court on some of the key practical considerations that need to be taken into account when assessing arbitrator bias and disqualification of arbitrators.
- A case from the UAE on the ramifications of a failure to comply with contractual preconditions to arbitration.
- A case from the English Court of Appeal in which it was found that consumer rights can render an otherwise valid arbitration award unenforceable.
Finally, we mention that as part of Hong Kong Arbitration Week 2024, our International Arbitration practice group recently hosted (on 22 October 2024) a panel discussion event in our Hong Kong office on different approaches to principles of good faith in arbitrations conducted under common law and civil law. A link to the recording of that event is made available here.

We hope you find this edition of Arbitration World of interest, and we welcome any feedback.

In This Issue

Looking Back on 20 Years of Arbitration World

By: Ian Meredith (London), Louise Bond (London)

Arbitration News From Around the World

By: Chris Abraham (Doha), Raja Bose (Singapore), Louis Degos (Paris), Burak Eryigit (Doha, London), Sarra Saïdi (Paris), Declan Gallivan (London), Cindy Ha (Hong Kong), Benjamin Kang (Singapore), Joseph Nayar (Singapore), Jennifer Paterson (Dubai), Dr. Johann von Pachelbel (Frankfurt), Jonathan Sutcliffe (Dubai), Christopher Tung (Hong Kong), Thomas Warns (New York), Matthew Weldon (New York)

World Investment Treaty Update

By: Robert Houston (Singapore), Raja Bose (Singapore), Ian Meredith (London)

UAE Law on the Enforceability of Unilateral Arbitration Agreements

By: Jennifer Paterson (Dubai), Mohammad Rwashdeh (Dubai)

Arbitrator Bias: The English Commercial Court Offers Further Guidance on Disqualification of Arbitrators

By: Andrew D. Connelly (London), Ian Meredith (London)

Dubai Court of Cassation Confirms That Contractual Preconditions to Arbitration Are Matters of Admissibility and Not Jurisdiction

By: Mohammad Rwashdeh (Dubai), Jennifer Paterson (Dubai)

Consumer Rights Can Render An Otherwise Valid Arbitrator Award Unenforceable

By: Peter R. Morton (London), Declan C. Gallivan (London)
December 2024 ESG Policy Update—Australia

Mon, 23 Dec 2024 00:00:00 -0000
Australian Update

Australia Commits AU$75 million to Singapore's FAST-P Clean Energy Transition Initiative

On 3 December 2024, the Australian Government approved an AU$75 million equity investment in the Singapore Government's Financing Asia's Transition Partnership (FAST-P) initiative. This investment is the first under the AU$2 billion Southeast Asia Investment Financing Facility (SEAIFF) announced at the ASEAN-Australia Special Summit in March this year.

FAST-P is a blended finance initiative to support the region's clean energy transition launched by the Monetary Authority of Singapore at COP28 in 2023. It aims to bring together international public, private and philanthropic partners to support climate resilience. The Singapore Government will pledge up to US$500 million as concessional capital, matching concessional capital from other partners, for decarbonisation projects and sustainable infrastructure across Asia.

Australia's investment will be through the Green Investments Partnership (GIP) component of FAST-P, which focuses on supporting green infrastructure projects critical for the region's transition to cleaner energy, but which have been traditionally labelled as high-risk or marginally bankable. GIP projects will include renewable energy, energy storage, electric vehicle infrastructure, sustainable transport and water and waste management.

The SEAIFF forms part of Australia's broader strategy to deepen economic engagement with Southeast Asia by providing loans, equity and guarantees for infrastructure, energy and sustainable development projects in the region. By financing critical initiatives, the aim is to create commercial opportunities for Australian exporters and financial institutions, strengthen diplomatic ties and assist the region's transition to cleaner energy.

Australian Institute of Company Directors Encourages Good Governance on Cyber Threats with Updated Guidance

The Australian Institute of Company Directors (AICD) has updated its Cyber Security Governance Principles (Principles) in response to the new Cyber Security Act 2024 (Cth) passed in November. The updates highlight the fast-evolving cyber threat landscape and emphasise the importance of cyber security for organisations.

The Australian Signals Directorate reported in November 2024 that it received over 87,400 cybercrime reports in the 2023-2024 period, which is on average a report every six minutes and is a timely reminder for the need for good governance in relation to cyber security.

Cyber threats are an integral part of every organisation's risk landscape, especially as businesses increasingly rely on internet-facing systems and digital growth strategies. The dynamic nature of cyber threats requires boards to stay responsive to both existing and emerging risks and to understand their organisation's cyber resilience.

AICD reports that directors frequently cite cyber security and data theft as their top concerns. The updated Principles provide a practical framework to help directors and governance professionals proactively manage cyber risks.

The key updates to the AICD's Principles include:
- Addressing digital supply chain risks, data governance, and regulatory changes;
- Regular upskilling for directors and management;
- Integrating cyber risks into existing risk management frameworks;
- Ensuring clear cyber incident response plans and well-defined responsibilities;
- Avoiding technical jargon in documentation and communication; and
- Safeguarding key digital assets and regularly evaluating risk controls.
Federal Government Releases First Nations Clean Energy Strategy

On 6 December 2024, the Federal Government released its first-ever First Nations Clean Energy Strategy (Strategy).

The Strategy has been developed with public consultation and stakeholder engagement, with extensive input from First Nations peoples.

The Strategy provides a five-year national clean energy framework for governments, industries and communities which guides investment, influences policy, and supports First Nations people to self-determine how they participate in, and benefit from, Australia’s clean energy transition.

The Strategy's vision is underpinned by three goals:
- Empower First Nations communities with clean energy by investing in clean energy systems and removing obstacles that prevent First Nations communities from a reliable and affordable clean energy supply;
- Achieve economic benefits for First Nations peoples by ensuring their voices are considered when developing clean energy policy and promoting First Nations people's ownership of energy projects; and
- Enable equitable partnerships by improving how industry and government engage and work with First Nations communities to achieve mutual benefits.
Guarantee of Origin Scheme and Production Tax Credits

On 28 November 2024, the Australian Parliament passed the Future Made in Australia (Guarantee of Origin) Bill 2024 (Cth), the Future Made in Australia (Guarantee of Origin Charges) Bill 2024 (Cth) and the Future Made in Australia (Guarantee of Origin Consequential Amendments and Transitional Provisions) Bill 2024 (Cth).

The legislation helps put the 'Future Made in Australia' agenda (as reported by K&L Gates in June 2024) into action.

The laws:
- Establish the voluntary Guarantee of Origin (GO) scheme, a high-integrity certification scheme that ensures renewable energy and decarbonised products are properly valued;
- Help Australian producers remain competitive in domestic and global markets by accurately representing the emissions embedded in their products;
- Seek to provide businesses and investors with regulatory certainty; and
- Aim to make it easier for major investors to invest in renewable projects in Australia.
In effect, participants that opt in to the GO scheme who produce low-emissions products or renewable electricity will be able to create certificates which contain information about the attributes of the renewable electricity or low-emissions products that they represent. These certificates can be tracked through a public register.

In addition to the above laws, the Federal Government also proposed the Future Made in Australia (Production Tax Credit and Other Measures) Bill 2024 (Cth) (Bill).

Under the Bill, hydrogen producers will receive AU$2 per kilogram of renewable hydrogen produced, while critical minerals processors will get a 10% tax break on processing and refining costs.

The incentives will be available for up to ten years per project but the project must make a final investment decision by 30 June 2030. Projects must be located in Australia and owned by a corporation (not a trust or other entity) that is either an Australian tax resident or a foreign resident with an Australian permanent establishment.

The tax benefits will only be received after the relevant projects are operational and producing.

To qualify, companies must meet certain community benefit requirements including requirements to "promote safe and secure jobs that are well paid and have good conditions", "strengthen domestic industrial capabilities" and "demonstrate transparency in relation to the management of tax affairs". Non-compliance allows tax offsets to be suspended which will give significant de facto power to Government over relevant projects.

View From Abroad

Hong Kong and Switzerland to Further Mandate Sustainability Reporting

The Hong Kong government has announced a roadmap to implement International Financial Reporting Standards – Sustainability Disclosure Standards (ISSB Standards) for publicly accountable entities (PAEs) by 2028.

Starting in January 2025, all main board issuers will be required to disclose climate-related information based on a "comply or explain" principle, which is modelled on ISSB Standards. From there, it will be mandated that large-cap issuers disclose climate-related information by 2026, before all PAEs adopt Hong Kong Standards by 2028.

The Hong Kong government will also develop a regulatory framework for assurance of such climate-related reporting in alignment with international standards and will introduce data and technology, such as green fintech, free data tools, and an expanded Hong Kong Taxonomy for Sustainable Finance to improve the quality of reporting.

In Switzerland, the Swiss Federal Council has initiated a consultation process between 6 December 2024 and 21 March 2025 to update its sustainability-related disclosure rules in line with global frameworks and European Union (EU) standards. Any amendments resulting from the consultation are planned to be enforced by January 2026.

Amendments will include companies being mandated to provide detailed plans for achieving Switzerland's net-zero emissions target by 2050 and will also ensure that climate-related disclosures are provided in electronic formats that are both human and machine-readable. Further, businesses will now be able to fulfill climate-related reporting obligations by adhering to internationally recognised frameworks, such as ISSB Standards or the EU's European Sustainability Reporting Standards.

These latest sustainability reporting mandates from Hong Kong and Switzerland are indicative of an increased global effort to implement international climate standards and progress achieving net-zero emissions targets.

European Union to Delay Deforestation Regulation

The EU will delay the implementation of its deforestation regulation by 12 months to December 2025 to provide businesses, foresters, farmers and authorities with additional time to prepare for compliance with the new obligations.

The EU deforestation law came into force in 2023, however compliance was originally not required until December 2024. The law seeks to ensure that commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products are deforestation-free before being sold in or exported from the EU. The regulation is aligned with the European Green Deal and EU Biodiversity Strategy for 2030.

The delay was initially threatened if an agreement was not reached with the European People's Party, which included adding a category of 'no risk' countries that would have reduced checks. However, the EU will not change the substance of the regulation, and the European Commission has instead agreed to revisit whether the additional category should be included as part of a general review of the legislation in 2028.

The provisional agreement to delay still requires endorsement from the Council and European Parliament, which will need to occur before the original application date of 30 December 2024.

Global Managers Sued Over Climate Stance

A coalition of 11 Republican-led US states led by Texas are suing three global managers, alleging their climate activism has violated antitrust laws and has led to decreased coal production and increased energy prices. The lawsuit stands out as one of the highest profile challenges to corporate efforts aimed at advancing environmental, social, and governance (ESG) goals.

The states allege that the large asset management firms used their market influence and participation in climate-focused groups to pressure coal companies into reducing their outputs, which has then caused electricity shortages and higher utility bills. Texas Attorney-General Ken Paxton and his Republican counterparts argue that "competitive markets – not the dictates of far-flung asset managers – should determine the price Americans pay for electricity."

The states seek to prevent the firms from using their investments to vote on shareholder resolutions and taking actions that could reduce coal production and restrict market competition.

The complaint is based on the Clayton Antitrust Act 1914 (US), which prohibits the purchasing of shares if it substantially reduces market competition. It accuses the firms of using their holdings in coal companies to push for lower carbon emissions while producing high profits for the investors. The states claim the investment firms joined initiatives like Climate Action 100+ and the Net Zero Asset Managers Initiative to coordinate industry-wide reductions in coal output.

One manager has dismissed the allegations as baseless, arguing that the suggestion it invested in companies to harm them "defies common sense" and conflicts with Texas' pro-business reputation.

The authors would like to thank graduates Daniel Nastasi, Katie Richards and Monique Yujnovich for their contributions to this alert.
CFTC Staff Takes a "Measured First Step" in Artificial Intelligence

Fri, 20 Dec 2024 00:00:00 -0000

Introduction¹

On 5 December 2024, the Commodity Futures Trading Commission (CFTC) Divisions of Clearing and Risk, Data, Market Oversight, and Market Participants issued a staff advisory on the use of artificial intelligence (AI) by CFTC-regulated entities (the Advisory).² The Advisory comes nearly a year after CFTC staff (Staff) issued a Request for Comment on the Use of Artificial Intelligence in CFTC-Regulated Markets, which garnered 26 responses and helped to inform the CFTC’s guidance.³

Importantly, the Advisory does not create any new compliance obligations for derivatives market participants who use AI solutions. Instead, consistent with the CFTC’s “technology neutral” approach, Staff took this opportunity to remind registered entities that they must continue to comply with existing compliance obligations, whether using AI or any other technology, either directly or with a third-party service provider. The Advisory highlights a number of AI use cases by derivatives market participants, and the Commodity Exchange Act (CEA) and CFTC regulatory requirements that may be implicated by each of the use cases.

Chairman Rostin Behnam, in what is likely to be one of his last key acts as head of the agency, remarked that the Advisory is the CFTC’s first step engaging with market participants on the topic of AI. However, as noted in the Advisory, there is likely more to come. As AI technology evolves and as derivatives market participants develop other innovative use cases, there is potential for future rulemakings or guidance by the CFTC.

Below, we set forth an overview of the key elements of the Advisory.

AI Risk Assessment

Under the Advisory, Staff explicitly states its expectation that all CFTC-regulated entities will assess the risks of using AI and will update their policies, procedures, controls, and systems, as appropriate under applicable CEA and CFTC regulatory requirements. Whether developing its own AI solutions or using a third-party AI offering, a regulated entity remains responsible for compliance with existing laws and regulations. Although Staff articulates this expectation with respect to entities that are registered with the CFTC in some capacity, all market participants should consider adhering to this standard, i.e., performing a risk assessment and following generally accepted standards for the development, operation, reliability, capacity, and security of the systems that use AI technology. As AI usage evolves and as existing AI tools are materially updated, market participants should consider conducting another risk assessment.

AI Use Cases

As discussed below, Staff articulated use cases for which various registration categories may consider deploying AI technology and identified core principles and regulatory obligations that could be implicated by these uses. We consider a number of these below.

Order Processing and Trade Matching:

Designated contract markets (DCMs) may anticipate trades before they are entered by using AI’s analytic and predictive capabilities, reducing post-trade message latencies and optimizing system resources. Staff notes that DCMs must continue to provide open and competitive markets and protect their price discovery function.

Market Surveillance:

DCMs and swap execution facilities (SEFs) could use AI to investigate rule violations, detect abusive trade practices, and perform real-time market monitoring. According to Staff, the use of AI is not a substitute for adequate compliance staff and resources.

System Safeguards:

When using AI, DCMs, SEFs, and swap data repositories (SDRs) should continue to develop and maintain appropriate controls across (1) enterprise risk management and governance, (2) information security, (3) business continuity and disaster recovery, (4) capacity and performance planning, (5) systems operations, (6) systems development and quality assurance, and (7) physical security and environmental controls. Staff notes that derivatives clearing organizations (DCOs) may use AI to identify cyber vulnerabilities and enhance defenses or to update computer code, but these uses could be applied by all market participants. Staff reminds market participants to consider whether they continue to comply with system safeguard regulations when using AI in these manners.

Notifications:

The use of AI does not eliminate notification requirements. When a DCO, DCM, SEF, or SDR makes a material planned change to an automated system that could impact the system’s reliability, security, or adequate scalable capacity, it must provide Staff timely advance notice of such change. In addition to this notice, a DCO must also provide Staff with notice of all material changes to its risk analysis and oversight program.

Member Assessment and Interaction:

While Staff identifies DCOs as using AI for clearing member compliance with rules and using AI chatbots to communicate with members (especially for nonintermediated clearing), these uses could be applied by all market participants. Staff explains that DCOs must continue to comply with participant admission and continuing eligibility requirements and monitor credit exposure.

Settlement:

DCOs may use AI to validate data, detect data anomalies before settlement, and identify failed trades. These uses could facilitate netting or position offset. Staff explains that DCOs must continue to timely complete settlement and limit their exposure to settlement bank risks.

Risk Assessment and Risk Management:

Staff anticipates that swap dealers may use AI to calculate and collect margin for uncleared swaps. In this case, Staff notes that swap dealers would need to manage the risk associated with any such system.

Compliance and Recordkeeping:

Other registrants—such as swap dealers, futures commission merchants, commodity pool operators, commodity trading advisors, introducing brokers, retail forex dealers, and associated persons—might use AI to support the accuracy and timeliness of financial information and risk disclosures provided to the CFTC, National Futures Association, or their customers. Staff reminds these registrants that relevant compliance obligations will continue to apply even if AI is used to satisfy those obligations.

Customer Protection:

If futures commission merchants use AI to account for customer segregated funds, Staff confirms that they must ensure that they continue to satisfy the applicable regulatory requirements.

Statement of Commissioner Johnson

Commissioner Kristin N. Johnson, who has long been an advocate for enhanced oversight and protective measures related to AI, issued a statement concurrent with the publication of the Advisory. In it, she described her vision for an AI Fraud Task Force within the Division of Enforcement and increased enforcement resources to effectively supervise market participants. She also called for a formal policy of enhanced penalties on those who use AI to engage in fraud or other illegal activities, especially when they lure vulnerable investors using AI (including the use of so-called “deepfakes”). Finally, Commissioner Johnson advocated for an interagency task force focused on AI and an open dialogue to gather information about market participants’ use and adoption of AI technologies.

Key Takeaways

The risk of AI technology has been on the CFTC’s radar and will continue to be a priority, even under the new administration. CFTC-regulated entities should anticipate continued engagement by the CFTC on this topic and should take Staff’s expectations set forth in the Advisory seriously, despite the fact that it is not formal CFTC guidance or a rulemaking. In light of this Advisory, market participants may consider documenting each use case for how they deploy AI, any risk assessments that have taken place, and descriptions of how policies and procedures were updated to reflect the risk of the use of AI technology. Any market participant contemplating a new AI tool may need to consider their existing compliance obligations and whether any of these obligations are implicated by the use of the technology.
Rollbacks and Repeals: How a New Administration Effectuates Policy Changes

Wed, 18 Dec 2024 00:00:00 -0000

When a new president is elected, the incoming administration often engages in an intense review of its predecessor’s policy actions, particularly when there has been a shift in party control. This process typically begins during the presidential transition, long before Inauguration Day. Claiming a political mandate to implement the policy goals it campaigned on, a new administration often looks for all viable options to effect immediate change and obtain quick wins by relying on executive authority. As a rule of thumb, what can be done by the president or an administrative agency can usually by undone by those same actors, using the same administrative processes.

Executive Actions on “Day 1” and Beyond

Since the start of the 21st century, there has been a general rise in the use of executive orders (EO) during the beginning of a new presidential administration.¹ Indeed, executive actions are now expected on “Day 1” and throughout its first 100 days.

These EOs are often oriented toward one of three objectives: (1) rescinding EOs issued by the prior administration; (2) ordering agencies to withdraw guidance documents and other sub-regulatory guidance; and (3) issuing EOs to implement new policy mandates. Each of these objectives deserves examination.

First, recission orders. A new president often issues a series of EOs rescinding prior ones that conflict with the incoming president’s agenda. Incoming administrations have enacted and rescinded the same policies in a back-and-forth oscillation for decades. For example, in April 1992, President George H. W. Bush ordered federal contractors to notify their employees that they were not legally obligated to join a labor union. During President Clinton’s first month in office, he rescinded that EO. In President George W. Bush’s first month, he rescinded President Clinton’s EO. And in President Obama’s first 30 days, he reversed course again, revoking President George W. Bush’s EO.²

To date, this oscillating pattern has grown more frequent. In President Biden’s first 100 days in office, he reversed 62 of President Trump’s 219 EOs.³ President-Elect Trump is likewise expected to rescind a flurry of President Biden’s EOs. For example, he has already announced plans to reverse President Biden’s EO on regulating artificial intelligence.⁴

Second, withdrawal orders. A new president will also act to direct the agenda of executive branch departments and agencies by ordering the heads of those agencies to rescind, to the extent permitted by law, guidelines, policy statements, opinion letters, and other sub-regulatory guidance that implemented the prior administration’s policies. The incoming administration is expected to roll back Biden-era guidance documents on issues such as border security⁵and the scope of Title IX discrimination protections.⁶

Third, new policy orders. Incoming presidents may issue EOs as a means of implementing affirmative policy objectives. For example, during the first week of his presidency, President Obama issued EO 13492 to close the detention facilities at the Guantánamo Bay Naval Base.⁷

The executive actions outlined above can often occur quite quickly because every president is free to repeal or modify any executive order and there is generally no particular process required for an agency to rescind a previously issued guidance document or other interpretive rule explaining the agency’s then-interpretation of underlying statutes and regulations. No public comment period or notice is required when the guidance being replaced did not have the force of law or was not issued under the procedure required for such rules.

Rule Recissions and Rulemaking

A new administration will also have its eye on reversing course on many legislative regulations promulgated by the prior administration, but this will not be as easy as a mere stroke of a presidential pen. Of course, outgoing administrations, like the Biden administration, often push hard to finalize priority rules in the final months of the administration.

If rules are not finalized by the start of a new administration, the incoming administration will frequently press the brakes on all pending rules—the gears of government must stop before going in reverse. This is accomplished through a “regulatory freeze” memorandum by the Office of Management and Budget that is sent to the heads of agencies. The memo imposes a moratorium on regulations that have not yet been published in the Federal Register, giving the incoming administration the opportunity to review pending rules before deciding to finalize or abandon them. Such moratoria are ubiquitous, and were used by President Obama,⁸President Trump,⁹and President Biden.¹⁰

If rules are finalized before the close of the outgoing administration, the new administration faces a cumbersome process before it can reverse course. A regulation is finalized when it is placed on public inspection or published in the Federal Register.¹¹Under the Administrative Procedure Act (APA),¹²the rulemaking procedures that an agency must follow for repealing or amending a regulation are the same as for issuing a new rule.¹³A final rule’s effective date will often determine a new administration’s authority over it. Under the APA, an executive department or agency must generally provide a period of at least 30 days after a final rule is published in the Federal Register before the rule takes effect.¹⁴The Congressional Review Act (CRA) extends this deadline to 60 days for “major rules.”¹⁵If a final rule has not yet taken effect, the new administration can suspend the rule. A suspension provides the administration time to determine if the final rule should be implemented, modified, or rescinded. However, because courts view suspension as an analog to amending or repealing a rule,¹⁶an agency must adhere to the APA’s rulemaking requirements to suspend a rule’s effective date.¹⁷

The administrative state is not managed solely by the executive. Congress also enjoys broad legislative power over regulations. In our current political context, the Republicans’ congressional control, even with tight margins, may very well help the new administration’s agenda. The US Chamber of Commerce estimates that 56 major rules are subject to the CRA in the new Congress, and because Republicans will control both the House and Senate in the 119th Congress, there will almost certainly be efforts to overturn certain Biden-era regulations.¹⁸Congress can pass laws overturning or amending previously issued regulations, issue an “appropriations rider” which attaches conditions on appropriated agency funds, or use the CRA’s fast-track provisions to disapprove final rules via joint resolution.¹⁹These “fast-track provisions” create expedited procedures for a joint resolution of disapproval in the Senate. Under these provisions, committee consideration of a disapproval resolution can be discharged with the signature of 30 senators, and the resolution can only be debated on the floor for up to 10 hours before a simple majority vote.²⁰

A New Administration’s Ability to Change Rules Post-Loper Bright

The ease with which a new administration can change an existing rule also depends on whether the rule has previously been challenged in court, and whether the court concluded that the current rule was the “best reading” of its enabling statute. The US Supreme Court’s landmark 2024 ruling in Loper Bright Enterprises v. Raimondo overturned the 40-year-old Chevron doctrine that required courts to defer to federal agencies’ interpretations of ambiguous statutes.²¹In his first term, 28.1% of President Trump’s major agency rules faced legal challenges²²and 57.1% of those challenges were successful.²³Biden era rules will now face many similar challenges. It is unclear how Loper Bright will now affect the rate at which the Biden administration’s challenged rules will be struck down, but in broad strokes, Loper Bright’s policy-agnostic approach to statutory construction may make it more difficult to shift agency positions under certain circumstances.

Under Loper Bright, the single “best” interpretation of a statute will govern, not merely a “permissible” construction by the agency. So, if a court has already ruled that a prior administration’s regulation was valid because it represented the best interpretation of a statute (or old Chevron Step 1), that interpretation is likely locked in, and the new administration will have difficulty changing it without congressional intervention. But if a prior administration’s regulation was untested in court or was upheld because the court merely deferred to the agency’s reasonable interpretation of the statute (under the old Chevron Step 2), then the new administration will be in a better position to defend its repeal or amendment of the regulation by arguing that its new approach reflects the best interpretation of the statute. While the new administration may have to contend with the stare decisis impact of earlier court rulings, that is not an impossible hurdle to clear. Moreover, if the new administration is successful in defending its chosen interpretation of the statute as the “best” view of the law, that interpretation will become solidified and it will be more difficult for future administrations to repeal Trump-era rules that are based on that best view of the statute.

If a Biden-era regulation was itself challenged and remains in litigation when the new administration takes office, the Trump administration may decide to stay that litigation while it considers repealing or replacing the regulation, as often happens with new administrations.

The full impact of Loper Bright on the new administration’s deregulation agenda remains to be seen. Some argue that the rollback of Biden’s policies that conservatives deem unlawful is supported by Loper Bright, while others believe that the decision hamstrings Republican and Democratic administrations equally. For further insight on understanding, anticipating, and navigating the full impact of Loper Bright, access our Post-Chevron Toolkit: A New Era for Regulatory Review.

The “Department” of Government Efficiency

On 12 November 2024, President-Elect Trump announced his intention to form the Department of Government Efficiency (DOGE). Despite its title of “Department,” DOGE will be an advisory body, not a federal executive department, which can only be created by legislation.

Guided in part by the belief that Loper Bright and West Virginia v. Environmental Protection Agency renders many current federal regulations unlawful,²⁴DOGE intends to pursue mass regulatory recissions, administrative reductions, and cost savings via executive action.²⁵Given the procedural limitations surrounding rule recissions, DOGE’s task will be difficult. But Congress’s broad authority to repeal rules could bolster DOGE’s mandate. House Oversight Chair James Comer (R-KY) has established the Subcommittee on Delivering Government Efficiency (also acronymized as DOGE) that will work with the new administration and DOGE advisory body. Sen. Joni Ernest (R-IA) has also emerged as the chair and founder of the Senate DOGE Caucus. DOGE co-chairmen Elon Musk and Vivek Ramaswamy are already meeting with House and Senate leaders. Although DOGE is an advisory body, its ability to highlight what it views as government inefficiencies is likely to trigger significant executive branch and Congressional action, particularly given its high-profile leaders and a mandate strongly endorsed by the incoming administration and GOP Congress.

CONCLUSION

As the Trump administration enters office, it marks a period of pronounced regulatory uncertainty. The Trump administration itself will likely revisit many of the Biden administration’s regulations. Congress may exercise its own power over the regulatory environment, attaching conditions or amendments to continued funding. And the judiciary will see challenges to a host of regulations, both new and old, in the wake of Loper Bright.

Our Public Policy and Law practice and Administrative Law practitioners are well-positioned to combine a deep understanding of the issues with significant policy experience to develop and implement comprehensive strategies for this new environment.
UK Offence of 'Failure to Prevent Fraud': D&O Insurance Can Help the Board to Mitigate Risk

Wed, 18 Dec 2024 00:00:00 -0000

In 2023, the UK Government introduced the Economic Crime and Corporate Transparency Act (the Act) with the aim of reducing economic crime in the UK. The Act introduced a number of measures including a new offence of "failure to prevent fraud" whereby organisations may be held to account where a person associated with the organisation commits fraud with the intention of directly or indirectly benefitting the organization (the Offence).

On 6 November 2024, the government released its long-awaited guidance on the Offence, as introduced by the Act, which gives organisations time to prepare and implement fraud prevention procedures before the Offence comes into effect on 1 September 2025 (as discussed in our UK Policy and Regulatory Alert: Guidance to Organisations on the Offence of Failure to Prevent Fraud.)

The Offence has been created with a view to ensuring that organisations¹ will be criminally liable if they benefit or profit from fraud committed by an associated person, such as an employee or agent. Criminal liability for the Offence can even be established in circumstances where the directors or senior managers of the organisation were unaware of the fraud. Types of fraud that are covered by the Offence include: fraud by failing to disclose information, false accounting, false statements by company directors, and fraudulent trading, amongst others. Essentially, the purpose of the Offence is to ensure that the organisation takes responsibility for preventing such conduct, by exposing it to potentially unlimited fines if found guilty. An organisation will have a defence if it can prove that it had reasonable fraud prevention procedures in place.

This alert considers the potential interaction between the Offence and Directors & Officers (D&O) insurance, and steps which organisations may want to consider with a view to enhancing the insurances they have in place in anticipation of the Offence coming into effect.

The role of D&O insurance

Most D&O policies are designed to cover individual directors and officers of a company against their liability for claims made against them in that capacity, including funding the costs of defending both civil and criminal claims. Such policies typically provide additional coverage for the cost of responding to regulatory and criminal investigations, but not for criminal fines, which cannot be insured on the grounds of public policy. Some D&O insurers also provide coverage for claims made against the company (commonly referred to as entity cover) though this is usually limited to a particular type of claim.

Once the Offence comes into effect, there will inevitably be an increased number of criminal investigations and proceedings against companies, which will result in significant legal spend. Organisations may seek to offset that risk with D&O insurance, particularly if they are able to secure broad entity cover.

While the Offence is not focused on the prosecution of individuals, separate investigations may be opened into any individual employee or agent alleged to have committed or assisted the fraudulent conduct. Individual directors or senior managers could also be exposed to potential claims by the company itself for failing to implement appropriate fraud prevention procedures. Careful consideration will need to be given to the terms of the D&O policy to determine whether all relevant individuals are covered. Some D&O policies cover employees acting in a managerial or supervisory capacity, but more junior employees and independent consultants may not be insured.

Will the D&O Policy Respond?

Most D&O Policies are written on a "claims made" basis and are designed to respond to claims (or investigations) commenced against the insureds during the policy period, regardless of when the alleged wrongful act occurred. The prompt notification to D&O insurers of any claim, or circumstances which may give rise to a claim or investigation, is therefore an important step in accessing the D&O insurance coverage.

D&O policies usually seek to exclude coverage for claims or investigations involving dishonest or fraudulent conduct, although such exclusions typically apply only to the individual liable for such conduct and only where such conduct has been established by final adjudication. This means that funding of defence costs remain available pending or in the absence of such findings. Careful scrutiny of such exclusions is important to ensure that they are not unduly broad and that the conduct of any relevant individual cannot be attributed to another insured person (or to the company where entity coverage is in place).

Some D&O insurers are willing to negotiate bespoke forms of coverage, which may better reflect recent trends in the D&O context. Policyholders should adopt a proactive approach with a view to negotiating the broadest coverage available and should carefully consider which individuals to include as insured persons. It may also be beneficial to provide D&O insurers with details of any risk assessments and fraud prevention measures put in place, in accordance with recent guidance, as well as details of ongoing monitoring.

Conclusion

Whilst the number of investigations and prosecutions of corporates will inevitably increase due to the Offence, D&O insurance may provide directors and officers with protection against any related losses and liabilities, including the funding of legal costs incurred in defending any related claim or investigation.

An everchanging and increasingly complex regulatory and liability framework makes it difficult to predict exactly how D&O insurers will approach the implementation of the new criminal regime. What is assured, is that careful and experienced advice will be needed in negotiating the terms of D&O insurance policies to ensure that companies and directors are both suitably covered and aware of any uninsured risks that future criminal and civil actions may present.

The Firm's Insurance Recovery and Counseling Practice is dedicated to assisting policyholders in reviewing policy terms, managing the notification process and maximising recoveries on D&O insurance claims, seeking to avoid litigation and other costly dispute resolution processes where possible.
Key Disclosure Considerations for Your Upcoming Form 10-K and Proxy Statement

Tue, 17 Dec 2024 00:00:00 -0000
Public companies should be aware of new disclosure requirements for their upcoming Form 10-K filings for the fiscal year ended 31 December 2024 (2024 Form 10-K) and for their upcoming Proxy Statements to be filed in 2025 (2025 Proxy Statement). Companies should also consider additional disclosure developments and evolving best practices when preparing their 2024 Form 10-Ks and 2025 Proxy Statements.

The following alert summarizes these new disclosure requirements and additional considerations for 2024 Form 10-Ks and 2025 Proxy Statements.

New Disclosure Requirements for 2024 Form 10-Ks and 2025 Proxy Statements

Insider Trading Policies

Disclosure of Insider Trading Policies

Item 408(b)(1) of Regulation S-K (Item 408(b)(1)) requires companies to disclose whether they have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of their securities by directors, officers, and employees, or a company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any applicable listing standards. Disclosure provided pursuant to Item 408(b)(1) must be provided in interactive XBRL.

If a company has not adopted such insider trading policies and procedures, it must explain why it has not done so.

While Item 408(b)(1) disclosures are required in the 2024 Form 10-K, they may be incorporated by reference from a proxy statement involving the election of directors if filed within 120 days after a company’s fiscal year end.

Filing of Insider Trading Policies

Items 408(b)(2) and 601(b)(19) of Regulation S-K require that any company that has adopted insider trading policies and procedures must file such policies and procedures as Exhibit 19 to the 2024 Form 10-K. This requirement can also be satisfied if all of a company’s insider trading policies and procedures are included in its code of ethics (as defined in Item 406(b) of Regulation S-K) and the code of ethics is filed as Exhibit 14 to its 2024 Form 10-K. The company would then only need to add a reference to Exhibit 14 for Exhibit 19 in the exhibit index to the 2024 Form 10-K.

Disclosure of Stock Option and Stock Appreciation Right Grant Practices in Close Proximity to Disclosure of Material Nonpublic Information

Item 402(x) of Regulation S-K (Item 402(x)) requires narrative and tabular disclosure related to certain equity awards granted in proximity to a company’s release of material nonpublic information (MNPI). Companies are to provide narrative disclosure discussing their policies and practices related to the timing of awards of stock options, stock appreciation rights, and similar option-like instruments in relation to the disclosure of MNPI by a company, including how a company’s board of directors determines when to grant such awards (for example, whether such award is granted on a predetermined schedule), whether a company’s board of directors or compensation committee takes MNPI into account when determining the timing and terms of such award, and whether a company has timed the disclosure of MNPI for the purpose of affecting the value of executive compensation.

Additionally, if during the last completed fiscal year any stock options, stock appreciation rights, or similar option-like instruments were awarded to a named executive officer within a period starting four business days before and ending one business day after the filing of a Form 10-K or Form 10-Q, or a Form 8-K that discloses MNPI, the company must provide the following information for each award in a table:
- The name of the named executive officer;
- The grant date of the applicable award;
- The number of securities underlying the award;
- The per-share exercise price of the award;
- The grant-date fair value of the award computed using the same methodology as used for a company’s financial statements under GAAP; and
- The percentage change in the market price of the underlying securities between the closing market price of the security one trading day prior to and the trading day beginning immediately following the disclosure of MNPI.
The discussion and table required by Item 402(x) must be provided in interactive XBRL.

While Item 402(x) disclosures are required in the 2024 Form 10-K, they may be incorporated by reference from a proxy statement involving the election of directors if filed within 120 days after a company’s fiscal year end.

Companies should review their current insider trading policies and procedures, and policies and practices related to the timing of awards of stock options, stock appreciation rights, and similar option-like instruments in relation to the disclosure of MNPI, to ensure such policies and procedures align with a company’s objectives and these new disclosure requirements. If a company does not have such policies or procedures currently in place, then they should consider establishing such policies or procedures prior to the filing of the 2024 Form 10-K.

Additional Disclosure Considerations for 2025 Proxy Statements

Pay Versus Performance (PVP) Disclosure Updates

In late 2022, the US Securities and Exchange Commission (SEC) adopted rules requiring companies to disclose the relationship between the executive compensation actually paid to a company’s named executive officers and the company’s financial performance.

The disclosure is required to be included in proxy statements, including the 2025 Proxy Statement.

The rules have three main components (with scaled-back disclosures for smaller reporting companies):
- PVP table;
- Description of the relationship between pay and performance; and
- Tabular list of important financial measures.
Recent SEC comment letters have revealed the following common mistakes in early PVP disclosures:
- Failing to describe the relationship between pay and performance;
- Failing to provide GAAP reconciliation for non-GAAP financial measures;
- Using incorrect peer groups;
- Failing to include in the analysis all named executive officers who served each year; and
- Using partial-year compensation.
Proxy Advisor Recommendations Related to Severance Paid Upon Voluntary Terminations

Institutional Shareholder Services (ISS) continues to focus on disclosures regarding severance payments in connection with executive terminations, directing companies to disclose both the type of termination occurring and the applicable employment agreement provision triggering severance.

ISS has indicated that severance paid when the termination is voluntary (for example, a retirement or a “mutual separation”) is a problematic practice “most likely to result in an adverse recommendation”.

Additional Disclosure Considerations for 2024 Form 10-Ks

Risk Factors

Since risk factor disclosures are often updated just once a year when preparing a Form 10-K filing, companies should review their risk factors with fresh eyes and consider whether there have been any internal or external changes or updates that warrant new risk factors or revisions to the current risk factors. The SEC may flag when disclosure in other parts of the 10-K includes updates that are not reflected in the risk factors.

With respect to the risk factors, a company should also consider the following:
- Review the risk factors of peer companies to help it assess current and emerging risks facing similarly situated companies;
- Determine if any of the following areas of SEC focus are applicable (however, companies should be aware that these areas of focus may change in light of the new administration and should be conscious of any shifts in SEC policy):
  
  Framing disclosure of a risk as hypothetical when it has already occurred;
  
  Artificial intelligence and the potential risks to a company of its increased adoption;
  
  Geopolitical risks;
  
  Inflation and interest rate risks;
  
  Climate-related and other environmental, social, and governance related risks; and
- Review the structure and organization of the risk factor disclosures, including a summary of the risk factors if the risk factor disclosure is over 15 pages.
Comment Letter Trends

SEC’s Top Areas of Comment and Projected Areas of Comment
- Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A);
- Revenue recognition;
- Financial statement presentation;
- Financial reporting topics:
  
  Segment reporting, including compliance with new US GAAP disclosures effective in annual periods beginning after 15 December 2023;
  
  Compliance with non-GAAP regulations and rules;
  
  Critical accounting estimates disclosure in MD&A; and
  
  Disclosures related to supplier finance programs in the notes to the financial statements and any related information in MD&A;
- China-related matters;
- Inflation;
- Interest rate risk and liquidity risk;
- Disclosure requirements for newly adopted rules, including regarding clawbacks and cybersecurity; and
- Artificial intelligence.
During the preparation of the 2024 Form 10-K, a company should keep the aforementioned areas of comment in mind. If any of these areas impact the business of a company, then it should discuss the particularized risks and impacts to it and not revert to boilerplate disclosures.

Nasdaq’s Board Diversity Rules Vacated

In December 2024, the US Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s board diversity disclosure rules. Nasdaq announced that it does not intend to appeal the ruling, and the SEC has stated it will review whether to challenge the ruling. If appealed, the case would be reviewed by the US Supreme Court. In light of the upcoming change in presidential administrations and the current composition of the US Supreme Court, we believe that any such appeal is unlikely. This decision means that companies listed on Nasdaq are not required to comply with Nasdaq’s board diversity rules. However, a company may still choose to disclose board diversity data voluntarily for a number of reasons, particularly in light of policies adopted by large institutional investors regarding diversity and the influence of proxy advisory firms. Therefore, regardless of the Fifth Circuit’s decision, companies should consult with their legal and financial advisors about including publicly available information about director skill sets and backgrounds, including in relation to diversity.

Reminders Regarding Prior Disclosure Requirements for Form 10-Ks and Proxy Statements Filed in 2024

It was a prolific year of rulemaking for the SEC in 2023, and companies were required to provide a number of new disclosures in their Form 10-K filings for the fiscal year ended 31 December 2023 relating to cybersecurity, clawbacks, and insider trading. Companies should ensure they are complying with these requirements.

Cybersecurity

Cybersecurity Risk Management and Strategy

Item 106(b) of Regulation S-K requires a company to describe its processes for assessing, identifying, and managing material risks from cybersecurity threats, including:
- Whether and how such processes have been integrated into a company’s overall risk management system or processes;
- Whether a company engages third parties in connection with such processes; and
- Whether a company has processes to oversee and identify risks from cybersecurity threats associated with its use of third-party service providers.
A company must also describe whether and how any risks from cybersecurity threats have materially affected or are reasonably likely to materially affect it, including its business strategy, results of operations, or financial condition.

Cybersecurity Governance

Item 106(c) of Regulation S-K (Item 106(c)) requires a description of the board of directors’ oversight of risks from cybersecurity threats (including identification of any board committee or subcommittee responsible for such risk oversight) and a description of the processes by which the board or such committee or subcommittee is informed of such risks. Item 106(c) also requires a description of management’s role in assessing and managing material risks from cybersecurity threats, including:
- Whether and which management positions or committees are responsible for assessing and managing such risks and the relevant expertise of such persons or members;
- The processes by which such persons or committees are informed about or monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents; and
- Whether such persons or committees report information about such risks to the board of directors or a committee or subcommittee thereof.
Clawbacks

Disclosures Related to Clawback Policies

The New York Stock Exchange and Nasdaq established no-fault clawback listing standards that took effect late in 2023. Companies are subject to delisting for noncompliance and clawback policies must be filed as an exhibit to a company’s Form 10-K.

Clawback of Erroneously Awarded Compensation

Item 402(w) of Regulation S-K (Item 402(w)) requires a company to disclose certain information if, at any time during or after its last completed fiscal year, it was required to prepare an accounting restatement that required recovery of erroneously awarded compensation pursuant to its clawback policy or if there was an outstanding balance of erroneously awarded compensation to be recovered. A clawback is triggered by both a “Big R” restatement, which corrects errors that are material to previously issued financial statements, and a “Little r” restatement, which corrects errors that are not material to previously issued financial statements but would result in a material misstatement if the error was recognized or left uncorrected in the current period. The disclosure must include for each restatement:
- The date a company became required to make such accounting restatement;
- The aggregate dollar amount of the erroneously awarded compensation attributable to such accounting restatement, including how it was calculated;
- If the reporting measure underlying the erroneously awarded compensation related to stock price or a total shareholder return metric, the estimates used in determining the erroneously awarded compensation attributable to such accounting restatement, and the methodology used for such estimates;
- The aggregate dollar amount of erroneously awarded compensation that remains outstanding at the end of the last completed fiscal year; and
- If the aggregate dollar amount of such erroneously awarded compensation has not yet been determined, the disclosure of this fact and an explanation of the reason.
If a company deems recovery to be impracticable, it must disclose, for each current and former named executive officer and all other current and former executive officers as a group, why it did not pursue recovery and the amount of recovery forgone.

The information must appear with, and in the same format as, the rest of the disclosure required to be provided by Item 402 of Regulation S-K.

While Item 402(w) disclosures are required in the Form 10-K, they may be incorporated by reference from a proxy statement involving the election of directors if filed within 120 days after a company’s fiscal year end.

Exhibit Index

Clawback policies adopted in accordance with New York Stock Exchange or Nasdaq requirements must be filed as Exhibit 97 to Form 10-K.

Cover Page

The Form 10-K cover page includes two checkboxes that a company must now check if:
- It is including financial statements that reflect the correction of an error to previously issued financial statements; and
- Any of those corrections are restatements that required a recovery analysis of incentive-based compensation.
Insider Trading Disclosures

Officer and Director Trading Arrangements

Item 408(a) of Regulation S-K requires disclosure of Rule 10b5-1 trading arrangements and non-Rule 10b5-1 trading arrangements adopted or terminated by a director or Section 16 officer during the fourth quarter of the fiscal year. The expiration of a trading plan pursuant to its terms is not required to be disclosed. If disclosure is required, a company must identify the officer or director and describe the material terms of such arrangement, including its date, duration, and total amount of securities to be sold or purchased, but excluding any pricing terms.
Apportioning the Cost of Household Hazardous Waste Management in Vermont

Tue, 17 Dec 2024 00:00:00 -0000

Vermont’s Agency of Natural Resources is busily working to implement a first-in-the-nation household hazardous waste extended producer responsibility law. Although federal law sets requirements for hazardous waste generated at retail locations, it does not regulate products that contain the same hazardous materials when generated at households. That is where Vermont’s law comes into play.

Under the law,¹ manufacturers who sell into Vermont, whether through brick-and-mortar locations or through online sales, must determine whether their products qualify as “covered household hazardous products.” Examples of covered products include fuel additives, cleaning products, glues, paint removers, spray paint, nail polish, nicotine vaping devices and gas cylinders that contain flammable or toxic ingredients. Those manufacturing covered products must participate in a stewardship organization that offers free statewide product collection.²

This new funding framework represents a change from the long-standing state requirement that municipalities bear the costs of collecting household hazardous wastes. While local governments can still operate collection programs under Vermont’s new law, manufacturers will now reimburse them for the costs of collection, including waste transportation and processing costs.

Deadlines under the law are rapidly approaching. By 25 July 2025, a single stewardship organization must have registered to represent all affected manufacturers and submitted a single collection plan for all covered household hazardous products to the Agency for approval. That same day a landfill disposal ban on covered products will go into effect. After 1 January 2026, manufactures who do not participate in the approved collection plan will be subject to a sales ban.

While the Agency can approve only one stewardship organization for the first collection plan, it can approve multiple stewardship organizations for subsequent plans. That said, at any one time the law allows for only one approved plan that can have term of up to five years.

To qualify as a stewardship organization, an organization must commit to assuming the responsibilities and liabilities of all participating manufacturers, not create unreasonable barriers for participation, and maintain a public website listing all manufacturers, their brands and products covered by the approved collection plan. The law notably makes stewardship organizations responsible for all covered products, including products made by manufacturers in non-compliance with the law and those made by manufacturers no longer in business.

The Household Product Stewardship Alliance (HPSA) aims to serve as the stewardship organization responsible for the first collection plan. While the Agency has not approved HPSA as a stewardship organization yet, HPSA is proceeding as if it will ultimately be approved as such and has stated that covered entities must register with it by 30 April 2025 to ensure there is ample time to meet the deadline for submitting the first collection plan. HPSA was formed by, and is currently led by, the Household & Commercial Products Association, a trade association for household and commercial product companies.

Given the July 25th deadlines, manufacturers who do not want to be prohibited from selling in Vermont should act early to ensure they are included in the collection plan. Additionally, because manufacturers subject to this law are required to pay fees to cover the costs of the collection program, they should engage proactively to ensure any final fee structure is properly apportioned based on market share or product toxicity.

Even manufacturers without a sales presence in Vermont would benefit from closely monitoring Vermont’s developing program as other states might very well enact their own household hazardous waste extended producer responsibility laws the coming months and years.

Those interested in discussing this new Vermont state law or other current or proposed extended producer responsibility laws, should contact the authors or another member of our Environment, Land, and Natural Resources practice group.
2025 US Congressional Calendar

Tue, 17 Dec 2024 00:00:00 -0000

Our Public Policy and Law group is pleased to provide you with our 2025 US Congressional Calendar.

The calendar is a compilation of the House and Senate schedules in a color-coded format showing periods when the House and Senate are expected to be in session during 2025. The calendar is a useful planning tool to help government relations professionals and constituents engage with Members of Congress and their staff.

Please click here to download a printable version of the 2025 US Congressional Calendar. For a digital interactive version, click here.

As these dates are subject to change, this calendar will be updated accordingly.
Directors' Responsibilities for Sustainability Reporting—ASIC's Views

Mon, 16 Dec 2024 00:00:00 -0000
Introduction

When directors and officers of reporting entities are assessing how to prepare for complying with the new sustainability reporting obligations, it is tempting to look to the Australian Securities and Investments Commission’s (ASIC) approach to enforcement of “greenwashing” as a starting point. However, reporting entities should be aware of the differences in ASIC’s enforcement approach between the two.

ASIC’S Enforcement Approach

Greenwashing misconduct refers to misleading and deceptive statements made by entities about their green credentials. ASIC interventions are founded on long-established laws that prohibit misleading and deceptive conduct.

Climate-related financial disclosures by reporting entities are to be made in the same context as their financial statements. As a result, directors will need to ensure that the sustainability report presents a true and fair view of the organisation’s position and prospects and that the view is neither misleading nor deceptive.

ASIC Guidance on Sustainability Reporting in Consultation Paper 380

On 7 November 2024, ASIC released its Consultation Paper 380 on sustainability reporting, which was accompanied by a draft Regulatory Guide 000 Sustainability Reporting (Draft RG).

The Draft RG reaffirms that climate-related disclosures will be subject to the existing liability framework in the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), including directors’ duties, misleading and deceptive conduct provisions and general disclosure obligations. Set out below are the material highlights of the Draft RG.

Directors’ Duty of Care and Diligence in Relation to Sustainability Reporting

Directors have a positive duty to exercise their powers with the care and diligence that a reasonable person would exercise in the circumstances. In discharging these obligations, directors should consider that material climate-related physical and transition risks, like all other material risks, pose a foreseeable risk of harm to the interests of the entity and that these considerations should inform the directors’ declaration in relation to any climate-related financial disclosures set out in the reporting entity’s sustainability report.

Ability to Rely on Third Parties

Whilst directors may rely on special knowledge or expertise of others in relation to sustainability reporting, they still need to make an independent assessment of the information or advice provided, using their own skills and judgement and rely on such information or advice available at the time in good faith.

Obligations to Establish Operation Systems to Assess Climate-Related Risks and Opportunities

In the Draft RG, ASIC states that directors should have adequate systems for the identification, assessment, monitoring, prioritisation, disclosure and response to any material climate-related risks and opportunities.

ASIC notes that having possession of timely and accurate information about material climate-related risks and opportunities will enable boards to make informed judgements about the extent of foreseeable harms to the interests of the reporting entity, as well as assist the reporting entity in complying with its sustainability reporting obligations.

Scope of Directors’ Obligations to Keep Records

Entities required to prepare a sustainability report for a financial year must keep written sustainability records, which are the documents and working papers that explain the methods, assumptions and evidence from which the sustainability report is prepared, including in relation to governance, strategy, risk management, and metrics and targets. Such records include any financial records, and boards should ensure that documents are available upon request by ASIC and are provided to auditors promptly to support the auditor’s opinion on the sustainability report.

Bases Upon Which a Reporting Entity May Make Statement of No Climate Risks

Where statements of no financial risks or opportunities relating to climate are to be made, reporting entities may lodge a climate statement under s296B(1) of the Corporations Act, which should include a statement explaining how the entity determined that it had no such financial risks or opportunities.

Lodging a climate statement under s296B(1) still requires an assessment in accordance with the Australian Accounting Standards Board (AASB) S2 whether there are any material financial risks or opportunities relating to climate, in addition to the maintenance of sustainability records, to substantiate the assessment.

Bases Upon Which a Reporting Entity May Make Statements With Forward-Looking Climate Information

The Draft RG highlights that forward-looking climate information must comply with relevant components of the AASB S2 and that it is expected to be useful for existing and potential investors, lenders and other creditors and users.

Under the Corporations Act and the ASIC Act, representations about future matters will be taken to be misleading unless there are reasonable grounds for making the representations. Reporting entities that are disclosing entities must also comply with their continuous disclosure obligations, including for forward-looking information in the climate statement, when relevant facts or circumstances change.

Exceptions to Directors’ Obligations Under Proportionality Mechanisms Under AASB S2

The Draft RG incorporates guidance on proportionality mechanisms under AASB S2, which provides that an entity is required to use all “reasonable and supportable” information that is available to the entity at the reporting date “without undue cost or effort.”

AASB S2 states that the assessment of what constitutes “undue cost or effort” depends on the entity’s specific circumstances and requires a balanced consideration of the costs and efforts for the entity and the benefits of the resulting information for primary users. It is acknowledged that this assessment can change over time as circumstances change and need not include an exhaustive search for information to identify all possible climate-related risks and opportunities.

For example, information that is used by the entity in preparing its financial statements, operating its business model, setting its strategy and managing its risks and opportunities is considered to be available to the entity without undue cost or effort.

ASIC states that despite reporting entities having an opportunity to rely (to an extent) on reasonable and supportable information that is available without undue cost or effort, entities should not assume that any lack of a disclosure will be excused, and directors are encouraged to ensure that companies review their approach at the start of each reporting period.

This guidance from ASIC is somewhat contradictory to other commentary from ASIC recommending a “pragmatic and proportionate approach” in relation to sustainability reporting in the initial reporting periods. We understand that the industry is seeking further clarification from ASIC on the scope of the ”without undue cost or effort” proviso.

Exceptions to Directors’ Obligations Under Transitional Arrangements

There are some transitional arrangements that have been included in the legislation which provide that liability for misleading and deceptive conduct in relation to the most uncertain parts of a climate statement (defined as ”protected statements”) will be the subject of certain limited immunities.

This immunity applies to statements in sustainability reports prepared for financial years commencing during the first three years after 1 January 2025.

Whilst no legal action can be brought against a person in relation to protected statements during the period of modified liability, this does not prevent criminal proceedings or proceedings brought by ASIC. Additionally, the modified liability settings do not extend to statements voluntarily made outside of a sustainability report, including where a statement is reproduced, quoted or summarised in an investor presentation or in promotional material. Such statements will not be covered by the modified liability settings unless the disclosure is required under a Commonwealth of Australia law (for example in relation to continuous disclosure obligations).

ASIC Enforcement Tools

We note that the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) will enhance ASICs supervisory and enforcement powers including new directions powers. In circumstances where ASIC considers a statement made by an entity in a sustainability report is incorrect, incomplete or misleading, ASIC may require an entity to:
- Confirm that the statement is correct or complete;
- Explain the statement;
- Provide information or documents that substantiate or support the statement;
- Correct, complete or amend the statement; or
- Publish the corrected, completed or amended statement, or give the statement to specified persons, in accordance with the direction.
How Can we Help?

The expectations for directors regarding sustainability reporting differ from those related to greenwashing and align more closely with the established standards for financial reporting. We can assist directors of reporting entities in various aspects of preparing and publishing sustainability reports. This includes:
- Designing and implementing due diligence programs;
- Ensuring alignment of disclosures with other public documents;
- Providing advice on limited immunities;
- Supporting record-keeping practices; and
- Facilitating legal sign-off.
Our experience can help ensure compliance and enhance the quality of sustainability reporting.

If you have any questions regarding sustainability reporting, please feel free to reach out. We’re here to help clarify any concerns or provide additional information you may need.
QPAM Amendments Impact on CITs: What Banks and Their Advisers Need to Know

Fri, 13 Dec 2024 00:00:00 -0000

Effective 17 June 2024, the US Department of Labor (DOL) adopted comprehensive amendments to Prohibited Transaction Exemption (PTE) 84-14, also known as the “QPAM exemption” (Exemption).¹The Exemption is a prohibited transaction class exemption permitting an “investment fund,” including a collective investment trust for employee benefit plans (CIT) subject to the Employee Retirement Income Security Act (ERISA), to engage in transactions with parties in interest of plans²whose assets are held in the investment fund “to the extent that the disposition of its assets . . . is subject to the discretionary authority of” a “qualified professional asset manager” (QPAM).³

Since its adoption 40 years ago, banks and trust companies maintaining CITs have relied on the Exemption to help navigate ERISA’s broad and complex per se party-in-interest prohibited transaction restrictions.⁴These financial institutions regularly delegate day-to-day investment responsibilities to “sub-advisers,” which themselves may be QPAMs. Some of the amendments, particularly the requirement that the QPAM retain “full fiduciary” and “sole” responsibility for transactions entered into in reliance on the Exemption (the Sole Responsibility Requirement), have generated issues and questions for banks, investment advisers, participating plans, and counterparties regarding the availability of the Exemption for CIT transactions.

Some commenters on the proposed amendments expressed concern regarding a “structural conundrum” facing banks and their advisers because neither the sponsoring bank nor the adviser would have sole authority, although both are ERISA fiduciaries and may need to rely on the Exemption. The DOL, however, did not provide specific guidance as to how to reconcile the Sole Responsibility Requirement with banking and securities law requirements that the bank retain ultimate authority with respect to CIT investments and transactions (the Bank Maintained Requirement). The DOL went only so far as to indicate that “parties that participate in arrangements that do not clearly identify which party has the ultimate responsibility and authority to engage in a particular transaction should not assume that the transaction is permitted by the QPAM Exemption.”⁵In these cases, the DOL invited affected parties to seek an advisory opinion or request other guidance from the DOL regarding the availability of the exemption.⁶

This article analyzes the origins and purposes of the Sole Responsibility Requirement and how it applies in the context of arrangements between banks and investment advisers with respect to CITs. It suggests that, provided certain basic guidelines are followed, the Sole Responsibility Requirement can be reconciled and be consistent with the Bank Maintained Requirement. Consequently, banks and their advisers that adhere to certain basic guidelines consistent with the intent and purposes of the Exemption generally should be entitled to rely on the Exemption for transactions with parties in interest of plans participating in their CITs.

The Sole Responsibility Requirement

An essential premise of the Exemption is that relief from ERISA’s prohibited transaction restrictions should be afforded only if negotiations, commitments, and investments of plan assets involved in a transaction are the sole responsibility of an independent QPAM.⁷The DOL reasoned that the potential for decisions regarding plan asset transactions inuring to the benefit of a party in interest, rather than the plan, would be increased if exemptive relief were provided in circumstances where the QPAM had less than ultimate discretion over acquisitions for an investment fund that it manages.⁸Section I(c) of the original Exemption reinforced this objective by requiring that the terms of transactions with parties in interest be negotiated by, or under the authority and general direction of, the QPAM and, further, that either the QPAM or (so long as the QPAM retains full fiduciary responsibility with respect to the transaction) a property manager acting in accordance with written guidelines established and administered by the QPAM makes the decision on behalf of the investment fund to enter into the transaction.⁹

In adopting amendments to the Exemption in 2024, the DOL stated that modifications to Section I(c) were appropriate “to ensure the Department’s intent is understood by practitioners, QPAMs, and their client plans.”¹⁰As amended, Section I(c) requires that:

The terms of the transaction, commitments, and investment of fund assets, and any associated negotiations are determined by the QPAM (or under the authority and direction of the QPAM) which represents the interests of the Investment Fund. Either the QPAM, or (so long as the QPAM retains full fiduciary responsibility with respect to the transaction) a property manager acting in accordance with written guidelines established and administered by the QPAM, makes the decision on behalf of the Investment Fund to enter into the transaction, provided that the transaction is not part of an agreement, arrangement, or understanding designed to benefit a Party in Interest. In exercising its authority, the QPAM must ensure that any transaction, commitment, or investment of fund assets for which it is responsible is based on its own independent exercise of fiduciary judgment and free from any bias in favor of the interests of the plan sponsor or other parties in interest. The QPAM may not be appointed or relied upon to uncritically approve transactions, commitments, or investments negotiated, proposed, or approved by the plan sponsor, or other parties in interest. The prohibited transaction relief provided under this exemption applies only in connection with an Investment Fund that is established primarily for investment purposes. No relief is provided under this exemption for any transaction that has been planned, negotiated, or initiated by a Party in Interest, in whole or in part, and presented to a QPAM for approval to the extent the QPAM would not have sole responsibility with respect to the transaction as required by this Section I(c). (emphasis added).

Not surprisingly, the Sole Responsibility Requirement (which originated in proposed amendments to the Exemption¹¹) generated questions by banks that retain investment advisers to provide advice with respect to CIT investments. Commenters noted that banks, which themselves are QPAMs, regularly delegate day-to-day investment responsibilities to “sub-advisers,” but they retain the ultimate authority with respect to CIT transactions in order to comply with the Bank Maintained Requirement. The commenters asserted that the Sole Responsibility Requirement would present a “structural conundrum” for banks and their advisers because neither the sponsoring bank nor the adviser would have sole authority, although both are ERISA fiduciaries and may need to rely on the Exemption. The DOL responded by indicating that:

A QPAM may rely on the specific expertise of a prudently selected and monitored entity to assist the QPAM in prudently managing Plan assets. Therefore, a QPAM’s delegation of certain investment-related responsibilities to a sub-adviser does not, by itself, violate Section I(c), as long as the QPAM retains sole authority with respect to planning, negotiating, and initiating the transactions covered by the QPAM Exemption. A QPAM should not “more readily” rely on a sub-adviser that has specialized expertise, in order to engage in a particular transaction, if the reliance means that the QPAM would not have sole authority with respect to planning, negotiating, and initiating the transaction.¹²

The Bank Maintained Requirement

As noted, the DOL was informed during the rulemaking process about arrangements under which a bank, while retaining “ultimate authority” with respect to CIT investments consistent with the Bank Maintained Requirement, may appoint an adviser to invest CIT assets on a “day-to-day basis.” The DOL’s comments above suggest that it operated under the assumption that the bank maintaining the CIT would qualify as a QPAM and seek to rely on the Exemption. It acknowledged that the bank “may rely” on the adviser’s expertise, but at the same time it indicated, somewhat vaguely, that the bank should not “more readily rely” on the adviser if doing so would somehow diminish the bank/QPAM’s authority over CIT transactions. Otherwise, it is not clear whether or to what extent the DOL considered specific details of these arrangements.

Current practices in today’s marketplace to conform to the Bank Maintained Requirement vary, but all have their common origin in pronouncements of federal regulators, largely originating in the 1970s and 1980s, primarily including the Office of the Comptroller of the Currency (OCC), responsible for regulating CIT management and administration, and the US Securities and Exchange Commission (SEC), responsible for interpreting and enforcing statutory exemptions that permit CITs to operate without registration under the federal securities laws. The DOL also has interpreted the “maintained by a bank” concept in the context of PTE 91-38.

All of these regulators permit banks maintaining CITs to retain investment advisers, provided the bank continues to have and exercise a degree of responsibility with respect to CIT investments. A full description of the origin, evolution, and current interpretations of the Bank Maintained Requirement is beyond the scope of this article.¹³In short, OCC regulations generally require that the bank have “exclusive management” of a CIT, “except as a prudent person might delegate responsibilities to others”; the SEC asserts that applicable securities law exemptions require the bank to exercise “substantial investment responsibility” over its CITs; and the DOL has indicated generally that a bank that retains an investment adviser will be deemed to “maintain” a CIT for purposes of PTE 91-38 if the bank retains fiduciary responsibility and liability for the overall management and operation of the CIT.¹⁴

To conform to the Bank Maintained Requirement, banks typically document the bank’s “ultimate,” “final,” or similar level of authority over CIT investments in the CIT’s governing documents and the investment advisory agreement between bank and adviser. Banks also establish and carefully monitor their advisers’ compliance with detailed written parameters and guidelines governing CIT investments (including, e.g., permitted and prohibited investments, diversification standards, brokerage practices, and the like). In practice, this means that, where necessary (e.g., the adviser recommends an investment that does not conform to the bank’s guidelines), the bank may reject the recommendation and take other appropriate action, including choosing not to effect or permit the transaction. Where the bank maintains multiple CITs with differing investment objectives and strategies, which is typically the case, the bank may retain and monitor different advisers to assist with each CIT’s investments. This puts a premium on the bank’s responsibility and capability to oversee and supervise adviser activities. Finally, because advisers are retained for their expertise with respect to particular investments or investment strategies, the bank typically will approve or accept the adviser’s recommendations or decisions, so long as they are consistent with the bank’s guidelines.

Where practices vary significantly is in the degree of authority banks confer on their advisers. Some banks adhere to the traditional approach of retaining advisers to provide nondiscretionary advisory services out of concern that conferring investment discretion on their advisers may run afoul of the Bank Maintained Requirement. In these cases, the bank retains authority to accept or reject the adviser’s “recommendations.” Over time, other banks have taken the position that conferring investment discretion on their advisers, subject to prudent selection, monitoring, and oversight procedures, is consistent with the Bank Maintained Requirement. In this regard, it is clearly consistent with OCC regulations that expressly permit a bank to prudently delegate CIT responsibilities (including investment responsibilities) to others. In addition, banks that have delegated investment responsibilities to advisers have substantial duties under ERISA, as well as OCC regulations, to carefully monitor and supervise the advisers, including, where necessary, taking action to protect CIT participating plans (e.g., by modifying or reversing adviser-initiated investments or recommendations, by terminating or replacing the adviser). Accordingly, it appears these banks have ongoing legal responsibilities to exercise “substantial investment responsibility” over their CITs as required by SEC guidance. The bank’s retention of ultimate responsibility for CIT investments, including those recommended or effected by an adviser, also appears to be consistent with the DOL’s views on the Bank Maintained Requirement.

The choice of whether to confer investment discretion on the adviser also impacts the use and application of the Exemption: Where the adviser provides nondiscretionary advisory services, the bank typically will seek to act as a QPAM and rely on the Exemption for CIT transactions; where the adviser exercises investment discretion, the adviser and potentially the bank may seek to act as a QPAM and rely on the Exemption within the scope of its respective responsibilities.

A final key point is that banks and their advisers act independently, not only of any party in interest or other counterparty involved in CIT investments or transactions, but also sponsors and other fiduciaries of plans participating in the CIT.¹⁵Thus, in the words of Section I(c), as amended, the “terms of the transaction, commitments, and investment of fund assets, and any associated negotiations are determined by the QPAM (or under the authority and direction of the QPAM) which represents the interests of the Investment Fund”—and no one else.

In sum, bank-adviser CIT investment procedures may best be characterized as shared responsibility arrangements. Each party is an ERISA fiduciary with responsibilities defined by ERISA in the first instance, as well as the CIT’s governing documents, including the investment advisory agreement between them. The adviser is responsible for recommending or making day-to-day investments in the normal course, subject to the bank’s investment guidelines and oversight. The bank is responsible for establishing and maintaining the guidelines, monitoring the adviser’s compliance with them, and exercising oversight over CIT investments. Consistent with regulatory mandates in the Bank Maintained Requirement, the bank retains ultimate responsibility for CIT investments, which, in practice, means the bank has the authority and, in some circumstances, the fiduciary duty, to disregard or override the adviser’s recommendation or decision. Thus, both parties share a degree of responsibility for CIT investments. They carry out their duties separately but within the scope of predefined and documented decision-making procedures.

Reconciling the Sole Responsibility and Bank Maintained Requirements

QPAM Independence

The requirement that a QPAM have “sole” responsibility or discretion over Exemption transactions should be read in context of the DOL’s objectives in adopting Section I(c). As indicated by the title of the preamble discussion of Section I(c) in the 2024 amendments—“Involvement in Investment Decisions by a Party in Interest”¹⁶—the primary objective is to ensure that a QPAM acts independently of parties in interest engaging in transactions with investment funds the QPAM represents. Accordingly, Section I(c) provides that: (i) a transaction may not be “part of an agreement, arrangement, or understanding designed to benefit a Party in Interest”; (ii) the QPAM must ensure that any transaction is based on its own independent exercise of fiduciary judgment and “free from any bias in favor of the interests of the plan sponsor or other parties in interest”; and (iii) the Exemption provides no relief for any transaction “planned, negotiated, or initiated by a Party in Interest, in whole or in part, and presented to a QPAM for approval.”

The DOL’s supplementary comments in the preamble reinforce the theme of QPAM independence, both from plan sponsors and from parties in interest: “Without an overarching compliance-focused approach to its asset management arrangement and Section I(c), the protective purposes of ensuring the QPAM’s independence is undermined.”¹⁷Moreover, Section I(c) is intended “to make clear that a QPAM must not permit a Party in Interest to make decisions regarding Plan investments under the QPAM’s control.”¹⁸Thus, a key objective of banks and their advisers is to ensure that both are and remain independent, and perform their respective responsibilities independently, of any party in interest engaging in transactions with their CITs.

In general, the determination of whether a fiduciary is “independent” of another party requires an examination of relevant facts and circumstances. The Exemption itself requires that the QPAM cannot be “related to”—defined broadly in comprehensive terms¹⁹—a party in interest with which an investment fund transacts.²⁰Beyond this, the concept of fiduciary “independence” is addressed comprehensively in DOL regulations governing applications for individual prohibited transaction exemptions.²¹The regulations define the term “qualified independent fiduciary” as “any individual or entity with appropriate training, experience, and facilities to act on behalf of the plan regarding the exemption transaction in accordance with the fiduciary duties and responsibilities prescribed by ERISA, that is independent of and unrelated to any party in interest engaging in the exemption transaction (and its affiliates).”²²Facts and circumstances relevant to the determination of whether a fiduciary is independent may include the amount of revenues the fiduciary derives from parties in interest engaging in the exemption transaction (and their affiliates) relative to the fiduciary’s revenues from all sources²³and “the extent to which the plan’s counterparty in the transaction participated in or influenced the selection of the fiduciary.”²⁴

Identification of Decision-Maker

As described above, while the DOL acknowledged that a bank may rely on an adviser prudently selected and monitored to assist the bank in managing plan assets, it also asserted that the bank should not “more readily rely” on its adviser if doing so means the bank would not have sole authority with respect to the transaction.²⁵However, if a bank retains an adviser having expertise and experience with particular types of CIT investments or investment strategies, it does so for the very purpose of taking advantage of the adviser’s expertise. Thus, it is logical for such banks typically to accept—and rely on—the adviser’s recommendations or decisions. Consistent with the Bank Maintained Requirement, the bank necessarily must exercise a degree of involvement in and oversight of the adviser’s activities. Neither party has “sole” responsibility for CIT transactions; at the same time, however, each party has sole responsibility within its respective role mandated by regulation. Thus, while the adviser has “sole authority” to recommend or effect CIT transactions, the bank, consistent with its regulatory mandate of exercising “ultimate” responsibility over CIT investments, has “sole authority” to monitor, accept or reject, or, where applicable, effect CIT transactions. Importantly, in all circumstances, “sole authority” for planning, negotiating, and initiating transactions rests with parties other than a party in interest (including a plan sponsor) or other counterparty dealing with the CIT.

A reasonable surmise is the DOL’s primary concern with shared responsibility CIT arrangements is that they may not clearly identify which party has primary or ultimate responsibility for particular transactions. The DOL previously considered an analogous situation in Advisory Opinion 80-73A (October 21, 1980) (AO-80-73A). In that case, a US-based bank (Applicant) proposed to act as a “named fiduciary” for ERISA plans for which other banks acted as directed trustees. The directed trustees would enter into an arrangement with the Applicant and certain foreign investment managers with respect to plan assets held by the directed trustees. The foreign managers would have the authority to direct plan investments that the Applicant would be instructed to settle. The Applicant would be obligated to review, prior to settlement, the prudence and advisability of investment transactions. If the Applicant found a transaction to be imprudent or inadvisable, it could “back out” or “reverse” the transaction. If other parties involved were unwilling to reverse the transaction, the Applicant would have the power to direct the sale of securities in question subsequent to settlement. In addition, the Applicant would be obligated to review the plan’s portfolio on a monthly basis and to direct the sale of securities it considered inadvisable.

The Applicant requested an advisory opinion that the Applicant would be considered to exercise “management and control” of plan assets within the meaning of DOL regulations under ERISA § 404(b).²⁶The DOL concluded that the Applicant would have management and control for purposes of the regulation and, consequently, the proposed arrangement “may be permissible” under ERISA § 404(b). However, the DOL declined to express a view “as to the prudence of an arrangement pursuant to which two separate fiduciaries are given equal authority to direct the disposition of the same plan assets without prior consultation or coordination.” (emphasis added).

Although AO-80-73A addressed issues under ERISA § 404(b), the DOL’s concerns with undefined fiduciary responsibility arrangements seem obvious and arguably are equally applicable to shared responsibility CIT arrangements. Accordingly, bank-adviser arrangements that are structured properly to address these concerns—e.g., through documentation expressly delineating separate (not necessarily equal) authority for bank and adviser with respect to CIT investments and providing procedures for coordination between them in appropriate circumstances²⁷—should be sufficient to conform to the Sole Responsibility Requirement.

QPAMs and Guidelines

QPAMs are expected to act independently of parties in interest and plan sponsors. They are not, however, expected to do so in a vacuum. Thus, Section I(c) expressly permits a QPAM to provide guidelines to property managers authorized to enter into transactions with parties in interest on behalf of an investment fund. In addition, the DOL has stated that the Exemption is available where plan sponsors provide investment guidelines to the QPAM. In both cases, the QPAM must retain full fiduciary responsibility for the transaction and the transaction may not be part of an agreement, arrangement, or understanding designed to benefit a party in interest. Similarly, shared responsibility CIT arrangements contemplate guidelines provided by or to the QPAM subject to the same conditions.

Bank as QPAM

As described above, a bank may retain an adviser to provide nondiscretionary investment advisory services. In such cases, the adviser provides recommendations subject to approval or authorization of a bank. The bank typically accepts the recommendation and, where necessary, seeks to rely on the Exemption. This process shares key characteristics with arrangements under which property managers, acting under a QPAM’s supervision, may make decisions for transactions covered by the Exemption. The DOL determined to allow arrangements with non-QPAM property managers in response to commenters who indicated that real property investments frequently require on-site management by property managers who may engage in numerous transactions with respect to particular properties. The commenters argued it would be difficult for a QPAM responsible for plan investments in real property to approve each transaction and, importantly for present purposes, the property managers typically act in accordance with detailed guidelines developed by the QPAM and are subject to review and monitoring by the QPAM.

Similarly, banks, particularly those maintaining several CITs with differing investment objectives and strategies, may retain different advisers recommending or engaging in numerous investment transactions involving a variety of asset types and investment strategies, including, but not limited to, real property. To conform to the Bank Maintained Requirement and fiduciary responsibilities under ERISA, banks establish and carefully supervise adviser compliance with detailed written parameters and guidelines governing CIT investments. There seems to be little substantive difference between the situation in which a property manager acting under a QPAM’s supervision and guidelines may make decisions for an investment fund, as expressly permitted by Section I(c), and that in which an adviser makes investment recommendations under guidelines established by a bank acting as a QPAM for its CIT. Particularly when viewed in the context of the DOL’s primary objective of ensuring a QPAM acts independently of any party in interest (or plan sponsor) and its guidance emphasizing the importance of identifying the decision-maker and the scope of its responsibilities when more than one fiduciary has responsibility, as described above, it seems logical to conclude that a bank that retains a nondiscretionary investment adviser that adheres to that guidance should be entitled to rely on the Exemption.

Adviser as QPAM

As also described above, a bank may retain an adviser to provide discretionary investment management services. In these cases, the adviser, subject to ongoing review and monitoring by the bank, makes investment decisions and, where necessary, may seek to rely on the Exemption. This process is not unlike that in which QPAMs act under guidelines established and monitored by plan sponsors (or their consultants). In this regard, the DOL has stated that the Exemption is available where the QPAM is subject to plan sponsor investment guidelines, so long as there is no arrangement for the QPAM to negotiate, or engage in, any specific transaction or to benefit any specific person.²⁸Thus:

The Department’s intent and additional clarification regarding the proposed changes reemphasize that a Plan sponsor can provide investment guidelines to a QPAM. The natural corollary would be for Plan sponsors to revisit those investment guidelines at appropriate intervals. One of the Department’s key points with the proposed changes to Section I(c) is that any direction from a Plan sponsor or other Party in Interest for a QPAM to engage in a particular transaction would be contrary to the intent of Section I(c). A Plan sponsor that utilizes multiple QPAMs, however, may interact with each manager as part of a larger overall investment strategy as long as the QPAMs retain the sole authority to engage in transactions in accordance with the strategy, and there is no direct or indirect arrangement for any QPAM to negotiate, or engage in, any specific transaction or to benefit any specific person.²⁹

As is the case where a bank retains an adviser to provide nondiscretionary advisory services (and rely on the Exemption), there appears to be little substantive difference between the situation in which a plan sponsor provides guidelines to a QPAM and that in which a bank provides guidelines to an adviser making discretionary investment decisions. Here again, when considered in light of the DOL’s primary objectives of ensuring a QPAM independence and identifying the decision-maker when more than one fiduciary has responsibility, it seems logical to conclude that parties in both situations that adhere to that guidance should be entitled to rely on the Exemption.

Conclusion

Banks and discretionary advisers that adhere to certain guidelines consistent with the protective objectives of Section I(c) should be entitled to rely on the Exemption for CIT transactions involving parties in interest of participating plans. There is no “one size fits all” approach that addresses all situations. As described above, banks use different approaches for retaining and monitoring advisers and conforming to the Bank Maintained Requirement. However, the guidelines described below, adapted and modified to fit the facts and circumstances of each CIT’s structure, should serve as a good starting point for promoting compliance with the Exemption while at the same time adhering to the Bank Maintained Requirement.

Identify Decision-Maker

CIT documents and disclosures should clearly identify which party—bank or adviser—is authorized and responsible for making which decisions relating to CIT investments and transactions. This includes, among other things, informing independent fiduciaries of participating plans about the scope of the respective responsibilities of the bank and the adviser (as described below).

Define Scope of Responsibilities

CIT documents and disclosures should clearly describe how the bank and the adviser bifurcate responsibility for CIT transactions. As described above, CIT documents might confirm, for example, that the adviser has sole responsibility to provide discretionary investment management services, while the bank has sole responsibility for establishing and monitoring adviser compliance with CIT investment guidelines.

Act in Accordance With Defined Responsibilities

The bank and the adviser should conduct their affairs consistent with their defined responsibilities. For example, if the adviser has responsibility for discretionary investment management, the adviser should be involved in trade-related matters, such as receiving and reviewing trade confirmations and reviewing and executing (possibly together with the bank) trade-related agreements, such as derivative and clearing agreements and futures commission merchant agreements.

Bank’s Ultimate Authority/Responsibility

CIT documents should confirm the bank’s ultimate authority and responsibility for CIT investments as and to the extent mandated by the Bank Maintained Requirement. This may include, where necessary or advisable in the bank’s discretion, taking action to override an adviser’s recommendation or decision.

No Benefit to Party in Interest

Banks and advisers should ensure that there is no agreement, arrangement, or understanding that any CIT transaction made in reliance on the Exemption is designed to benefit a party in interest (including a participating plan sponsor). This includes a transaction that has been planned, negotiated, or initiated by a party in interest, in whole or in part, and presented to the QPAM for approval. As the DOL reemphasized in the preamble to the Section I(c) amendments:

The role of the QPAM under the terms of the exemption is not to act as a mere independent approver of transactions. Rather, the QPAM must have and exercise sole discretion over the commitments and investments of Plan assets and the related negotiations on behalf the Plan with respect to an Investment Fund . . . for the relief provided under the exemption to apply.³⁰

Independence

Finally, and most importantly, both bank and adviser should ensure each of them is and at all times remains independent and acts independently of any party in interest dealing with the CIT. How this is done in practice will depend on the facts and circumstances of each situation. However, certain basic principles articulated by the DOL for ensuring independence, as described above, provide a good starting point.
November 2024 ESG Policy Update—Australia

Wed, 11 Dec 2024 00:00:00 -0000
Australian Update

Appointment of the Inaugural Australian Anti-Slavery Commissioner

On 11 November 2023, the Attorney-General announced the appointment of Chris Evans as the inaugural Australian Anti-Slavery Commissioner (Commissioner).

Chris Evans will commence his five-year term as Commissioner on 2 December 2024. He has previously served as CEO of Walk Free's Global Freedom Network and played a significant role in campaigning for the introduction of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act). Prior to his time at Walk Free, Mr Evans was a Senator for Western Australia, serving for two decades. The appointment comes after the Governor-General assented to the Modern Slavery Amendment (Australian Anti-Slavery Commissioner) Act 2024 (Cth) on 11 June 2024 (Amendment Act).

The Amendment Act establishes the position and functions of the Commissioner which include:
- Supporting Australian entities and entities carrying on business in Australia to address risks of modern slavery practices in their operations and supply chains;
- Promoting business compliance with the Modern Slavery Act;
- Engagement with victims of modern slavery to inform measures for addressing modern slavery; and
- Supporting, encouraging and conducting education and community awareness initiatives relating to modern slavery.
The Australian Government committed AU$8 million over four years in the 2023-24 Budget to support the establishment and operations of the Commissioner.

For more information on the role of the Commissioner, you can read our June 2024 ESG Policy Update – Australia.

Feedback Sought on Proposed Guidance on Sustainability Reporting Regime

On 7 November 2024, the Australian Securities and Investments Commission (ASIC) released a draft regulatory guide on the new sustainability reporting regime for consultation with stakeholders.

As reported by K&L Gates on 11 September 2024, certain organisations will be required to make mandatory climate-related financial disclosures in their annual reports for financial years commencing after 1 January 2025.

The draft Regulatory Guide 000 Sustainability Reporting (Draft RG) includes draft guidance on:
- ASIC proposed enforcement approach;
- The scope of directors' ability to rely on third parties;
- The scope of directors' obligations to establish operational systems to assess climate related risks and opportunities;
- The scope of directors' obligations to keep records;
- The bases upon which a reporting entity may make statement of no climate risks;
- The bases upon which a reporting entity may make forward looking climate statements;
- Exceptions to directors' obligations including under proportionality mechanisms and transitional arrangements; and
- The scope of ASIC's enforcement tools including the power to compel corrective statements.
ASIC is seeking feedback on:
- The Draft RG;
- Whether any existing ASIC financial reporting-related instruments should be extended to sustainability reporting; and
- Any other areas of uncertainty on sustainability reporting where ASIC should provide support.
ASIC Commissioner Kate O’Rourke said the focus of the Draft RG is to assist preparers of sustainability reports to comply with their obligations so that users are provided with high-quality, decision-useful, climate-related financial disclosures that comply with the law and relevant accounting standards.

Comments are due by 19 December 2024, including feedback on any other areas where guidance should be provided.

Standby for a separate ESG Alert on this Draft RG.

Concern Over Governance Gap With Use of AI by Licensees

In October, ASIC published its first report on 'Governance arrangements in the face of artificial intelligence (AI) innovation'. The report examines the ways Australian financial services (AFS) licensees and credit licensees are implementing AI that directly or indirectly impacts consumers, identifying a governance gap.

ASIC reviewed 624 cases of AI use by 23 licensees in the banking, credit, insurance and financial advice sectors. Whilst overall, ASIC's findings indicate that the way licensees use AI is cautious in terms of decision making and interactions with consumers, acceleration is rapid and 61% of licensees in the review are planning to increase AI usage in the next 12 months.

ASIC is concerned that not all licensees are well positioned to manage the challenges that are likely to accompany their increasing use of AI.

The report made the following key observations on the use of AI by licensees:
- The use of AI by licensees varied significantly. While some licensees had incorporated AI use for several years, others had only just adopted AI;
- While the majority of current cases involving AI relied on well-known and established machine-learning techniques that produced explainable results, it was observed that there is an increase in the use of more complex techniques (such as the use of generative AI); and
- Existing AI deployment strategies were mostly cautious, observing that AI was generally used to aid human decisions or increase efficiency and was not used to make autonomous decisions.
ASIC outlined its key findings in respect of risk management and governance, noting that:
- There was a lack of adequate arrangements in place for managing the risks that come with using AI;
- There were significant gaps in how licensees assessed risks, finding that risks were often assessed through the lens of the business rather than the consumer;
- There was wide variation in terms of the maturity of AI governance and risk management frameworks and there needs to be greater attention given to developing a strategic and centralised approach to AI governance; and
- There was a heavy reliance by many licensees on third parties for their AI models, but not all had appropriate governance arrangements in place to manage the associated risks.
ASIC Chair Joe Longo has emphasised the importance of updating governance frameworks to manage the risks associated with AI, such as misinformation, algorithmic bias, and data security issues. He stressed that licensees must not wait for new AI laws but should ensure their governance and compliance measures are robust to handle AI's challenges and benefits responsibly.

Climate Goals Increasingly Forming Part of Executive Remuneration, but Challenges Remain

A study published by the Investor Group on Climate Change (IGCC) and Pollination Global Holdings Limited (Pollination) has found that whilst Australian companies are increasingly linking executive remuneration to climate goals, doubts remain in the effectiveness of this practice.

The study was completed by benchmarking 14 high-emitting companies listed on the Australian Securities Exchange (ASX) against a set of Guiding Principles developed by the IGCC and Pollination which purport to represent best practice in linking executive pay to climate performance.

The Guiding Principles aim to establish a base for effective climate incentives and also encourage a principled approach to ensure the development of unique climate-linked incentives which are simple, measurable and suited to the sector in which the company operates in, rather than a standardised approach across all industries.

In 2024, 54% of ASX200 companies have integrated climate-related targets into executive remuneration, up from 10% in 2020. Increased regulatory obligations and reputational concerns are cited as common factors driving this growth.

The study contends the best examples of climate incentives were those clearly linked to the company's climate strategy and time horizons and were ambitious and measurable. However, in many other cases, selected metrics are failing to create strong climate transition outcomes, particularly due to difficulty aligning long-term commitments with meaningful short-term action.

The study recommends that companies develop a credible climate strategy before incentivising action to ensure proper strategic alignment and ensure that strategy is functionally integrated into its operations through effective governance, capital allocation and reporting frameworks. Further, it is suggested that providing an engagement framework for investors to evaluate company performance will also foster improved strategic alignment and encourage companies to pursue long-term sustainability over short-term gains.

View from Abroad

80% of Global Financial Regulators Aligned with ISSB, TCFD Recommendations: FSB Report

On 12 November 2024, the Financial Stability Board (FSB) released its 2024 progress report on Corporate Climate-related Disclosures (Report). The Report emphasises the strides made by global jurisdictions in implementing International Sustainability Standards Board (ISSB) disclosure standards.

The Report's key findings were as follows:
- In 2023, 82% of companies disclosed information in line with at least one of the 11 recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD), but only a fraction (under 3%) satisfied all 11 recommendations. This suggests that information on climate-related governance, strategy, risk management, and metrics remain undisclosed, which hinders investors' ability to evaluate climate risks and opportunities;
- Between October 2023 and March 2024, more than 1,000 companies referenced the ISSB in their reports;
- In the past 12 months, jurisdictions representing approximately 57% of global gross domestic product have made progress towards the adoption or use of ISSB disclosure standards; and
- 19 out of 24 FSB member jurisdictions have regulations, guidelines or strategic roadmaps in place for climate-related disclosures. Further, 17 FSB jurisdictions have introduced voluntary or mandatory disclosure requirements based on ISSB standards and TCFD recommendations.
ISO Announces new ESG Implementation Principles at COP29

At the 2024 United Nations Climate Change Conference (COP29), the International Organisation for Standardisation (ISO) announced new Environmental, Social and Governance (ESG) Implementation Principles (Principles). Global ESG regulations have increased by 155% in the past decade, which has created a challenging environment for consistent reporting across different jurisdictions and sectors. The Principles aim to assist organisations to navigate this increasingly complex ESG landscape.

The Principles were developed in consultation with national bodies, including the British Standards Institution, the Standards Council of Canada and the Brazilian Association of Technical Standards, and incorporate input from over 1,900 industry experts across 128 countries. By providing a standardised structure for sustainability practices designed for use by organisations of all sizes and sectors worldwide, the Principles:
- Support management of ESG performance;
- Bolster measurement and reporting under existing disclosure frameworks to enable consistency, comparability, and reliability of ESG reporting and practices globally;
- Facilitate interoperability by aligning with existing reporting standards, creating a harmonized approach to ESG compliance across borders;
- Promote global consistency, enabling clear communication of sustainability efforts worldwide; and
- Focus on facilitating the integration of ESG principles into organisational culture and addressing environmental impacts, social considerations, and governance practices for a holistic approach to sustainability.
The authors would like to thank graduates Daniel Nastasi and Katie Richards for their contributions to this alert.
Adapting to Change: Understanding China's Updated Export Control Framework for Dual-Use Items

Tue, 10 Dec 2024 00:00:00 -0000
Since its implementation on 1 December 2020, the Export Control Law of the People’s Republic of China (the Export Control Law), has established a comprehensive framework for China’s export control system. To further streamline this framework, the State Council approved the Regulations of the People’s Republic of China on the Export Control of Dual-Use Items (the Regulation) on 18 September 2024, which came into effect on 1 December 2024.

The Export Control Law imposes stringent controls on dual-use items, including goods, technologies, and services that serve both civil and military purposes or enhance military capabilities. This is particularly pertinent for items that can be used in the design, development, production, or deployment of weapons of mass destruction and their delivery systems. Additionally, the law encompasses technical materials and other data relating to the dual-use items.

This alert briefly outlines key features of the new Regulations that impacted businesses and individuals should keep top of mind.

Unified Legal Framework Applies to Export of Dual-Use Items

Except for monitored chemicals, the Regulations establish a unified administrative system for regulating the export of dual-use items and replace the previously fragmented regulations governing the export control on dual-use items.

Additionally, China’s export control framework relies on various export control lists. The Ministry of Justice and the Ministry of Commerce are currently developing a unified export control list for dual-use items, which will be implemented alongside the Regulations.

What’s New?

Under the new regime, export operators no longer need to apply for dual-use item export operator registration in advance. Instead, they can apply directly for export permits. When applying for an export license for dual-use items, operators must submit documents related to the end user and the intended use(s) of the items. If there is any change in the end user or intended use, the export operator must immediately halt exports, report the change to the competent authorities, and undergo a new verification process.

To ensure proper verification, the Regulations establish a “list of concerned entities” system. This system stipulates that importers and end users who do not cooperate with the regulatory requirements can be included in a list of concerned entities and prohibited from enjoying various licenses.

Extraterritorial Reach

The Regulations stipulate that if overseas organizations and individuals transfer or provide certain goods, technologies, and services to specific destination countries, regions, organizations, and individuals outside the People’s Republic of China, they may be required to comply with these Regulations. This includes:
1. Dual-use items manufactured overseas that contain, integrate, or mix specific dual-use items originating from the People’s Republic of China;
2. Dual-use items manufactured overseas using specific technologies and other dual-use items originating from the People’s Republic of China; and
3. Specific dual-use items originating from the People’s Republic of China.
To avoid violations, impacted Chinese enterprises and overseas institutions should conduct comprehensive risk assessments of exported products that fall within the scope of these new Regulations.
Brussels Regulatory Brief: November 2024

Mon, 09 Dec 2024 00:00:00 -0000

Antitrust and Competition

Competition Cooperation Agreement Between the European Union and the United Kingdom

On 29 October 2024, the European Union and the UK government finalized the technical discussions on a competition cooperation agreement. This agreement will enable closer cooperation between the UK Competition and Markets Authority and the European Commission, as well as EU Member States’ national competition authorities, in antitrust investigations.

Energy

Breakthrough Agreement at COP29 on Global Carbon Markets

On 11 November 2024, negotiators achieved a landmark agreement at COP29 operationalizing Article 6.4 of the Paris Agreement, paving the way for the UN-supervised mechanism for international carbon trading and aiming to boost carbon markets while directing resources toward developing nations.

Financial Affairs

European Commission Launches Public Consultation on the Functioning of the Securitization Framework

The European Commission is seeking feedback on the potential revision of the European securitization framework to strengthen and support the European economy.

Antitrust and Competition

Competition Cooperation Agreement Between the European Union and the United Kingdom

On 29 October 2024, the European Union and the UK government concluded negotiations on the EU-UK competition cooperation agreement. The new cooperation agreement will be a supplementing agreement to the Trade and Cooperation Agreement (TCA) between the European Union and United Kingdom that foresees the possibility to enter into a separate agreement on competition cooperation.

The EU-UK competition cooperation agreement, which has not yet been made public, will enable the European Commission (the Commission), national competition authorities of the EU Member States, and the UK Competition and Markets Authority (CMA) to cooperate directly in antitrust investigations. Similar agreements are already in place between the European Union and the United States, as well as between the Commission and the Swiss Competition Commission (SCC).

The cooperation agreement will provide a framework to ensure that important antitrust and merger investigations are brought to each other’s attention and will set out principles of cooperation between the agencies aimed at avoiding any conflicts between jurisdictions. The cooperation agreement is also expected to provide rules on the exchange of information with respect to antitrust and merger investigations. The Commission stated that an information exchange between the agencies will still require the consent of the undertaking supplying the information (the so-called “waiver”).

The chief executive officer of the CMA, Sarah Cardell, stated that the cooperation agreement allows the CMA “to work even more closely with EU competition authorities on shared cases and common competition issues.” This was echoed by the Commission, which stated that the cooperation agreement will implement “a predictable and transparent framework, exploiting the full potential of the TCA [. . . ] to the ultimate benefit of European business and consumers.”

Since Brexit, there have been several high-profile digital mergers where the CMA and the Commission came to different conclusions, e.g., Amazon/iRobot or Booking/eTraveli. In that respect, the cooperation agreement may reduce the risk of diverging conclusions in antitrust investigations in the European Union and the United Kingdom by facilitating and encouraging more cooperation between the agencies. The agreement could also further enforce the upward trend of future investigations globally due to the closer cooperation. For instance, in March 2023, the Commission coordinated dawn raids of fragrance manufacturers with the CMA, SCC, and US Department of Justice (DOJ). Additionally, in October 2023, the Commission conducted dawn raids of construction chemical companies in cooperation with the CMA, DOJ, and Turkish Competition Authority.

Both the European Union and the United Kingdom still need to finalize their ratification procedures for the competition cooperation agreement. As a next step, the Commission will prepare proposals for the Council of the European Union to finalize the agreement, and the European Parliament must also give its approval. The agreement is expected to be signed in 2025.

Energy

Breakthrough Agreement at COP29 on Global Carbon Markets

On 11 November 2024, negotiators from nearly 200 nations achieved an agreement at the United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, operationalizing Article 6.4 of the Paris Agreement. The agreement will pave the way for the UN-supervised mechanism for international carbon trading and aims to boost carbon markets while directing resources toward developing nations.

Article 6 of the Paris Agreement provides mechanisms for voluntary international cooperation to meet climate targets. Article 6.4, specifically, creates a centralized UN-backed carbon market where nations or private entities can generate and trade carbon credits derived from verified emission reductions. These credits, each representing one ton of carbon dioxide removed or avoided, can then be purchased by countries or companies to offset emissions, fostering cost-effective global mitigation efforts.

The Article 6.4 Supervisory Body, tasked with setting operational standards, earlier adopted requirements for project methodologies and carbon removals. This paved the way for the COP29 negotiators to finalize the framework, a move seen as a breakthrough after years of stalled negotiations.

This framework is expected to transform global carbon markets by enhancing transparency, credibility, and demand for carbon credits. The decision addresses long-standing integrity concerns, which have plagued voluntary markets, and sets the stage for a robust international trading system.

Although the Article 6.4 framework is now operational, many elements remain unresolved. Negotiations will continue on Article 6.2, which governs bilateral trading of emissions credits, and on further refinements to methodologies and governance.

Financial Affairs

Commission Launches Public Consultation on the Functioning of the Securitization Framework

On 9 October 2024, the Commission launched a targeted consultation on the functioning of the EU securitization framework, including the Securitisation Regulation, the Capital Requirements Regulation (CRR), and the Liquidity Coverage Ratio Delegated Act under CRR.

The consultation document outlines the current EU securitization framework to assess shortcomings to its functioning and identify areas for improvement. The Commission underlines that the European securitization market has not reached its full potential compared to other economies, and further work should be accomplished to facilitate access to finance for European companies. Stakeholders have raised concerns about several aspects of the existing framework, including high barriers to entry, stringent capital and liquidity requirements, and the cost and complexity linked to compliance with transparency and due diligence standards. These issues deter investment and limit the benefits of securitization for the broader EU economy. In response to these challenges, the Commission’s consultation seeks detailed feedback across several areas.

The consultation document covers questions in relation to the framework’s jurisdictional scope and specific legal definitions, including “securitization” and “sponsor,” which may require further clarification or amendment. While essential for risk assessment, the document also covers due diligence requirements that are seen as disproportionately burdensome, especially for smaller market participants. Potential simplification options are put forward, namely the introduction of principle-based requirements for certain investors, simplified templates for reporting requirements, or relaxing standards for simple, transparent, and standardized transactions. Importantly, the consultation document explores the creation of a pan-European securitization platform with reduced issuance costs and offering a public guarantee for specific types of securitizations. Finally, the document covers supervisory practices across EU Member States and puts forward potential models for coordinated supervision to achieve consistency and efficiency across jurisdictions.

The consultation will run until 4 December 2024, and it is open to specific market participants with expertise in the European securitization market (e.g., issuers, sponsors, investors, or third-party verifiers).
New EU Commission Takes Office—Focus and Priorities

Fri, 06 Dec 2024 00:00:00 -0000
On Wednesday 27 November, the European Parliament formally approved the new European Commission (Commission), led by Ursula von der Leyen, for her second term. A total of 370 out of 720 Members of the European Parliament voted in favor of the Commission team. This marks the lowest-ever level of support for a new Commission in Parliament, highlighting the increasingly polarized and complex political environment within the European Union.

The vote followed a series of parliamentary confirmation hearings, during which European Parliament members of various committees scrutinized individual commissioner candidates. While no candidates were rejected for the very first time, this was achieved only after intense behind-the-scenes negotiations and trade-offs aimed at avoiding a political stalemate.

The new key relevant commissioners to implement these priorities will include, among others:
- Teresa Ribera Rodríguez (Spain)—Executive Vice-President for Clean, Just and Competitive Transition
- Henna Virkkunen (Finland)—Executive Vice-President for Tech Sovereignty, Security and Democracy
- Stéphane Séjourné (France)—Executive Vice-President for Prosperity and Industrial Strategy
- Maroš Šefčovič (Slovakia)—Commissioner for Trade and Economic Security; Interinstitutional Relations and Transparency
- Valdis Dombrovskis (Latvia)—Commissioner for Economy and Productivity; Implementation and Simplification
- Wopke Hoekstra (Netherlands)—Commissioner for Climate, Net Zero and Clean Growth
- Maria Luís Albuquerque (Portugal)—Commissioner for Financial Services and the Savings and Investments Union
- Dan Jørgensen (Denmark)—Commissioner for Energy and Housing
- Andrius Kubilius (Lithuania)—Commissioner for Defence and Space
The European People’s Party (EPP), the political group representing the EU’s center-right conservative parties, will hold 14 portfolios in the new Commission. Along with right-leaning commissioners from Italy and Hungary, this will constitute the most right-wing European Commission to date. Consequently, and as a follow-up to the Draghi and Letta reports, the incoming Commission is expected to place a strong emphasis on economic competitiveness, regulatory simplification, particularly the reduction of bureaucratic red tape for businesses, and security.

These priorities were also reflected in the speech delivered by Commission President Ursula von der Leyen to the European Parliament plenary following the final confirmation vote, during which she emphasized the new priorities. At the heart of her agenda lies a competitiveness compass, a forthcoming framework built on the recommendations of the Draghi report, which sets recommendations for Europe’s economic and strategic future. This initiative will be based on three main pillars: closing the innovation gap with global competitors, advancing a plan for decarbonization and competitiveness, and reinforcing economic security by reducing dependencies.

The new Commission will aim to implement Draghi’s recommendations to address systemic weaknesses and invest in transformative change by doubling down on research and innovation, fostering a single market to boost growth across Member States, cutting regulatory barriers allowing companies to scale, and aligning decarbonization goals with the competitiveness agenda, namely through the upcoming Clean Industrial Deal. Vice-President Ribera and Commissioner Séjourné are due to drive the latter initiative, which sits at the core of the European Union’s attempts to strengthen its industrial base. Commissioner Dombrovskis, in the meantime, will play a critical role in identifying and simplifying the maze of EU regulatory requirements for companies e.g. reducing overlaps and streamlining the corporate sustainability, supply chain, and climate disclosure requirements.

Please reach out if you have any questions about the new Commission and its policy priorities.
Petition Calls for EPA to Monitor Microplastics in Drinking Water

Thu, 05 Dec 2024 00:00:00 -0000

On 25 November, the US Environmental Protection Agency (EPA) received a petition signed by over 100 consumer advocacy groups calling for the EPA to develop a monitoring program for microplastics in drinking water. If successful, this petition could lay the framework for the official regulation of microplastics and further reinforce the EPA’s plans to address the plastic pollution crisis under the newly released National Strategy to Prevent Plastic Pollution, impacting both producers and users of plastics. The petition claims that the ubiquity of microplastics in the environment and the threats that this broad class of substances pose to human health justify the monitoring of microplastics under the Unregulated Contaminant Monitoring Rule (UCMR) and warrant future regulation. New UCMRs, which are required every five years under the Safe Drinking Water Act (SDWA), outline monitoring programs for up to 30 unregulated substances and are intended to inform decision-making about substances that should be regulated under the SDWA. The next UCMR proposal is due in 2025.

This petition comes on the heels of numerous lawsuits alleging harm arising from exposure to microplastics due to their presence in bottled spring water, leaching from baby bottles and sippy cups, and many other sources. Although several of these suits have been dismissed, and the US Food and Drug Administration recently stated the “current scientific evidence does not demonstrate that levels of microplastics or nanoplastics detected in food pose a risk to human health,” the call for monitoring of microplastics under the UCMR demonstrates the need to better understand any alleged environmental and human health implications of these ubiquitous substances. Several challenges that the EPA is likely to encounter if the decision is made to include microplastics in the next UCMR include the chemical and structural diversity of this broad class of substances and the lack of standardized methods for the detection, quantification, and characterization of microplastics.

Our Emerging Contaminants Task Force is uniquely positioned to assist in matters relating to the evolving legal and regulatory landscape surrounding microplastics given our collective experience in such areas as polymer chemistry and plastics manufacturing, government agency administration and policy development, regulatory compliance, and litigation defense.
State of the Workplace

Thu, 05 Dec 2024 00:00:00 -0000

In this special end of year publication, we take a look back at another tumultuous year in Australian employment law following significant changes. Almost every area of Australian employment law has over the past two years been subjected to sweeping reform. This change will continue with the commencement of the Wage Theft laws in January 2025.

We look at some of the key changes that have immediately impacted businesses including new rules relating to collective bargaining, the redefining of safety through the lens of psychosocial risk and most recently the introduction of the right to disconnect. We also provide a summary of the recently released Annual Report from the Fair Work Commission.

Click here to view State of the Workplace.
Breaking CTA Alert—Nationwide Injunction Issued Against US Corporate Transparency Act

Wed, 04 Dec 2024 00:00:00 -0000

On 3 December 2024, Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction with respect to the Corporate Transparency Act (CTA), enjoining enforcement of the CTA as well as the implementing Treasury regulations, and staying the 1 January 2025 reporting deadline until further order of the Court. In so holding, the Court found that the CTA and the implementing Treasury regulations are likely unconstitutional as beyond the bounds of Congress’ power. We are reviewing the implications of the decision and what it means on a going-forward basis. We will also continue to monitor for any response by the US Financial Crimes Enforcement Network (FinCEN) to the decision and analyze its application as it relates to compliance with the CTA. Check back on our page for updates or reach out to a member of the firm's CTA Committee below to discuss.
The Dubai Court of Cassation Restores Ability to Award Legal Costs in ICC Arbitrations

Tue, 03 Dec 2024 00:00:00 -0000

Background

In February 2024, the Dubai Court of Cassation (Court of Cassation) issued a surprising decision in Case No. 821 of 2023 (Commercial), in which it upheld the Dubai Court of Appeal’s (Court of Appeal) partial annulment of an International Chamber of Commerce (ICC) arbitration award, quashing the arbitral tribunal’s award of legal costs. In its decision, the Court of Cassation found that Article 38(1) of the ICC Rules of Arbitration (ICC Rules) on which the arbitrator relied (The costs of the arbitration shall include… the reasonable legal and other costs incurred by the parties for the arbitration)—which language is the same in both the 2017 Rules and the 2021 Rules—did not explicitly empower the arbitral tribunal to award costs paid by the parties to their legal representatives. Our previous alert on this judgment can be viewed here.

Ruling of the Court of Cassation in Case No. 756 of 2024 (Commercial)

In a recent appeal in another case, the Court of Cassation in Case No. 756 of 2024 (Commercial) was again required to consider the validity of the Court of Appeal’s partial annulment of an ICC arbitration award on the basis that the arbitral tribunal’s cost award obliged the respondent in the arbitration to pay a portion of the fees paid by the claimant to its legal representatives.

In its decision dated 19 November 2024, the Court of Cassation departed from its prior position and confirmed that the ICC Rules entitle the arbitral tribunal to award legal costs, including costs paid by a party to its legal representatives. In reaching this decision, the Court of Cassation confirmed that where the wording of a law (or, in this case, a rule) is clear and unambiguous, it must be regarded as a true expression of the legislator’s intent and cannot be interpreted in a way that alters its meaning. The Court of Cassation held that the language of Article 38(1) of the ICC Rules is clear. The use of the word “include” indicates that Article 38(1) of the ICC Rules is not intended to contain an exhaustive list of arbitration costs. Further, the phrase “the reasonable legal and other costs” indicates that the arbitral tribunal can award any reasonable costs, including legal costs, such as attorneys’ fees. Accordingly, the Court of Cassation vacated the Court of Appeal’s partial annulment of the arbitral award.

Conclusion

This decision will be welcomed by arbitration practitioners and their clients. It reduces the uncertainty and risk introduced by the Court of Cassation in Case No. 821 of 2023 (Commercial) that the onshore United Arab Emirates (UAE) courts will annul the cost element of an arbitral award where contracting parties have not expressly agreed in their arbitration agreement that the arbitral tribunal has the authority to award and apportion party legal costs.

About the Firm

Our Litigation and Dispute Resolution practice group has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the UAE and wider Middle East region.
Deal Done: Mandatory Merger Clearance in Australia Becomes Law

Fri, 29 Nov 2024 00:00:00 -0000

It is now confirmed that Australia will have a mandatory and suspensory (competition) pre-merger clearance regime with the passing of legislation late yesterday.

The legislation, titled the Treasury Laws Amendment (Mergers and Acquisitions Reform) Act 2024, will have a widespread and significant impact on the Australian merger landscape.

Under the new regime, mergers (any acquisitions of shares or assets) that meet certain thresholds will be required to be notified to the Australian Competition and Consumer Commission (ACCC) and approved prior to proceeding.

In brief, the thresholds are as follows:

The legislation also provides that the Treasurer will be able to adjust the thresholds to respond to concerns in relation to “high-risk” sectors—for example, the Australian government has indicated that it intends to require notification of all mergers in the supermarket sector.

Prior to these reforms, Australia was one of only three Organisation for Economic Co-operation and Development countries that did not have a mandatory merger clearance regime in place. The Australian government has stated that “the current ‘ad hoc’ merger process is unfit for a modern economy” and that “these reforms are the largest shakeup of Australia’s merger settings in half a century”.

While parties can seek voluntarily clearance under the new regime from 1 July 2025, the regime will officially commence on 1 January 2026.

Accordingly, businesses seeking to effect mergers and acquisitions in Australia should begin considering the approach that they wish to take under the legislation, the likely timing of the proposed acquisition and its completion, as well as the effect of acquisitions that have been undertaken in the previous three years.

We set out further detail on the legislation in an earlier Insight, which can be found here.

We will continue to update you on further developments flowing from the passing of the legislation, including the ACCC’s upcoming analytical and process processes.

In early 2025, we will be hosting more detailed presentation sessions on the reforms—should you wish to attend, please keep an eye on our future announcements.
October 2024 ESG Policy Update–Australia

Thu, 28 Nov 2024 00:00:00 -0000
Australian Update

AU$12.9 Million Penalty Imposed on Trustee

On 25 September 2024, the Federal Court ordered a large superannuation trustee (Trustee) to pay the highest penalty imposed for greenwashing conduct yet–AU$12.9 million. This comes off the back of the Federal Court in early August this year ordering Mercer Superannuation (Australia) Limited to pay an AU$11.3 million penalty after it admitted it made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

Justice Michael O’Bryan found that the Trustee made misleading claims about an “ethically conscious” fund (Fund), contravening sections 12DF(1) and 12DB(1)(a) and (e) of the Australian Securities and Investments Commission Act 2001 (Cth) (Act) (Contraventions).

Justice O’Bryan outlined that the Contraventions consisted of:
- Media release representations, which conveyed representations that:
  
  The Fund offered an ethically conscious investment opportunity, and that the Fund did this by seeking to track the Bloomberg SRI Index.
  
  Before being included in the Bloomberg SRI Index (and therefore the Fund), securities were researched and screened against applicable environmental, social, and governance (ESG) criteria.
  
  Securities that violated applicable ESG criteria were excluded or removed from the Bloomberg SRI Index and therefore the Fund.
- YouTube representations and representations made at an FNN Fund Manager event (which were later published online) which conveyed the same representations as the media release representations, save for the fact that they did not refer to the Bloomberg SRI Index.
- The PDS representations and the website representations which conveyed the same representations as the media release representations save for the fact that those materials conveyed that only securities issued by companies (rather than securities generally) were screened against ESG criteria.
The above representations were found to be misleading within the meaning of section 12DF(1) and section 12DB(1)(a) and (e) because:
- The research and screening for the Bloomberg SRI Index (and therefore the Fund) had limitations which meant that not all securities were screened against ESG criteria.
- A significant proportion of securities in the Bloomberg SRI Index and the Fund were from issuers that were not researched or screened against applicable ESG criteria.
- The Bloomberg SRI Index and the Fund included issuers that violated applicable ESG criteria.
Importantly, Justice O’Bryan found that:
- Due to limitations of the Bloomberg SRI Index, approximately 74% of the securities were not researched or screened against applicable ESG criteria.
- The misrepresentations enhanced the Trustee’s ability to attract investors to the Fund and its reputation as a provider of investment funds with ESG characteristics, as compared to the situation where the Trustee disclosed the screening limitations and the Fund’s exposure to issuers engaged in excluded industries.
- The contraventions should be regarded as serious, as it concerned the principal distinguishing feature of the Fund, which the Trustee developed and promoted in response to market demand.
Justice O’Bryan conducted a balancing exercise in coming to the penalty amount of AU$12.9 million, which he found struck an appropriate balance between deterrence and oppressive severity.

That the conduct was serious, continued for two and a half years, concerned a substantial investment fund and that senior employees were involved in the preparation of the misleading disclosures, among other factors, increased the need for deterrence.

The decision comes following both the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission making greenwashing an enforcement priority (as reported on by K&L Gates here).

ASIC Updates Guidance for Participants in Carbon Market

On 30 September 2024, ASIC released its updated Regulatory Guide 236 Do I need an AFS licence to participant in carbon markets (Guide) following consultation earlier this year in May.

The Guide provides guidance for participants in the carbon market who need to decide whether or not they need an Australian financial services licence (AFSL). This includes:
- People involved in the Australian Carbon Credit Unit (ACCU) scheme.
- Responsible emitters for safeguard facilities.
- Market intermediaries.
- Market advisors (in the carbon market).
Essentially, an AFSL is required to provide financial services while carrying on a financial services business in Australia (unless an exemption applies).

An entity provides a financial service if it, among other activities, provides financial product advice or deals in a financial product.

The Guide has been updated to:
- Address the safeguard mechanism legislative reforms that commenced on 1 July 2023, which enable the Clean Energy Regulator to issue safeguard mechanism credit units (SMCs).
- Make it clear that ACCUs and SMCs are financial products.
- Provide additional guidance on when an advisor may be taken to provide financial product advice, in which case the key question is whether the advice is intended to or can be taken to intend to, influence a person’s decision about a financial product.
Global Nature Positive Summit Sparks Industry Optimism

In early October, the Australian and New South Wales Governments hosted the inaugural Global Nature Positive Summit (Summit) with the aim of accelerating collective action to drive private sector investment in nature and strengthen activities to protect and repair the environment.

“Nature Positive” refers to improving the diversity, abundance, resilience and integrity of ecosystems from a baseline. Following the release of its Nature Positive Plan in December 2022, the Australian Government has committed to a three-stage approach:

Stage 1

Establishment of the Nature Repair Market via the Nature Repair Act 2023 (Cth) and Nature Repair (Consequential Amendments) Act 2023 (Cth).

Stage 2

Establishment of Environment Protection Australia and Environment Information Australia via the Nature Positive (Environment Protection Australia) Bill 2024 (Cth) and Nature Positive (Environment Information Australia) Bill 2024 (Cth).

Stage 3

Introducing the Nature Positive (Environment) Bill 2024 (Cth) and Nature Positive (Transitional and Consequential Amendments) Bill 2024 (Cth).

At the Summit, leaders and attendees explored ways to realise global commitments under the Kunming-Montreal Global Biodiversity Framework, to which 200 countries are signatories. It sets a target of US$200 billion funding per year to spend on protection and restoration of 30% of land and waters by 2030.

More than half the world’s economy directly depends on nature. Biodiversity loss threatens global financial stability, putting at least AU$64 trillion of economic value at risk.

The Taskforce on Nature-related Financial Disclosures (TNFD), a global science-based and government-backed initiative consisting of financial institutions, corporates and market service providers, announced at the Summit that the total number of Australian companies and financial institutions that have committed to voluntary reporting of their nature-related risks and issues in line with the TNFD recommendations now stands at 23. This includes a number of Australia’s leading Australian Securities Exchange-listed companies and fund managers.

The TNFD recommendations set out the corporate reporting requirements of organisations across jurisdictions to be consistent with the global baseline for corporate sustainability reporting and to be aligned with the global policy goals in the Kunming-Montreal Global Biodiversity Framework.

Whilst the TNFD recommendations are not yet compulsory in Australia, the ongoing reforms and discussions at the Summit are clear signals that nature-related risks and issues should be carefully considered when implementing ESG strategies.

Increased Investment in Data Centres Raises Energy Warning

Australia’s superannuation and investment funds are increasingly interested in digital infrastructure, looking to invest in assets like data centres, fibre optic networks, and telecommunications.

However, investment in data centres is potentially putting large Australian fund managers’ net zero emissions obligations at risk. Data centres may offer high returns but are typically amongst the most energy-intensive of all assets, which could result in a delay of fund managers’ transition strategies and the possibility of funds engaging in greenwashing.

The appetite for data centres has come amid regulatory crackdowns on greenwashing and customer pushback over fund managers’ fossil fuel investments. However, it has been noted that high amounts of energy are needed to fuel data centres, leading to increased emissions and a strain on the power grid in periods of extreme weather, which will only worsen with climate change.

As such, superannuation and investment fund managers have been advised to consider the investments in light of their net zero commitments and also to consider escalation plans, including selling data centres if the companies managing them were failing to progress their transition plans.

Fund managers who invest in data centre assets may be given an opportunity to obtain a seat on the board of the respective data centre company. This inevitably means more influence over the company’s decisions and more responsibility in respect of sustainability reporting.

Both data centres and fund managers are being urged to show they have credible plans to reach net zero emissions by 2050. These ventures provide data centre companies and fund managers the opportunity to align their decarbonisation strategies, enhancing the industry approach to meeting net zero targets.

View From Abroad

United States: ESG Working Group Releases Final Staff Report

During the current administration, the United States House of Representatives has maintained a strong focus on overseeing ESG issues. At the beginning of this administration, the House Committee on Financial Services, which oversees the Securities and Exchange Commission, established the House GOP ESG Working Group (ESG Working Group). This group is dedicated to addressing ESG-related regulatory matters and issues related to nonfinancial risk disclosure.

On 1 August 2024, the ESG Working Group issued its final staff report entitled “The Failure of ESG: An Examination of Environmental, Social, and Governance Factors in the American Boardroom and Needed Reforms”. This report summarises current ESG-related trends and analyses relevant legal and policy matters. It concludes with a list of recommendations, focusing on proxy voting issues, shareholder activism, the materiality of climate-related financial risk and the fiduciary duty of investment advisors.

The key recommendations include:
- Reform the proxy voting system to safeguard the interests of retail investors.
- Promote transparency, accountability and accuracy in the proxy advisory system.
- Enhance accountability in shareholder voting by aligning voting decisions with the economic interests of shareholders.
- Increase transparency and oversight of large asset managers to ensure their practices reflect the pecuniary interest of retail investors.
- Improve ESG rating agency accountability and transparency to safeguard retail shareholders.
- Strengthen oversight and conduct thorough investigations into federal regulatory efforts that would contort our financial system into a vehicle to implement climate policy.
- Demand transparency, responsibility and adherence to statutory limits from financial and consumer regulatory agencies.
- Protect US companies from burdensome European Union regulations, safeguarding American interests in global markets.
Read our US Policy and Regulatory alert on this topic here.

Canada Introduces Mandatory Climate Disclosure Requirements for Large Companies

The Canadian government has advanced two significant sustainable finance initiatives to ensure the country meets its ambitious net-zero emissions target by 2050. On 9 October 2024, at the Principles for Responsible Investment conference in Toronto, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced:
- The government’s intention to amend the Canada Business Corporations Act to require climate-related financial disclosures for large, federally incorporated private companies.
- A plan is underway to create Made-in-Canada sustainable investment guidelines. These guidelines will serve as a voluntary tool for investors and other stakeholders to assess whether economic activities are “green” (activities with low or zero emissions that do not have significant scope 1 and 2 emissions) or “transition” (decarbonising activities that do have significant scope 1 and 2 emissions).
These measures aim to increase transparency in climate reporting and encourage greater private sector investment in sustainable activities. This announcement builds on the government’s previous commitment to develop a sustainable finance taxonomy to promote credible climate investment in its 2023 Fall Economic Statement and Budget 2024.

The authors would like to thank graduate Daniel Nastasi for his contribution to this legal insight.
FDA Affirms Its Decision to Remove 25 Plasticizers From the Food Additive Regulations

Wed, 27 Nov 2024 00:00:00 -0000

In a continuation of the US Food and Drug Administration's efforts to conduct post-market reviews evaluating the continued use and safety of chemicals authorized in its regulations, the agency is removing decades-old clearances for food-contact materials based on evolving toxicology concerns. Specialty chemical companies should take note of the development as an example of the way FDA may respond when safety concerns evolve for cleared substances.

Specifically, on October 2024, the Food and Drug Administration (FDA) responded to an objection to its 22 May 2022 final rule amending the food additive regulations (the Final Rule) and affirmed its decision to remove 25 ortho-phthalate plasticizers from 21 C.F.R. Parts 175, 176, 177, and 178. The FDA issued the Final Rule on 20 May 2022 in response to a food additive petition submitted by the Flexible Vinyl Alliance. Several non governmental organizations filed an objection to the FDA’s Final Rule, and in the FDA’s response, the FDA stated that the objection did not provide a basis for modifying the FDA’s Final Rule. While the FDA affirmed its decision, the FDA noted that it is working on an updated safety assessment that will include the remaining authorized uses for phthalates that were not removed from the food additive regulations. The FDA will consider, in part, information it received through its “Ortho-phthalates for Food Contact Use” Request for Information in its evaluation. The FDA’s response explained why the FDA’s action with respect to the Final Rule was reasonable.

The FDA also received objections to the agency’s denial of a separate food additive petition (food additive petition 6B4815) in which the National Resource Defense Council (NRDC) requested that the FDA revoke authorized food contact uses of 28 phthalates due to alleged safety concerns. The FDA concluded that the NRDC did not establish a basis for modifying or revoking the denial order as requested in their objections. According to the FDA, the NRDC failed to establish sufficient support to take the requested action of grouping the 28 phthalates as a class and revoking their authorizations for the 28 phthalates on the basis that they were unsafe as a class. The FDA took issue with reviewing all 28 phthalates together as a class by applying data from one chemical to the entire group as the NRDC suggested. The FDA found that available information did not support grouping the phthalate chemicals into a single-class assessment and noted that 23 of the 28 phthalates were no longer in use and had been revoked in the Final Rule issued at the same time as the denial of the safety-based petition.

The FDA’s forthcoming post-market assessment(s) of the ortho-phthalates whose uses remain the subject of applicable food additive clearances may be an example of the procedures that the FDA will utilize for its post-market assessment of chemicals in food that is currently under development. The proposed post-market assessment process was the subject of a recent public meeting, attended by our Senior Scientific Advisor, Dr. Peter Coneski, at the FDA’s White Oak Campus on 25 September 2024. The public comment period for the FDA’s proposal for an enhanced systematic process for the post-market assessment of chemicals in food remains open until 6 December 2024. We are monitoring these and other developments affecting the regulation of food contact materials in the United States and other jurisdictions.
UK's Specialist Competition Tribunal Issues Rare Guidance for Brands—Back to the Basics on Selective Distribution, Rpm and Online Sales Bans

Tue, 26 Nov 2024 00:00:00 -0000
Judgments providing actual guidance for consumer goods brands are like a good action film—rare, but totally worth the wait. The UK Competition Appeal Tribunal’s (the CAT) recent decision in Up and Running v Deckers¹ is definitely worthy of a spot on the hall of fame reserved for the most useful legal precedents in the verticals space. The CAT’s tribunal unanimously delivered a 102-page legal script that is interesting, informative, to the point and touches on some of the most pertinent legal issues that consumer brands face today when designing and operating their distribution strategies (in particular, selective distribution and resale price maintenance (RPM)).

So What Is the Story Line?

Up & Running is a UK retailer selling specialist running shoes. Deckers supplied HOKA-branded running shoes to Up & Running on a wholesale basis. When COVID-19-related restrictions struck, Up & Running applied for permission to launch a new website on which excess stock, including HOKA products, would be sold at a discount. This proposal was not accepted by Deckers. Up & Running nevertheless commenced selling HOKA products on the new website; this resulted in Deckers ultimately ceasing to supply the products to Up & Running, largely arguing that the new website did not meet Deckers’ selective distribution criteria (and hence, could not be treated as an authorised point of sale).

Up & Running brought a stand-alone claim before the CAT alleging that:
- Its ability to sell HOKA products online such that it could make effective use of the Internet as a sales channel for the HOKA products was restricted.
- The termination of Up & Running’s account was effectively aimed at preventing it from running a discounting strategy, thus forcing Up & Running to maintain higher resale prices.
The CAT agreed with Up & Running in relation to both claims.

What Does The Judgment Teach Us?

This case is the perfect illustration that investing in a robust, well thought-through and well-executed go-to-market strategy will enable you to exercise legitimate brand control and reap the benefits over time.

The key lessons from the CAT’s judgment can be grouped under two key headings:

Selective Distribution

Selective distribution refers to a go-to-market strategy whereby a brand is legally permitted to work only with those resellers who meet and comply with the brand’s criteria, to the exclusion of all other (unauthorised) resellers.
- First, perhaps it was fine for Professor Dumbledore to treat Harry Potter as his favourite pupil, but the same rule simply has no place in the context of a properly designed selective distribution system. The CAT stressed that, in order to benefit from the special safe harbour specifically designed for selective distribution systems (as set out in Case C-26/76 Metro v Commission), the brand’s selective distribution criteria must be transparent or visible to existing or potential resellers and, importantly, they should not be applied in a discriminatory or inconsistent fashion. Accordingly, any evidence of discriminatory treatment in allowing some resellers not to comply with the criteria could jeopardise the availability of the Metro safe harbour.
- Second, the CAT also clarified that, where the resellers are themselves unaware of the existence of the selective distribution programme, and where the criteria merely boil down to broad requirements that allow for the exercise of individual judgements by the brand’s account managers, the system is unlikely to have the necessary level of objectivity to be per se exempted from competition law. Subjective discretion is not only unwelcome when exercised by Slytherin’s Professor Umbridge, it is also not suitable for selective distribution.
- Third, it is not going to be enough for a brand to have a set of properly drafted criteria without being able to show that it actually applies them. Thus, if a brand receives an application to authorise a new website but rejects it as incompatible with the selective distribution system without any evidence of having actually reviewed the online point of sale (e.g., because the website has not gone live yet), such a decision would not be compatible with a properly run selective distribution programme. For example, it would arguably be more appropriate to consider a prospective, not-yet-live website by reference to a business plan or a website design plan.
- Finally, selective distribution cannot be a ruse which seeks to cover up an actual (anti-competitive) objective, such as the desire to prevent the emergence of competing business models or sales channels. For selective distribution to stay on the right side of competition law, it must plausibly pursue a legitimate aim, such as the protection of a manufacturer’s brand image and quality expectations, or addressing free riding by resellers.
RPM

Setting minimum resale prices, fixing resale prices or restricting discounting practices are all examples of RPM which UK and EU competition laws treat as a “hardcore” restriction. In accepting Up & Running’s RPM allegations, the CAT made the following key observations:
- If a brand seeks to restrict the ability of its retail partners to sell products on clearance sites (where a greater degree of discounting would inevitably take place), as a matter of competition law, that amounts to a restriction of price competition between retailers and an illegal attempt to indirectly fix selling prices.
- Even in the context of selective distribution, such a strategy is not going to be permissible. On the one hand, selective distribution clearly allows a brand operating such a distribution system to reject a clearance/discount website because it does not meet the required objective quality standards required from all online points of sale. On the other hand, where the rejection decision is merely an attempt to use the contractual provisions to force a reseller to stop selling the branded product on a discounted basis, this is likely to amount to illegal RPM. This is, in particular, the case when there is no alternative plausible explanation or legitimate aim behind the rejection decision (e.g., because the brand has not even reviewed/assessed the website in question).
- Finally, and very interestingly, the CAT opined that it is conceivable under competition law that a brand, which is genuinely concerned about the brand image of its products, could design its distribution strategy in such a way as to ensure that clearance/discount sales do not undermine its overall strategy (e.g., through a legitimate selective distribution system—see paragraphs 175–176). This, however, must be supported by actual legitimate objectives, such as protection of the brand or the image of its products (the CAT discusses this, in particular, in paragraphs 171–173).
Conclusion

The CAT’s informative judgment confirms that selective distribution can be a very powerful and highly effective tool to build a network of like-minded and high-quality resellers (and to reject others). However, it requires brands to be like Monica in “Friends”—pedantic, organized and living by their own rules. Successful selective distribution programmes require clear and transparent criteria which are applied objectively and with a view to protecting the image of the brand and its products. Selective distribution generally, and selective distribution criteria specifically, will not work well as an afterthought to explain an otherwise restrictive practice.

Getting this balance wrong and underinvesting in a competition law-compliant go-to-market strategy can have pretty severe consequences later on. In Up and Running, for example, the CAT ruled that Up & Running can claim damages sustained as a result of the competition law breaches (to be determined in a separate trial). In another recent UK case where the brand (Dar Lighting) operated a selective distribution system, it was established that the discouraging of discounting amounted to a type of illegal RPM. The brand accordingly received a fine of £1.5 million (see our alert here).
Governor Shapiro Fast Tracks Critical Infrastructure Project Permitting

Fri, 22 Nov 2024 00:00:00 -0000
On 19 November 2024, Pennsylvania Governor Josh Shapiro signed Executive Order No. 2024-04, streamlining and accelerating the permitting process for critical infrastructure projects within the Commonwealth. The Executive Order creates the Permit Fast Track Program which assists with permitting processes for key economic development projects by organizing agency meetings, coordinating key parts of the project, and enhancing transparency and accountability through a public-facing online dashboard.¹

The Executive Order directs the newly created Office of Transformation & Opportunity (OTO) to administer the Permit Fast Track Program. The OTO will be responsible for developing, managing, and coordinating permitting for complex and impactful economic development and infrastructure projects across government agencies and private partners in order to get project sponsors answers in a timely manner. The OTO will also oversee updates to the permit-tracking dashboard, a public tool designed to enhance accountability for both state agencies and project sponsors.²

How Will the Permit Fast Track Program Work?
- Any private, public, or public-private entity may request that the OTO designate a project for program participation.
- Upon receiving a request, the OTO will gather information about the project and make a determination based on factors such as project size, complexity, potential economic impact or public benefit, potential environmental concerns, project timeline, project status, financial and other support for the project, and the degree of coordination with government agencies or authorities.
- For a project designated for participation, all interested parties will collaborate to draft a coordinated project plan that sets out a permitting timetable.
- The dashboard will track the status of all required permits, licenses and agreements before commencing construction and will include—among other things—descriptions of actions taken by involved government actors, critical milestone dates relevant to project completion, and explanations regarding the cause of any delays.
- Timelines may be extended beyond what is agreed to in the coordinated project plan only if all parties agree to a schedule modification and the government agency requesting the extension provides a written justification to be posted on the dashboard.
- A project designated for participation in the program will be subject to the same substantive review as would otherwise apply.³
The Permit Fast Track Program in Context

Governor Shapiro’s Executive Order is the latest in a recent series of actions seeking to improve permitting efficiency in Pennsylvania. Earlier in 2024, the General Assembly created the Streamlining Permits for Economic Expansion and Development (SPEED) Program which provides permitting flexibility by allowing applicants to choose to have a private, Department of Environmental Protection (DEP)-verified professional conduct the initial application review for certain permits, instead of a DEP employee.⁴ In 2023, Governor Shapiro signed an Executive Order establishing a “date certain” by which applicants will hear back from an agency about license, permit or certificate applications.⁵ In 2012, former Governor Tom Corbett signed the “Permit Decision Guarantee for the DEP” Executive Order targeting delays in permitting decisions.⁶ This latest Executive Order creating the Permit Fast Track Program does not impact these prior efforts.‌

Takeaways

The creation of the Permit Fast Track Program will allow project sponsors to better understand and meet permitting requirements, save time by creating review efficiencies among state agencies, and increase Pennsylvania’s ability to compete for large infrastructure projects in the Mid-Atlantic Region. Governor Shapiro’s latest Executive Order is another step forward in proving that Pennsylvania is indeed open for business.
UAE Law on the Enforceability of Unilateral Arbitration Agreements

Thu, 21 Nov 2024 00:00:00 -0000

In a recent decision dated 29 October 2024, the Dubai Court of Cassation (Court of Cassation) in Case No. 735 of 2024 (Commercial) confirmed that a unilateral (or asymmetric) arbitration agreement—an agreement which provides one party with the unilateral option to choose between arbitration and court proceedings—is not a valid arbitration agreement under United Arab Emirates (UAE) law and does not preclude the onshore UAE courts from hearing the dispute.

Background

A subcontractor filed a claim against the main contractor before the Dubai Court of First Instance (Court of First Instance) seeking payment for work performed under two subcontracts. The subcontracts contained an identical dispute resolution clause. The clause provided that in the event of a dispute arising out of the subcontract, such dispute, if not resolved by amicable settlement, shall be referred to either (a) arbitration at the Dubai Chamber of Commerce or (b) the local courts in the UAE, and specified that the forum to be used shall be decided by the main contractor. The main contractor invoked the arbitration agreement and argued that the Court of First Instance lacked jurisdiction over the dispute. The Court of First Instance dismissed the main contractor’s jurisdictional argument. The main contractor appealed to the Court of Appeal on the basis of lack of jurisdiction due to the arbitration agreement, which gave the main contractor the sole power to determine which forum would resolve any dispute between the parties. The Court of Appeal dismissed the appeal. The main contractor appealed to the Court of Cassation.

Ruling of the Court of Cassation

The Court of Cassation noted that the approach to unilateral arbitration agreements differs between jurisdictions. Some judicial systems enforce the parties’ agreement under the principle of party autonomy of will. Others find that there is no valid arbitration agreement, either because such a clause violates the principle of equality between the parties or because a valid arbitration agreement must reflect a conclusive meeting of the minds to adopt arbitration as the sole forum for resolving disputes.

The Court of Cassation confirmed that, under UAE law, an arbitration agreement must be a clear and explicit agreement between the parties to resolve any disputes arising between them by arbitration to the exclusion of the courts. The Court of Cassation held that the unilateral arbitration agreement at issue was not a valid arbitration agreement because it did not provide a clear agreement to resolve disputes solely by arbitration. The Court of Cassation stated that the clause in issue was invalid, as it prevented the subcontractor from referring a dispute to any authority for resolution until the contractor had elected which forum to adopt.

Conclusion

This judgment confirms that a unilateral arbitration agreement is not a valid arbitration agreement under UAE law. However, the significance of this judgment is not limited to contracts governed by UAE law. Pursuant to Article 21 of the UAE Civil Code, Federal Law No. 5 of 1985 (as amended), the rules of jurisdiction and all procedural matters shall be governed by the law of the state in which the case is filed. Accordingly, if the onshore UAE courts would in principle have jurisdiction over a dispute arising between contracting parties and those parties wish for any dispute between them to be resolved by arbitration, care should be taken to ensure that the parties’ dispute resolution clause clearly and explicitly provides for arbitration as the sole forum for resolving disputes. These considerations apply irrespective of the governing law of the contract, or the seat (or legal place) specified in the arbitration agreement. This is because if proceedings are filed before the onshore UAE courts, the court will consider the validity of the unilateral arbitration agreement and therefore the court’s jurisdiction over the dispute under UAE law.

About The Firm

Our Litigation and Dispute Resolution practice group has a long history of acting as counsel on high-stakes international arbitration and litigation mandates. Our lawyers in Dubai have extensive experience advising on litigation and arbitration with respect to complex, high-value disputes in the UAE and wider gulf region.
Natural Gas Survives Election, Aims to Thrive Post-Election

Tue, 19 Nov 2024 00:00:00 -0000

The November election results signal changes to energy policy at the state and federal levels. While it is not yet clear how these changes will develop in the months to come, one winner that appears to have emerged at the ballot box is natural gas. As the debate over the use of natural gas in residential and commercial settings continues to play out, this year’s election results demonstrate that voters around the country favor keeping natural gas around, at least for now. The battle over its future is not over though, and policy proposals and ballot initiatives will undoubtably continue to play a role in how the resource is used in the energy transition.

Election Day Wins: Gas Bans and Ballot Measures

On election day, voters in several states were asked to consider initiatives that had the potential to reshape the role of natural gas in those states.¹These initiatives are the latest development in an ongoing battle over natural gas and emissions reduction efforts. Leading up to election day, there were questions about how the election results would impact the composition of state legislatures and whether they would result in more proposals to ban gas, prohibitions on gas bans, or electrification mandates.²Now that we know the results, it appears there is wind behind the natural gas sails, as voters in several states made it clear they want natural gas here to stay.

In the state of Washington, for example, voters rejected an initiative aimed at killing the state’s nascent carbon market, but at the same time saved natural gas from the chopping block.³Initiative 2066 protects natural gas access in the state and bars local governments from banning its use.⁴The initiative repeals and amends portions of the Washington Decarbonization Act passed in early 2024, which would have required the state’s largest utilities to plan for and encourage building energy electrification, including by prohibiting incentives for natural gas appliances and creating incentives for electric heat pumps.⁵The initiative also prohibits Washington building code provisions that “in any way prohibit, penalize, or discourage the use of gas” in residential and nonresidential buildings.⁶Opponents of the initiative argue it is unconstitutional because it violates the state’s “single subject rule,” which limits initiatives to one subject, and they are gearing up to challenge it in court.⁷

Natural gas’ election wins are also apparent in Berkeley, California, where over two-thirds of voters rejected a proposed new tax on natural gas use in buildings.⁸The voter-led initiative “Measure GG” sought to implement a fossil fuel tax on large buildings. It would have taxed buildings larger than 15,000 square feet at an escalating rate each year, with the tax doubling in 10 years, tripling in 15 years, and eventually maxing out at 10 times the initial rate.⁹Revenue from this tax would have funded a Fossil Fuel Free Buildings Just Transition Fund to pay for “building decarbonization retrofit work, prioritizing low-rise residential buildings and restaurants.”¹⁰

Following this election, there will also be several states to watch for future legislation designed to prohibit natural gas bans. For instance, the New Mexico Legislature had bipartisan support for a gas-ban preemption bill (i.e., a state law banning local natural gas bans) in the last legislative session and is expected to reintroduce the bill next year.¹¹

State Policy and Ballot Measures: Gas Bans and Electrification Mandates

In February 2024, we provided an update on the US Court of Appeals for the Ninth Circuit’s decision in California Restaurant Association v. City of Berkeley, striking down a Berkeley ordinance that prohibited natural gas piping in new buildings as preempted by the federal Energy Policy and Conservation Act (EPCA). Since then, states have remained active in legislating and litigating on the gas ban issue. On 18 April 2024, Nebraska joined 25 other states in passing a gas-ban preemption law that would prohibit local governments from enacting ordinances prohibiting or restricting access to a fuel source or a type of energy that is authorized to be supplied to customers, including propane.¹²

Over the same period, Maryland and Chicago, Illinois, considered, but did not pass, bills implementing a building electrification mandate. In Maryland, the Better Buildings Act would have required all new buildings greater than 25,000 square feet and major renovations of old buildings of the same size to meet water and space heating requirements without the use of fossil fuels.¹³Likewise, Chicago’s Clean and Affordable Buildings Ordinance would have set an indoor emissions standard in newly built commercial and residential buildings and major building additions.¹⁴ The ordinance would have also required zero or low-emission energy systems in covered buildings.¹⁵

New York and the state of Washington, for their part, passed statewide building codes to restrict or discourage the use of fossil fuels in new buildings. These codes remain the subject of ongoing litigation in both states. On 29 August 2024, the US District Court for the Northern District of New York dismissed the claims against the New York Department of State, the building code council, and the councilmembers on the basis of sovereign immunity.¹⁶ The case will move forward against defendant Robert Rodriguez in his official capacity as the New York Secretary of State.¹⁷Subsequently, a motion for summary judgment was filed by New York Propane Gas Association et al., and a motion for judgment on the pleadings and dismissal for lack of subject matter jurisdiction was filed by Walter T. Mosley.¹⁸We will continue monitoring this case, as a decision that EPCA does not preempt such a state action could create a circuit split and draw the attention of the US Supreme Court.

In the state of Washington, the EPCA preemption claims are no longer included in the lawsuit. Instead, the challengers argue the building code council violated the Open Public Meetings Act, a state law requiring public agency meetings to be open to the public, when it adopted the new building code.¹⁹The defendants filed a motion to dismiss on 23 August 2024, which is set to go to hearing on 22 November 2024.²⁰The passage of the Washington voter initiative discussed above, however, could moot this case.

These state-level updates are also taking place in the context of a shifting federal dynamic regarding natural gas at, among other departments and agencies, the Federal Energy Regulatory Commission. This is an actively developing area of policy that we will continue to monitor. Check back on our page for updates.
AI and Your Obligations as an Australian Financial Services Licensee

Tue, 19 Nov 2024 00:00:00 -0000
On 29 October 2024, the Australian Securities and Investments Commission (ASIC) published REP 798 Beware the gap: Governance arrangements in the face of AI innovation. This report details ASIC's findings from a review of how artificial intelligence (AI) is being used and adopted in financial services and by credit licensees.

In REP 798, ASIC warned that licensees are adopting AI technologies faster than they are updating their risk and compliance frameworks. This lag creates significant risks, including potential harm to consumers. For instance, ASIC raised concerns about an AI model used by one licensee to generate credit risk scores, describing it as a "black box." They noted that this model lacked transparency, making it impossible to explain the variables influencing an applicant's score or how they affected the final outcome.

In the report, ASIC emphasised to licensees planning to use AI the need to stay aware of the rapidly evolving technological landscape. They highlighted the importance of prioritising governance, risk, and regulatory compliance when implementing new tools.

Below, we summarise how the adoption and use of AI by licensees aligns with the existing regulatory framework and industry best practices to ensure compliance with both current and future regulatory requirements in Australia.

Existing Regulatory Framework

In REP 798, ASIC reminded financial services businesses to consider and comply with their existing regulatory obligations when adopting and using AI. They pointed out that the current regulatory framework for financial services and credit licensees is technology-neutral, meaning it applies equally to both AI and non-AI systems and processes.

These existing obligations are as follows:

General Obligations

Use of AI must comply with the general obligation to provide financial or credit services "efficiently, honestly and fairly". ASIC highlighted that AI models can potentially treat consumers unfairly, resulting in outcomes or decisions that are difficult to explain.

Unconscionable Conduct

The use of AI must not lead to actions that are unconscionable towards consumers. ASIC provided an example where AI could unfairly exploit consumer vulnerabilities or behavioural biases.

Misleading and Deceptive Conduct

Representations regarding the use of AI, model performance, and outputs must be factual and accurate. This obligation includes ensuring that any AI-generated representations are not false or misleading.

Directors' Duties

Directors must recognise that their duty to exercise their powers with the care and diligence a reasonable person would use in similar circumstances extends to the adoption, deployment, and use of AI. They should keep this responsibility in mind when relying on AI-generated information to fulfil their duties, as well as the reasonably foreseeable risks that may arise from its use.

Best Practices–ASIC

ASIC has also set out the best practices it has observed from licensees.

Review and Documentation

Licensees should identify and update their governance and compliance measures as AI risks and challenges evolve. These measures need to be documented, monitored, and regularly reviewed. ASIC noted that some licensees did not take a proactive approach, failing to update their governance arrangements in line with their increasing use of AI. To prevent potential consumer harm, licensees must consistently review and update their arrangements, ensuring there is no lag in their AI adoption.

AI Governance Arrangements

Licensees should establish a clear overarching AI strategy that aligns with their desired outcomes and objectives, while also considering their skills, capabilities, and technological infrastructure. ASIC recommends that best practices include the formation of a specialist executive-level committee with defined responsibility and authority over AI governance, along with regular reporting to the board or committee on AI-related risks. Additionally, incorporating the eight Australian AI Ethics Principles into AI policies and procedures is considered a hallmark of best practice.

Technological and human resources

Licensees should assess whether they have sufficient human capital with the necessary skills and experience to understand and implement AI solutions. They must also ensure they have adequate technological resources to maintain data integrity, protect confidential information, and meet their operational needs.

Risk Management Systems

Licensees should evaluate how the use or increased adoption of AI alters their risk profile and risk management obligations. They should determine whether these changes necessitate adjustments to their risk management frameworks.

AI Third-Party Providers

Licensees should ensure they have appropriate measures in place to select suitable AI service providers, monitor their performance, and manage their actions throughout the entire AI lifecycle. While many licensees quickly relied on third parties for their AI models, they often overlooked the associated risks. ASIC noted that best practices include applying the same governing principles and expectations to models developed by third parties as those used for internally developed models.

In combination with REP 798, ASIC provided 11 questions for licensees to review and consider to ensure their AI innovation is balanced with the above regulatory obligations and best practices.

These are as follows:
1. Taking stock: Where is AI currently being used in your business?
2. Strategy: What is your strategy for AI, now and in the future?
3. Fairness: How will you provide services efficiently, honestly and fairly when using AI?
4. Accountability: Who is accountable for AI use and outcomes in your business?
5. Risks: How will you identify and manage risks to consumers and regulatory risks from AI?
6. Alignment: Are your governance arrangements leading or lagging your use of AI?
7. Policies: Have you translated your AI strategy into clear expectations for staff?
8. Oversight: What human oversight does your AI use require, and how will you monitor it?
9. Third parties: How do you manage the challenges of using models developed by third parties?
10. Regulatory reform: Are you engaging with the regulatory reform proposals on AI?
11. Resources: Do you have the technological and human resources to manage AI?
Best Practices-Voluntary AI Safety Standard

Separately, the Australian Government has introduced the Voluntary AI Safety Standard, which outlines 10 guardrails for the development and deployment of AI by Australian organisations. These guardrails were developed in response to feedback from Australian companies that expressed a need for clear guidance and consistency in implementing AI.

The guardrails are as follows:
1. Regulatory compliance: Establish, implement and publish an accountability process including governance, internal capability and a strategy for regulatory compliance. This is designed to create the foundation for an organisation's use of AI.
2. Risk management: Establish and implement a risk management process to identify and mitigate risks. Complete a risk assessment considering the full range of potential harms, and consider this on an ongoing basis.
3. Data integrity: Protect AI systems and implement data governance measures to manage data quality and provenance. Focus on the unique characteristics of the AI system proposed or implemented.
4. Testing: Test AI models and systems to evaluate model performance and monitor the system once deployed.
5. Ensure control: Enable human control or intervention in an AI system to achieve meaningful human oversight across the life cycle, reducing the potential for unintended consequences and harms.
6. Create trust with users: Inform end-users regarding AI-enabled decisions, interactions with AI and AI-generated content. Instil confidence and trust in users by proper disclosure of the use of AI.
7. Establish processes: Create processes for users, organisations, people, and society impacted by AI systems to challenge how they are using AI and contest decisions, outcomes, or interactions that involve AI.
8. Be transparent: Be transparent with other organisations across the AI supply chain about data, models, and systems to help them effectively address risks.
9. Maintain records: Keep and maintain records to allow third parties to assess compliance with the guardrails.
10. Engage stakeholders: Evaluate their needs and circumstances, with a focus on safety, diversity, inclusion, and fairness. Conduct a stakeholder impact assessment to identify any potential bias or ethical prejudices in AI deployment.
The Government is also consulting on mandatory guardrails for AI in "high-risk" cases, which will largely build on the existing voluntary guardrails. The definition of "high-risk" AI is still under consideration. In a proposals paper, the Government suggested that "high-risk" could include two broad categories:
1. Intended and foreseeable use risks: This includes any adverse impacts on individual human rights or health and safety.
2. General purpose risks: This refers to AI that can be used for various purposes and adapted for different applications.
Key Takeaways

Licensees who are currently using or planning to use AI must ensure they are familiar with the existing regulatory framework for developing and deploying AI in Australia. They should strive to adhere to the best practices outlined by ASIC in REP 798 and embrace the standards set forth in the Government’s ten guardrails. We anticipate that these best practices and guardrails will be incorporated into future legislation, influencing regulators like ASIC in enforcing current regulatory requirements.

Implementing an appropriate risk and governance framework is just the first step. Licensees should proceed cautiously, conduct thorough due diligence, and establish effective monitoring to ensure their policies adequately address the ongoing risks and challenges associated with AI. However, licensees with robust technology platforms and a strong track record in risk management are well-positioned to experiment with AI and should feel confident in moving forward with this technology.

The authors would like to thank graduate Madison Jeffreys for her contribution to this alert.
Guidance to Organisations on the Offence of Failure to Prevent Fraud

Mon, 18 Nov 2024 00:00:00 -0000
On 6 November 2024, the government released its much-anticipated guidance on the offence of failure to prevent fraud (the Guidance), as introduced by the Economic Crime and Corporate Transparency Act 2023 (the Act).

Under the offence, corporates may be criminally liable where a person associated with the body corporate commits a fraud offence with the intention of directly or indirectly benefitting the company.

Corporates will have a defence if they can demonstrate that they have reasonable procedures in place to prevent fraud, or that in the circumstances it was not reasonable to expect the organisation to have prevention procedures in place.

The offence aims to make it easier for organisations to be held accountable for fraud committed for their benefit. It is intended to encourage stronger prevention procedures and inspire a change in corporate culture that collectively aims to prevent fraud.

This alert provides an overview of what might be considered “reasonable fraud prevention procedures”, as outlined by the recently published Guidance.

Reasonable Fraud Prevention Procedures

Organisations are advised to adhere to six principles when developing their fraud prevention framework. These are as follows:

Top Level Commitment

Responsibility for the prevention of fraud lies with those in charge of the governance of the organisation. This includes directors, partners, or senior managers. As part of their duty to prevent fraud, their role is likely to include:
- Advocacy of the company’s commitment to preventing fraud.
- Ensuring that there is a clear governance structure to prevent fraud.
- Dedication to training and resourcing.
- Creating a culture whereby employees feel confident to report suspected fraud.
Risk Assessment

The Guidance provides a “fraud triangle” to assist organisations in developing their fraud prevention procedures:

Opportunity

Is there an opportunity to commit fraud? Which departments have the greatest opportunity to commit fraud? How likely is detection of fraud? Is there anyone within the company that does not have appropriate oversight?

Motive

Has the organisation created a reward system that incentivises fraud? Do financial targets or time pressures encourage employees to cut corners? Does the corporate culture discourage whistleblowing?

Rationalisation

Does the organisation subtly tolerate fraud? Is it a sector whereby fraud is prevalent? Has there been an “emergency” scenario that might be perceived as justifying fraud? Are there adverse consequences if individuals speak up?

Organisations should continuously assess the extent and nature of the risk of fraud. Importantly, if an appropriate risk assessment has not been conducted, the courts may consider that “reasonable procedures” were not in place at the time the fraud was committed.

Proportionate Risk-based Prevention Procedures

An organisation’s fraud prevention procedures should be proportionate to the nature, complexity, and scale of its activities. When considering what constitutes a “proportionate” risk-based prevention procedure, organisations can consider the following:

Reducing Opportunities for Fraud

Does the company conduct pre-employment and vetting checks? Is anti-fraud training provided for high-risk roles? How is access to sensitive information monitored or restricted? Have any audits highlighted areas of particular concern that have not been addressed?

Reducing Motive

Can changes be made to internal reward structures? Can improvements be made to reduce pressures that encourage cutting corners? Does the organisation continually monitor potential conflicts of interest? Is it made clear that rationalisation of fraud or “ethical fading” is unacceptable?

Consequences

Are there clear reporting and disciplinary procedures? Are outcomes of investigations and enforcements communicated and understood?

In some instances, it might not be appropriate to introduce measures in response to a risk. However, it is advised that this decision be documented and justified. It is also important to review such decisions and implement procedures if, and when, necessary.

The Guidance also accepts that organisations are likely to be regulated under other regimes that require fraud prevention policies. Whilst it is not intended for organisations to duplicate existing work, corporates should be aware that it would not be an acceptable defence to argue that compliance under other regulations means the organisation automatically has “reasonable procedures” as required by the Act.

Due Diligence

When conducting due diligence, companies should take a proportionate and tailored risk-based approach.

For associated persons, this could include using technology to conduct checks into prior professional history, reviewing service contracts to ensure they contain compliance clauses, or monitoring the wellbeing of staff to ensure workload does not incentivise the commission of fraud.

With regards to mergers and acquisitions, it might involve using third-party tools, investigating any regulatory or criminal charges, reviewing tax documentation, identifying the firm’s risk exposure, and assessing their fraud prevention measures.

Communication (Including Training)

Clear communication should ensure that fraud prevention policies are embedded and understood throughout the organisation. This should be enforced across all levels of the organisation, not just by senior management.
It might be necessary for representatives of the organisation to undergo fraud prevention training. Such training should cover the nature of the offences most likely to be committed and should be reviewed and updated as necessary, especially when there are movements by staff.

Organisations should also have suitable whistleblowing procedures. Procedures might include implementing independent whistleblowing reporting channels, signposting whistleblowing arrangements, creating a culture in which people feel confident to raise concerns, and training staff so that they are aware of and understand the processes.

Monitoring and Review

Organisations should monitor and review their fraud prevention procedures and update them if, and when, necessary.

Monitoring includes the detection of fraud, the investigation of suspected fraud, and monitoring of fraud prevention measures.

The nature of the risks that organisations face will likely evolve over time. Organisations will need to respond to such changes by adapting their fraud detection and prevention procedures. The frequency of such reviews will be dependent on the organisation, but they should be conducted at regular intervals and with flexibility to conduct an earlier review if necessary.

What Does This Mean for Businesses?

Failure to prevent fraud will come into force as an offence on 1 September 2025. This gives organisations an opportunity to utilise the practical steps outlined by the Guidance to develop and implement reasonable fraud prevention procedures before the offence comes into effect.

However, the Guidance is not designed to act as a fully comprehensive checklist. Departure from the Guidance does not necessarily mean that reasonable fraud prevention procedures are not in place. Conversely, strict compliance does not in itself guarantee that reasonable procedures have been implemented. Everything will be considered on a case-by-case basis, and those with higher risks for fraud will be expected to address certain issues that others might not be.

Organisations should review, update, and monitor any existing and future fraud prevention procedures. The onus will be on organisations to demonstrate that on the balance of probabilities they have reasonable procedures in place.

If you have any questions on the Guidance, please do not hesitate to contact the K&L Gates White Collar Defense and Investigations team. We have experience in advising corporations on financial crime, developing anti-fraud procedures, and responding to internal and criminal investigations. Our team would be happy to offer our support to help your organisation navigate the new Guidance.
Competition and Consumer Law Round-Up

Fri, 15 Nov 2024 00:00:00 -0000
What's Inside this Issue?

This edition of the K&L Gates Competition & Consumer Law Round-Up provides a summary of recent and significant updates from the Australian Competition and Consumer Commission (ACCC), as well as other noteworthy developments in the competition and consumer law space. If you wish to have more details about the issues outlined in this newsletter or discuss them further, please reach out to any member of the K&L Gates competition and consumer law team.

Enforcement
- ACCC Commences Action Against Coles’ and Woolworths’ Illusory Promotions;
- Misleading Conduct Results in AU$100 million Penalty for Qantas; and
- Honda Penalised for Breach of Information Sharing Requirements.
Mergers and Acquisitions
- ACCC Raises Preliminary Concerns in Relation to Qube’s Proposed Acquisition of MIRRAT; and
- Bill to Enact Mandatory and Suspensory Merger Clearance Regime Introduced.
Notifications and Authorisations
- ACCC Does Not Object to Airservices Australia’s Proposal to Increase Prices.
Noteworthy Developments
- ACCC Releases Interim Report for Ongoing Supermarkets Inquiry;
- ACCC Releases Infringement Notices Guidelines for Telecommunications Companies;
- Treasury Releases Consultation Paper on Consumer Guarantees and Supplier Indemnification Provisions Under the ACL; and
- Albanese Government to Ban Unfair Trading Practices.
Click here to view the Round-Up.

Combatting Scams in Australia, Singapore, China and Hong Kong

Thu, 17 Apr 2025 00:00:00 -0000

Key Points:

Singapore's Shared Responsibility Framework
Comparing scams regulation in Australia, Singapore and the UK
China's Anti-Telecom and Online Fraud Law
Hong Kong's Anti-Scam Consumer Protection Charter and Suspicious Account Alert Regime

SINGAPORE

Shared Responsibility Framework

Types of Scams Covered

The scam must be perpetrated through the impersonation of a legitimate business or government entity;
The scammer (or impersonator) must use a digital messaging platform to obtain the account user's credentials;
The account user must enter their credentials on a fabricated digital platform; and
The fraudulently obtained credentials must be used to perform transactions that the account user did not authorise.

Duties of Financial Institutions

Table 1
Obligation	Description
12-hour cooling off period	Where an activity is deemed "high-risk", FIs must impose a 12-hour cooling off period upon activation of a digital security token. During this period, no high-risk activities can be performed In activity is deemed to be "high-risk" if it might enable a scammer to quickly transfer a large sum of money to a third party without triggering a customer alert. Examples include: Addition of new payee to the customer's account; Increasing transaction limits; Disabling transaction notification alerts; and Changing contact information.
Notifications for activation of digital security tokens	FIs must provide real-time notifications when a digital security token is activated or a high-risk activity occurs. When paired with the cooling off period, this obligation increases the likelihood that unauthorised account access is brought to the attention of the customer before funds can be stolen.
Outgoing transaction alerts	FIs must provide real-time alerts when outgoing transactions are made.
24/7 reporting channels with self-service kill switch	FIs must have in place 24/7 reporting channels which allow for the prompt reporting of unauthorised account access or use. This capability must include a self-service kill-switch enabling customers to block further mobile or online access to their account, thereby preventing further unauthorised transactions.

Duties of Telecommunications Providers

In addition to the obligations imposed on FIs, the SRF creates three duties for telecommunications service providers (TSPs). These duties are set out in table 2 below.

Table 2
Obligation	Description
Connect only with authorised alphanumeric senders	In order to safeguard customers against scams, any organisation wishing to send short message service (SMS) messages using an alphanumeric sender ID (ASID) must be registered and licensed. TSPs must block the sending of SMS messages using ASIDs if the sending organisation is not appropriately registered and licensed.
Block any message sent using an unauthorised ASID	Where the ASID is not registered, the TSP must prevent the message from reaching the intended recipient by blocking the sender.
Implement anti-scam filters	TSPs must implement anti-scam filters which scan each SMS for malicious elements. Where a malicious link is detected, the system must block the SMS to prevent it from reaching the intended recipient.

Responsibility Waterfall

^{Source: Tamsyn Sharpe.}

HOW DOES THE SRF COMPARE TO THE MODELS IN AUSTRALIA AND THE UK?

Scam Coverage

Entities Captured

Falling in-between these two models is Singapore's SRF which applies to FIs and TSPs.

Liability for Losses

CHINA

Anti-Telecom and Online Fraud Law of the People's Republic of China

Scope

Obligations of Banking FIs

Banking FIs are required to implement risk management measures to prevent accounts being used for TNF. Appropriate policies and procedures may include:

Conducting due diligence on all new clients;
Identifying all beneficial owners of funds:
Requiring frequent verification of identity for high-risk accounts:
Delaying payment clearance for abnormal or suspicious transactions: and
Limiting or suspending operation of flagged accounts.

Obligations of TSPs and ISPs

HONG KONG

Anti-Scam Consumer Protection Charter

Under the Charter, participating institutions agree to:

Refrain from sending electronic messages containing embedded hyperlinks. This allows customers to easily identify that any such message is a scam.
Raise public awareness of common digital fraud.
Provide customers with appropriate channels to allow them to make enquiries for the purpose of verifying the authenticity of communications and training frontline staff to provide such support.

More recently, the Anti-Scam Consumer Protection Charter 2.0 was created to extend the commitments to businesses operating in a wider range of industries including:

Retail banking;
Insurance (including insurance broking);
Trustees approved under the Mandatory Provident Fund Scheme; and
Corporations licensed under the Securities and Futures Ordinance.

Suspicious Account Alerts

Bank accounts prior to making an electronic funds transfer;
Phone numbers based on incoming calls; and
Websites upon launch of the site by the customer.

In addition to receiving real-time alerts, users can also manually search accounts, numbers or websites in order to determine the associated fraud risk.

KEY TAKEAWAYS

Look out for our next article in our scams series.

The authors would like to thank graduate Tamsyn Sharpe for her contribution to this legal insight.

Payroll Tax, Amnesties and Related Developments for Health Practices

Fri, 11 Apr 2025 00:00:00 -0000

Key Take-Aways

Health practitioners should:

Review specific legislation and rulings applicable to the states(s) in which they operate;
Determine what amnesties or relief are available under their contractual arrangements with practitioners;
Assess the merits of voluntary disclosure and associated potential benefits (where available);
Review the advantages and disadvantages of their current contractual relationship with practitioners from both a payroll tax and nonpayroll tax perspective; and
Seek legal advice to ensure they take steps appropriate to their circumstances.

Snapshot – Payroll Tax Relief for Health Practices in Australia

Practices should consider whether doing so is suitable in their particular circumstances and interests, having regard to all their circumstances (and not just in respect of payroll tax).

Payroll Tax Wage Thresholds	Payroll Tax Relief for Health Practices
New South Wales
Wages threshold: AU$1.2 million	General practitioners: From 4 September 2023 to 3 September 2024, a 12-month pause on payroll tax audits (or the application of penalty interest) for general practitioner (GP) practices. More recent announcements have confirmed payroll tax on payments to contracted GPs before 4 September 2024, will be exempt. From 4 September 2024, a rebate is available for practices where at least 70% (80% in metropolitan Sydney) of GP services are bulk billed. The rebate will apply by excluding the amount of payroll tax that would have applied to the relevant amounts paid to GPs.
Queensland
Wages threshold: AU$1.3 million	General practitioners: Wages paid by a medical practice to a GP are exempt from payroll tax, following recent amendments to the Payroll Tax Act 1971 (Qld). These enshrine the amnesty previously available to GPs since 1 December 2024, under an administrative arrangement. Dental practitioners: A limited amnesty is available for payments to contracted dentists from 1 July 2018 to 30 June 2025, PROVIDED, the practice must have (among other things) registered for payroll tax and made voluntary disclosure to the Queensland Revenue Office by 30 June 2025.
Victoria
Wages threshold: AU$900,000	General practitioners: Up to 30 June 2025, relief may be available for any payments to contracted GPs by practices which have not paid payroll tax for their contracted GPs (or received advice that payroll tax was payable) before 30 June 2024. From 1 July 2025, under new legislation in Victoria, exemptions will apply for wages paid or payable to GPs, although limited to payments relating to bulk-billed consultations.
South Australia
Wages threshold: AU$1.5 million Tax is applied to total wages less a deduction of up to AU$600,000.	General practitioners: From 1 July 2018 to 30 June 2024, an amnesty is available for this period for payments to contracted GPs where practices registered for payroll tax and made voluntary disclosure to RevenueSA. From 1 July 2024, an exemption is now available for payments relating to bulk-billed consultations. Medical specialists and dentists: Up to 30 June 2024, no similar exemption or amnesty is available to medical specialists or dental practices for the period after 30 June 2024. However, retrospective relief is available to specialists or dental practices who registered with RevenueSA prior to 30 June 2024.
Australian Capital Territory
Wages threshold: AU$2 million	General practitioners: Up to 30 June 2023, unpaid payroll tax has been waived on payments to GPs prior to 30 June 2023. From 1 July 2023 to 30 June 2024: An amnesty is available for this period for payments to contracted GPs where the practice: Registered for payroll tax by 29 February 2024 Bulk billed at least 65% of GP attendances. Registered for MyMedicare.
Tasmania
Wages threshold: AU$1,250,001	Tasmania has not announced any amnesties or concessions.
Northern Territory
Wages threshold: AU$1.5 million	The Northern Territory has not announced any amnesties or concessions.
Western Australia
Wages threshold: AU$11 million	Western Australia does not levy payroll tax on payments to contractors.

Queensland Legislates Permanent Relief for GPs

Payroll Tax and "Relevant Contractor" Provisions for Health Practices

The practitioner is providing a service to the practice;
There is a relevant payment from the practice to the practitioner "in relation to the performance of work";
The business exceeds the applicable threshold for payroll tax (which can include consideration of other "grouped" businesses); and
Any exemptions or exceptions apply.

Broader Contracting Issues

More Changes on the Horizon

More change at state and federal levels remains possible from potential new legislation and anticipated court decisions, namely:

The various state governments and revenue authorities can be expected to consider their positions regarding payroll tax for contractors, particularly in light of the recent legislative changes in Queensland.
In New South Wales, a Parliamentary inquiry has commenced to undertake a broader review of the legislated contractor provisions. The inquiry's terms of reference indicate a focus on on-demand and "gig economy" workers, but the inquiry may have broader implications for how health practices and other businesses contract and establish payment arrangements with practitioners.
In September 2024, Uber Australia Pty Ltd (Uber) successfully challenged its liability for payroll tax in New South Wales in relation to payments made to drivers. The Supreme Court of New South Wales concluded that the payment from Uber to drivers was not taxable for payroll tax purposes, taking a narrower interpretation of the legislation than in some other recent decisions (such as, in a case involving a medical practice, Thomas and Naaz Pty Ltd). However, Revenue NSW appealed that decision. The appeal has yet to be heard, and the result will be keenly followed nationally.

Case Alert: Repetitious Claims in Adjudication

Thu, 10 Apr 2025 00:00:00 -0000
Executive Summary

The South Australian Court of Appeal (Court of Appeal) in Goyder Wind Farm 1 Pty Ltd v GE Renewable Energy Australia Pty Ltd & Ors has delivered a landmark judgment.

The decision provides much needed clarity as to when, and in what circumstances, a contractor may (and may not) repeat claims made under the statutory security of payment (SoP) regime.

While this is a decision of the Court of Appeal and its direct impact will be limited to projects in South Australia (SA), the decision is likely to be applicable under the equivalent SoP regimes which exist in all other Australian states and territories (except the Northern Territory). The other interstate SoP regimes are drafted in similar, and often exactly the same, terms, albeit the various regimes also differ in other respects.

The Court of Appeal considered the following issues:
- Whether the principle of Anshun estoppel, whether described in that way or in terms of an abuse of process, applies to subsequent payment claims and adjudication applications under the SoP regime; and
- If so, whether that principle, howsoever described, applied to prevent the contractor from making and prosecuting the second payment claim for delay costs in respect of extension of time claims made by the Contractor.
The Court of Appeal held:
- There is no scope under the Building and Construction Industry Security of Payment Act 2009 (SA) (SoP Act) for the common law doctrine of issue estoppel or, consequently, the extended doctrine of Anshun estoppel to operate against a payment claim or an application for an adjudication determination under that Act. This is a finding of some significance, given there was some uncertainty about this issue following earlier authorities.
- There, however, remains scope for the operation of a doctrine of preclusion under the SA SoP Act, in regard to conduct which may be characterised as an abuse of the processes of that Act. This is again a significant finding and provides useful clarification as to the limits which may be placed on the alleged repetition of claims.
- In this case, it was not an abuse of the processes of the SA SoP Act for the Contractor to have included different categories of delay costs in subsequent payment claims. That is, there was no repetition of claims as a matter of fact, despite that the claims arose out of the same delay events. This is also despite the earlier articulation of the delay costs claim in a Notice of Arbitration.
Background

The case relates to a significant wind farm project in country SA. The joint venture Contractor claimed it was entitled to various extensions of time and delay costs attributable to Principal caused access delays. These access delays were alleged to have been caused by delays in obtaining environmental approvals.

The Contractor issued two separate payment claims (in February 2024 and April 2024) in respect of different reference dates. It subsequently made two separate applications for adjudication of those payment claims, both of which resulted in adjudication determinations. The Principal sought to quash the second adjudication determination by way of judicial review, on the basis that the second adjudication application was a reagitation of the first. Both the primary judge and the Court of Appeal found that there was no overlap between the first and second payment claims.

The judge at first instance dismissed the Principal’s application for judicial review. Whilst the judge accepted that the two claims arose from a common cause of delay, it did not follow that delay costs arising from the same delay constituted a singular claim for delay. The Principal appealed the judge’s decision.

Court’s Findings and Commentaries

The Court of Appeal dismissed the appeal. The Court of Appeal, having regard to the provisions of s32 of the SoP Act, did not consider the common law concept of issue estoppel to be applicable. It then followed that an extended doctrine of Anshun estoppel was similarly inapplicable. The Court of Appeal held that this was not to say that there is no scope for the operation of a doctrine of preclusion under the SoP Act; however, this would likely be made pursuant to an application for an abuse of process.

The Court of Appeal went on to consider whether the Contractor’s submission of two payment claims for delay costs amounted to an abuse of process, however, it could not conceive of a situation where nonoverlapping claims for delay costs amounted to an abuse. That is, there would at least need to be factual repetition of claims for there to be an abuse of process, noting, however, that repetition alone may not be sufficient.

Takeaways

For the construction industry, the key takeaways are:
- The SoP Acts themselves set certain limits on the making of claims. In particular, under s13(5), only one payment claim may be made in respect of each reference date. Under s22(4), an adjudicator must value work the same as has been previously determined, unless the value has changed. These provisions provide for some amount of “finality” in the adjudication process. The SoP Act, however, concerns progress payments and expressly does not finally determine the parties’ rights and obligations in respect of payment. The SoP Acts are therefore relevantly different to other sorts of proceedings, in which the doctrines of issue and Anshun estoppel apply. The Court of Appeal rejected the imposition of additional limitations on the making of nonoverlapping claims on the basis of these broader legal doctrines.
- A contractor may therefore claim nonoverlapping components of a delay costs claim in separate payment claims (so long as the making of such claims is otherwise within the other limitations set by the SoP Act, such as the requirement for claims to be within the six-month period mandated by s13(4)(b)).
March 2025 ESG Policy Update—Australia

Mon, 07 Apr 2025 00:00:00 -0000
Australian Update

Resistance to Australian Securities Exchange Corporate Governance Council’s Diversity Reforms Signals Decline in Environment, Social and Governance Commitment

The recent decision by the Australian Securities Exchange (ASX) Corporate Governance Council to close consultation and halt its proposed update to the fourth edition of the ASX Corporate Governance Principles and Recommendations has sparked significant debate within the investment community, particularly concerning environmental, social and governance (ESG) criteria. Institutional investors had supported the proposed changes, which aimed to enhance diversity and inclusion within corporate boards by requiring them to report their diversity characteristics beyond gender to include sexuality, age, Indigenous heritage and disability. However, resistance from major business groups led to the plan’s rejection, highlighting a divide between regulatory ambitions and industry readiness.

The proposed update included measures to improve document accessibility, strengthen shareholder relationships and promote diversity. Despite broad and extensive consultation since February 2024, the initiative was ultimately shelved due to concerns about increased regulatory burdens and the lack of a cost-benefit analysis, thwarting achieving consensus. This decision underscores the challenges ESG initiatives face, even as investors increasingly recognise the value of diversity in driving long-term value.

The debate reflects broader tensions in the ESG landscape, where efforts to integrate social and governance factors into investment strategies often encounter resistance. As the investment community continues to push for meaningful ESG integration, the need for clear, consistent and practical guidelines remains critical. The halted update serves as a reminder of the ongoing struggle to balance regulatory requirements with industry capabilities and appetites and the balance required to pursue sustainable, inclusive growth for all stakeholders.

Financial Bodies Endorse Australian Government’s Bipartisan Commitment to Paris Agreement Goals Towards Positive Investment Outcomes

Twelve peak financial bodies have issued a joint statement voicing their commitment to the climate goals of the Paris Agreement, noting that joint support and actions to limit climate change make “good financial sense”. The statement of commitment comes at a turbulent time for global ESG efforts, with the newly appointed Donald Trump administration withdrawing the United States from the Paris Agreement. This move has brought about further uncertainty with news of global businesses scaling back net-zero commitments and ESG-focussed initiatives.

The bodies reiterate and remind the investment industry of the potential financial upside of a net-zero economy—citing mid-range estimates which indicate global gross domestic product (GDP) being 7% higher in 2050 if emissions fall steadily to net zero when compared to a scenario in which current climate policies remain unchanged, with other estimates suggesting a 50% global GDP benefit by 2090.

The world’s push towards a net-zero economy has created financial opportunity, with global investment in the net-zero transition reaching AU$3.3 trillion in the last year.

The bodies have called for all levels of Australian government to continue supporting Australia’s transition to a clean, competitive, resilient and prosperous net-zero economy and made it clear that doing so will allow Australia to reap the financial rewards.

AU$2 Billion Investment in Clean Energy Finance Corporation

The Future Made in Australia (Production Tax Credit and Other Measures) Act 2024 (Legislation) was passed into law on 14 February 2025.

The Legislation, reported on previously by K&L Gates here, establishes two tax incentives:
1. Hydrogen Production Tax Offset (HPTI): a refundable tax offset of AU$2 per kilogram of eligible hydrogen which is produced from eligible facilities; and
2. Critical Minerals Production Tax Incentive: a refundable tax offset of 10% for eligible expenditure, incurred in the processing and refining of designated critical minerals, such as lithium and nickel.
These can be claimed for up to 10 years, for eligible minerals produced between 1 July 2027 to 30 June 2040. In relation to the HPTI, there is no cap on the amount a company can receive, although it will only be available for the specified period.

The incentives are available to companies that satisfy the eligibility requirements, which broadly includes, among other things, being a constitutional corporation, satisfying the relevant residency requirements, and meeting the community benefit principles implementation requirements.

They form part of the Government’s Future Made in Australia Policy (Policy), which was allocated AU$22.7 billion as part of the 2024–25 Budget, and a further AU$3.2 billion in the 2025–26 Budget. The Policy is aimed at enabling Australia to meet its international commitment to emission reductions and supporting the growth of a competitive renewable hydrogen industry, and other clean energy assets in Australia.

Superannuation Trustee Ordered to Pay AU$10.5 Million Penalty for Greenwashing Misconduct

On 18 March 2025, the Federal Court of Australia (Federal Court) imposed a penalty of AU$10.5 million against a superannuation trustee (Trustee) for greenwashing misconduct following a court action brought by the Australian Securities and Investments Commission.

The Federal Court found that the Trustee contravened the law by investing in securities that had been marketed as eliminated or restricted by its ESG investment screens.

The Trustee claimed it had eliminated investments that posed too great a risk to the environment and community, including gambling, coal mining and oil tar sands. The Trustee also represented that it would no longer partake in Russian investments following the invasion of Ukraine.

However, the Trustee was found to have held direct and indirect investments in a Russian entity, as well as gambling, oil tar sands and coal mining companies.

His Honour, Justice O’Callaghan, found that the Trustee:

“benefitted from misleading conduct by misrepresenting the ethical nature of a significant part of its investments, which on any view enhanced its ability to attract investors and enhanced its reputation as a provider of investment funds with ESG characteristics”.

Aggravating factors included that the conduct occurred over a two-and-a-half-year time period, the investments were substantial, the misconduct was likely to lead to a loss of confidence from investors in ESG programs, and there was a failure to have properly functioning systems and processes in place to prevent false or misleading representations.

Australian Competition and Consumer Commission Agrees to AU$8.25 Million Penalty Against Cleaning Product Manufacturer for Alleged Greenwashing Conduct

On 7 February 2025, the Australian Competition and Consumer Commission (ACCC) and a large multinational manufacturer of cleaning products (Company) agreed to a penalty of AU$8.25 million for making misleading representations that certain kitchen and garbage bags were made with “50% Ocean Plastic” or “50% Ocean Bound Plastic”. The ACCC further contended that wave imagery and the use of blue-coloured bags supported this impression.

Instead, the bags were partly made from plastic bags collected from Indonesian communities up to 50 kilometres from a shoreline, and not from the ocean.

In April 2024, the ACCC commenced Federal Court proceedings against the Company for greenwashing.

ACCC Chair, Gina Cass-Gottlieb, said the alleged conduct

“deprived consumers of the opportunity to make informed purchasing decisions and may have put other businesses making genuine environmental claims at an unfair disadvantage.”

The ACCC alleged that the conduct affected approximately 2.2 million customers.

The ACCC accepted that the conduct was not part of a deliberate strategy; however, senior management of the Company was aware of the potential issue.

The imposition of the penalty is subject to Federal Court approval.

This case underscores the ACCC’s commitment to combatting greenwashing and highlights the need for entities to scrutinise the legitimacy of their green claims.

View From Abroad

European Commission Amends Rules on Sustainability

On 26 February 2025, the European Commission published its sustainability omnibus proposals to amend the following European Union rules:
- The Corporate Sustainability Reporting Directive (CSRD);
- Delegated acts published under the Taxonomy Regulation (Taxonomy Regulation); and
- The Corporate Sustainability Due Diligence Directive (CSDDD).
The European Commission believes the proposed changes will encourage a more favourable business environment by ensuring that companies “are not stifled by excessive regulatory burdens” and continue to have access to sustainable finance for their clean energy transition.

Notable changes include:
- Removing 80% of companies from the scope of CSRD where mandatory reporting obligations would only be applicable to large companies with more than 1,000 employees and companies with a turnover of above AU$50 million;
- Postponing by two years (until 2028), the reporting obligations of companies that fall within the new scope of CSRD;
- Revising and simplifying the sustainability reporting templates that must be used to report information under the CSRD;
- Introducing an option to report on activities that are aligned with the Taxonomy Regulation to emphasise finance transition;
- Simplifying due diligence obligations of companies that fall within the scope of CSDDD to avoid unnecessary complexities and costs;
- Postponing by one year (to 26 July 2028), the application of the sustainability due diligence requirements for in-scope companies; and
- Limiting the amount of information that may be requested by large companies in relation to their value chain mapping activities to reduce the trickle-down effect and to protect small-to mid-sized enterprises.
It is estimated that the adoption of the sustainability omnibus proposals will save a total of €6.3 billion in annual administrative costs. However, although the proposals can potentially save costs and unlock more investment opportunities in the future, there is a risk that fund management companies and other financial market participants will experience data challenges if the proposed changes in the CSRD and Taxonomy Regulation reporting requirements are implemented.

The proposed changes will now be submitted to the European Parliament and the Council of the European Union. The European Commission currently invites its co-legislators to prioritise the consideration and adoption of the sustainability omnibus proposals.

President Donald J. Trump Presents America-First Energy Policy Agenda to Congress

On 4 March, President Trump presented his “America First” energy policy agenda (Agenda) in an address to US Congress. President Trump asserted that the Agenda would have wide-ranging impacts on companies operating in energy, environmental and national resources sectors.

A key motivation of this Agenda is to rapidly reduce the cost of energy in an attempt to boost the economy and reduce inflation rates by extensive deregulation.

The Agenda follows the United States’ withdrawal from the Paris Agreement and plans to develop a natural gas pipeline in Alaska to support liquefied natural gas exports to Asia, as well as the numerous executive orders and memoranda signed by President Trump shortly following his inauguration and titled as follows:
- Unleashing American Energy;
- Declaring a National Energy Emergency;
- Ensuring Accountability for All Agencies;
- Temporary Withdrawal of All Areas of the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects;
- Unleashing Alaska’s Extraordinary Resource Potential;
- Unleashing Prosperity through Deregulation; and
- Establishing the National Energy Dominance Council.
For further information on the Agenda, please see the Policy and Regulatory Alert written by our colleagues in the United States here.

The authors would like to thank graduate Aibelle Espino for her contributions to this alert.
Recent and Emerging Employment Law Changes Impacting Australian Employers

Mon, 07 Apr 2025 00:00:00 -0000
Not long after intentionally underpaying employees became a criminal offence on 1 January 2025, additional workplace changes have been announced or made by the federal Labor government to further protect workers and stimulate productivity.

Code of Practice on Sexual and Gender-Based Harassment

The Work Health and Safety (Sexual and Gender-based Harassment) Code of Practice 2025 (Code), which applies to all workplaces covered by the Work Health and Safety Act 2011 (Cth) (WHS Act), commenced on 8 March 2025.

The Code:
- Gives examples of what sexual and gender-based harassment might look like;
- Addresses 'good practice' in relation to investigations concerning sexual or gender-based harassment; and
- Outlines a four-step risk management process that employers should proactively use to eliminate or minimise the risk of sexual and gender-based harassment as far as is reasonably practicable.
While the Code is not law, it is admissible in court proceedings under the WHS Act and Work Health and Safety Regulations 2011 (Cth) and courts may look to the Code:
- As evidence of what is known about a hazard, risk assessment or control measures; and
- To determine what is reasonably practicable in the circumstances.
The Code recognises that sexual and gender-based harassment often occurs in conjunction with other psychosocial hazards and therefore the Code should be read and applied with the Work Health and Safety (Managing Psychosocial Hazards at Work) Code of Practice 2024.

Work-From-Home Term to be Added to Clerks Award

In August 2024, the Fair Work Commission commenced proceedings on its own initiative to develop a work-from-home term in the Clerks—Private Sector Award 2020 (Clerks Award). The term is intended to facilitate the making of practicable 'working from home' arrangements and to remove award impediments to such arrangements.

The Commission has identified various issues to be determined, such as how 'working from home' should be defined and how the term should interact with the right to disconnect. The term is likely to serve as a model for incorporation in other modern awards, and therefore any interested party is invited to participate in the proceedings (not just parties with an interest in the Clerks Award).

Interested parties originally had until Friday 28 March to file proposals for a working from home clause, as well as submissions and evidence. This has now been extended until a date to be determined at the directions hearing listed for 6 June 2025. In the meantime, the matter has been listed for a conference on 11 April 2025 to discuss the substantive issues that will arise in the matter.

Ban on Non-Competes

The Labor government announced in last week's 2025-26 Federal Budget that it plans to introduce a ban on non-compete clauses for workers earning less than the high-income threshold under the Fair Work Act 2009 (currently AU$175,000). Importantly, for the purposes of the high-income threshold, 'earnings' do not include incentive-based payments, bonuses or superannuation contributions. The government is still considering exemptions, penalties and transition arrangements.

At this stage, the proposed ban is just in relation to clauses preventing or restricting workers moving to a competing employer or starting a competing business. However, the Government has indicated that it will further consider and consult on non-solicitation clauses for clients and co-workers and non-compete clauses for high-income workers. The government also plans to restrict 'no-poach' agreements, where businesses agree not to hire workers from certain other businesses.

If the ban becomes law, it would take effect from 2027 and operate prospectively. In the meantime, employers should consider reviewing their employment contracts to ensure that their confidential information, trade secrets and intellectual property clauses continue to protect their business in the event the proposed ban on non-compete clauses proceeds.

Employers should also consider reviewing current notice periods, to ensure they are calibrated to provide sufficient protection, having regard to the nature of an employee's role (including their level of access to customers and confidential information).

Anti-Vilification Protections to Expand Beyond Race and Religion

On 2 April 2025, Victoria's Labor Government 's Justice Legislation Amendment (Anti-vilification and Social Cohesion) Bill 2024 (Bill) was passed by the Legislative Council and will shortly pass the Legislative Assembly without further amendment.

Currently, Victorians are protected from vilification on the grounds of their race or religion under the Racial and Religious Tolerance Act 2001. The Bill repeals the Racial and Religious Tolerance Act 2001 and a new section 'Prohibition of vilification' will be inserted into the Equal Opportunity Act 2010.

Victorians will be protected from unlawful vilification based on a broader range of attributes:
- Disability;
- Gender identity;
- Race;
- Religious belief or activity;
- Sex, sexual orientation or sex characteristics; or
- Personal association (whether as a relative or otherwise) with a person who is identified by reference to any of the above attributes.
The test to be applied will be based on whether a 'reasonable person with the protected attribute' would consider the conduct hateful or severely ridiculing. Vilification may occur in any form of communication, including for example by posting a photo on social media that severely ridicules someone with a protected attribute.

Additionally, serious vilification offences, such as threatening physical harm, will be criminalised and be punishable by up to five years' imprisonment.

Whilst this is limited to Victorian law, it is possible that other States and Territories may enact similar legislation.
Australian Mandatory Merger Clearance: Regime Details starting to Emerge–Government publishes Draft Determination, ACCC publishes Draft Guidelines

Mon, 31 Mar 2025 00:00:00 -0000
On 28 March 2025, the Australian Government (the Government) published its draft Determination providing the beginnings of detail about the acquisitions that are the subject of mandatory notification, some of the exceptions to notifications, the position regarding supermarket acquisitions and the draft notification forms.

On the same day, the Australian Competition and Consumer Commission (ACCC) published its draft merger process guidelines, following on from its earlier analytical, and transition guidelines.

This Insight is part of a series of publications designed to guide clients through the upcoming Australian mandatory merger clearance regime, as the details becomes available.

In Brief

Whilst this Insight focuses on the key definitions in the Government's draft Determination, We will shortly publish additional articles focusing on the ACCC's draft guidelines. The determination:
- Confirms or defines the types of acquisitions that are the subject of the regime.
- Clarifies that the test for whether an acquisition is to be notified is based on the turnover of the acquirer and the target – and no other measure.
  
  It then clarifies that the relevant measure of turnover of each of the acquirer and the target is the current Goods and Services Tax (GST) Turnover of the relevant entity and connected entities (being associated entities and controlled entities).
As a practical matter, this means the following for parties seeking to enter into negotiations for mergers and acquisitions (M&A), including considering the broader meaning of "acquisition", at an early stage of the proposed acquisition or deal:
- The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
- The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million or the AU$500 million threshold;
- The above calculation will also be relevant to the calculation of the AU$50 million or AU$10 million threshold; and
- The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction for assessment of the AU$250 million transaction value threshold.
The same assessment in respect of serial or creeping acquisitions is set out below.
- It provides detail about exceptions from notification under the regime, namely acquisitions:
  
  Of land in certain circumstances;
  
  By liquidators/administrators etc;
  
  In the context of succession; and
  
  Of financial securities, exchange traded derivatives, in money lending situations and in trust circumstances.
- Mandatory notifications in the case of acquisitions by Coles or Woolworths.
- The information requirements in Notification Forms – short and long-form.
In More Detail

As previously mentioned, the Government recently released the exposure draft of the Competition and Consumer (Notification of Acquisitions) Determination 2025 (Determination) and related draft explanatory memorandum.

Additionally, on 28 March 2025, the ACCC published its draft merger process guidelines, building on its earlier draft analytic guidelines and transition guidelines.

As clients are focused on what amounts to a notifiable acquisition and if a transaction is notifiable, and what information is required to be provided to the ACCC, this insight focuses on the Determination. We will shortly publish a follow-up insight focusing on the process of interaction with the ACCC both informally and once a formal application is made.

What is an Acquisition

The Determination confirms that acquisitions are mandatorily notifiable in the following circumstances:
- The acquisition is of shares in the capital of a body corporate or assets;
- The shares or assets are "connected with Australia";
- The acquisition satisfies the combined acquirer/target turnover test on the contract date or the accumulated acquired shares or assets turnover tests (set out in more detail below); and
- The acquisition is not covered by the exceptions.
We elaborate on these issues below, apart from confirming that the term "assets" is very broad, including:
- Any kind of property;
- Any legal or equitable interests in tangible assets such as options for land, leases etc;
- Any legal or equitable right that is not property or intangible assets such as intellectual property, goodwill etc;
- Any interest in an asset of a partnership, or an interest in a partnership that is not an interest in an asset of the partnership; and
- Interests in unit trusts and managed investment schemes.
What is an Acquisition That is "Connected to Australia"

An acquisition is notifiable if it meets the thresholds (below) and it is an acquisition of shares or assets connected with Australia. This means in relation to:
- A share: the share is in the capital of a body corporate that carries on business in Australia or intends to carry on business in Australia; or
- An asset that is an interest in an entity: the entity carries on business in Australia or intends to carry on business in Australia.
How the Turnover Tests are Assessed

General or Economy Wide Turnover

The general or economy wide turnover test for mandatory notification is as follows:
- The acquirer or acquirer group and target have a combined Australian turnover of at least AU$200 million; and either
- The Australian turnover of the target is at least AU$50 million (for each of at least two of the merger parties); or
- The global transaction value is at least AU$250 million.
The Determination has clarified how the turnover is to be calculated:
- In relation to the acquirer or target turnover test, if the sum of all of the following is AU$200million or more:
  
  The current GST turnover of each of the principal party or acquirer, together with each connected entity of the principal party;
  
  Where the target acquisition is in shares of a body corporate, the current GST turnover of the body corporate and each connected entity of the body corporate; and
  
  Where the target is an asset, the current GST turnover of the target attributable to the asset,
AND
- In relation to the target, the acquired shares or assets turnover test is the sum of all of the following is AU$50 million or more:
  
  Where the acquisition is in shares in a body corporate, the current GST turnover of the body corporate together with the current GST turnover of each connected of the body corporate; and
  
  Where the acquisition is of an asset, the current GST turnover of the target to the acquisition to the extent that is attributable to the asset.
In relation to the above:
- Connected entity meaning an associated entity as per section 50AAA of the Corporations Act, and any entity controlled by the principal party as per section 50AA of the Corporations Act; and
- Current GST turnover (which is well understood by business given it is used by business to report the value of their taxable and GST free supplies) has the same meaning as section 188-15 of A New Tax System (Goods and Services Tax) Act.
In relation to the assessment of the AU$250 million transaction value, an acquisition will meet this threshold if the greater of the following is AU$250 million or more:
- The sum of all market values of all of the shares and assets being acquired as part of the contract or arrangement; or
- The consideration received or receivable for all of the shares and assets being acquired as part of the contract or arrangement.
As a practical matter, this means the following for parties seeking to enter into negotiations for M&A, including considering the broader meaning of "acquisition", at an early stage of the proposed acquisition or deal:
- The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
- The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million threshold;
- The above calculation will also be relevant to the calculation of the AU$50 million threshold; and
- The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction.
Very Large Corporate Group Turnover

The very large corporate group turnover test for mandatory notification is as follows:
- The acquirer or acquirer group (i.e. the principal acquirer party and each connected entity) have a combined Australian current GST turnover of at least AU$500 million; and
- The Australian current GST turnover of the target (the same approach to the assessment being the same as above) is at least AU$10 million (for each of at least two of the merger parties).
The Assessment of Serial or Creeping Acquisition

An acquisition satisfies the AU$50 million or AU$10 million threshold for accumulated acquired shares or assets turnover test for notification if:
- The acquisition is of shares or assets; and
- The principal acquirer or each connected entity have acquired other shares or assets in the three years ending the date of entering into the agreement or arrangement; and
- Both the current acquisition (of shares or assets) and the previous acquisition, related directly or indirectly to the carrying on of a business involving the supply or acquisition of the same or substitutable or otherwise competitive with each other (disregarding geographic factors or limitations); and
- The acquisition of the previous shares or assets and the current shares or assets, if treated as a single acquisition would satisfy the AU$50 million or AU$10 million acquired shares or assets turnover test; unless
- The current GST turnover of the target of the current acquisition (and as relevant connected entities) is less than AU$2 million.
Exceptions to the Requirement Make a Mandatory Notification

In addition to the exception to the requirement to notify in respect of acquisition of partial shareholdings that was included in the amending Act, the Determination sets out that acquirers are not required to notify in the following circumstances:

Certain Land Acquisitions
- Land acquisitions made for the purposes of developing residential premises; and
- Acquisitions by businesses primarily for engaging in buying, selling or leasing land, where the acquisition is for a purpose other than operating a commercial business on land (i.e. the exemption is for property development or operating a property development business rather than operating a commercial business on the premises).
Liquidation, Administration or Receivership
- An acquisition by a person in the person's capacity as an administrator, receiver, and manager, or liquidator (within the meaning of the Corporations Act).
Financial Securities
- An acquisition that results from a rights issue, a dividend reinvestment and underwriting of fundraising or buybacks, or an issue of securities (as per the Corporations Act).
Money Lending and Financial Accommodation
- An acquisition of shares or assets that is a security interest taken or acquired in the ordinary course of business of the person's business of the provision of financial accommodation (as long as the person whose property is subject to the security interest is not an associate of the acquirer).
Nominees and Other Trustees
- An acquisition of an asset, that is an interest in securities, by a person as a bare trustee, if a beneficiary under the trust has a relevant interest in the securities.
Exchange-Traded Derivatives
- An acquisition of an asset in the form of exchange-traded derivative and if at the time, the derivative confers an equitable interest in a share or assets, the acquisition of that equitable interest.
Notification Requirements for Coles and Woolworths

The Determination requires Coles and Woolworths (major supermarkets) and connected entities to make a notification for any acquisition of shares or assets that results in:
- Coles or Woolworths acquiring in whole or in part, a supermarket business (a supermarket business as defined in section 5 of the Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2024; or
- Coles or Woolworths acquiring a legal or equitable interest in land (in whole or in part), either existing land that has a building with a gross lettable area of 700sqm or if it does not have an existing building, the land is 1,400sqm,
UNLESS
- The acquisition is not the extension or renewal of a lease for land upon which Coles or Woolworths was already operating a supermarket on the land.
Notification Forms – Information and Documentary Requirements

The Determination sets out the requirements for each of Short-Form Notifications (for acquisitions that were unlikely to raise competition concerns) and Long-Form Notifications (for acquisitions that required greater consideration of their effect on competition).

The Determination sets out in more detail the requirements and form of each of these notification forms, but in brief, the following are required (identifying the additional requirements for long-form application):

Documents
- The final or most recent version of the transaction documents (including sale and purchase agreements, heads of agreement, offer documents/letters of intent and any other agreements between the transaction parties related to the acquisition);
- For each party, the most recent audited financial statements and income statements that relate to the supply of goods or services most relevant to the competition analysis; and
- An organisational chart to show structure of ownerships of each party and connected entities.
In addition, for Long-Form Applications, documents from each of the parties prepared for or received by the Board, Board Committee, or equivalent (possibly Executive or senior leadership team), or the shareholders meeting within the three years prior to the date of the notification regarding:
- The rationale for the acquisition, including the business case for the acquisition or divestment;
- The assessment of acquisition including the valuation of the target; and
- Industry reports, market reports etc provided to the Board or equivalent within the previous three years describing competitive conditions, competitors, market shares and business plans (unrelated to the acquisition).
Information
- The party names, contact details and law firms representing the parties;
- An overview of:
  
  The goods or services supplied (or acquired) by the parties, including brands, most relevant to the acquisition;
  
  The transaction or transaction structure;
  
  The rationale for the acquisition;
  
  The consideration for the acquisition; and
  
  If relevant, any foreign filings relevant to the transaction.
- Tables for each of the parties setting out:
  
  Connected entities in each of the previous three years; and
  
  Acquisitions made by the parties (including connected entities in each of the last three years);
- Details of the competitive effects of the acquisition, including:
  
  The relevant goods and services and the geographic areas in which they are supplied;
  
  The other key suppliers of the goods/services;
  
  The markets that are affected and estimate of market shares (by volume, capacity or turnover in each of the previous three years); and
  
  The contact details of the five closest competitors, five largest customers, five customers closest to the median spend of customers.
Additional Requirements for Long-Form Applications
- Details regarding barriers to entry including:
  
  The costs of entry or the infrastructure required to supply the relevant goods or services and time required to put these in place, as well as the extent of these costs that are sunk or not recoverable;
  
  Other barriers such as access to inputs, intellectual property issues, legal and regulatory requirements, customer switching costs and time required to "win" contracts, and overall revenues to achieve minimum viable scale; and
  
  The entry of new competitors, as well as the exits in the previous three years.
The long-form application requires significant additional information for different types of transactions – horizontal and vertical acquisitions etc.
- Other relevant information, particularly:
  
  Identifying any goodwill protection provisions and the reasons that these provisions are necessary to protect the goodwill of the purchaser.
The Government has foreshadowed additional Determination, with the Determination itself having "placeholders" regarding waiver applications and the Acquisition Register – which unfortunately will now not be progressed until after the Federal election.

We are happy to provide additional details on any of the above issues.

We will also shortly publish additional Insights focusing on the ACCC's Guidelines.

Australian Federal Budget 2025-2026–Key Tax Measures and Instant Insights

Tue, 25 Mar 2025 00:00:00 -0000

Key Announced Tax Measure	K&L Gates Instant Insights
Personal Income Tax Cuts From 1 July 2026 The Government has announced reductions in the first tax rate from 16% to 15% from 1 July 2026 and from 15% to 14% from 1 July 2027. The Government has also increased the income threshold for where the 2% Medicare levy applies.	These will no doubt be welcome for individuals, and will likely form a key part of the Government's campaign for re-election. These changes have been largely targeted at low to middle income earners, although the tax cuts will apply to all taxpayers. Given the higher rates of inflation and wage growth, this essentially returns some (but not all) of the higher income tax take from "bracket creep" to taxpayers. There is no relief however for businesses, small or large.
Managed Investment Trust (MIT) "Clarifications" The Government is proposing to legislate to allow foreign widely held pension funds and sovereign funds to get access to the reduced MIT withholding tax rates on eligible income for "captive" MITs (i.e. where they are the sole actual or beneficial member of the MIT). This is intended to "complement" the Australian Taxation Office's (ATO's) Taxpayer Alert TA 2025 / 1 which focused on restructuring to access MIT benefits and using structures to implement captive MITs.	This is a pre-announced, welcome change that confirms existing industry practice, and addresses a difference between the rules to qualify as a MIT and the rules to apply reduced withholding tax. However, it was only necessary due to the ripple of serious concerns started by TA 2025/1 and focusing on "captive MITs" without sufficient clarity on the ATO's concerns. It remains clear that the ATO has a focus on foreign collective investment vehicles (i.e. funds) accessing MIT withholding concessions where they are the sole ultimate owner (even though they may themselves by widely held).
No Changes to Address Taxation of "Digital" Assets–Handball to the ATO The Government has confirmed it will not legislate any amendments to the taxation laws to deal with the array of digital assets, such as "decentralised finance" (DeFi), gaming finance (GameFi) and non-fungible tokens (NFTs). It also (in a fairly luke-warm way) endorsed the principles developed by the Board of Taxation (BoT) to guide taxation of digital assets, whilst also indicating that further ATO guidance will be available to address uncertainty.	Whilst the lack of a specific tax regime for digital assets is consistent with the BoT's recommendations, the tepid endorsement of the BoT's policy framework for digital assets provides little guidance on how the ATO is to develop further tax guidance to address the taxation of these novel assets, leaving the ATO to largely continue to act as policy formulator and implementor as well as revenue collector. Based on the existing guidance, it is unlikely this will result in much relief for digital asset providers, platforms or investors.
No Further Guidance on Corporate Tax Residency The Government has provided no update on the changes (promised back in Federal Budget 2020/21) on clarifying corporate residency laws, particularly following hardening of ATO guidance on corporate residency.	This means the ATO's views in TR 2018/5 and PCG 2018/9 continue to be applied (notwithstanding the Government's previously stated intent to address some of the challenges associated with those rules). Foreign entities with Australian directors etc continue to face heightened risks of the ATO trying to allege Australian tax residency.
Announced but Unenacted Measures The budget largely provides no clarity on a number of previously announced but unenacted measures, including: Changes to increase scope of foreign resident CGT withholding tax – other than that this has been delayed until after legislation is enacted; Clean building MIT rates for data centres and warehouses has been delayed until after legislation is enacted; Small business instant asset write-off extension to 30 June 2025; Part IVA amendments to deal with withholding tax; CGT rollovers and response to the BoT's review; Additional taxation of superannuation balances over AU$3 million, including whether this incorporates unrealised gains; and Changes to Division 7A (i.e. removal of distributable surplus requirement).	The list of announced but unenacted tax measures continues to grow and provides real uncertainty for the tax system and all taxpayers. Whilst there are some positive amendments, including deferring the commencement of the unreleased changes to foreign resident capital gains withholding, it largely leaves these matters unresolved. Some of the measures, such as taxation of superannuation balances, are clearly baked into the budget revenue forecasts, and so although the Government has not succeeded in getting legislation passed, the intent remains to do so (pending its re-election). The Government also appears to be in wait and see mode as to what the ultimate outcome is in the Bendel litigation to determine next steps on Division 7A. However, there has been little or no clarity provided on most measures, and so taxpayers continue to face uncertainty. Whether we see some measures proceed will ultimately depend on the outcome of the election.
Continued Focus on Tax Integrity by the ATO The Government has provided further funding to the ATO to address tax integrity and target tax avoidance arrangements, particularly focused on multinationals. The Government has also provided additional funding to the ATO to address non-payment of superannuation contributions and amounts PAYG withheld on account of tax.	This will see the ATO continue to target key concerns – based on our experiences, in recent years this has involved multinationals, foreign investors (including private equity funds) and intellectual property arrangements. The continued focus on entities using the PAYG withholding and superannuation contribution regimes as a source of funding is unsurprising, and we have seen dramatically increased ATO activity in this space. This has led to increased insolvencies in small to medium businesses.

February 2025 ESG Policy Update—Australia

Thu, 20 Mar 2025 00:00:00 -0000
Australian Update

ASIC's Key Issues Outlook for 2025

On 24 January 2025, the Australian Securities and Investments Commission (ASIC) released its key issues outlook for 2025 which provides insights for Australian businesses and consumers on the most significant current, ongoing and emerging issues within ASIC's regulatory remit.

ASIC emphasised its desire to be a proactive regulator, ensuring a safe environment for Australian businesses and markets whilst safeguarding consumers. ASIC noted that key factors influencing its perspective on the issues facing Australia's financial system included:
- Increased market volatility;
- Geopolitical changes;
- The global accumulation of debt to drive growth;
- Perceived and real inequality of wealth;
- Shifts in the way capital is invested; and
- Advances in artificial intelligence, data and cyber risk.
Among other issues, ASIC identified poor quality climate-related disclosures as leading to misinformed investment decisions. ASIC noted that informed decision making by investors is facilitated by the provision of high quality, consistent and comparable information regarding a reporting entities' climate related risks and opportunities.

Furthermore, ASIC emphasised the importance of reporting entities having appropriate governance and reporting processes to comply with new mandatory climate reporting obligations introduced as part of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth), which took effect on 1 January 2025. Please refer to our earlier summary of the regime here.

ASIC also noted it will continue to scrutinise disclosures which misrepresent the green credentials of a financial product or investment strategies. Please refer to our summary of ASIC's guidelines to prevent greenwashing here.

AU$2 Billion Investment in Clean Energy Finance Corporation

On 23 January 2025, the Australian Government announced it is providing an additional AU$2 billion to the Clean Energy Finance Corporation (CEFC). This is Australia's specialist investor in the nation's transition to net zero emissions.

The investment aims to enable the CEFC to support Australian households, workers and businesses who are making the shift to renewable energy by offering significant savings.

The investment aims to also help deliver reliable, renewable, cost-saving technologies to the Australian community by generating an expected AU$6 billion in private investment. It is anticipated that this will come from global and local organisations looking to capitalise on the nation's future renewable energy plan.

This follows the CEFC's announcement on 16 January 2025 that it had invested AU$100 million in a build-to-rent strategy to facilitate the design and delivery of affordable, sustainable and high-quality homes. These homes will harness the benefits of clean energy technologies, by aiming to be highly efficient, fully electric and powered by renewable energy.

Since its establishment in 2012, the CEFC has played a key role in helping Australia strive towards its emissions reduction targets. In 2024, the CEFC invested over AU$4 billion in local projects which the Australian Government claims unlocked around AU$12 billion in private investment and supported over 4,000 Australian jobs.

Superannuation CEO Roundtables Emphasise Importance of Consistent Climate Risk Disclosures

The Australian Prudential Regulation Authority (APRA) and ASIC recently hosted two Superannuation CEO Roundtables in November and December of 2024, attended by 14 chief executive officers (CEOs) and other executives from a cross-section of superannuation funds. Climate and nature risks were the key focus of discussions, given the recent legislation mandating climate-related financial disclosures and the introduction of the Australian Sustainability Reporting Standards.

The CEOs collectively acknowledged the importance of consistent climate risk disclosure whilst emphasising the need for clear and practical guidance from regulators and calling for standardised metrics, methods and scenarios to ensure comparability across the industry. The CEOs also outlined the current challenge of aligning different reporting standards across jurisdictions. The host regulatory bodies recognised the value of consistency with international standards of climate risk reporting. They noted that appropriate alignment can avoid duplication of efforts, ensure Australian superannuation funds remain in line with global best practices and provide for effective disclosures for members through which informed investment decisions may be made. In turn, discussions further touched on the impact of climate risk on investment strategies and the selection of investment managers and custodians, highlighting the impact on investment decision-making by participants across the industry.

The discussion also covered nature risk, with APRA interested in understanding how superannuation trustees are addressing nature risk given it is a topic of growing importance. It was acknowledged this was a topic that should continue to be explored.

Participants also discussed the role of industry bodies, and all agreed these bodies can play a crucial role in supporting trustees navigate the complexities of the data. ASIC and APRA expressed their commitment to support the superannuation industry and collaborate with industry bodies to drive consistent and accurate disclosures, effective communication with members and alignment with global standards.

Australian Government Announces Green Iron Investment Fund

On 20 February 2025, the Australian Government announced an AU$1 billion Green Iron Investment Fund to support green iron manufacturing and its supply chains by assisting early mover green iron projects and encouraging private investment at scale. "Green iron" refers to iron products made using renewable energy.

Australia is the world's largest iron ore producer, earning over AU$100 billion in export income in the 2023-24 financial year. The iron and steel industry supports more than 100,000 jobs within Australia.

An initial AU$500 million of the Green Iron Investment Fund will be used to support the Whyalla Steelworks (Whyalla) after the Premier of South Australia, Peter Malinauskas, placed Whyalla into administration on 19 February 2025. The funding is proposed to transform Whyalla into a hub for green iron and steel.

Whyalla is considered strategically important for Australia due to its manufacturing capacity, highly skilled workforce, and access to a deep-water port, high-grade magnetite ore reserves and renewable energy sources.

The remaining AU$500 million will be available for nationwide green iron projects, targeting both existing facilities and new developments. Several companies within the industry are already exploring low-carbon iron production from the Pilbara ores in Western Australia.

The Green Iron Investment Fund is the latest initiative from the Australian Government aimed at bolstering Australia's green metals sector. Existing initiatives include:
- An AU$2 billion investment in Australian-made aluminium;
- Passing legislation to deliver Production Tax Credits for hydrogen and critical minerals;
- Investing in major critical minerals and rare earth projects through the Critical Minerals Facility;
- An AU$3.4 billion investment in Geoscience Australia to accelerate the discovery of resources; and
- Funding Hydrogen Headstart to support Australia's hydrogen and clean energy industries.
View From Abroad

CFOs Expect Higher Returns from Sustainability Initiatives than Traditional Investments

A new report from Kearney, 'Staying the Course: Chief Financial Officers and the Green Transition' (Report), released on 17 February 2025, reveals that chief financial officers (CFOs) across the world are prioritising sustainability investments.

Despite recent speculation that investments in the green economy would face a slowdown, this Report clearly indicates that out of more than the 500 CFO respondents across several jurisdictions, including the United Kingdom, United States, United Arab Emirates, and India, 92% noted their intention to increase current investments in sustainability. This Report also found that of all the CFOs surveyed:
- 69% expected a higher return from sustainability initiatives than from traditional investments;
- 93% saw a clear business case for investing in sustainability; and
- 61% saw sustainability investments primarily as a cost decision rather than as something that creates value.
This commitment to increasing climate investments indicates that sustainability investment is not viewed as merely an arm of corporate social responsibility but is also seen as an integral means to maximise efficiencies and returns, take advantage of market opportunities and navigate rapidly evolving regulatory landscapes.

Decision to Scrap DEI Policies May Be Indicative of a Broader Trend

The recent omission of diversity, equity, and inclusion (DEI) commitments from numerous listed companies in their annual filing with the US Securities and Exchange Commission may be a harbinger of a broader global trend which could have repercussions for Australia's environmental, social and governance (ESG) investment landscape.

Many of Australia's largest funds currently hold significant capital under management which is invested based on ethical criteria.

DEI policies are integral to a company's ESG rating, as determined by third-party analytics firms, particularly through the lens of social responsibility practices. By demonstrating a commitment to DEI, companies not only fulfil ethical obligations but also align with investor expectations for responsible corporate behaviour, thereby positively influencing their ESG rating. Contrastingly, deprioritising DEI commitments may result in reduced investor demand and potential exclusion from ESG-focused indices.

In the weeks since President Donald Trump signed executive orders to remove DEI hiring initiatives in the US government and its federal contractors, several US companies have begun withdrawing from similar commitments, potentially signalling a broader global trend that other companies might follow. Companies who withdraw from DEI-related commitments may face the possibility of a decrease in their ESG ratings. Broader market consequences include potentially increased volatility in the ESG indices and long-term negative impacts on corporate performance and investor confidence in sustainable economic growth.

Funds with active ESG investment strategies will need to monitor this trend to ensure that their investment portfolios maintain any positive or negative screens and that any ESG disclosures are not misleading or deceptive. ASIC has shown through its recent enforcement activity targeting greenwashing that it will pursue fund managers who do not have appropriate measures in place to ensure the effectiveness of its ESG-related representations.

The authors would like to thank graduates Daniel Nastasi, Katie Richards, Natalia Tan and clerk Juliette Petro for their contributions to this alert.
Retail Competition and Fair Trading, Cost of Living Measures, Unfair Contract Terms, Mergers: ACCC Releases Its 2025-26 Compliance and Enforcement Priorities

Tue, 04 Mar 2025 00:00:00 -0000
In Brief

Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb has just announced the ACCC’s Compliance and Enforcement priorities for 2025-2026.

Ms Cass-Gottlieb highlighted the ACCC’s particular focus on cost of living pressures on consumers by stating that the ACCC:

"Would conduct dedicated investigations and enforcement activities to address competition and consumer concerns in the supermarket and retail sector”, including a new priority of addressing “misleading surcharging practices and other add-on costs"; and

Focus on “fair trading issues in the digital economy”, including “promoting choice, compliant sales practices and removing unfair contract terms such as subscription traps in online sales.”

The ACCC has announced a number of new priorities, as well as confirming its 2024 priorities and its enduring priorities, including its focus on:
- Consumer, fair trading and competition concerns in relation to environmental claims and sustainability, particularly greenwashing;
- Unfair contract terms in consumer and small business contracts, with a focus on harmful cancellation terms, automatic renewals, early termination fee clauses and noncancellation clauses;
- Improving industry compliance with consumer guarantees, with a particular focus on consumer electronics;
- Any conduct that is harmful to consumers experiencing vulnerability or disadvantage;
- Cartels and other anticompetitive arrangements, including misuse of market power that may affect any level of a supply chain;
- Promoting competition in, and ensuring enforcement in the event of misleading pricing in relation to, essential services; and
- Although not being strictly a compliance and enforcement priority, on the successful implementation of mandatory merger clearance that will be in place from 1 January 2026 (and voluntarily from 1 July 2025). In this regard:
  
  Before the end of March 2025, the ACCC will commence consultation on draft process guidelines and analytical guidelines; and
  
  The ACCC has reiterated its expectation that ~80% of notified mergers will be approved within 15-20 business days (following a period of informal pre-application engagement with the ACCC).
Overall, Ms Cass-Gottlieb noted that the ACCC’s

“…complementary mandates across competition, fair trading and consumer law compliance and enforcement support the community to participate with trust and confidence in commercial life and promote the proper functioning of Australian markets.”

We have produced a one-page summary that outlines these priorities and the key takeaways for businesses (click here).

See the full list of the ACCC’s 2025-2026 compliance and enforcement priorities here and Ms Cass-Gottlieb’s speech here.

January 2025 ESG Policy Update—Australia

Thu, 20 Feb 2025 00:00:00 -0000

Australian Update

Mandatory Climate-Related Financial Disclosures Come Into Effect

First Annual Reporting Period Commences on	*Reporting Entities Which Meet Two out of* Three of the Following Reporting Criteria**			National Greenhouse and Energy Reporting (NGER) Reporters	Asset Owners
First Annual Reporting Period Commences on	Consolidated Revenue for Fiscal Year	Consolidated Gross Assets at End of Fiscal Year	Full-time Equivalent (FTE) Employees at End of Fiscal Year		Asset Owners
1 Jan 2025 (Group 1)	AU$500 million or more.	AU$1 billion or more	500 or more.	Above the NGERs publication threshold.	N/A
1 July 2026 (Group 2)	AU$200 million or more.	AU$500 million or more.	250 or more.	All NGER reporters.	AU$5 billion or more of the assets under management.
1 July 2027 (Group 3)	AU$50 million or more.	AU$25 million or more.	100 or more.	N/A	N/A

Further information on the mandatory climate-related disclosures can be found here.

New Vehicle Efficiency Standard Comes into Effect

On 1 January 2025, the New Vehicle Efficiency Standard (NVES) came into effect.

Inaugural Australian Anti-Slavery Commissioner Appointed

On 2 December 2024, Mr Chris Evans commenced a five-year term as the inaugural Australian Anti-Slavery Commissioner (Commissioner), having been appointed in November 2024.

Prior to his time at Walk Free, Mr Evans was a Senator representing Western Australia, serving for two decades.

The Australian Government has committed AU$8 million over the forward estimates to support the establishment and operations of the Commissioner.

For more information on the role of the Commissioner, you can read our June 2024 ESG Policy Update – Australia.

View From Abroad

Trump Administration Provides Early Insight Into Their Position on ESG-Related Regulations

These Priorities, Executive Orders and Memoranda provide an insight into the new administration's position on ESG-related regulations and include the following:

Reviewing for rescission numerous regulations that impose burdens on energy production and use, including mining and processing of non-fuel minerals;
Empowering consumer choice in vehicles, showerheads, toilets, washing machines, lightbulbs and dishwashers;
Declaring an "energy emergency" and using all necessary resources to build critical infrastructure;
Prioritising economic efficiency, American prosperity, consumer choice and fiscal restraint in all foreign engagements that concern energy policy;
Withdrawing from the Paris Climate Accord;
Withdrawing from any agreement or commitment under the UN Framework Convention on Climate Change and revoking any financial commitment made under the Convention;
Revoking and rescinding the US International Climate Finance Plan and policies implemented to advance the US International Climate Finance Plan;
Freezing bureaucrat hiring except in essential areas; and
Ordering those officials tasked with overseeing diversity, equity and inclusion (DEI) efforts across federal agencies be placed on administrative leave and halting DEI initiatives taking place within the government.

UK Accounting Watchdog Recommends Sustainability Reporting Standards

The purpose of these Standards is to provide useful information for primary users of general financial reports. Broadly:

IFRS S1 provides a global framework for sustainability-related financial disclosures and addresses emissions, waste management and environmental risks; and
IFRS S2 focuses on climate risks and opportunities.

Sustainable Investing Spotlight for 2025

Regulations

Funds Landscape

Transition Investing

Sustainable Bonds

Biodiversity Finance

Artificial Intelligence

Canada Releases First Sustainability Disclosure Standards in Alignment with ISSB Global Framework

Broadly, and similar to IFRS Sustainability Disclosure Standards:

CSDS 1 establishes general requirements for the disclosure of material sustainability-related financial information; and
CSDS 2 focuses on disclosures of material information on critical climate-related risks and opportunities.

Other features of the CSDS include:

Transition relief through extended timelines for adoption;
Its voluntary adoption by entities, unless mandated by governments or regulators in the future; and
Its role in being the first part of a multi-year strategic plan by the CSSB which includes building partnerships with First Nations, Métis and Inuit Peoples to ensure Indigenous perspectives are integrated into sustainability-related standards.

The authors would like to thank lawyer Harrison Langsford and graduates Daniel Nastasi and Katie Richards for their contributions to this alert.

Combatting Scams in Australia and the United Kingdom

Wed, 19 Feb 2025 00:00:00 -0000
In response to the growing threat of financial scams, the Australian Government has passed the Scams Prevention Framework Bill 2025. The Scams Prevention Framework (SPF) imposes a range of obligations on entities operating within the banking and telecommunications industries as well as digital platform service providers offering social media, paid search engine advertising or direct messaging services (Regulated Entities). In the first article of our scam series, Australia's Proposed Scams Prevention Framework, we provided an overview of the SPF. In this article, we compare the SPF to the reimbursement rules adopted by the United Kingdom and consider the likely implications of each approach.

UK Model

The United Kingdom is a global leader in the introduction of customer protections against authorised push payment (APP) fraud. A customer-authorised transfer of funds may fall within the definition of an APP scam where:
1. The customer intended to transfer the funds to a person, but was instead deceived into transferring the funds to a different person; or
2. The customer transferred funds to another person for what they believed were legitimate purposes, but which were in fact fraudulent.
Reimbursement Requirement

A mandatory reimbursement framework was introduced on 7 October 2024 (the Reimbursement Framework) and applies to the United Kingdom’s payment service providers (PSPs). Under the Reimbursement Framework, PSPs are required to reimburse a customer who has fallen victim to an APP scam. The cost of reimbursement will be shared equally between the customer’s financial provider and the financial provider used by the perpetrator of the scam. However, PSPs will not be liable to reimburse a victim who has been grossly negligent by failing to meet the standard of care that PSPs can expect of their consumers (Consumer Standard of Caution) (discussed below), or who is involved in the fraud. Where the customer is classed as ‘vulnerable’, failure to meet the Consumer Standard of Caution will not exempt the PSP from liability.

Consumer Standard of Caution

The Consumer Standard of Caution exception consists of four key pillars:
1. Intervention - Consumers should have regard to interventions made by their PSP or a competent national authority such as law enforcement. However, a nonspecific ‘boilerplate’ warning will not be sufficient to shift the risk onto the customer.
2. Prompt reporting - Consumers, upon suspecting they have fallen victim to an APP scam, should report the matter to their PSP within 13 months of the last authorised payment.
3. Information sharing - Consumers should respond to reasonable and proportionate requests for information made by their PSP in assessing the reimbursement claim. Any requests for information must be limited to essential matters taking into account the value and complexity of the claim.
4. Involvement of police - Consumers should consent to their PSP reporting the matter to the police on their behalf. PSPs must consider the circumstances surrounding a customer’s reluctance in reporting their claim to the police before relying on this exception.
Failure to meet one or more of the above pillars will only exempt the PSP from liability where the customer has been grossly negligent. This is a higher standard of negligence than required under the common law and requires the customer to have shown a ‘significant degree of carelessness’.

Vulnerability

A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm. Personal circumstances relevant to determining whether a customer is ‘vulnerable’ include:
- Health conditions or illnesses that affect one’s ability to carry out day-to-day tasks;
- Life events such as bereavement, job losses or relationship breakdown;
- Ability to withstand financial or emotional shocks; and
- Knowledge barriers such as language and digital or financial literacy.
The Consumer Standard of Caution is not applicable to vulnerable customers. Accordingly, where the victim has been classified as a vulnerable customer, PSPs cannot avoid liability on the grounds of gross negligence for failing to meet the Consumer Standard of Caution.

Limit on Reimbursement

PSPs will not be required to reimburse amounts above the maximum level of reimbursement, which is currently £415,000 per claim.

Key Distinctions Between the SPF and the UK Model

Financial Burden of Scams

Both the UK and Australian models seek to incentivise entities to adopt policies and procedures aimed at lowering the risk of scams. By requiring PSPs to reimburse scam victims, the UK’s model shifts the economic cost of scams from customers onto PSPs. A similar purpose is achieved under the SPF, which provides for harsh financial penalties for entities that fail to develop and implement appropriate policies to protect customers against scams. However, a significant point of difference is the extent to which these financial burdens benefit victims of scams directly.

Under the UK model, a victim of an APP scam will be able to recover the full amount of their loss (up to the prescribed maximum amount) so long as:
1. They were not grossly negligent in authorising the payment;
2. They were not a party to the fraud;
3. They are not claiming reimbursement fraudulently or dishonestly;
4. The amount claimed is not the subject of a civil dispute or other civil legal action;
5. The payment was not made for an unlawful purpose; and
6. The claim is made within 13 months of the final APP scam payment.
In contrast, there is no indication that any funds paid under Australia’s SPF civil penalty provisions will be directed towards the reimbursement of victims. However, under the Scams Prevention Framework Bill 2025, where a Regulated Entity has failed to comply with its obligations under the SPF and this failure has contributed to a customer’s scam loss, the customer may be able to recover monetary damages from the Regulated Entity.

Possible Effect on Individual Vigilance

The UK’s Reimbursement Framework recognises that PSPs, as opposed to individuals, have greater resources available to combat the threat of scams. However, there is a risk that by passing the economic cost of scams onto PSPs, individuals will become less vigilant. Where an individual fails to make proper inquiries which would have revealed the true nature of the scam, they may still be eligible for reimbursement so long as they have not shown a ‘significant degree of carelessness’. With this safety net, individuals may become complacent about protecting themselves from the threat of scams.

In contrast to the UK model, individuals will continue to bear the burden of unrecoverable scam losses under Australia’s SPF unless a Regulated Entity’s breach of SPF obligations has contributed to the loss. As a result, individuals will continue to have a financial incentive to remain vigilant in protecting themselves against the threat of scams.

Scope of Framework

Australia

The SPF applies to entities across multiple industries, reflecting Australia’s ‘whole of the ecosystem’ approach to scams prevention. Upon introduction, the SPF is intended to apply to banking and telecommunications entities as well as entities providing social media, paid search engine advertising or direct messaging services. It is noted in the explanatory materials that the scope of the SPF is intended to be extended to other industries over time to respond to changes in scam trends.

The purpose of this wider approach is to target the initial point of contact between the perpetrator and victim. For example, a perpetrator may create a social media post purporting to sell fake concert tickets. Successful disruptive actions by the social media provider, such as taking down the post or freezing the perpetrator’s account, may prevent the dissemination of the fake advertisement and potentially reduce the number of individuals who would otherwise fall victim to the scam.

United Kingdom

In contrast, the UK’s Reimbursement Framework only applies to PSPs participating in the Faster Payments Scheme (FPS) that provide Relevant Accounts.

FPS

The FPS is one of eight UK payment systems designated by HM Treasury. According to the Payment Systems Regulator, almost all internet and telephone banking payments in the United Kingdom are now processed via FPS.

Relevant Account

A Relevant Account is an account that:
- Is provided to a service user;
- Is held in the United Kingdom; and
- Can send or receive payments using the FPS,
but excludes accounts provided by credit unions, municipal banks and national savings banks.

Effect of Single-Sector Approach

Due to the United Kingdom’s single-sector approach, different frameworks need to be developed to combat scam activity in other parts of the ecosystem. This disjointed approach may create enforcement issues where entities across multiple sectors fail to implement sufficient procedures to detect and prevent scam activities. Further, it places a disproportionate burden on the banking sector, failing to acknowledge the responsibility of other sectors to protect the community from the growing threat of scams.

Key Takeaways

While both the United Kingdom and Australia have demonstrated a commitment to adopting tough anti-scams policies, they have adopted very different approaches. Time will tell which approach has the largest impact on scam detection and prevention.

Look out for our next article in our scams series.

The authors would like to thank paralegal Tamsyn Sharpe for her contribution to this legal insight.
The Rules That Apply to Foreign Persons Purchasing Established Homes in Australia are Going to Change on 1 April 2025...So, You May Need to Act Now

Wed, 19 Feb 2025 00:00:00 -0000
The Hon. Jim Chalmers MP, Federal Treasurer and the Hon. Clare O'Neil MP, Minister for Housing, Minister for Homelessness issued a joint media release on 16 February 2025 titled "Albanese Government clamping down on foreign purchase of established homes and land banking".

The media release foreshadows changes to the rules that apply when a foreign person buys an established dwelling or undertakes a land development.

Parts of the media release are extracted below:

The Albanese Government will ban foreign investors from buying established homes for at least two years and crack down on foreign land banking.
……..
This is all about easing pressure on our housing market at the same time as we build more homes.
………
We’re banning foreign purchases of established dwellings from 1 April 2025, until 31 March 2027. A review will be undertaken to determine whether it should be extended beyond this point.
The ban will mean Australians will be able to buy homes that would have otherwise been bought by foreign investors.
Until now, foreign investors have generally been barred from buying existing property except in limited circumstances, such as when they come to live here for work or study.
From 1 April 2025, foreign investors (including temporary residents and foreign owned companies) will no longer be able to purchase an established dwelling in Australia while the ban is in place unless an exception applies.
………
We will also bolster the Australian Taxation Office’s (ATO) foreign investment compliance team to enforce the ban and enhance screening of foreign investment proposals relating to residential property by providing $5.7 million over 4 years from 2025–26.
This will ensure that the ban and exemptions are complied with, and tough enforcement action is taken for any non‑compliance.
………
We’re cracking down on land banking by foreign investors to free up land to build more homes more quickly.
Foreign investors are subject to development conditions when they acquire vacant land in Australia to ensure that it is put to productive use within reasonable timeframes.
………

Here are some initial observations:
- The consequences of contravening Australia's foreign investment laws are serious. The media release raises a number of questions, and the full implications will naturally depend upon the precise wording of the changes.
- The media release notes "The ATO and Treasury will publish updated policy guidance prior to the commencement of the changes" (i.e. before 1 April 2025).
- The existing rules already tightly limit the classes of foreign buyer who can acquire established homes. Currently this is essentially limited to:
  
  A temporary resident (or their spouse) who is going to use the dwelling as their place of residence while in Australia and who applies for and obtains approval;
  
  A buyer who is planning to redevelop the dwelling where the redevelopment will genuinely increase Australia's housing stock and who applies for and obtains approval; and
  
  Foreign controlled companies who are planning to purchase an established dwelling to house an Australian based employee and who apply for and obtain approval.
- It seems clear the Government is also removing the ability for foreign companies to buy established dwellings to house their Australian based staff. While the Government may allow exceptions as it has flagged in the media release, this detail is yet to be seen.
- We query whether there are other alternatives to an outright ban, such as only a ban on housing below a prescribed price threshold (area by area).
- It is unclear from the media release if the Government is going to change the rules applicable to holders of an Australian permanent resident visa. But we suspect changes are not proposed for holders of an Australian permanent resident visa.
- The message from the media release is that where a foreign person has already acquired or intends to acquire vacant land or an established dwelling for redevelopment, the foreign person should assume there is going to be:
  
  More active monitoring of compliance with conditions (eg vacant residential land approvals require construction of all dwellings to be completed within four years of the date of the notice of approval); and
  
  More rapid application of existing enforcement options.
- If you currently have a Foreign Investment Review Board (FIRB) approval, make sure you are in complying with the conditions and seek advice if you are not.
- We query whether the Government intends to revisit the rules when a foreign person rents a residential dwelling or whether the foreshadowed changes will just apply to purchases.
- If a foreign person is unable to acquire an established dwelling, then that person will need to either acquire a new dwelling or access the rental market. The changes may increase still further the demand for dwellings to rent.
- If a foreign person is planning on acquiring an established dwelling, take advice and seriously consider doing so before 1 April 2025.
Foreign Investor Surcharges

All six Australian States impose transfer duty surcharges on acquisitions of residential related property acquired by a foreign person (including a foreign company or trust). Typically, the surcharge duty rate is 7% or 8% and applies in addition transfer duty at general rates.

Further, some States and the Australian Capital Territory also impose surcharge land tax on foreign persons that own residential related property.
If foreign buyers are prohibited from acquiring existing homes, this may have some impact on the level of surcharge duty and surcharge land tax revenue that will be collected at a State and Territory level.

Caution on Australian Citizens Buying for Foreign Persons

There are some circumstances in which family members (say, as a spouse or adult child) who are Australian citizens or permanent residents may want to acquire and hold property for family members who are foreign. The intention may be to avoid existing FIRB restrictions as well as the above- mentioned foreign investor surcharges.

Such arrangements are high risk and caution should be exercised.

Typically, such arrangements will create a trust relationship between the "apparent purchaser" (i.e. the Australian citizen) and the "real purchaser" (i.e. the foreign person who provides the money for the purchase).

Most Australian States and Territories now require a purchaser of land to provide a declaration which sets out:
- Whether the purchaser is acquiring the land for their own purposes (or on trust for another person); and
- If the purchaser is acquiring as trustee for another person, whether the beneficiaries of the trust are foreign.
Further, the duties and land tax legislation in most jurisdictions will apply to such arrangements. For example, section 104T in the Duties Act 1997 (NSW) expressly captures "apparent purchaser arrangements" such as those described above for surcharge purchaser duty purposes.

We note that a written agreement is not required to create a treat relationship. A verbal agreement can suffice.

A purchaser who provides a false declaration and does not disclose they are acquiring and holding a property on trust for a foreign person may commit an offence.

There are also risks for the foreign person on whose behalf the property has been purchased. If there is a break down in the relationship between the parties, it may be difficult for the foreign person to demonstrate that they are the real owner of the property (and the party entitled to the benefit of any rents or sale proceeds).

All tax and legal risks should be fully considered if any such arrangements are contemplated.

How can we Help?

We will continue to monitor changes to the rules that apply to acquisitions of established dwellings by foreign persons in Australia and will provide a further update when the new policy is released.

K&L Gates advises on all aspects of Australia's foreign investment laws and the required approvals.
Fashion Law Update–February 2025

Mon, 17 Feb 2025 00:00:00 -0000

In this edition of Fashion Law, we have compiled thought leadership published on our blogs and website throughout 2024—providing an overview of significant legal and regulatory updates in the fashion industry over the past year.

From Chanel's legal victory win against a reseller selling counterfeit goods to controls against anti-money laundering in Australia, we touch on relevant fashion topics all over the world. We also mention notable recognitions and events that our lawyers were a part of in the past year.

The updates featured in the publication reflect the evolving legal landscape in the fashion industry, emphasizing the need for brands to stay informed and compliant with new regulations and legal precedents.

Click here to read this edition of Fashion Law.

Australia's Proposed Scams Prevention Framework

Tue, 11 Feb 2025 00:00:00 -0000

Why Does Australia Need a SPF?

Currently, scam protections are piecemeal, inconsistent or non-existent across the Australian economy. The SPF is an economy-wide initiative which aims to:

Halt the growth in scams;
Safeguard the digital economy;
Provide consistent customer protections for customers engaging with Regulated Entities; and
Be responsive and adaptable to the scams environment.

What is a Scam?

SPF Principles

The SPF Principles are outlined in table 1 below.

SPF Principle	Description
1. Governance	Regulated Entities are required to ‘develop and implement governance policies, procedures, metrics and targets to combat scams’. In discharging their obligations under this principle, entities must develop and implement a range of policies and procedures which set out the steps taken to comply with the SPF Principles and SPF Codes. The ACCC is expected to provide guidance on how an entity can ensure compliance with their governance obligations under the SPF.
2. Prevent	Regulated Entities must take reasonable steps to prevent scams on or relating to the service they provide. Such steps should aim to prevent people from using the Regulated Entity’s service to commit a scam, as well as prevent customers from falling victim to a scam. This includes publishing accessible resources which provide customers with information on how to identify scams and minimise their risk of harm.
3. Detect	Regulated Entities must take reasonable steps to detect scams by ‘identifying SPF customers that are, or could be, impacted by a scam in a timely way’.
4. Report	Where a Regulated Entity has reasonable grounds to suspect that a ‘communication, transaction or other activity on, or relating to their regulated service, is a scam’, it must provide the ACCC with a report of any information relevant to disrupting the scam activity. Such information is referred to as ‘actionable scam intelligence’ in the SPF. Additionally, if requested by an SPF regulator, an entity will be required to provide a scam report. The appropriate form and content of the report is intended to be detailed in each SPF Code.
5. Disrupt	A Regulated Entity is required to take ‘reasonable steps to disrupt scam activity on or related to its service’. Any such steps must be proportionate to the actionable scam intelligence held by the entity. As an example, for banks, appropriate disruptive activities may include: Contacting customers to warn them of popular scams; Introducing confirmation of payee features on electronic banking services; and Placing a hold on payments directed to an account associated with scam activity to allow the bank time to contact the customer and provide them with information about the suspected scam.
6. Respond	Regulated Entities are required to implement accessible mechanisms which allow customers to report scams and establish accessible and transparent internal dispute resolution processes to deal with any complaints. Additionally, Regulated Entities must be a member of an external dispute resolution scheme authorised by a Treasury Minister for their sector. The purpose of such an obligation is to provide an independent dispute resolution mechanism for customers whose complaints have not been resolved through initial internal dispute resolution processes, or where the internal dispute resolution outcome is unsatisfactory.

Table 1

What are ‘Reasonable Steps’?

The size of the Regulated Entity;
The services of the Regulated Entity;
The Regulated Entity’s customer base; and
The specific types of scam risk faced by the Regulated Entity and their customers.

Disclosure of Information Under the Reporting Principle

Safe Harbour Protection for Disruptive Actions

In order for the safe harbour protection to apply, the following requirements must be met:

The Regulated Entity acted in good faith and in compliance with the SPF;
The disruptive action was reasonable and proportionate to the suspected scam;
The action was taken during the period starting on the day that the information became actionable scam intelligence, and ending when the Regulated Entity identified whether or not the activity was a scam, or after 28 days, whichever was earlier; and
The action was promptly reversed if the Regulated Entity identified the activity was not a scam and it was reasonably practicable to reverse the action.

The assessment of whether disruptive actions were proportionate will be determined on a case-by-case basis. However, relevant factors may include:

The volume of information received or available;
The source of that information; and
The apparent likelihood that the activity is associated with a scam.

SPF Codes

It is not clear whether the SPF Codes will interact with other industry codes and, if so, how and which codes will prevail.

SPF Regulators

Enforcement

The proposed Bill sets out the maximum penalties for contraventions of the civil penalty provisions of the SPF.

Tier 1 Contravention	Tier 2 Contravention
SPF principle 2: prevent SPF principle 4: detect SPF principle 5: disrupt SPF principle 6: respond	An SPF Code SPF principle 1: governance SPF principle 3: report

Table 2

In addition to the civil penalty regime, other administrative enforcement tools will be available including:

Infringement notices;
Enforceable undertakings;
Injunctions;
Actions for damages;
Public warning notices;
Remedial directions;
Adverse publicity orders; and
Other punitive and nonpunitive orders.

Assistance

The authors would like to thank paralegal Tamsyn Sharpe for her contribution to this legal insight.

Competition and Consumer Law Round-Up

Wed, 05 Feb 2025 00:00:00 -0000
What’s Inside This Issue?

This edition of the K&L Gates Competition & Consumer Law Round-Up provides a summary of recent and significant updates from the Australian Competition and Consumer Commission (ACCC), as well as other noteworthy developments in the competition and consumer law space. If you wish to have any more detail about the issues outlined in this newsletter or discuss them further, please reach out to any member of the K&L Gates Competition and Consumer Law team.

Enforcement
- NDIS Providers Warned Against Misleading Advertising
- Misleading Pricing Alleged Against Woolworths NZ
Mergers and Acquisitions
- Divestiture Required for Blackstone’s Acquisition of I’rom
Consultations
- Treasury Consults on ACL Reform for AI-Enabled Goods and Services
- Treasury Further Consults on ACL Prohibitions Against Unfair Trading Practices
Noteworthy Developments
- Mandatory Merger Clearance Regime to Commence on 1 January 2026
- ACCC Releases Sustainability Collaborations Guidelines for Businesses
- ASIC’s Enforcement Priorities Focus on Cost-of-Living Pressure
Click here to view the Round-Up.
We Need to Keep a Real Estate Purchase in Australia Confidential. Can This Be Done?

Tue, 04 Feb 2025 00:00:00 -0000
Ours is an age of identity fraud, data breaches, public registers, and political and media interest in the ownership of Australian real estate.

Take a moment to consider the real estate-related data that can be readily accessed through a land titles office and online property platforms or even purchased for a relatively modest sum.

While steps are being taken to put in place a framework for the creation of a register of the beneficial ownership of ASX-listed entities, Australia does not have a general register of information as to the beneficial ownership of land.

Unsurprisingly, there are many legitimate reasons why a buyer or seller of real estate in Australia may want to either keep a transaction, their identity or the key commercial terms private and confidential or to manage when this information becomes known.

These reasons could include the following:
- A risk that the identity of the buyer may inflate the seller’s price expectations.
- A risk that the identity of the buyer may produce an adverse reaction from neighbours.
- A plan to acquire multiple parcels of land, in the same location, from different entities where confidentiality is an imperative.
- A desire to avoid a person’s financial capacity being subject to media scrutiny.
- A desire to not be included in the various Australian and global lists of wealthy individuals and families for reasons of privacy or personal security.
- A past history between the buyer and the seller that could make the transaction more difficult to complete.
There is no silver bullet or simple solution that will guarantee anonymity, but there are steps that can be taken to minimise the information that makes its way into the public domain. The suggestions below will not guarantee anonymity, but if a level of confidentiality or anonymity is required, then the below list will give you the best chance of achieving that objective.

Make Your Expectations Clear

It cannot be assumed that all parties to a transaction and advisors have the same objectives or priorities in relation to confidentiality. Communicate and emphasise your requirements. Be specific and provide examples of what can and cannot be done.

Use Confidentiality Agreements

Confidentiality agreements at any early stage of discussions are an effective step to both securing confidentiality and setting expectations for the parties involved. To protect against unwanted disclosure, parties should clearly define the information or categories of information to be protected and the scope of each party’s nondisclosure obligations. Confidentiality obligations should be included in a terms sheet/heads of agreement (and expressed to be binding), even if the balance of the document is expressed to be nonbinding.

Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91 considered whether a signed letter constituted a binding contract for the sale of land. One of the relevant issues in this case was whether the confidentiality obligations outlined in a confidentiality deed poll were effective in requiring the parties to keep confidential information—specifically, the terms of the proposed land sale—until either a written agreement terminated the deed or the confidential information became generally available to the public. Ultimately, the court determined that the confidentiality obligations were part of ongoing negotiations, noting that the purpose of the confidentiality deed poll was to prevent a third-party bidder from learning the commercial terms of the transaction, particularly the price.

Engage a Real Estate Agent to Act for the Buyer

The use of a buyer’s agent partly removes the buyer from the transaction. It becomes unnecessary for the buyer to engage directly with the seller or the selling agent.

Appoint an Agent to Enter into the Contract

A person (the agent) can enter into an agreement to acquire real estate on behalf of another person (the principal). For example, the buyer could be “Mr Smith as agent.”

It is not essential that the agent discloses to the seller that the agent is acting on behalf of an undisclosed principal. However, caution is necessary to ensure that such arrangements do not contravene any warranties or representations made in the contract.

There should be a separate written agreement between the principal and their agent in relation to the appointment to act as agent and the scope of the rights and obligations of the principal and the agent. This document is also needed to make clear to the revenue and taxing authorities the capacity in which the agent (named buyer) was acting.

When adopting an agent/principal structure, the identity of the principal becomes known when the transfer of land form is created, because the principal is named on the transfer form. This means the seller will come to know the identity of the actual buyer before completion.

Duty advice must be taken when using an agency structure to ensure a “double duty” liability is not accidentally triggered.

The Use of a Bare Trustee

A bare trust is an arrangement where one person (the trustee) holds assets, such as real estate, on behalf of another person (the beneficiary). The trustee has no interest in the real estate and must follow the directions of the beneficiary in relation to the assets of the trust and must transfer the real estate to the beneficiary when requested to do so or sell the real estate to a third party if directed by the beneficiary to do so. Because the trustee has no beneficial interest in the real estate, there is usually no duty on the transfer of the real estate from the trustee to the beneficiary.

As explained by the High Court of Australia in CGU Insurance Limited v One.Tel Limited (in liq) [2010] HCA 26 at [36], the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their discretion.¹

A bare trust can be a useful mechanism for ensuring privacy and maintaining the anonymity of the beneficiary. If real estate is purchased by a trustee of a bare trust, the identity of the beneficiary is not disclosed and does not become public. The bare trustee contracts to buy the real estate and takes title to the real estate at settlement/completion.

A bare trust structure is one arrangement by which a professional trustee, lawyer, accountant, real estate agent or other advisor may acquire real estate and hold that real estate (usually on a temporary basis) on behalf of another person.

Use of an AFSL or Custodian

An Australian Financial Services Licensee (AFSL) or a custodian structure may also provide useful mechanisms in maintaining the confidentiality of a real estate buyer’s identity. An AFSL is a license granted by the Australian Securities and Investments Commission that is necessary for any business dealing in financial products, including managed investment schemes. An AFSL holder may operate a managed investment scheme, which can involve holding property and making investment decisions on behalf of investors.

A custodian structure, on the other hand, involves appointing a custodian to hold legal title to a property on behalf of a managed investment scheme or other entity. The custodian’s primary role is to safeguard and administer the property, ensuring it is held separately from the custodian’s own assets and appropriately accounted for. This structure can be particularly useful for preserving the confidentiality of the real estate buyer’s identity, as the custodian holds the legal title while the beneficial ownership remains with the investors or the managed investment scheme.²

The Name, Ownership or Structure of the Buyer

Simple matters such as the name of the buyer, the shareholder(s) and the directors can readily enable the buyer to be identified.

It can assist with the maintenance of confidentiality to use professional advisors as directors of an entity (either permanently or for a discrete period of time).

Off-Market Transactions

On-market transactions are often associated with a significant sales and marketing campaign. These campaigns generate interest in both the real estate itself and the identity of the buyer. In contrast, off-market transactions are conducted with greater discretion and do not result in the creation of the same volumes of information, data and market interest as on market campaigns.

Include a Confidentiality Obligation in the Transaction Documents

A confidentiality obligation in real estate transaction documents generally requires that certain information shared between the parties remain confidential and is not disclosed to third parties. Some of the pertinent questions which need to be addressed include the following:
- Does the transaction document include an obligation to maintain confidentiality?
- What is the extent of the confidentiality obligation?
- Are the parties required to ensure that their respective advisors also maintain confidentiality?
- Are media announcements permitted?
- Does the wording of any media announcement need to be mutually agreed upon?
- Can the selling agent retain details of the transaction to use in valuation reports and comparable transactions analysis?
It is not uncommon for high-value real estate transactions to be recorded using the “industry standard terms and conditions.” For example, in Western Australia the general conditions for the sale of land contain no obligations in relation to privacy, confidentiality or media statements.

It is important to check that the transaction document expressly address confidentiality.

Back-to-Back Transactions and Inadvertent Disclosures

A back-to-back transaction arises where there are two sale and purchase contracts concerning the same property in place at about the same time, as follows:
- One contract between the seller and Buyer 1 at a purchase price of AU$X.
- A second contract between Buyer 1 (as seller) and Buyer 2 at a purchase price greater than AU$X.
Usually, the following is true:
- The seller is unaware of the second contract.
- Buyer 1 will be anxious to ensure that the seller does not become aware of the second contract.
- If the seller becomes aware of the second contract, the seller may refuse to complete the first contract or renegotiate the price.
Care must be taken to ensure that the following occurs:
- There is strict compliance with laws, including those in relation to misleading and deceptive conduct.
- There is strict compliance with duties to government agencies.
- Parties are properly briefed as to the transaction and the necessity of confidentiality.
- Ordinary actions as part of the settlement process do not inadvertently breach confidentiality (subject to the first two bullet points above).
- Due diligence by Buyer 2 may need to be limited and is undertaken in a discrete manner (subject to the first two bullet points above).
Timing for Lodgement of the Transfer of Land Form at the Land Titles Office

There is no general legal requirement to lodge the transfer of land form at the relevant land tiles office immediately following settlement/completion. Of course, there is usually a contractual obligation to do so.

There are a number of sound legal reasons why a buyer should proceed to quickly lodge the transfer of land form at the relevant land tiles office.

But a buyer and seller can do the following:
- Agree that the buyer has a longer period of time after settlement/completion within which to lodge the transfer of land form at the relevant land tiles office.
- Take steps to protect the buyer’s position, given the purchase price has been paid, until the transfer of land form is lodged.
Until the transfer is registered, the change of ownership will not become public and the seller will still appear to be the owner of the property.

Name Redaction at the Land Titles Office

All Australia states operate a searchable public register of information in relation to real estate transactions and land ownership.

For example, in Western Australia the Transfer of Land Act 1893 does not provide for the redaction of parts of registered instruments for commercial or other considerations. However, Landgate (the Western Australian land registry) does offer name suppression in limited circumstances. Name suppression is generally available only to people who can prove they are at risk of harm should their details be easily discoverable. Such individuals may include high-profile figures or high net-worth individuals who face security threats.

In New South Wales (NSW), the Real Property Act 1900 similarly does not allow for the automatic suppression of names from the land title register for privacy or commercial reasons. However, name suppression may be granted in specific circumstances, and NSW Land Registry Services may suppress personal information from its public registers in response to a direction from the Office of the Registrar General. Such circumstances would be limited to situations where an individual faces significant risk to personal well-being or safety.

Understand the Personality of Your Counterparty

An agreement in relation to confidentiality is of limited value if the counterparty is unlikely to adhere to it. Knowledge of the counterparty can be a powerful tool to preserve your confidentiality.

If you buy from an unsuitable seller or sell to an unsuitable buyer, agreements as to confidentiality and privacy obligations may be of limited value. Due diligence of the counterparty is a vital aspect of all land transactions.

How are Disputes to be Resolved?

Australian court processes are relatively public. Preserving confidentiality in the event of a dispute over a land sale and purchase agreement is more likely if the parties are required to resolve any disputes by confidential arbitration or confidential mediation followed by confidential arbitration. But for confidential arbitration to apply, a suitable clause needs to be included in the sale and purchase agreement.

For example, in Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82, the dispute resolution clause in the deed required the parties to first attempt to resolve their dispute through confidential mediation. If mediation was abandoned, the matter would then be automatically referred to confidential arbitration. The arbitration was to take place at a location chosen to maintain confidentiality, and the decision of the arbitrator(s) was to be binding and specifically enforceable.

Anti-Avoidance

In Australia, buyers of real estate have a raft of obligations to state and federal government agencies. These obligations must be strictly complied with, and the matters identified in this article are not a way of avoiding these obligations. For example, foreign investment approvals must be obtained when required and foreign ownership disclosures must still be made.

Also, taxing and revenue authorities can share information.

The matters raised in this article are designed to assist with maintaining privacy and confidentiality to the extent possible. It is important to note however that the techniques outlined in this article may not always preserve confidentiality.

How can K&L Gates help you?

We are focused locally and connected globally.

At K&L Gates, our lawyers have a deep understanding of all aspects of real estate and land development law.

We advise private and public corporations as well as family offices on a wide range of issues in the real estate sector.

We can assist with:
- Buying and selling assets in a variety of sectors.
- Preparing and negotiating confidentiality agreements.
- Setting up family offices.
- Direct and indirect tax advice.
- Transaction structuring.
- Due diligence.
- AFSL advice.
New Franchising Code to Commence in April

Thu, 23 Jan 2025 00:00:00 -0000
The Competition and Consumer (Industry Code–Franchising) Regulations 2024 (Cth) (the New Code Draft), which replaces the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (the Old Code), is now in force and will commence on 1 April 2025. While it appears that the Australian Government has proceeded with many of the proposed changes that were contemplated in the Exposure Draft (see our previous update here), it is also important for franchisors to be aware that the New Code contains a number of transitional provisions.

When Does the New Code Apply?

The New Code will apply to:
- Franchise agreements entered into, transferred, renewed or extended on or after 1 April 2025; and
- Conduct engaged in on or after 1 April 2025 in relation to these agreements.
The Old Code will continue to apply to:
- Franchise agreements entered into before 1 April 2025 until those agreements are terminated, transferred, renewed or extended; and
- Conduct relating to those agreements that is engaged in on or after 1 April 2025 (other than conduct relating to the transfer, renewal or extension of those agreements).
However, there are some significant transitional provisions in relation to the application of aspects of the New Code which we have outlined below.

What is the Position in Relation to Compensation for Early Termination and Reasonable Opportunity for Return on a Franchisee's Investment?

Two of the more significant changes introduced by the New Code are the placing of the following new obligations on franchisors:
- A requirement under section 43 to provide some compensation to a franchisee in certain circumstances on early termination of a franchise.
- An obligation under section 44 not to enter into a franchise agreement, unless the agreement provides the franchisee with a reasonable opportunity to make a return during the term of the agreement on any investment required by the franchisor as part of entering into, or under, the agreement.
However, these sections will not apply to a franchise agreement entered into, transferred, renewed or extended before 1 November 2025. The delayed application of sections 43 and 44 is said to be intended to allow time for franchisors proposing to enter franchise agreements that are not new vehicle dealership agreements to adjust to these new requirements. New vehicle dealership agreements will though be subject to similar obligations in sections 45 and 46 from the commencement of the New Code (which are based on clause 46A and 46B of the Old Code respectively).

What are the Implications for Disclosure?

The New Code provides that:
- A disclosure document created before 1 November 2025 is not required to include the information in subitems 14(1A) and (1B) of Schedule 1 of the New Code, which deal with new requirements relating to significant capital expenditure; and
- The obligation to update a disclosure document annually under section 21 of the New Code will not apply before 1 November 2025 in relation to a disclosure document given to a prospective franchisee before 1 April 2025 under clause 9 of the Old Code. This does not affect the requirement to update a disclosure document on request under section 33 and if a financial year ends before 1 November 2025, the franchisor is obliged to update the disclosure document under the Old Code.
Accordingly:
- If a franchise agreement is entered, renewed, extended or transferred prior to 1 April 2025, the Old Code applies to the agreement and disclosure obligations under Old Code apply.
- If a franchise agreement is entered into on or after 1 April 2025, the franchise agreement would need to comply with the New Code, provided however that sections 43 (relating to compensation on early termination) and 44 (relating to reasonable opportunity for return on franchisee's investment) would not have to be complied with in relation to a franchise agreement entered before 1 November 2025.
- If a franchise agreement is entered into, renewed, extended or transferred on or after 1 November 2025 though, sections 43 and 44 would apply and would need to be complied with.
- If a franchise agreement is entered, renewed, extended or transferred on or after 1 April 2025:
  
  If a disclosure document has been given to a prospective franchisee before 1 April 2025, this existing disclosure document will be taken to be a disclosure document for the purpose of the New Code.
  
  If a disclosure document has not been given to a prospective franchisee before 1 April 2025, a disclosure document compliant with the New Code would need to be given (unless the prospective franchisee is permitted to opt out from receiving the disclosure document and does so). However, the disclosure document is not required to include the information in sub items 14(1A) and (1B) of Schedule 1 of the New Code if the disclosure document is created before 1 November 2025.
  
  The prospective franchisee would also need to be given a copy of the New Code (unless the prospective franchisee is permitted to opt out from receiving the New Code and does so).
  
  If:
  
  the franchisee has, or has recently had, another franchise agreement with the franchisor that is the same or substantially the same as the new franchise agreement; and
  
  the business that is the subject of the new franchise agreement is the same or substantially the same as under the other agreement, the prospective franchisee can opt out by written notice from receiving a copy of a disclosure document and the New Code.
  
  Unless the prospective franchisee opts out from receiving a copy of a disclosure document and the New Code, the obligations in the New Code apply in relation to receiving from a prospective franchisee a written statement that a prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and the New Code. Independent advice statements would also need to be received by the franchisor but are not required for renewal or extension of term or scope of a franchise agreement.
  
  No Key Facts Sheet is required to be given to the prospective franchisee.
What are the Implications for Specific Purpose Funds and Marketing Funds?

Requirements relating to specific purpose funds that are not marketing funds or other cooperative funds have also been delayed. In this regard:
- For a specific purpose fund that is not a marketing fund or other cooperative fund controlled or administered by or for a franchisor or a master franchisor, the requirements in section 31 of the New Code (requiring a franchisor to provide financial statements in relation to specific purpose funds if a franchise agreement requires the franchisee to pay money into such a fund) and section 61 (dealing with payments to and from a specific purpose fund) will only commence on and from 1 November 2025.
- A disclosure document created before 1 November 2025 is not required to include the information in item 15 of Schedule 1 in relation to a specific purpose fund that is not a marketing fund or other cooperative fund controlled or administered by or for a franchisor or a master franchisor (whether the franchisee is a franchisee or subfranchisee of the franchisor or master franchisor). However, this will not affect the requirements to update a disclosure document under section 21 or 33 of the New Code.
Section 100 of the New Code also deems compliance with the Old Code from 1 April 2025 to 31 October 2025 to be compliance with the New Code in relation to a specific purpose fund that is a marketing fund or other cooperative fund controlled or administered by or for the franchisor or a master franchisor (whether the franchisee is a franchisee or subfranchisee of the franchisor or master franchisor), in certain circumstances.

What are Some of the Key Takeaways for Franchisors?

Some of the key takeaways for franchisors in relation to the New Code are:
- Franchisors will need to prepare a form of franchise agreement and disclosure document compliant with the New Code.
- Franchisors will need to be ready to comply with sections 43 (relating to compensation on early termination) and 44 (relating to reasonable opportunity for return on franchisee's investment) of the New Code on and from 1 November 2025.
- Franchisors will need to prepare for eligible prospective franchisees to be able to opt out from receiving a disclosure document and a copy of the New Code and applicable cooling off periods.
- Franchisors will no longer be required to create, maintain, or provide a Key Facts Sheet to prospective franchises on and from 1 April 2025.
- Franchisors will need to prepare for compliance with the new obligation to advise franchisees of their right to request a disclosure document. A franchisor has two months (instead of 14 days) to provide a disclosure document when it is requested (which request may be made once every 12 months).
- In updating franchise agreements, matters for franchisors to consider would include the following:
  
  The New Code has made changes to the provisions relating to termination of a franchise agreement. In particular:
  
  For certain kinds of serious breaches, the franchisor would not be able to terminate unless it has provided the franchisee seven days’ written notice of the proposed termination and grounds. These include findings by a Court that the franchisee has committed a Fair Work serious contravention of a Fair Work civil remedy provision and/or certain provisions of the Migration Act 1958 (Cth).
  
  For termination in cases where the franchisee voluntarily abandons the franchised business, operates the franchised business in a way that endangers public health or safety, or acts fraudulently in connection with the operation of the franchised business, a franchisor must not terminate the agreement before a notice period of seven days passes without a dispute notice being given. If a dispute notice is given, the agreement cannot be terminated until the end of 28 days after the day the dispute notice is given.
  
  A franchisor would also have certain rights to require a franchisee not to operate the business or part of a business if the franchisor is proposing to take action to terminate for these special termination grounds and specified serious breaches.
  
  A franchisor will now be prohibited from entering a franchise agreement that includes a restraint of trade clause that is inconsistent with the applicable requirements (as well as restricted from relying on a restraint of trade clause in certain circumstances where a franchise agreement is not extended).
  
  The definition of “motor vehicle dealership” in the New Code is expanded to include servicing or repairing of motor vehicles.
- In updating disclosure documents, additional disclosure would need to be made regarding:
  
  Proceedings against a responsible franchisor entity or holding company under subsection 558(1) and (2) of the Fair Work Act 2009 (Cth);
  
  “Specific purpose funds” (instead of only marketing funds) from 1 November 2025; and
  
  The rationale, amount, timing, nature, outcomes, benefits, and risks of any significant capital expenditure that may be required of the franchisee from 1 November 2025.
How we can Help

We would be very pleased to assist franchisors by:
- Providing advice regarding obligations under the New Code and how the transitional provisions will affect specific franchise networks;
- Assisting existing networks to modify processes to facilitate compliance under the New Code; and
- Preparing amendments to template documentation to comply with the New Code.
New Year's Resolutions for Employment, Industrial Relations, and Work Health and Safety

Mon, 20 Jan 2025 00:00:00 -0000

A few New Year’s Resolutions from an employment, industrial relations and work health and safety perspective as we kick off 2025.

See how many of these can be completed or substantively advanced by the end of March 2025:

Payroll Compliance

Conduct or review your modern award mapping and classifications across the business. Ensure that all employees are receiving correct pay and entitlements under applicable industrial instruments and workplace laws. Criminal wage theft laws are now in place for intentional underpayments. Severe civil penalties also remain in place for underpayments which are not intentional in nature.

Preventing Sexual Harassment (Queensland)

Prepare, consult and implement a prevention plan to manage an identified risk to the health or safety of workers, or other persons, from sexual harassment and sex or gender-based harassment at work. This needs to underway from March 2025.

Positive Duty to Prevent Sexual Harassment (All Australian States and Territories)

Review current measures in place to prevent sexual harassment and sex or gender based harassment at work, generally. Are the measures effective? Does more need to be done to prevent such conduct? There is an expectation of ongoing positive and active attention to this important area.

Psychosocial Hazards and Risks

Review current risk assessments and ensure that psychosocial hazards and risks have been appropriately identified and recorded. Review control measures. Are the measures effective? Does more need to be done in this area?

Work Health and Safety

Review risk assessments holistically across the business. Are they up to date? Do they reflect current business operations and any changes to operations? Are control measures effective? Do they reflect applicable laws, standards, codes of practice and/or best practice? Do they need revision? Have workers been consulted with and trained on hazards, risks and control measures?

Board Briefings

If not already on the agenda, include the above key areas of importance into quarterly updates to the Board. Consider conducting board briefings / training on these matters periodically.

Contractor Classifications

Review each contractor engagement within the business against the new definition of employee. Is there a risk of misclassification or sham contracting (adopting a multi factor test)? Are practical arrangements for contractors in place to reduce this risk? Are opt out notices being used where appropriate? Misclassification or sham contracting can lead to severe consequences – including criminal and civil penalties for underpayments of minimum employment entitlements under applicable industrial instruments.

Industrial Relations Strategy

Review your present Industrial Relations strategy. Does it reflect best practice? Does it incorporate 2023/2024 changes to industrial relations laws?

With the range of criminal sanctions now expanded in the employment law, industrial relations and safety space, and the significant reform over the last year or two, there has never been a more important time to ensure a deliberate and focused plan to manage employment, industrial relations and work health and safety across every business in every industry. Not doing so could expose a company, its directors and other officers and other workplace participants.

How can we Help?

If you’d like further advice or assistance on any of the above, or if you need additional resources to assist checking off these items, please do not hesitate to reach out.
Arbitration World

Mon, 23 Dec 2024 00:00:00 -0000
To view the Arbitration World publication, click here.

From The Editors

We are proud to mark the publication of the 40^th edition of Arbitration World. In this is a notable edition, we have taken the opportunity to look back at the stories featured in the very the first edition in 2005 and reflect on how the practice of international arbitration has developed across 20 years.

This edition includes our usual update on developments in international arbitration, including reports on recent cases and changes in arbitration laws from regions around the globe, as well as reporting on some developments with respect to arbitration institutions. Also included is our usual investor-state arbitration update, with a roundup of some of the recent developments of note in international investment law and practice.

Details are provided of topics covered in our most-recent podcasts in our Arbitration World podcast series and where to access those.

This edition also includes a compendium of articles previously published as Arbitration World alerts. In particular:
- An important recent (October 2024) decision of the Dubai Court of Cassation on the enforceability of unilateral arbitration agreements under United Arab Emirates (UAE) law.
- A case from the English Commercial Court on some of the key practical considerations that need to be taken into account when assessing arbitrator bias and disqualification of arbitrators.
- A case from the UAE on the ramifications of a failure to comply with contractual preconditions to arbitration.
- A case from the English Court of Appeal in which it was found that consumer rights can render an otherwise valid arbitration award unenforceable.
Finally, we mention that as part of Hong Kong Arbitration Week 2024, our International Arbitration practice group recently hosted (on 22 October 2024) a panel discussion event in our Hong Kong office on different approaches to principles of good faith in arbitrations conducted under common law and civil law. A link to the recording of that event is made available here.

We hope you find this edition of Arbitration World of interest, and we welcome any feedback.

In This Issue

Looking Back on 20 Years of Arbitration World

By: Ian Meredith (London), Louise Bond (London)

Arbitration News From Around the World

By: Chris Abraham (Doha), Raja Bose (Singapore), Louis Degos (Paris), Burak Eryigit (Doha, London), Sarra Saïdi (Paris), Declan Gallivan (London), Cindy Ha (Hong Kong), Benjamin Kang (Singapore), Joseph Nayar (Singapore), Jennifer Paterson (Dubai), Dr. Johann von Pachelbel (Frankfurt), Jonathan Sutcliffe (Dubai), Christopher Tung (Hong Kong), Thomas Warns (New York), Matthew Weldon (New York)

World Investment Treaty Update

By: Robert Houston (Singapore), Raja Bose (Singapore), Ian Meredith (London)

UAE Law on the Enforceability of Unilateral Arbitration Agreements

By: Jennifer Paterson (Dubai), Mohammad Rwashdeh (Dubai)

Arbitrator Bias: The English Commercial Court Offers Further Guidance on Disqualification of Arbitrators

By: Andrew D. Connelly (London), Ian Meredith (London)

Dubai Court of Cassation Confirms That Contractual Preconditions to Arbitration Are Matters of Admissibility and Not Jurisdiction

By: Mohammad Rwashdeh (Dubai), Jennifer Paterson (Dubai)

Consumer Rights Can Render An Otherwise Valid Arbitrator Award Unenforceable

By: Peter R. Morton (London), Declan C. Gallivan (London)
December 2024 ESG Policy Update—Australia

Mon, 23 Dec 2024 00:00:00 -0000
Australian Update

Australia Commits AU$75 million to Singapore's FAST-P Clean Energy Transition Initiative

On 3 December 2024, the Australian Government approved an AU$75 million equity investment in the Singapore Government's Financing Asia's Transition Partnership (FAST-P) initiative. This investment is the first under the AU$2 billion Southeast Asia Investment Financing Facility (SEAIFF) announced at the ASEAN-Australia Special Summit in March this year.

FAST-P is a blended finance initiative to support the region's clean energy transition launched by the Monetary Authority of Singapore at COP28 in 2023. It aims to bring together international public, private and philanthropic partners to support climate resilience. The Singapore Government will pledge up to US$500 million as concessional capital, matching concessional capital from other partners, for decarbonisation projects and sustainable infrastructure across Asia.

Australia's investment will be through the Green Investments Partnership (GIP) component of FAST-P, which focuses on supporting green infrastructure projects critical for the region's transition to cleaner energy, but which have been traditionally labelled as high-risk or marginally bankable. GIP projects will include renewable energy, energy storage, electric vehicle infrastructure, sustainable transport and water and waste management.

The SEAIFF forms part of Australia's broader strategy to deepen economic engagement with Southeast Asia by providing loans, equity and guarantees for infrastructure, energy and sustainable development projects in the region. By financing critical initiatives, the aim is to create commercial opportunities for Australian exporters and financial institutions, strengthen diplomatic ties and assist the region's transition to cleaner energy.

Australian Institute of Company Directors Encourages Good Governance on Cyber Threats with Updated Guidance

The Australian Institute of Company Directors (AICD) has updated its Cyber Security Governance Principles (Principles) in response to the new Cyber Security Act 2024 (Cth) passed in November. The updates highlight the fast-evolving cyber threat landscape and emphasise the importance of cyber security for organisations.

The Australian Signals Directorate reported in November 2024 that it received over 87,400 cybercrime reports in the 2023-2024 period, which is on average a report every six minutes and is a timely reminder for the need for good governance in relation to cyber security.

Cyber threats are an integral part of every organisation's risk landscape, especially as businesses increasingly rely on internet-facing systems and digital growth strategies. The dynamic nature of cyber threats requires boards to stay responsive to both existing and emerging risks and to understand their organisation's cyber resilience.

AICD reports that directors frequently cite cyber security and data theft as their top concerns. The updated Principles provide a practical framework to help directors and governance professionals proactively manage cyber risks.

The key updates to the AICD's Principles include:
- Addressing digital supply chain risks, data governance, and regulatory changes;
- Regular upskilling for directors and management;
- Integrating cyber risks into existing risk management frameworks;
- Ensuring clear cyber incident response plans and well-defined responsibilities;
- Avoiding technical jargon in documentation and communication; and
- Safeguarding key digital assets and regularly evaluating risk controls.
Federal Government Releases First Nations Clean Energy Strategy

On 6 December 2024, the Federal Government released its first-ever First Nations Clean Energy Strategy (Strategy).

The Strategy has been developed with public consultation and stakeholder engagement, with extensive input from First Nations peoples.

The Strategy provides a five-year national clean energy framework for governments, industries and communities which guides investment, influences policy, and supports First Nations people to self-determine how they participate in, and benefit from, Australia’s clean energy transition.

The Strategy's vision is underpinned by three goals:
- Empower First Nations communities with clean energy by investing in clean energy systems and removing obstacles that prevent First Nations communities from a reliable and affordable clean energy supply;
- Achieve economic benefits for First Nations peoples by ensuring their voices are considered when developing clean energy policy and promoting First Nations people's ownership of energy projects; and
- Enable equitable partnerships by improving how industry and government engage and work with First Nations communities to achieve mutual benefits.
Guarantee of Origin Scheme and Production Tax Credits

On 28 November 2024, the Australian Parliament passed the Future Made in Australia (Guarantee of Origin) Bill 2024 (Cth), the Future Made in Australia (Guarantee of Origin Charges) Bill 2024 (Cth) and the Future Made in Australia (Guarantee of Origin Consequential Amendments and Transitional Provisions) Bill 2024 (Cth).

The legislation helps put the 'Future Made in Australia' agenda (as reported by K&L Gates in June 2024) into action.

The laws:
- Establish the voluntary Guarantee of Origin (GO) scheme, a high-integrity certification scheme that ensures renewable energy and decarbonised products are properly valued;
- Help Australian producers remain competitive in domestic and global markets by accurately representing the emissions embedded in their products;
- Seek to provide businesses and investors with regulatory certainty; and
- Aim to make it easier for major investors to invest in renewable projects in Australia.
In effect, participants that opt in to the GO scheme who produce low-emissions products or renewable electricity will be able to create certificates which contain information about the attributes of the renewable electricity or low-emissions products that they represent. These certificates can be tracked through a public register.

In addition to the above laws, the Federal Government also proposed the Future Made in Australia (Production Tax Credit and Other Measures) Bill 2024 (Cth) (Bill).

Under the Bill, hydrogen producers will receive AU$2 per kilogram of renewable hydrogen produced, while critical minerals processors will get a 10% tax break on processing and refining costs.

The incentives will be available for up to ten years per project but the project must make a final investment decision by 30 June 2030. Projects must be located in Australia and owned by a corporation (not a trust or other entity) that is either an Australian tax resident or a foreign resident with an Australian permanent establishment.

The tax benefits will only be received after the relevant projects are operational and producing.

To qualify, companies must meet certain community benefit requirements including requirements to "promote safe and secure jobs that are well paid and have good conditions", "strengthen domestic industrial capabilities" and "demonstrate transparency in relation to the management of tax affairs". Non-compliance allows tax offsets to be suspended which will give significant de facto power to Government over relevant projects.

View From Abroad

Hong Kong and Switzerland to Further Mandate Sustainability Reporting

The Hong Kong government has announced a roadmap to implement International Financial Reporting Standards – Sustainability Disclosure Standards (ISSB Standards) for publicly accountable entities (PAEs) by 2028.

Starting in January 2025, all main board issuers will be required to disclose climate-related information based on a "comply or explain" principle, which is modelled on ISSB Standards. From there, it will be mandated that large-cap issuers disclose climate-related information by 2026, before all PAEs adopt Hong Kong Standards by 2028.

The Hong Kong government will also develop a regulatory framework for assurance of such climate-related reporting in alignment with international standards and will introduce data and technology, such as green fintech, free data tools, and an expanded Hong Kong Taxonomy for Sustainable Finance to improve the quality of reporting.

In Switzerland, the Swiss Federal Council has initiated a consultation process between 6 December 2024 and 21 March 2025 to update its sustainability-related disclosure rules in line with global frameworks and European Union (EU) standards. Any amendments resulting from the consultation are planned to be enforced by January 2026.

Amendments will include companies being mandated to provide detailed plans for achieving Switzerland's net-zero emissions target by 2050 and will also ensure that climate-related disclosures are provided in electronic formats that are both human and machine-readable. Further, businesses will now be able to fulfill climate-related reporting obligations by adhering to internationally recognised frameworks, such as ISSB Standards or the EU's European Sustainability Reporting Standards.

These latest sustainability reporting mandates from Hong Kong and Switzerland are indicative of an increased global effort to implement international climate standards and progress achieving net-zero emissions targets.

European Union to Delay Deforestation Regulation

The EU will delay the implementation of its deforestation regulation by 12 months to December 2025 to provide businesses, foresters, farmers and authorities with additional time to prepare for compliance with the new obligations.

The EU deforestation law came into force in 2023, however compliance was originally not required until December 2024. The law seeks to ensure that commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products are deforestation-free before being sold in or exported from the EU. The regulation is aligned with the European Green Deal and EU Biodiversity Strategy for 2030.

The delay was initially threatened if an agreement was not reached with the European People's Party, which included adding a category of 'no risk' countries that would have reduced checks. However, the EU will not change the substance of the regulation, and the European Commission has instead agreed to revisit whether the additional category should be included as part of a general review of the legislation in 2028.

The provisional agreement to delay still requires endorsement from the Council and European Parliament, which will need to occur before the original application date of 30 December 2024.

Global Managers Sued Over Climate Stance

A coalition of 11 Republican-led US states led by Texas are suing three global managers, alleging their climate activism has violated antitrust laws and has led to decreased coal production and increased energy prices. The lawsuit stands out as one of the highest profile challenges to corporate efforts aimed at advancing environmental, social, and governance (ESG) goals.

The states allege that the large asset management firms used their market influence and participation in climate-focused groups to pressure coal companies into reducing their outputs, which has then caused electricity shortages and higher utility bills. Texas Attorney-General Ken Paxton and his Republican counterparts argue that "competitive markets – not the dictates of far-flung asset managers – should determine the price Americans pay for electricity."

The states seek to prevent the firms from using their investments to vote on shareholder resolutions and taking actions that could reduce coal production and restrict market competition.

The complaint is based on the Clayton Antitrust Act 1914 (US), which prohibits the purchasing of shares if it substantially reduces market competition. It accuses the firms of using their holdings in coal companies to push for lower carbon emissions while producing high profits for the investors. The states claim the investment firms joined initiatives like Climate Action 100+ and the Net Zero Asset Managers Initiative to coordinate industry-wide reductions in coal output.

One manager has dismissed the allegations as baseless, arguing that the suggestion it invested in companies to harm them "defies common sense" and conflicts with Texas' pro-business reputation.

The authors would like to thank graduates Daniel Nastasi, Katie Richards and Monique Yujnovich for their contributions to this alert.
Directors' Responsibilities for Sustainability Reporting—ASIC's Views

Mon, 16 Dec 2024 00:00:00 -0000
Introduction

When directors and officers of reporting entities are assessing how to prepare for complying with the new sustainability reporting obligations, it is tempting to look to the Australian Securities and Investments Commission’s (ASIC) approach to enforcement of “greenwashing” as a starting point. However, reporting entities should be aware of the differences in ASIC’s enforcement approach between the two.

ASIC’S Enforcement Approach

Greenwashing misconduct refers to misleading and deceptive statements made by entities about their green credentials. ASIC interventions are founded on long-established laws that prohibit misleading and deceptive conduct.

Climate-related financial disclosures by reporting entities are to be made in the same context as their financial statements. As a result, directors will need to ensure that the sustainability report presents a true and fair view of the organisation’s position and prospects and that the view is neither misleading nor deceptive.

ASIC Guidance on Sustainability Reporting in Consultation Paper 380

On 7 November 2024, ASIC released its Consultation Paper 380 on sustainability reporting, which was accompanied by a draft Regulatory Guide 000 Sustainability Reporting (Draft RG).

The Draft RG reaffirms that climate-related disclosures will be subject to the existing liability framework in the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), including directors’ duties, misleading and deceptive conduct provisions and general disclosure obligations. Set out below are the material highlights of the Draft RG.

Directors’ Duty of Care and Diligence in Relation to Sustainability Reporting

Directors have a positive duty to exercise their powers with the care and diligence that a reasonable person would exercise in the circumstances. In discharging these obligations, directors should consider that material climate-related physical and transition risks, like all other material risks, pose a foreseeable risk of harm to the interests of the entity and that these considerations should inform the directors’ declaration in relation to any climate-related financial disclosures set out in the reporting entity’s sustainability report.

Ability to Rely on Third Parties

Whilst directors may rely on special knowledge or expertise of others in relation to sustainability reporting, they still need to make an independent assessment of the information or advice provided, using their own skills and judgement and rely on such information or advice available at the time in good faith.

Obligations to Establish Operation Systems to Assess Climate-Related Risks and Opportunities

In the Draft RG, ASIC states that directors should have adequate systems for the identification, assessment, monitoring, prioritisation, disclosure and response to any material climate-related risks and opportunities.

ASIC notes that having possession of timely and accurate information about material climate-related risks and opportunities will enable boards to make informed judgements about the extent of foreseeable harms to the interests of the reporting entity, as well as assist the reporting entity in complying with its sustainability reporting obligations.

Scope of Directors’ Obligations to Keep Records

Entities required to prepare a sustainability report for a financial year must keep written sustainability records, which are the documents and working papers that explain the methods, assumptions and evidence from which the sustainability report is prepared, including in relation to governance, strategy, risk management, and metrics and targets. Such records include any financial records, and boards should ensure that documents are available upon request by ASIC and are provided to auditors promptly to support the auditor’s opinion on the sustainability report.

Bases Upon Which a Reporting Entity May Make Statement of No Climate Risks

Where statements of no financial risks or opportunities relating to climate are to be made, reporting entities may lodge a climate statement under s296B(1) of the Corporations Act, which should include a statement explaining how the entity determined that it had no such financial risks or opportunities.

Lodging a climate statement under s296B(1) still requires an assessment in accordance with the Australian Accounting Standards Board (AASB) S2 whether there are any material financial risks or opportunities relating to climate, in addition to the maintenance of sustainability records, to substantiate the assessment.

Bases Upon Which a Reporting Entity May Make Statements With Forward-Looking Climate Information

The Draft RG highlights that forward-looking climate information must comply with relevant components of the AASB S2 and that it is expected to be useful for existing and potential investors, lenders and other creditors and users.

Under the Corporations Act and the ASIC Act, representations about future matters will be taken to be misleading unless there are reasonable grounds for making the representations. Reporting entities that are disclosing entities must also comply with their continuous disclosure obligations, including for forward-looking information in the climate statement, when relevant facts or circumstances change.

Exceptions to Directors’ Obligations Under Proportionality Mechanisms Under AASB S2

The Draft RG incorporates guidance on proportionality mechanisms under AASB S2, which provides that an entity is required to use all “reasonable and supportable” information that is available to the entity at the reporting date “without undue cost or effort.”

AASB S2 states that the assessment of what constitutes “undue cost or effort” depends on the entity’s specific circumstances and requires a balanced consideration of the costs and efforts for the entity and the benefits of the resulting information for primary users. It is acknowledged that this assessment can change over time as circumstances change and need not include an exhaustive search for information to identify all possible climate-related risks and opportunities.

For example, information that is used by the entity in preparing its financial statements, operating its business model, setting its strategy and managing its risks and opportunities is considered to be available to the entity without undue cost or effort.

ASIC states that despite reporting entities having an opportunity to rely (to an extent) on reasonable and supportable information that is available without undue cost or effort, entities should not assume that any lack of a disclosure will be excused, and directors are encouraged to ensure that companies review their approach at the start of each reporting period.

This guidance from ASIC is somewhat contradictory to other commentary from ASIC recommending a “pragmatic and proportionate approach” in relation to sustainability reporting in the initial reporting periods. We understand that the industry is seeking further clarification from ASIC on the scope of the ”without undue cost or effort” proviso.

Exceptions to Directors’ Obligations Under Transitional Arrangements

There are some transitional arrangements that have been included in the legislation which provide that liability for misleading and deceptive conduct in relation to the most uncertain parts of a climate statement (defined as ”protected statements”) will be the subject of certain limited immunities.

This immunity applies to statements in sustainability reports prepared for financial years commencing during the first three years after 1 January 2025.

Whilst no legal action can be brought against a person in relation to protected statements during the period of modified liability, this does not prevent criminal proceedings or proceedings brought by ASIC. Additionally, the modified liability settings do not extend to statements voluntarily made outside of a sustainability report, including where a statement is reproduced, quoted or summarised in an investor presentation or in promotional material. Such statements will not be covered by the modified liability settings unless the disclosure is required under a Commonwealth of Australia law (for example in relation to continuous disclosure obligations).

ASIC Enforcement Tools

We note that the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) will enhance ASICs supervisory and enforcement powers including new directions powers. In circumstances where ASIC considers a statement made by an entity in a sustainability report is incorrect, incomplete or misleading, ASIC may require an entity to:
- Confirm that the statement is correct or complete;
- Explain the statement;
- Provide information or documents that substantiate or support the statement;
- Correct, complete or amend the statement; or
- Publish the corrected, completed or amended statement, or give the statement to specified persons, in accordance with the direction.
How Can we Help?

The expectations for directors regarding sustainability reporting differ from those related to greenwashing and align more closely with the established standards for financial reporting. We can assist directors of reporting entities in various aspects of preparing and publishing sustainability reports. This includes:
- Designing and implementing due diligence programs;
- Ensuring alignment of disclosures with other public documents;
- Providing advice on limited immunities;
- Supporting record-keeping practices; and
- Facilitating legal sign-off.
Our experience can help ensure compliance and enhance the quality of sustainability reporting.

If you have any questions regarding sustainability reporting, please feel free to reach out. We’re here to help clarify any concerns or provide additional information you may need.
November 2024 ESG Policy Update—Australia

Wed, 11 Dec 2024 00:00:00 -0000
Australian Update

Appointment of the Inaugural Australian Anti-Slavery Commissioner

On 11 November 2023, the Attorney-General announced the appointment of Chris Evans as the inaugural Australian Anti-Slavery Commissioner (Commissioner).

Chris Evans will commence his five-year term as Commissioner on 2 December 2024. He has previously served as CEO of Walk Free's Global Freedom Network and played a significant role in campaigning for the introduction of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act). Prior to his time at Walk Free, Mr Evans was a Senator for Western Australia, serving for two decades. The appointment comes after the Governor-General assented to the Modern Slavery Amendment (Australian Anti-Slavery Commissioner) Act 2024 (Cth) on 11 June 2024 (Amendment Act).

The Amendment Act establishes the position and functions of the Commissioner which include:
- Supporting Australian entities and entities carrying on business in Australia to address risks of modern slavery practices in their operations and supply chains;
- Promoting business compliance with the Modern Slavery Act;
- Engagement with victims of modern slavery to inform measures for addressing modern slavery; and
- Supporting, encouraging and conducting education and community awareness initiatives relating to modern slavery.
The Australian Government committed AU$8 million over four years in the 2023-24 Budget to support the establishment and operations of the Commissioner.

For more information on the role of the Commissioner, you can read our June 2024 ESG Policy Update – Australia.

Feedback Sought on Proposed Guidance on Sustainability Reporting Regime

On 7 November 2024, the Australian Securities and Investments Commission (ASIC) released a draft regulatory guide on the new sustainability reporting regime for consultation with stakeholders.

As reported by K&L Gates on 11 September 2024, certain organisations will be required to make mandatory climate-related financial disclosures in their annual reports for financial years commencing after 1 January 2025.

The draft Regulatory Guide 000 Sustainability Reporting (Draft RG) includes draft guidance on:
- ASIC proposed enforcement approach;
- The scope of directors' ability to rely on third parties;
- The scope of directors' obligations to establish operational systems to assess climate related risks and opportunities;
- The scope of directors' obligations to keep records;
- The bases upon which a reporting entity may make statement of no climate risks;
- The bases upon which a reporting entity may make forward looking climate statements;
- Exceptions to directors' obligations including under proportionality mechanisms and transitional arrangements; and
- The scope of ASIC's enforcement tools including the power to compel corrective statements.
ASIC is seeking feedback on:
- The Draft RG;
- Whether any existing ASIC financial reporting-related instruments should be extended to sustainability reporting; and
- Any other areas of uncertainty on sustainability reporting where ASIC should provide support.
ASIC Commissioner Kate O’Rourke said the focus of the Draft RG is to assist preparers of sustainability reports to comply with their obligations so that users are provided with high-quality, decision-useful, climate-related financial disclosures that comply with the law and relevant accounting standards.

Comments are due by 19 December 2024, including feedback on any other areas where guidance should be provided.

Standby for a separate ESG Alert on this Draft RG.

Concern Over Governance Gap With Use of AI by Licensees

In October, ASIC published its first report on 'Governance arrangements in the face of artificial intelligence (AI) innovation'. The report examines the ways Australian financial services (AFS) licensees and credit licensees are implementing AI that directly or indirectly impacts consumers, identifying a governance gap.

ASIC reviewed 624 cases of AI use by 23 licensees in the banking, credit, insurance and financial advice sectors. Whilst overall, ASIC's findings indicate that the way licensees use AI is cautious in terms of decision making and interactions with consumers, acceleration is rapid and 61% of licensees in the review are planning to increase AI usage in the next 12 months.

ASIC is concerned that not all licensees are well positioned to manage the challenges that are likely to accompany their increasing use of AI.

The report made the following key observations on the use of AI by licensees:
- The use of AI by licensees varied significantly. While some licensees had incorporated AI use for several years, others had only just adopted AI;
- While the majority of current cases involving AI relied on well-known and established machine-learning techniques that produced explainable results, it was observed that there is an increase in the use of more complex techniques (such as the use of generative AI); and
- Existing AI deployment strategies were mostly cautious, observing that AI was generally used to aid human decisions or increase efficiency and was not used to make autonomous decisions.
ASIC outlined its key findings in respect of risk management and governance, noting that:
- There was a lack of adequate arrangements in place for managing the risks that come with using AI;
- There were significant gaps in how licensees assessed risks, finding that risks were often assessed through the lens of the business rather than the consumer;
- There was wide variation in terms of the maturity of AI governance and risk management frameworks and there needs to be greater attention given to developing a strategic and centralised approach to AI governance; and
- There was a heavy reliance by many licensees on third parties for their AI models, but not all had appropriate governance arrangements in place to manage the associated risks.
ASIC Chair Joe Longo has emphasised the importance of updating governance frameworks to manage the risks associated with AI, such as misinformation, algorithmic bias, and data security issues. He stressed that licensees must not wait for new AI laws but should ensure their governance and compliance measures are robust to handle AI's challenges and benefits responsibly.

Climate Goals Increasingly Forming Part of Executive Remuneration, but Challenges Remain

A study published by the Investor Group on Climate Change (IGCC) and Pollination Global Holdings Limited (Pollination) has found that whilst Australian companies are increasingly linking executive remuneration to climate goals, doubts remain in the effectiveness of this practice.

The study was completed by benchmarking 14 high-emitting companies listed on the Australian Securities Exchange (ASX) against a set of Guiding Principles developed by the IGCC and Pollination which purport to represent best practice in linking executive pay to climate performance.

The Guiding Principles aim to establish a base for effective climate incentives and also encourage a principled approach to ensure the development of unique climate-linked incentives which are simple, measurable and suited to the sector in which the company operates in, rather than a standardised approach across all industries.

In 2024, 54% of ASX200 companies have integrated climate-related targets into executive remuneration, up from 10% in 2020. Increased regulatory obligations and reputational concerns are cited as common factors driving this growth.

The study contends the best examples of climate incentives were those clearly linked to the company's climate strategy and time horizons and were ambitious and measurable. However, in many other cases, selected metrics are failing to create strong climate transition outcomes, particularly due to difficulty aligning long-term commitments with meaningful short-term action.

The study recommends that companies develop a credible climate strategy before incentivising action to ensure proper strategic alignment and ensure that strategy is functionally integrated into its operations through effective governance, capital allocation and reporting frameworks. Further, it is suggested that providing an engagement framework for investors to evaluate company performance will also foster improved strategic alignment and encourage companies to pursue long-term sustainability over short-term gains.

View from Abroad

80% of Global Financial Regulators Aligned with ISSB, TCFD Recommendations: FSB Report

On 12 November 2024, the Financial Stability Board (FSB) released its 2024 progress report on Corporate Climate-related Disclosures (Report). The Report emphasises the strides made by global jurisdictions in implementing International Sustainability Standards Board (ISSB) disclosure standards.

The Report's key findings were as follows:
- In 2023, 82% of companies disclosed information in line with at least one of the 11 recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD), but only a fraction (under 3%) satisfied all 11 recommendations. This suggests that information on climate-related governance, strategy, risk management, and metrics remain undisclosed, which hinders investors' ability to evaluate climate risks and opportunities;
- Between October 2023 and March 2024, more than 1,000 companies referenced the ISSB in their reports;
- In the past 12 months, jurisdictions representing approximately 57% of global gross domestic product have made progress towards the adoption or use of ISSB disclosure standards; and
- 19 out of 24 FSB member jurisdictions have regulations, guidelines or strategic roadmaps in place for climate-related disclosures. Further, 17 FSB jurisdictions have introduced voluntary or mandatory disclosure requirements based on ISSB standards and TCFD recommendations.
ISO Announces new ESG Implementation Principles at COP29

At the 2024 United Nations Climate Change Conference (COP29), the International Organisation for Standardisation (ISO) announced new Environmental, Social and Governance (ESG) Implementation Principles (Principles). Global ESG regulations have increased by 155% in the past decade, which has created a challenging environment for consistent reporting across different jurisdictions and sectors. The Principles aim to assist organisations to navigate this increasingly complex ESG landscape.

The Principles were developed in consultation with national bodies, including the British Standards Institution, the Standards Council of Canada and the Brazilian Association of Technical Standards, and incorporate input from over 1,900 industry experts across 128 countries. By providing a standardised structure for sustainability practices designed for use by organisations of all sizes and sectors worldwide, the Principles:
- Support management of ESG performance;
- Bolster measurement and reporting under existing disclosure frameworks to enable consistency, comparability, and reliability of ESG reporting and practices globally;
- Facilitate interoperability by aligning with existing reporting standards, creating a harmonized approach to ESG compliance across borders;
- Promote global consistency, enabling clear communication of sustainability efforts worldwide; and
- Focus on facilitating the integration of ESG principles into organisational culture and addressing environmental impacts, social considerations, and governance practices for a holistic approach to sustainability.
The authors would like to thank graduates Daniel Nastasi and Katie Richards for their contributions to this alert.
State of the Workplace

Thu, 05 Dec 2024 00:00:00 -0000

In this special end of year publication, we take a look back at another tumultuous year in Australian employment law following significant changes. Almost every area of Australian employment law has over the past two years been subjected to sweeping reform. This change will continue with the commencement of the Wage Theft laws in January 2025.

We look at some of the key changes that have immediately impacted businesses including new rules relating to collective bargaining, the redefining of safety through the lens of psychosocial risk and most recently the introduction of the right to disconnect. We also provide a summary of the recently released Annual Report from the Fair Work Commission.

Click here to view State of the Workplace.
Deal Done: Mandatory Merger Clearance in Australia Becomes Law

Fri, 29 Nov 2024 00:00:00 -0000

It is now confirmed that Australia will have a mandatory and suspensory (competition) pre-merger clearance regime with the passing of legislation late yesterday.

The legislation, titled the Treasury Laws Amendment (Mergers and Acquisitions Reform) Act 2024, will have a widespread and significant impact on the Australian merger landscape.

Under the new regime, mergers (any acquisitions of shares or assets) that meet certain thresholds will be required to be notified to the Australian Competition and Consumer Commission (ACCC) and approved prior to proceeding.

In brief, the thresholds are as follows:

The legislation also provides that the Treasurer will be able to adjust the thresholds to respond to concerns in relation to “high-risk” sectors—for example, the Australian government has indicated that it intends to require notification of all mergers in the supermarket sector.

Prior to these reforms, Australia was one of only three Organisation for Economic Co-operation and Development countries that did not have a mandatory merger clearance regime in place. The Australian government has stated that “the current ‘ad hoc’ merger process is unfit for a modern economy” and that “these reforms are the largest shakeup of Australia’s merger settings in half a century”.

While parties can seek voluntarily clearance under the new regime from 1 July 2025, the regime will officially commence on 1 January 2026.

Accordingly, businesses seeking to effect mergers and acquisitions in Australia should begin considering the approach that they wish to take under the legislation, the likely timing of the proposed acquisition and its completion, as well as the effect of acquisitions that have been undertaken in the previous three years.

We set out further detail on the legislation in an earlier Insight, which can be found here.

We will continue to update you on further developments flowing from the passing of the legislation, including the ACCC’s upcoming analytical and process processes.

In early 2025, we will be hosting more detailed presentation sessions on the reforms—should you wish to attend, please keep an eye on our future announcements.
October 2024 ESG Policy Update–Australia

Thu, 28 Nov 2024 00:00:00 -0000
Australian Update

AU$12.9 Million Penalty Imposed on Trustee

On 25 September 2024, the Federal Court ordered a large superannuation trustee (Trustee) to pay the highest penalty imposed for greenwashing conduct yet–AU$12.9 million. This comes off the back of the Federal Court in early August this year ordering Mercer Superannuation (Australia) Limited to pay an AU$11.3 million penalty after it admitted it made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

Justice Michael O’Bryan found that the Trustee made misleading claims about an “ethically conscious” fund (Fund), contravening sections 12DF(1) and 12DB(1)(a) and (e) of the Australian Securities and Investments Commission Act 2001 (Cth) (Act) (Contraventions).

Justice O’Bryan outlined that the Contraventions consisted of:
- Media release representations, which conveyed representations that:
  
  The Fund offered an ethically conscious investment opportunity, and that the Fund did this by seeking to track the Bloomberg SRI Index.
  
  Before being included in the Bloomberg SRI Index (and therefore the Fund), securities were researched and screened against applicable environmental, social, and governance (ESG) criteria.
  
  Securities that violated applicable ESG criteria were excluded or removed from the Bloomberg SRI Index and therefore the Fund.
- YouTube representations and representations made at an FNN Fund Manager event (which were later published online) which conveyed the same representations as the media release representations, save for the fact that they did not refer to the Bloomberg SRI Index.
- The PDS representations and the website representations which conveyed the same representations as the media release representations save for the fact that those materials conveyed that only securities issued by companies (rather than securities generally) were screened against ESG criteria.
The above representations were found to be misleading within the meaning of section 12DF(1) and section 12DB(1)(a) and (e) because:
- The research and screening for the Bloomberg SRI Index (and therefore the Fund) had limitations which meant that not all securities were screened against ESG criteria.
- A significant proportion of securities in the Bloomberg SRI Index and the Fund were from issuers that were not researched or screened against applicable ESG criteria.
- The Bloomberg SRI Index and the Fund included issuers that violated applicable ESG criteria.
Importantly, Justice O’Bryan found that:
- Due to limitations of the Bloomberg SRI Index, approximately 74% of the securities were not researched or screened against applicable ESG criteria.
- The misrepresentations enhanced the Trustee’s ability to attract investors to the Fund and its reputation as a provider of investment funds with ESG characteristics, as compared to the situation where the Trustee disclosed the screening limitations and the Fund’s exposure to issuers engaged in excluded industries.
- The contraventions should be regarded as serious, as it concerned the principal distinguishing feature of the Fund, which the Trustee developed and promoted in response to market demand.
Justice O’Bryan conducted a balancing exercise in coming to the penalty amount of AU$12.9 million, which he found struck an appropriate balance between deterrence and oppressive severity.

That the conduct was serious, continued for two and a half years, concerned a substantial investment fund and that senior employees were involved in the preparation of the misleading disclosures, among other factors, increased the need for deterrence.

The decision comes following both the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission making greenwashing an enforcement priority (as reported on by K&L Gates here).

ASIC Updates Guidance for Participants in Carbon Market

On 30 September 2024, ASIC released its updated Regulatory Guide 236 Do I need an AFS licence to participant in carbon markets (Guide) following consultation earlier this year in May.

The Guide provides guidance for participants in the carbon market who need to decide whether or not they need an Australian financial services licence (AFSL). This includes:
- People involved in the Australian Carbon Credit Unit (ACCU) scheme.
- Responsible emitters for safeguard facilities.
- Market intermediaries.
- Market advisors (in the carbon market).
Essentially, an AFSL is required to provide financial services while carrying on a financial services business in Australia (unless an exemption applies).

An entity provides a financial service if it, among other activities, provides financial product advice or deals in a financial product.

The Guide has been updated to:
- Address the safeguard mechanism legislative reforms that commenced on 1 July 2023, which enable the Clean Energy Regulator to issue safeguard mechanism credit units (SMCs).
- Make it clear that ACCUs and SMCs are financial products.
- Provide additional guidance on when an advisor may be taken to provide financial product advice, in which case the key question is whether the advice is intended to or can be taken to intend to, influence a person’s decision about a financial product.
Global Nature Positive Summit Sparks Industry Optimism

In early October, the Australian and New South Wales Governments hosted the inaugural Global Nature Positive Summit (Summit) with the aim of accelerating collective action to drive private sector investment in nature and strengthen activities to protect and repair the environment.

“Nature Positive” refers to improving the diversity, abundance, resilience and integrity of ecosystems from a baseline. Following the release of its Nature Positive Plan in December 2022, the Australian Government has committed to a three-stage approach:

Stage 1

Establishment of the Nature Repair Market via the Nature Repair Act 2023 (Cth) and Nature Repair (Consequential Amendments) Act 2023 (Cth).

Stage 2

Establishment of Environment Protection Australia and Environment Information Australia via the Nature Positive (Environment Protection Australia) Bill 2024 (Cth) and Nature Positive (Environment Information Australia) Bill 2024 (Cth).

Stage 3

Introducing the Nature Positive (Environment) Bill 2024 (Cth) and Nature Positive (Transitional and Consequential Amendments) Bill 2024 (Cth).

At the Summit, leaders and attendees explored ways to realise global commitments under the Kunming-Montreal Global Biodiversity Framework, to which 200 countries are signatories. It sets a target of US$200 billion funding per year to spend on protection and restoration of 30% of land and waters by 2030.

More than half the world’s economy directly depends on nature. Biodiversity loss threatens global financial stability, putting at least AU$64 trillion of economic value at risk.

The Taskforce on Nature-related Financial Disclosures (TNFD), a global science-based and government-backed initiative consisting of financial institutions, corporates and market service providers, announced at the Summit that the total number of Australian companies and financial institutions that have committed to voluntary reporting of their nature-related risks and issues in line with the TNFD recommendations now stands at 23. This includes a number of Australia’s leading Australian Securities Exchange-listed companies and fund managers.

The TNFD recommendations set out the corporate reporting requirements of organisations across jurisdictions to be consistent with the global baseline for corporate sustainability reporting and to be aligned with the global policy goals in the Kunming-Montreal Global Biodiversity Framework.

Whilst the TNFD recommendations are not yet compulsory in Australia, the ongoing reforms and discussions at the Summit are clear signals that nature-related risks and issues should be carefully considered when implementing ESG strategies.

Increased Investment in Data Centres Raises Energy Warning

Australia’s superannuation and investment funds are increasingly interested in digital infrastructure, looking to invest in assets like data centres, fibre optic networks, and telecommunications.

However, investment in data centres is potentially putting large Australian fund managers’ net zero emissions obligations at risk. Data centres may offer high returns but are typically amongst the most energy-intensive of all assets, which could result in a delay of fund managers’ transition strategies and the possibility of funds engaging in greenwashing.

The appetite for data centres has come amid regulatory crackdowns on greenwashing and customer pushback over fund managers’ fossil fuel investments. However, it has been noted that high amounts of energy are needed to fuel data centres, leading to increased emissions and a strain on the power grid in periods of extreme weather, which will only worsen with climate change.

As such, superannuation and investment fund managers have been advised to consider the investments in light of their net zero commitments and also to consider escalation plans, including selling data centres if the companies managing them were failing to progress their transition plans.

Fund managers who invest in data centre assets may be given an opportunity to obtain a seat on the board of the respective data centre company. This inevitably means more influence over the company’s decisions and more responsibility in respect of sustainability reporting.

Both data centres and fund managers are being urged to show they have credible plans to reach net zero emissions by 2050. These ventures provide data centre companies and fund managers the opportunity to align their decarbonisation strategies, enhancing the industry approach to meeting net zero targets.

View From Abroad

United States: ESG Working Group Releases Final Staff Report

During the current administration, the United States House of Representatives has maintained a strong focus on overseeing ESG issues. At the beginning of this administration, the House Committee on Financial Services, which oversees the Securities and Exchange Commission, established the House GOP ESG Working Group (ESG Working Group). This group is dedicated to addressing ESG-related regulatory matters and issues related to nonfinancial risk disclosure.

On 1 August 2024, the ESG Working Group issued its final staff report entitled “The Failure of ESG: An Examination of Environmental, Social, and Governance Factors in the American Boardroom and Needed Reforms”. This report summarises current ESG-related trends and analyses relevant legal and policy matters. It concludes with a list of recommendations, focusing on proxy voting issues, shareholder activism, the materiality of climate-related financial risk and the fiduciary duty of investment advisors.

The key recommendations include:
- Reform the proxy voting system to safeguard the interests of retail investors.
- Promote transparency, accountability and accuracy in the proxy advisory system.
- Enhance accountability in shareholder voting by aligning voting decisions with the economic interests of shareholders.
- Increase transparency and oversight of large asset managers to ensure their practices reflect the pecuniary interest of retail investors.
- Improve ESG rating agency accountability and transparency to safeguard retail shareholders.
- Strengthen oversight and conduct thorough investigations into federal regulatory efforts that would contort our financial system into a vehicle to implement climate policy.
- Demand transparency, responsibility and adherence to statutory limits from financial and consumer regulatory agencies.
- Protect US companies from burdensome European Union regulations, safeguarding American interests in global markets.
Read our US Policy and Regulatory alert on this topic here.

Canada Introduces Mandatory Climate Disclosure Requirements for Large Companies

The Canadian government has advanced two significant sustainable finance initiatives to ensure the country meets its ambitious net-zero emissions target by 2050. On 9 October 2024, at the Principles for Responsible Investment conference in Toronto, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced:
- The government’s intention to amend the Canada Business Corporations Act to require climate-related financial disclosures for large, federally incorporated private companies.
- A plan is underway to create Made-in-Canada sustainable investment guidelines. These guidelines will serve as a voluntary tool for investors and other stakeholders to assess whether economic activities are “green” (activities with low or zero emissions that do not have significant scope 1 and 2 emissions) or “transition” (decarbonising activities that do have significant scope 1 and 2 emissions).
These measures aim to increase transparency in climate reporting and encourage greater private sector investment in sustainable activities. This announcement builds on the government’s previous commitment to develop a sustainable finance taxonomy to promote credible climate investment in its 2023 Fall Economic Statement and Budget 2024.

The authors would like to thank graduate Daniel Nastasi for his contribution to this legal insight.
AI and Your Obligations as an Australian Financial Services Licensee

Tue, 19 Nov 2024 00:00:00 -0000
On 29 October 2024, the Australian Securities and Investments Commission (ASIC) published REP 798 Beware the gap: Governance arrangements in the face of AI innovation. This report details ASIC's findings from a review of how artificial intelligence (AI) is being used and adopted in financial services and by credit licensees.

In REP 798, ASIC warned that licensees are adopting AI technologies faster than they are updating their risk and compliance frameworks. This lag creates significant risks, including potential harm to consumers. For instance, ASIC raised concerns about an AI model used by one licensee to generate credit risk scores, describing it as a "black box." They noted that this model lacked transparency, making it impossible to explain the variables influencing an applicant's score or how they affected the final outcome.

In the report, ASIC emphasised to licensees planning to use AI the need to stay aware of the rapidly evolving technological landscape. They highlighted the importance of prioritising governance, risk, and regulatory compliance when implementing new tools.

Below, we summarise how the adoption and use of AI by licensees aligns with the existing regulatory framework and industry best practices to ensure compliance with both current and future regulatory requirements in Australia.

Existing Regulatory Framework

In REP 798, ASIC reminded financial services businesses to consider and comply with their existing regulatory obligations when adopting and using AI. They pointed out that the current regulatory framework for financial services and credit licensees is technology-neutral, meaning it applies equally to both AI and non-AI systems and processes.

These existing obligations are as follows:

General Obligations

Use of AI must comply with the general obligation to provide financial or credit services "efficiently, honestly and fairly". ASIC highlighted that AI models can potentially treat consumers unfairly, resulting in outcomes or decisions that are difficult to explain.

Unconscionable Conduct

The use of AI must not lead to actions that are unconscionable towards consumers. ASIC provided an example where AI could unfairly exploit consumer vulnerabilities or behavioural biases.

Misleading and Deceptive Conduct

Representations regarding the use of AI, model performance, and outputs must be factual and accurate. This obligation includes ensuring that any AI-generated representations are not false or misleading.

Directors' Duties

Directors must recognise that their duty to exercise their powers with the care and diligence a reasonable person would use in similar circumstances extends to the adoption, deployment, and use of AI. They should keep this responsibility in mind when relying on AI-generated information to fulfil their duties, as well as the reasonably foreseeable risks that may arise from its use.

Best Practices–ASIC

ASIC has also set out the best practices it has observed from licensees.

Review and Documentation

Licensees should identify and update their governance and compliance measures as AI risks and challenges evolve. These measures need to be documented, monitored, and regularly reviewed. ASIC noted that some licensees did not take a proactive approach, failing to update their governance arrangements in line with their increasing use of AI. To prevent potential consumer harm, licensees must consistently review and update their arrangements, ensuring there is no lag in their AI adoption.

AI Governance Arrangements

Licensees should establish a clear overarching AI strategy that aligns with their desired outcomes and objectives, while also considering their skills, capabilities, and technological infrastructure. ASIC recommends that best practices include the formation of a specialist executive-level committee with defined responsibility and authority over AI governance, along with regular reporting to the board or committee on AI-related risks. Additionally, incorporating the eight Australian AI Ethics Principles into AI policies and procedures is considered a hallmark of best practice.

Technological and human resources

Licensees should assess whether they have sufficient human capital with the necessary skills and experience to understand and implement AI solutions. They must also ensure they have adequate technological resources to maintain data integrity, protect confidential information, and meet their operational needs.

Risk Management Systems

Licensees should evaluate how the use or increased adoption of AI alters their risk profile and risk management obligations. They should determine whether these changes necessitate adjustments to their risk management frameworks.

AI Third-Party Providers

Licensees should ensure they have appropriate measures in place to select suitable AI service providers, monitor their performance, and manage their actions throughout the entire AI lifecycle. While many licensees quickly relied on third parties for their AI models, they often overlooked the associated risks. ASIC noted that best practices include applying the same governing principles and expectations to models developed by third parties as those used for internally developed models.

In combination with REP 798, ASIC provided 11 questions for licensees to review and consider to ensure their AI innovation is balanced with the above regulatory obligations and best practices.

These are as follows:
1. Taking stock: Where is AI currently being used in your business?
2. Strategy: What is your strategy for AI, now and in the future?
3. Fairness: How will you provide services efficiently, honestly and fairly when using AI?
4. Accountability: Who is accountable for AI use and outcomes in your business?
5. Risks: How will you identify and manage risks to consumers and regulatory risks from AI?
6. Alignment: Are your governance arrangements leading or lagging your use of AI?
7. Policies: Have you translated your AI strategy into clear expectations for staff?
8. Oversight: What human oversight does your AI use require, and how will you monitor it?
9. Third parties: How do you manage the challenges of using models developed by third parties?
10. Regulatory reform: Are you engaging with the regulatory reform proposals on AI?
11. Resources: Do you have the technological and human resources to manage AI?
Best Practices-Voluntary AI Safety Standard

Separately, the Australian Government has introduced the Voluntary AI Safety Standard, which outlines 10 guardrails for the development and deployment of AI by Australian organisations. These guardrails were developed in response to feedback from Australian companies that expressed a need for clear guidance and consistency in implementing AI.

The guardrails are as follows:
1. Regulatory compliance: Establish, implement and publish an accountability process including governance, internal capability and a strategy for regulatory compliance. This is designed to create the foundation for an organisation's use of AI.
2. Risk management: Establish and implement a risk management process to identify and mitigate risks. Complete a risk assessment considering the full range of potential harms, and consider this on an ongoing basis.
3. Data integrity: Protect AI systems and implement data governance measures to manage data quality and provenance. Focus on the unique characteristics of the AI system proposed or implemented.
4. Testing: Test AI models and systems to evaluate model performance and monitor the system once deployed.
5. Ensure control: Enable human control or intervention in an AI system to achieve meaningful human oversight across the life cycle, reducing the potential for unintended consequences and harms.
6. Create trust with users: Inform end-users regarding AI-enabled decisions, interactions with AI and AI-generated content. Instil confidence and trust in users by proper disclosure of the use of AI.
7. Establish processes: Create processes for users, organisations, people, and society impacted by AI systems to challenge how they are using AI and contest decisions, outcomes, or interactions that involve AI.
8. Be transparent: Be transparent with other organisations across the AI supply chain about data, models, and systems to help them effectively address risks.
9. Maintain records: Keep and maintain records to allow third parties to assess compliance with the guardrails.
10. Engage stakeholders: Evaluate their needs and circumstances, with a focus on safety, diversity, inclusion, and fairness. Conduct a stakeholder impact assessment to identify any potential bias or ethical prejudices in AI deployment.
The Government is also consulting on mandatory guardrails for AI in "high-risk" cases, which will largely build on the existing voluntary guardrails. The definition of "high-risk" AI is still under consideration. In a proposals paper, the Government suggested that "high-risk" could include two broad categories:
1. Intended and foreseeable use risks: This includes any adverse impacts on individual human rights or health and safety.
2. General purpose risks: This refers to AI that can be used for various purposes and adapted for different applications.
Key Takeaways

Licensees who are currently using or planning to use AI must ensure they are familiar with the existing regulatory framework for developing and deploying AI in Australia. They should strive to adhere to the best practices outlined by ASIC in REP 798 and embrace the standards set forth in the Government’s ten guardrails. We anticipate that these best practices and guardrails will be incorporated into future legislation, influencing regulators like ASIC in enforcing current regulatory requirements.

Implementing an appropriate risk and governance framework is just the first step. Licensees should proceed cautiously, conduct thorough due diligence, and establish effective monitoring to ensure their policies adequately address the ongoing risks and challenges associated with AI. However, licensees with robust technology platforms and a strong track record in risk management are well-positioned to experiment with AI and should feel confident in moving forward with this technology.

The authors would like to thank graduate Madison Jeffreys for her contribution to this alert.
Competition and Consumer Law Round-Up

Fri, 15 Nov 2024 00:00:00 -0000
What's Inside this Issue?

This edition of the K&L Gates Competition & Consumer Law Round-Up provides a summary of recent and significant updates from the Australian Competition and Consumer Commission (ACCC), as well as other noteworthy developments in the competition and consumer law space. If you wish to have more details about the issues outlined in this newsletter or discuss them further, please reach out to any member of the K&L Gates competition and consumer law team.

Enforcement
- ACCC Commences Action Against Coles’ and Woolworths’ Illusory Promotions;
- Misleading Conduct Results in AU$100 million Penalty for Qantas; and
- Honda Penalised for Breach of Information Sharing Requirements.
Mergers and Acquisitions
- ACCC Raises Preliminary Concerns in Relation to Qube’s Proposed Acquisition of MIRRAT; and
- Bill to Enact Mandatory and Suspensory Merger Clearance Regime Introduced.
Notifications and Authorisations
- ACCC Does Not Object to Airservices Australia’s Proposal to Increase Prices.
Noteworthy Developments
- ACCC Releases Interim Report for Ongoing Supermarkets Inquiry;
- ACCC Releases Infringement Notices Guidelines for Telecommunications Companies;
- Treasury Releases Consultation Paper on Consumer Guarantees and Supplier Indemnification Provisions Under the ACL; and
- Albanese Government to Ban Unfair Trading Practices.
Click here to view the Round-Up.

What You Need to Know in a Minute or Less

What Contaminants Are States Targeting?

How Did We Get Here?

Impact of State Laws on Litigation Risk

Takeaways