This update details changes made by the Act to the tax benefits for clean energy projects, including the new limitations on certain energy-related tax credits enacted in the Inflation Reduction Act of 2022 (the IRA).

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the OBBBA or the Act),[1] which enacts significant changes to the U.S. federal income tax benefits available to clean energy projects.  The text of the Act can be found here.  Our prior alert on the tax highlights of the Act can be found here.

This alert provides further details regarding the changes made by the OBBBA to the tax benefits for clean energy projects, including the new limitations on certain energy-related tax credits enacted in the Inflation Reduction Act of 2022 (the IRA).[2]

Wind and Solar Energy (Sections 45Y and 48E)

Background

Before the OBBBA, qualifying wind and solar projects were eligible for a production tax credit (PTC) under section 45Y or an investment tax credit (ITC) under section 48E.  Under the IRA, the section 45Y PTC and section 48E ITC were subject to phase-out following the later of 2032 or the year the Treasury Secretary determined that the annual greenhouse gas emissions (GGEs) from the production of electricity in the United States was equal to or less than 25 percent of a 2022 baseline.  Our prior alert on the section 45Y and 48E credits can be found here.

Under pre-OBBBA IRS guidance (first issued in 2014), a wind or solar project that began construction would qualify for ITCs or PTCs if it was placed in service by the end of the fourth calendar year after the year in which construction began (assuming other applicable requirements are met).[3]  Construction of a project was deemed to “begin” by the performance of physical work of a significant nature or by satisfying a safe harbor through payment or incurrence of at least five percent of certain project costs.[4]  That pre-OBBBA IRS guidance contains rules governing the type of “physical work” that qualifies but specifically provides that “there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy” the physical work standard.[5]

Projects that begin construction after July 4, 2026

Under the Act, qualifying wind and solar projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to be eligible for ITCs and PTCs.

Projects that begin construction on or before July 4, 2026[6]

As of the date of this alert (July 14, 2025), the section 48E ITC and section 45Y PTC placement-in-service deadline is uncertain for qualifying wind and solar projects that began construction before July 4, 2026 and thus are exempt from the December 31, 2027 placement-in-service deadline.

This uncertainty stems from President Trump’s July 7, 2025 Executive Order that directed the Treasury Secretary, by August 18, 2025, to “strictly enforce the termination of the [section 48E ITC and section 45Y PTC] for wind and solar facilities,” which includes

issuing new and revised guidance as the Secretary of the Treasury deems appropriate and consistent with applicable law to ensure that policies concerning the ‘beginning of construction’ are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.

Both the scope of the Executive Order and the manner in which it will be interpreted are unclear, and we will publish another alert once this guidance is issued.

Certain Leasing Arrangements

For taxable years beginning after July 4, 2025, the OBBBA prohibits the section 48E ITC for qualified investments in certain small wind facilities (used in connection with a residential dwelling unit by the lessee) if the taxpayer rents or leases the facilities to a third party, and disallows the section 45Y PTC with respect to electricity produced by such facilities during those taxable years.

Application of the prohibition is uncertain with respect to facilities generating electricity from solar energy.  The heading of the provision states that it applies to “solar leasing arrangements,” but the prohibition by its terms (and a potentially errant cross-reference) applies to solar water heating property, which is not eligible for either the section 48E ITC or section 45Y PTC in the first instance.

Foreign Entity of Concern Rules (FEOC)

The OBBBA also introduces new section 48E ITC and section 45Y PTC eligibility requirements that target certain foreign (e.g., China) ownership or influence with respect to benefited projects and participation in supply chains (collectively, “Foreign Restrictions”).[7] As discussed below, some or all of the restrictions also apply to various other credits.

More specifically, the section 45Y PTC and section 48E ITC are not allowed to a “specified foreign entity” (SFE) or a “foreign-influenced entity” (FIE), nor are they allowed with respect to a facility the construction of which receives “material assistance” from an SFE or an FIE. These three concepts are discussed in more detail below.

• SFE: An SFE is defined to include the governments (including agencies and instrumentalities) of China, Iran, Russia, and North Korea; citizens or nationals of any of those countries;[8] entities or branches formed in or having their principal place of business in any of those countries; and controlled entities and subsidiaries of any of the above (determined on a more-than-50 percent equity ownership basis and regardless of jurisdiction of organization).[9] SFE status is generally determined as of the last day of the taxable year.[10]
• FIE: An FIE is defined as an entity that meets any of the following tests: (i) an SFE has direct authority to appoint certain officers, (ii) an SFE has at least 25 percent equity ownership or, taken together with other SFEs, at least 40 percent equity ownership, (iii) one or more SFEs has issued at least 15 percent of the entity’s debt, or (iv) the entity made an “effective control” payment to an SFE during the previous year (discussed below). FIE status is determined as of the last day of the taxable year.
  • Effective Control: An entity makes an “effective control” payment if, during the previous taxable year, the entity made a payment to an SFE pursuant to a contract, agreement, or other arrangement that entitles the SFE (or a related party) to exercise “specific authority over key aspects” of the energy generation of the entity’s (or a related person’s) facility that are “not included in the measures of control through authority, ownership, or debt” that otherwise would determine FIE status. The OBBBA goes on to provide a broad list of contractual provisions (relating to amount and timing of electricity production, offtake arrangements, access to data, and facility maintenance and repair) that convey impermissible authority to a counterparty.  The OBBBA is especially scrutinous of intellectual property licenses (other than qualifying bona fide sales)—for example, any such arrangement (relating to a facility) that is entered into after July 4, 2025 is deemed to convey effective control to the SFE.[11]
• Material Assistance: A facility receives “material assistance” from an SFE or FIE if an impermissible amount of the total direct costs of the manufactured products (including components) incorporated into the facility upon completion of construction are mined, produced, or manufactured by an SFE or an FIE.  Pending receipt of Treasury guidance contemplated by the Act, taxpayers may rely on certifications from suppliers of manufactured products to determine if those products (or components) were manufactured by an SFE or FIE; new penalties apply to false or inaccurate supplier certifications.[12]  Stricter penalties (and an extended statute of limitations) apply to assessments in respect of credits disallowed for “material assistance” violations.

Special rules allow publicly traded entities to rely on publicly reported information  to determine their SFE and FIE status.[13]

The SFE ownership, FIE, and “effective control” rules apply to credits claimed for taxable years beginning after July 4, 2025, and the “material assistance” rules apply to projects that begin construction after December 31, 2025.

The “effective control” payment rules are also backed up by a new section 48E ITC recapture rule, effective for taxable years beginning after July 4, 2025.  Under this rule, for the 10 years after a qualifying facility is placed in service, a section 48E ITC is subject to 100-percent recapture (i.e., no vesting) if the taxpayer (i) is allowed a section 48E ITC for any taxable year beginning after July 4, 2027 and (ii) makes a payment to an SFE (“with respect to a taxable year”) pursuant to a contract that entitles the SFE (or a related person) to “effective control” over any facility of the taxpayer or a related person.[14]  The recapture tax is due in the year the “effective control” payment is made.

The OBBBA did not include a controversial proposed excise tax included in prior versions of the legislation that would have applied to wind and solar facilities (regardless of whether ITCs or PTCs were claimed) that incorporated certain components sourced from prohibited foreign sources.

Domestic Content Clarification

The Act aligns the thresholds for the domestic content bonus credit under the section 48E ITC with the domestic content thresholds under the section 45Y PTC by increasing the section 48E thresholds to match the section 45Y requirements.  In an apparent drafting glitch made by Congress in the IRA, the domestic content thresholds were lower under section 48E as compared to the domestic content thresholds under section 45Y.[15]  This change is effective for facilities the construction of which begins on or after June 16, 2025.

Depreciation

The Act does not affect the eligibility of solar or wind projects to claim preferential five-year accelerated depreciation.

Battery Storage (Section 48E)

Background

Before the OBBBA, qualifying energy storage projects were eligible for the section 48E ITC, subject to phase-out on the same timeline as wind and solar projects (discussed above).

OBBBA Changes

The OBBBA did not change the section 48E ITC eligibility timeline for battery storage projects.

The OBBBA subjects storage projects seeking the section 48E ITC to the Foreign Restrictions applicable to wind and solar projects (discussed above), albeit with stricter “material assistance” provisions.

Fuel Cells (Section 45V and 48E)

Background

Under prior law, fuel cells were eligible for credits under Section 48E only if those cells met the emissions requirements of that section.  Because feedstocks for fuel cell projects typically produce GGEs, this often made eligibility for the section 48E ITC challenging.

OBBBA Changes

Qualifying fuel cell projects that begin construction after December 31, 2025 are now eligible for a new 30-percent ITC that exempts the projects from the IRA’s prevailing wage and apprenticeship requirements and GGE requirements.  The new ITC is not eligible for the domestic content and energy community bonuses made available under the IRA.[16]

The Act also moves up the commencement-of-construction deadline for the IRA’s 10-year credit under section 45V for the production of clean hydrogen (a fuel cell feedstock) from January 1, 2033 to January 1, 2028.  The Foreign Restrictions do not apply to the clean hydrogen PTC.  Our prior alert on the section 45V credit can be found here.

Clean Fuels (Section 45Z)

Background

Before the OBBBA, section 45Z provided a PTC for clean transportation fuel, including a higher credit rate for sustainable aviation fuel.  This credit was not available for fuel sold after December 31, 2027

OBBBA Changes

The Act extends the clean fuel production credit by two years, with the result that eligible fuel sold until December 31, 2029 is eligible for this credit.

The Act also relaxes the lifecycle GGE rules for credit-eligible fuel produced after 2025 by excluding the effects of indirect land use changes from the lifecycle GGE calculation.

In an apparent negative reaction to Treasury and IRS guidance released earlier this year, the OBBBA also authorizes the Treasury Secretary to confirm that sales by a taxpayer to an intermediary are permitted if the taxpayer has reason to believe that the fuel ultimately will be sold to an unrelated person.[17]

The Act effectively introduces a new cap on the credit.  As background, the credit’s rate is the product of a formula that reduces the credit by reference to a specific fuel’s GGE rate; before the Act, however, fuels with a negative GGE rate could have seen their credit rate increase over the headline statutory rate under the Code’s formula.[18]  The Act prospectively limits the fuels for which negative GGE rates that can be taken into account to fuels from specific animal manure feedstocks (e.g., dairy, swine, poultry).

The Act also provides that, for fuel produced after 2025, the credit is available only for fuel derived exclusively from feedstocks produced or grown in the United States, Mexico, or Canada.  The Act also eliminates the enhanced credit rate for sustainable aviation fuel effective for fuel produced after December 31, 2025.

Certain of the Foreign Restrictions also apply to clean fuel PTCs.  The SFE ownership prohibition applies to taxable years beginning after July 4, 2025, and the FIE prohibition (other than the “effective control” payment rules) applies to taxable years beginning after July 4, 2027.

Nuclear (Section 45Y and 48E)

Background

Under current law, qualifying nuclear projects are eligible for PTCs under section 45Y or ITCs under section 48E.

OBBBA Changes

Under the Act, a bonus amount was added to the section 45Y PTC for certain nuclear facilities placed in service in metropolitan statistical areas that have (or, at any time after December 31, 2009, has had) at least 0.17 percent direct employment in nuclear-related sectors.[19]  The bonus amount is available for qualifying projects that begin construction in taxable years beginning after July 4, 2025.

The Foreign Restrictions apply to ITCs or PTCs for new nuclear projects on the same timeline as wind and solar projects.  For nuclear facilities placed in service before the IRA and claiming the section 45U PTC, the SFE prohibition applies to taxable years beginning after July 4, 2025, and the FIE prohibition (other than the “effective control” payment rules) applies to taxable years beginning after July 4, 2027.

Carbon Capture, Utilization, and Sequestration (CCUS) (Section 45Q)

Background

Prior to the OBBBA, section 45Q provided a tax credit of $60 per metric ton for qualified CCUS facilities that captured qualified carbon oxides (QCOs) and either “utilized” (e.g., used in a commercial process) the QCOs or used the QCOs for enhanced oil and gas recovery.  Qualified CCUS facilities that stored QCOs in secure geological formations were eligible for a higher credit of $85 per metric ton.[20]

OBBBA Changes

The OBBBA increases the section 45Q credit for QCOs that are “utilized” or used in enhanced oil or natural gas recovery to equal the credit rate for QCOs that are stored in secure geological formations.  The credit rate increase applies to equipment placed in service after July 4, 2025

The SFE ownership prohibition and the FIE prohibition (other than the “effective control” payment rules) apply to CCUS projects for taxable years beginning after July 4, 2025.

Advanced Manufacturing Production Credit (Section 45X)

Background

The IRA made available a tax credit for the production and sale of certain eligible solar, wind, and energy storage components manufactured in the United States, as well as the production of certain critical minerals.  The credits (other than the credits for critical minerals) were subject to a phaseout beginning in 2030.

OBBBA Changes

The Act introduces a new category of credit-eligible critical minerals—metallurgical coal suitable for use in the production of steel, regardless of where produced.  The metallurgical coal credit is 2.5 percent of qualifying production costs (as compared to the 10 percent credit for other critical minerals).

The credit for wind components is terminated for components produced and sold after December 31, 2027.  The Act phases out the credit for critical minerals (other than metallurgical coal) starting in 2031 and terminates the new credit for metallurgical coal produced after December 31, 2029.

The Act also revises the definition of credit-eligible battery module production to require inclusion of all essential equipment necessary for battery functionality.

The Foreign Restrictions are made applicable to section 45X but are generally applied to the production of components (rather the construction of the facility) and are subject to separate “material assistance” thresholds.

These changes are effective for taxable years beginning after July 4, 2025.

The OBBA did not adopt an earlier Senate proposal to prohibit claiming multiple credits (or “stacking”) for the production of components that are integrated into and sold as a single product but did add new requirements to qualify for such stacking.  To be eligible for stacking, the components must be produced at the same facility, the end product must be sold to an unrelated person, and at least 65 percent of the direct material costs of the underlying components must be attributable to United States mining, production, or manufacturing.  This change is effective for components sold during taxable years beginning after December 31, 2026.

Tax Credit Transfers (Section 6418)

Background

The IRA made certain tax credits (including the section 45Y PTC and 48E ITC) transferable for cash on a one-time basis, subject to certain limitations.  Please see our prior client alert on the IRA tax credit transfer regime here.

OBBBA Changes

The Act largely leaves intact the tax credit transfer regime introduced by the IRA; for taxable years beginning after July 4, 2025, however, an SFE cannot buy section 45Q, 45U, 45X, 45Y, 45Z, or 48E credits.[21]

New Classes of Qualified Income for Publicly Traded Partnerships (Section 7704)

Background

Publicly traded partnerships are generally taxed as corporations unless they derive at least 90 percent of their income from certain qualifying sources.  Prior to the OBBBA, qualifying sources were limited to passive income and income from certain fossil fuel-related energy or transportation activities.

OBBBA Changes

The Act expands the definition of “qualifying income” to include income derived from qualifying hydrogen storage and transportation; electricity production from qualifying nuclear, hydropower, and geothermal facilities; carbon capture facilities, including electricity production from qualifying facilities with sufficient carbon capture; and thermal energy from hydropower and geothermal facilities.

The amendment is effective for taxable years beginning after December 31, 2025.

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

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

[3] Notices 2014-46, 2014-35 I.R.B. 520, 2016-31, 2016-23 I.R.B. 1025, 2018-59, 2018-28 I.R.B. 196, and 2022-61, 2022-52 I.R.B. 560.

[4] Notice 2022-61, 2022-52 I.R.B. 560.

[5] Notices 2014-46, 2014-35 I.R.B. 520, 2016-31, 2016-23 I.R.B. 1025, 2018-59, 2018-28 I.R.B. 196, and 2022-61, 2022-52 I.R.B. 560.

[6] The cut-off applies “to facilities the construction of which begins after the date which is 12 months after the date of enactment of this Act.”  This alert presumes that July 4, 2026 is the date which is 12 months after July 4, 2025.

[7] The rules also apply to Russia, Iran, and North Korea, but we understand that China is their principal focus.

[8] The definition excludes citizens, nationals, or lawful permanent residents of the United States.

[9] For purposes of this rule, section 318(a)(2) attribution (i.e., attribution from entities to owners) applies.

[10] For the first taxable year beginning after July 4, 2025, SFE status (other than for entities that are SFEs by reason of being controlled by another SFE) is determined as of the first day of the taxable year.

[11] The OBBBA’s list of impermissible contractual arrangements applies pending Treasury and IRS guidance, but presumably any such guidance will not be more permissive than the OBBBA.

[12] This rule applies pending Treasury and IRS guidance.  Treasury is also directed to issue safe harbor tables to determine the percentages of total direct costs of manufactured products (and taxpayers may rely on domestic content safe harbors until such guidance is issued).

[13] The favorable reliance rules do not apply if the relevant exchange or market is in China, Russia, Iran, or North Korea.

[14] The heading states the rule applies to payments to SFEs or FIEs (“Prohibited Foreign Entities”), but the operative rule applies only to payments to SFEs.

[15] Joint Committee on Tax’n, Description of Energy Tax Law Changes Made by Public Law 117-169, JCX 5-23 (April  7, 2023), at n. 201.

[16] The property must have electricity-only generation efficiency greater than 30 percent.  For descriptions of certain of those bonus amounts made available under the IRA, please see our prior client alerts here, here, and here.

[17] In Notice 2025-10, 2025-6 I.R.B. 682, App’x (including “forthcoming” Prop. Treas. Reg. § 1.45Z-1(b)(25)(ii)), Treasury and the IRS previewed proposed regulations that would not have allowed the clean fuel PTC for certain common intermediary sales.

[18] Joint Committee on Tax’n, Description of Energy Tax Law Changes Made by Public Law 117-169, JCX 5-23 (April 17, 2023), at n. 201.

[19] The bonus is not available for the section 48E ITC.

[20] Our prior alert on section 45Q can be found here.  These rates assume satisfaction of all prevailing wage and apprenticeship requirements.

[21] The section 45V clean hydrogen production credit, the section 45 PTC, and the section 48 ITC are not subject to these restrictions.

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The following Gibson Dunn lawyers prepared this update: Josiah J. Bethards, Michael Q. Cannon, Matt Donnelly, Nathan Sauers, and Eric B. Sloan.

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.

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

This update analyzes recent enforcement activity, notable policy and legislative developments, and significant court decisions from the first half of the year.

While the first half of the year saw the second Trump Administration make immediate changes to corporate enforcement, the emphasis on False Claims Act (FCA) enforcement has been as strong as ever.  Indeed, the new Administration has emphasized its intent to utilize the FCA as a tool for enforcing policy interests, starting with the Executive Branch-wide focus on combatting fraud, waste, and abuse, but also expanding into other areas such as tariffs and anti-discrimination laws.  Unusually high tariff levels promise a major expansion in qui tam and U.S. Department of Justice (DOJ)-led FCA cases alleging customs fraud.  Historic moves against the diversity, equity, and inclusion (DEI) policies of government funding recipients portend an increase in FCA actions premised on allegedly false certifications of compliance with federal anti-discrimination laws.  Amid these developments, DOJ has re-emphasized its support for the constitutionality of the FCA’s qui tam provisions, both in briefing an appeal of a district court decision that ruled them unconstitutional, and via multiple policy pronouncements urging whistleblowers to continue bringing cases to DOJ.

If all of that were not enough, the first half of 2025 also has witnessed blockbuster monetary recoveries across industries—nearly $3.8 billion in judgments and settlements in a mere six months; a steady flow of notable decisions in the lower courts, including a key opinion on causation in FCA cases alleging improper health care remunerations; and other significant federal- and state-level policy developments.  And this all comes alongside significant changes in the organization of DOJ itself, including the upcoming reorganization of the Commercial Litigation Branch, which is home to the Civil Frauds Section, the office within Main Justice that enforces the FCA.

Below, we summarize recent enforcement activity, then provide an overview of notable legislative and policy developments at the federal and state levels, and finally analyze significant court decisions from the first half of the year.  Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies navigate the FCA.  And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I. NOTEWORTHY FCA RECOVERIES DURING THE FIRST HALF OF 2025[1]

2025 has been a significant year thus far in terms of FCA recoveries, both in court and through negotiated settlements.  By our count, in the first six months of the year, DOJ recovered approximately $2.7 billion in verdicts and judgments (and affirmances thereof) and approximately $1.06 billion in settlements, for a combined total of nearly $3.8 billion in recoveries.  The amounts of some of the jury verdicts could change as post-trial briefing continues and if appeals challenge the damages and/or penalties imposed on the defendants.  But regardless of how those amounts shift, the number of trials that went to a significant verdict is especially notable given how few FCA cases go to trial each year.

A. Trial Verdicts and Judgments

1. Notable Jury Verdicts, Court Judgments, and Affirmances in DOJ’s Favor

Given the frequently astronomical financial consequences that can accompany an adverse verdict, trials in FCA cases remain rare.  In the first half of 2025, however, we have seen a higher-than-usual number of trial verdicts and other judgments in FCA cases—five in total, each amounting to eight figures or more and together totaling nearly $3 billion.  The following section summarizes these developments.

• On February 26, a judge in the Northern District of Texas entered final judgment in the amount of approximately $16.5 million against a health care provider in a declined FCA case alleging Medicare overbilling.  This marked a significant reduction from the jury’s original verdict, which found the defendant liable for 21,844 false claims and approximately $2.8 million in single damages—on the basis of which the relator then sought a judgment of nearly $450 million in per-claim civil penalties.  The court’s order found that the contemplated penalties-to-damages ratio would have violated the Eighth Amendment’s prohibition on excessive fines; the court adjusted the penalties amount below the statutory range to avoid that constitutional problem.[2]
• On March 28, the judge overseeing a declined District of New Jersey case ruled, after a June 2024 jury verdict, that the defendant pharmaceutical company must pay $1.64 billion, of which $360 million is treble damages and $1.28 billion is penalties. The relators in the case alleged that the company violated the FCA by improperly marketing certain of its drugs for off-label uses. The relators also alleged FCA violations premised on an Anti-Kickback Statute (“AKS”) theory, claiming that the company provided speaker fees to physicians that amounted to illegal kickbacks—but the jury found in favor of the company on those allegations.[3]

• On April 29, a jury in an intervened FCA case in the Southern District of New York found a pharmacy company’s subsidiary liable for $135.6 million in improper billings to Medicare, Medicaid, and TRICARE.  The jury also found the subsidiary caused the submission of more than 3 million false claims. In a June 5 order, the court extended a portion of the jury’s damages award to the pharmacy company, holding that the parent company had “knowingly ratified” its subsidiary’s submission of false claims by not forcing the subsidiary to stop the conduct.  On July 7, the judge in the case issued an order trebling the damages award and imposing $542 million in penalties (limiting penalties, at the government’s request, to a 4:1 ratio, instead of awarding full penalties which would have totaled more than $26 billion), for a total judgment of $949 million collectively against the company and its subsidiary.  In a dynamic that has played out in prior cases, DOJ made the request to limit the penalties-to-damages ratio in an “exercis[e] [of] its prosecutorial discretion,” and in recognition of the risk that a higher ratio would create for the government under the Excessive Fines clause of the Eighth Amendment.[4]
• On June 23, the Ninth Circuit affirmed a $26 million verdict against an importer in a case alleging customs fraud under the FCA. The original verdict consisted of approximately $24.2 million in treble damages and $1.8 million in civil penalties.  The court’s opinion dealt with important issues of federal court jurisdiction over customs-related FCA cases, which we address in detail in Section II below.[5]
• On June 25, after a bench trial, the court in a declined FCA case in the Eastern District of Pennsylvania against a pharmacy company’s pharmacy benefits manager (PBM) found the PBM liable for $95 million in overbillings for Medicare Part D drugs under the FCA. Briefing on trebling and per-claim penalties is not yet complete.[6]

2. Inconclusive Verdict in Trial on Remand from Supreme Court Case

After fourteen years of litigation—including a U.S. Supreme Court decision in 2023—a jury in March found that SuperValu, a grocery chain with in-store pharmacies, knowingly submitted false claims to the government.  The jury, however, awarded no damages.  The case centered on allegations that SuperValu misrepresented its “usual and customary” drug prices when seeking reimbursement from federal health care programs.[7]

In United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023), the Supreme Court had clarified that liability under the FCA turns on a defendant’s subjective belief at the time of the claim, not on any objectively reasonable interpretation developed later.[8]  Applying that standard, the jury concluded that SuperValu acted knowingly but found that the relators had not proven the government suffered damages.[9]

After the verdict, the relators filed a motion to amend the judgment and request a new trial on damages.[10]  They argue that the FCA mandates civil penalties for each false claim, regardless of whether the government incurred actual damages.[11]  The relators contend that the verdict form improperly required the jury to find both falsity and damages before counting the number of false claims, and that this effectively precludes any penalty assessment despite a finding of liability.[12]  The motion remains pending as of the date of this publication.

B. Settlements

1. Health Care and Life Science Industries

In keeping with the overall trend in recent years, a significant share of FCA settlements in the first half of this year involved health care providers and life science companies.

• On January 3, a drug testing laboratory and two individuals agreed to pay more than $4.4 million to resolve FCA claims that the company caused physicians to submit Medicare claims for unnecessary urine drug testing and hormone testing.  DOJ alleged that the laboratory encouraged physicians to blanket order presumptive and definitive urine drug tests without making an individual determination of medical necessity.  DOJ also alleged that the laboratory billed Medicare for urine tests for hormone levels that had already been ordered.  The laboratory and the two individuals also entered into integrity agreements with the Department of Health and Human Services, Office of Inspector General (HHS-OIG).[13]
• On January 13, a health care system agreed to pay $29 million to resolve allegations that it knowingly retained inflated payments received from the Department of Defense (DOD).  According to DOJ, the system participated in the Uniformed Services Family Health Plan program.  Under that program, the Defense Health Agency paid the system a fixed rate to provide health care services to military personnel, retirees, and their families.  DOJ alleged the company learned that the fixed rate was miscalculated, and then improperly retained and concealed the resulting overpayments.[14]
• On January 16, a pharmaceutical company agreed to pay $59.7 million to settle allegations that one of its subsidiaries, prior to acquisition by the company, violated the FCA and the AKS by providing improper remuneration—in the form of speaker honoraria and meals—to health care providers to induce the providers to prescribe the subsidiary’s migraine medication.[15]
• On January 23, a medical technology company and two of its affiliates agreed to pay $17 million to resolve allegations that they gave urology practice groups discounts and free samples as illegal inducements to use the company’s prescription form in prescribing catheters to their patients.  DOJ alleged that the prescription form listed the company’s catheters and that the company paid the alleged kickbacks in an effort to make its prescription form the standard form that urology practices used.[16]
• On January 31, a Florida health care company agreed to pay up to $4.9 million to resolve allegations that it paid a marketing service for referrals of Medicare beneficiaries in violation of the FCA and the AKS.[17]
• On February 14, a health care provider agreed to pay $3 million to resolve allegations that it claimed Medicare hospice benefits for services provided to patients who were not terminally ill.  DOJ alleged that the provider knew the patients were ineligible for hospice benefits but submitted the claims anyway.[18]
• On February 27, a counseling service provider and the estate of its deceased owner agreed to pay $4.6 million to resolve FCA allegations that the provider and its owner submitted claims for Medicaid for services that were not rendered.  DOJ alleged that the provider offered Medicare recipients financial incentives in exchange for their patient information.  Then, the provider allegedly used the patient information to bill Medicaid for crisis intervention services that were not provided.  A federal grand jury indicted the owner on multiple criminal charges in 2022, but the owner passed away before a verdict was reached.[19]
• On February 28, a skilled nursing facility and an acute care hospital agreed to pay $6.5 million to resolve allegations that they violated the FCA and the Texas Health Care Program Fraud Prevention Act.  DOJ alleged that the skilled nursing facility submitted medically unnecessary Ultra-High Resource Utilization Group therapy claims.  It further alleged that the hospital submitted claims for individual therapy services that were actually group therapy, and submitted claims for therapy services provided without a physician-signed plan of care.  The facility and hospital received an unspecified amount of cooperation credit in the settlement, attributable to their disclosure of the results of an internal investigation that resulted in an overpayment refund to Medicare, their voluntary disclosure to HHS-OIG of overpayments for outpatient therapy, and their identification of corrective actions.[20]
• On March 14, a health care provider agreed to pay $58.74 million to resolve allegations that it fraudulently increased its Medicare Advantage reimbursements by submitting false billing codes for two spinal conditions.  As part of the settlement, the provider’s owner agreed to pay $1.76 million and a radiology group that worked with the provider agreed to pay $2.35 million.  DOJ alleged that the provider submitted claims related to diagnosing two spinal conditions, spinal enthesopathy and sacroiliitis, for patients without those conditions.  The radiology group allegedly created radiology reports that appeared to support the spinal enthesopathy diagnosis.[21]
• On March 19, a medical device company agreed to pay up to $14.25 million to resolve FCA and state law allegations related to its vision test device.  DOJ alleged that the company caused health care providers to submit claims for use of the device to provide electroretinography vision testing, when the U.S. Food and Drug Administration (FDA) had only cleared the device to provide visual evoked potential testing.  Additionally, DOJ alleged that the company made substantial changes to the device without seeking approval from the FDA.  The settlement amount is based on the company’s ability to pay with a combination of upfront payments and payments based on a percentage of the company’s annual gross revenue.[22]
• On March 26, a not-for-profit that operates a network of residential and non-residential facilities and programs for adults with developmental or intellectual disabilities agreed to pay over $5 million to settle an FCA lawsuit.  DOJ will receive $2,148,540 and New York will receive $2,868,085.  According to DOJ, the provider allegedly submitted claims to the New York Medicaid Program for services that did not meet program documentation and training requirements and failed to report and return Medicaid overpayments.  The non-profit also entered into a Corporate Integrity Agreement with HHS-OIG.[23]
• On April 18, a pharmacy company agreed to pay $300 million, plus possible future payments contingent on revenue, to resolve allegations that it violated the FCA and the Controlled Substances Act when filling opioid prescriptions.  The company entered into a parallel Memorandum of Agreement with the Drug Enforcement Administration and a five-year Corporate Integrity Agreement with HHS-OIG.  The DOJ settlement agreement acknowledges that the company cooperated with the investigation in several ways, including by preserving and disclosing relevant data and assisting in the determination of the financial impact of the alleged conduct.[24]
• On April 23, a Delaware company agreed to pay $6 million to resolve claims that it violated the FCA by participating in schemes meant to fraudulently cause Medicare to pay claims for genetic testing that were medically unnecessary and tainted by kickbacks.[25]
• On April 23, two affiliated health care providers agreed to pay $8 million to resolve allegations that they violated the FCA by knowingly submitting or causing the submission of false claims to the COVID-19 Claims Reimbursement to Health Care Providers and Facilities for Testing, Treatment, and Vaccine Administration for the Uninsured Program, which was administered by the Health Resources & Services Administration of HHS.  DOJ alleged that the companies were aware of data integrity issues with patient information collected at the point of service but failed to substantively address those issues, and did not ensure the collection of complete patient information, including demographic and accurate insurance information, before submitting claims.[26]
• On April 29, a pharmaceutical manufacturer agreed to pay $202 million to resolve FCA allegations that it paid improper remuneration during 2011 to 2017, in the form of speaker program compensation and meals, to health care practitioners to induce them to prescribe the company’s HIV drugs.[27]
• On April 30, an addiction rehabilitation facility agreed to pay $19.75 million to resolve FCA allegations that it submitted claims to the Veterans Health Administration and New Jersey’s Medicaid program for short-term residential treatment and partial hospitalization care for which the facility was not properly licensed or contracted, and that the facility misled state inspectors.[28]
• On May 5, an individual practitioner agreed to entry of a consent judgment in the amount of $4.7 million.  The settlement resolves allegations that the practitioner submitted or caused to be submitted claims to North Carolina Medicaid for in-home physician visits that never occurred.[29]
• On May 7, a California health system and its affiliate agreed to pay $31.5 million to resolve allegations that they provided improper financial benefits to referring physicians in violation of the AKS, resulting in FCA violations.  DOJ alleged that the financial benefits took the form of meals, alcohol, and cigars that were provided at a lounge on the premises of the health system, and that other remunerations took the form of subsidies, cost reductions, hardware, and grants given to other providers.  In parallel with the settlement, the health system entered into a five-year Corporate Integrity Agreement with HHS-OIG.[30]
• On May 16, a health system agreed to pay approximately $3.3 million to resolve allegations that it committed FCA violations based on violations of the Physician Self-Referral Law, commonly known as the Stark Law.  DOJ alleged that non-employee physicians with whom the health system and its affiliated hospitals had financial relationships referred patients to the system and its hospitals, and that the financial arrangements did not meet any of the exceptions to the Stark Law.[31]
• On May 21, a molecular diagnostics company and two laboratories agreed to resolve allegations that they participated in a scheme to submit false claims and provide kickbacks related to breast cancer lab tests.  The companies together agreed to pay approximately $3.7 million.  According to DOJ, the diagnostics company allegedly caused providers to submit claims for the company’s tests that were not reasonably or medically necessary through standing or automatic orders, and that the claims were tainted by illegal renumeration the diagnostic company provided to the providers.  DOJ alleged that the diagnostics company paid the two laboratories to participate in the scheme and refer patients for the relevant tests.[32]
• On May 30, a physician agreed to pay $3.5 million to resolve allegations that he falsely submitted claims to the COVID-19 Uninsured Program.  Specifically, the government alleged that while operating walk-up or drive-thru COVID-19 testing sites, the physician submitted claims for services performed by physicians or qualified medical professionals, when in reality the services were performed by a medical assistant.[33]
• On June 11, a hospice care provider agreed to pay $9.2 million to resolve allegations that it violated the FCA by paying kickbacks to medical directors in the form of stipends and sign-on bonuses.  DOJ alleged that the compensation paid varied with the volume of referrals the physicians made.[34]
• On June 26, a provider of outpatient substance use disorder treatment agreed to pay $18.5 million to resolve allegations that it violated the FCA by paying Medicaid patients for seeking treatment from the provider.  DOJ alleged that this conduct violated the AKS, and that the provider also fraudulently double-billed for treatment services.[35]

2. Government Contracting and Procurement

Resolutions with government contractors have continued to feature in DOJ’s approach to the FCA, with the first half of this year producing multiple eight-figure settlements alleging violations of requirements for the disclosure of cost or pricing data.

• On January 13, a construction company agreed to pay $5.9 million to resolve FCA allegations that, in connection with work performed for U.S. Postal Service sites, it improperly failed to disclose its use of subcontractors, falsely certified work done by subcontractors as self-performed, and falsified subcontractor invoices.[36]
• On January 17, a defense contractor agreed to pay $29.74 million to resolve allegations that it submitted inflated price proposals to obtain aircraft contracts.  DOJ alleged that the company did not disclose its knowledge of suppliers’ pricing data when negotiating with the government, in violation of the Truth in Negotiations Act.  DOJ also alleged that had the pricing data been disclosed, the government would have awarded contracts with lower values.[37]
• On April 9, a government contractor agreed to pay $21 million to resolve FCA allegations that it knowingly inflated subcontractor charges under a State Department contract to train Iraqi police forces.  DOJ alleged that the contractor breached its obligations to the State Department by passing along its subcontractor’s excessive, uncompetitive, and unsubstantiated rates related to hotel lodging and guard, translator, driver, and supervisor services.[38]
• On May 9, a contractor agreed to pay approximately $9.6 million to resolve FCA allegations that it overcharged the government for energy improvements.  DOJ alleged that the company overcharged the government for financing costs in connection with energy savings performance contracts.  The company received credit for cooperating with DOJ’s investigation and for voluntarily self-disclosing the allegedly inflated financing costs.  The settlement agreement states that approximately $9.1 million of the settlement is restitution, and that that same amount has already been paid, or is scheduled to be paid, as refunds and credits to the government.  These figures suggest a substantially reduced damages multiplier under the FCA.[39]
• On May 22, a defense contractor agreed to pay $62 million plus interest to resolve allegations that it violated the FCA and the Truth in Negotiations Act by failing to disclose accurate, current, and complete cost or pricing data for communications equipment it sold to various DOD agencies.[40]

3. Cybersecurity

The first half of 2025 has seen a continuation of DOJ’s focus on cybersecurity-based FCA matters.

• On February 5, a company providing health care support services and its parent company agreed to pay more than $11.2 million to resolve allegations that they failed to meet cybersecurity requirements contained in a contract with DOD to administer TRICARE.  DOJ alleged that the company failed to timely scan for and remedy cybersecurity vulnerabilities, ignored reports from independent parties about cybersecurity risks, and falsely attested to compliance with at least seven security controls.  This settlement is the largest cybersecurity-related FCA settlement thus far in 2025, and the second largest, by less than $100,000, under DOJ’s Civil Cyber-Fraud Initiative.[41]
• On March 14, a defense contractor agreed to pay $4.6 million to resolve allegations that it violated the FCA by not complying with cybersecurity requirements in Army and Air Force contracts.  DOJ alleged that the contractor did not ensure its third-party email host met security requirements contained in the contract, did not implement required cybersecurity controls, and did not have a written cybersecurity plan.[42]
• On May 1, a defense contractor agreed to pay $8.4 million to resolve FCA allegations that it failed to comply with DOD cybersecurity requirements.  DOJ alleged that the company failed to develop and implement a required system security plan as part of its contracting work.[43]

4. Customs

• On March 5, a multilayer wood flooring importer and its owners agreed to pay $8.1 million to resolve allegations that they knowingly and improperly evaded duties placed on multilayer wood imported from China.  DOJ alleged that the company provided false information about the manufacturer of the wood and the company it came from.[44]

5. COVID-19 Relief Programs

DOJ reached a notable number of COVID relief-related resolutions in the first half of the year, suggesting that this area will remain active despite the relevant relief programs having concluded several years ago.

• On February 14, an individual who runs a consulting firm agreed to pay over $3.2 million for misusing funds received through the Economic Injury Disaster Loan program.  DOJ alleged that the individual represented that the $1.9 million in funds he received through the loan program would be used solely as working capital to alleviate economic injury caused by the COVID-19 pandemic.  DOJ alleged, however, that the individual violated the terms of the loan by transferring the proceeds to a personal investment account.[45]
• On February 19, a Chinese state-owned entity’s subsidiary agreed to pay $14.2 million to resolve allegations that it misrepresented its affiliations, and thus its size, when obtaining a Paycheck Protection Program (PPP) loan.  The company received an unspecified amount of cooperation credit for identifying individuals involved in the alleged misconduct.[46]
• On March 13, an IT solutions company agreed to pay over $2 million to resolve claims that it falsely obtained a PPP loan by misrepresenting decreases in its gross receipts.[47]
• On March 19, an Australian company agreed to pay approximately $2.1 million to resolve FCA allegations that it falsely obtained a PPP loan by misrepresenting its number of employees.[48]
• On March 24, a health system agreed to pay $8.8 million to resolve FCA claims that it and its subsidiaries obtained PPP loans that the Small Business Administration’s size limitations made the entities ineligible to receive.[49]
• On April 2, a medical group agreed to pay $2.8 million to resolve FCA allegations that it falsely reported its payroll costs to receive full forgiveness of a $6.7 million PPP loan.  DOJ alleged that although the company represented that its payroll costs were sufficient for full forgiveness of the loan, its actual costs were only sufficient for forgiveness of approximately $4.9 million.[50]
• On April 3, a travel company agreed to pay $3 million to resolve FCA allegations that its affiliates made it too large for the PPP loan it received.[51]
• On April 9, an owner of companies that provide consulting services to car dealerships and related parties agreed to pay $11.8 million to resolve allegations that they falsely certified their eligibility to receive a PPP loan.  DOJ alleged that, because the companies were part of a corporate group, they were ineligible to receive more than $20 million in PPP loans.  After one bank canceled unfunded loans, another bank funded them, and $7,659,391 of these loans were forgiven.  DOJ granted an unspecified amount of cooperation in light of the companies’ owner’s timely submission of materials, identification of relevant documents to the government, and cooperation with the government’s investigation into other participants in the alleged conduct.[52]
• On May 5, a restaurant operator agreed to pay $7.8 million to resolve allegations that it violated the FCA by falsely certifying its eligibility for a Restaurant Revitalization Fund (RRF) grant when it knew or should have known that it operated too many locations to qualify.[53]
• On May 5, a company that is part of a global conglomerate that supplies cosmetics and nutritional supplements agreed to pay $6 million to resolve allegations that it provided false information about its employees’ status and headcount in order to obtain PPP loans and loan forgiveness.[54]
• On May 29, four labor organizations agreed to pay a total of $5.1 million to resolve allegations that they obtained PPP loans they were not eligible to receive.[55]
• On June 10, three companies agreed to pay a total of $13 million to resolve allegations that they applied for PPP loans for which they were ineligible because their revenues and/or employee headcounts exceeded eligibility limits in light of the companies’ affiliations with each other and with other entities.[56]
• On June 13, a company agreed to pay $2.1 million to resolve allegations that it violated the FCA by falsely representing its employee headcount in applying for a PPP loan.  DOJ alleged that the company was a subsidiary of a large company with more than the number of employees at which eligibility for the loan was capped.[57]
• On June 25, a marine equipment company agreed to pay $3.86 million to resolve allegations that it obtained PPP loans by falsely certifying its employee headcount.[58]

II. LEGISLATIVE AND POLICY DEVELOPMENTS

A. FEDERAL POLICY AND LEGISLATIVE DEVELOPMENTS

The first half of 2025 has witnessed some of the most significant developments in FCA enforcement policy in the statute’s modern history.  In this section, we analyze those developments and their implications for companies that do business with the federal government.

1. Customs- and DEI-Related Developments

FCA developments related to tariffs and anti-discrimination compliance stand out as uses of the FCA to police compliance with Trump Administration priorities and political goals.  For all of the similarities in how these two issues have come to the forefront of FCA enforcement in recent months, however, the two issues are quite different in terms of the legal theories that DOJ and relators will have to marshal to litigate cases successfully, and in terms of how much experience DOJ already has with the issues in the FCA context.

a. Use of the FCA for Customs Enforcement

DOJ has made clear that customs enforcement is among its priority uses of the FCA, with Commercial Litigation Branch Director Jamie Ann Yavelberg highlighting customs fraud as a “key area” of FCA enforcement during a recent speech.[59]  DOJ’s commitment to using the FCA to police customs fraud has been echoed in DOJ’s criminal enforcement priorities, too.  On May 12, 2025, Matthew Galeotti—the Head of DOJ’s Criminal Division—published a memorandum directing the prioritization of investigations and prosecutions in ten “high-impact areas” of white-collar crime.[60]  “Trade and customs fraud, including tariff evasion” was listed at number two.[61]  The same day, DOJ released updates to its Corporate Whistleblower Awards Pilot Program.[62]  In line with the Galeotti memorandum, the updated whistleblower program expands the subject areas qualifying for whistleblower protection to include “[v]iolations by or through companies related to trade, tariff, and customs fraud.”[63]

President Trump has imposed import tariffs of unusually high amount and scope, including duties on imports from some of the United States’ largest trading partners, with still more tariffs likely to be announced in the coming months.  This new tariff regime raises compliance risks for a wide range of companies across a diverse set of industries.  Particularly for companies that import expensive products and materials in large volumes, this can mean massive financial obligations to the government.  If a qui tam relator or DOJ takes the view that a company has improperly avoided paying that obligation, the company could face treble damages and penalties under the FCA.[64]

As we explained in an April 2025 client alert, DOJ’s current focus on FCA customs enforcement is not uncharted territory.  Since 2011, there have been over 40 resolutions of FCA matters involving alleged customs violations, with nearly half of those resolutions occurring since 2023, and with total government recoveries approaching $250 million.  Of the 40 resolutions, 35 involved cases initially brought by relators—a ratio largely consistent with the overall share of FCA matters that are initiated by relators compared to DOJ alone.  Together, these matters have endowed DOJ with significant experience building cases around theories of product misclassification and undervaluation, as well as country of origin misrepresentation, against both importers and other companies in the import chain.[65]  Amid all of this, courts have explicitly approved of the idea that unpaid tariffs are “obligations” to pay money to the United States for purposes of the “reverse” provision of the FCA.[66]

In a signal of DOJ’s intent to parlay its experience with this theory into further enforcement activity, DOJ recently intervened in a qui tam case filed against a seller of uniforms to U.S. restaurants and health care providers, alleging customs violations.[67]  The original qui tam complaint was filed nearly a decade ago, so DOJ’s intervention affords an imperfect window into exactly what kinds of FCA customs cases DOJ will prioritize going forward.  That said, the intervention is a clear signal of DOJ’s increased focus on FCA customs enforcement—much as was DOJ’s 2024 intervention in a cybersecurity FCA case under the auspices of the Civil Cyber-Fraud Initiative.[68]

Regardless of how often DOJ opts to intervene and on which fact patterns, relators are set to play a sustained role in bringing and litigating customs enforcement FCA cases.  That is particularly true given the Ninth Circuit’s June decision (covered in our recent client alert) holding that the Court of International Trade’s jurisdiction over trade matters does not prohibit qui tam lawsuits related to alleged customs fraud in federal district court.[69]  With the government as a whole increasingly focused on enforcing trade restrictions, relators—and the relators’ bar—are likely to take the Ninth Circuit decision as an invitation to double-down on attempted uses of the FCA to police customs fraud.  The Ninth Circuit opinion also was a notable instance in which the original qui tam action was brought by the defendant’s competitor—a dynamic that also played out in the March resolution of customs fraud allegations against a flooring company (discussed above), and one that has a high likelihood of repeating in future customs cases.[70]

b. Use of the FCA to Enforce Administration Policy Against DEI Programs

Whereas customs fraud FCA cases build on a solid foundation of DOJ enforcement experience and are primarily about the improper avoidance of an obligation to pay money to the United States, DEI-related FCA cases have few direct enforcement precedents and are likely to occupy an area of the law where the question of what counts as an actionable misrepresentation is still up for debate.

On January 21, 2025, President Trump issued Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit Based Opportunity” (EO 14173).[71]  EO 14173 marked an end to decades-long federal policies concerning affirmative action, and signaled the start of a new era of enforcement risks for federal contractors under the FCA.

EO 14173 requires “[t]he head of each agency [to] include in every contract or grant award . . . [a] term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of” the FCA.[72]  Agency heads must also include “[a] term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”[73]  To our knowledge, the use of an executive order to mandate contract language about FCA materiality is unprecedented.

For as much political attention as DEI programs have garnered recently, federal contractor compliance with anti-discrimination requirements has received relatively less attention from FCA enforcers prior to the second Trump Administration, compared to areas such as health care and cybersecurity compliance.  A survey of available FCA cases dealing with anti-discrimination fact patterns reveals little to distinguish this area of FCA caselaw from others.  The cases tend to reflect debates over materiality similar to those that evolved throughout FCA caselaw and that reached a significant milestone with the Supreme Court’s 2016 Escobar decision.[74]

Developments since EO 14173 highlight DOJ’s focus on using the FCA to police anti-discrimination compliance, but also only bring into sharper relief the potential for hotly contested litigation over what counts as a false representation to the government.  On May 19, 2025, DOJ Deputy Attorney General Todd Blanche issued a Memorandum (the “Memorandum”) announcing a new Civil Rights Fraud Initiative (the “Initiative”), the purpose of which is to use the FCA to ensure that the “federal government [does] not subsidize unlawful discrimination.”[75]

The Memorandum’s thesis is that the FCA is “implicated” when a federal contractor or funds recipient certifies compliance with federal civil rights laws despite “knowingly violat[ing] [those] laws . . . . [or] knowingly engaging in racist preferences, mandates, programs, and activities, including through diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin.”[76]  To deal with these scenarios, the Memorandum establishes the Initiative, which “will be co-led by the Civil Division’s Fraud Section, which enforces the [FCA], and the Civil Rights Division, which enforces civil rights laws.”[77]  The Memorandum directs “[e]ach division [to] identify a team of attorneys to aggressively pursue this work together,” and directs each U.S. Attorney’s Office to likewise “identify an Assistant United States Attorney to advance these efforts.”[78]  Notably, the Memorandum also states that the Initiative will occur in coordination with DOJ’s Criminal Division, “other federal agencies that enforce civil rights requirements for federal funding recipients,” and state attorneys general and local law enforcement.[79]

The Deputy Attorney General’s announcement directs designated attorneys to pursue these efforts “aggressively.”  In addition, the DOJ “strongly encourages” private parties—i.e. would be qui tam relators under the FCA—”to protect the public interest by filing lawsuits and litigating claims under the [FCA]—and, if successful, sharing in any monetary recovery.”[80]

The Initiative builds on two memoranda issued by Attorney General Pamela Bondi earlier this year.  The first, entitled “Ending Illegal DEI and DEIA Discrimination and Preferences,” encourages the Civil Rights Division to “investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”[81]  The second, called “Eliminating Internal Discriminatory Practices,” similarly prompts federal Department components to internally investigate and minimize reliance on or references to DEI.[82]

While the Blanche Memorandum speaks in terms of false certifications of compliance with anti-discrimination laws, it does little to articulate how DOJ will go about determining what counts as such a false certification.  Assuming federal agencies implement the certification contemplated by EO 14173, then the most likely basis for potential FCA liability will be the so-called “express” false certification theory, which centers on the truth of the representations made in an affirmative certification of compliance with certain legal or contractual requirements.[83]

Relators are likely to seek other hooks for liability, however, especially while industry awaits actual integration into contracts of the certifications mandated by EO 14173.  The implied false certification theory in particular may show up in DEI-related cases at least in the near term.  In its most aggressive form—not explicitly sanctioned by the Supreme Court but also not outright rejected—that theory provides that the mere act of presenting a claim for payment to the government, while being in noncompliance with a material legal requirement, constitutes a false claim under the FCA.[84]  The Court has more clearly approved of a version of the theory that finds falsity in “specific representations” about the goods or services provided to the government, combined with omissions that make the affirmative statements materially misleading.[85]  In the seminal Escobar case, for example, the relator alleged representations that health care services were provided by certain types of clinicians, despite the clinicians themselves not having the credentials required to hold those clinical roles.[86]  The analogy in the anti-discrimination context—statements about goods or services that are rendered false by a company’s failure to disclose noncompliance with federal anti-discrimination laws—is difficult to conceptualize without affirmative statements that simply resemble an express certification of compliance.

Ultimately, then, we can expect relators and DOJ to rely primarily on the express false certification theory.  Consistent with that, in its recent complaint-in-intervention in a health care FCA case alleging (among other things) violations of contractual requirements against discrimination based on disability, DOJ cited “assurances of compliance” with anti-discrimination laws that the defendants allegedly made.[87]  In a sign that DOJ may also seek to rely on a fraudulent inducement theory in anti-discrimination FCA cases, its complaint also relied on promises of compliance with anti-discrimination laws that the defendants allegedly made in entering into their Medicare Advantage contracts with CMS.[88]

While the overarching FCA theories that relators and DOJ are likely to pursue are clear enough, the question of what it takes for an employer’s or company’s policies to violate anti-discrimination laws remains intensely subjective.  There has been precious little guidance from federal agencies on the answer to that question.  Even if answers emerge in earnest, there is no guarantee that they will be consistent.  Courts will be left to resolve complicated questions of FCA scienter that will invariably arise when companies that receive funds from multiple federal agencies are forced to make decisions about their employment programs that may satisfy some agencies but not others.

2. Artificial Intelligence (AI) Whistleblower Protection Bills

Customs and DEI have been the most visible targets of escalated FCA enforcement activity thus far in 2025, but they are not the only areas where the enforcement landscape has been shifting.  A recent legislative development relevant to AI could have implications for how frequently the FCA is invoked to remedy alleged retaliation against employees.

On May 15, 2025, identical bills (hereinafter the “AI bills”) were introduced in the House and Senate that would prohibit employment discrimination against whistleblowers who report AI security vulnerabilities or AI violations.[89]  The AI bills focus on two kinds of AI-related violations: (1) violations of federal law related to or committed during the development, deployment, or use of AI; and (2) any failure to appropriately respond to a substantial and specific danger that AI may pose to public safety, public health, or national security.[90]

The AI bills bear a significant relationship to the FCA.  For one thing, Sen. Chuck Grassley, the chief sponsor of the Senate bill, is also a leading proponent of the FCA in Congress, and served as the architect of the 1986 amendments to the statute that revised it into the framework that largely persists today.

The FCA contains its own anti-retaliation provision.  This provision in theory can encompass plaintiffs claiming AI-related fraud on the government fisc, given that the FCA prohibits retaliation “because of lawful acts done by [the plaintiff] in furtherance of an action under [the qui tam provisions of the FCA] or other efforts to stop 1 or more violations of [the FCA].”[91]  Several features of the FCA, however, make it a highly idiosyncratic tool for bringing retaliation claims:

• The FCA’s anti-retaliation provision imposes a statute of limitations of three years “after the date when the retaliation occurred.”[92] Given this relatively short limitations period, as well as the perceived protection afforded by the sealing provisions of the FCA, plaintiffs typically have strong incentives to bring retaliation claims at the same time as they make substantive false-claims allegations.
• The FCA, however, requires DOJ to investigate qui tam complaints once they are filed, and these investigations can take years. While the statute imposes a 60-day deadline for DOJ’s intervention election, in practice many courts extend that deadline several times over.  Active litigation of the allegations can only commence once DOJ decides whether to intervene, so there often is significant lag time between the filing of a retaliation claim and briefing and discovery on that claim.
• The FCA contains no express prohibition on waivers of retaliation claims via settlement or arbitration agreements. Some courts have filled this silence by permitting such waivers, sometimes via general waiver language alone.[93]

The AI bills would create a separate pathway for claims of retaliation against individuals who provide information to the government or their employers “regarding an AI security vulnerability or AI violation, or any conduct that the covered individual reasonably believes constitutes” such a vulnerability or violation.[94]  Insofar as AI-related FCA retaliation claims could involve allegations of an underlying regulatory violation that “tainted” claims to the federal government for payment, the AI bills—if passed—could provide a distinct route for retaliation claims involving those same alleged regulatory violations.  And the AI bills may serve to fill the legal and practical gaps left by the FCA as outlined above:

• The bills contain a statute of limitations that mirrors the longer limitations period for claims under the substantive provisions of the FCA: a default six-year period, plus a three-year tolling period measured from “the date on which facts material to the right of action are known, or reasonably should have been known, by the covered individual bringing the action”; and a ten-year statute of repose from the date of the alleged violation.[95]
• The AI bills expressly provide that a retaliation claim “may not be waived or altered by any contract, agreement, policy form, or condition of employment . . . including by any agreement requiring a covered individual to engage in arbitration, mediation, or any alternative dispute resolution process prior to seeking relief under” the bills’ provisions.[96]
• The AI bills would require a claimant to file a complaint with the Department of Labor first, but would permit the claimant to file suit in district court if the Department does not issue a final decision on the complaint within 180 days of its filing.[97] If the Department does choose to investigate the complaint, it would have a limited period in which to do so, without the possibility of an extension.[98]

3. DOJ-HHS FCA Working Group

Just after the half-year mark, on July 2, DOJ announced the DOJ-HHS FCA Working Group, which aims to “strengthen[] the[] ongoing collaboration” between those agencies “to advance priority enforcement areas.”[99]  The Working Group will be comprised of representatives from the HHS Office of General Counsel, CMS’s Center for Program Integrity, HHS-OIG, and DOJ’s Civil Division.[100]

In announcing the Working Group, DOJ also stated that its priority enforcement areas will include (1) Medicare Advantage, (2) drug and device pricing, (3) access to care, including violations of network adequacy requirements, (4) kickbacks, (5) medical device defects that affect patient safety, and (6) manipulation of Electronic Health Records systems.[101]  The Working Group is also tasked with “discuss[ing] considerations bearing on whether . . . DOJ shall move to dismiss a qui tam complaint” under its statutory authority to do so.[102]  In its announcement, DOJ “encourage[d] whistleblowers to identify and report violations of the [FCA] involving priority enforcement areas.”[103]

The announcement of the Working Group is notable primarily for its continuity with what defense practitioners have known to be true about the Civil Frauds Section’s enforcement priorities over the last several years.  The emphasis on Medicare Advantage, pricing, and kickbacks in particular rings true with the broad arc of DOJ enforcement across recent administrations.  As recently as May 1, DOJ filed a complaint-in-intervention in an FCA case alleging AKS violations by several Medicare Advantage plan sponsors and insurance brokers.[104]  At the same time, the inclusion of violations of network adequacy requirements as a priority is a new development.  In discussing the Working Group at a recent conference, Civil Division Deputy Assistant Attorney General Brenna Jenny acknowledged this and stated that the Working Group will (among other things) consider “early whether novel legal theories are viable and supported by leadership.”[105]  It remains to be seen whether the Working Group will lead to a change in the extent to which DOJ credits such theories in its investigations, and the effect that any change in that regard may have on the volume and nature of qui tam cases that flow to DOJ in the first instance.

B. STATE LEGISLATIVE DEVELOPMENTS

In the first half of 2025, four states—Massachusetts, Connecticut, California, and Pennsylvania—have enacted or considered significant changes to their false claims laws.

1. Massachusetts and Connecticut FCA Amendments Affecting Private Equity Firms

In Massachusetts, as we discussed in a February client alert, the legislature enacted an amendment to the Commonwealth’s FCA that imposes liability on any “beneficiary” of an “inadvertent submission of a false claim” to the Commonwealth or of “an overpayment from” the Commonwealth who “discovers the falsity of the claim or the receipt of overpayment” and does not disclose the claim or overpayment within 60 days of the date on which the beneficiary “identifie[s]” either one.[106]  This is a significant development, particularly because the statute does not define what it means to “identify” a violation that triggers the 60-day notice requirement.  While the amendment seems to use “identify” interchangeably with the word “knowing,” there is a lingering ambiguity that will have to be resolved through litigation.  In the meantime, as we explained in more detail in our prior client alert, the ambiguity highlights the importance for private equity firms of appropriately calibrating pre- and post-closing diligence in transactions involving companies that derive revenue from the Commonwealth’s coffers.  In Connecticut, a bill pending in the state legislature’s Public Health Committee would make materially similar amendments to Connecticut’s FCA.[107]

2. California Bill Regarding FCA Tax Claims

The California legislature is currently reconsidering Senate Bill 799, which would amend the California FCA to limit the applicability of the statute’s bar on tax-related claims.[108]  The bill would permit the application of the California FCA to “claims, records, obligations, or statements made under the [California] Revenue and Taxation code,” provided that (1) the damages pled in the FCA action exceed $200,000, and (2) the defendant’s taxable income (if an individual), gross receipts less returns and allowances (if a corporation), or sales (if any type of person) equal at least $500,000.[109]  The legislation also would amend the California FCA’s anti-retaliation provision to protect whistleblowers who disclose internal company documents in breach of contractual or other obligations of confidentiality.[110]

If this bill passes, it would add California to the list of non-federal jurisdictions that have recently amended their false claims laws to include tax-based claims.  The District of Columbia did so in 2020, but only as to “claims, records, or statements” under the District’s tax code—not as to “obligations.”[111]  In 2023, New York became the first state to amend its FCA to cover persons who improperly fail to file a tax return in the state, without a relator or the State needing to prove an actual false “claim, record, or statement.”[112]  California’s bill could have similar implications insofar as it would capture “obligations” under the State’s tax code and thus bring tax-based claims explicitly within the scope of the “reverse” provision of the California FCA.[113]

3. Pennsylvania Considers Bill That Would Adopt Significant Portions of the Federal FCA

HHS-OIG offers a financial incentive to states that enact false claims laws that meet certain specified criteria.[114]  To qualify for the incentive, HHS-OIG must determine that the state’s FCA is “at least as effective” as the federal FCA at rewarding and facilitating qui tam actions.[115]

The most recent state to enact a qualifying statute was Connecticut, in February 2024.[116]  Pennsylvania may soon become the next state to do so.  Commonwealth Senator Lindsey Williams (D) has sponsored Senate Bill 38, which proposes the adoption of much of the text and congressional intent of the federal FCA—including as to triggers for liability, penalty amounts, and the sealing of an initial qui tam filing to enable the government to investigate.[117]

III. CASE LAW DEVELOPMENTS

A. Supreme Court Rules on the Definition of “Claim” in the Telecommunications E-Rate Context

On February 21, the Supreme Court issued its ruling in a case involving the E-Rate program, which provides subsidies for telecommunications services for schools and libraries in the form of restrictions on rates charged to those entities.  Wisconsin Bell, Inc. v. United States ex rel. Heath, 145 S. Ct. 498 (2025).  Those subsidies are paid from a fund managed by a private corporation and funded by contributions from telecommunications carriers, which contributions are paid directly to the fund and do not go into the federal treasury.  Id. at 502.  The relator in the Wisconsin Bell case alleged that the defendant fraudulently overcharged subsidized schools in violation of the FCA.  Id. at 503.  On appeal to the Supreme Court, the question presented was whether a request for E-Rate reimbursement qualifies as a “claim” under the FCA.  Id. at 505.

In a unanimous decision, the Court answered that question in the affirmative.  Relying on the FCA’s requirement that the United States provide “any portion” of the funds sought through an allegedly false claim, the Court held that the government “provided” the E-Rate funds at issue because the U.S. Treasury deposited more than $100 million into the fund, using monies that the Federal Communications Commission and the Treasury collected from carriers as well as monies that DOJ itself collected through legal actions related to the E-Rate program.  Id. at 505–06.  The Court grounded its holding in the “any portion” language contained in the FCA’s definition of “claim,” without reaching the question of whether “the Government provides all E-Rate funds by exercising regulatory control over the program.”  Id. at 508.

While the decision’s primary implications concern the E-Rate program itself, the Court’s holding can be expected to have ramifications for any government program whose funds can be traced back to private contributions, at least to the extent that those funds flow through the Treasury.  At the same time, it remains an open question whether a “claim” would have existed in the Wisconsin Bell case had the Treasury contributed none of the funds.  Similarly, it remains to be seen how courts will go about calculating harm to the government—and thus FCA damages—when Treasury funds constitute only a portion of the funds that a defendant allegedly receives in violation of the statute.

B. Government Appeals District Court Ruling Holding the FCA Qui Tam Provisions Unconstitutional

As noted in our 2024 Year-End False Claims Act Update, the U.S. District Court for the Middle District of Florida issued a first-of-its-kind ruling that the FCA’s qui tam provisions are unconstitutional.  The court found that relators act as “Officers of the United States” and must therefore be appointed under the Appointments Clause, U.S. Const. art. II, § 2, cl. 2.  See United States ex rel. Zafirov v. Fla. Med. Assocs., LLC, 2024 WL 4349242, at *1, *4 (M.D. Fla. Sept. 30, 2024).

In its brief appealing the decision to the Eleventh Circuit, DOJ made four primary arguments.  First, DOJ argued that relators do not exercise executive power but instead pursue a private interest in a share of the government’s recovery, as recognized in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000), where the Supreme Court held that relators have Article III standing as partial assignees of the government’s claim, not as agents of the executive branch.  Brief of Intervenor-Appellant at 13–14, United States ex rel. Zafirov v. Fla. Med. Assocs., LLC., Nos. 24-13581, -13583 (11th Cir. Jan. 6, 2025) (hereinafter “Zafirov Brief”).  Second, DOJ emphasized that the FCA preserves executive control over qui tam lawsuits.  Even in declined cases, the government retains authority to—among other things—veto settlements, intervene at a later stage, or dismiss the case under 31 U.S.C. § 3730(c)(2)(A).  Id. at 17–18, 29–30.  Third, DOJ argued that relators do not hold a “continuing position” under Lucia v. SEC, 585 U.S. 237, 245 (2018); their role is limited to a single case and is personal in nature, and they receive no salary, have no access to government files, and cannot be replaced by others if they withdraw.  Zafirov Brief, at 23, 30–32, 38.  Fourth, DOJ invoked historical practice, noting that early Congresses enacted numerous qui tam statutes.  DOJ argued that because the Supreme Court in Stevens found this history “well nigh conclusive” in the Article III context, the same history supports the statute’s validity under Article II.  Id. at 40–41.

As discussed in our 2024 Year-End Update, although Justices Thomas, Kavanaugh, and Barrett have expressed skepticism about the constitutionality of the qui tam provisions, it remains unclear whether and when the Supreme Court will take up the issue.  In the meantime, any lingering doubt as to whether DOJ itself supports the constitutionality of the qui tam provisions has been resolved not only by the government’s brief in the Zafirov appeal, but also by the explicit way in which DOJ has continued to publicly encourage relators to bring cases—particularly health care cases and cases alleging DEI-related violations of federal contracting requirements (see above).

C. First Circuit Adopts “But-For” Causation Standard Advanced by Sixth and Eighth Circuits in FCA Cases Premised on Anti-Kickback Statute Violations

In a February opinion, which we discussed in a separate client alert, the First Circuit opined on a question of statutory interpretation that is the subject of an ongoing circuit split: what causation standard applies when the government alleges that a violation of the AKS renders a claim false under the FCA?  The court concluded that “but-for” causation is required, joining the Sixth and Eighth Circuits while rejecting the Third Circuit’s looser approach.  United States v. Regeneron Pharms., Inc., 128 F.4th 324 (1st Cir. 2025).

The case arose from allegations that a drug manufacturer made over $60 million in donations to a charitable foundation that provided copayment assistance to Medicare patients who were prescribed the manufacturer’s high-cost drug used to treat wet age-related macular degeneration.  The government claimed these donations were disguised kickbacks intended to induce prescriptions of the drug, and that resulting Medicare claims were thus “false or fraudulent” under the FCA.  Id. at 326–27.

The district court granted summary judgment for the manufacturer, concluding that the government failed to show that the alleged kickbacks were the but-for cause of the claims.  The First Circuit affirmed, holding that the 2010 AKS amendment, which states that claims “resulting from” AKS violations are false under the FCA, requires actual causation.  Id. at 328.

The First Circuit emphasized that “resulting from” is a term of art that typically imposes a but-for causation requirement.  Id. at 329.  It declined to adopt the Third Circuit’s looser standard from United States ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89 (3d Cir. 2018), which allows FCA liability where a patient is merely “exposed” to an illegal inducement.  Regeneron, 128 F.4th at 328.  Instead, the First Circuit aligned itself with the Sixth and Eighth Circuits, which have adopted the but-for standard.  See United States ex rel. Martin v. Hathaway, 63 F.4th 1043 (6th Cir. 2023); United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022).

The court also distinguished this causation requirement from the “false certification” theory of FCA liability, under which a claim may be false if it falsely certifies compliance with the AKS.  According to the court, that theory remains viable and does not require but-for causation.  Regeneron, 128 F.4th at 333–34.  However, where the government proceeds under the 2010 amendment’s provision that any claims resulting from an AKS violation are per se false under the FCA, it must show that the kickback actually caused the claim.  Id. at 334.

As we explained in our February alert regarding the decision, while the First Circuit’s opinion provides clarity on the “resulting from” language in the AKS, the court’s remarks on the false certification theory could lead to an uptick in cases asserting that illegal kickbacks “tainted” downstream claims for payment for health care goods and services.  Relators and DOJ will continue perceiving that theory as a path of lower resistance than the “resulting from” theory, and given that, it remains to be seen how quickly the seemingly inevitable Supreme Court review of the “resulting from” question occurs.

D. Eleventh Circuit Holds that Dismissal of a FCA Retaliation Suit Bars a Subsequent Qui Tam Lawsuit

In March 2025, the Eleventh Circuit affirmed the district court’s dismissal of a qui tam action, holding that res judicata barred the relator’s FCA lawsuit because it involved the same parties and cause of action as a previously dismissed FCA retaliation claim.  Milner v. Baptist Health Montgomery, 132 F.4th 1354 (11th Cir. 2025).  In the underlying qui tam, filed in 2020, Milner alleged that the defendants engaged in a scheme to overprescribe opioids and fraudulently bill Medicare and Medicaid.  Id. at 1356–57.  The district court dismissed the qui tam action with prejudice as to Milner, holding that it was barred by res judicata, in particular because the FCA retaliation lawsuit that Milner had filed in December 2019 had already been dismissed with prejudice and “share[d] the same parties and the same cause of action.”  Id. at 1357.

The Eleventh Circuit’s affirmance of the qui tam case turned on Milner’s full participation in both cases, and on the court’s conclusion that both actions arose from the same nucleus of operative facts.  Milner’s retaliation and qui tam claims concerned the same time period (2014–2017), the same location (the hospital), and the same conduct (opioid overprescription and fraudulent billing).  Id. at 1362.  The court rejected Milner’s argument that the lawsuits involved different legal rights, emphasizing that res judicata applies even when the legal theories differ, so long as the claims arise from the same factual predicate.  Id.

This ruling creates a split with the Seventh Circuit’s decision in United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849 (7th Cir. 2009), where it held that a personal employment action does not preclude a subsequent qui tam action because of the “special status of the United States” in qui tam actions.  Milner, 132 F.4th at 1359 (quoting Lusby, 570 F.3d at 852).  In the immediate term, this circuit split is likely to create additional incentives for qui tam plaintiffs to plead substantive FCA claims and FCA retaliation claims at the same time.

E. Fifth Circuit Joins Second and Fourth Circuits in Holding No Evidentiary Hearing Required for Government Dismissal of FCA Claims

In April 2025, the Fifth Circuit affirmed the dismissal of a qui tam action in Vanderlan v. United States, holding that the government may voluntarily dismiss a relator’s FCA action over the relator’s objections and without an evidentiary hearing.  135 F.4th 257, 262, 265–67 (5th Cir. 2025).  Vanderlan, a physician, filed a qui tam action under the FCA, alleging that the defendant violated the Emergency Medical Treatment and Labor Act (EMTALA) and fraudulently billed the government.  Id. at 263.  After years of litigation, the government moved to dismiss the case under 31 U.S.C. § 3730(c)(2)(A), citing concerns that the lawsuit interfered with the Office of Inspector General’s (OIG) efforts to resolve EMTALA-related claims through administrative channels.  Id. at 264.  The district court granted the motion without specifying whether the dismissal was with or without prejudice.  Id.

The Fifth Circuit rejected Vanderlan’s argument that he was entitled to an evidentiary hearing before dismissal.  It held that § 3730(c)(2)(A) requires only a hearing on the briefs—not a live evidentiary hearing.  Id. at 266.  The district court allowed multiple rounds of briefing, held a live hearing, and permitted Vanderlan to submit evidence.  Id. at 267.  This far exceeds the statute’s requirements.  Id.  This decision aligns the Fifth Circuit with all three of the other circuit courts (the Second, Fourth, and Sixth) that have considered this question following the Supreme Court’s decision in United States ex rel. Polansky v. Exec. Health Res., Inc., 599 U.S. 419 (2023).  See Brutus Trading, LLC v. Standard Chartered Bank, 2023 WL 5344973 (2d Cir. Aug. 21, 2023); United States ex rel. Doe v. Credit Suisse AG, 117 F.4th 155 (4th Cir. 2024); United States ex rel. USN4U, LLC v. Wolf Creek Fed. Servs., 2025 WL 1009012 (6th Cir. Mar. 31, 2025).

F. Tenth Circuit Holds That the FCA’s Public Disclosure Bar Does Not Confer Right to Appeal Under the Collateral Order Doctrine

In March 2025, the Tenth Circuit dismissed an interlocutory appeal in United States ex rel. Fiorisce, LLC v. Colorado Technical University, Inc., holding that the FCA’s public disclosure bar does not confer a right to avoid trial and therefore does not qualify for immediate review under the collateral order doctrine. 130 F.4th 811, 814, 820–21 (10th Cir. 2025).

Fiorisce, LLC, a special purpose relator entity formed by a former faculty member at Colorado Technical University (CTU), brought a qui tam action under the FCA, alleging that CTU fraudulently billed the federal government for educational content never provided to students. Specifically, Fiorisce claimed that CTU’s Intellipath platform bypassed required instructional hours by allowing students to skip coursework through diagnostic tests, while CTU still claimed full credit hour funding from the Department of Education.  Id. at 815.

CTU moved to dismiss the complaint under the FCA’s public disclosure bar, arguing that the allegations were substantially similar to prior public disclosures and that Fiorisce was not an “original source.”  Id.  The district court denied the motion, finding that Fiorisce’s claims were not “substantially the same” as prior disclosures and that Fiorisce likely qualified as an original source.  Id. at 816.  CTU appealed, asserting jurisdiction under the collateral order doctrine.  Id.

The Tenth Circuit rejected CTU’s argument, emphasizing that the collateral order doctrine is a narrow exception to the final judgment rule and applies only when the order (1) “conclusively determine[s] the disputed question,” (2) “resolves an important issue completely separate from the merits,” and (3) is “effectively unreviewable on appeal from a final judgment.” Id. (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978)).  The court focused on the third factor, concluding that CTU had not shown that denial of its motion was effectively unreviewable after final judgment.  Id. at 818.

The Tenth Circuit held that the FCA’s public disclosure bar does not guarantee a right to avoid trial as claims may still proceed if the government intervenes, opposes dismissal, or the relator qualifies as an original source.  Id. at 820.  The court also rejected CTU’s arguments that separation-of-powers concerns, jurisdictional implications, or government efficiency justified immediate appeal.  Id. at 821.  It noted that Congress amended the FCA in 2010 to remove jurisdictional language from the public disclosure bar, rendering it non-jurisdictional.  Id at 822.

We can expect the Tenth Circuit’s decision to lead to an intensification of efforts to frame appeals of public disclosure bar–related dismissals in terms of broader interlocutory appeal requirements, which focus on litigation efficiency and judicial economy and typically do not require that the order being appealed from be effectively unreviewable following final judgment.  See 28 U.S.C. § 1292.

IV. CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2025 False Claims Act Year-End Update.

[1] The summaries in this section cover the period from January 1, 2025, through June 30, 2025, and focus on settlements valued at $2 million or more.

[2] United States ex rel. Taylor v. Healthcare Assocs. of Texas, LLC, No. 3:19-CV-02486-N (N.D. Tex. Feb. 26, 2025), Dkt. No. 643.

[3] Jonathan Stempel, Johnson & Johnson unit ordered to pay $1.64 billion in HIV drug marketing case, Reuters (Mar. 28, 2025), https://www.reuters.com/sustainability/johnson-johnson-unit-ordered-pay-164-billion-hiv-drug-marketing-case-2025-03-28/.

[4] See Hailey Konnath, Omnicare Hit with $136M Jury Verdict For Bilking Feds, Law360 (Apr. 29, 2025), https://www.law360.com/articles/2332089/omnicare-hit-with-136m-jury-verdict-for-bilking-feds; Cara Salvatore, Omnicare, CVS Tab in FCA Case Increases to $949M, Law360 (July 8, 2025), https://www.law360.com/governmentcontracts/articles/2362375?nl_pk=8b736b23-08be-42a1-a728-016e447209a0&utm_source=newsletter&utm_medium=email&utm_campaign=governmentcontracts&utm_content=2025-07-09&read_main=1&nlsidx=0&nlaidx=0; Memorandum Decision on Statutory Penalties, United States v. Omnicare et al. (July 7, 2025), at 3.

[5] Lauren Berg, 9th Circ. Backs $26M Fraud Penalty Against Importer, Law360 (June 23, 2025), https://www.law360.com/articles/2356434.

[6] P.J. D’Annunzio, CVS PBM Hit with $95M Judgment for Overbilling Medicare, Law360 (June 25, 2025), https://www.law360.com/health/articles/2357621?nl_pk=07c3ab5b-1d36-4996-9685-5dd57aa88dbd&utm_source=newsletter&utm_medium=email&utm_campaign=health&utm_content=2025-06-26&read_main=1&nlsidx=0&nlaidx=0.

[7] Cara Salvatore, SuperValu Wins FCA Case That Went To High Court, Law360 (Mar. 5, 2025), https://www.law360.com/articles/2306137/supervalu-wins-fca-case-that-went-to-high-court.

[8] SuperValu, 143 S. Ct. at 1404.

[9] Salvatore, supra n.7.

[10] Memorandum in Support of Rule 59(e) Motion to Amend the Judgment, United States of America et al. v. SuperValu Inc et al., No. 11-CV-3290 (C.D. Ill. Apr. 1, 2025), Dkt. No. 569.

[11] Id. at 2.

[12] Id. at 2–3.

[13] See Press Release, U.S. Atty’s Office for the Western Dist. of Mich., Physicians Toxicology Laboratory And Its Owners To Pay $4.425 Million To Settle Allegations Of Unnecessary Drug Testing (Jan. 3, 2025), https://www.justice.gov/usao-wdmi/pr/2025_0103_physicians_toxicology_laboratory_settlement.

[14] See Press Release, U.S. Dep’t of Justice, Saint Vincents Catholic Medical Centers of New York Agrees to Pay $29M to Resolve Alleged False Claims Act Violations (Feb. 14, 2025), https://www.justice.gov/opa/pr/saint-vincents-catholic-medical-centers-new-york-agrees-pay-29m-resolve-alleged-false-claims; Settlement Agreement, U.S. Dep’t of Justice and Saint Vincents Catholic Medical Centers of New York et al. (Jan. 13, 2025), https://www.justice.gov/opa/media/1395216/dl.

[15] See Press Release, U.S. Dep’t of Justice, Pfizer Agrees to Pay Nearly 60M to Resolve False Claims Allegations Relating to Improper Physician Payments by Subsidiary (Jan. 24, 2025), https://www.justice.gov/opa/pr/pfizer-agrees-pay-nearly-60m-resolve-false-claims-allegations-relating-improper-physician; Settlement Agreement, U.S. Dep’t of Justice, Biohaven, and Patricia Frattasio (Jan. 16, 2025), https://www.justice.gov/opa/media/1386456/dl.

[16] See Press Release, U.S. Dep’t of Justice, C.R. Bard, Inc. and Affiliates Pay $17 Million to Resolve Allegations of Healthcare Kickbacks (Jan. 23, 2025), https://www.justice.gov/usao-ndga/pr/cr-bard-inc-and-affiliates-pay-17-million-resolve-allegations-healthcare-kickbacks.

[17] See Press Release, U.S. Atty’s Office for the Middle Dist. of Fla., LiveCare Inc. Agrees To Pay Up To $4.9 Million To Resolve False Claims Act Allegations (Jan. 31, 2025), https://www.justice.gov/usao-mdfl/pr/livecare-inc-agrees-pay-49-million-resolve-false-claims-act-allegations.

[18] See Press Release, U.S. Dep’t of Justice, Saad Healthcare Agrees to Pay $3M to Settle False Claims Act Allegations That It Billed Medicare for Ineligible Hospice Patients (Feb. 21, 2025), https://www.justice.gov/opa/pr/saad-healthcare-agrees-pay-3m-settle-false-claims-act-allegations-it-billed-medicare; Settlement Agreement, U.S. Dep’t of Justice and Saad Enterprises, Inc. et al. (Feb. 14, 2025), https://www.justice.gov/opa/media/1390331/dl.

[19] See Press Release, U.S. Atty’s Office for the Western Dist. of La., Community Health Care Solutions, LLC and the Estate of Yolanda Burnom Agree to Pay $4.6 Million in Medicaid Fraud Lawsuit (Feb. 27, 2025), https://www.justice.gov/usao-wdla/pr/community-health-care-solutions-llc-and-estate-yolanda-burnom-agree-pay-46-million.

[20] See Press Release, U.S. Atty’s Office for the Western Dist. of Tex., Skilled Nursing Facility and Acute Care Hospital to Pay $6.5 Million to Settle Civil False Claims Act Allegations (Feb. 28, 2025), https://www.justice.gov/usao-wdtx/pr/skilled-nursing-facility-and-acute-care-hospital-pay-65-million-settle-civil-false.

[21] See Press Release, U.S. Atty’s Office for the Central Dist. of Cal., Koreatown-Based Medicare Advantage Provider Seoul Medical Group and Related Parties to Pay More Than $62 Million to Settle False Claims Lawsuit (Mar. 26, 2025), https://www.justice.gov/usao-cdca/pr/koreatown-based-medicare-advantage-provider-seoul-medical-group-and-related-parties.

[22] See Press Release, U.S. Atty’s Office of N.J., Diopsys, Inc. Agrees To Pay Up To $14.25 Million To Resolve Alleged Federal False Claims Act And State Law Violations Relating To Vision Testing (Mar. 27, 2025), https://www.justice.gov/usao-nj/pr/diopsys-inc-agrees-pay-1425-million-resolve-alleged-federal-false-claims-act-and-state; Settlement Agreement, U.S. Dep’t of Justice and Diopsys, Inc. et al. (Mar. 19, 2025), https://www.justice.gov/usao-nj/media/1394831/dl?inline.

[23] See Press Release, U.S. Atty’s Office for the Southern Dist. of N.Y., Acting U.S. Attorney Announces $5 Million False Claims Act Settlement With Providers Of Programs For Adults With Developmental Disabilities (Mar. 26, 2025), https://www.justice.gov/usao-sdny/pr/acting-us-attorney-announces-5-million-false-claims-act-settlement-providers-programs; Settlement Agreement, U.S. Dep’t of Justice and Community Options, Inc. et al. (Mar. 26, 2025), https://www.justice.gov/usao-sdny/media/1395791/dl?inline.

[24] See Press Release, U.S. Atty’s Office for the Northern Dist. of Ill., Walgreens Agrees To Pay Up to $350M for Illegally Filling Unlawful Opioid Prescriptions and Submitting False Claims (Apr. 21, 2025), https://www.justice.gov/usao-ndil/pr/walgreens-agrees-pay-350m-illegally-filling-unlawful-opioid-prescriptions-and; Settlement Agreement, U.S. Dep’t of Justice and Walgreen Co. et al. (Apr. 18, 2025), https://www.justice.gov/usao-ndil/media/1397256/dl?inline.

[25] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Genetic Testing Marketing Companies Genexe, LLC and Immerge, Inc. and Two Executives Agree to Pay $6 Million to Resolve Allegations of Fraudulent Medicare Claims (Apr. 23, 2025), https://www.justice.gov/usao-edpa/pr/genetic-testing-marketing-companies-genexe-llc-and-immerge-inc-and-two-executives.

[26] See Press Release, U.S. Atty’s Office for the Dist. of N.J., Vault Agrees to Pay $8 Million to Settle Allegations of Billing False Claims to the COVID-19 Uninsured Program for Patients with Health Insurance (Apr. 23, 2025), https://www.justice.gov/usao-nj/pr/vault-agrees-pay-8-million-settle-allegations-billing-false-claims-covid-19-uninsured.

[27] See Press Release, U.S. Atty’s Office for the Southern Dist. of N.Y., U.S. Attorney Announces $202 Million Settlement With Gilead Sciences For Using Speaker Programs To Pay Kickbacks To Doctors To Induce Them To Prescribe Gilead’s Drugs (Apr. 29, 2025), https://www.justice.gov/usao-sdny/pr/us-attorney-announces-202-million-settlement-gilead-sciences-using-speaker-programs.

[28] See Press Release, U.S. Atty’s Office for the Dist. of N.J., Cumberland County Drug and Alcohol Rehabilitation Center Agrees to Pay $19.75 Million to Resolve False Claims Act Allegations (Apr. 30, 2025), https://www.justice.gov/usao-nj/pr/cumberland-county-drug-and-alcohol-rehabilitation-center-agrees-pay-1975-million-resolve.

[29] See Press Release, U.S. Atty’s Office for the Western Dist. of N.C., Charlotte Clinic Owner Agrees To Settle Allegations of Medicaid Fraud (May 5, 2025), https://www.justice.gov/usao-wdnc/pr/charlotte-clinic-owner-agrees-settle-allegations-medicaid-fraud.

[30] See Press Release, U.S. Dep’t of Justice, Fresno-Based Community Health System Agree to Pay $31.5 Million to Resolve Allegations of False Claims Act Violations (May 14, 2025), https://www.justice.gov/usao-edca/pr/fresno-based-community-health-system-agree-pay-315-million-resolve-allegations-false.

[31] See Press Release, U.S. Atty’s Office for the Western Dist. of N.Y., Catholic Health Agrees to Pay Nearly $3.3 Million to Resolve Alleged False Claims Act Violations (May 16, 2025), https://www.justice.gov/usao-wdny/pr/catholic-health-agrees-pay-nearly-33-million-resolve-alleged-false-claims-act.

[32] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Tenn., Agendia, Inc., Knoxville Comprehensive Breast Center, PLLC, And Knoxville Dermatopathology Laboratory, LLC Agree To Settle False Claims Act Allegations For More Than $3,750,000 (May 21, 2025), https://www.justice.gov/usao-edtn/pr/agendia-inc-knoxville-comprehensive-breast-center-pllc-and-knoxville-0.

[33] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Tex., Collin County Physician Agrees to Pay $3.5 Million to Resolve False Claims Act Allegations of Billing False Claims to the COVID-19 Uninsured Program for Evaluation & Management Services Not Rendered (May 30, 2025), https://www.justice.gov/usao-edtx/pr/collin-county-physician-agrees-pay-35-million-resolve-false-claims-act-allegations.

[34] See Press Release, U.S. Atty’s Office for the Northern Dist. of Ga., Mahlega Abdsharafat and Creative Hospice Settle Health Care Kickback Claims for $9.2 Million (June 11, 2025), https://www.justice.gov/usao-ndga/pr/mahlega-abdsharafat-and-creative-hospice-settle-health-care-kickback-claims-92-million.

[35] See Press Release, U.S. Atty’s Office for the Dist. of Minn., NUWAY Alliance Agrees to Pay $18,500,000 Settlement in Medicaid Kickbacks Scheme, False Claims Act Violations (June 26, 2025), https://www.justice.gov/usao-mn/pr/nuway-alliance-agrees-pay-18500000-settlement-medicaid-kickbacks-scheme-false-claims-act.

[36] See Press Release, U.S. Atty’s Office for the Dist. of Minn., Minnesota Construction Company Agrees to Pay $5.9M to Resolve False Claims Act Violations (Jan. 13, 2025), https://www.justice.gov/usao-mn/pr/minnesota-construction-company-agrees-pay-59m-resolve-false-claims-act-violations.

[37] See Press Release, U.S. Dep’t of Justice, Lockheed Martin Corporation Agrees to Settle False Claims Act Allegations of Defective Pricing (Feb. 6, 2025), https://www.justice.gov/opa/pr/lockheed-martin-corporation-agrees-settle-false-claims-act-allegations-defective-pricing; Settlement Agreement, U.S. Dep’t of Justice and Lockheed Martin Corporation et al. (Jan. 17, 2025), https://www.justice.gov/opa/media/1395216/dl.

[38] See Press Release, U.S. Atty’s Office for the Dist. of Columbia, DynCorp Agrees to Pay $21 Million to Resolve False Claims Act Lawsuit Alleging Inflated Costs on State Department (Apr. 9, 2025), https://www.justice.gov/usao-dc/pr/dyncorp-agrees-pay-21-million-resolve-false-claims-act-lawsuit-alleging-inflated-costs; Settlement Agreement, U.S. Dep’t of Justice and DynCorp International, LLC (Apr. 9, 2025), https://www.justice.gov/usao-dc/media/1396086/dl?inline.

[39] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Government Contractor NORESCO Agrees to Resolve Allegations of Overcharging Federal Agencies (May 13, 2025), https://www.justice.gov/usao-ma/pr/government-contractor-noresco-agrees-resolve-allegations-overcharging-federal-agencies; Settlement Agreement, U.S. Dep’t of Justice and NORESCO, LLC (May 9, 2025), https://www.justice.gov/usao-ma/media/1400856/dl.

[40] See Press Release, U.S. Dep’t of Justice, L3 Technologies Inc. Agrees to Pay $62,000,000 to Resolve False Claims Act Allegations arising from Submission of False Cost or Pricing Data on Defense Contracts (May 22, 2025), https://www.justice.gov/opa/pr/l3-technologies-inc-agrees-pay-62000000-resolve-false-claims-act-allegations-arising; Settlement Agreement, U.S. Dep’t of Justice and L3 Technologies, Inc. et al. (May 22, 2025), https://www.justice.gov/opa/media/1401271/dl.

[41] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Cal., Health Net Federal Services LLC and Centene Corporation Agree to Pay Over $11 Million to Resolve False Claims Act Liability Related to Cybersecurity (Feb. 18, 2025), https://www.justice.gov/usao-edca/pr/health-net-federal-services-llc-and-centene-corporation-agree-pay-over-11-million-0; Settlement Agreement, U.S. Dep’t of Justice and Health Net Federal Services, LLC et al. (Feb. 5, 2025), https://www.justice.gov/usao-edca/media/1389341/dl?inline; https://www.gibsondunn.com/false-claims-act-2024-mid-year-update/, at n.45.

[42] See Press Release, U.S. Dep’t of Justice, Defense Contractor MORSECORP Inc. Agrees to Pay $4.6 Million to Settle Cybersecurity Fraud Allegations (Mar. 26, 2025), https://www.justice.gov/opa/pr/defense-contractor-morsecorp-inc-agrees-pay-46-million-settle-cybersecurity-fraud; Settlement Agreement, U.S. Dep’t of Justice and MORSECORP, Inc. et al. (Mar. 14, 2025), https://www.justice.gov/d9/2025-03/usa_v._morse_-_settlement_agreement.pdf.

[43] See Press Release, U.S. Atty’s Office for the Dist. of Columbia, Raytheon Companies and Nightwing Group to Pay $8.4M to Resolve False Claims Act Allegations Relating to Non-Compliance with Cybersecurity Requirements in Federal Contracts (May 1, 2025), https://www.justice.gov/opa/pr/raytheon-companies-and-nightwing-group-pay-84m-resolve-false-claims-act-allegations-relating.

[44] See Press Release, U.S. Dep’t of Justice, Evolutions Flooring Inc. and Its Owners to Pay $8.1 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties (Mar. 25, 2025), https://www.justice.gov/opa/pr/evolutions-flooring-inc-and-its-owners-pay-81-million-settle-false-claims-act-allegations.

[45] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Head of Consulting Firm Eclipse Capital Partners Agrees to Pay Over $3.2 Million to Resolve Alleged False Claims Act Violations Relating to Economic Injury Disaster Loan Program (Feb. 14, 2025), https://www.justice.gov/usao-edpa/pr/head-consulting-firm-eclipse-capital-partners-agrees-pay-over-32-million-resolve.

[46] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Wis., Subsidiary of Chinese State-Owned Entity to Pay $14.2M to Resolve False Claims Act Allegations Relating to Paycheck Protection Program Loan (Feb. 19, 2025), https://www.justice.gov/usao-edwi/pr/subsidiary-chinese-state-owned-entity-pay-142m-resolve-false-claims-act-allegations.

[47] See Press Release, U.S. Atty’s Office for the Eastern Dist. of N.C., Raleigh Company To Pay More Than $2 Million To Resolve False Claims Act Liability Related to Improper Paycheck Protection Program Loan (Mar. 13, 2025), https://www.justice.gov/usao-ednc/pr/raleigh-company-pay-more-2-million-resolve-false-claims-act-liability-related-improper.

[48] See Press Release, U.S. Atty’s Office for the Western Dist. of Wash., DOJ and Vix Technology (USA) Inc. resolve allegations of Paycheck Protection Program fraud (Mar. 19, 2025), https://www.justice.gov/usao-wdwa/pr/doj-and-vix-technology-usa-inc-resolve-allegations-paycheck-protection-program-fraud.

[49] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Cal., Carson Tahoe Health System Agrees to Pay Over $8.8 Million to Settle Allegations Over Pandemic-Related Loans (Mar. 24, 2025), https://www.justice.gov/usao-edca/pr/carson-tahoe-health-system-agrees-pay-over-88-million-settle-allegations-over-pandemic.

[50] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Va., Medical group agrees to pay $2.8M to settle False Claims Act allegations (Apr. 2, 2025), https://www.justice.gov/usao-edva/pr/medical-group-agrees-pay-28m-settle-false-claims-act-allegations.

[51] See Press Release, U.S. Atty’s Office for the Dist. of Colo., Colorado Travel Company Pays $3 Million to Settle Allegations That It Unlawfully Obtained a Loan from the Paycheck Protection Program (Apr. 3, 2025), https://www.justice.gov/usao-co/pr/colorado-travel-company-pays-3-million-settle-allegations-it-unlawfully-obtained-loan.

[52] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Herb Chambers Agrees to Pay $11.8 Million to Resolve Allegations of PPP Loan Fraud (Apr. 9, 2025), https://www.justice.gov/usao-ma/pr/herb-chambers-agrees-pay-118-million-resolve-allegations-ppp-loan-fraud; Settlement Agreement, U.S. Dep’t of Justice and Herbert G. Chambers et al. (Apr. 9, 2025), https://www.justice.gov/usao-ma/media/1396041/dl.

[53] See Press Release, U.S. Atty’s Office for the Northern Dist. of N.Y., Restaurant Chain to Pay $7.8 Million for Misrepresenting Eligibility for Pandemic-Relief Funds (May 5, 2025), https://www.justice.gov/usao-ndny/pr/restaurant-chain-pay-78-million-misrepresenting-eligibility-pandemic-relief-funds.

[54] See Press Release, U.S. Atty’s Office for the Northern Dist. of Ohio, Former Solon-based Manufacturer to Pay $6M to Resolve False Claims Act Allegations Relating to Paycheck Protection Program (May 22, 2025), https://www.justice.gov/usao-ndoh/pr/former-solon-based-manufacturer-pay-6m-resolve-false-claims-act-allegations-relating; Settlement Agreement, U.S. Dep’t of Justice and Cosmax USA et al. (May 5, 2025), https://www.justice.gov/usao-ndoh/media/1401211/dl?inline.

[55] See Press Release, U.S. Atty’s Office for the Northern Dist. of W. Va., Labor Organizations to Pay $5.1 Million to Settle False Claims Act Allegations Relating to Paycheck Protection Program Loans (May 29, 2025), https://www.justice.gov/usao-ndwv/pr/labor-organizations-pay-51-million-settle-false-claims-act-allegations-relating.

[56] See Press Release, U.S. Atty’s Office for the Dist. of N.J., Companies Pay $13 Million to Resolve False Claims Act Liability for Allegedly Receiving Improper Paycheck Protection Program Loans (June 25, 2025), https://www.justice.gov/usao-nj/pr/companies-pay-13-million-resolve-false-claims-act-liability-allegedly-receiving-improper.

[57] See Press Release, U.S. Atty’s Office for the Western Dist. of N.C., Asheville Company Agrees To Pay Over $2.1 Million To Resolve False Claims Act Allegations Relating To COVID Pandemic Relief Loan (June 13, 2025), https://www.justice.gov/usao-wdnc/pr/asheville-company-agrees-pay-over-21-million-resolve-false-claims-act-allegations.

[58] See Press Release, U.S. Atty’s Office for the Southern Dist. of Tex., International marine company agrees to pay over $3 million to settle False Claims Act allegations (June 25, 2025), https://www.justice.gov/usao-sdtx/pr/international-marine-company-agrees-pay-over-3-million-settle-false-claims-act.

[59] Jamie Ann Yavelberg, Remarks at 2025 Federal Bar Association Qui Tam Conference (Feb. 20, 2025).

[60] U.S. Dep’t of Justice, Memorandum from Matthew Galeotti, Head, Criminal Division (May 12, 2025), https://www.justice.gov/criminal/media/1400046/dl?inline.

[61] Id.

[62] U.S. Dep’t of Justice, Department of Justice Corporate Whistleblower Awards Pilot Program (May 12, 2025), https://www.justice.gov/criminal/media/1400041/dl?inline; see also U.S. Dep’t of Justice, Department of Justice Corporate Whistleblower Awards Pilot Program (Aug. 1, 2024), https://www.justice.gov/criminal/media/1362321/dl?inline (original version).

[63] Id.

[64] See 31 U.S.C. § 3729(a)(1)(G).

[65] See, e.g., Press Release, U.S. Dep’t of Justice, Owner of New Jersey Company Admits to Evading U.S. Customs Duties and His Company Agrees to $3.1 Million Settlement Agreement (Mar. 21, 2024), https://www.justice.gov/usao-nj/pr/owner-new-jersey-company-admits-evading-us-customs-duties-and-his-company-agrees-31; Press Release, U.S. Dep’t of Justice, Two Brookfield, Wisconsin-Based Companies and Their Owners Pay Over $10 Million to Resolve Allegations that They Evaded Customs Duties (Aug. 8, 2024), https://www.justice.gov/usao-edwi/pr/two-brookfield-wisconsin-based-companies-and-their-owners-pay-over-10-million-resolve; Press Release, U.S. Dep’t of Justice, U.S. Attorney Lapointe Announces $7.6 Million Settlement of Civil False Claims Act Lawsuit Against Womenswear Company for Underpaying Customs Duties on Imported Women’s Apparel (Aug. 9, 2024), https://www.justice.gov/usao-sdfl/pr/us-attorney-lapointe-announces-76-million-settlement-civil-false-claims-act-lawsuit; Press Release, U.S. Dep’t of Justice, Japanese-Based Toyo Ink and Affiliates in New Jersey and Illinois Settle False Claims Allegation for $45 Million (Dec. 17, 2012), https://www.justice.gov/archives/opa/pr/japanese-based-toyo-ink-and-affiliates-new-jersey-and-illinois-settle-false-claims-allegation#:~:text=and%20various%20affiliated%20entities%20(collectively,the%20Justice%20Department%20announced%20today; Press Release, U.S. Dep’t of Justice, Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Importer And Manufacturers For Evading Customs Duties (July 13, 2016), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-settles-civil-fraud-lawsuit-against-clothing-importer-and; Press Release, U.S. Dep’t of Justice, Tennessee and New York-Based Defense Contractors Agree to Pay $8 Million to Settle False Claims Act Allegations Involving Defective Countermeasure Flares Sold to the U.S. Army (Mar. 28, 2016), https://www.justice.gov/archives/opa/pr/tennessee-and-new-york-based-defense-contractors-agree-pay-8-million-settle-false-claims-act.

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

[67] See Press Release, U.S. Dep’t of Justice, United States Files Complaint Against Barco Uniforms and Its Suppliers, Alleging False Claims Act Violations in Connection with Underpaid Customs Duties (Apr. 18, 2025); https://www.justice.gov/opa/pr/united-states-files-complaint-against-barco-uniforms-and-its-suppliers-alleging-false-claims.

[68] See Press Release, U.S. Dep’t of Justice, United States Files Suit Against the Georgia Institute of Technology and Georgia Tech Research Corporation Alleging Cybersecurity Violations (Aug. 22, 2024), https://www.justice.gov/archives/opa/pr/united-states-files-suit-against-georgia-institute-technology-and-georgia-tech-research.

[69] See Island Indus., Inc. v. Sigma Corp., 2025 WL 1730271, at *1 (9th Cir. June 23, 2025).

[70] See id.; see also supra n.44.

[71] Ending Illegal Discrimination and Restoring Merit-Based Opportunity, Executive Order 14173, 90 FR 8633 (Jan. 21, 2025), https://www.federalregister.gov/documents/2025/01/31/2025-02097/ending-illegal-discrimination-and-restoring-merit-based-opportunity.

[72] Id. at § 3(b)(iv)(A).

[73] Id. at § 3(b)(iv)(B).

[74] See, e.g., United States ex rel. Mei Ling v. City of Los Angeles, 2018 WL 3814498 (C.D. Cal. July 25, 2018) (express certification of administration of federal housing funds in conformity with fair housing laws); United States ex rel. Anti-Discrimination Ctr. of Metro N.Y., Inc. v. Westchester Cnty., 668 F. Supp. 2d 548 (S.D.N.Y. 2009) (express certification of compliance with obligation to analyze impact of race on housing opportunities in conjunction with grant administration); United States ex rel. Tyson v. Amerigroup Illinois, Inc., 2006 WL 4586279 (N.D. Ill. Sept. 13, 2006) (materiality of statements regarding non-discrimination against Medicaid enrollees with pre-existing conditions); United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010) (materiality of statements regarding employment of Vietnam veterans by contractor); United States ex rel. Hedley v. Abhe & Svoboda, Inc., 199 F. Supp. 3d 945 (D. Md. 2016) (materiality of certifications of compliance with requirement to use disadvantaged business enterprises).

[75] U.S. Dep’t of Justice, Memorandum from Deputy Attorney General Todd Blanche (May 19, 2025), https://www.justice.gov/dag/media/1400826/dl, at 2.

[76] Id. at 1.

[77] Id. at 2.

[78] Id.

[79] Id.

[80] Id.

[81] U.S. Dep’t of Justice, Memorandum from Pamela Bondi, Attorney General (Feb. 5, 2025), https://www.justice.gov/ag/media/1388501/dl?inline, at 1.

[82] U.S. Dep’t of Justice, Memorandum from Pamela Bondi, Attorney General (Feb. 5, 2025), https://www.justice.gov/ag/media/1388556/dl?inline.

[83] See, e.g., United States v. Toyobo Co. Ltd., 811 F. Supp. 2d 37, 45 (D.D.C. 2011).

[84] See Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176, 188 (2016) (“We need not resolve whether all claims for payment implicitly represent that the billing party is legally entitled to payment.”).

[85] Id. at 190.

[86] Id. at 183–84.

[87] Complaint in Partial Intervention of the United States of America, United States v. eHealth, Inc. et al. (May 1, 2025), https://www.justice.gov/opa/media/1398796/dl, at para. 786.

[88] Id. at paras. 783–85.

[89] AI Whistleblower Protection Act, S. 1792, 119th Cong. (2025); AI Whistleblower Protection Act, H.R. 3460, 119th Cong. (2025) (hereinafter “AI bills”).

[90] Id.

[91] 31 U.S.C. § 3730(h).

[92] 31 U.S.C. § 3730(h)(3).

[93] See, e.g., VanLandingham v. Grand Junction Reg’l Airport Auth., 603 Fed. App’x 657, 659 (10th Cir. 2015); United States v. Aerojet Rocketdyne Holdings, Inc., 381 F. Supp. 3d 1240 (E.D. Cal. 2019); United States ex rel. McBride v. Halliburton Co., 2007 WL 1954441 (D.D.C. July 5, 2007); Mohamad v. X-Therma, Inc., 2022 WL 14813728 (N.D. Cal. Oct. 25, 2022).

[94] AI bills, supra n.89.

[95] Compare id. with 31 U.S.C. § 3731(b).

[96] AI bills, supra n.89.

[97] Id.

[98] See generally 49 U.S.C. § 42121 (incorporated by reference into the AI bills).

[99] See Press Release, U.S. Dep’t of Justice, DOJ-HHS False Claims Act Working Group (July 2, 2025), https://www.justice.gov/opa/pr/doj-hhs-false-claims-act-working-group.

[100] Id.

[101] Id.

[102] Id.

[103] Id.

[104] See Press Release, U.S. Dep’t of Justice, The United States Files False Claims Act Complaint Against Three National Health Insurance Companies and Three Brokers Alleging Unlawful Kickbacks and Discrimination Against Disabled Americans (May 1, 2025), https://www.justice.gov/opa/pr/united-states-files-false-claims-act-complaint-against-three-national-health-insurance.

[105] Brenna Jenny Keynote Address at American Health Law Ass’n Annual Meeting (July 2, 2025).

[106] Mass. Gen. Laws ch. 12 § 5B(a)(10).

[107] See H.B. 7224, 2025 Gen. Assemb., Reg. Sess. (Conn. 2025).

[108] S.B. 799, 2025 Gen. Assemb., Reg. Sess. (Cal. 2025).

[109] Id. at Section 1(f)(1).

[110] See id. at Section 3(a)(2).

[111] See D.C. Code § 2-381.02(d).

[112] N.Y. State Fin. Law § 189(4)(a)–(b).

[113] See Cal. Gov’t Code § 12650(a)(7).

[114] See U.S. Dep’t of Health & Hum. Servs., Dep’t of Inspector General, State False Claims Act Reviews, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (last visited July 9, 2025).

[115] Id.

[116] Id.  Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Wisconsin all have false claims laws that HHS-OIG has deemed “not approved” under the criteria for granting the federal incentive.  See id.  The following 21 U.S. states do not have either “approved” or “not approved” status: Alabama, Alaska, Arizona, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, West Virginia, and Wyoming.

[117] S.B. 38, 2025 Gen. Assemb., Reg. Sess. (Pa. 2025).

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The following Gibson Dunn lawyers prepared this update: Jonathan Phillips, Winston Chan, Jake Shields, John Partridge, James Zelenay, Michael Dziuban, Jackson Akselrad, Andrew Becker, Kio Bell, Samantha Hay, Hayley Lawrence, Azad Niroomand, Allonna Nordhavn, Katie Rubanka, Ben Schlichting, Ben Smith, Daniel Strellman, Nell Tooley, Erin Wall, and Alice Wang.

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

False Claims Act/Qui Tam Defense:

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, jphillips@gibsondunn.com)
Stuart F. Delery (+1 202.955.8515,sdelery@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Lindsay M. Paulin (+1 202.887.3701, lpaulin@gibsondunn.com)
Geoffrey M. Sigler (+1 202.887.3752, gsigler@gibsondunn.com)
Joseph D. West (+1 202.955.8658, jwest@gibsondunn.com)
Michael R. Dziuban (+1 202.955.8252; mdziuban@gibsondunn.com)

San Francisco
Winston Y. Chan – Co-Chair (+1 415.393.8362, wchan@gibsondunn.com)
Charles J. Stevens (+1 415.393.8391, cstevens@gibsondunn.com)

New York
Reed Brodsky (+1 212.351.5334, rbrodsky@gibsondunn.com)
Mylan Denerstein (+1 212.351.3850, mdenerstein@gibsondunn.com)

Denver
John D.W. Partridge (+1 303.298.5931, jpartridge@gibsondunn.com)
Ryan T. Bergsieker (+1 303.298.5774, rbergsieker@gibsondunn.com)
Monica K. Loseman (+1 303.298.5784, mloseman@gibsondunn.com)

Dallas
Andrew LeGrand (+1 214.698.3405, alegrand@gibsondunn.com)

Los Angeles
James L. Zelenay Jr. (+1 213.229.7449, jzelenay@gibsondunn.com)
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Jeremy S. Smith (+1 213.229.7973, jssmith@gibsondunn.com)
Deborah L. Stein (+1 213.229.7164, dstein@gibsondunn.com)
Dhananjay S. Manthripragada (+1 213.229.7366, dmanthripragada@gibsondunn.com)

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

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

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.

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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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Ongoing strong political commitment in the EU regarding growing sustainability and human rights regulations has increasingly attracted political interest and skepticism in the U.S., especially regarding the potential extraterritorial effects of these regulations.

Changes in the ESG regulatory landscape in 2025 were to be expected. While the EU generally continues to stick to its ESG regulatory approach on human rights, reporting obligations, and environmental due diligence, it made serious efforts in the first half of 2025 to significantly cut back obligations for companies. However, in the U.S. the EU’s still far-reaching regulatory efforts, which also affect U.S. companies, are increasingly met with resistance.

In this client alert we set out an overview of developments in the first half of 2025, including (i) an overview of deregulation and postponement efforts in the EU for the Corporate Sustainability Due Diligence Directive (CSDDD)[1] and the Corporate Sustainability Reporting Directive (CSRD)[2], (ii) a summary of political efforts in the US to shield against extraterritorial reach of EU’s CSDDD and (iii) a conclusion for companies caught in between EU and U.S. regulations.

We will continue to monitor and report on any new developments.

1. Deregulation and Postponement of CSDDD and CSRD in the EU

The latest EU efforts to reduce administrative, regulatory and reporting burdens for companies have led to various proposals for amendments on substance and timing affecting CSDDD and CSRD. We have previously reported on these developments in detail here.

The proposed amendments by the EU Commission on the substance of CSRD and CSDDD have been extensive and were combined in one directive (“Amendment Directive”[3] as part of the “First Omnibus Package”), followed by recent additional proposed amendments on June 12, 2025, by the EU Parliament’s rapporteur Jörn Warnborn (the rapporteur). We have reported on his proposed amendments in detail here. Further, the Council of the EU (the Council) released its position on June 23, 2025. Therefore, all three bodies required for EU legislation have provided first proposals.

Deregulation

In brief, the most significant proposed amendments to the CSDDD and CSRD include the following:

Overarching proposal to reduce applicability of CSRD and CSDDD

The rapporteur proposed a harmonized threshold of more than 3,000 employees and a net-turnover exceeding EUR 450 million for both CSDDD and CSRD to apply to EU entities, significantly narrowing the scope of these regulations. The threshold for direct applicability of CSDDD to U.S. and other non-EU entities remains unchanged (i.e., a turnover in the EU exceeding EUR 450 million).

CSDDD

Recent proposals suggest a significant narrowing of due diligence obligations. The scope would generally be limited to companies’ own operations and their direct business partners, relieving them of responsibilities toward indirect suppliers, which is an important simplification for companies given the complexity of global supply chains. Furthermore, companies are proposed to be given the right to prioritize and forgo less material aspects and would no longer be required to terminate business relationships to mitigate adverse impacts.

Additionally, proposals advocate for removing the harmonized civil liability regime originally included in the CSDDD. Instead, national liability rules would apply. This shift addresses one of the most controversial aspects of the directive and responds to longstanding criticism. In addition, the original concept of representative actions by trade unions and NGOs shall be withdrawn.

Further, the Council proposes increasing the applicability threshold to more than 5,000 employees and a worldwide net turnover exceeding EUR 1.5 billion.

Finally, substantial changes are to be expected regarding climate transition planning obligations. The current proposals aim to either deregulate or eliminate the requirement for companies to establish and communicate such plans.

CSRD Reporting

Most significantly for the CSRD, both proposals voted to reduce thresholds for in-scope companies of the CSRD (see above), which would significantly reduce the number of in-scope companies approximately by 80-90%.

In addition, it is proposed to significantly reduce the data points under the EU Sustainability Reporting Standards (ESRS). Also, no additional sector-specific reporting standards shall be adopted.

Further, the requirements for value chain reporting on business partners shall be significantly reduced.

Postponements and Current Timeline

To give companies more time to implement, but also to allow for further political debate on proposed amendments, both, CSDDD and CSRD have been subject to postponements.[4] A respective directive (“Stop-the-Clock”)[5] has already been enacted and is beginning to be transposed by EU member states. According to this directive, the current timeline for CSDDD and CSRD shall be as follows:

2. Political Efforts in the U.S. to Shield Against Extraterritorial Reach of EU Regulations

From a European perspective, CSDDD does not only apply to companies in the EU but also applies to US companies with a certain revenue generated in the EU (“extraterritorial reach”). In addition, CSDDD as well as CSRD will apply to EU subsidiaries of US companies if the applicability thresholds are met. Therefore, from a European perspective, U.S. companies will have to implement obligations set out by these regulations and will amongst others also be subject to EU’s public and private enforcement in any case of non-compliance.

With regard to CSDDD, these effects could go even further: Drawing on practical experience from the implementation of the German Supply Chain Due Diligence Act (SCDDA), in-scope companies will likely pass on their due diligence obligations to their direct suppliers, typically through codes of conduct, master supply agreements and other instruments. Therefore, additional U.S. (based) companies could indirectly be affected by the CSDDD’s obligations, even though they do not meet the net turnover threshold and would generally not be in-scope of the CSDDD.

These far-reaching effects on U.S. based companies are increasingly met with disapproval in the U.S. In order to avoid these effects, CSDDD and CSRD have been challenged by various actions in the U.S.:

Letters by State Officials criticizing CSDDD and CSRD

On February 25, 2025, state officials have sent a letter[6] to U.S. President Trump asking the United States Trade Representative to investigate CSRD, CSDDD, and related directives under Section 301 of the Trade Act of 1974 and “consider the impact of these directives as part of any overarching trade initiatives” with the EU.

Similarly, on February 26, 2025, Republican lawmakers urged the U.S. Department of Treasury and National Economic Council to “support European calls to indefinitely pause CSDDD,” find that its “extraterritorial application is untenable and detrimental to global productivity,” argue that civil liability under CSDDD should be removed, and clarify that “U.S. companies are not bound by net zero transition plans akin to those imposed on EU firms.”

U.S. Senators Bill: “Protect USA Act of 2025”

Further, the extraterritorial reach is intended to be challenged by the “Prevent Regulatory Overreach from Turning Essential Companies into Targets Act of 2025”; short-titled “Protect USA Act of 2025”.[7] It was introduced in the U.S. Senate on March 12, 2025. The bill rests on the premise that EU regulations conflict with U.S. priorities, impose burdens on U.S. businesses, and infringe upon U.S. sovereignty, which is considered to violate U.S. law.

Generally, the bill sets out a prohibition against “any foreign sustainability due diligence regulation” for “entities integral to the national interests of the United States”, particularly those involved in natural resource extraction and industrial production (including their subsidiaries).  Despite the explicit reference to the CSDDD in the bill, it is possible that other sustainability regulations, such as the CSRD or the EU Deforestation Regulation (EUDR) may be covered as well, according to the bill’s content and purpose. According to the wording, both U.S. and non-U.S. companies may fall within the scope of the bill.

To protect U.S. companies from enforcement in cases of non-compliance the bill introduces that no adverse action may be taken against an entity covered by the bill. Further, the bill provides for fines and suspension from federal contracts in cases of non-compliance.

Since the introduction of the bill in the U.S. Senate, the bill has undergone two readings in the U.S. Congress and has been referred to the Committee on Foreign Relations. To pass the U.S. Senate, it will likely require approval by 60 senators to overcome a potential filibuster.

Should the Act be adopted, companies may face the dilemma of having to decide whether to comply with U.S. or EU law.

3. Practical Impacts

First, at this early stage, companies should wait to see how opposing regulatory efforts continue to evolve. The EU, as outlined, is working to scale back its far-reaching obligations, and, in doing so, appears to be addressing some of the concerns raised by the U.S. Further, there is growing opposition to the CSDDD within the EU itself: Both the French and German governments (Germany following its announcement to intend to repeal its own supply chain act) have publicly called for the complete withdrawal of the CSDDD, citing concerns over regulatory burdens and competitiveness. Accordingly, it is difficult to predict how far apart the U.S. and EU will actually still be in the near future.

Second, it is also worth noting that similar regulations are not unprecedented in the EU[8] and member states such as France[9]. They have themselves enacted laws aimed at shielding against extraterritorial effects of U.S. laws (“blocking statutes”). It seems possible that the various opposing efforts will be part of future negotiations between U.S. and EU to align both efforts, as was the case in the past.

Finally, with respect to EU’s deregulation efforts, companies should not overlook the fact that the remaining obligations will still involve considerable effort and require thorough preparation. While lengthy negotiations amongst EU parties concerning the various proposed amendments, especially regarding scope, are to be expected, companies should nevertheless prepare timely to implement obligations. To assist in-scope companies with preparations, the European Commission publishes guidance that should be reviewed on a regular basis.

[1]  Directive (EU) 2024/1760.

[2]  Directive (EU) 2022/2464.

[3]  COM(2025) 81 final, 2024/0045 (COD).

[4]  For CSRD and CSDDD see COM(2025) 80 final, 2024/0044 (COD).

[5]  COM(2025) 80 final, 2024/0044 (COD).

[6]  https://sfof.com/wp-content/uploads/2025/02/USTR-European_Letter.pdf.

[7]  https://www.congress.gov/bill/119th-congress/senate-bill/985/text.

[8]  Regulation (EC) 2271/96 of 22 November 1996, protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.

[9]  “Loi de Blocage”, Statute n° 68-678 of July 26, 1968, modified by the Statute n° 80-538 of July 16, 1980; initially adopted in reaction to U.S. discovery rules.

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The following Gibson Dunn lawyers prepared this update: Perlette Jura, Markus Rieder, Ferdinand Fromholzer, and Carla Baum.

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 Gibson Dunn’s Transnational Litigation or ESG practice groups, or the following:

Transnational Litigation:
William E. Thomson – Los Angeles (+1 213.229.7891, wthomson@gibsondunn.com)
Susy Bullock – London (+44 20 7071 4283, sbullock@gibsondunn.com)
Perlette Michèle Jura – Los Angeles (+1 213.229.7121, pjura@gibsondunn.com)
Markus S. Rieder – Munich (+49 89 189 33.260, mrieder@gibsondunn.com)
Andrea E. Smith – Houston (+1 346.718.6751, aesmith@gibsondunn.com)

ESG: Risk, Litigation, and Reporting:
Ferdinand Fromholzer – Munich (+49 89 189 33.270, ffromholzer@gibsondunn.com)
Robert Spano – London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)
Carla Baum – Munich (+49 89 189 33.263, cbaum@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

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

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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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Partners Adam Smith and David Wolber, along with associates Dharak Bhavsar and Anna Searcey, are the co-authors of a chapter in the latest edition of The Guide to Sanctions from Global Investigations Review.

Their chapter, “Sanctions Considerations for Non-Governmental Organisations in a New U.S. Administration,” offers an overview of key prohibitions affecting NGOs and analyzes their impact. The authors also highlight emerging trends, provide practical compliance guidance, and examine efforts to tailor sanctions in ways that minimize harm to humanitarian operations.

This chapter was first published in Global Investigations Review in June 2025. For further in-depth analysis, please visit GIR The Guide to Sanctions – Edition 6.

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.

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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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

This edition of Gibson Dunn’s Federal Circuit Update for June summarizes the current status of petitions pending before the Supreme Court and recent Federal Circuit decisions concerning claim construction, standing, and secondary considerations of non-obviousness.

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

There was a potentially impactful petition filed before the Supreme Court in June 2025:

• Gesture Technology Partners, LLC v. Unified Patents, LLC (US No. 24-1281):  The question presented is:  “Whether the PTO has the authority to conduct administrative adjudications regarding the validity of expired patents, and thereby extinguish private property rights through a non-Article III forum without a jury, even though the patent owner no longer possesses the right to exclude the public from its invention.”  Response briefs are due July 16, 2025.

We provide an update below of the petitions pending before the Supreme Court, which were summarized in our May 2025 update:

• Purdue Pharma L.P. v. Accord Healthcare, Inc. (US No. 24-1132): The respondent filed its response brief on June 2, 2025, and the petitioners filed a reply brief on June 17, 2025.  The Court will consider the petition at its September 29, 2025 conference.
• The Court denied the petitions in In re Micron Technology, Inc. (US No. 24-1216) and McLeay v. Stewart (US No. 24-1181)

Upcoming Oral Argument Calendar

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

Key Case Summaries (June 2025)

Alnylam Pharmaceuticals, Inc. v. Moderna, Inc., et al., No. 23-2357 (Fed. Cir. Jun. 4, 2025):  Alnylam sued Moderna alleging that Moderna’s COVID-19 vaccine infringed Alnylam’s patents.  During claim construction proceedings, the parties disputed the meaning of “branched alkyl.”  The district court concluded that Alnylam had acted as its own lexicographer and construed the term to require an alkyl group with a carbon bonded to at least three other carbon atoms, consistent with the definition set forth in the specification.  The parties stipulated to non-infringement under this construction, and the district court entered final judgment accordingly.

The Federal Circuit (Taranto, J., joined by Chen and Hughes, JJ.) affirmed.  The Court held that the patentee had acted as its own lexicographer in defining the term “branched alkyl” to require a carbon bonded to three or more carbons (rather than at least two carbons, as would be the plain and ordinary meaning of the term).  The Court reasoned that once the high threshold for lexicography is met, a similarly high threshold would have to be met before finding a departure from that controlling definition.  The Court did not find Alnylam’s arguments regarding the dependent claims, prosecution history, and certain examples in the specification required a departure from the definition found in the specification.

Dolby Laboratories Licensing Corp. v. Unified Patents, LLC, Nos. 23-2110 (Fed. Cir. June 5, 2025):  Dolby owns a patent directed to a prediction method using an in-loop filter.  Unified Patents filed a petition for inter partes review (IPR) of Dolby’s patent in which Unified Patents asserted that it was the sole real party in interest (RPI).  In response, Dolby argued that there were nine other entities that it believed should have been named as RPIs.  The Patent Trial and Appeal Board (Board) has a practice of only adjuciating RPI disputes when material to the proceeding in the interest of cost and efficiency.  The Board therefore declined to address the RPI dispute, reasoning that adjudicating the RPI dispute was unnecessary where there was no evidence that the nine alleged RPIs would be time-barred or estopped from bringing the IPR or that Unified Patents sought an advantage by omitting the nine alleged RPIs.

The Federal Circuit (Moore, C.J., joined by Clevenger and Chen, JJ.) dismissed the appeal because Dolby failed to show an injury-in-fact, as required to demonstrate Article III standing.  The Court held that 35 U.S.C. § 112(a)(2)—which provides that a petition “may be considered only if the petition identifies all real parties in interest”—does not provide an informational right to know the identities of all RPIs in IPR proceedings, the violation of which would constitute an injury-in-fact. The Supreme Court has held that an informational right exists in other statutes, such as the Federal Election Campaign Act (FECA), where one of the express purposes of FECA is to allow the public access to certain information.  By contrast, the purpose of the AIA is “to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs,” and thus, the Court held that the AIA did not create an informational right.

Ancora Technologies, Inc. v. Roku, Inc., No. 23-1674 (Fed. Cir. June 16, 2025):  Ancora owns a patent directed to restricting the unauthorized use of licensed software programs on computers.  Roku and Nintendo filed two IPRs against Ancora’s patent, challenging its claims as obvious.  Ancora raised secondary considerations of non-obviousness, specifically citing industry praise and licensing.  The Board held that the challenged claims would have been obvious, and rejected Ancora’s evidence of secondary considerations after finding Ancora failed to establish a nexus between that evidence and the challenged claims.

The Federal Circuit (per curium; Lourie, Reyna, and Hughes, JJ.) vacated and remanded.  The Court affirmed the Board’s finding that Ancora failed to establish a nexus between evidence of industry praise and the claimed invention because the Board did not clearly err in finding that Ancora did not link up the press releases to the challenged claims.  However, as to the Board’s finding that Ancora failed to show a nexus between the challenged claims and two licenses that Ancora entered into with other parties during settlements in other cases, the Federal Circuit found error.  The Federal Circuit held that the Board “applied a more exacting nexus standard than our case law requires for license evidence.”  The Court explained that licenses by its nature are directly tied to the patented technology, and therefore, do not require a showing of nexus to the specific claims at issue.  Thus, the Court instructed that, on remand, the Board should reconsider the nexus issue of the licenses in its secondary considerations of non-obviousness analysis.

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The following Gibson Dunn lawyers assisted in preparing this update: Blaine Evanson, Jaysen Chung, Audrey Yang, Hannah Bedard, Evan Kratzer, and Julia Tabat.

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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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 conference provides valuable information on trends coming from Attorneys General on consumer protection issues, including in fintech and AI.

The National Association of Attorneys General (NAAG) recently convened its biannual consumer protection conference to share best practices, strategies, and challenges.  NAAG is a non-partisan organization that serves as a national forum for fifty-six state and territory Attorneys General.  The NAAG biannual conference on consumer protection, which aims to address pressing and relevant issues in the field and encourage collaboration, is attended by Attorneys General and their staff, representatives of the Federal Trade Commission, and private sector participants.  The conference provides valuable information as to the trends likely coming from Attorneys General in the near future on consumer protection issues.

Expect An Increase in State AG Enforcement Activity

The biggest takeaway from the conference is that state Attorney General activity is likely to increase.  The conference opened with a warning from John Formella, New Hampshire’s Attorney General and NAAG President, and Kwame Raoul, Illinois’s Attorney General, that they perceive a need for state Attorneys General to increase enforcement to counteract what they view as ongoing uncertainty around federal enforcement.  This was a trend during the first Trump Administration, during which state Attorneys General increased consumer protection activity, particularly in states with Democrat Attorneys General.

Fintech – Earned Wage Access

There were four public panels at the conference, and the one that gained the most attention was the panel that addressed an emerging financial product known as an Earned Wage Access (EWA) app, a lending product that enables employees to access some of their accrued wages before their scheduled payday.  This panel was moderated by Maryland Assistant Attorney General Wilson Meeks, and other members of the panel included Kyle George, National Political Director at EarnIn (an EWA app); Phil Goldfeder, President, American Fintech Council (fintech advocacy group supportive of EWA apps); Ellen Harnick, Executive Vice President, Center for Responsible Lending; and Lauren Saunders, Associate Director, National Consumer Law Center.  Mr. Meeks identified the following questions: “Are these products loans and are the fees interest?  Is there a regulatory gap?  Are the providers being transparent about the products?”  Advocates for EWA on the panel, Mr. George and Mr. Goldfeder, described EWA apps as an essential lifeline for low wage workers.  Critics of EWA on the panel, Ms. Harnick and Ms. Saunders, labeled EWA apps as high interest pay day loans.  EWA apps, and fintech products in general, will be a focus of state Attorney General consumer protection efforts.  Some state Attorneys General have already brought suit against EWA app providers, as in New York.[1]  Other states like Utah and Arkansas have passed laws to regulate EWA.[2]

AI Companion Chat Bots

A second panel was convened on AI chat bots, a conversational AI which leverages large language models.  The panel, moderated by Mississippi Assistant Attorney General Crystal Utley-Secoy, included Camille Carlton, Policy Director, Center for Humane Technology; Megan Garcia, Parent Advocate, Megan L. Garcia Law Firm; Meetali Jain, Executive Director, Transformative Justice Law Project; and Robert Mahari, JD-PhD Student at Harvard Law School.  To start the discussion, Ms. Utley-Secoy warned that AI chat bots may result in consumer protection issues and, “as enforcers, we need to be aware of the dangers.”  As an example the panelists discussed a complaint filed by a private plaintiff against the creator of a companion bot app following the death of a teenager who was a user of the app.  The complaint alleges strict product liability, negligence per se, negligence, unjust enrichment, and violations of Florida’s Deceptive and Unfair Trade Practices Act based upon the premise that one of the companion bots encouraged the teenager to commit suicide.  The panelists also discussed the potential liability for chatbots that impersonate therapists or celebrities.  For impersonating therapists, the panel discussed potential liability premised on a theory of fraudulently impersonating a medical provider without a license.  For impersonating celebrities without their permission, the panel discussed potential right to publicity claims.  AI applications, and particularly those that may be viewed as providing advice to consumers, is another area where we expect to see increasing Attorney General activity.

Psychology of Fraud

A third panel was held on psychology of fraud.  The panel, moderated by Brandon Garod, Senior Assistant Attorney General and Chief of the Consumer Protection Bureau in New Hampshire’s Attorney General Office, included Dr. Jessica Choplin, professor of psychology at DePaul University, and Doug Shadel, current managing director of Fraud Prevention Strategies, LLC.  The panelists discussed what is known about the psychology of fraud and how people, regardless of demographic, fall victim to fraud.  They discussed a unifying theory of fraud: “putting people under the ether”— the process of putting a victim in a heightened emotional state, or taking advantage of a current life state, before asking for money.  This “psychology of fraud” is frequently described in consumer protection complaints, and its being highlighted to Attorneys General offices means it will likely be seen more frequently in complaints and claims.

Navigating State Regulator Investigations

Last, a panel was held on navigating state regulator investigations.  This panel included Jeff Hill, Executive Counsel, Tennessee Attorney General’s Office; Paul Singer, Partner, Kelley Drye & Warren LLC, formerly at the Texas Attorney General’s Office; Meghan Stoppel, Counsel, Foley & Lardner LLP, formerly at the Kansas Attorney General’s Office; and Jessica Whitney, Deputy Attorney General, Minnesota Attorney General’s Office, formerly with the Iowa Attorney General’s Office.  Together, the panel with over 90 years of combined Attorney General experience, shared insights that companies should understand when dealing with state Attorney General investigations.  Among other items, the panel discussed best practices for handling an investigation.  For example, Minnesota Deputy Attorney Jessica Whitney warned that attempting to go directly to the Attorney General without first working with the staff member conducting the investigation can destroy credibility.  To that end, she further emphasized the importance of building relationships between company counsel and Attorneys General offices.  Executive Counsel for Tennessee’s Attorney General’s Office, Jeff Hill, also stressed the benefits of engaging directly with the Attorney General staff member conducting the investigation.  And all panelists underscored the importance of cooperation and clear communication for engaging with an Attorney General office.

In sum, the conference was informative and helpful as we look for state Attorney General trends.  From the conference, companies can expect increased Attorney General activity in general, including in fintech and AI.

Gibson Dunn has built close working relationships with state AGs and their teams and regularly work to proactively dissuade them from pursuing investigations.  Having spent time in senior roles in multiple state AG offices, we understand how AG offices work and how to best advocate for our clients.  Our team members have served as the Executive Deputy Attorney General, Deputy Solicitor General, Assistant Solicitor General, Assistant Attorney General, Bureau Chief, and line level attorneys within state AG offices nationwide.  We also have had occasion to represent AG offices themselves.

Gibson Dunn’s State AG Task Force assists clients in responding to subpoenas and civil investigative demands, interfacing with state or local grand juries, representing clients in civil and criminal proceedings, and taking cases to trial.

[1] See DailyPay and MoneyLion complaints.

[2] Arkansas House Bill 1517 and Utah House Bill 279

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The following Gibson Dunn lawyers prepared this update: James Zelenay, Winston Chan, Chris Chorba, Mylan Denerstein, Nick Hanna, Natalie Hausknecht, Poonam Kumar, Eric Vandevelde, Debra Wong Yang, Theo Takougang, Greg Boden, and Billy Malmed.

Gibson Dunn lawyers are closely monitoring developments and are available to discuss these issues as applied to your particular business. If you have questions, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of Gibson Dunn’s State Attorneys General (AG) Task Force, who are here to assist with any AG matters:

Washington, D.C.
Stuart F. Delery (+1 202.955.8515, sdelery@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Stacie B. Fletcher (+1 202.887.3627, sfletcher@gibsondunn.com)
George J. Hazel (+1 202.887.3674, ghazel@gibsondunn.com)
Lauren Cook Jackson (+1 202.955.8293, ljackson@gibsondunn.com)
Rachel Levick  (+1 202.887.3574, rlevick@gibsondunn.com)
Daniel W. Nelson (+1 202.887.3687, dnelson@gibsondunn.com)
Jonathan M. Phillips (+1 202.887.3546, jphillips@gibsondunn.com)
Jason C. Schwartz (+1 202.955.8242, jschwartz@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Patrick F. Stokes (+1 202.955.8504, pstokes@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)

New York
Mylan L. Denerstein (+1 212.351.3850, mdenerstein@gibsondunn.com)
Osman Nawaz (+1 212.351.3940, onawaz@gibsondunn.com)
Tina Samanta (+1 212.351.2469, tsamanta@gibsondunn.com)
Eric J. Stock (+1 212.351.2301, estock@gibsondunn.com)

Dallas
Trey Cox (+1 214.698.3256, tcox@gibsondunn.com
Allyson N. Ho (+1 214.698.3233, aho@gibsondunn.com
Ashley Rogers (+1 214.698.3316, arogers@gibsondunn.com)
David Woodcock (+1 214.698.3211, dwoodcock@gibsondunn.com)

Denver
Ryan T. Bergsieker (+1 303.298.5774, rbergsieker@gibsondunn.com)
Natalie J. Hausknecht (+1 303.298.5783, nhausknecht@gibsondunn.com)

Houston
Gregg J. Costa (+1 346.718.6649, gcosta@gibsondunn.com)
Collin Cox (+1 346.718.6604, ccox@gibsondunn.com)
Prerak Shah (+1 346.718.6677, pshah@gibsondunn.com)

Los Angeles
Christopher Chorba (+1 213.229.7396, cchorba@gibsondunn.com)
Theane Evangelis (+1 213.229.7726, tevangelis@gibsondunn.com)
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Poonam G. Kumar (+1 213.229.7554, pkumar@gibsondunn.com)
Kahn A. Scolnick (+1 213.229.7656, kscolnick@gibsondunn.com)
Katherine V.A. Smith (+1 213.229.7107, ksmith@gibsondunn.com)
Eric D. Vandevelde (+1 213.229.7186, evandevelde@gibsondunn.com)
Frances A. Waldmann (+1 213.229.7914, fwaldmann@gibsondunn.com)
Debra Wong Yang (+1 213.229.7472, dwongyang@gibsondunn.com)
James L. Zelenay Jr. (+1 213.229.7449, jzelenay@gibsondunn.com)

Orange County
Andrew Kasabian (+1 949.451.4341, akasabian@gibsondunn.com)

San Francisco
Winston Y. Chan (+1 415.393.8362, wchan@gibsondunn.com)
Jina L. Choi (+1 415.393.8221, jchoi@gibsondunn.com)

Palo Alto
Ashlie Beringer (+1 650.849.5327, aberinger@gibsondunn.com)
Keith Enright (+1 650.849.5386, kenright@gibsondunn.com)
Cassandra L. Gaedt-Sheckter (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Vivek Mohan (+1 650.849.5345, vmohan@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn lawyers are actively advising in this space and are available to assist in addressing any questions you may have regarding these issues. We have developed materials intended to be useful for companies that are continuing to develop their compliance programs.

Overview:

• On December 27, 2024, the Department of Justice (DOJ) issued a final rule pursuant to a mandate set out in Executive Order 14117 that established a new federal regulatory framework for “bulk sensitive personal data” and “United States government-related data.”[i]  This framework, which came into effect on April 8, 2025, has been referred to by DOJ as the “Data Security Program”(DSP).[ii]
• The DSP restricts or prohibits certain transactions that could involve access to bulk U.S. sensitive personal data or U.S. government data by a class of covered persons and countries of concern, as well as imposes numerous diligence, security, audit, and recordkeeping requirements.  For more details on these restrictions, prohibitions, and requirements, refer to our Client Alert published April 16, 2025.
• The DOJ 90-day de-prioritization of DSP civil enforcement against persons who made “good faith” efforts to comply expired on July 8, 2025.  Before July 8, 2025, DOJ policy was to pursue only “egregious, willful” violations by companies not making a “good faith effort” to comply.  DOJ now expects that “individuals and entities should be in full compliance with the DSP and should expect [the DOJ National Security Division] to pursue appropriate enforcement with respect to any violations.”[iii] 
• The DSP reflects a quilted approach, knitting together frameworks including export controls, sanctions, data privacy, data security, and CFIUS, and applies broadly across sectors and industries.  As DOJ has now clearly articulated its expectations regarding DSP compliance, companies should ensure that they have assessed their potential exposure under the DSP and taken appropriate steps to manage and mitigate attendant risks.

Recommended Actions:

• Data Risk Assessment: U.S. companies and those with U.S. presence should work to understand the potential for access to relevant data by persons (which can be individual or corporate persons) – associated with countries of concern (i.e., China (including Hong Kong and Macau), Russia, Iran, North Korea, Cuba, and Venezuela) to determine whether they may be considered a restricted or prohibited transaction. In particular, companies should:
  • Map potentially covered data and relevant access controls (as well as access logs/records), and
  • Evaluate key vendors, customers, employees, and affiliates to ascertain the potential that they may directly or indirectly provide access to data covered by the DSP to a covered person.
• Security Measures: Where companies determine they are engaged in a restricted transaction that cannot be unwound, they are required to implement and demonstrate compliance with “security measures” articulated by the Department of Homeland Security.  Despite the moniker, compliance with these security measures presents a de facto requirement of fully restricting access to data subject to the DSP by covered persons.
• Compliance Program Build-out: All companies should consider implementing appropriate, risk-based compliance measures to mitigate identified risks, including as informed by DOJ guidance.[iv]  Companies engaging in restricted transactions are expected to adopt and be able to demonstrate compliance measures (including audit, reporting, and certification requirements) by October 6, 2025.  
• Public Disclosure Obligations: SEC registrants should also consider the disclosure implications of the DSP.  In particular, there may be implications for risk factor disclosures (e.g., annual and quarterly reports, registration statements) as well as discussions of cybersecurity risk management, strategy, and governance in annual reports.[v]  SEC registered-entities (e.g., broker-dealers, investment advisers, investment companies, transfer agents, funding portals) should also revisit their Regulation S-P policies and procedures to ensure that they align with their new DSP obligations.

Penalties for Non-Compliance:

Significant penalties may apply for violations of the DSP. 

• Civil penalties up to the greater of $377,700 or twice the value of the transaction.
• Criminal penalties up to $1 million and 20 years’ imprisonment.

Gibson Dunn lawyers are actively advising in this space and are available to assist in addressing any questions you may have regarding these issues and have developed materials intended to be useful for companies that are continuing to develop their compliance programs.

[i] Exec. Order No. 14117, “Preventing Access to Americans’ Bulk Sensitive Personal Data and U.S. Government-Related Data by Countries of Concern,” 89 Fed. Reg. 40424 (issued Feb. 28, 2024; published May 9, 2024). 

[ii] See Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern, 89 Fed. Reg. 1230 (Jan. 8, 2025); Pertaining to Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern, 89 Fed. Reg. 28865 (Apr. 18, 2025) (codified at 28 C.F.R. §§ 202 et seq.); see also Dep’t. of Justice, DSP Compliance Guide (Apr. 11, 2025), https://www.justice.gov/opa/media/1396356/dl; Dep’t. of Justice, DSP: Frequently Asked Questions (Apr. 11, 2025), https://www.justice.gov/opa/media/1396351/dl; Dep’t. of Justice, DSP: Implementation and Enforcement Policy Through July 8, 2025 (Apr. 11, 2025), https://www.justice.gov/opa/media/1396346/dl?inline.

[iii] Dep’t. of Justice, DSP: Frequently Asked Questions, at p. 5 (Apr. 11, 2025), https://www.justice.gov/opa/media/1396351/dl.

[iv] See Dep’t. of Justice, DSP Compliance Guide (Apr. 11, 2025), https://www.justice.gov/opa/media/1396356/dl; Dep’t. of Justice, DSP: Frequently Asked Questions (Apr. 11, 2025), https://www.justice.gov/opa/media/1396351/dl.

[v] See 17 CFR § 229.106 (Aug. 4, 2023).

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The following Gibson Dunn lawyers prepared this update: Vivek Mohan, Stephenie Gosnell Handler, Melissa Farrar, Mellissa Campbell Duru, Sarah Pongrace, and Christine Budasoff.

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

Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Melissa Farrar – Washington, D.C. (+1 202.887.3579, mfarrar@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Christine A. Budasoff – Washington, D.C. (+1 202.955.8654, cbudasoff@gibsondunn.com)

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:

Adam M. Smith – Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
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)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

We invite you to listen to a timely and informative 30-minute webinar discussing the newly enacted One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. This landmark legislation introduces major changes to the U.S. federal income tax system.

Topics discussed:

• Permanent reinstatement of 100% bonus depreciation and R&D expensing
• Modifications to business interest deductibility and qualified business income deductions
• Changes to partnership taxation
• New limitations on energy tax credits
• Restructured international tax rules (GILTI, FDII, and BEAT)
• Expansion of Opportunity Zones and favorable changes for Qualified Small Business Stock
• Changes to state and local tax deductions

Our panel of tax partners walk through the most significant provisions of the Act, including those extending key elements of the 2017 Tax Cuts and Jobs Act and limiting or modifying provisions from the 2022 Inflation Reduction Act. We also discuss the practical implications for businesses, investors, and fund sponsors.

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MCLE CREDIT INFORMATION:

This program has been approved for credit by the New York State Continuing Legal Education Board for a maximum of 0.5 credit hours in the Law Practice Management category. This course is approved for transitional and non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies this activity is approved for 0.5 hours of MCLE credit by the State Bar of California in the General Category.

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

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

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PANELISTS:

Eric Sloan is a partner in the New York and Washington, D.C. offices of Gibson, Dunn & Crutcher and a Co-Chair of the firm’s Tax Practice Group. With nearly 35 years of broad transactional and structuring experience, Mr. Sloan is a nationally recognized expert on the use of partnerships and limited liability companies in domestic and cross-border mergers and acquisitions, financing transactions, and restructurings and has a significant corporate M&A practice representing both financial and strategic investors. He also has developed substantial experience in spin-offs and initial public offerings, including advising on many “UP-C” IPOs in a range of industries.

Pamela Lawrence Endreny is a partner in the New York office of Gibson, Dunn & Crutcher and a Co-Chair of the firm’s Tax Practice Group. Ms. Endreny represents clients in a broad range of U.S. and international tax matters. Ms. Endreny’s experience includes mergers and acquisitions, spin-offs, joint ventures, financings, restructurings and capital markets transactions. She has obtained private letter rulings from the Internal Revenue Service on tax-free spin-offs and other corporate transactions.

Matt Donnelly is a partner in the New York and Washington, D.C. offices of Gibson Dunn & Crutcher and a member of the firm’s Tax Practice Group. Mr. Donnelly represents public and private companies on a broad range of U.S. federal and state income tax matters, with a concentration on domestic and international mergers and acquisitions, dispositions, spin-offs, Reverse Morris Trust transactions, joint ventures, financing transactions, capital markets transactions, restructurings and internal reorganizations.

Kathryn Kelly is a partner in the New York office of Gibson Dunn & Crutcher and is a member of the firm’s Tax Practice Group.  Ms. Kelly represents clients in a broad range of tax matters, including public and private mergers and acquisitions, cross-border transactions, restructurings, and financing transactions. Ms. Kelly earned her Juris Doctor in 2010 from Columbia Law School, where she was a Harlan Fiske Stone Scholar and Executive Editor of the Columbia Journal of Tax Law.

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

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.

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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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Writing in Westlaw Today, partners Patrick Stokes, Michael Diamant, and Oleh Vretsona and of counsel Bryan Parr analyze two notable recent developments that have clarified the U.S. Department of Justice’s approach to corporate criminal enforcement under the Trump administration and ended a four-month pause in bringing new enforcement actions under the Foreign Corrupt Practices Act.

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

ENFORCEMENT ACTIONS

UNITED STATES

• NY State Officials Break Up Alleged Crypto Scam Targeting Russian Nationals
  On June 18, New York State officials, including the New York Attorney General and Superintendent of the New York State Department of Financial Services announced that a multi-agency, long-term investigation resulted in the disruption of an alleged cryptocurrency investment scam that used social media ads to target Russian-speaking residents of New York and other states. After learning of the investigation, a social media site shut down more than 700 accounts associated with the advertiser promoting the alleged scam, and court orders have led to the seizure of $140,000 worth of cryptocurrency and the freezing of approximately $300,000 worth of cryptocurrency. NY AG Press Release; The Block.
• Coinme Inc. Fined in First Enforcement Action Under California’s Digital Financial Assets Law
  On June 25, the California Department of Financial Protection and Innovation (DFPI) announced that Coinme Inc., a crypto kiosk operator, has agreed to pay $300,000 to resolve findings of alleged non-compliance with the state’s Digital Financial Assets Law (DFAL), marking the first enforcement action under the DFAL. According to the DFPI, Coinme violated the DFAL’s transaction limits and failed to include certain disclosures on receipts, as mandated by law. DFAL was enacted in 2023, and was intended to mitigate risks associated with using digital-asset-transaction kiosks. DFPI Press Release; Law360.
• Ripple to Abandon Appeal After Judge Refuses to Sign Off on Settlement
  On June 30, Ripple Labs (Ripple) CEO stated that Ripple plans to drop the appeal of its landmark case with the SEC, ending the matter after a New York federal judge refused to sign off on a settlement that would have reduced Ripple’s $125 million penalty to $50 million, and lifted an injunction restricting certain XRP token sales. The appeals related to a mixed summary judgement where the court found that sales of XRP tokens to sophisticated investors were unregistered securities transactions, but that secondary sales were not. Law360; Reuters.
• DOJ seizes “BidenCash” Marketplace
  On June 4, the U.S. Attorney’s Office for the Eastern District of Virginia announced the seizure of approximately 145 darknet and traditional internet domains and cryptocurrency funds associated with the “BidenCash” marketplace. The operators of the BidenCash marketplace allegedly use the platform to allow users to buy and sell stolen credit cards and associated personal information. According to the DOJ, the BidenCash marketplace facilitated the trafficking of over 15 million payment card numbers and personally identifiable information, and generated over $17 million in revenue during its operations. DOJ Press Release; FortuneCrypto.
• DOJ Files Civil Forfeiture Complaint in Action Related to North Korea
  On June 5, the U.S. Department of Justice filed a civil forfeiture complaint in the District of Columbia seeking to forfeit over $7.74 million in cryptocurrency that was allegedly laundered on behalf of North Korea. The complaint asserts that North Korean information-technology workers unlawfully acquired cryptocurrency by bypassing identity verification and engaging in remote work abroad. The workers were paid for their work in cryptocurrency, and they used money-laundering techniques to try to send the funds back to the North Korean government, before it was seized and frozen by law enforcement authorities. DOJ Press Release.
  
• Founder of Cryptocurrency Payments Company Charged with Evading Sanctions and Export Controls
  On June 9, the DOJ unsealed an indictment charging Iurii Gugnin, with various offenses, including wire and bank fraud, sanctions evasion, operation of an unlicensed money transmitting business, failure to file Suspicious Activity Reports, and money laundering. According to the indictment, Gugnin allegedly used his cryptocurrency company Evita to funnel more than $500 million of overseas payments through U.S. banks and cryptocurrency exchanges while hiding the sources and purposes of those transactions, which include sanctioned Russian entities. DOJ Press Release; Indictment; CNBC; Business Insider.
• Five Men Plead Guilty for Their Roles in a Global Digital-Asset Investment Scam Conspiracy
  On June 9, the U.S. Attorney’s Office for the Central District of California announced that five men from various locations, including California, Turkey, and China, pleaded guilty to an alleged conspiracy to launder more than $36.9 million from victims of an international digital-investment-scam conspiracy that was carried out from centers in Cambodia. As part of the alleged conspiracy, co-conspirators residing overseas would contact U.S. victims directly through electronic means, gain the victims’ trust, and then promote fraudulent digital-asset investments to the victims. Afterwards, individuals like the defendants allegedly laundered the proceeds of these crimes. DOJ Press Release; Cointelegraph.
• Gotbit Founder Aleksei Andriunin Sentenced for Wash-Trading Scheme
  On June 13, the founder of Gotbit, a crypto-focused hedge fund, was sentenced to 8 months in prison in the District of Massachusetts. He allegedly oversaw a wash-trading scheme, which involved manipulating cryptocurrency markets to create artificial trading volume for multiple cryptocurrency companies. DOJ Press Release; The Block; Reuters; Be(in)Crypto.
• DOJ Files Civil Forfeiture Complaint in Action Related to Alleged Crypto Confidence Scams
  On June 18, the U.S. Department of Justice filed a civil forfeiture complaint in the U.S. District Court for the District of Columbia against more than $225.3 million in cryptocurrency. The complaint alleges that the cryptocurrency addresses holding this crypto were part of a sophisticated blockchain-based money laundering network that executed hundreds of thousands of transactions and was used to conceal the nature, source, control, and ownership of proceeds derived from cryptocurrency investment fraud. According to the complaint, the operators dispersed proceeds across an extensive group of cryptocurrency addresses and accounts on the blockchain to conceal the source of the funds. DOJ Press Release;  Complaint; The Block.
• Court Denies Motion to Vacate Conviction of Cryptocurrency Founder.
  On June 24, Judge Seeborg of the Northern District of California denied a motion for a new trial filed by founder and CEO of NAC Foundation Rowland Marcus Andrade. Andrade had previously been convicted at trial of fraud and money laundering related to his allegedly defrauding investors through making false statements about his company’s technology and its business deals. Law360.

INTERNATIONAL

• South Korean CEO is acquitted of $650 million fraud charges
  On June 17, a South Korean court acquitted Haru Invest CEO Lee Hyung-soon of fraud charges. The Haru CEO faced fraud allegations when the company abruptly closed user withdrawals in June 2023 and shut down its office. During his court trial last year, Lee was stabbed in the neck four times by someone who claimed that he suffered heavy losses due to Hyung-soon’s actions. The final judgment noted that the executives’ actions were in response to financial pressures rather than a result of fraudulent intent. CoinCentral; Tech in Asia.

REGULATION AND LEGISLATION

UNITED STATES

• The U.S. Senate Passes GENIUS Act
  On June 17, in a 68-30 vote, the U.S. Senate passed Guiding and Establishing National Innovation for U.S. Stablecoins (Genius) Act. Led by Senator Bill Hagerty (R-TN), the legislation would establish a regulatory framework for stablecoins in the United States. The bill received bipartisan support, with several Democrats joining most Republicans in supporting the bill. The bill now moves to the House, which the President has urged to pass the bill without “delays” or “add-ons.”  The House could vote on the Genius Act at the same as the Clarity Act, the House’s crypto market-structure bill. Senate Banking Committee Press Release; The Block; Truth Social.
• Senate Banking Hearing on Crypto Market Structure – Calls for Regulation
  On June 24, the U.S. Senate Banking Subcommittee on Digital Assets hosted a hearing called “Exploring Bipartisan Legislative Framework for Digital Assets Market Structure.” The panelists urged Congress to pass digital asset legislation soon, and expressed concerns that delays in passing legislation may result in the U.S. ceding authority to legal regimes from other countries. Senators outlined foundational principles, including clear distinctions between digital securities and commodities as well as anti-money laundering safeguards. Bitcoin Magazine; CoinDesk.
• SEC Withdraws Biden-era Proposed Crypto Rules
  On June 12, the SEC rescinded a slate of 14 rules that the agency proposed under the Biden Administration, including two related to crypto custody and exchanges. One of the relevant rules was Rule 3b-16, which would have expanded the definition of “exchange” to include decentralized finance protocols and tightened crypto custody standards for investment advisers. The SEC also rescinded a proposed custody rule that would have brought digital assets more explicitly under SEC custody requirements. CoinTelegraph; SEC Rulemaking Activity Page.
• Conference of State Bank Supervisors Issues Money Transmitter Guidance on Virtual Currency and Capital
  On June 26, the Conference of State Bank Supervisors (CSBS) issued guidance on the treatment of virtual currency when calculating a money-transmitter licensee’s tangible net worth, under the Money Transmission Modernization Act (MTMA). The MTMA is designed to create a consistent set of nationwide standards for tangible net worth (capital) and other requirements applicable to the regulation and supervision of state money transmitters. The advisory guidance is intended to encourage transparency and consistency in implementation of the MTMA. This guidance is the first guidance issued under the MTMA, which according to the guidance has been adopted by 27 States. CSBS Press Release.
• States Adopt Differing Approaches to Crypto Strategic Reserves
  On June 10, Connecticut enacted the final text of a bill prohibiting state and local governments in Connecticut from investing in crypto or establishing a crypto reserve. In contrast, on June 21, Texas became the third state, following Arizona and New Hampshire, to pass legislation establishing a statewide strategic Bitcoin reserve, after Texas Governor Greg Abbott signed the bill into law. However, unlike Arizona and New Hampshire, Texas is the first to create a standalone, publicly-funded reserve. The Block; Connecticut General Assembly Website; CoinDesk.
• Federal Agency Directs Fannie Mae and Freddie Mac To Evaluate Crypto as Asset for Mortgages
  On June 25, the Federal Housing Financing Agency directed Fanne Mae and Freddie Mac to consider accepting a borrower’s crypto holdings as an asset for reserves when assessing risks in single-family home loans, without requiring conversion of crypto assets to U.S. dollars. The potential policy change is intended to encourage banks to expand how they evaluate creditworthiness of homebuyers, as banks have not typically considered crypto holdings until they were sold. The Block; The Associated Press.

INTERNATIONAL

• Hong Kong is Building a Tool to Track Suspected Money Laundering Schemes
  On June 12, Assistant commissioner Mario Wong Ho-yin of the Customs and Excise Department of Hong Kong announced that customs official would be partnering with academics, regional finance professionals, and law enforcement to counteract money-laundering schemes. This partnership comes amid a rise in alleged money laundering schemes involving crypto in Hong Kong. CoinTelegraph; South China Morning Post.
• Coinbase Receives EU Crypto License Under MiCA Rules
  On June 23, Coinbase secured its Markets in Crypto Assets (MiCA) license from the Luxembourg Commission de Surveillance du Secteur Financier (CSSF), enabling Coinbase to offer its full suite of crypto products to all 27 EU member states. Coinbase; The Block.
• Hong Kong Stablecoins Ordinance to Take Effect August 1, 2025
  The Hong Kong government has announced that the Stablecoins Ordinance will take effect August 1, 2025. The Ordinance will introduce a framework for the supervision of stablecoin activities and introduce a licensing regime for regulated stablecoin activities in Hong Kong. The Hong Kong Monetary Authority has also launched two consultations on the detailed regulatory requirements of the stablecoin regime, including the guideline on supervision of licensed stablecoin issuers and anti-money-laundering and counter-financing-of-terrorism requirements for regulated stablecoin activities. Gibson Dunn previously published a client alert on the latest developments. HKMA Gibson Dunn.
• South Korea Moves to Legalize Stablecoins
  On June 9, a member of South Korea’s ruling party introduced the Digital Asset Basic Act, which is intended to provide a regulatory framework for stablecoins. It is aimed at improving transparency and encouraging competition in the crypto sector. Legalizing stablecoins was one of the key promises made by South Korea’s newly elected leader, Lee Jae-myung. Bloomberg; Cointelegraph.
• Hong Kong Securities and Futures Commission Launches Consultation to Further Restrict the Use of Misleading Names
  On June 12, 2025, the Hong Kong Securities and Futures Commission (SFC) launched a consultation which proposes to amend the Securities and Futures Ordinance (Cap. 571) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) to restrict unregulated entities from improperly adopting names that may give the public a false impression that they are regulated entities. This includes restricting unregulated entities from calling themselves a “cryptocurrency exchange” or “virtual asset trading platform” (among others) as that could mislead the public into thinking that such entities are conducting activities regulated by the SFC. The SFC’s proposed amendments would also restrict the use of certain titles that may imply that a business is associated with an established or well-known exchange, virtual asset trading platform, or other similar operation, when it is not in fact so associated. SFC.
• Vietnam Legalizes Cryptocurrency
  On June 14, the National Assembly of Vietnam approved the Law on Digital Technology Industry, bringing digital assets under regulatory oversight. The legislation, which will take effect on January 1, 2026, recognizes digital assets and lays the groundwork for broader digital innovation across the country. The law also mandates cybersecurity and anti-money laundering safeguards, aligned with international norms. Cointelegraph; The Investor.
• Singapore Regulator Clarifies Applicability of New Crypto Regulatory Framework
  On June 6, the Monetary Authority of Singapore (MAS) clarified the applicable scope of its new regulatory framework for Digital Token Service Providers (DTSPs). From June 30, any: (i) individual or partnership providing a Digital Token (DT) service outside of Singapore from a place of business in Singapore; or (ii) Singapore corporation providing a DT service outside Singapore, whether from Singapore or elsewhere will need to be licensed. Key factors which are relevant in determining whether a DT service is being provided “outside Singapore” include the location of the DTSP’s customers and front office. The new DTSP framework is expected to capture an extremely limited number of businesses not already regulated under existing regulatory frameworks applicable to cryptocurrency-related activities. MAS.
• UK’s FCA To Lift Ban on Crypto Exchange Traded Notes To Support UK Growth and Competitiveness
  On June 6, the United Kingdom’s Financial Conduct Authority (FCA) proposed to lift the ban on offering crypto exchange traded notes (cETNs) to retail investors. In a statement, the FCA explained that the decision was intended to support the “growth and competitiveness” of the UK crypto industry, rebalancing the regulator’s approach to risk. FCA Press Release; Reuters; CNBC.

SPEAKER’S CORNER

UNITED STATES

• SEC Commissioner Suggests In-Kind Redemption for Crypto ETFs May Be Approved
  During a June 25 panel, SEC Commissioner Hester Peirce acknowledged the crypto industry’s interest in in-kind creation and redemption of crypto ETFs, stating that SEC sign off is “certainly on the horizon at some point.”  For redemptions of crypto ETFs under the current cash model approach, firms are required to move the cryptocurrency out of storage, sell it immediately for cash, and then give the cash back to the investor. Proponents suggest that in-kind redemption would allow funds to trade more efficiently. Nasdaq filed a From 19b-4 on behalf of BlackRock in January 2025 to pursue in-kind redemption. The Block.

OTHER NOTABLE NEWS

• SEC Announces New Hires with Crypto Experience
  On June 13, the SEC announced four senior appointments, including two officials with experience in digital assets. Effective June 17, Jamie Selway assumed the role of Director of the Division of Trading and Markets. Selway was previously a partner at Sophron Advisors. On July 8, Brian T. Daly will take over as Director of the Division of Investment Management. Daly was previously a partner in the investment management practice of Akin Gump Strauss Hauer & Feld LLP. SEC Press Release Announcing Selway; SEC Press Release Announcing Daly; The Block.
• Circle Raises $1.1 Billion in IPO
  On June 5, Circle (issuer of the second-largest stablecoin, USDC), completed its initial public offering (IPO), raising about $1.1 billion. Stablecoin adoption continues to grow, with USDC having a market cap of over $60 billion. Since the IPO, Circle shares have appreciated more than 600%. The Block; CNBC.
• Ethereum Foundation Donates $500,000 to Tornado Cash Co-Founder Roman Storm’s Defense; Paradigm Also Files Amicus Brief in Support
  Roman Storm, co-founder of Tornado Cash (a mixer that operates on the Ethereum blockchain), is raising funds ahead of his federal criminal trial, which is scheduled to begin on July 14 in the U.S. District Court for the Southern District of New York. In 2023, Storm was charged with conspiracy to commit money laundering, operating an unlicensed money transmitting business, and sanctions violations, for operating Tornado Cash. The Ethereum Foundation, which manages and supports the Ethereum blockchain ecosystem, has made a $500,000 donation to Storm’s defense. In support of Storm’s defense, venture capital firm Paradigm also filed an amicus brief urging the court to adopt jury instructions that state that Storm cannot be convicted unless prosecutors prove Storm knowingly operated a money-transmitting business. The Block; X Post by Roman Storm; Crypto.News; Paradigm Amicus Brief.

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The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Apratim Vidyarthi, Nicholas Tok, Maura Carey, Amanda Goetz, and Cody Wong.

FinTech and Digital Assets Group Leaders / Members:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Texas has adopted important amendments to its corporate statute. This reference guide summarizes the key changes and what they mean for directors and officers.

Texas has recently taken meaningful steps to further enhance its appeal as an attractive home for corporations and their operations. Among the most significant recent initiatives were a set of amendments to the Texas Business Organizations Code (TBOC) enacted during the 89th Texas legislature, whose regular session concluded on June 2, 2025. This reference guide examines the four bills passed by the legislature that resulted in the most significant amendments to the TBOC from a corporate governance perspective – Senate Bill 29, Senate Bill 1057, Senate Bill 2411 and Senate Bill 2337 (together, the “2025 TBOC Amendments”). The 2025 TBOC Amendments are aimed at limiting litigation risks and potential liabilities for directors and officers, improving the regulatory framework governing interactions between proxy advisory firms and shareholders, and providing additional certainty in corporate formalities, while balancing the interests of boards of directors, management and shareholders.

This reference guide provides (1) a summary of the four principal impacts on directors and officers of the 2025 TBOC Amendments, (2) an overview of the new proxy advisor firm regulatory law, and (3) a summary chart of the key statutory provisions introduced by the 2025 TBOC Amendments.

It is important to note that certain provisions of the amended TBOC automatically apply and certain other provisions require action by the corporation to opt in. As such, we have provided an application guide in the summary chart at the end of this reference guide.

In addition, it is important to note that several provisions do not go into effect until September 1, 2025. An asterisk (*) denotes that a provision of the amended TBOC takes effect on
September 1, 2025.

I.     FOUR KEY IMPLICATIONS FOR DIRECTORS AND OFFICERS
    

      1.     Enhanced Protections for Directors and Officers

The 2025 TBOC Amendments provide the following enhanced protections for directors and officers of a Texas corporation:

• Codification of the Business-Judgment Rule (New TBOC Section 21.419): Directors and officers of a Texas corporation that (a) is publicly traded or (b) has opted into new TBOC Section 21.419 (the “BJR Statute”) in its certificate of formation or bylaws are presumed to act (i) in good faith, (ii) on an informed basis, (iii) in furtherance of the interests of the corporation, and (iv) in obedience to applicable law and the corporation’s governing documents. A plaintiff bears the burden of rebutting these presumptions, and must plead with particularity that the alleged breach by the director or officer constitutes fraud, intentional misconduct, an ultra vires act, or a knowing violation of law. This protection is in addition to any existing statutory or common law defenses.
• Protection for Conflicts of Interest (Amended TBOC Section 21.418): The 2025 TBOC Amendments provide additional protections for certain activities involving conflicts of interest. Under amended TBOC Section 21.418(f), directors and officers of a corporation that (a) is publicly traded or (b) opts into the BJR Statute are shielded from any cause of action brought by the corporation or shareholders for a breach of duty with respect to the making, authorizing or performing of a contract or transaction because the director or officer had an interest in the transaction unless the cause of action is permitted by the BJR Statute; meaning the act or omission was a breach of the person’s duties and the breach involved fraud, intentional misconduct, ultra vires acts, or knowing violations of law. This new provision is complementary to the statutory protection already provided under Section 21.418(b) of the TBOC for transactions involving conflicts of interests that were approved by an independent committee, by shareholders, or conducted on fair terms, in accordance with the requirements of the statute.
• Expanded Exculpation (Amended TBOC Section 7.001):* The 2025 TBOC Amendments permit a corporation to exculpate officers from liability for money damages for acts or omissions taken in their capacity as officers to the same extent already permitted for directors. To adopt this protection for its officers, the corporation must make an affirmative election in its certificate of formation to provide for exculpation. Exculpation cannot be provided for breaches of the duty of loyalty, intentional misconduct or a knowing violation of applicable law, transactions from which the officer received an improper benefit, or statutory violations.
• Court Opinions on Director Independence (Amended TBOC Sections 21.416 and 4161): A board of a Texas corporation that (a) is publicly traded or (b) opts into the BJR Statute may petition the Texas Business Court (or other district court with proper jurisdiction if not a Business Court) for a binding determination on the independence of the directors on a committee formed to review and approve transactions involving directors, officers or controlling shareholders. The corporation must notify shareholders that it has filed the petition (e.g., by filing a Form 8-K with the SEC). The court may not hold the preliminary hearing until at least 10 days after the date notice is given. Following expedited proceedings to determine appropriate legal counsel to represent the corporation and its shareholders (excluding the controlling shareholder), the court will conduct an evidentiary hearing and render a binding determination regarding the independence of the directors on the committee. The finding of the court regarding the committee members’ independence is “dispositive” absent facts not presented to the court.
• Texas Law Governs, No Obligation to Follow Other States’ Practices (New TBOC Section 1.057): New Section 1.057 of the TBOC affirms that directors and officers of a Texas corporation may, but are not required to, consider the laws, judicial decisions, or business practices of other states in exercising their powers. The statute further clarifies that a failure to consider or conform to such out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law. The statute also provides that the provisions of the TBOC may not be supplanted, contravened, or modified by the laws or judicial decisions of another state. This provision underscores Texas’ intent to establish and preserve a distinct and self-governing body of corporate law, independent of other jurisdictions.

      2.     Limitations on Litigation-Related Matters

The 2025 TBOC Amendments create several new limitations on certain litigation-related matters involving a Texas corporation:

• Minimum Share Ownership Requirements for Derivative Claims (Amended TBOC Section 21.552): A Texas corporation that (a) is publicly traded or (b) has at least 500 shareholders and has elected to opt into the BJR Statute may impose a requirement that shareholders must own up to 3% of the corporation’s outstanding shares before they can initiate a derivative claim. This ownership threshold may be set forth in the certificate of formation or the bylaws.
• Waiver of Jury Trial (Amended TBOC Section 2.116): A Texas corporation may include in its certificate of formation or bylaws a waiver of the right to a jury trial for any “internal entity claims.” Internal entity claims include, for example, derivative claims alleging the directors of a corporation breached their fiduciary duties. Such waivers are enforceable even if not individually signed by owners, officers, or governing persons. A person is considered to have knowingly waived the right to a jury trial if they voted for or ratified the document containing the waiver, acquired stock at, or continued to hold stock in a corporation with a class of its equity securities listed on a national securities exchange after, a time in which the waiver was included in the certificate of formation or bylaws.
• Elimination of Plaintiff’s Attorney’s Fees for Disclosure Suits (Amended TBOC Section 21.561): Under Texas law, upon conclusion of a derivative proceeding, the court may order that a Texas corporation pay the plaintiff’s attorney’s fees if the derivative action resulted in a “substantial benefit to the corporation.” Under the amendments, a substantial benefit to a corporation does not include additional or amended disclosures made to shareholders (e.g., supplements to a proxy statement for a merger), regardless of materiality.
• Limitations on Shareholder Inspection Rights (Amended Section 21.218): The amendments clarify and, in some respects, limit, the ability of shareholders to inspect corporate records of a Texas corporation. Emails, text messages and social media communications are excluded from corporate records to which shareholders can access under the statute’s provisions, unless those records effectuate an action by the corporation. Furthermore, a Texas corporation that (a) is publicly traded or (b) opts in to the BJR Statute may deny inspection demands from shareholders with ongoing or expected litigation involving the corporation or derivative proceedings involving the shareholders or its affiliates. These changes do not impair the shareholders’ right to obtain discovery of records from the corporation in an active or pending lawsuit.

      3.     Limitations on Shareholder Proposals (New TBOC Section 21.373)*

Under a new provision, “nationally listed corporations” may elect to adopt limitations on shareholder proposals. A “nationally listed corporation” is defined as a Texas corporation (a) with equity securities registered under Section 12(b) of the Securities Exchange Act of 1934, (b) that is listed on a national securities exchange, and (c) that has either (i) a principal office in Texas or (ii) a listing on a Texas-headquartered stock exchange approved by the Texas Securities Commissioner. Under Texas case law, a corporation’s “principal office” is where its officers direct, control, and coordinate activities.

If a corporation opts in to this provision, then, subject to the corporation’s governing documents, a shareholder or group seeking to submit a proposal must meet the following heightened requirements:

• beneficially own at least $1 million in shares or 3% of the company’s voting shares;
• hold such shares for at least six months prior to the shareholder meeting;
• continue holding such shares through the duration of the meeting; and
• solicit holders representing at least 67% of the voting power of shares entitled to vote.

These heightened requirements apply to proposals on any matter to be submitted to shareholders for approval at a meeting of shareholders, including proposals submitted under Exchange Act Rule 14a-8 and floor proposals under advance notice bylaws, other than director nominations and procedural resolutions that are “ancillary to the conduct of the meeting.”

A Texas corporation may implement these limitations in its certificate of formation or bylaws. Although the new provision does not require shareholder approval for such an amendment, it requires that any proxy statement issued before the amendment is adopted include  a description of the amendment. Once adopted, all proxy statements must include instructions regarding how shareholders may submit proposals and contact other shareholders to satisfy ownership thresholds.

      4.     Technical Transaction Execution Improvements for Approval of Mergers, Major Transactions and Related Actions (Amended TBOC Sections 3.106, 10.002, 10.004 and 10.104)*

The 2025 TBOC Amendments streamline the approval and administration of major business transactions, as summarized below:

• authorizes the board of directors to approve corporate documents, including plans of merger, in final or “substantially final” form;
• clarifies that disclosure letters, schedules, and similar documents delivered in connection with a plan of merger are not deemed part of a plan of merger unless expressly included, but still have the effect provided in the plan of merger;
• allows plans of merger to designate representatives to act on behalf of owners or members with exclusive authority to enforce or settle post-closing rights, with such designations becoming irrevocable upon plan approval; and
• allows plans of conversion to authorize additional post-conversion actions without further approvals beyond the plan’s adoption.

II.     PROXY ADVISOR DISCLOSURE REQUIREMENTS (TBOC New Chapter 6A)*

The 2025 TBOC Amendments add new Chapter 6A, titled “Proxy Advisory Services,” which will require proxy advisory firms to make new public disclosures when advising on votes involving certain companies with connections to Texas. Chapter 6A applies to any “proxy advisor,” which is defined as a person who, for compensation, provides a proxy advisory service to shareholders of a company or to other persons with authority to vote on behalf of shareholders of a company. For this purpose, a “company” includes any publicly traded corporation that (i) is incorporated in Texas, (ii) has its principal place of business in Texas, or (iii) is incorporated in another state and has made a proposal to redomesticate to Texas. “Proxy advisory services” are broadly defined and include, among other things, advice or recommendations on how to vote on proposals, proxy statement research or analysis, ratings or research regarding corporate governance, and development of voting recommendations or policies. The scope of proposals covered by the law includes all proposals that are included in the company’s proxy statement, whether made by the company or by shareholders, including director elections and executive compensation.

Disclosure obligations are triggered when a proxy advisory firm provides advice that:

• is based in whole or in part on non-financial factors like ESG, DEI, sustainability, or social credit scores;
• recommends a vote against the board’s position on shareholder proposals without a detailed financial analysis;
• prioritizes non-financial goals over the financial interests of shareholders; and
• recommends voting against a company-backed director nominee, unless the firm explicitly confirms it is based only on financial interests.

When these conditions apply, the proxy advisory firm must:

• notify each client receiving the conflicting advice and the company that is the subject of the proposal;
• disclose the reasoning behind each recommendation that is not solely based on shareholders’ financial interests, including “sacrificing investment returns or undertaking additional investment risk to promote one or more nonfinancial factors;” and
• include a clear, publicly accessible statement on its website disclosing that its services include advice that is not based solely on the financial interests of shareholders.

“Materially Different” advice triggers additional disclosures. If a firm gives conflicting advice—such as (a) telling one client to vote for a proposal and another to vote against the same proposal or (b) advising a vote for or against a proposal in opposition to the recommendation of the company’s management when the client did not expressly request advice for a non-financial purpose, the advisor must, in addition to complying with the requirements above:

• disclose that conflict to all clients, the company involved, and the Attorney General; and
• clearly identify which advice is based solely on financial interests and which is not.

Chapter 6A provides that a violation of these new provisions would be a deceptive trade practice under the Texas Deceptive Trade Practices-Consumer Protection Act, which allows for broad-sweeping private and public rights of action. The statute also provides that the recipient of the proxy advisory services, the company subject to the proxy proposal, and any shareholder of the subject company can bring actions seeking injunctive relief or a declaratory judgment against the proxy advisor. The plaintiff is then required to give notice to the Attorney General, who may intervene in the action.

III.     2025 TBOC AMENDMENTS: SUMMARY OF KEY CHANGES

PROVISION	KEY CHANGES	APPLICATION / SCOPE
Senate Bill 29 (Amendments Effective May 14, 2025)
§ 21.419 – Business Judgment Rule (BJR)	Codifies BJR: acts of directors/officers are presumed (i) in good faith, (ii) informed, (iii) in the corporation’s best interests, and (iv) lawful. Rebuttal requires proof of (a) breach of duty and (b) fraud, intentional misconduct, ultra vires acts, or knowing violations of law. Does not limit monetary liability-limiting provisions in governing documents.	Automatically applies to any publicly traded Texas corporation; a non-publicly traded Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by this section. Applies in addition to any presumption under common law or the TBOC.
§ 21.418(f) – Related Party Transaction Approval	Shields directors/officers from shareholder breach of duty claims regarding interested transactions, unless the cause of action is permitted under § 21.419.	Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. Does not shield controlling stockholders.
§§ 21.416 & 21.4161 – Committees and Related Party Transactions	Allows Texas corporations to petition Texas Business Court (or in certain cases a district court) to determine if committee members reviewing related party transactions are “independent and disinterested.” The court’s determination is binding unless new facts arise. Requires notice of the petition to shareholders.	Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.
§ 21.552 – Limitations on Derivative Actions	Permits Texas corporations to impose a minimum ownership threshold (up to 3% of outstanding shares) to bring derivative actions. Must be in certificate of formation or bylaws.	Automatically applies to any publicly traded Texas corporation; any other Texas corporation with at least 500 shareholders may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.
§§ 2.115 & 2.116 – Jury Trial Waivers and Forum Selection	May (i) include waivers of jury trial for internal entity claims in certificate of formation or bylaws; and (ii) select an exclusive Texas forum and venue for internal entity claims.	A Texas corporation may Opt In by including such waiver in its certificate of formation or bylaws. Includes derivative actions.
§ 21.218 – Inspection Rights	Publicly traded Texas corporations and Texas corporations that opt in to § 21.419 may deny inspection to shareholders involved in active/pending derivative proceedings or civil lawsuits. Excludes emails, texts, and social media from all corporate records subject to inspection rights unless they effectuate corporate action. Discovery rights remain intact.	Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.
Senate Bill 1057 (Amendments Effective September 1, 2025)
§ 21.373 – Requirements for Shareholder Proposals	To submit a proposal, a shareholder/group must hold $1 million in market value or 3% of voting shares as of the date proposal is submitted, must have held the shares for at least six months and through the shareholder meeting, and must solicit at least 67% of voting power with respect to the proposal.	A “nationally listed corporation” may Opt In by affirmatively electing to include such requirements in its certificate of formation or bylaws and disclosed in proxy, together with certain instructional information. No shareholder approval required (unless added as an amendment to the certificate of formation).
Senate Bill 2411 (Amendments Effective September 1, 2025)
§ 7.001 – Officer Exculpation	Permits exculpation of officers for monetary damages to same extent as statutorily permitted for directors. Exclusions: breaches of loyalty, intentional misconduct, improper benefit, statutory violations.	A Texas corporation may Opt In by including such provision in its certificate of formation.
§§ 3.106, 10.002, 10.004, 10.104 – Approval of Forms, Plan of Merger, and Additional Administrative Changes	Authorizes approval of corporate documents (e.g., plan of merger) in final or substantially final form. Disclosure schedules are not part of the plan unless expressly included. Permits irrevocable appointment of representatives to enforce post-transaction rights.	Applies Automatically.
§ 1.057 – Texas Law Controls	Establishes that the TBOC’s plain meaning governs; the TBOC cannot be supplemented, contravened or modified by the case law or statutes from other states. Directors and officers of a Texas corporation may, but are not required to, consider the laws and practices of other states in exercising their powers. A failure to consider or conform to such out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law.	Applies Automatically.
§ 21.561(c)– Excluding Attorney Fee Awards for Enhanced Disclosure	Prohibits the recovery of attorneys’ fees for “disclosure only” settlements in a derivative proceeding, regardless of materiality. Under Section 21.561(b), a shareholder plaintiff may not recover attorneys’ fees unless the court finds the proceeding has resulted in a substantial benefit to the corporation. New Section 21.561(c) provides that a substantial benefit does not include “additional or amended disclosures made to shareholders, regardless of materiality.”	Applies Automatically.
Senate Bill 2337 (Amendments Effective September 1, 2025)
(New Chapter) 6A.001, 6A.201-202 – Proxy Advisory Firm Regulation	Requires proxy advisors to provide certain disclosures to shareholders and the company if the proxy advisor makes recommendation or provides voting advice, where the advice/recommendation is based on non-financial factors or where the proxy advisor provides conflicting advice/recommendations to clients.	Applies Automatically to any publicly traded entity that (i) is organized or created in Texas, (ii) has its principal place of business in Texas or (iii) has made a proposal in its proxy statement to become a Texas entity.

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The following Gibson Dunn lawyers prepared this update: Hillary H. Holmes, Gerald Spedale, Jonathan Whalen, and Patrick Cowherd.

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

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

Gerry Spedale – Houston (+1 346.718.6888, gspedale@gibsondunn.com)

Jonathan Whalen – Dallas (+1 214.698.3196, jwhalen@gibsondunn.com)

Patrick Cowherd – Houston (+1 346.718.6607, pcowherd@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

This update summarizes significant amendments made to the Internal Revenue Code by the Act that, among other changes, extend certain material tax provisions enacted in the Tax Cuts and Jobs Act of 2017 and limit provisions enacted in the Inflation Reduction Act of 2022.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the OBBBA or the Act),[1]  which enacts sweeping changes to numerous areas of U.S. federal income tax law.  The text of the Act can be found here.

This alert summarizes certain significant amendments made to the Internal Revenue Code by the OBBBA that, among other changes, extend and modify certain material tax provisions enacted in the Tax Cuts and Jobs Act of 2017 (the TCJA) and introduce new limitations on certain energy-related tax incentives enacted in the Inflation Reduction Act of 2022 (the IRA).[2]

GENERAL BUSINESS TAX PROVISIONS

1. Full Expensing of Eligible Property (Section 168(k))

The OBBBA permanently reinstates elective expensing (i.e., 100-percent bonus depreciation) for eligible business property acquired after January 19, 2025.  Full expensing had been added by the TCJA, subject to a phase down that started in 2023 and expiration after 2026.[3]

2. Full Expensing of Domestic Research and Experimental Expenditures (Section 174A)

The Act also permanently reinstates elective expensing for qualifying domestic research and experimental expenditures with respect to amounts paid or incurred after December 31, 2024.

The TCJA had required any such expenditures to be capitalized and amortized over a five-year period for taxable years beginning after December 31, 2021.  For certain small businesses, the Act makes the above amendment retroactive (by taxpayer election) to amounts paid or incurred after December 31, 2021, and, for other taxpayers, the Act provides an election to deduct amounts capitalized in 2022-2024 (and unamortized) either in the first taxable year beginning after December 31, 2024 or ratably over the first two taxable years beginning after December 31, 2024.

3. Relaxed Limitation on Deductibility of Business Interest (Section 163(j))

The OBBBA relaxes the limitation on the deductibility of business interest by reverting to the limitation that was in effect between 2017 and 2022 (generally, 30 percent of EBITDA).  The change is effective taxable years beginning after 2024.  Unlike the TCJA, which introduced the cap (and its scheduled reduction to an EBIT-based cap in 2022), the OBBBA makes the more generous pre-2022 EBTIDA-based limit permanent.

However, the OBBBA also introduces rules that extend the application of the deductibility cap to business interest that is required to be capitalized (among other changes that reduce the cap in certain circumstances).

4. “Disguised Sales” of Property or Services (Section 707(a)(2))

Section 707(a)(2) has been in the Code since 1984 and provides for the recharacterization of certain transactions between one or more partners and a partnership (including recharacterization of certain transactions as so-called “disguised sales of partnership interests”).  As enacted in 1984, the provision applied “under regulations prescribed by the Secretary.”  Treasury and IRS have never issued final regulations contemplated by the 1984 statute.  The OBBBA “clarifies” that section 707(a)(2) is self-executing upon enactment of the OBBBA and thus applies even in the absence of regulations.[4]

5. Deduction for Qualified Business Income (Section 199A)

The Act permanently extends the 20-percent deduction for qualified business income available to noncorporate taxpayers.  Subject to limitations, the deduction generally is available with respect to business income (other than employee income or income from specified services) and certain passive income.  The deduction was introduced in the TCJA and was scheduled to expire after 2025.  The Act also relaxes the income-based phaseout of the deduction and includes other taxpayer-favorable changes.

6. Excess Business Loss Limitation (Section 461(l))

The OBBBA makes permanent the limitation on excess business losses of noncorporate taxpayers.  The provision was first introduced in the TCJA, under which it was to expire after 2028.  The Act retains the “one and done” rule, which provides that the limitation applies only in the year in which the loss arises, with any disallowed loss becoming a net operating loss available in future years.

7. Income Exclusion for Qualified Small Business Stock (QSBS) (Section 1202)

The Act increases the gross asset value cap for QSBS issuers from $50 million to $75 million and introduces an inflation adjustment.  In addition, the Act amends the formula for the per-issuer cap on the QSBS exclusion by increasing the dollar-based limit on excluded gain to $15 million (also now adjusted for inflation), up from $10 million under current law.[5]

Finally, the Act shortens the holding period required to qualify for QSBS benefits by introducing a 50-percent exclusion for gain recognized if the stock is held for three years, and a 75-percent exclusion for gain recognized if the stock is held for four years.  (The Act retains the 100-percent exclusion under current law if the stock is held for five years or more.)

The changes to the gross asset value cap apply to QSBS issued after July 4, 2025, and the other changes apply to taxable years beginning after July 4, 2025.

8. Semiconductor Manufacturing Investment Tax Credit (Section 48D)

The OBBBA increases to 35 percent (from 25 percent) the investment tax credit for eligible investments in facilities the primary purpose of which is the manufacturing of semiconductors or semiconductor manufacturing equipment, effective for property placed in service after December 31, 2025.

INTERNATIONAL TAXATION

1. Changes to Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) Regimes (Sections 904, 951A, 960, and 250)

The Act makes several adjustments to the TCJA’s GILTI regime for the taxation of controlled foreign corporations (CFCs), including revising its moniker (to “net CFC tested income” or NCTI) and raising the effective tax rate to 14 percent (up from 13.125 percent).[6]  The Act also raises the effective tax rate under the TCJA’s parallel FDII regime (restyled as “foreign-derived deduction eligible income” or FDDEI)  to 14 percent (up from 13.125 percent).[7]

The OBBBA also eliminates the GILTI deduction for a deemed 10-percent return on qualifying business assets and limits the allocation and apportionment of certain deductions (including all interest and research and experimental expenditures) to NCTI for foreign tax credit limitation purposes, alleviating an onerous feature of the former GILTI regime.

The GILTI and FDII amendments are applicable to taxable years beginning after December 31, 2025.

2. Other CFC-Related Provisions (Sections 951, 951B, 954, and 958)

The Act restores a taxpayer-favorable rule repealed by TCJA that had triggered burdensome (and likely unintended) U.S. tax compliance obligations for foreign-controlled enterprises with U.S. subsidiaries.[8]  The Act also modifies the rules that determine which U.S. shareholder includes a CFC’s subpart F income and NCTI upon a mid-year transfer of the CFC’s shares and makes permanent the oft-reenacted “CFC look-through” rule of section 954(c)(6).

3. Base Erosion Anti-Abuse Tax (BEAT) Rate Modification (Section 59A)

The OBBBA permanently sets the BEAT rate at 10.5 percent for taxable years beginning after December 31, 2025.  The rate for the BEAT was 10 percent for 2025 and, under the TCJA, was slated to increase to 12.5 percent in 2026.

4. Non-Enactment of Revenge Tax (Proposed Section 899)

In recognition of the understanding reached by the U.S. and the Group of Seven, the Trump Administration and Congress did not enact proposed section 899, which would have imposed higher tax rates on persons and entities associated with countries that impose “unfair foreign taxes.”  See our prior alert on proposed section 899 here.

ENERGY

1. Wind and Solar Energy (Sections 45Y and 48E)

Under the OBBBA, qualifying wind and solar projects that begin construction after July 4, 2026[9] must be placed in service by December 31, 2027 to qualify for investment tax credits (ITCs) or production tax credits (PTCs).

Wind and solar projects that begin construction before July 4, 2026 presumably will be subject to the completion deadlines under current IRS guidance, under which a wind or solar project that begins construction in January 2026 could qualify for ITCs or PTCs if it is placed in service before December 31, 2030.

The OBBBA also introduces a raft of new ITC and PTC eligibility requirements that target Chinese ownership or influence with respect to benefited projects and Chinese participation in supply chains.[10]  Rules targeting Chinese ownership of or influence over ITC and PTC claimants (collectively, “Foreign Restrictions”) apply to credits claimed for taxable years beginning after July 4, 2025, and rules targeting Chinese participation in supply chains apply to projects that begin construction in 2026 and after.[11]  In addition, the new foreign-targeted restrictions are backed up by a new 10-year ITC recapture regime and increased penalties on claimants and suppliers.[12]

2. Fuel Cell Energy and Hydrogen Production (Sections 48E and 45V)

Qualifying fuel cell projects that begin construction after December 31, 2025 are now eligible for a new 30-percent ITC that exempts the projects from the IRA’s prevailing wage and apprenticeship requirements and greenhouse gas emission requirements (but provides none of the bonus amounts made available under the IRA).[13]

The Act also moves up the commencement-of-construction deadline for the IRA’s 10-year credit for the production of clean hydrogen (a fuel cell feedstock) from January 1, 2033 to January 1, 2028.

3. Nuclear Energy (Section 45Y)

Nuclear facilities claiming the 10-year PTC are eligible for a new location-based “nuclear energy community” bonus credit starting in 2026, based on the facility site’s satisfying a threshold amount of local employment in the nuclear industry.[14]

4. Clean Fuels (Section 45Z)

The OBBBA extends the clean fuel PTC by two years (from December 31, 2027 to December 31, 2029). The Act also partially relaxes the greenhouse gas emissions requirements under the clean fuel PTC for fuel produced and sold after 2025 and directs Treasury to confirm that (contrary to prior proposed guidance previewed by Treasury and the IRS) certain fuel sales to intermediaries qualify for the PTC.[15]

In addition, for fuel produced after 2025, the Act eliminates the enhanced PTC rate for sustainable aviation fuel and introduces feedstock source requirements and a new cap on the credit.[16]

5. Carbon Capture, Utilization, and Sequestration (Section 45Q)

For equipment placed in service after July 4, 2025, the OBBBA increases the carbon capture, utilization, and sequestration credit for qualified carbon oxide that is “utilized” (e.g., used in a commercial process) or used in enhanced oil or natural gas recovery to equal the credit rate for qualified carbon oxide that is stored in secure geological formations.[17]

6. New Publicly Traded Partnerships (Section 7704)

The Act expands the industries that can operate in publicly traded partnerships (without the partnership’s being automatically classified as a corporation for tax purposes) by expanding the definition of “qualifying income” to include income derived from qualifying hydrogen storage and transportation; electricity production from qualifying nuclear, hydropower, and geothermal facilities; carbon capture facilities, including electricity production from qualifying facilities with sufficient carbon capture; and thermal energy from hydropower and geothermal facilities.  The amendment is effective for taxable years beginning after December 31, 2025.

REAL ESTATE

1. Restoration of Taxable REIT Subsidiary Asset Test (Section 856)

For purposes of the real estate investment trust (REIT) asset test, the Act restores the taxable REIT subsidiary threshold to 25 percent (from 20 percent) of a REIT’s assets for taxable years beginning after December 31, 2025.  The threshold was previously 25 percent for taxable years beginning before 2018.

2. Opportunity Zones (OZs) (Sections 1400Z-1 and 1400Z-2)

The OBBBA also permanently renews the TCJA’s OZ regime, which provides for deferral and potential elimination of taxable gain recognized through 2026 to the extent proceeds are timely reinvested in designated OZs.  As part of the permanent renewal of the program, the OBBBA provides for a re-identification of qualifying OZs every 10 years and modifies other requirements for OZ designation.

The OBBBA also revises the deferral period to five years and caps the exclusion for future gains from the sale or exchange of an OZ investment held for at least 10 years to the gain that has accrued after 30 years.[18]  In addition, the OBBBA introduces a rural OZ program that provides a larger permanent exclusion (30 percent for investments held for at least five years) than the regular OZ program (10 percent for such investments).  The Act also adds new OZ reporting requirements and related penalties.

The renewed OZ program (and related amendments) applies to investments made after December 31, 2026.

OTHER PROVISIONS

1. State and Local Tax Deduction (Section 164)

The OBBBA raises the TCJA’s cap on the deduction for state and local taxes from $10,000 to $40,000 for taxable years 2025 through 2029 (with that cap increasing by 1 percent each year),[19] then reverts to $10,000 in 2030.  The OBBBA’s increase in the cap over $10,000 for years 2025-2029 is subject to a phasedown for higher income households.

Previous versions of the legislation included rules intended to eliminate state and local workarounds of the deductibility limit (including state and local passthrough entity tax, or “PTET,” regimes), but these were not included in the final bill.

2. Endowment Tax (Section 4968)

The OBBBA adds two new graduated rates (4 percent and 8 percent) to the TCJA’s 1.4-percent university endowment excise tax, with the graduated rates based on the size of the endowment (measured on a per student basis).  The Act exempts institutions with fewer than 3,000 students from the tax (the TCJA threshold was 500) and expands the net investment income base of the tax but does not include an exemption for certain religiously affiliated institutions that appeared in earlier versions of the Act.  The Act authorizes Treasury to promulgate guidance to prevent avoidance of the tax through the restructuring of endowment funds or other arrangements designed to reduce or eliminate the amount of net investment income or assets subject to the tax.

The amendment is effective for taxable years beginning after December 31, 2025.

3. No Excise Tax on or Special Rule for Litigation Financing

Previous versions of the legislation included rules intended to tax income from litigation financing arrangement as ordinary income or subject that income to a meaningful excise tax.  Those rules were not included in the Act.

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

[2] Unless indicated otherwise, all “section” references are to the Internal Revenue Code of 1986, as amended (the “Code”), and all “Treas. Reg. §” are to the regulations promulgated by the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) under the Code, in each case as in effect as of the date of this alert.  The actual name for the Tax Cuts and Jobs Act of 2017 is “an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” and the actual name for the Inflation Reduction Act of 2022 is “an Act to provide for reconciliation pursuant to title II of S. Con. Res. 14.”

[3] Absent the Act, only 40-percent bonus depreciation would have been available for property placed in service in 2025.

[4] The Act states that the amendment is not intended to create any inference about the application of section 707(a)(2) in pre-OBBBA periods.

[5] The per-issuer cap is the greater of the dollar-based limit (reduced for certain prior gains recognized) and 10 times the aggregate adjusted bases (at issuance) of QSBS issued by the corporation and disposed of by the taxpayer during the taxable year.

[6] The Act permanently reduces the NCTI (f/k/a GILTI) deduction to 40 percent (from 50 percent) and increases the deemed-paid foreign tax for the NCTI inclusion to 90 percent (from 80 percent).

[7] The Act permanently reduces the deduction for FDDEI (f/k/a FDII) to 33.3 percent (from 37.5 percent).

[8] The restoration is accompanied by a new rule (section 951B) that more narrowly addresses Congress’s concerns with foreign-controlled U.S. shareholders of CFCs.

[9] The effective date is “the date which is 12 months after” July 4, 2025.

[10] The rules also apply to Russia, Iran, and North Korea, but we understand that China is their principal focus.

[11] The OBBBA did not include a controversial proposed excise tax included in prior versions of the legislation that would have applied to wind and solar facilities (regardless of whether ITCs or PTCs were claimed) that incorporated certain components sourced from prohibited foreign sources.

[12] For other ITC recapture events, the five-year recapture period under current law continues to apply.

[13] The Foreign Restrictions (discussed above) also apply to ITCs or PTCs for fuel cell projects on the same timeline as wind and solar projects. For descriptions of certain of those bonus amounts made available under the IRA, please see our prior client alerts here, here and here.

[14] The Foreign Restrictions (discussed above) also apply to ITCs or PTCs for new nuclear projects on the same timeline as wind and solar projects.  For nuclear facilities placed in service before the IRA and claiming the section 45U PTC, the ownership prohibition applies to taxable years beginning after July 4, 2025, and the influence prohibition applies to taxable years beginning after July 4, 2027.

[15] Treasury and the IRS published a notice in January 2025 previewing proposed regulations that would not have allowed the clean fuel PTC for certain common intermediary sales.

[16] The Foreign Restrictions (discussed above) also apply to clean fuel PTCs.  The ownership prohibition applies to taxable years beginning after July 4, 2025, and the influence prohibition applies to taxable years beginning after July 4, 2027.

[17] The Foreign Restrictions (discussed above) apply to carbon capture projects for taxable years beginning after July 4, 2025.

[18] Under the TCJA, gain reinvested in an OZ could be deferred until December 31, 2026.  A conforming amendment eliminates the incremental permanent exclusion for gain from OZ investments held for seven years.

[19] $40,400 in 2026, $40,804 in 2027, $41,212 in 2028, and $41,624 in 2029.

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The following Gibson Dunn lawyers prepared this update: Josiah J. Bethards, Emily Risher Brooks, Michael Q. Cannon, Anne Devereaux*, Matt Donnelly, Pamela Lawrence Endreny, James Jennings, Kathryn A. Kelly, Nick Pai, Eric B. Sloan, Kamia Williams, and Jason Zhang*.

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. Jason Zhang, an associate in New York, is not yet admitted to practice.

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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 consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.

On June 27, 2025, the Hong Kong Government’s Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) jointly published two consultation papers to consult on legislative proposals to regulate virtual asset (VA) dealing and VA custody services respectively (VA Dealing Consultation Paper and VA Custody Consultation Paper, collectively the Consultation Papers).[1] Given that Hong Kong’s crypto regulatory regime is currently limited to the regulation of virtual asset trading platforms (VATPs)[2] and the issue and offering of stablecoins under the soon to be enacted Stablecoins Ordinance,[3] the proposed regulation of VA dealing and custody represent a significant expansion in the regulatory perimeter in relation to VA in Hong Kong.

This update provides an overview of the key proposals outlined in the Consultation Papers.

I. Background to the Consultation Papers

Earlier this year, the SFC published its SFC’s “ASPIRe” roadmap for VA which set out the SFC’s key initiatives for developing Hong Kong as a global cryptocurrency hub (Roadmap).[4] The first of the initiatives set out in the Roadmap was the regulation of VA dealing and VA custody – signalling the SFC’s understanding of the importance of OTC trading and custody in the broader crypto ecosystem.

By way of background, the VA Dealing Consultation Paper represents the Hong Kong Government’s second proposal with regards to the regulation of OTC VA trading, following an earlier consultation in February 2024 (the First Consultation).[5] Notably, the First Consultation proposed that:

• persons who conduct a business in providing VA spot trading services in Hong Kong (including physical outlets and/or other platforms) would be licensed by the Commissioner of Customs and Excise (CCE), but that VA spot trading would be limited to VA-to-fiat or fiat-to-VA trading. Instead, the First Consultation proposed that firms seeking to provide VA-to-VA trading services should consider applying for a VATP licence;
• where a license applicant is also involved in the remittance of fiat money, the license applicant would need to apply for a money service operator license in addition to a VA OTC license; and
• there would be a six-month transitional period to allow pre-existing VA OTC service providers to continue their operations, provided that they submit a licence application to the licensing authority within the first three months of the transitional period.

As noted in the VA Dealing Consultation Paper, a significant volume of industry feedback was received in relation to the First Consultation. In particular:

• The SFC and FSTB noted that the original proposal under the First Consultation was intended to address VA dealing activities in a physical setting (e.g., ATM networks and coin shops) servicing individual investors, with these businesses having limited online presence. However, the industry feedback received from the First Consultation revealed that the nature and scope of VA OTC activities are more diverse and complex in practice than originally contemplated, and includes not only physical shops but also digital only platforms, broker-dealer-type businesses, payment service providers and VA card networks, as well as firms engaged in OTC trading in the course of asset management-related activities, block trading and conversions for trade settlement purposes.
• While the First Consultation envisaged that the customers of VA dealing firms would be primarily individual investors, the feedback received reflected a more complex reality, with a number of firms primarily servicing institutional investors, small-and-medium enterprises and market makers, whose needs differ from those of individual investors.
• The First Consultation did not address custody/escrow services involving clients’ VA. However, the VA Dealing Consultation Paper has noted that custody of client assets appears to be a prerequisite for more complex activities, particularly in the context of VA broker-dealer operations – leading to the parallel consultation on VA custodian services.

As a result of the feedback received during the First Consultation, there are some substantial differences between the approach taken in the First Consultation to the regulation of VA OTC dealing and that outlined in the VA Dealing Consultation Paper. Most significantly (and as explained below), the scope of the proposed regime now relies on a definition of “dealing in VAs” which is closely modelled on the definition of “dealing in securities” under the Securities and Futures Ordinance (SFO). Given that the definition of “dealing in securities” is a well-established concept within the Hong Kong regulatory regime, we believe that the shift to using a similar definition in the VA space is a welcome development and is in keeping with the SFC’s desire to apply the principle of “same activity, same risks, same regulation” to its regulation of VA. Additionally, given the industry feedback regarding the nature of VA dealing in Hong Kong, we welcome the shift of responsibility from the CCE to the SFC (as well as the HKMA as frontline regulator of VA dealing by banks and stored value facilities (SVFs)). Further, given the SFC and HKMA’s respective roles in regulating VATPs and stablecoins, this proposed reallocation of responsibility to the SFC and HKMA should help avoid regulatory fragmentation in this space through the involvement of another regulator (i.e. the CCE) in this space.

II. Summary of the FSTB and SFC’s Proposals under the Consultation Papers

We have set out a detailed summary of the key proposals under the Consultation Papers below:

	VA Dealing Services	VA Custodian Services
Proposed scope of regulation	A person will require a licence (VA Dealing Licence) if they, by way of business, make or offer to make an agreement with another person, or induce or attempt to induce another person to enter into or offer to enter into an agreement: (a)  for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or (b)  the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuations in the value of VAs (collectively, VA Dealing Services). The proposed scope is almost identical to the definition of “dealing in securities” under the Securities and Futures Ordinance (except substituting VA for securities) and thus is very broad. The VA Dealing Consultation Paper explained that this definition is intended to cover: simple dealing services (e.g. VA-VA, VA-to-fiat, fiat-to-VA conversion) more complex dealing services such as brokerage activities, block trading activities and other relevant activities of advisors or asset managers; activities carried on via physical outlets (e.g. shops) or online platforms. As noted above, this proposed definition is a significant departure from the First Consultation (which only covered fiat-to-VA and vice versa). Persons who do not hold a VA Dealing License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Dealing Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong.	A person will require a licence (VA Custodian Licence) if they, by way of business: (a)  safekeep VAs on behalf of clients; or (b)  safekeep, on behalf of clients, instruments enabling the transfer of VAs of clients (e.g. private keys and instruments such as smart cards / authentication credentials used to access private keys) (collectively, VA Custodian Services). Persons who do not hold a VA Custodian License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Custodian Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong.
Responsible regulator(s)	Firms providing VA Dealing or VA Custodian Services will generally be licensed and supervised by the SFC. This is with the exception of VA Dealing or VA Custodian Services offered by banks and SVFs regulated by the HKMA. Banks and SVFs wishing to offer VA Dealing or Custodian Services will need to be registered with the SFC but the HKMA will be their frontline regulator (similar to the existing approach to the regulation of the securities business of banks).
Persons who will require a licence under the current proposals	The VA Dealing Consultation Paper indicated that following persons will require a VA Dealing Licence: (a)  SFC-licensed virtual asset trading platforms (VATPs) (irrespective of whether they engage in off-platform transactions); (b)  SFC-licensed corporations that already provide VA Dealing Services; and (c)  currently unregulated (i.e. non-SFC licensed) persons that provide VA Dealing Services. This is likely to include VA brokers, VA market makers and liquidity providers, VA asset managers, etc. The VA Dealing Consultation Paper flagged that there will be an expedited approval process for persons in categories (a) and (b) above as they are already licensed by the SFC to provide VA Dealing Services.	The VA Custody Consultation Paper set out a non-exhaustive list of persons that will be required to obtain a VA Custodian Licence based on the current proposed scope: (a)  associated entities of SFC-licensed VATPs (which are currently required to provide VA custodian services under the current VATP licensing regime); (b)  banks, subsidiaries of locally incorporated banks and SVFs if they provide VA Custodian Services themselves by way of safekeeping the private keys (or similar instruments) which enable transfer of client VAs – even if such safekeeping is provided in the course of providing VA dealing services or acting as depositaries of SFC-authorised funds with VA in the funds’ portfolios; and (c)  SFC-licensed fund managers, if they provide self-custody to the funds under their management which invest in VAs by way of safekeeping the private keys (or similar instruments) which enable the transfer of fund VAs. Based on the current proposed scope, the VA Custody Consultation Paper noted that technology service providers that support the provision of a VA Custodian Service but who do not themselves safekeep the private keys (or similar instruments) for transfer of VAs will not require a licence. However, the FSTB and SFC have invited feedback from the industry on the various business models, involvement of third parties and technology infrastructure setups currently utilized in this space in order to assist in refining the above definition and identify firms which should be exempt from this licensing regime – therefore this may be subject to change. There will also likely be incidental exemptions for SFC regulated entities whose safekeeping of VAs on behalf of its clients is wholly incidental to the principal business for which such entities are licensed.
Proposed eligibility requirements for a licence	An applicant for a VA Dealing Licence will need to: (a)   either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b)   be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA dealing functions for the applicant; (c)   appoint at least two responsible officers (ROs) approved by the SFC who will be responsible for ensuring compliance with the AML/CFT and other SFC regulatory requirements; (d)   meet capital requirements, including minimum paid-up share capital of HK$5 million and minimum liquid capital of up to HK$3 million (depending on business model) and excess liquid capital equivalent to at least 12 months of actual operating expenses; and (e)   implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below).	An applicant for a VA Custodian Licence will need to: (a)   either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b)   be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA custody functions for the applicant; (c)   appoint at least two ROs approved by the SFC who will be responsible for ensuring compliance with AML/CFT and other SFC regulatory requirements; (d)   meet capital requirements, including minimum paid-up share capital of HK$10 million, and minimum liquid capital of up to HK$3 million (depending on business model) as well as any other additional financial resources requirements ultimately imposed by the SFC; (e)   ensure that staff members who perform more than a clerical role in a business function directly relating to the VA Custodian Licensee’s discharge of its regulatory obligations under the new regime are licensed by the SFC or registered as relevant individuals with the HKMA; and (f)    implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below).
Proposed restrictions on types of VA offered	The SFC and FSTB have flagged that VA Dealing Licensees will be expected to align their approach to token offerings with those of SFC-licensed VATPs. As such, a VA Dealing Licensee will be expected to set up a token admission and review committee and perform reasonable due diligence on all VAs prior to offering them. The desire to align token offering requirements with SFC-licensed VATPs will mean that VA Dealing Licensees are likely to be restricted to offering only “high liquidity” tokens (e.g. BTC and ETH) to retail investors, as well as stablecoins issued by issuers licensed by the HKMA. However, professional investors should be able to be offered a broader range of VA, subject to reasonable due diligence being completed on the tokens being offered.	There will be no restrictions on the types of VAs that a VA Custodian Licensee can provide custodian services, provided that the licensee has performed robust due diligence on the token to ensure that money-laundering and terrorist-financing (ML/TF) risks are adequately managed. Additionally, a VA Custodian Licensee which safekeeps the private keys (or similar instruments) must have custody infrastructure that can support taking the token into custody.
Proposed regulatory requirements	The SFC intends to adopt the “same activity, same risks, same regulation” principle to VA Dealing Licensees. Given this, the relevant regulatory requirements that are currently applicable to SFC-licensed VATPs and SFC-licensed corporations that offer VA Dealing Services are likely to also apply to VA Dealing Licensees. This includes requirements across a broad range of areas such as AML/CFT, risk management, financial reporting, conduct of business, record keeping, protection of client assets and investor protection safeguards.  The SFC has flagged that it will conduct a separate consultation on the detailed regulatory requirements. Notably, the SFC flagged that it is considering allowing VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs that are subject to regulation in other jurisdictions (and provided that there are sufficient investor protection safeguards in place).  This is in contrast with the current restrictions on SFC-licensed corporations that provide VA Dealing Services which only permits them to trade VAs for their clients through an omnibus account maintained with SFC-licensed VATPs.	The VA Custody Consultation Paper highlighted that the regulatory requirements applicable to a VA custodian service provider will depend on the scope of the licensing regime, as well as whether firms safekeep private keys themselves or instead appoint other VA Custodian Licensees or other licensed firms in other jurisdictions to do so. For VA Custodian Licensees that safekeep private keys themselves, the SFC has indicated that the applicable regulatory requirements will likely be comparable to the custody requirements currently imposed on SFC-licensed VATPs.  This will include requirements across a broad range of areas such as AML/CFT, conduct of business, risk management, record keeping and financial reporting.  Firms will also be required to engage an external assessor to perform an external assessment on its policies, procedures, systems and controls as part of the licensing process.  The SFC will conduct a separate consultation on the detailed regulatory requirements.
No transitional period proposed	The FSTB and SFC have noted in the Consultation Papers that no transitional period is proposed for the VA Dealing or VA Custodian Services regimes. This means that the regimes would take effect from the commencement date of the relevant statutory provisions and unlicensed firms would need to cease business as of that date. This is in contrast to the VATP licensing regime which had a transitional period for pre-existing unregulated VATP operators to apply for an SFC licence. Given this, the Consultation Papers suggest that firms already engaged in providing VA Dealing Services or VA Custodian Services to reach out to the SFC and/or HKMA ASAP to initiate pre-application processes and to provide feedback on the commencement date of the licensing regimes.

.

III. Key Takeaways and Conclusion

While the Consultation Papers represent a significant and welcome step forward in the regulation of the crypto ecosystem in Hong Kong, there are a number of aspects of the Consultation Papers that we anticipate will be the subject of considerable industry feedback, including:

• The scope of the proposed definitions and the availability of exemptions from the requirement to hold a VA Dealing Licence or a VA Custodian Licence: The SFC and FSTB have specifically sought feedback on the scope of the proposed definitions of VA Dealing Services and VA Custodian Services, as well as whether there are any potential exemptions that would be appropriate. For VA dealing, we anticipate industry feedback to focus on whether any (or all) of the exemptions from the definition of “dealing in securities” should be incorporated into the definition of “dealing in VAs”. For VA custody, the SFC and FSTB have identified a number of specific questions on which they are seeking industry feedback, including whether (i) entities that do not safekeep private keys but instead arrange a third party to custody client VAs, and (ii) group entities involved in safekeeping private keys and/or signing a VA transaction should be required to be licensed.
• The proposal to allow VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs: As noted above, the SFC and FSTB are specifically consulting on whether VA Dealing Licensees should be allowed to transact with non-SFC-licensed VATPs that are subject to regulation in other jurisdictions, provided that there are sufficient investor protection safeguards in place. We anticipate that there will be significant industry feedback in favour of providing flexibility for VA Dealing Licensees, particularly given that this proposal is consistent with the SFC’s stated focus in the Roadmap on integrating “Hong Kong with global liquidity”.
• The proposed lack of transitional period: As noted above, the SFC and FSTB have flagged that their present intention is for there to be no transitional period for either the VA Dealing or VA Custodian regimes. This is likely intended to avoid a situation in which applicants are deemed to be licensed while the SFC reviews their licence applications, as this type of deeming arrangement can lead to firms whose licence applications are ultimately rejected being allowed to operate under a deeming arrangement for an extended period of time. However, we anticipate that this proposal will be the subject of significant industry feedback as it does expose firms to the risk of being forced to cease operating if their licence applications are still being reviewed by the SFC at the time that the regimes come into effect.

The consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.

[1] “Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP6; and “Public Consultation on Legislative Proposal to Regulate Virtual Assets Custodian Services”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP7

[2] “New Hong Kong Regulatory Requirements and Licensing Regime for Virtual Asset Trading Platforms Finalised as Legislation Takes Effect”, published by Gibson, Dunn & Crutcher on June 7, 2023, available at: https://www.gibsondunn.com/new-hong-kong-regulatory-requirements-and-licensing-regime-for-virtual-asset-trading-platforms-finalised-as-legislation-takes-effect/

[3] “Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime”, published by Gibson, Dunn & Crutcher on June 4, 2025, available at: https://www.gibsondunn.com/hong-kong-gets-ready-for-stablecoin-regulation-hkma-prepares-for-enactment-of-the-regime/

[4] “A-S-P-I-Re for a brighter future SFC’s regulatory roadmap for Hong Kong’s virtual asset market”, published by the Securities and Futures Commission on February 19, 2025, available here.

[5] “Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets”, published by FSTB on February 8, 2024, available at: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VAOTC_consultation_paper_en.pdf

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The following Gibson Dunn lawyers prepared this update: William Hallatt, Emily Rumble, Arnold Pun, and Jane Lu.

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)

Becky Chung (+852 2214 3837, bchung@gibsondunn.com)

Arnold Pun (+852 2214 3838, apun@gibsondunn.com)

Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn is monitoring regulatory developments and executive orders closely. Our attorneys are available to assist clients as they navigate the challenges and opportunities posed by the current, evolving legal landscape.

Overview

On June 25, 2025, the Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN) issued three orders identifying three Mexico-based financial institutions—CIBanco S.A., Insitución de Banca Multiple (CIBanco), Intercam Banco S.A., Institución de Banca Multiple (Intercam), and Vector Casa de Bolsa S.A. de C.V. (Vector)—as being of primary money laundering concern in connection with illicit opioid trafficking.  The three orders (the “2313a Orders”) prohibit U.S. financial institutions from engaging in financial transactions with CIBanco, Intercam, and Vector.[1]

As a result of the 2313a Orders, domestic financial institutions will need to update their compliance programs and controls to ensure they do not engage in transmittals of funds involving CIBanco, Intercam, or Vector.  U.S. financial institutions will be well-served by reviewing their compliance programs, calibrating their compliance-related risk assessments, and ensuring they implement controls to prevent doing business with the designated financial institutions.  Non-financial institutions should be aware of these orders; though the 2313a Orders do not apply to them, the orders will affect their banking and other financial institution partners.

This alert begins with an overview of the relevant statutory background to provide insight into 21 U.S.C. § 2313a, the recently passed statute that FinCEN employed to issue these first-of-their-kind orders.  It then summarizes the substance of the 2313a Orders, and concludes with a discussion of the potential implications of the 2313a Orders for domestic financial institutions.

Statutory Background

In 2024, Congress enacted the FEND Off Fentanyl Act as part of Public Law 118-50, which, inter alia, created 21 U.S.C. § 2313a to provide the Secretary of the Treasury with the authority to designate certain foreign financial institutions, classes of foreign transactions, and types of foreign accounts as of “primary money laundering concern in connection with illicit opioid trafficking.”[2]

Similar to Section 311 of the USA PATRIOT Act,[3] Section 2313a empowers Treasury to sanction foreign financial institutions which the Secretary believes to be facilitating money laundering.[4]  However, Section 2313a is focused on illicit opioid trafficking,[5] which is defined in federal law as “any illicit activity…to produce, manufacture, distribute, sell, or knowingly finance or transport synthetic opioids, including controlled substances that are synthetic opioids and listed chemicals that are synthetic opioids, or active pharmaceutical ingredients or chemicals that are used in the production of controlled substances that are synthetic opioids,” or any attempt, conspiracy or aiding and abetting, other persons to do the same.[6]  Under Section 2313a, upon determining that there are “reasonable grounds” for concluding that any foreign financial institution, class of transactions, or accounts have been involved in money laundering in connection with illicit opioid trafficking, the Secretary of the Treasury may require domestic financial institutions, as defined by the Bank Secrecy Act, to take certain special measures as described in Section 311, or to entirely prohibit or otherwise condition transmission of funds by domestic financial institutions involving the designated institutions, classes, or accounts.[7]

While Sections 2313a and 311 provide the Secretary of the Treasury authority to combat money laundering by designating institutions of primary money laundering concern, there are notable differences.  First, Section 2313a is limited to money laundering concerns connected specifically to opioid trafficking.  Second, Section 2313a provides more expansive authority, because in addition to authorizing the Secretary of Treasury to implement any of the special measures provided for in Section 311, it also authorizes the Secretary of the Treasury to entirely prohibit or condition certain transmittals of funds by domestic financial institutions if they involve a designated institution.  Third, Section 2313a permits special measures to be imposed by an agency order alone and does not require notice and comment rulemaking.

Summary of the 2313a Orders

The 2313a Orders entirely prohibit U.S. financial institutions from engaging in certain transmittals of funds with CIBanco, Intercam, and Vector.  Transmittals of funds is defined by the Orders “as the sending and receiving of funds, including convertible virtual currency.”  According to Secretary of the Treasury Scott Bessent, CIBanco, Intercam, and Vector “are enabling the poisoning of countless Americans by moving money on behalf of cartels, making them vital cogs in the fentanyl supply chain.”[8]  The three institutions allegedly “played a longstanding and vital role in laundering millions of dollars on behalf of Mexico-based cartels” and “facilitat[ed] payments for the procurement of precusor chemicals needed to produce fentanyl.”[9]

Secretary Bessent delegated authority to administer Section 2313a to the Director of FinCEN, Andrea Gacki.[10]  The Director of FinCEN stated that while she was under “no obligation” “to consider any particular factor or set of factors” to determine that a financial institution was of primary money laundering concern, she stated that she considered the factors listed in Section 311 as “instructive.”[11] As to each of CIBanco, Intercam, and Vector, the Director announced there was evidence that the institutions played vital roles in facilitating money laundering activities of Mexico-based cartels engaging in illicit opioid trafficking, including facilitating payments for the procurement of precursor chemicals essential for the production of illicit opioids by drug trafficking.  The Director then determined that the appropriate sanction was a total prohibition by U.S. financial institutions, citing the effect on U.S. national security and foreign policy, the minimal burdens on legitimate activities, and the fact that the other potential special measures under Section 311 were inadequate.[12]

The 2313a Orders prohibit domestic financial institutions and agencies from engaging in transmittals of funds to or from CIBanco’s, Intercam’s, and Vector’s Mexican entities, including their Mexico-based branches, subsidiaries, and offices.[13]  As noted above, “transmittals of funds” is defined by the 2313a Orders as “as the sending and receiving of funds, including convertible virtual currency.”  The 2313a Orders will go into effect on September 4, 2025.[14]  If a U.S. financial institution continues to transact with CIBanco, Intercam, or Vector, after that date, the financial institution could face civil monetary penalties[15] or, in the event of willful violations, criminal penalties, under the Bank Secrecy Act.[16]

Implications of the 2313a Orders

The 2313a Orders are the first time FinCEN has employed Section 2313a to sanction foreign financial institutions for opioid trafficking-related money laundering.[17]

In addition to demonstrating that FinCEN will continue to aggressively designate primary money laundering concerns,[18] the 2313a Orders demonstrate that the Trump Administration will use many different tools to attack what the Attorney General has stated is the goal of the “Total Elimination of Cartels and Transnational Criminal Organizations.”[19]

Finally, as stated at the outset of this Client Alert, as a result of the prohibitions promulgated in the 2313a Orders, domestic financial institutions will need to update their compliance programs and controls to ensure they do not engage in transmittals of funds involving the designated financial institutions.  U.S. financial institutions therefore will be well-served by reviewing their compliance programs and calibrating their compliance-related risk assessments to mitigate against changing risk and enforcement realities reflected in the 2313a Orders, as well as to ensure they implement controls to prevent doing business with the designated financial institutions.

While the 2313 Orders only apply to domestic financial institutions, other types of companies should also be aware of these orders.  Compliance by domestic financial institutions will likely affect banking and other relationships connected to the sanctioned Mexican institutions.

On July 9, 2025, FinCEN issued updated guidance extending the effective date for the 2313a Orders from July 21 for 45 additional days.  The 2313a Orders will thus go into effect on September 4, 2025.

[1]  See Press Release, U.S. Dep’t of Treasury, Treasury Issues Historic Order Under Powerful New Authority to Counter Fentanyl (June 25, 2025), https://home.treasury.gov/news/press-releases/sb0179.

[2]  See 21 U.S.C. § 2313a(a).

[3]  See generally 31 U.S.C. § 5318A.  Section 311 confers Treasury with the authority to “require domestic financial institutions and domestic financial agencies to take 1 or more of the special measures described [in Section 311] if the Secretary finds that reasonable grounds exist for concluding” that foreign financial institutions, transactions, or accounts are “of primarily money laundering concern.”  Id. § 5318A(a)(1).  These “special measures” are restrictions that require U.S. financial institutions take certain cautionary measures with respect to the restricted foreign financial institutions, to protect the United States from foreign money laundering efforts.  See id. §§ 5318A(b)(1)-(5).

[4]  See 21 U.S.C. § 2313a.

[5]  21 U.S.C. § 2313a(a).

[6]  21 U.S.C. § 2302(8).

[7]  21 U.S.C. § 2313a(1)

[8]  See Press Release, U.S. Dep’t of Treasury, supra note 1.

[9]  Id.

[10]  See Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving CIBanco S.A., Institución De Banca Multiple, 90 Fed. Reg. 27770, 27770 n.4 (June 30, 2025) (hereinafter “CIBanco Order”).

[11]  Id. at 27772 & n.17. Section 311 lists potentially relevant factors as: (1) the extent to which such financial institutions, transactions, or types of accounts are used to facilitate or promote money laundering in or through the jurisdiction, including any money laundering activity by organized criminal groups, international terrorists, or entities involved in the proliferation of weapons of mass destruction or missiles; (2) the extent to which such institutions, transactions, or types of accounts are used for legitimate business purposes in the jurisdiction; and (3) the extent to which such action is sufficient to ensure, with respect to transactions involving the jurisdiction and institutions operating in the jurisdiction, that the purposes of this subchapter continue to be fulfilled, and to guard against international money laundering and other financial crimes.  31 U.S.C. § 5318A(c)(2)(B).

[12]  See CIBanco Order at 27772-76; Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving Intercam Banco S.A., Institución de Banca Multiple, 90 Fed. Reg. 27777, 27778-83 (June 30, 2025); Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving Vector Casa de Bolsa, S.A. de C.V., 90 Fed. Reg. 27764, 27765-70 (June 30, 2025).

[13]  The orders do not apply to these companies’ branches, subsidiaries, or offices located outside of Mexico.

[14]  See https://www.fincen.gov/news/news-releases/treasury-extends-effective-dates-orders-issued-under-new-authority-counter.

[15]  31 U.S.C. § 5321(a)(7).

[16]  31 U.S.C. § 5322(d).

[17]  See Press Release, U.S. Dep’t of Treasury, FinCEN, Treasury Issues Unprecedented Orders under Powerful New Authority to Counter Fentanyl, https://www.fincen.gov/news/news-releases/treasury-issues-unprecedented-orders-under-powerful-new-authority-counter.

[18]  Under a different statute, in 2023 and 2024 FinCEN designated two alleged Russian cybercrime services as of primary money laundering concern.  See https://home.treasury.gov/news/press-releases/jy2616; https://www.fincen.gov/news/news-releases/fincen-identifies-virtual-currency-exchange-bitzlato-primary-money-laundering.

[19]  https://www.justice.gov/ag/media/1388546/dl.

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The following Gibson Dunn lawyers prepared this update: Stephanie Brooker, Kendall Day, Amy Feagles, Adam M. Smith, Ella Alves Capone, Sam Raymond, Rachel Jackson, and Jake Sherman.

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 Anti-Money Laundering/Financial Institutions, International Trade Advisory & Enforcement, National Security, Sanctions & Export Enforcement, or White Collar Defense & Investigations practice groups.

Anti-Money Laundering / Financial Institutions:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
Amy Feagles – Washington, D.C. (+1 202.887.3699, afeagles@gibsondunn.com)
Ella Alves Capone – Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)
Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

International Trade Advisory & Enforcement:
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)

National Security:
Zainab N. Ahmad  – New York (+1 212.351.2609, zahmad@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)

Sanctions & Export Enforcement:
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)

White Collar Defense & Investigations:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Winston Y. Chan – San Francisco (+1 415.393.8362, wchan@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
F. Joseph Warin – Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Werner Enters., Inc. v. Blake, No, 23-0493 – Decided June 27, 2025

In an opinion issued on June 27, the Texas Supreme Court explained that proximate cause requires proof that a defendant’s negligence was a substantial factor in causing the plaintiff’s injury.

“[T]he substantial-factor requirement means that liability falls only on a party whose substantial role in bringing about the injury is such that he is ‘actually responsible for the ultimate harm.’”

Chief Justice Blacklock, writing for the Court

Background:

The driver of a pickup truck traveling in icy conditions lost control of his vehicle on the interstate, crossed the median, and crashed into an 18-wheeler driven by a trainee driver with Werner Enterprises.  One of the four passengers in the pickup truck—a child—was killed, and the other three passengers suffered serious injuries.  The 18-wheeler was traveling around 50 miles per hour just before the collision, and the pickup truck was going between 50 and 60 miles per hour before losing control.  The trainee driver pressed the brake as soon as he saw the pickup truck, but evidence at trial showed both vehicles were traveling too fast for the icy conditions.

After a passenger sued on behalf of herself and her children, a jury found Werner 70% responsible and the trainee driver 14% responsible for the crash.  The Fourteenth Court of Appeals affirmed en banc over two dissents.

Issue:

Whether the trainee driver’s negligence, if any, proximately caused the accident such that he and Werner could be held responsible.

Court’s Holding:

No.  Plaintiffs failed to establish proximate cause because “the sole substantial factor in bringing about this accident . . . was [the pickup truck driver’s] losing control of his F-350 and crossing a 42-foot grassy median into oncoming highway traffic before” the trainee driver “had time to react.”

What It Means:

• The Court explained that determining “[p]roximate cause” requires “application of ‘a practical test, the test of common experience, to human conduct when determining legal rights and legal liability.’”  Proximate cause is divided into two elements—“(1) cause in fact, and (2) foreseeability.”  In turn, cause in fact has two components—“but for” causation and ”substantial factor” causation.
• The Court reaffirmed that “[w]here the initial act of negligence was not the active and efficient cause of plaintiffs’ injuries, but merely created the conditions by which the second act of negligence could occur, the resulting harm is too attenuated from the defendants’ conduct to constitute the cause in fact of plaintiffs’ injuries.”
• The Court emphasized the trainee driver’s conduct wasn’t the proximate cause of the plaintiffs’ injuries because nothing he “did or didn’t do” contributed to the pickup truck “hitting ice, losing control, veering into the median, and entering oncoming traffic on an interstate highway.”  Instead, “the presence of his 18-wheeler in its proper lane of traffic on the other side of I-20 at the precise moment” the pickup truck driver “lost control” was “just the kind of ‘happenstance of place and time’ that cannot reasonably be considered a substantial factor in causing these injuries.”
• The Court explained that while “similar considerations will often bear on” substantial-factor causation and foreseeability, the “two are nevertheless distinct.”  So cases addressing foreseeability may be “legally distinguishable” when addressing whether conduct was a substantial factor in causing an injury.
• And the Court made clear that it has not “recognized negligent training or supervision as an independent theory of tort liability.”  Assuming that such claims have “independent viability,” the Court suggested they should be treated like “negligent hiring claims.”  Three justices suggested in a concurrence and a partial dissent that the Court should adopt the “admission rule” and treat employer liability claims as direct claims when an employer admits an employee was acting within the scope of his employment, as some courts of appeals have done.

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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 Texas 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
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox +1 214.698.3256 tcox@gibsondunn.com

Collin Cox +1 346.718.6604 ccox@gibsondunn.com

Gregg Costa +1 346.718.6649 gcosta@gibsondunn.com

This alert was prepared by Texas of counsel Ben Wilson and Texas associates Elizabeth Kiernan and Stephen Hammer.       

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

This decision is likely to promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.

1. Introduction

In its landmark decision of January 9, 2025, the Federal Court of Justice (BGH) provides clarity regarding the applicable regime governing the interaction of arbitration clauses and statutory provisions on general terms and conditions (GTC)s[1].

With its long-awaited ruling, the court confirms that arbitration clauses in commercial contracts are valid even if the choice-of-law provision governing the arbitration proceedings excludes the statutory law controlling GTC. The decision significantly strengthens contractual practice, although uncertainties remain with respect to the public policy proviso (ordre public).

a) Outline of Legal Issue

German statutory laws controlling GTC have long been subject to controversial debate in the context of commercial transactions.

Originally introduced to address the use of pre-formulated contractual clauses in mass transactions and their interference with the principle of private autonomy – a purpose later extended by the European regulator to include consumer protection – these laws are often perceived as too strict, formalistic, and inflexible, particularly in the B2B sector.

The crux of the matter lies in the catch-all provision of Section 307 BGB, which applies even to commercial transactions. This provision mandates a substantive court review of pre-formulated contractual terms, particularly guided by the principles laid out in Sections 308 and 309 BGB. Such review may, inter alios, affect – and potentially render invalid – clauses on liability limitations, price adjustments in long-term supply or construction contracts, standard M&A provisions, and fee arrangements in financing agreements.

In cross-border transactions, these uncertainties are increasingly perceived as a significant drawback of German law.

b) Practical Response

Practitioners have long sought to provide businesses with greater flexibility in structuring their contracts, while preserving legal certainty.

One increasingly common solution is to move disputes from state courts to arbitration proceedings. In such cases, parties typically agree to apply German substantive law, while expressly excluding Sections 305–310 BGB. This practice is grounded in Section 1051 para. 1 of the German Code of Civil Procedure (ZPO), which allows parties broad discretion in selecting the legal framework for arbitration proceedings.

Despite strong arguments in favor of this approach,[2] courts had previously not taken a clear position on its permissibility. In particular, it was unclear whether such exclusion might constitute an unlawful circumvention of statutory GTC provisions. As a result, parties faced the risk that the arbitration clause or the related choice-of-law clause could be invalidated in court.

2. Key Holdings of the BGH ruling of January 9, 2025 (I ZB 48/24)

Against this backdrop, the BGH’s recent decision is especially important, as it provides fundamental guidance for the validity of arbitration clauses that exclude statutory GTC provisions in commercial contracts. This significantly enhances legal certainty for such arrangements.

a) Separability of Arbitration Clause and Choice-of-Law

The court held that the validity of an arbitration clause must be assessed independently of other contractual terms. Even if the choice-of-law clause or the exclusion of GTC provisions is ineffective, the arbitration clause remains valid –provided there is no substantive dependency between the arbitration clause and the contested provision.

Such dependency is generally precluded by the inclusion of severability clauses in commercial contracts, as the BGH correctly observed.

b) Exclusion of statutory GTC provisions in Arbitration Proceedings

Regarding the choice-of-law clause, the BGH refrained from making a substantive ruling and instead deferred to the jurisdiction of the arbitral tribunal. In doing so, the BGH relied on Section 1051(1) ZPO, according to which it is for the tribunal to decide on the applicable legal regime, including the permissibility of excluding German GTC provisions.

As a result, the role of state courts is limited to examining whether recognition or enforcement of an arbitral award must be denied under the public policy proviso (Section 1059(2) No. 2(b) ZPO). This standard sets a high bar and applies only where essential principles of German law or justice are violated[3] – for example, where a clause can no longer be seen as a valid expression of contractual autonomy or would lead to intolerable outcomes.[4]

Lastly, the BGH clarified that a violation of the public policy proviso depends exclusively on the outcome of arbitration, rather than on the procedural or substantive law applied. Accordingly, the mere exclusion of statutory GTC rules does not, in itself, qualify as a breach of public policy.

3. Assessment of Court Ruling

The BGH’s decision is a welcome clarification that reinforces legal certainty and the principle of party autonomy.

Crucially, the Court confirmed that the exclusion of statutory GTC provisions in a choice-of-law clause does not invalidate an arbitration agreement. This ensures that an arbitration clause remains enforceable regardless of the choice-of-law provision. As a result, if a claimant nevertheless initiates proceedings before a state court, the court must uphold the arbitration defense and refer the matter to arbitration—without needing to assess the validity of the choice-of-law clause.

Furthermore, the ruling rightly confirms that the arbitral tribunal – not the state court – as the appropriate body to evaluate the permissibility of excluding Sections 305–310 BGB.

From a practical perspective, this deference aligns with the broad latitude granted by Section 1051 (1) ZPO, which permits parties to choose even non-state legal systems, such as the lex mercatoria, to govern their arbitral proceedings. The decision thus reinforces the viability of excluding statutory GTC provisions in arbitration settings.

Nonetheless, a residual risk remains: In the context of recognizing or enforcing an arbitral award, state courts may still review compliance with the public policy proviso. While this ruling clarifies that exclusion of statutory GTC provisions does not automatically trigger such a violation, absolute legal certainty cannot be guaranteed in all scenarios.

Ultimately, the ruling marks a turning point for drafters of cross-border contracts by significantly reducing legal ambiguity around the exclusion of GTC law in arbitration contexts.

4. Outlook

This decision will likely promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.

More broadly, the ruling underscores the urgency for legislative reform: German GTC law, particularly in the B2B context, remains overdue for modernization. The long-promised liberalization, most recently referenced in the new coalition agreement, should be advanced to give businesses the flexibility they require.

Such reform is not only in the interest of private actors, but also in the interest of the state itself. As arbitration increasingly becomes the preferred forum for resolving commercial disputes, state courts risk being progressively sidelined from shaping the development of key areas of commercial law.

[1] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151; detailed review in Pfeiffer NJW 2025, 866, 869 et seq.

[2] Cf. Pfeiffer NJW 2012, 1169.

[3] BGH, decision of 11.10.2018 – I ZB 9/18, SchiedsVZ 2019, 150 para. 5.

[4] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151 para. 42.

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The following Gibson Dunn lawyers prepared this update: Dirk Oberbracht, Finn Zeidler, Annekathrin Schmoll, Fabiana Obermeier, and Simon Stöhlker.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s International Arbitration or Judgment and Arbitral Award Enforcement practice groups, or the authors in Frankfurt:

Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com)

Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com)

Annekathrin Schmoll (+49 69 247 411 533, aschmoll@gibsondunn.com)

Fabiana Obermeier (+49 69 247 411 518, fobermeier@gibsondunn.com)

Simon Stöhlker (+49 69 247 411 517, sstoehlker@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.