Stacy Mitchell, Author at Gibson Dunn

The Executive Order describes seabed mineral resources as “a core national security and economic interest” for the US and aims to establish the US as a global leader in seabed mineral exploration and development.

On 24 April 2025, President Trump issued an Executive Order—“Unleashing America’s Offshore Critical Minerals and Resources” (Executive Order)—intending to significantly advance the United States’s (US) deep-sea mining capabilities in the Pacific Ocean.[1] The Executive Order—which describes seabed mineral resources as “a core national security and economic interest” for the US—aims to establish the US as a global leader in seabed mineral exploration and development. On 25 June 2025, the US Department of the Interior announced new policy steps “to speed up the search and development of critical minerals offshore”, advancing the Executive Order. Several companies have already applied (or are reported to be in negotiations) for commercial licenses to mine in international waters. These moves have been met with criticism, including from the European Union (EU) and China as violating the framework for exploitation under international agreements—and many States have called for a moratorium or precautionary pause raising concerns regarding the potential harm to the marine environment.

The Executive Order has changed—and will continue to shape—the course of the international debate on deep-sea mining. Whilst the US is forging ahead with its plans to issue licenses by setting its own standards, this move could prompt other countries to do the same. Investors should therefore carefully assess the risks involved—whether that is uncertainty around licensing and regulatory environment, increased costs, litigation risk and/or concerns with respect to environmental impacts of deep-sea mining. In circumstances where deep-sea mining in international waters is considered to be a violation of international law, investors also need to carefully assess how their investments may be impacted, and consider available options to protect them.

We explore the international legal framework applicable to deep-sea mining, and further consider implications of the Executive Order, States’ responses and issues that need to be considered by investors and companies interested in exploring the opportunities in further detail below.

The International Framework

Deep-sea mining may take place in waters within a country’s jurisdiction, known as exclusive economic zones (EEZs). EEZs are areas extending 200 nautical miles from a State’s coast and, subject to their domestic laws, States have jurisdiction to undertake deep-sea mining (and otherwise control, explore and conserve natural resources) within these zones. States such as Norway, the Cook Islands, and Sweden have actively explored deep-sea mining operations in their respective EEZs. Several other States—including Brazil and China—are supportive of deep-sea mining in the EEZ too.

For deep-sea mining in international waters beyond the EEZs, known as the “Area”, the UN Convention on the Law of the Sea (UNCLOS) has established the applicable legal and regulatory framework.[2]  UNCLOS is designed to ensure equitable access to resources, protect the environment, and facilitate responsible exploitation of the seabed.[3]

Under UNCLOS, the Area and its resources are described as the “common heritage of mankind” and the Area’s minerals are only to be “alienated” in accordance with Part XI of UNCLOS and the “rules, regulations and procedures of the [International Seabed Authority]”.[4] The International Seabed Authority (ISA) is an intergovernmental agency and comprises 168 member States and the EU. Whilst the US is not a full member of the ISA (as it has not ratified UNCLOS), it has historically participated as an observer at the ISA. Further, much of UNCLOS is recognized by the US as reflecting customary international law.

The ISA is mandated under UNCLOS to issue rules, regulations and procedures with respect to the exploration and exploitation of minerals in the Area.[5] At present, pursuant to regulations issued by the ISA, 31 exploration contracts have been approved, which largely concern the “Clarion-Clipperton Zone”—a 6 million km² area in the Pacific, between Hawaii and Mexico. With respect to exploitation, however, no regulations have yet been issued (and, accordingly, no contracts approved)—therefore deep-sea mining in international waters remains forbidden under UNCLOS.

In recent years, however, the ISA has faced increasing pressure to finalise regulation on deep-sea mining. On 25 June 2021, the island nation of Nauru notified the ISA of its plans to begin deep-sea mining in international waters and triggered an UNCLOS treaty provision known as the “two-year rule”. This rule requires the ISA to “nonetheless consider and provisionally approve” a plan for exploitation of deep-sea minerals in circumstances where ISA exploitation regulations have not yet been issued. On 21 July 2023 (i.e., the end of the two-year period), ISA delegates agreed to extend the deadline for the finalisation of the plan for exploitation to July 2025 (a further two-year extension). The ISA’s 30th session is currently in progress—though it is unlikely that regulations will be finalized during that meeting.

The Executive Order

As the Executive Order recognizes, critical minerals (such as nickel, cobalt, copper, manganese and titanium) and rare earth elements are crucial to a range of sectors—including energy, infrastructure and defence. China dominates both the production and processing of minerals—accounting for 61% of global mined rare earth production and controlling over 90% of the processing.[6] For the US, therefore, deep-sea mining presents an opportunity to reduce dependence on foreign suppliers such as China, creating its own supply chain.

The Executive Order requires, within 60 days of its issuance, the Secretary of Commerce to: (i) expedite the process for reviewing and issuing seabed mineral exploration licenses and commercial recovery permits in areas beyond national jurisdiction under the Deep Seabed Hard Mineral Resources Act 1980; and (ii) in coordination with the Secretary of the Interior and the Secretary of Energy and others, provide a report identifying private sector interest and opportunities. The National Oceanic and Atmospheric Administration under the Department of Commerce (which is responsible for issuing licenses for exploration and permits for commercial recovery under the Deep Seabed Hard Mineral Resources Act) has recently proposed rules that outline the licensing process. It has also started a consultation process, set to end by September 2025.[7]

Additionally, the Secretary of the Interior is required to establish an expedited process for reviewing and approving permits for prospecting and granting leases for the exploration, development, and production of seabed mineral resources within the United States Outer Continental Shelf. The Secretary of the Interior is also required to identify which critical minerals may be derived from seabed resources, so that it can indicate the critical minerals that are essential for applications, such as defense infrastructure, manufacturing and energy.

Responses to the Executive Order and Deep-Sea Mining

Both China and the EU have questioned the legality of the Executive Order, arguing that it circumvents cross-nation negotiations and the approval processes under international law, for deep-sea mining in international waters, which must involve the ISA under UNCLOS. Following the Executive Order, at the UN Ocean Conference in June 2025 (previously reported on here), a number of States—including France, Spain and the United Kingdom—joined a group of (now) 37 States calling for an outright ban, moratorium or precautionary pause on deep-sea mining. Concerns expressed by those States include environmental impacts (such as the release of toxins into the ocean, noise pollution and the loss of biodiversity), risks to global food security and the acceleration of rising temperatures.

Notably, commercial appetite for deep-sea mining remains relatively low—with some major financial institutions having announced that they would not fund deep-sea mining projects, including due to uncertainties around costs and the concerns around environmental impacts, with others committing to avoid ocean-minded minerals in their products.

What the Future Holds for Deep-Sea Mining

The Executive Order has changed—and will continue to shape—the course of the international debate on deep-sea mining. Although serious concerns remain about its environmental effects, for those States that consider deep-sea mining as an opportunity to unlock critical resources as a matter of national security, and to reduce dependence on foreign suppliers, the Executive Order may set a precedent for other States to follow suit. By setting its own standards, the US could prompt other countries to do the same, undermining long-standing international cooperation and desire to build a global regulatory regime that will protect the fishing industry, the ocean ecosystem and responsible mining standards.

Investors should therefore carefully assess the risks involved—whether that is uncertainty around licensing and the regulatory environment, increased costs and/or concerns with respect to environmental impacts of deep-sea mining. In circumstances where deep-sea mining in the Area is considered to be a violation of international law, investors need to carefully assess how their investments may be impacted.

Alongside domestic and contract-based remedies, it is possible that investor-State arbitration may offer a mechanism for deep-sea mining investors to protect their investments, to the extent their operations and exploration licenses are impacted by UNCLOS-based challenges emanating from international law or environmental considerations. Investors will need to think carefully about claims that involve investments and operations in the Area potentially outside a sovereign State’s national jurisdiction.

Moreover, there are also, potentially, ESG and environmental litigation related risks for investors, where they are subject to due diligence obligations under domestic laws and there arises—as a result of mining operations—harm to the marine environment. ESG litigation with an environmental nexus has rapidly increased over recent years across the globe.

Finally, State-to-State disputes may ensue under the UNCLOS regime in relation to inter alia maritime boundaries, resource ownership, subsea cables and fishing rights which could have a direct and / or an indirect impact on the viability of a mining project and should be considered carefully.

Gibson Dunn’s Geopolitical Strategy and International Law team—together with our International Arbitration, and ESG Risk Advisory teams—can help investors understand and navigate these multi-dimensional risks.

Should you wish to discuss the contents of this alert, do not hesitate to reach out to Patrick Pearsall, Lindsey Schmidt, Ceyda Knoebel and Stephanie Collins.

[1] See ‘Unleashing America’s Offshore Critical Minerals and Resources’, The White House, 24 April 2025, <https://www.whitehouse.gov/presidential-actions/2025/04/unleashing-americas-offshore-critical-minerals-and-resources/>, last accessed 18 July 2025.

[2] See UNCLOS, Art. 1.

[3] See UNCLOS, Preamble.

[4] UNCLOS, Arts. 136-37.

[5] See UNCLOS, Arts. 162, 164-65.

[6] See ‘Global Critical Minerals Outlook 2024’, International Energy Agency, May 2024, <https://www.iea.org/reports/global-critical-minerals-outlook-2024>, last accessed 18 July 2025.

[7] https://www.federalregister.gov/documents/2025/07/07/2025-12513/deep-seabed-mining-revisions-to-regulations-for-exploration-license-and-commercial-recovery-permit.

The following Gibson Dunn lawyers prepared this update: Patrick Pearsall, Lindsey Schmidt, Ceyda Knoebel, and Stephanie Collins.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Geopolitical Strategy & International Law or International Arbitration practice groups:

Robert Spano – Co-Chair, Geopolitical Strategy & International Law Group,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

Patrick W. Pearsall – Co-Chair, Geopolitical Strategy & International Law Group,
Washington, D.C. (+1 202.955.8516, ppearsall@gibsondunn.com)

Lindsey D. Schmidt – New York (+1 212.351.5395, lschmidt@gibsondunn.com)

Ceyda Knoebel – London (+44 20 7071 4243, cknoebel@gibsondunn.com)

Stephanie Collins – London (+44 20 7071 4216, scollins@gibsondunn.com)

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

The ICtHR found that there exists an independent right to a healthy climate, derived from the right to a healthy environment, discussing at length States’ obligations to mitigate climate change, including through the regulation of corporate behaviour.

On 3 July 2025, the InterAmerican Court of Human Rights (ICtHR or Court) issued its advisory opinion regarding the obligations of States to take measures to mitigate and adapt to the effects of climate change (Opinion).[1] In the Opinion, the ICtHR found that there exists an independent right to a healthy climate, derived from the right to a healthy environment. It also recognized “Nature” and its components as subjects of rights and the prohibition arising from the obligation not to cause irreversible damage to the climate and the environment as a jus cogens norm—the first time an international court has done so. The Court further discussed at length States’ obligations to mitigate climate change, including through the regulation of corporate behaviour. The Opinion is also significant as it was issued after the most participatory proceeding for an advisory opinion in ICtHR history with more than 260 amicus briefs submitted and over 180 delegations taking part in the hearings.

The Opinion is one of a trio of advisory opinions on State obligations in the context of climate change. The International Tribunal on the Law of the Sea issued its advisory opinion considering State obligations under the UN Convention on the Law of the Sea last year (see our alert here) (ITLOS Advisory Opinion). The International Court of Justice’s (ICJ) advisory opinion will be issued next week. The Opinion is also part of a growing body of international and domestic jurisprudence linking human rights and climate change.

The Court’s advisory opinions are influential as regards the interpretation of the American Convention on Human Rights (American Convention) on the 23 States which have ratified the American Convention[2]—and upon which the American Convention is binding as a matter of international law.[3]

Our Key Takeaways

Our key takeaways from the Opinion are as follows:

In domestic fora, the finding of an autonomous right to a healthy climate will likely be relied on by claimants in domestic proceedings before the courts of States which have ratified the American Convention, and in other jurisdictions, particularly where there exists a right to a healthy environment.

On the international plane, the Opinion has been issued just three weeks before the ICJ’s advisory opinion, expected on 23 July 2025, which may take into account the Opinion’s conclusions. The Opinion will no doubt be considered by the African Court on Human and People’s Rights (ACtHR) in its advisory opinion too, the request for which was submitted in May 2025.

As we reported with respect to the ITLOS Advisory Opinion, the Opinion may prompt a regulatory response from States subject to the Court’s jurisdiction. This could include, for example, measures to mitigate greenhouse gas (GHG) emissions, including the regulation of corporate behaviour, which was emphasized by the Court. It could also prompt the enactment of procedural rules facilitating collective claims in the climate context. As such, private actors should monitor changes to the regulatory landscape that may impact their operations.

The Opinion may impact investment arbitration. Indeed, the Court requested States to “review their existing trade and investment agreements” as well as “investor-State dispute settlement mechanisms” (ISDS) to “ensure that they do not limit or restrict efforts on climate change and human rights”, referring to a 2023 UN Working Group Report.[4] Whether or not Member States to the American Convention follow that request remains to be seen, but the Court’s findings may prove to be relevant in investment arbitration—for example, in cases where States consider an investor’s claim to be inconsistent with their right to regulate to achieve their climate objectives.

Background

On 9 January 2023, Colombia and Chile submitted a request to the Court—given the “close relationship between human rights and a healthy environment”—to “defin[e] the scope of the relevant obligations established in the American Convention and other inter-American treaties to confront the situations arising from the climate emergency” in a “equitable, just and sustainable manner” (Request).[5] While the ICtHR is primarily responsible for interpreting the rights and obligations guaranteed by the American Convention, the ICtHR is also competent to interpret other regional and international human rights treaties insofar as they shape human rights norms within the region.

The Request posed six sets of questions concerning State obligations to mitigate and adapt to climate change, as imposed by the: (i) American Convention; (ii) American Convention and the Regional Agreement on Access to Information, Public Participation and Justice in Environmental Matters in Latin America and the Caribbean; (iii) Convention on the Rights of the Child; (iv) Additional Protocol to the American Convention in the Area of Economic, Social and Cultural Rights (San Salvador Protocol); (v) Stockholm Declaration and Action Plan for the Human Environment (Stockholm Declaration); and (vi) Rio Declaration on Environment and Development, among other instruments.

The first five sets of questions[6] concerned State obligations, in light of the climate emergency, to:

prevent and guarantee human rights;

preserve the right to life and survival;

implement specific measures to protect the rights of children;

provide forums for public participation and judicial recourse; and

protect the rights of environmental activists, women, indigenous groups, and Afro-descendent communities.

The final set of questions requested clarity on collective and cross-border obligations—particularly when considering the principle of “shared but differentiated responsibilities”.[7]

For context, the ICtHR is one of three regional human rights tribunals that provides authoritative judgments and advisory opinions concerning the observance of human rights by States within their respective regional jurisdictions. The Grand Chamber of the European Court of Human Rights (ECtHR) delivered its judgment concerning State-obligations in the context of climate change under the European Convention on Human Rights last year in KlimaSeniorinnen v. Switzerland (KlimaSeniorinnen) (see our alert on the judgment here). The ACtHR is considering the obligations of African States under the African Charter on Human and People’s Rights (African Charter) in the climate change context, as well as other regional human rights instruments.

The Court’s Opinion On The Obligations Of States

1. The Scope Of Human Rights Obligations In The Context Of Climate Change

The Court first provided an overview of the scope of the five general obligations as derived from the American Convention and the Protocol of San Salvador placed in the context of the climate emergency, namely:

The obligation to respect rights: States must refrain from adopting regressive measures, including “preventing both formal and substantive discriminatory practices, that may arise in the design, implementation or assessment of public policies relating to climate mitigation and adaptation”.[8]

The obligation to guarantee rights: Applying the precautionary principle (which the Court recognized is now an established principle of environmental law), this obligation includes adopting all necessary measures to prevent serious or irreversible damage to the environment, and extends to the State’s duty to prevent “in the private sphere, third parties from violating the protected rights” (i.e., protected legal interests), including by regulating, supervising and overseeing the activities of private parties. This obligation is one of conduct and, in light of the extremity and urgency of the climate crisis, requires that States act with enhanced due diligence, including the “adoption of proactive and ambitious preventive measures” using the best available science, and “strict compliance” with procedural rights.[9]

The obligation to adopt measures to ensure the progressive development of economic, social and cultural rights (ESCR): In line with the American Convention’s emphasis on ESCR, the Court noted that the climate emergency disproportionately affects the most vulnerable, who are those with an insufficient level of ESCR, including, inter alia, health, work, social security and housing. As such, there is a need to allocate the maximum available resources to people and groups in those vulnerable situations.

The obligation to adapt provisions of domestic law: This extends to regulating in a manner that establishes legal obligations for individuals, including companies, “whose activities may have significant effects on the environment, leading to legal consequences in cases of non-compliance”.[10]

The obligation to cooperate in good faith: The Court derived an obligation on States to cooperate in good faith for the protection against environmental damage (taking into account differentiated responsibilities in the face of historical contributions to GHG emissions, and States’ respective capacities and needs to achieve sustainable development). This obligation implies, for example, financing least developed countries to contribute to the just transition.

2. Obligations Arising From Substantive Rights

A. The Right To A Healthy Environment

The Court discussed at length the right to a healthy environment, which is expressly recognized in the San Salvador Protocol. The Court explained that the right has “individual and collective dimensions”[11]: (i) the right constitutes a universal interest, owed to present and future generations (collective); and (ii) its violation can have direct or indirect repercussions on individuals due to its connection with other rights (including rights to life, health and personal integrity) (individual).

B. “Nature” As A Subject Of Rights

The Court described “Nature” (such as forests, rivers, seas, etc.) as a subject of rights, which it explained is fully consistent with the progressive development of international human rights laws. In the Court’s view, moving towards a paradigm that recognizes the rights of ecosystems is “fundamental for the protection of their long-term integrity and functionality”.[12] Indeed, the protection of Nature provides an “appropriate framework for States – and other relevant stakeholders” to “advance towards building a global legal system for sustainable development”.[13] The Court opined that States must not only refrain from acting in ways that cause significant environmental harm but have a positive obligation to adopt measures to ensure the protection, restoration and regeneration of ecosystems.

C. Jus Cogens Nature Of The Obligation Not To Create Irreversible Damage To The Climate And The Environment

The Court recognized the obligation not to cause irreversible damage to the climate and the environment as a jus cogens norm—the first time any international court has made such a finding. The Court found (albeit with three judges dissenting) that: “pursuant to the principle of effectiveness, the peremptory prohibition of anthropogenic conducts that could irreversibly harm the interdependence and vital equilibrium of the common ecosystem that makes the life of the species possible constitutes a norm of jus cogens”.[14] The implications of jus cogens norms are that any international agreement which conflicts with that norm are void. Further, States cannot disregard these obligations, and violations thereof are against the international community, which means that all States—not just the injured State—can require compliance. The legal basis of this part of the Opinion is likely to prove controversial.

D. The Right To A Healthy Climate

The Court relied on the right to a healthy environment to derive—as an independent right—the “right to a healthy climate”, which the Court explained allows for the clear delimitation of specific State obligations in the face of the climate crisis. The right is one that “derives from a climate system free from anthropogenic interferences that are dangerous for human beings and Nature as a whole”.[15] It has a collective dimension (protecting the interests of present and future generations (i.e., inter-generational equity) and Nature), and an individual dimension (protecting the possibility of each individual to develop in a climate system free from dangerous interference—in this sense, the right acts as a “precondition” for the exercise of other human rights).

E. Obligations Arising From The Right To A Healthy Climate

The Court considered that the “right to a healthy climate” places on States an obligation to: (i) address the causes of climate change and, in particular, the mitigation of GHG emissions; as well as (ii) protect Nature and its components; and (iii) progress towards sustainable development.

With regards to the obligation to mitigate, this entails different duties—to regulate and monitor:

(i) Climate Mitigation Regulation

Define a mitigation target: This must be set with the objective of preventing climate damage as a condition for respecting and guaranteeing the right to a healthy environment, and “applies to all OAS Member States without exception”.[16] The target must be calculated by the best available science based on a temperature increase of no more than 1.5 degrees, through tools such as carbon budgets. States should have regard to considerations of justice, such as the principles of common but differentiated responsibility and intra- and inter-generational equity (indeed, States which have emitted the most GHGs historically should bear the greatest responsibility for mitigation).

Define and keep up to date a human rights-based strategy to achieve it: In doing so, the Court noted its agreement with the position taken by the ECtHR in KlimaSeniorinnen, which emphasized the need to take immediate and intermediate measures while carbon neutrality is being achieved; and stated that measures should be set out in a “binding regulatory framework”.[17] The strategy must be conducted “in accordance with a standard of enhanced due diligence”.[18] Mitigation strategies must also contemplate measures to protect biodiversity and ecosystems—as well as ensure a “just transition”, for example, protecting against human rights violations in the extraction of rare and critical minerals required for energy transition.

Regulate the behavior of companies: In the Court’s view “business enterprises are called upon to play an essential role”; therefore (flowing from the American Convention and Protocol of San Salvador) States must adopt legislative and other measures to “prevent human rights violations by . . . private enterprises. . ., investigate them, punish them, and guarantee redress for their consequences”.[19] There exists a duty on States to establish corporate obligations with regard to climate change in the domestic regulatory framework. Thus, States must:
- call upon all companies domiciled or operating in their territory and jurisdiction to take effective measures to combat climate change and related human rights impacts;
- enact legislation obliging companies to conduct human rights and climate change due diligence along the entire value chain;
- require companies, state-owned and private, to disclose in an accessible manner the GHG emissions of their value chain;
- require companies to take measures to reduce such emissions, and to address their contribution to climate change and climate mitigation goals, throughout their operations; and
- adopt a set of standards to discourage greenwashing and undue influence by companies in the political and regulatory sphere in this area and support the actions of human rights defenders.

(ii) Climate Mitigation Monitoring

The obligation to prevent environmental harm also entails effective monitoring. Considering the enhanced due diligence standard, States are obliged to strictly monitor and control activities—both public and private—that generate GHG emissions, as foreseen in their mitigation strategy. While the activities monitored will vary from State to State, it is the State’s duty to monitor and control (at a minimum), the exploration, extraction, transport and processing of fossil fuels, cement manufacturing, agro-industrial activities, and any other inputs used in such activities.

States must have in place robust and independent judicial (or quasi-judicial or administrative) mechanisms, that are well-resourced. These mechanisms should monitor progress towards the national mitigation target.

Monitoring should include “the possibility of investigating, prosecuting and sanctioning those who fail to comply. . ., including business enterprises”. The State should further establish consequences, including the possibility of ordering the cessation of activities carried out, and effective compensation for the impacts caused to the climate system.

(iii) Determining Climate Impact

The Court explained that environmental impact assessments (EIAs) are mandatory whenever it is determined that a project carries risk of significant environmental damage, and such assessments must review the potential effects on the climate system. EIAs must be carried out where projects are undertaken by the State or by natural or legal persons. In compliance with the standard of enhanced due diligence, States must then carefully consider whether to approve a project.

F. Obligations Arising From Other Substantive Rights Affected By Climate Impacts

The Court considered that climate impacts will “generate[], and will increasingly continue to generate, an ever-greater threat to the full and effective enjoyment of various human rights enshrined in the American Convention and the Protocol of San Salvador”, including the rights to life, human dignity, health, private and family life, private property and housing, freedom of residence and movement, water and food, labour and social security, culture and education.[20]

The Court noted an obligation on States to keep their UNFCCC National Adaptation Plans updated[21]—based on the best available science—and in a manner that is designed to mitigate human rights impacts generated by climate change to the extent possible (including implementing short, medium and long-term measures). In this respect, the Court found that the iterative cycle established by the Paris Agreement (assessment of impacts, planning, implementation, and monitoring, evaluation and learning) could be a “useful guide” for States in designing their adaptation plans.

The Court also addressed “specific measures that must be adopted in order to protect each of the principal substantive rights violated as a consequence of climate impacts” and noted extensive obligations on States specific to each right, such as the obligation to: (i) ensure an adequate water supply in times of drought; (ii) implement strategies to address phenomena such as heat waves, droughts and floods; and (iii) guarantee housing to those displaced by such events.[22]

3. Obligations Arising From Procedural Rights

The Court further articulated a number of procedural guarantees and obligations arising in the context of climate change, including, by way of example:

in the context of the right to science and the recognition of local, traditional and indigenous knowledge, an obligation, to provide education in science and to protect local, traditional and indigenous knowledge through appropriate mechanisms;

in the context of the right to access of information, a guarantee of access to climate information;

in the context of the right to political participation, an obligation to ensure meaningful participation of the people under their jurisdiction in decision-making and policies that may affect the climate system; and

in the context of the right to defend human rights and the protection of environmental defenders, an obligation to investigate, prosecute and punish crimes committed against environmental defenders.

In light of the right to an effective remedy, States are also “obliged to establish effective administrative and judicial mechanisms that allow victims access to comprehensive redress”.[23]

On the right of access to justice, the Court declared that, in the climate change context, the conduct of judicial proceedings should be guided by the application of the pro actione principle (i.e., procedural rules should be interpreted in a way most favourable to access to justice). In line with that principle, States should adopt measures that facilitate collective claims with broad legal standing and should avoid the strict application of evidentiary provisions which could otherwise be an obstacle to justice (including by accounting for difficulties in proving the causal relationship between the damage and its origin specific to climate change cases).

4. Obligations Arising From The Principle Of Equality And Non-Discrimination

The Court noted the diversity of vulnerability of population groups to climate change-related effects, influenced by various structural and intersectional factors of discrimination, among them, most notably, poverty, but also the disproportionate impact of climate change on children, indigenous and Afro-descendant communities, fishermen, women, and the elderly. The Court emphasized States’ obligations to account for diverging levels of vulnerability in determining appropriate measures to guarantee their full enjoyment to rights in the context of climate change.

[1] The Opinion can be found here (in English): https://www.corteidh.or.cr/docs/opiniones/seriea_32_en.pdf; and here (in Spanish:) https://www.corteidh.or.cr/docs/opiniones/seriea_32_esp.pdf.

[2] Argentina, Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, and Uruguay (Venezuela and Trinidad and Tobago having denunciating the American Convention). Only 20 of those States have recognised the jurisdiction of the ICtHR within the meaning of Article 62 of the American Convention (Dominica, Grenada and Jamaica being those States which have ratified the American Convention but have not recognised the jurisdiction of the ICtHR).

[3] Pursuant to Article 1 of the American Convention, “The States Parties to this Convention undertake to respect the rights and freedoms recognized herein and to ensure to all persons subject to their jurisdiction the free and full exercise of those rights and freedoms, without any discrimination for reasons of race, color, sex, language, religion, political or other opinion, national or social origin, economic status, birth, or any other social condition”. Article 2 requires that “Where the exercise of any of the rights or freedoms referred to in Article 1 is not already ensured by legislative or other provisions, the States Parties undertake to adopt, in accordance with their constitutional processes and the provisions of this Convention, such legislative or other measures as may be necessary to give effect to those rights or freedoms”.

[4] UN Working Group on the issue of human rights and transnational corporations and other business enterprises, “Information Note on Climate Change and the Guiding Principles on Business and Human Rights”, United Nations Human Rights Special Procedures, 2023 (see paras. 9 to 15).

[5] “Request for an advisory opinion on the Climate Emergency and Human Rights submitted to the Inter-American Court of Human Rights by the Republic of Colombia and the Republic of Chile”, 9 January 2023, p. 2, <https://www.corteidh.or.cr/docs/opiniones/soc_1_2023_en.pdf>, last accessed 18 July 2025.

[6] Ibid., pp. 8-12.

[7] Ibid., p. 13.

[8] Supra. n. 1, p. 81.

[9] Supra. n. 1, pp. 84-85.

[10] Supra n. 1, p. 88.

[11] Supra n. 1, p. 104.

[12] Supra n. 1, p. 97.

[13] Supra n. 1, p. 97.

[14] Supra n. 1, p. 215 (emphasis in the source).

[15] Supra n. 1, p. 104.

[16] Supra n. 1, p. 111.

[17] Supra n. 1, p. 113.

[18] Supra n. 1, p. 113.

[19] Supra n. 1, p. 116.

[20] Supra n. 1, p. 125.

[21] See the following link for more information on adaptation plans: https://unfccc.int/national-adaptation-plans.

[22] Supra n. 1, p. 125.

[23] Supra n. 1, p. 188.

The following Gibson Dunn lawyers prepared this update: Robert Spano, Ceyda Knoebel, Stephanie Collins, Alexa Romanelli, and Nicole Martinez.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Geopolitical Strategy & International Law and ESG: Risk, Litigation, & Reporting practice groups, or the following authors:

Robert Spano – Co-Chair, ESG and Geopolitical Strategy & International Law Groups,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

Ceyda Knoebel – London (+44 20 7071 4243, cknoebel@gibsondunn.com)

Stephanie Collins – London (+44 20 7071 4216, scollins@gibsondunn.com)

Alexa Romanelli – London (+44 20 7071 4269, aromanelli@gibsondunn.com)

This update details key changes the Act makes to section 1202, significantly expanding the tax benefits available for investments in qualified small business stock (QSBS).

The One Big Beautiful Bill Act (the OBBBA or the Act)[1] significantly expanded the tax benefits available for investments in qualified small business stock (QSBS) under section 1202.[2] This alert discusses the key changes the Act makes to section 1202. For a discussion of the broader changes to federal income tax law introduced under the Act, please read our Tax Highlights of the One Big Beautiful Bill Act.

Background

Under pre-OBBBA law, section 1202 allowed taxpayers to exclude from their gross income up to 100 percent of gain from the sale of QSBS held for at least five years, provided that certain other requirements were satisfied.

QSBS is stock issued by a qualified small business (QSB) in exchange for money or other property or as compensation for services provided to the QSB. A business was a QSB if, among other requirements, its aggregate assets did not exceed $50 million at all times before and immediately after the issuance date of the relevant stock.

The amount of gain that a taxpayer may exclude from their gross income with respect to the sale of QSBS is capped at the greater of a lifetime dollar-based limitation ($10 million under pre-OBBBA law) or ten times the taxpayer’s tax basis in the QSBS (the per-issuer limitation).

OBBBA Changes

First, the Act shortens the holding period required to qualify for QSBS benefits by introducing a 50-percent exclusion for gain recognized on the sale of QSBS held for at least three years but less than four years, and a 75-percent exclusion for gain recognized on the sale of QSBS held for at least four years but less than five years. The Act retains the 100-percent exclusion under current law if the stock is held for five years or more. If a taxpayer takes advantage of the new 50-percent or 75-percent exclusion, the recognized portion of the resulting gain would be taxed at a 28-percent rate. The new holding period rules apply to QSBS acquired after July 4, 2025.

Second, effective for QSBS issued after July 4, 2025, the Act increases the aggregate gross asset value cap for QSBS issuers from $50 million to $75 million (adjusted for inflation for taxable years beginning after 2026). Therefore, issuers that previously did not qualify for QSBS (because their aggregate gross assets exceeded $50,000,000) may become immediately eligible to issue QSBS.

Lastly, the Act amends the formula for the per-issuer limitation by increasing the lifetime dollar-based limitation from $10 million to $15 million (also adjusted for inflation for taxable years beginning after 2026). As a result, taxpayers will be able to exclude (at least) an additional $5 million of taxable gain with respect to QSBS acquired after July 4, 2025; however, upon a taxpayer exceeding the new $15 million cap once (as adjusted for inflation), the taxpayer is not able to exclude any further gain simply by reason of the per-issuer limit increasing for inflation in subsequent periods. The new $15 million cap applies only with respect to stock acquired by the taxpayer after July 4, 2025.

[1] The actual name for the Act is “an Act to provide for reconciliation pursuant to title II of H. Con. Res. 14.”

[2] The text of the Act can be found here. Unless indicated otherwise, all section references are to the Internal Revenue Code of 1986, as amended (the Code), and all Treas. Reg. § references are to the regulations promulgated by the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (the IRS) under the Code, in each case as in effect as of the date of this alert.

The following Gibson Dunn lawyers prepared this update: Matt Donnelly, Bree Gong, and Kamia Williams.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding this proposed legislation. To learn more about these issues or discuss how they might impact your business, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Tax and Tax Controversy and Litigation practice groups:

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

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

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

From the Derivatives Practice Group: This week, the CFTC issued an advisory to provide guidance and describe its plan to address criminally liable regulatory offenses in accordance with Executive Order 14294, Fighting Overcriminalization in Federal Regulations.

New Developments

CFTC Issues Advisory on Referrals for Potential Criminal Enforcement. On July 9, the CFTC’s Division of Enforcement (“DOE”) issued an advisory to provide guidance describing its plan to address criminally liable regulatory offenses in accordance with Executive Order 14294, Fighting Overcriminalization in Federal Regulations. The advisory announces the framework to be followed when DOE, as the CFTC division responsible for making referrals to the Department of Justice (“DOJ”), considers whether to refer potential violations of criminal regulatory offenses to DOJ. The advisory also includes a set of factors DOE staff should consider when determining whether to refer alleged violations of criminal regulatory offenses to DOJ. [NEW]

CFTC Staff Issues No-Action Letter Extension Regarding Counterparties Clearing Swaps through Relief DCOs. On July 9, the CFTC issued a no-action letter extending the no-action position in CFTC Staff Letter No. 22-18 concerning certain swap reporting requirements of Part 45 of the CFTC’s regulations. The letter applies to counterparties clearing swaps through derivatives clearing organizations (“DCOs”) operating consistent with a CFTC exemptive order or a CFTC Division of Clearing and Risk no-action letter (Relief DCOs). [NEW]

SEC Commissioner Peirce Releases Statement on Tokenization of Securities. On July 9, SEC Commissioner Hester M. Peirce released a statement that “[t]okenized securities are still securities” and “market participants must consider – and adhere to – the federal securities laws when transacting” in tokenized securities. Commissioner Peirce said “[m]arket participants who distribute, purchase, and trade tokenized securities . . . should consider the nature of these securities and the resulting securities laws implications” and that “a token that does not provide the holder with legal and beneficial ownership of the underlying security could be a ‘security-based swap.’” [NEW]

CFTC Staff Issues FCM FAQs. On June 30, the CFTC’s Market Participants Division published responses to frequently asked questions (“FAQs”) regarding registering an entity as a futures commission merchant (“FCM”) and the ongoing regulatory obligations of operating an FCM. The FAQs address, among other issues, the FCM registration process, customer protections, and governance obligations and other requirements. [NEW]

CFTC Staff Issues No-Action Letter to MIAX Futures Exchange, LLC. On June 25, the Division of Market Oversight (“DMO”) of the CFTC issued a no-action letter stating that it will not recommend enforcement action against MIAX Futures Exchange, LLC (“MIAX”) for temporarily providing for the trading of MIAX’s Minneapolis Hard Red Spring Wheat options on futures exclusively through block trades due to the lack of availability of an electronic trading system, subject to certain conditions set forth in the letter. The DMO stated that it believes the temporary no-action positions are warranted to provide participants in the market with a means to trade out of or offset their open positions in certain expirations when electronic trading is no longer available.

New Developments Outside the U.S.

ESMA Publishes Guidelines for Assessing Knowledge and Competence of Staff at Crypto-Asset Service Providers. On July 11, ESMA published guidelines specifying the criteria for assessing the knowledge and competence of staff at crypto-asset service providers (“CASPs”) who provide information or advice on crypto-assets and services under the Markets in Crypto-Assets Regulation (“MiCA”). The guidelines will apply six months after translation into all EU languages and publication on ESMA’s website. Within two months of the date of publication of the guidelines on ESMA’s website in all EU official languages, competent authorities to which these guidelines apply must notify ESMA whether they comply, do not comply, but intend to comply, or do not comply and do not intend to comply with the guidelines. [NEW]

ESMA Warns Investors of Unregulated Crypto Products. On July 11, ESMA issued a public statement warning investors of the ‘halo effect’ that can lead to overlooking risk when authorized CASPs offer both regulated and unregulated products and/or services. The statement also reminds CASPs of the issues that they should consider when providing unregulated products and services, and recommends that they should be particularly vigilant about avoiding any client confusion regarding the protections attached to unregulated products and/or services. According to ESMA, to avoid any misunderstanding CASPs should clearly communicate the regulatory status of each product or service in all client interactions and at every stage of the sales process. In addition, ESMA reminded crypto-assets entities of their obligation to act fairly, professionally and in the best interests of their clients, ensuring that all information, including marketing communications, is fair, clear and not misleading. [NEW]

ESMA Identifies Opportunities to Strengthen MiCA Authorizations. On July 10, ESMA published the results of a peer review looking at the authorization of Crypto Asset Service Providers in Malta under MiCA. The peer review analyzes the approaches adopted by the Malta Financial Services Authority and provides recommendations to strengthen those processes. According to ESMA, it identifies overall a good level of resources and supervisory engagement within the authority, with some areas for improvement related to the assessment of authorizations. [NEW]

European Supervisory Authorities Sign Memorandum of Understanding with AMLA for Effective Cooperation and Information Exchange. On July 3, ESMA concluded a multilateral Memorandum of Understanding (“MoU”) with the EU’s new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (“AMLA”). The multilateral MoU outlines how the European Supervisory Authorities and AMLA will exchange information with one another and cooperate in practice to perform their respective tasks in an efficient, effective and timely manner. According to ESMA, the MoU aims to promote supervisory convergence throughout the EU’s financial sector, enable the exchange of necessary information, and foster cross-sectoral learning and capacity building among supervisors in areas of mutual interest. [NEW]

ESMA Finds Convergence Opportunities for Pre-trade Controls. On July 2, ESMA concluded a common supervisory action (“CSA”) on pre-trade controls under the Markets in Financial Instruments Directive II. According to ESMA, the CSA was launched with the goal of gathering further detailed insights on how investment firms are using pre-trade controls across the EU. ESMA said that the results highlighted that most investment firms have integrated pre-trade controls in their trading activity and in their risk management framework but, nevertheless, it appears that practices related to the implementation and governance are often divergent and not always robust. [NEW]

ESMA Promotes Clarity in Sustainability-related Communications. On July 1, ESMA published a thematic note on sustainability-related claims used in non-regulatory communications. This publication outlined four guiding principles on making sustainability claims, and offered practical do’s and don’ts, illustrated through concrete examples of good and poor practices, based on observed market practices. [NEW]

ESMA Narrows Down Scope of CSDR Cash Penalties Trading. On June 26, ESMA published a final report that specifies the scope of Central Securities Depositories Regulation (“CSDR”) cash penalties which the agency describes in an effort to support its simplification and burden reduction initiative in post-trading. ESMA provided technical advice to the European Commission on the scope of settlement discipline that it said is in line with the revised settlement discipline framework set out in CSDR Refit, identifying (1) the causes of settlement fails that are considered as not attributable to the participants in the transaction, and (2) the circumstances in which operations are not considered as trading. ESMA also identified a broad range of scenarios that would not trigger CSDR cash penalties.

ESMA Provides Advice on Eligible Assets for UCITS. On June 26, ESMA published its advice to the European Commission on the review of the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Eligible Assets Directive (“EAD”). The EAD is an implementing directive providing clarification on the assets a UCITS can invest in. ESMA said that it provided in the Technical Advice a comprehensive assessment of the EAD’s implementation across Members States and made proposals to ensure regulatory clarity and uniformity across jurisdictions.

ESMA Suggests Amendments to the DLT Pilot Regime to Make It Permanent. On June 25, ESMA published a report on the Distributed Ledger Technology (“DLT”) Pilot Regime. ESMA also provided an overview of the EU market for authorized DLT market infrastructures and recommendations on how to expand participation in the DLT Pilot Regime. ESMA indicated that the report contained information about business models, types of DLT financial instruments offered, and technical or legal issues encountered by supervisors to date. ESMA also said that it analyzed exemptions requested by DLT market infrastructures and the conditions under which National Competent Authorities have granted those exemptions.

ESMA Provides Guidance on Key Tool for CCP Resolution. On June 25, ESMA published its first central counterparties (“CCPs”) resolution briefing, which it said aims to support National Resolution Authorities (“NRAs”) on the operationalization of the cash call mechanism. The briefing, developed by ESMA’s CCP Resolution Committee, provides a methodology to be considered by NRAs when including the resolution cash call in CCP resolution plans.

New Industry-Led Developments

ISDA Responds to ESMA MiFIR Review Consultation. On July 8 ISDA announced that it submitted a response to ESMA’s fourth package of Level 2 consultation under the Markets in Financial Instruments Regulation Review (“MiFIR”), on transparency for derivatives, package orders and input/output data for the derivatives consolidated tape. In the response, ISDA said that it argues against ESMA’s proposal to use a modified International Securities Identification Number as the identifier for those over-the-counter (“OTC”) derivatives in scope for transparency, and reiterated its longstanding view that the unique product identifier is the correct identifier for OTC derivatives. ISDA also noted that the response also strongly opposes the assessment of single name credit default swaps referencing global systemically important banks as liquid, and proposes a modified deferral framework for these contracts. ISDA stated that the response generally supports the deferral framework for interest rate derivatives, but notes that any benefit gained from the inclusion of basis swaps, forward rate agreements and forward starting swaps is disproportionate to the effort of including them, due to the very small numbers of these instruments that will be in scope of transparency under MiFIR. [NEW]

ISDA Updates Canadian Transaction Reporting Party Requirements Guidance. On July 8, the ISDA updated its Canadian Transaction Reporting Party Requirements document to account for the Canadian OTC derivatives rule amendments going live on July 25, 2025. According to ISDA, the purpose of the document is to provide a method for a single reporting party determination that can be incorporated by reference in a written agreement in compliance with the Canadian Reporting Rules where the Canadian Reporting Rules otherwise provide for two reporting parties. [NEW]

ISDA and Ant International Lead New Industry Report on use of Tokenized Bank Liabilities for FX Settlement and Cross-Border Payments under Project Guardian. On July 3, ISDA announced that ISDA and Ant International led the Project Guardian FX industry group to develop a new report for implementing tokenized bank liabilities and shared ledger in cross-border payments and foreign exchange (“FX”) settlement. According to ISDA, the report, available on the Monetary Authority of Singapore’s website, draws on the partners’ technology expertise, FX payment experience and extensive industry partnerships to propose principles for leveraging tokenized bank liabilities and shared ledgers in transaction banking services. [NEW]

ISDA Published Report on Key Trends in the Size and Composition of OTC Derivatives Markets in the Second Half of 2024. On July 3, ISDA published a research note using the latest data from the Bank for International Settlements OTC derivatives statistics that shows a modest increase in notional outstanding during the second half of 2024 compared to the same period in 2023. According to ISDA, notional outstanding for interest rate, foreign exchange, equity and commodity derivatives all rose year-on-year. [NEW]

ISDA Presents Credit Derivatives Proposal to Address Lock-Up Agreements for CDS Auctions. On July 3, ISDA presented a proposed Lock-Up Agreements and CDS – Proposed Auction Solution. According to ISDA, the CDS industry represented by ISDA’s Credit Steering Committee, aims to have a consistent and uniform approach in relation to Locked Up Debt and CDS auctions that addresses the relevant issues. ISDA noted that the proposal is a framework and ISDA is seeking market feedback on the proposal, indicating that additional detail will be developed if there is support for the proposal to ensure the proposal works operationally with respect to the auctions. [NEW]

ISDA and the UK Publishes Joint Paper on UK EMIR Reform. On July 1, ISDA and UK Finance published a paper, which recommended a set of reforms for the UK European Market Infrastructure Regulation (“UK EMIR”), carefully considering each EU EMIR 3.0 reform and asking whether ISDA would wish to adopt each measure, adopt with modifications, or not at all, in the UK. The recommendations also lead with proposals on burden reduction and simplification, both topics high on the government’s agenda. [NEW]

ISDA Publishes Paper on Credit Derivatives Trading Activity Reported in EU, UK and US Markets: First Quarter of 2025. On July 1, ISDA published a report that analyzes credit derivatives trading activity reported in Europe. The analysis shows European credit derivatives transactions based on the location of reporting venues (EU versus UK) and product type. The report also compares European-reported credit derivatives trading activity to what is reported in the US. [NEW]

ISDA Submits Letter to FASB on Agenda Consultation. On June 30, ISDA submitted a comment letter to the Financial Accounting Standards Board (“FASB”) in response to the proposal File Reference No. 2025-ITC100, Agenda Consultation. ISDA noted it believes that the highest priority should be given to expanding the hedge accounting model to address its limitations in aligning accounting outcomes with actual economic exposures and actual entities’ risk management practices. ISDA also highlighted that expanding the hedge accounting model through a dedicated broad scope project or projects should be among the FASB’s highest priorities. [NEW]

ISDA Responds to FCA Quarterly Consultation on UK EMIR Reporting. On June 30, ISDA submitted a response to chapter 5 of the UK Financial Conduct Authority’s (“FCA”) quarterly consultation CP25/16 on trade repository reporting requirements under the UK European Market Infrastructure Regulation (“UK EMIR”). Chapter 5 proposes “Amendments to the UK EMIR Trade Repository reporting requirements,” which include the addition of the field “Execution Agent” to table 3 of the EMIR message template, and to correct a typo in Article 8(5) of the EMIR technical standards. [NEW]

ISDA Publish Saudi Arabia Netting Opinions. On June 30, ISDA published new legal opinions that recognize the enforceability of close-out netting under regulations published by the Saudi Central Bank (“SAMA”) earlier this year. In addition to SAMA’s regulations, the Saudi Capital Market Authority (“CMA”) has published draft netting regulations that are closely aligned with SAMA’s rules, which will cover other financial market participants, including asset managers and infrastructure providers. ISDA said that the ISDA netting opinions will be extended to cover the CMA rules when they are finalized. [NEW]

ISDA Publishes Paper on Developments in Interest Rate Derivatives Markets in Mainland China and Hong Kong. On June 24, ISDA published a research paper that analyzes interest rate derivatives (“IRD”) trading activity reported in mainland China and Hong Kong. Key highlights from the report include that (1) China’s renminbi (“RMB”)-denominated IRD market has expanded significantly since 2022 and that (2) the share of RMB-denominated IRD traded notional in Hong Kong overall grew to 10.2% in 2024.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Alice Yiqian Wang, Washington, D.C. (202.777.9587, awang@gibsondunn.com)

Gibson Dunn announces release of Edition 15 of Lexology In-Depth: International Investigations.

Gibson Dunn is pleased to announce the release of Edition 15 of Lexology In-Depth: International Investigations. Gibson Dunn partner Stephanie L. Brooker is the Contributing Editor of the publication, which explores the scope of corporate and individual liability and the regulatory and criminal investigations process in the United States and abroad.

Ms. Brooker, partners M. Kendall Day and David C. Ware, of counsel Bryan H. Parr, and associate Teddy C. Okechukwu co-authored the jurisdiction chapter on the United States.

In addition, partners Patrick Doris, Allan Neil, associates Victor Tong, Marija Bračković, and Amy Cooke co-authored the jurisdiction chapter on the United Kingdom.

You can view these informative and comprehensive chapters via the links below:

CLICK HERE to view Lexology In-Depth: International Investigations

CLICK HERE to view the United States chapter

CLICK HERE to view the United Kingdom chapter

The following Gibson Dunn lawyers contributed to this publication: Stephanie Brooker, M. Kendall Day, David Ware, Bryan Parr, and Teddy Okechukwu on the U.S. chapter; and Patrick Doris, Allan Neil, Victor Tong, Marija Bračković, and Amy Cooke on the United Kingdom chapter.

Gibson Dunn has deep experience with investigations, corporate compliance, and white collar defense.

About the Authors:

Stephanie Brooker, a partner in the Washington, D.C. office of Gibson Dunn, is Co-Chair of the firm’s Global White Collar Defense and Investigations, Anti-Money Laundering, and Financial Institutions Practice Groups. Stephanie served as a prosecutor at DOJ, including serving as Chief of the Asset Forfeiture and Money Laundering Section, investigating a broad range of white-collar and other federal criminal matters, and trying 32 criminal trials. She also served as the Director of the Enforcement Division and Chief of Staff at FinCEN, the lead U.S. anti-money laundering regulator and enforcement agency. Stephanie has been consistently recognized by Chambers USA for enforcement defense and BSA/AML compliance as an “excellent attorney,” who clients rely on for “important and complex” matters, and for providing “excellent service and terrific lawyering.” She has also been named a National Law Journal White Collar Trailblazer and a Global Investigations Review Top 100 Women in Investigations.

Kendall Day is a nationally recognized white-collar partner in the Washington, D.C. office of Gibson Dunn, where he is Co-Chair of Gibson Dunn’s Global Fintech and Digital Assets Practice Group, Co-Chair of the firm’s Financial Institutions Practice Group, co-leads the firm’s Anti-Money Laundering practice, and is a member of the White Collar Defense and Investigations and Crisis Management Practice Groups. Kendall is recognized as a leading White Collar Attorney in the District of Columbia by Chambers USA – America’s Leading Business Lawyers. Most recently, Kendall was recognized in Best Lawyers 2024 for white-collar criminal defense. Prior to joining Gibson Dunn, Kendall had a distinguished 15-year career as a white-collar prosecutor with DOJ, rising to the highest career position in DOJ’s Criminal Division as an Acting Deputy Assistant Attorney General (“DAAG”). As a DAAG, Kendall had responsibility for approximately 200 prosecutors and other professionals. Kendall also previously served as Chief and Principal Deputy Chief of the Money Laundering and Asset Recovery Section. In these various leadership positions, from 2013 until 2018, Kendall supervised investigations and prosecutions of many of the country’s most significant and high-profile cases involving allegations of corporate and financial misconduct. He also exercised nationwide supervisory authority over DOJ’s money laundering program, particularly any BSA and money-laundering charges, DPAs and non-prosecution agreements involving financial institutions.

David C. Ware is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher. He is a member of the firm’s White Collar Defense and Investigations, Securities Enforcement, Securities Litigation, and Accounting Firm Advisory and Defense Practice Groups. David’s practice focuses on government investigations and enforcement actions, internal investigations, and litigation in the areas of auditing and accounting, securities fraud, and related aspects of federal regulatory and criminal law. He also counsels clients concerning compliance with SEC and PCAOB rules and standards. Prior to joining Gibson Dunn, Mr. Ware spent nearly six years at the PCAOB’s Division of Enforcement and Investigations, rising to the position of Associate Director. While at the PCAOB, David was responsible for numerous complex and high-profile investigations, including acting as the lead attorney in some of the PCAOB’s most significant enforcement actions.

Patrick Doris is a partner in Gibson Dunn’s Dispute Resolution Group in London, where he specialises in global white-collar investigations, commercial litigation and complex compliance advisory matters. Patrick’s practice covers a wide range of disputes, including white-collar crime, internal and regulatory investigations, transnational litigation, class actions, contentious antitrust matters and administrative law challenges against governmental decision-making. Patrick handles major cross-border investigations in the fields of bribery and corruption, fraud, sanctions, money laundering, financial sector wrongdoing, antitrust, consumer protection and tax evasion. Patrick is recognised by The Legal 500 UK 2025 in the field of Regulatory Investigations and Corporate Crime. He is also ranked as a leading individual in the field of Administrative and Public Law.

Allan Neil is an English qualified partner in the dispute resolution group of Gibson, Dunn & Crutcher’s London office. His recent work involves large-scale multi-jurisdictional disputes and investigations (both regulatory and internal investigations) in the financial institutions sector. His work covers investment banking, asset management and compliance matters. Allan was called to the Bar by the Middle Temple in 2001, having been awarded the Queen Mother Scholarship in consecutive years, and named a Blackstone Entrance Exhibitioner. Allan is recognised by The Legal 500 UK 2025 for Commercial Litigation, Banking Litigation: Investment and Retail and Regulatory investigations and corporate crime (advice to corporates), and has been awarded the Client Choice Award 2015 in recognition of his excellence in client service in the area of UK Litigation. He is also recognised in the 2016 Legal Week Rising Stars in Litigation list, which profiles the up-and-coming litigation stars at UK top 50 and top international firms in London. He speaks French and German.

Bryan H. Parr is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher and a member of the White Collar Defense and Investigations, Anti-Corruption & FCPA, and Litigation Practice Groups. His practice focuses on white-collar defense and regulatory compliance matters around the world. Bryan has extensive expertise in government and corporate investigations, including those involving the Foreign Corrupt Practices Act (FCPA) and anticorruption. He has defended a range of companies and individuals in U.S. Department of Justice (DOJ), SEC, and CFTC enforcement actions, as well as in litigation in federal courts and in commercial arbitrations. He is recognized as a leading corporate crime and investigations lawyer by Chambers & Partners Latin America for his significant activity and experience in the region. He is proficient in Portuguese, French, and Spanish, and works professionally in all three languages.

Victor Tong is an associate and an English-qualified solicitor in the London office of Gibson, Dunn & Crutcher. He is a member of the firm’s Dispute Resolution Group. Victor has a broad practice in all areas of commercial dispute resolution, with particular focus on financial services litigation, internal and regulatory investigations and white collar crime. He also has significant experience advising on insurance and contentious insolvency and restructuring matters.

Marija Bračković is an associate in the London office of Gibson Dunn. She is a member of the firm’s Litigation, White Collar Defense and Investigations, Fintech and Digital Assets and Privacy, Cybersecurity and Data Innovation Practice Groups. She is currently on secondment. Marija has substantial experience in both domestic and international dispute resolution, including litigation and investigations, and regulatory compliance and counselling across sectors, with a focus on fintech and emerging digital regulations. Her practice has an emphasis on high-profile and politically sensitive matters, such as cases relating to bribery, money laundering and allegations of cross-border and international crimes. Marija regularly advises on complex regulatory and compliance issues, including the scope and implementation of the emerging digital regulatory regime across the UK and EU, including the Digital Services Act, Online Safety Act and EU AI Act. Marija is recognised by The Legal 500 UK 2024 for Regulatory Investigations and Corporate Crime. She has also been recognised by the 2025 edition of Best Lawyers in the United Kingdom as “One to Watch” for International Arbitration and Litigation.

Amy Cooke is an English qualified barrister and associate in the London office of Gibson, Dunn & Crutcher. She practices in the firm’s Dispute Resolution Group and specializes in white collar investigations. Her recent work includes large-scale multi-jurisdictional disputes and investigations in the financial services sector. Amy is recognised by The Legal 500 UK 2024 for Regulatory Investigations and Corporate Crime.

Teddy Okechukwu is an associate in the Washington D.C. office of Gibson, Dunn & Crutcher, where he currently practices in the firm’s Litigation Department.

Contact Information:

For assistance navigating these issues, please contact the Gibson Dunn lawyer with whom you usually work, the leaders or members of the firm’s White Collar Defense and Investigations practice group, or the authors:

Stephanie L. Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
David C. Ware – Washington, D.C. (+1 202.887.3652, dware@gibsondunn.com)
Allan Neil – London (+44 20 7071 4296, aneil@gibsondunn.com)
Patrick Doris – London (+44 20 7071 4276, pdoris@gibsondunn.com)
Bryan H. Parr – Washington, D.C. (+1 202.777.9560, bparr@gibsondunn.com)
Victor Tong – London (+44 20 7071 4054, vtong@gibsondunn.com)
Marija Bračković – London (+44 20 7071 4143, mbrackovic@gibsondunn.com)
Amy Cooke – London (+44 20 7071 4041, acooke@gibsondunn.com)
Teddy C. Okechukwu – Washington, D.C. (+1 202.777.9322, tokechukwu@gibsondunn.com)

Gibson Dunn analyzes the sweeping changes that the Trump administration has made to decades-long sanctions and export control measures targeting Syria, highlighting areas where regulatory flexibility may permit renewed engagement and noting areas of continued compliance risk.

I. Executive Summary

On June 30, 2025, President Trump issued Executive Order 14312 (E.O. 14312 or E.O.) that provides broad sanctions relief to Syria. The E.O. revokes the Syrian Sanctions Regulations (SySR) promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), allows the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) to waive certain export controls, and sets in motion a process to remove Syria from the U.S. Department of State’s State Sponsors of Terrorism (SST) list, among other actions.

The E.O. builds upon the sanctions relief already provided in May 2025 by OFAC’s General License (G.L.) 25, including by lifting blocking sanctions on over 500 Syria-related individuals and entities, many of which are key players in Syria’s economy. Although the E.O. does not automatically lift the Syrian embargo affecting the exportation of U.S. goods implemented by BIS at 15 C.F.R. § 746.9, it will allow BIS to revoke or substantially alter those restrictions. The E.O. also directs the Secretary of State to “take all appropriate action” to review Syria’s designation as an SST and to examine whether the criteria for suspending secondary sanctions—which are measures that target non-U.S. persons for engaging in certain specified activities involving Syria—required under the Caesar Syria Civilian Protection Act of 2019 (Caesar Act) have been met. The E.O. notes that “initial steps” had already been taken on May 23, 2025, when the U.S. Department of State issued a Caesar Act Waiver Certification, suspending certain statutory secondary sanctions for 180 days. Ultimately, the E.O. replaces comprehensive sanctions against Syria with a more targeted, list-based program focused on the prior Assad regime, its enablers, and actors continuing to operate contrary to U.S. foreign policy and national security interests.

The package of measures announced by the Trump administration in June 2025 represents a seismic shift in U.S. policy, which throughout the country’s brutal, decade-long civil war had prohibited virtually all U.S. nexus dealings involving Syria. From a policy perspective, such broad and swift sanctions relief appears calculated to encourage foreign investment in Syria, facilitate the country’s reconstruction, and bolster the new, post-Assad government. As a result, U.S. persons and companies doing business in the United States now face lower compliance risk for exploring commercial re-engagement with Syria, especially in previously restricted sectors such as banking, telecommunications, and energy. Although export controls remain in place for now, we expect that they will soon be substantially pared back—and Syria’s designation as an SST removed. In short, Syria has been granted a meaningful opportunity to re-enter the global economy, an opening that may broaden further as the U.S. Government continues to unwind remaining restrictions.

II. Background

Syria had been subject to U.S. sanctions for over 40 years. The United States first imposed sanctions on Syria in 1979, when the U.S. Department of State designated Syria as an SST in retaliation for President Hafez al-Assad’s support for armed Palestinian groups and various factions in Lebanon’s civil war.

More than two decades later, Congress passed the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (SAA). In 2004, President George W. Bush implemented the SAA by placing a comprehensive embargo on the exportation of U.S. goods to Syria and authorized sanctions targeting persons assisting the Government of Syria in its occupation of Lebanon, support for terrorism, and chemical weapons program.

Following the Assad regime’s suppression of the country’s 2011 popular revolution, the United States expanded its sanctions regime targeting Syria. E.O. 13582 imposed a comprehensive ban on U.S. persons providing services to Syria, “new investment” in Syria, and transactions involving Syrian-origin petroleum and petroleum products. That order—which was revoked by President Trump in June 2025—also imposed blocking sanctions on the “Government of Syria,” including its agencies, instrumentalities and entities under its ownership or control.

During the ensuing 13 years of Syria’s civil war, the United States designated hundreds of Syria-related individuals and entities, and it enforced sanctions and export controls as a unified scheme. The Caesar Act, enacted in 2019, further tightened U.S. restrictions by authorizing the President to impose blocking sanctions and a visa ban on foreign persons determined to have knowingly engaged in certain “significant” transactions involving Syria (so-called “secondary sanctions”).

The overthrow of the Assad regime in December 2024 by Hay’at Tahrir al-Sham (HTS) opened the possibility of sanctions relief. However, HTS’s designation as a Foreign Terrorist Organization (FTO) and Specially Designated Global Terrorist (SDGT) led the U.S. Government, at least initially, to adopt a wait-and-see approach. OFAC issued General License 24 in January 2025, which provided a six-month authorization to engage in a limited set of otherwise prohibited transactions involving Syria’s post-Assad governing institutions, Syria’s energy sector, and noncommercial, personal remittances. Following President Trump’s surprise announcement in Riyadh on May 13, 2025, that the United States would lift all sanctions on Syria, OFAC on May 23, 2025, issued General License 25, which authorizes “all transactions prohibited by the [SySR], other than transactions involving blocked persons,” provided certain conditions are met and subject to certain exceptions. Notably, G.L. 25 authorized dealings with certain blocked persons listed in an Annex to the license, including new Syrian President Ahmed al-Sharaa (designated to the SDN List under the name Abu Muhammad al-Jawlani). The State Department at that time issued a companion waiver of the Caesar Act’s secondary sanctions permitting non-U.S. persons to engage in the conduct described in G.L. 25 without risking U.S. sanctions exposure.

Despite providing broad sanctions relief, those initial actions did not unblock any property or de-list any persons or entities, and stringent U.S. export controls on Syria remained in place and continued to be statutorily mandated.

III. Syria Sanctions Overhaul: The End of SySR and Introduction of a
Targeted Accountability Framework

Effective July 1, 2025, the United States withdrew its longstanding comprehensive sanctions framework targeting Syria and replaced it with a targeted, conduct-based sanctions program aimed at promoting accountability for the former Assad regime, transitional justice, and regional stabilization.

A. Revocation of the Syria Sanctions Regulations

Executive Order 14312 formally ends the U.S. comprehensive sanctions program targeting Syria. The order terminates the national emergency declared in E.O. 13338, which initially implemented the United States’ goods embargo on Syria required under the SAA, along with related E.O.s 13399, 13460, 13572, 13573, and 13582. The E.O. also directs the removal of the SySR from the Code of Federal Regulations, which will need to be implemented by OFAC through the issuance of a final rule.

In conjunction with the revocation of the SySR, OFAC de-listed 518 individuals and entities previously designated under the now-revoked executive orders listed above. These de-listings include:

All major Syrian financial institutions, including the Central Bank of Syria;
Telecommunications and media firms, including Syriatel, the Syrian Radio and Television Corporation, and al-Dunya Television;
Military and intelligence services, including Syria’s Army, Air Force, Navy, and Republican Guard, the Syrian General Intelligence Directorate, National Security Bureau, Air Force Intelligence Directorate, Military Intelligence Directorate, and Political Security Directorate;
Energy and shipping companies, such as the Syrian General Petroleum Corporation, Syrian Company for Oil Transport, and related maritime entities; and
Syrian Arab Airlines and over a dozen of its blocked aircraft.

The de-listings announced in June 2025 include parties previously designated under multiple U.S. sanctions authorities, including terrorism- and Iran-related programs. As a result, as of June 30, 2025, the number of Specially Designated Nationals (SDNs) associated with Syria has been reduced by nearly half, from approximately 660 to 305 individuals and entities. Although 305 SDNs still reflects a significant sanctions risk profile, particularly for institutions with Syria exposure, these de-listings should significantly reduce the compliance burden on companies. Importantly, General License 25 remains in effect, as its authorization extends beyond the now-revoked SySR to other sanctions programs. Therefore, U.S. persons may continue to rely on G.L. 25 to the extent it is needed to authorize dealings other than those previously prohibited solely under the now-lifted SySR.

B. Introduction of the Promoting Accountability for Assad and
Regional Stabilization Sanctions Program

Concurrent with the revocation of the SySR, E.O. 14312 also modifies the existing Syria-related sanctions regime under E.O. 13894, creating a new, targeted list-based regime titled the Promoting Accountability for Assad and Regional Stabilization Sanctions (PAARSS). This new framework reflects a shift in U.S. sanctions policy from comprehensive, country-wide restrictions to selective designations aimed at individuals and entities whose conduct threatens Syria’s democratic transition or regional stability.

Sanctions under PAARSS target persons determined by the U.S. Government to be:

Engaged in actions or policies that threaten the peace, security, stability, or territorial integrity of Syria;
Former Assad regime officials and their associates;
Involved in the captagon trade or responsible for human rights abuses, including the forced disappearance of U.S. persons;
Adult family members of such individuals; or
Providing material support to, or acting on behalf of, designated individuals or entities.

Additionally, the new PAARSS program provides for blocking sanctions against foreign persons (and their adult family members) found to be:

Undermining Syria’s transitional government; or
Engaged in expropriation of property in Syria for personal gain or political purposes.

To minimize the risk of bad actors such as terrorist organizations, Assad regime insiders, and the Assad regime’s chief foreign enablers benefitting from U.S. sanctions relief, OFAC concurrently re-designated 139 individuals and entities under E.O. 13894 and related Iran- and terrorism-based authorities. These include members of the Assad family, select affiliates, and companies such as Cham Wings Airlines. Notably, these re-designations are narrowly focused and do not appear to capture the major Syrian financial institutions, governmental entities, and commercial enterprises removed from the SDN List.

IV. Export Controls Outlook

The E.O. waives the application of export controls mandated by the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 that are currently implemented as part of the EAR at 15 C.F.R. § 746.9. The E.O. does not automatically waive the Syrian embargo established by 15 C.F.R. § 746.9, but BIS can now rescind or modify those restrictions.

A BIS rule rescinding or modifying the Syrian embargo could happen relatively swiftly, as such a measure would likely be exempt from the traditional notice and comment rulemaking procedures of the Administrative Procedure Act (APA), due to the APA’s “national security” exemption and section 1762 of the Export Control Reform Act of 2018 (ECRA). However, since ECRA requires interagency consultations on many aspects of the implementation and amendment of U.S. export controls, a final rule may yet take some weeks to finalize. Specifically, it is likely that BIS is coordinating with the Department of State to ensure its actions comport with efforts by the State Department to evaluate Syria’s designation as an SST. According to public reports, such interagency consultations are underway.

The E.O. also lifts restrictions under section 307 of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 that relate to U.S. Government foreign assistance, issuance of U.S. credit and credit guarantees, export of national security-sensitive and other goods and technology, and issuance of U.S. bank loans.

Notably, E.O. 14312 does not waive the provision of the SAA that requires an arms embargo on Syria. Further, Syria’s designation as an SST also requires that the State Department maintain a prohibition on the exportation or re-exportation to Syria of items enumerated on the United States Munitions List (and a corresponding presumption of denial of an application for a license to export or reexport military items).

V. Caesar Act Waivers Issued as State Department Reviews Full Suspension Options

Executive Order 14312 also directs the Secretary of State to examine whether the criteria for suspending all secondary sanctions required under the Caesar Act are met. As noted above, in May 2025 the State Department—in tandem with the issuance of OFAC G.L. 25—issued a 180-day waiver of sanctions against third-country individuals and companies that engage in certain types of dealings involving Syria, its government, and individually sanctioned entities in Syria. On June 30, 2025, the State Department further waived the application of Caesar Act sanctions with respect to four individuals and six businesses with ties to Syria. Under Section 7431(a) of the Caesar Act, the President is authorized to suspend Caesar Act sanctions for a renewable period of 180 days if he determines that the Government of Syria is no longer engaged in a listed set of malign regional policy, human rights violations, and weapons proliferation. Although the Caesar Act requires the President to present appropriate congressional committees with a briefing describing his determination, Congress under the Caesar Act as currently in force cannot overrule the President’s determination to suspend sanctions. Therefore, the President or the Secretary of State could suspend all Caesar Act sanctions for 180 days with immediate effect—though for practical purposes there may be some delay as the Department of State engages with interagency and congressional stakeholders.

Some members of Congress are pushing for full repeal of the Caesar Act. In a bi-partisan effort, Senators Jeanne Shaheen (D-NH) and Rand Paul (R-KY) introduced a bill on June 19, 2025 that would repeal the Caesar Act. Because the Caesar Act limits waivers to a period of no more than 180 days, albeit renewable indefinitely, U.S. Secretary of State Marco Rubio stated that “we’d like to see the law repealed, because you’re going to struggle to find people to invest in a country when in six months sanctions could come back.”

The E.O. also directs the Secretary of State to “take all appropriate action with respect to the designation[s]” of HTS as a Foreign Terrorist Organizations and as a Specially Designated Global Terrorist and of new Syrian President Ahmed al-Sharaa as an SDGT, as well as to explore avenues at the United Nations to provide further sanctions relief. In accordance with E.O. 14312, on July 8, 2025, the Department of State revoked HTS’s designation as an FTO. As of this writing, HTS remains designated by OFAC as an SDGT, but that restriction could also soon be lifted.

VI. Key Takeaways

The revocation of the SySR marks a fundamental shift in U.S. foreign policy toward Syria and substantially lifts restrictions on U.S. and foreign firms doing business in the country following the fall of the Assad regime. Despite the sanctions rollback, targeted sanctions remain an active tool for addressing Syria-related national security concerns, and the U.S. embargo on goods (including both military and dual-use items, as well as non-controlled items) currently remains in place. Companies should continue to carefully evaluate Syria-related sanctions and export control risks, including screening counterparties and transactions for exposure to designated persons.

Further changes to U.S. trade controls on Syria are likely to be announced in coming weeks. President Trump’s E.O. has signaled that both Syria’s status as an SST and existing U.S. export controls are likely to be removed or curtailed; however, for the time being, export restrictions remain broadly intact. Although BIS can now rescind or modify the Syrian embargo set forth in the EAR, it could be some time before export restrictions are substantially altered due to the complexity of those controls. Businesses that wish to engage in transactions involving Syria will need to carefully evaluate the current state of export regulations at the time of any transactions (including whether any items are subject to the EAR) and may need to apply for an export license from BIS.

Gibson Dunn is available to advise clients as they navigate the evolving Syria sanctions and export controls landscape, including by developing engagement strategies, compliance assessments, license applications, and transactional due diligence.

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, David Wolber, Samantha Sewall, Scott Toussaint, Audi Syarief, Chris Mullen, Zach Kosbie, Justin duRivage, Alana Sheppard, and Roxana Akbari.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Sanctions & Export Enforcement, National Security, and International Trade Advisory & Enforcement practice groups:

United States:
Matthew S. Axelrod – Co-Chair, Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, cmbrown@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202.887.3509, ssewall@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.475.4650, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

Asia:
Kelly Austin – Denver/Hong Kong (+1 303.298.5980, kaustin@gibsondunn.com)
David A. Wolber – Hong Kong (+852 2214 3764, dwolber@gibsondunn.com)
Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com)
Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)
Dharak Bhavsar – Hong Kong (+852 2214 3755, dbhavsar@gibsondunn.com)
Arnold Pun – Hong Kong (+852 2214 3838, apun@gibsondunn.com)

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Patrick Doris – London (+44 207 071 4276, pdoris@gibsondunn.com)
Michelle M. Kirschner – London (+44 20 7071 4212, mkirschner@gibsondunn.com)
Penny Madden KC – London (+44 20 7071 4226, pmadden@gibsondunn.com)
Irene Polieri – London (+44 20 7071 4199, ipolieri@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Nikita Malevanny – Munich (+49 89 189 33 224, nmalevanny@gibsondunn.com)
Melina Kronester – Munich (+49 89 189 33 225, mkronester@gibsondunn.com)
Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

This update provides a summary of the issue and key takeaways for private fund advisers and their investors, such as universities, to consider.

The U.S. Securities and Exchange Commission (SEC) routinely highlights valuations as a priority area for investment advisers. Now, in a letter dated June 17, 2025 to SEC Chairman Paul Atkins (Letter), Congresswoman Elise Stefanik is urging the SEC to investigate whether the risks associated with “illiquid and leveraged asset holdings, including private equity, venture capital, and real estate” have been appropriately disclosed in the context of a university’s bond offering. We set forth below a summary of the issue, and key takeaways for private fund advisers and universities.

Focus on Valuations – Why Now?

The Letter requests that the SEC open an investigation regarding a prominent university’s recent disclosures in connection with its taxable bond offerings, calling out the “large portion of [the university’s] endowment [] invested in illiquid assets, private equity, venture capital and real estate that are often overvalued due to reliance on internal estimates and outdated transaction data.”

This is not a new issue. For years, including in its most recent 2025 Examination Priorities, the SEC staff has pointed to valuations as a priority area for examination, particularly for private fund advisers who hold “difficult-to-value assets.” The Letter notes that “[i]n today’s environment of elevated interest rates and declining private market valuations, the real, realizable value of these assets is likely far below stated values.”

The Letter comes at a time when the Commission and Chairman Atkins have expressed both a commitment to (i) focusing on retail investors with respect to enforcement efforts and (ii) expanding retail access to private markets. And as illiquid assets, private equity, and venture capital become increasingly mainstream, the SEC will look closely at valuations, and the policies and methods by which they are determined.

What the SEC Looks for When Examining and Investigating Valuations

In reviewing valuations, the SEC has typically focused on the accuracy of the disclosure surrounding how an investment adviser or issuer arrived at particular valuations rather than challenging the valuations head-on.

Nevertheless, the SEC is attuned to the fact that the failure to properly value assets can impact key areas of fund operations and potentially lead to over or under payment of withdrawal proceeds, incorrect calculation of fees, and inaccurate performance reporting.

The SEC expects advisers to value assets in a manner that reflects the current fair value of the portfolio investment assets. GAAP sets forth a definition of “fair value” and a framework for measuring fair value in Accounting Standards Codification 820 Fair Value Measurement (ASC 820). The SEC will look at whether an adviser’s policies and procedures regarding compliance with GAAP were reasonably designed. Universities and institutional investors that hold interests in private funds are generally allowed to rely on what investment advisers say they are worth – the net asset value (NAV). However, the SEC may scrutinize any disclosure about valuations as well as the valuations themselves if there is reason to believe that the adviser or an issuer making disclosures about its holdings did not believe the NAV reflected the fair value of the assets.

Tips for Private Fund Advisers and Their Investors

Among other things, private fund advisers and their investors (such as universities) should consider the following:

Valuation Policies and Methodology
- Review policies and strengthen valuation policies where appropriate.
- Tread carefully when engaging in frequent changes to valuation policies or procedures or making changes when they seem to work in a certain direction.
- Document the reasons for any changes in policies relating to valuations.
- Clearly document and follow the firm’s valuation methodology.
Use of Third-Party Valuation Experts
- While many firms use third-party experts to assist in the valuations of illiquid assets, firms should be prepared to defend valuations beyond simply pointing to a third-party.
- Share all material information with third-party valuation firms and avoid any appearance of improperly influencing the outcome.
- Keep in mind that third-party pricing or “marks” from pricing services still need to represent fair value.
Fair Value
- Applying ASC 820 is a judgment-laden exercise, so it is often an area that the SEC will closely scrutinize during an examination or investigation.
- A good process and documentation of that process is key to withstand such scrutiny.
Institutional Investors
- For institutional investors, disclosures should adequately reflect the risks associated with illiquid holdings (PE, VC and real estate), especially in the context of a securities offering.
- If an investigation is opened, enforcement staff will look for communications and other evidence that reported valuations do not represent fair value.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update, including any requests for information from the SEC.

The following Gibson Dunn lawyers prepared this update: Jina Choi, Osman Nawaz, Tina Samanta, and David Woodcock.

Please contact the Gibson Dunn lawyer with whom you usually work with, any member of the firm’s Securities Enforcement, White Collar Defense & Investigations, or Securities Regulation & Corporate Governance practice groups, or the following

Jina L. Choi – San Francisco (+1 415.393.8221, jchoi@gibsondunn.com)

Osman Nawaz – New York (+1 212.351.3940 ,onawaz@gibsondunn.com)

Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)

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

David Woodcock – Dallas (+1 214.698.3211, dwoodcock@gibsondunn.com)

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

Overview

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

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

Background: The FPI Framework and Its Evolution

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

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

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

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

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

Key Developments in the FPI Population

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

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

Potential Regulatory Responses Under Consideration

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

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

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

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

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

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

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

Business Implications

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

Commissioners Comments

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

Next Steps

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

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

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

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

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

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

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

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

[7]  Id.

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

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

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

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

[12]  See supra note 2.

[13]  Id.

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

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

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

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

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

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

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

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

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

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

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

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

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

Capital Markets:

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

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

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

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

Securities Regulation & Corporate Governance:

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

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

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

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

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

A. Introduction

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

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

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

B. Collective Settlement Procedure

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

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

C. Judgment Summary

Approval of the settlement

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

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

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

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

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

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

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

Distribution

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

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

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

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

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

D. Takeaways for Future Collective Settlements

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

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

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

[1] Section 49A Competition Act 1998.

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

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

[4] Judgment, para. 61.

[5] Judgment, para. 68.

[6] Judgment, para. 75.

[7] Judgment, para. 67.

[8] Judgment, para. 81.

[9] Judgment, para. 83.

[10] Judgment, para. 84.

[11] Judgment, para. 89.

[12] Judgment, para. 100.

[13] Judgment, para. 100.

[14] Judgment, para. 106.

[15] Judgment, para. 107.

[16] Judgment, para. 107.

[17] Judgment, para. 102.

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

[19] Judgment, para. 112.

[20] Judgment, para. 118.

[21] Judgment, para. 121.

[22] Judgment, para. 129.

[23] Judgment, paras 129 and 131.

[24] Judgment, para. 130.

[25] Judgment, para. 196.

[26] Judgment, para. 167.

[27] Judgment, para. 168.

[28] Judgment, para. 179.

[29] Judgment, para. 180.

[30] Judgment, para. 182.

[31] Judgment, para. 183.

[32] Judgment, para. 187.

[33] Judgment, para. 188.

[34] Judgment, para. 202.

[35] Judgment, para. 208.

[36] Judgment, para. 211.

[37] Judgment, para. 212.

[38] Judgment, para. 213.

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

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

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

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

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

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

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

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

This update examines key changes made to the Ordinance during the Hong Kong Legislative Council’s consideration of the Bill, flags a number of key observations made by the Hong Kong Government during the LegCo process, and outlines key aspects of the Consultation Papers.

On May 21, 2025, the Hong Kong Legislative Council (LegCo) passed the long-awaited Stablecoins Bill (Bill) to introduce a robust regulatory framework for fiat-referenced stablecoin issuers in Hong Kong, focusing on stablecoins that maintain their value by referencing official currencies (specified stablecoins).[1] While the Stablecoins Bill was gazetted as the Stablecoins Ordinance (Cap. 656) (Ordinance) on May 30, 2025,[2] the Ordinance has not yet come into effect and its commencement date is currently unknown. However, the Hong Kong Monetary Authority (HKMA) has indicated that it expects the regime to come into effect this year.

As part of the HKMA’s preparation for the commencement of the Ordinance, the HKMA published two consultation papers (Consultation Papers) on May 26, 2025.[3][4] In one of the consultation papers, titled “Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers”, the HKMA is seeking feedback on the proposed guidelines that set out its expectations regarding the minimum ongoing criteria that licensed stablecoin issuers must meet (Supervision Guideline). In a separate consultation paper, titled “Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities”, the HKMA is seeking views on its proposed anti-money laundering and counter-financing of terrorism (AML/CFT) requirements for stablecoin issuers seeking HKMA licensing to conduct regulated stablecoin activities (AML/CFT Consultation). The consultation period for both Consultation Papers is until June 30, 2025.

I. LegCo’s consideration of the Bill

In December 2024, the Government introduced the Bill to LegCo with the aim of establishing a regulatory regime for the supervision of activities involving stablecoins and providing the HKMA with relevant supervisory powers.[5] This followed the HKMA and Financial Services and Treasury Bureau’s consultation which concluded in July 2024 (see our previous client alert here).[6] LegCo’s dedicated Stablecoins Committee (Bills Committee) then debated the Bill at a number of meetings and sought clarifications from the Hong Kong Government on a range of topics related to the Bill prior to the Bill’s passage on May 21, 2025. As part of this process, the Bills Committee released two reports on May 9, 2025[7] and May 21, 2025[8] reporting on their deliberations (LegCo Reports).

The LegCo Reports provide valuable insight into the Hong Kong Government’s approach to the regulation of stablecoins, the guidance which can be expected from the HKMA in coming months and the amendments made to the Bill between its introduction in December 2024 and its passage in May 2025.

The key takeaways from the LegCo Reports are as follows:

The HKMA will issue guidelines regarding whether a specified stablecoin is issued ‘in Hong Kong’: The Ordinance will, once enacted, require persons which carry on ‘regulated stablecoin activity’ in Hong Kong to be licensed. This concept of ‘regulated stablecoin activity’ will capture the issuance of a specified stablecoin in Hong Kong or a HKD-referenced stablecoin outside of Hong Kong in the course of business. The LegCo Reports note that the HKMA will issue guidelines on the factors it will consider in determining whether a specified stablecoin is issued ‘in Hong Kong’, but that the Hong Kong Government intends for the HKMA to take a holistic approach which considers all relevant factors, including but not limited to:
1. the location of the issuer’s day-to-day management and operations;
2. place of incorporation;
3. where minting and burning occur;
4. where management of reserve assets takes place; and
5. the location of bank accounts used for processing cash flows related to minting and redemption.
The HKMA will take a holistic approach in deciding whether an activity constitutes “active marketing”: Under the Ordinance, a person would be regarded as holding out as carrying on a regulated stablecoin activity or offering a specified stablecoin if the person actively markets, whether in Hong Kong or elsewhere, to the public (i.e. the public of Hong Kong, including a class of that public) that the person carries on, or purports to carry on, a regulated stablecoin activity or the offering of a specified stablecoin. The LegCo Reports again signal that the HKMA will issue guidelines on the factors it will consider in determining whether a person is actively marketing to the public, but note that the Hong Kong Government intends for the HKMA to take a holistic approach which considers all relevant factors, including but not limited to:
1. the language used in marketing materials;
2. whether the materials are targeted at a group of people that resides in Hong Kong;
3. whether a Hong Kong domain name is used for a marketing website; and
4. whether there is a detailed marketing plan to promote the activity.
SVF licensees will be permitted to offer specified stablecoins to the Hong Kong public: The Bill had initially proposed only allowing four categories of firm to offer specified stablecoins to the Hong Kong public, namely licensed stablecoin issuers, firms licensed by the Securities and Futures Commission (SFC) to conduct Type 1 regulated activity, SFC-licensed Virtual Asset Trading Platforms and HKMA-regulated authorised institutions. However, one of the most significant amendments made to the Bill during the LegCo review process was to expand the definition of ‘permitted offeror’ to also include firms regulated by the HKMA as stored value facility (SVF) licensees under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO). The LegCo Reports note that this amendment was made on the basis of LegCo feedback and the Government’s consideration of stablecoin use cases and market trends, and that SVF licensees will be required to obtain prior and express approval from the HKMA before they commence offering specified stablecoins.
Restrictions on offering specified stablecoins issued by an entity that is not licensed by the HKMA to professional investors only: Importantly, the LegCo Reports also make it clear that the legislative intent of the Ordinance is to limit the offering of specified stablecoins issued by an entity that is not licensed by the HKMA to professional investors only, and flag that this restriction will be implemented through the publication of a notice in the Gazette by the Financial Secretary pursuant to section 9(3) of the Ordinance. Further, the HKMA and the SFC will also issue a circular directing permitted offerors (as set out above) to clearly indicate where specified stablecoins may only be offered to professional investors.

II. The Supervision Guideline

In order to obtain and maintain a licence under the Ordinance, stablecoin issuers will be required to meet a range of minimum criteria (as set out in Schedule 2 of the Ordinance) in relation to key areas of their business operations and risk and compliance functions. The Supervision Guideline being consulted on by the HKMA provides guidance on the HKMA’s expectations with regard to these minimum criteria and is summarised in the below table. The HKMA has indicated that it welcomes feedback from the industry on the Supervision Guideline, but has not identified specific questions or areas where it considers industry feedback would be most helpful.

Area	Key Requirements / Expectations	Details
Reserve Asset Management	Full Reserve Backing and Over-Collateralisation	Licensees must ensure that reserve assets are maintained at a level at least equal to the par value of all outstanding specified stablecoins in circulation.An additional layer of over-collateralisation is required to mitigate potential market risks and provide enhanced protection for holders.Licensees are required to conduct regular reconciliation of reserve assets to ensure ongoing compliance with the minimum reserve and over-collateralisation requirements. The valuation of reserve assets must be performed using transparent and robust methodologies, ensuring that the adequacy of the backing is consistently verified.
	Quality and Composition of Reserve Assets	Licensees must hold reserve assets that are high quality, highly liquid, and carry minimal investment risk to ensure stablecoin reliability.Acceptable reserves include short-term bank deposits (up to three months), high-grade debt securities, overnight reverse repos, and investment funds holding only eligible assets. Reserves should generally match the stablecoin’s currency (unless otherwise approved by the HKMA), but for Hong Kong dollar-referenced stablecoins, U.S. dollar reserves are allowed due to the linked exchange rate system between the HKD and USD.
	Segregation and Safeguarding of Reserve Assets	Licensees must maintain reserve assets for each specified stablecoin in separate pools, distinct from other reserve assets and all other assets or funds held by the licensee. This segregation ensures that reserve assets are protected and not subject to claims from the licensee’s other creditors.Effective trust arrangements are required to ensure that reserve assets are held exclusively for the benefit of stablecoin holders and are always available to meet valid redemption requests at par value. Any income or loss from the management of reserve assets accrues to the licensee.
	Prohibition on Interest	Licensees are prohibited from paying interest or providing interest-like incentives to stablecoin holders.
	Transparency Requirements	To ensure transparency and maintain public confidence, licensees must publicly disclose their reserve asset management policy, the composition and value of their reserve assets, and the results of regular independent attestations and audits. Daily statements must be prepared and ready for submission to the HKMA if required, although licensees will generally only be required to report to the HKMA on a weekly basis.Licensees must report to the HKMA immediately on identification of a breach of statutory or regulatory requirements in relation to reserve assets management, material non-compliance with reserve assets management policy, and unresolved discrepancies identified in any reconciliation exercise.
Issuance, Redemption and Distribution	Prudent Issuance and Full Reserve Matching	Licensees are required to issue stablecoins in a prudent manner, ensuring that new coins are only minted upon receipt of matching funds in the referenced currency.The value of reserve assets must fully correspond to the value of outstanding stablecoins at all times.
	Redemption Rights	Stablecoin holders must have the right to redeem their stablecoins at par value, with a direct claim against the licensee for any shortfall, including in the event of insolvency.Redemption requests should be processed promptly, typically within one business day, and any associated fees must be reasonable and transparent. A licensee should establish and maintain an effective redemption mechanism for the stablecoins it issues.
	Distribution Requirements	A licensee should consider the licensing status of any third party entities involved in distributing its specified stablecoins. Where third party entities offer specified stablecoins in Hong Kong, the licensee should ensure that the third party entities are permitted offerors.Where engaging third party entities to provide liquidity on the secondary market for specified stablecoins issued by a licensee, the licensee should consider the need to engage such parties, and if so, the extent and scope of the arrangements, taking into account its business model and operational arrangement. The licensee should ensure that any such arrangements have the goal of maintaining relatively stable value for the specified stablecoins in the secondary markets, and that any potential and/or actual conflicts of interest have been identified as well as properly addressed and mitigated.
	Customer Due Diligence and Jurisdictional Controls	A licensee should establish adequate and effective policies and procedures for customer on-boarding in respect of issuance and redemption of specified stablecoins.A licensee should comply with the relevant laws and regulations in the jurisdictions where it offers specified stablecoins. Importantly, effective controls should be in place to detect and block attempts at location spoofing.
	Disclosure, Audit, and Reporting Requirements	Licensees must provide clear and comprehensive disclosures to the public regarding redemption processes, rights, and applicable fees.Regular audits of stablecoin operations are required to ensure compliance with its issuance, redemption and distribution policies, as well as the applicable regulatory requirements.
Other Business Activities	Prudent Conduct of Stablecoin Activities	Licensees are required to issue specified stablecoins in a prudent and sound manner, taking into account their business model and operational arrangements.
	Approval for Other Business Activities	Prior to engaging in any business activities outside of their licensed stablecoin operations, licensees must obtain prior consent from the HKMA. In seeking such approval, licensees should establish appropriate governance structures, conduct thorough risk assessments, and implement effective risk management measures.It is essential that these additional activities do not compromise the safety and soundness of the licensee’s stablecoin business or give rise to potential or actual conflicts of interest. Licensees must also ensure that sufficient resources remain dedicated to their stablecoin activities at all times. Licensees are responsible for determining whether their other business activities are subject to regulation and must ensure full compliance with all applicable regulatory regimes.
	Issuing Multiple Stablecoins	Licensees may issue more than one type of specified stablecoin, but must first consult with the HKMA before doing so. Licensees are expected to demonstrate that they possess adequate resources and operational capabilities to manage multiple stablecoin issuances without adversely affecting their existing operations.
Financial Resources	Minimum paid-up share capital	Licensees must have a minimum paid-up share capital of HK$25,000,000, or an equivalent amount in another currency that is freely convertible into Hong Kong dollars, unless the HKMA grants an exemption or alternative arrangement.The HKMA retains the discretion to impose additional financial resource requirements or set higher capital thresholds as a condition of granting or maintaining a licence. The financial resources allocated to meet these requirements should only be used for the purposes of the licensee’s business activities and should not be used for any dealing with its related companies or parties.
Risk Management	Governance and Oversight	A licensee engaged in stablecoin activities should implement robust risk management policies and procedures tailored to their size and complexity.This includes a clear governance structure with defined roles for the Board and senior management, documented risk management frameworks, regular reviews, independent audits, and timely risk reporting to both management and the HKMA.
	Financial, Technology, and Security Controls	Licensees should prudently manage reserve assets to meet all redemption requests, even under stress. This involves setting internal limits, conducting stress tests, and managing credit, liquidity, and market risks.Technology and security risks must be addressed through comprehensive IT controls, smart contract management, wallet and account security, cybersecurity, oversight of third-party providers, ongoing monitoring, and independent audits.
	Token Management	For each specified stablecoin it issues, the licensee should clearly document (i) the token standards used, (ii) the distributed ledgers on which such specified stablecoins are issued, and (iii) the architecture of all smart contracts (including token contract, proxy contract, multi-signature contracts, etc.) in respect of such specified stablecoins.A licensee should identify all operations in relation to the management of the full lifecycle of each specified stablecoin it issues, which should cover deploy, configure, mint, burn, upgrade, pause, resume, blacklist, remove blacklist, freeze, remove freeze, whitelist, usage of any operational wallets, etc. The licensee should also engage a qualified third party entity to audit the smart contracts in respect of such specified stablecoins on at least an annual basis in order to ensure the smart contracts, to ensure that the smart contracts (i) are implemented correctly, (ii) consistent with the intended functionalities, and (iii) are, to a high level of confidence, not subject to any vulnerabilities or security flaws.
	Wallet and Private Key Management	A licensee should put in place effective wallet and private key management policies and procedures to ensure the security and integrity of the operations in relation to the specified stablecoins it issues.A licensee should put in place robust controls and procedures for private key management covering its full lifecycle, including but not limited to key generation, distribution, storage, usage, back-up, recovery, destruction, etc. The licensee should identify all seeds and/or private keys relevant to the management of the specified stablecoins it issues, and adopt measures which comply with detailed requirements set out in the Supervision Guideline but on a ‘scale proportionate’ to the significance of the seeds and private keys. In particular, the HKMA has noted that it expects seeds and private keys should be safeguarded in secure storage media, such as HSM with appropriate certification, in a secure facility with stringent access control and monitoring systems located in Hong Kong, or at a location acceptable to the HKMA.
	Account Management	During the customer on-boarding process, a licensee should adopt an effective authentication method to establish and verify the identity of a potential customer having regard to the nature of the customer (i.e. natural or non-natural person).When fulfilling a customer’s request for issuance or redemption, a licensee should transfer funds only to and accept fund transfers from the customer’s pre-registered accounts, as well as transfer specified stablecoins only to and accept transfers of specified stablecoins from the customer’s pre-registered wallet addresses or accounts. A licensee should also establish effective monitoring mechanisms to prevent, detect and block unauthorised access to customers’ accounts and fraudulent transactions in relation to customers’ accounts.
	Operational Risks / Incident Management	Comprehensive incident management, business continuity, and exit plans must be established, regularly tested, and approved by the board of the licensee. The HKMA must be promptly notified of any significant incidents or changes that could affect stablecoin redemption.
Corporate Governance		Licensees must establish effective governance structures which correspond to the scale and complexity of their stablecoin operations.Controllers of licensees, chief executives, directors, and stablecoin managers (where the licensee is an authorized institution) should be fit and proper to hold their roles and must be approved by the HKMA. Officers who are responsible for the day-to-day management and operation of the licensee’s licensed stablecoin activities must also possess appropriate knowledge and experience to discharge their responsibilities. Any changes in managerial appointments or responsibilities must be promptly reported to the HKMA. All managers must be assessed for suitability, with clear processes for selection, training, and addressing breaches.
Business Practices and Conduct		Licensees shall maintain robust information and accounting systems that accurately record business activities, ensure compliance with Hong Kong’s regulatory and accounting standards, and remain accessible for regulatory review. They should also keep accurate records and submit annual audited financial statements to the HKMA.Licensees must publish a white paper in respect of each type of specified stablecoin it uses. This white paper should be published on the licensee’s website and material changes to the paper should be notified to the HKMA before being made.

III. The AML/CFT Consultation

As noted above, the HKMA is also seeking industry feedback on its AML/CFT Consultation, which sets out a range of AML/CFT requirements which the HKMA proposes imposing on stablecoin issuers. The HKMA has signalled that it has taken a range of factors into consideration in formulating the proposed AML/CFT requirements, including the following:

Potential risks associated with stablecoin activities: The AML/CFT Consultation observes that stablecoins, like other virtual assets, present significant ML/TF risks due to the inherent anonymity, global accessibility, and the potential for complex fund layering associated with stablecoin transactions. The HKMA considers that these risks are further heightened when stablecoins are used in conjunction with unhosted wallets, which facilitate peer-to-peer transfers without the involvement of regulated intermediaries or the creation of blockchain records. However, the HKMA also recognises the traceability advantages offered by blockchain technology, which provides transparent and immutable records of all on-chain transactions, and considers that this transparency can assist in the identification of suspicious activities, even when obfuscation tools are employed.

Alignment with international standards: International AML/CFT standards generally place obligations on intermediaries between individuals and the financial system. While the minting and burning of stablecoins by an issuer is not considered to be intermediating activity, stablecoin issuers will be considered intermediaries when they offer, redeem, or facilitate stablecoin transactions. Consequently, the HKMA proposes to treat stablecoin issuers as financial institutions under the Anti-Money Laundering and Counter-Terrorism Financing Ordinance (Cap. 615) (AMLO).

In light of these considerations, the HKMA intends to require licensed issuers to adopt a range of AML/CFT policies and controls to manage ML/TF risks associated with their stablecoin operations. At a minimum, these should include institutional risk assessments, governance and oversight, controls against terrorist financing and sanctions, suspicious transaction reporting, and record-keeping. Each of these requirements should be proportionate to the nature and scope of the licensee’s activities.

The table below summarises the specific AML/CFT requirements proposed for licensed stablecoin issuers, as well as the specific questions the HKMA is seeking feedback on:

Regulatory Area	Key Requirements / Expectations	Details
Stablecoin Issuance and Redemption	The HKMA is seeking industry feedback on the following aspects of its proposals with regards to issuance and redemption: Whether due diligence measures should be required for institutions (e.g. financial institutions or virtual asset service providers (VASPs)) providing custodial wallets for stablecoin holders at both the issuance and redemption stages; Whether additional controls should be introduced to mitigate the risks associated with unhosted wallets in the context of stablecoin issuance and redemption; and Any other suggestions to strengthen the regulatory approach to stablecoin issuance and redemption from a risk mitigation perspective.
	Customer Due Diligence and Rights	For both the issuance and redemption of stablecoins, licensees must conduct due diligence on all customers. This includes individuals and legal entities with ongoing business relationships, as well as those conducting occasional transactions of HK$8,000 or more.In the case of redemption, licensees are also required to honor valid redemption requests from stablecoin holders.
	Wallet Identification and Ownership Verification	Before issuance or redemption of stablecoins, licensees must identify the relevant wallet address and verify the customer’s ownership or control of that wallet.If the wallet is custodial (e.g., provided by a VASP), the licensee must identify the institution providing the custodial wallet and perform due diligence on it.
	Additional Controls for Unhosted Wallets	The HKMA considers that unhosted wallets (i.e. those controlled directly by users rather than institutions) present heightened risks in both issuance and redemption situations.To mitigate these risks, licensees must implement additional controls before transferring stablecoins to, or accepting stablecoins from, unhosted wallets. These controls shall include: Enhanced monitoring of transactions involving unhosted wallets; Only transferring to or accepting from unhosted wallets that have been assessed as reliable, based on transaction and wallet screening; and Imposing transaction limits where appropriate
Ongoing Monitoring	The HKMA is seeking industry feedback on the following aspects of its proposals with regards to ongoing monitoring: Whether licensees should conduct ongoing monitoring for its customers to detect potential illicit activities for their specified stablecoins.
	Risk-based transaction monitoring systems	Given the ML/TF risks associated with stablecoins, and the fact that they have an identifiable legal issuer, licensees are required to implement effective, risk-based transaction monitoring systemsThese systems should: Monitor the destination of stablecoin transactions at the point of issuance. Monitor the source of stablecoin transactions at the point of redemption. Leverage available technologies to track stablecoin movements on the blockchain. Identify, report and take follow-up actions regarding suspicious transactions.
	Screen stablecoin transactions and wallet addresses	Licensees shall establish systems and controls to screen stablecoin transactions and associated wallet addresses. This includes the use of blockchain analytics tools to: Trace transaction histories to accurately determine the source and destination of stablecoins. Detect transactions involving wallet addresses that are directly or indirectly linked to illicit activities or designated parties.
Stablecoin Transfers	The HKMA is seeking industry feedback on the following aspects of its proposals with regards to stablecoin transfers: To what extent should licensees comply the special requirements for virtual asset (VA) transfers set out in section 13A of Schedule 2 of the AMLO?
	Section 13A of Schedule 2 of the AMLO applies the Travel Rule to VA transfers. The HKMA has proposed extending these requirements to stablecoin transfers on the basis that stablecoins are a type of VA as defined under the AMLO.
Additional measures for ongoing monitoring of stablecoins circulated in secondary markets	The HKMA is seeking industry feedback on the following aspects of its proposals with regards to additional monitoring in the secondary markets: Whether the industry agrees that licensees should be required to implement adequate and appropriate systems and controls to effectively prevent or combat the abuse of stablecoins transacted to or from unhosted or unregulated wallets for ML/TF purposes; If yes, suggestions regarding possible risk mitigation measures for stablecoin transactions involving unhosted wallet addresses, taking into account the different roles of ecosystem participants such as issuers, intermediaries, and banks; and The extent to which licensees should be held accountable for monitoring stablecoin transactions in the secondary market, and views on how such additional measures should be implemented (e.g. scope, analytics frequency, and control mechanisms).
	Licensees should adopt proportionate and ongoing monitoring practices to mitigate the risk of stablecoins being used for illicit purposes. These may include: Limiting the primary distribution and redemption of stablecoins to financial institutions and VASPs with strong AML/CFT controls. Using appropriate solutions (e.g. blockchain analytics tools) to continuously screen transactions and wallet addresses beyond the primary distribution venues. Blacklisting wallet addresses linked to sanctions or illicit activities. Implementing other effective measures such as whitelisting wallet addresses or adopting a closed-loop system that restricts circulation to trusted entities. The HKMA expects license applicants to consider international standards and available technological solutions when designing safeguards in this space. The HKMA has indicated that it is open to industry proposals, provided they align with the overarching principle of preventing misuse of stablecoins in secondary markets.

The HKMA has also noted that it is also developing supplementary AML/CFT guidance for digital asset activities, such as stablecoin issuance and custodial services. This aims to align with SFC guidelines to ensure consistent regulation across institutions performing similar activities. Industry consultation is planned for later in 2025.

IV. Conclusion

The passage of the Ordinance and release of the Consultation Papers are key milestones in the development of Hong Kong’s regulatory landscape for stablecoin issuers and offerors. Stakeholders are encouraged to review the Consultation Papers and submit feedback by June 30, 2025. In the meantime, we recommend stablecoin issuers to evaluate their current operations to ensure readiness for the forthcoming regulatory changes.

[1] “Government welcomes passage of Stablecoins Bill”, published by the Hong Kong Government on May 21, 2025, available here.

[2] Stablecoins Ordinance (Cap. 656) in gazette, available here.

[3] “Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers”, published by the HKMA on May 26, 2025, available here.

[4] “Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities”, published by the HKMA on May 26, 2025, available here.

[5] Stablecoins Bill, available at https://www.legco.gov.hk/yr2024/english/bills/b202412064.pdf

[6] “Hong Kong’s Regulators Publish Consultation Conclusions on Legal Framework for Stablecoin Issuers”, published by Gibson, Dunn & Crutcher on September 10, 2024, available at: https://www.gibsondunn.com/hong-kongs-regulators-publish-consultation-conclusions-on-legal-framework-for-stablecoin-issuers/

[7] “Paper for the House Committee – Report of the Bills Committee on Stablecoins Bill”,published by the Hong Kong Legislative Council on May 9, 2025, available here.

[8] “Report of the Bills Committee on Stablecoins Bill”, published by the Hong Kong Legislative Council on May 15, 2025, available here.

The following Gibson Dunn lawyers prepared this update: William Hallatt, Emily Rumble, Arnold Pun, and Macy Chung*.

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

William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)
Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)
Arnold Pun (+852 2214 3838, apun@gibsondunn.com)
Becky Chung (+852 2214 3837, bchung@gibsondunn.com)
Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

*Macy Chung is a trainee solicitor in the firm’s Hong Kong office who is not yet admitted to practice law.

From the Derivatives Practice Group: This week, Paul S. Atkins was sworn into office as the 34th Chairman of the Securities and Exchange Commission.

New Developments

Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015. [NEW]
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading. [NEW]
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading. [NEW]
CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation.
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps.
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users.

New Developments Outside the U.S.

ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published its annual risk assessment of leveraged alternative investment funds (AIFs) and its first analysis on risks in UCITS using the absolute Value-at-Risk (VaR) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance. [NEW]
ESAs Publish Joint Annual Report for 2024. On April 16, the Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published its 2024 Annual Report. The main areas of cross-sectoral focus in 2024 were joint risk assessments, sustainable finance, operational risk and digital resilience, consumer protection, financial innovation, securitisation, financial conglomerates and the European Single Access Point (“ESAP”). Among the Joint Committee’s main deliverables were policy products for the implementation of the Digital Operational Resilience Act (“DORA”) as well as ongoing work related to the Sustainable Finance Disclosure Regulation. [NEW]
EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025.
Japan’s Financial Services Agency Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency (“JFSA”) published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only.

New Industry-Led Developments

ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules. [NEW]
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only. [NEW]
ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On April 23, President Trump issued an Executive Order entitled Restoring Equality of Opportunity and Meritocracy. The order seeks to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.”

Disparate impact is a theory of discrimination applied when a facially neutral practice has a statistically significant impact on a protected group. According to the Executive Order, “disparate-impact liability” creates “a near insurmountable presumption of unlawful discrimination … where there are any differences in outcomes in certain circumstances among different races, sexes, or similar groups, even if there is no facially discriminatory policy or practice or discriminatory intent involved, and even if everyone has an equal opportunity to succeed.” The order criticizes disparate-impact liability as “all but requir[ing] individuals and businesses to consider race and engage in racial balancing to avoid potentially crippling legal liability.” Thus, according to President Trump, disparate-impact liability prevents employers from “act[ing] in the best interests of the job applicant, the employer, and the American public” and undermines “meritocracy,” “a colorblind society,” and “the American Dream.”[*]

A. Regulatory Changes

Section 3 and Section 5 of the Executive Order direct the repeal or amendment of certain regulations that impose disparate-impact liability on, and require affirmative action by, recipients of federal funding under Title VI, such as universities, nonprofits, and certain contractors. Section 3 states that it is revoking the “Presidential approval” of these regulations. (Title VI provides that no “rule, regulation, or order” implementing the statute “shall become effective unless and until approved by the President.” 42 U.S.C. § 2000d-1.) And Section 5(a) directs the Attorney General to “initiate appropriate action to repeal or amend” those regulations.

The Title VI regulations identified by the Executive Order for repeal prohibit recipients of federal funding from “utiliz[ing] criteria or methods of administration which have the effect of subjecting individuals to discrimination,” selecting “the site or location of facilities” in a manner that has “the purpose or effect of defeating or substantially impairing the accomplishment of the objectives” of Title VI, or engaging in “employment practices” that “tend[]” to discriminate. 28 C.F.R. § 42.104(b)(2), (b)(3), (c)(2). The regulations also allow recipients to “take affirmative action to overcome the effects of conditions which resulted in [discrimination],” even if there were no prior discrimination by the recipient. § 42.104(b)(6)(ii).

Section 5(b) also directs the Attorney General, “in coordination with the heads of all other agencies,” to review “all existing regulations, guidance, rules, or orders that impose disparate-impact liability or similar requirements,” and to “detail agency steps for their amendment or repeal, as appropriate under applicable law.” Unlike Section 5(a), this portion of the Executive Order is not limited to Title VI, and likely contemplates Title VII, the Fair Housing Act, the Age Discrimination in Employment Act, the Affordable Care Act, and the Equal Credit Opportunity Act, several of which are mentioned in other sections of the order.

Section 7 of the Executive Order further instructs the Attorney General to “determine whether any Federal authorities preempt State laws, regulations, policies, or practices that impose-disparate-impact liability,” and to “take appropriate measures consistent with the policy of this order.” Section 7 also directs the Attorney General and Chair of the Equal Employment Opportunity Commission (EEOC) to “issue guidance or technical assistance to employers regarding appropriate methods to promote equal access to employment regardless of whether an applicant has a college education.”

B. Enforcement Actions

Section 4 of the Executive Order directs all federal agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” Consistent with that direction, Section 6 instructs all heads of federal agencies, including “the Attorney General,” “the Chair of the Equal Employment Opportunity Commission,” “the Secretary of Housing and Urban Development, the Director of the Consumer Financial Protection Bureau, the Chair of the Federal Trade Commission, and the heads of other agencies responsible for enforcement of the Equal Credit Opportunity Act (Public Law 93-495), Title VIII of the Civil Rights Act of 1964 (the Fair Housing Act (Public Law 90-284, as amended)),” to “assess” or “evaluate” all pending proceedings relying on disparate-impact theories, including under Title VII, and “take appropriate action” within 45 days. Agencies must conduct a similar review of “consent judgments and permanent injunctions” within 90 days.

C. Analysis

As a result of this Executive Order, federal agencies are unlikely to initiate investigations or enforcement actions relying on disparate-impact theories. They might also close, dismiss, or narrow existing investigations, enforcement actions, and ongoing monitorships pursuant to consent decrees or other agreements where the underlying legal theory relied on disparate-impact liability. Companies facing such investigations, actions, and monitorships might wish to ask for their closure in light of the order.

Agencies also may move to repeal or amend regulations and guidance documents imposing or recognizing disparate-impact liability, such as the EEOC’s guidelines concerning affirmative action that address disparate-impact liability. See 29 C.F.R. Part 1608. Among other things, the current EEOC guidance opines that affirmative action plans are allowed to remedy “employment practices” that “[r]esult in disparate treatment,” even if there is no “violation of Title VII.” 29 C.F.R. § 1608.4(b). The EEOC may repeal or amend these guidelines, including because it is consistent with President Trump’s prior repeal of Executive Order 11246 and Acting Chair Lucas’s view that such plans may be used in “very limited circumstances.” And given that Title VII provides that “good faith” compliance with a written EEOC “interpretation or opinion” is a defense to liability, 42 U.S.C. § 2000e-12(b), rescission of the affirmative action plan guidelines could eliminate a safe harbor if the guidelines are formally rescinded. Employers with affirmative action plans should review their plans and consider whether to make changes in light of forthcoming EEOC action.

Litigation challenging the actions directed by the order is possible. Title VI is silent, for example, on whether the President may unilaterally revoke approval of regulations without a full notice-and-comment rulemaking process. Democratic state attorneys general might also litigate if the Trump Administration takes the position that federal laws preempt state laws or regulations that impose or recognize disparate-impact liability.

Meanwhile, the order does not directly impact private plaintiff litigation invoking disparate impact. The order also has no immediate impact on existing disparate-impact case law. However, litigation catalyzed by the order could lead to reconsideration of precedents upholding disparate-impact theories of liability, such as the Supreme Court’s decision interpreting Title VII in Griggs v. Duke Power Co., 401 U.S. 424 (1971).

[*] This order is consistent with other Administration actions regarding disparate-impact liability. On April 23, for example, President Trump issued an executive order rejecting the use of disparate-impact analysis to evaluate the lawfulness of school discipline. And earlier this year, Attorney General Bondi ordered the Department of Justice to issue updated guidance that “narrow[s] the use of ‘disparate impact’ theories that effectively require use of race- or sex-based preference” and “emphasize that statistical disparities alone do not automatically constitute unlawful discrimination.” Moreover, these actions were proposed in the Project 2025 policy document.

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Ryan Stewart, Cynthia Chen McTernan, and Josh Zuckerman.

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

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group,
Washington, D.C. (+1 202.955.8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group,
Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group,
New York (+1 212.351.3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer,
Washington, D.C. (+1 202.955.8503, zswilliams@gibsondunn.com)

Naima L. Farrell – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.887.3559, nfarrell@gibsondunn.com)

Cynthia Chen McTernan – Partner, Labor & Employment Group,
Los Angeles (+1 213.229.7633, cmcternan@gibsondunn.com )

Molly T. Senger – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.955.8571, msenger@gibsondunn.com)

Greta B. Williams – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.887.3745, gbwilliams@gibsondunn.com)

Zoë Klein – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.887.3740, zklein@gibsondunn.com)

Anna M. McKenzie – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.955.8205, amckenzie@gibsondunn.com)

The French Ministry of Justice has unveiled the first draft of the reform of French arbitration law, a major step in modernizing the country’s arbitration framework. This draft reform builds on the 2011 overhaul, aiming to consolidate France’s position as a leading place of international arbitration.

A Reform Rooted in Continuity, Aimed at Autonomy

The reform is built on the foundation of France’s established arbitration tradition but proposes a dedicated Arbitration Code to enhance clarity and coherence, and strengthen the autonomy of arbitration law while improving its integration with French judicial procedures.

Three Main Pillars of the Reform:

1. A More Flexible Arbitration Framework

Trend towards unification of the rules governing domestic and international arbitration, favoring the more liberal international standards.
Reduced formalism: No mandatory form for arbitration clauses, electronic awards explicitly recognized.
Practice-driven updates: Simplified signing requirements, streamlined communication of awards.

2. A More Protective Legal Environment

Impartiality and independence of arbitrators reaffirmed.
Financial hardship mechanism introduced: Courts may provide assistance in case of proven inability to pay arbitration costs to avoid denial of justice.
Strengthened guarantees for weaker parties (e.g., consumers, employees, financially constrained parties).
Protection of third-party rights: Provisions allowing third-party intervention in court proceedings relating to the award (annulment / exequatur) and possibility for third-party opposition against court decisions.

3. A More Efficient System

Reinforced “juge d’appui”: Enhanced powers to support arbitration proceedings, prevent denial of justice, and enforce interim measures issued by the arbitral tribunal.
Enhanced tribunal tools: Consolidation of related claims into a single arbitral proceeding, liquidation of penalty payments (astreintes), obligation for parties to raise all claims and objections concurrently under penalty of subsequent inadmissibility, and issuance of binding preliminary determinations on jurisdiction or admissibility.
Streamlined enforcement and recourse: Revised procedural rules on recognition, exequatur, and appeal proceedings before French courts; stay of annulment no longer automatic in domestic cases.

A Strategic Move for Arbitration in France:

This initiative reflects France’s commitment to arbitration-friendly policies and to the continuing reinforcement of its position in the global dispute resolution landscape.

A consultation is now open to refine the draft, collect the industry feedback and clarify outstanding issues.

We are closely monitoring the legislative process and will continue to provide insights as it evolves.

The following Gibson Dunn lawyers prepared this update: Eric Bouffard, Martin Guermonprez, and Imane Choukir.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s International Arbitration practice group, or the authors in Paris at +33 1 56 43 13 00:

Eric Bouffard – ebouffard@gibsondunn.com

Martin Guermonprez – mguermonprez@gibsondunn.com

Imane Choukir – ichoukir@gibsondunn.com

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q1 2025. The Update is available in .pdf format at the below link, and addresses news on the following topics that we hope are of interest to you:

Presidential and SEC Transitions Continue
SEC Abandons Defense of Climate Rule
Ninth Circuit Considers First Amendment Challenge to SEC’s Gag Rule
AICPA Seeks Comment on Alternative Practice Structures
CPAB Amends Rules to Increase Disclosure of Inspection Results
Supreme Court Distinguishes Between False and Misleading Statements
Second Circuit Applies Crime-Fraud Exception to Overcome Attorney-Client Privilege
Texas Supreme Court Adopts Anti-Fracturing Rule
EU Proposes Simplified Rules Regarding Sustainability Reporting
Other Recent PCAOB Regulatory and Enforcement Developments

Please let us know if there are topics that you would be interested in seeing covered in future editions of the Update.

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Warmest regards,
Jim Farrell
Monica Loseman
Michael Scanlon

Chairs, Accounting Firm Advisory and Defense Practice Group, Gibson, Dunn & Crutcher LLP

In addition to the practice group chairs, this update was prepared by David Ware, Benjamin Belair, Monica Limeng Woolley, Bryan Clegg, Hayden McGovern, John Harrison, Nicholas Whetstone, and Ty Shockley.

Accounting Firm Advisory and Defense Group Chairs:

Jim Farrell – Co-Chair, New York (+1 212-351-5326, jfarrell@gibsondunn.com)

Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, mloseman@gibsondunn.com)

Michael Scanlon – Co-Chair, Washington, D.C.(+1 202-887-3668, mscanlon@gibsondunn.com)

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

Key Developments

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

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

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

Media Coverage and Commentary:

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

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

Case Updates:

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

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

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

2. Employment discrimination and related claims:

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

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

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

4. Actions against educational institutions:

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

Legislative Updates

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

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

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

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

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

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)

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

New Developments

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

New Developments Outside the U.S.

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

New Industry-Led Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Background on Pension Risk Transfers

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

Recent Litigation

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

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

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

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

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

The Recent Decisions

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

Camire v. Alcoa USA Corp.

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

Konya v. Lockheed Martin Corp.

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

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

What’s Next for Plan Sponsors and Fiduciaries

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

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

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

[3] See id. at 3.

[4] See id.

[5] See id. at 5.

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

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

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

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

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

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

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

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

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

[15] Id. at 529–31.

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

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

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

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

[20] Id. at *4.

[21] Id. at *7.

[22] Id.

[23] Id.

[24] See id. at *8.

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

[26] Id. at *13, *17–18.

[27] Id. at *10.

[28] Id. at *9.

[29] Id. at *15.

[30] Id. at *14.

[31] Id. at *16–17.

[32] Id. at *18.

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

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

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

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Labor & Employment or Executive Compensation & Employee Benefits practice groups, or the authors:

Labor & Employment:

Karl G. Nelson – Dallas (+1 214.698.3203, knelson@gibsondunn.com)
Geoffrey Sigler – Washington, D.C. (+1 202.887.3752, gsigler@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)
Heather L. Richardson – Los Angeles (+1 213.229.7409,hrichardson@gibsondunn.com)
Ashley E. Johnson – Dallas (+1 214.698.3111, ajohnson@gibsondunn.com)
Jennafer M. Tryck – Orange County (+1 949.451.4089, jtryck@gibsondunn.com)

Executive Compensation & Employee Benefits:

Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com)
Sean C. Feller – Los Angeles (+1 310.551.8746, sfeller@gibsondunn.com)
Krista Hanvey – Dallas (+1 214.698.3425, khanvey@gibsondunn.com)

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

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

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

Justice SOTOMAYOR, writing for the Court

Background:

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

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

Issue:

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

Court’s Holding:

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

What It Means:

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

The Court’s opinion is available HERE.

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

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com
Ashley E. Johnson +1 214.698.3111 ajohnson@gibsondunn.com

Related Practice: Insurance and Reinsurance

Geoffrey M. Sigler
+1 202.887.3752
gsigler@gibsondunn.com

Heather L. Richardson
+1 213.229.7409
hrichardson@gibsondunn.com

Related Practice: Labor and Employment

Jason C. Schwartz
+1 202.955.8242
jschwartz@gibsondunn.com

Katherine V.A. Smith
+1 213.229.7107
ksmith@gibsondunn.com

This alert was prepared by associates Robert Batista and Maya Jeyendran.

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

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

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

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

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

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

Upcoming Oral Argument Calendar

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

Key Case Summaries (March 2025)

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

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

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

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

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

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

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

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

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

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

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

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

Blaine H. Evanson – Orange County (+1 949.451.3805, bevanson@gibsondunn.com)
Audrey Yang – Dallas (+1 214.698.3215, ayang@gibsondunn.com)

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, tdupree@gibsondunn.com)
Allyson N. Ho – Dallas (+1 214.698.3233, aho@gibsondunn.com)
Julian W. Poon – Los Angeles (+ 213.229.7758, jpoon@gibsondunn.com)

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, kdominguez@gibsondunn.com)
Josh Krevitt – New York (+1 212.351.4000, jkrevitt@gibsondunn.com)
Jane M. Love, Ph.D. – New York (+1 212.351.3922, jlove@gibsondunn.com)

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

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

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

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

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

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

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

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

Overview of the Rule

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

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

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

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

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

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

B. What types of data are covered?

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

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

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

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

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

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

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

The Rule does exclude two categories of common data:

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

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

C. To whom does the Rule apply?

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

D. What recipients of information are covered?

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

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

“Covered Persons” include the following:[33]

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

E. What types of transactions are prohibited?

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

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

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

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

F. What types of transactions are restricted?

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

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

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

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

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

H. What exemptions exist?

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

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

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

I. Are any licenses available?

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

J. Are completed transactions affected?

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

K. What other recordkeeping requirements exist?

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

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

L. What are the penalties for noncompliance?

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

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

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

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

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

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

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

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

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

[8] DOJ Press Release, supra note 5.

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

[10] 28 C.F.R. § 202.210.

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

[12] 28 C.F.R. § 202.258.

[13] Id. § 202.217.

[14] Id. § 202.228(a).

[15] See id. § 202.228(b).

[16] See id. § 202.242.

[17] See id. § 202.1401.

[18] See id. § 202.222.

[19] Id. § 202.206.

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

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

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

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

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

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

[26] See id. § 202.212.

[27] Id. § 202.234.

[28] Id. § 202.212(b).

[29] See id. § 202.256.

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

[31] See id. § 202.208.

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

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

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

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

[36] 28 C.F.R. § 202.301.

[37] Id. § 202.303.

[38] Id. § 202.304.

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

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

[41] See 28 C.F.R. § 202.302(b).

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

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

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

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

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

[47] 28 C.F.R. §§ 202.1001–02.

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

[49] See 28 C.F.R. § 202.1001.

[50] See id. § 202.1002.

[51] See id. § 202.1103.

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

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

[54] 28 C.F.R. § 202.901(i).

[55] See id. § 202.501.

[56] See id. § 202.502.

[57] See id. § 202.503.

[58] See id. § 202.504.

[59] See id. § 202.505.

[60] See id. § 202.506.

[61] See id. § 202.507.

[62] See id. § 202.508.

[63] See id. § 202.509.

[64] See id. § 202.510.

[65] See id. § 202.511.

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

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

[68] 28 C.F.R. §§ 202.801–02.

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

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

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

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

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

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

[75] See 28 C.F.R. § 202.1301.

[76] See id.

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

[78] Id.

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

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

Privacy, Cybersecurity & Data Innovation / Artificial Intelligence:

United States:
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Keith Enright – Palo Alto (+1 650.849.5386, kenright@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, coneill@gibsondunn.com)

International Trade Advisory & Enforcement:

United States:
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.475.4650, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)