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Substituted compliance offers a pathway for cross-border firms to navigate regulatory demands more efficiently – but regulatory oversight remains.

Rooted in the derivatives markets, substituted compliance offers a pathway for cross-border regulated entities to navigate regulatory demands more efficiently. It permits a foreign firm regulated by the U.S. Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) to satisfy certain U.S. regulatory requirements via compliance with comparable requirements in its home jurisdiction. Security-based swap (SBS) regulations have matured and substituted compliance is likely to become increasingly important to participants in the growing digital asset markets, which are very often cross-border.

It is critical for foreign firms relying on substituted compliance orders to remain vigilant in complying with these orders. For instance, the SEC’s Examinations Division has expressly noted its focus on compliance with SBS rules generally and, specifically, whether relevant entities are complying with the SEC’s substituted compliance orders.[1] A recent first-in-kind enforcement action further signals that this topic occupies an area of interest to the SEC’s Enforcement Division.[2] And regulators, among other things, want to ensure that foreign firms active in U.S. markets do not have a competitive advantage when it comes to regulatory costs or burdens. No matter the administration, oversight of substituted compliance will remain a priority.

I. Substituted Compliance in the SBS Market

The SEC must affirmatively issue an order granting registered security-based swap dealers (SBSDs) and major security-based swap participants (SBSPs and, together with SBSDs, SBS Entities) the option to elect to apply substituted compliance for the Securities Exchange Act of 1934’s provisions and applicable rules. If an SBS Entity operates under such an order, it may satisfy specified requirements by complying with comparable foreign requirements. Many of the substituted compliance orders that the SEC has granted have also included conditions to ensure that the foreign rules truly stand in for U.S. rules. In practice, many global firms leverage substituted compliance to operate internationally. Today, 39 SBS Entities have indicated that they rely on substituted compliance orders.[3]

Substituted compliance offers a pathway for cross-border firms to navigate regulatory demands more efficiently – but regulatory oversight remains.

II. The Current Climate

The subject of substituted compliance has been in the news recently. In May 2025, the CFTC’s Market Participants Division (MPD) and Division of Enforcement issued new procedures for CFTC-registered non-U.S. swap dealers, non-U.S. major swap participants, and the foreign branches of U.S. swap dealers using substituted compliance.[4] The procedures provide that the foreign regulator, not the CFTC, will interpret and apply the home country’s rules and CFTC staff will generally defer to the foreign regulator’s findings. Any CFTC inquiry into a substituted compliance matter will initially be handled by the MPD, and only if the issue is material might it be referred for enforcement action. In essence, the CFTC will not second-guess foreign regulators on minor issues and will reserve enforcement for serious lapses.

The SEC has explicitly noted that substituted compliance does not eliminate a firm’s obligations under U.S. securities laws[5] and that a failure to comply with foreign regulations under which a firm is substituting compliance is a violation of U.S. law.[6] As such, the SEC retains full authority to inspect, examine, and enforce requirements against SBS Entities relying on substituted compliance.[7] When not operating in line with a substituted compliance order, registrants must comply directly with all relevant U.S. rules. Moreover, firms operating under substituted compliance regimes must understand that a single failure to comply can result in violations of significantly more requirements than it may first appear.[8]

III. Key Compliance Considerations for Firms Relying on Substituted Compliance

Firms relying on substituted compliance orders must live up to agreed standards, and U.S. regulators, no matter how pro-market and against overregulation and overenforcement they may be, are unlikely to forego enforcement action in the face of significant compliance lapses. Firms should proactively double-check their compliance with all applicable requirements today and take action to identify and correct weaknesses or outstanding deficiencies, whether identified by a foreign regulator, an internal review, or otherwise, as they could morph into issues in the U.S.

There are several critical compliance points to keep front-of-mind when relying on a substituted compliance order. Overall, firms should take proactive steps to ensure they meet all relevant requirements—both U.S. and foreign. Key considerations for relevant registered entities and compliance teams include:

Meet All Conditions of SEC Orders. Ensure that all relevant personnel are clear on the scope and limits of the firm’s substituted compliance order, including the specific conditions imposed in the order. Certain requirements vary depending on whether a firm is prudentially regulated.
Adhere Rigorously to Comparable Foreign Laws. Treat the substituted foreign regulations as if they were U.S. law. The SEC has been clear that if a firm falls out of compliance with applicable foreign requirements or the specific conditions of its substituted compliance order, it is violating the parallel SEC requirement.[9]
Maintain Robust Communication with Regulators. Firms engaged in substituted compliance may effectively answer to multiple regulators: the U.S. regulator(s) and their home regulator(s). Beyond ensuring required notices are made to the proper regulators, proactive, transparent communication can help prevent misunderstandings.
Prepare for Examinations and Documentation Requests. Be prepared to demonstrate compliance with documentation. The SEC requires strict recordkeeping and a failure to abide may not be overlooked, even if compliance is demonstrated retrospectively.

IV. Conclusion

Firms operating under substituted compliance orders can strengthen their control environment and reduce the risk of falling out of step with either U.S. or foreign laws by remaining attentive and proactive. The SEC is not abandoning its interest in this area; rather, it remains vigilant to ensure substituted compliance does not become a loophole for laxity or a competitive advantage for foreign firms doing business in the U.S. The importance of these precautions is only growing, as the SEC appears poised to hold a harder line on enforcement in the substituted compliance arena.

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 regulators.

[1] SEC Division of Examinations, 2024 Examination Priorities 11 (2025), available at https://www.sec.gov/files/2025-exam-priorities.pdf.

[2] MUFG Securities EMUA plc, Exchange Act Release No. 34-103646 (Aug. 6, 2025), available at https://www.sec.gov/enforcement-litigation/administrative-proceedings/34-103646-s.

[3] Substituted Compliance Notices, U.S. Securities and Exchange Commission (last visited Aug. 6, 2025), available at https://www.sec.gov/about/divisions-offices/division-trading-markets/security-based-swap-markets/substituted-compliance-notices.

[4] CFTC Press Release, CFTC Releases Procedures on Registered Non-U.S. Swap Entities Using Substituted Compliance (May 20, 2025), available at https://www.cftc.gov/PressRoom/PressReleases/9076-25.

[5] SEC Staff Guidance, Information Regarding Foreign Regulatory Requirements for Substituted Compliance Applications (Dec. 23, 2019), available at https://www.sec.gov/files/staff-guidance-substituted-compliance-applications.pdf.

[6] Order Granting Conditional Substituted Compliance in Connection With Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject to Regulation in the French Republic, Exchange Act Release No. 34-92484, 86 Fed. Reg. 41612 (Aug. 2, 2021), available at https://www.federalregister.gov/documents/2021/08/02/2021-16135/order-granting-conditional-substituted-compliance-in-connection-with-certain-requirements-applicable.

[7] Id.

[8] A failure to comply with certain substituted compliance obligations can create a domino effect of violations. For example, a registered SBSD may only substitute compliance for recordkeeping requirements under Exchange Act Rule 18a-5(a)(9) if it also applies substitutes compliance for the capital requirements of Exchange Act Section 15F(e) and Exchange Act Rules 18a-1 and 18a-1a through 18a-1d. As such, a violation of the capital requirements would also create a violation of the recordkeeping requirements. The same goes for certain financial reporting requirements under Exchange Act Rule 18a-7 and those same capital requirements.

Additionally, a firm that fails to comply with its substituted compliance obligations must comply with the U.S. requirements for which it was substituting compliance. If the firm also fails to comply with those U.S. requirements, it may be found to have violated both its substituted compliance obligations and its obligations to comply with the U.S. requirements. For example, a registered SBSD satisfying that fails to meet its substituted compliance obligations with respect to annual reporting obligations and methods to reasonably address non-compliance issues under Exchange Act Section 15F(k) and Exchange Act Rule 15Fk-1 may also be found to have violated Exchange Act Section 15F(k) and Exchange Act Rule 15Fk-1.

[9] Order Granting Conditional Substituted Compliance in Connection With Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject to Regulation in the French Republic, Exchange Act Release No. 34-92484, 86 Fed. Reg. 41612 (Aug. 2, 2021), available at https://www.federalregister.gov/documents/2021/08/02/2021-16135/order-granting-conditional-substituted-compliance-in-connection-with-certain-requirements-applicable.

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

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

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

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

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

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

Hayden K. McGovern – Dallas (+ 214.698.3142, hmcgovern@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’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments:

On July 30, 2025, the Department of Justice (“DOJ”) released guidance on the application of federal antidiscrimination laws to entities receiving federal funds. The guidance—which is non-binding—provides a detailed list of DEI policies and practices DOJ considers unlawful. This includes what DOJ characterizes as (1) programs that grant preferential treatment based on protected characteristics, (2) policies that use facially neutral proxies for protected characteristics, (3) practices that segregate individuals based on protected characteristics, (4) policies that unlawfully consider protected characteristics in selection decisions, and (5) trainings that promote discrimination or hostile environment. The document notes that these policies and practices could “result in revocation of grant funding,” and states that federal funding recipients may be liable for discrimination if they knowingly fund the unlawful practices of third parties. The guidance also provides a list of “Best Practices” entities can adopt to minimize legal risk. This includes, among other things, opening programs and events to all, eliminating diversity quotas and “diverse slate” requirements, including non-discrimination clauses in agreements with third parties, and implementing non-retaliation policies for individuals who refuse to participate in potentially discriminatory programs. For more information, please see our July 30 client alert.

On July 21, the U.S. Department of Labor issued Advisory Opinion 2025-01A, which withdraws a prior advisory opinion addressing a racial equity program operated by Citi. The Department issued the prior opinion, Advisory Opinion 2023-01A, in September 2023 in response to an inquiry from Citi about how its “Racial Equity Program”—which involved paying the investment management fees for “Diverse Managers” retained by Citi-sponsored employee benefit plans—intersected with its obligations under Title I of the Employee Retirement Income Security Act. The new opinion states that while “Advisory Opinion 2023-01A assumed that the Racial Equity Program was lawful,” the program is in fact “not lawful” because “its allocation of benefits on the basis of race clearly and unambiguously violates the civil rights laws.” The new opinion instructs Citi to “take immediate action to end all illegal activity within its Racial Equity Program and any other initiative, plan, program, or scheme it operates under the banner of diversity, equity, and inclusion.” It concludes that “ERISA does not shield Citi or the fiduciaries of the Plans from the application of the civil rights laws.”

On July 16, the Senate Health, Education, Labor, and Pensions Committee held a confirmation hearing for Brittany Bull Panuccio, President Trump’s nominee to be a Commissioner of the U.S. Equal Employment Opportunity Commission (“EEOC”). Panuccio spoke about the “full circle moment” returning as a nominee for Commissioner after having served as an EEOC intern at the start of her career. Panuccio was also a Teach for America Corps member, clerked on both the D.C. Circuit and the Fifth Circuit, and worked at the U.S. Department of Education. Panuccio is currently an Assistant U.S. Attorney. She spoke about her parents’ experience as small business owners and her own experience with disability accommodations, as well as her commitment to civil rights, including women’s rights. During the hearing, Panuccio indicated support for the Administration’s position on DEI. In response to a question about workplace diversity programs, Panuccio said that Title VII of the Civil Rights Act “does not include any exceptions for diversity, or DEI.” Panuccio’s confirmation would bring the EEOC back to a quorum. On July 24, Panuccio’s nomination cleared the Health, Education, Labor, and Pensions Committee. Her nomination will now proceed to a vote before the full Senate.

On July 10, the U.S. Department of Education’s Office for Civil Rights opened an investigation into George Mason University’s DEI initiatives for potential violations of Title VI of the Civil Rights Act of 1964. According to an official press release, “[the] investigation is based on a complaint filed with the Department by multiple professors at GMU who allege that the university illegally uses race and other immutable characteristics in university policies, including hiring and promotion.”

On July 10, the U.S. Department of Agriculture (“USDA”) issued a rule announcing that it will “no longer apply race- or sex-based criteria” in the administration of its loan and benefit programs. The rule explains that the USDA has taken considerable and effective actions over the past several decades to redress past injustice and discrimination and has now determined that past discrimination has been sufficiently addressed. The change was made to align with a June 2024 decision in which of the U.S. District Court for the Northern District of Texas preliminarily enjoined USDA relief programs that included race- and sex-based preferences (Strickland v. USDA, No. 2:24-cv-00060). Going forward, the USDA says that it will ensure that “its programs are administered in a manner that upholds the principles of meritocracy, fairness, and equal opportunity for all participants.”

On July 2, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) published a bulletin announcing that, pursuant to the Secretary of Labor’s Order 08-2025, it is lifting an abeyance previously placed in January 2025 on certain of OFCCP’s investigative and enforcement activities. On January 21, 2025, President Trump issued Executive Order 14173, which, among other things, revoked Executive Order 11246’s race and gender-based affirmative action obligations on federal contractors. In response to EO 14173, the Secretary of Labor issued Order 03-2025 on January 24, 2025 mandating that OFCCP cease and desist all investigative and enforcement activity under EO 11246 and placing OFCCP’s activity related to Section 503 of the Rehabilitation Act (regarding people with disabilities) and the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) in abeyance pending further guidance. The Secretary of Labor’s Order 08-2025, issued on July 2, 2025, lifted the abeyance to allow OFCCP to resume activity under the Section 503 and VEVRAA program areas.

On July 1, OFCCP published several Notices of Proposed Rulemaking (“NPRMs”) relating to affirmative action plan requirements. In “Modifications to the Regulations Implementing Section 503,” which relates to people with disabilities, the OFCCP proposes (1) removing the requirement for federal contractors to invite applicants and employees to self-identify their disability status; and (2) removing the utilization goal requirements (i.e., the current Section 503 requirement to apply a 7% utilization goal for employment of qualified individuals with disabilities for each of their job groups, or to their entire workforce if they have 100 or fewer employees, and to conduct a utilization analysis using that goal). These modifications would mean that federal contractors will still be required to “take affirmative action to employ and advance in employment qualified individuals with disabilities” and “develop and maintain an affirmative action program, where they must implement and document their equal employment opportunity efforts on an annual basis,” but would no longer be required to include numerical analysis. In “Modifications to Regulations Implementing VEVRAA,” which relates to certain veterans, OFCCP proposes removing cross-references to EO 11246 and moving provisions related to administrative enforcement proceedings from the C.F.R. sections on EO 11246 to the sections relating to VEVRAA. Finally, in “Rescission of Executive Order 11246 Implementing Regulations,” the OFCCP confirms that federal contractors are no longer required to prepare affirmative action plans relating to race, ethnicity, or gender, and also proposes rescinding the requirement that federal contractors and first-tier subcontractors file reports with OFCCP. These proposed changes are subject to a notice-and-comment period ending on September 2, 2025, after which OFCCP will adopt a final rule and then submit a report to Congress. Thirty days after publication of the final rule, the changes will become effective.

On June 30, 2025, the Department of Justice appealed the U.S. District Court for the District of Columbia’s May 2 ruling permanently enjoining enforcement of Executive Order against the law firm Perkins Coie LLP. Perkins Coie said in a statement that it is prepared to defend the ruling before the D.C. Circuit. On July 21, the Department of Justice also appealed the U.S. District Court for the District of Columbia’s May 23 ruling permanently enjoining enforcement of Executive Order 14250 against the law firm Wilmer Cutler Pickering Hale and Dorr LLP.

Media Coverage and Commentary:

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

Washington Post, “EEOC to Consider Some Transgender Discrimination Cases After Months-Long Pause” (July 9): Julian Mark of the Washington Post reports that the EEOC has resumed processing certain discrimination complaints filed by transgender workers, reversing an earlier policy under which such cases were automatically placed on hold. Mark writes that this shift follows the agency’s efforts earlier this year to comply with President Trump’s executive order targeting “gender ideology” and limiting federal support for gender identity policies. According to a July 1 email obtained by the Washington Post, Thomas Colclough, director of the EEOC’s field operations, stated that the agency will now process cases that “fall squarely” under the Supreme Court’s 2020 ruling in Bostock v. Clayton County, which held that firing an employee because they are transgender violates the Civil Rights Act of 1964. Mark reports that the renewed investigations will include hiring, discharge, and promotion claims, but will not extend to workplace harassment, and that all gender identity complaints will receive additional review from senior attorneys and the acting chair’s office.
Politico, “Trump Admin Asks Staff to Report Cases of Bias Due to DEI Directives” (July 7): Danny Nguyen of Politico reports that the Department of Health and Human Services distributed a “whistle-blower questionnaire” to its staff, seeking reports of discrimination linked to DEI policies. The survey asks whether employees have observed grants or contracts being rejected due to “discriminatory language” and if they are aware of any staff who were overlooked for promotions or hiring based on race, religion, gender, national origin, age, disability, or genetic information. The questionnaire, Nguyen writes, also probes whether employees know of former colleagues who resigned or faced disciplinary actions for not complying with DEI orders during the Biden administration. Nguyen further reports that although the survey does not mandate the disclosure of personal identifiers, it does request contact information for follow-up in certain cases. Nguyen notes that the outcome of the survey is uncertain, as the agency has not disclosed what it plans to do with the information.
Yahoo Finance, “More Than 200 S&P 500 Companies Scrubbed ‘Diversity’ and ‘Equity’ From Annual Reports in 2025” (July 6): Alexis Keenan of Yahoo Finance reports that, according to law firm Freshfields LLP, over 200 S&P 500 companies removed words like “diversity” and “equity” from their 2025 annual reports, and nearly 60% fewer are using the phrase “diversity, equity, and inclusion,” following President Trump’s executive order ending federal DEI programs and targeting “illegal private sector DEI actions.” Keenan reports that major companies have announced policy shifts by, for example, replacing DEI language with terms like “inclusion,” “belonging,” and “meritocratic workplace.” Keenan further reports that shareholders have recently shown less support for both pro- and anti-DEI proposals. According to Keenan, “[n]one of this season’s investor-led DEI-focused proposals” received majority approval.
Wall Street Journal, “How Trump’s Anti-DEI Push Is Unraveling College Scholarships” (July 5): Tali Arbel of the Wall Street Journal reports that colleges, companies, and philanthropic organizations are revising or eliminating scholarships that supported minority students in response to pressure from the current administration and activist groups over diversity programs and the Supreme Court’s 2023 decision in SFFA v. Harvard. Arbel reports that the number of scholarships with race, ethnicity, or gender criteria in the National Scholarship Providers Association database dropped by 25% from March 2023 to June 2025. In April, the Justice Department threatened a lawsuit over an Illinois scholarship for minority graduate students, the Diversifying Higher Education Faculty, prompting several schools, including Northwestern University and the University of Chicago, to opt out. Arbel also reports that other sponsors are broadening eligibility for scholarships and deemphasizing race as a criterion. For example, in response to a lawsuit from an activist group challenging the use of race in scholarships, McDonald’s removed its Hispanic-ancestry requirement from its 40-year-old Hacer sponsorship, instead requiring applicants to show contributions to the Hispanic community through activities and leadership. Similarly, the Gates Foundation removed race and ethnicity criteria from the Gates Scholarship, making it available to all Pell Grant-eligible students.
Law360, “Amid DEI Uncertainty, [Companies] Face Pressure From All Sides” (July 3): Sarah Jarvis of Law360 reports on the complex choices companies face as they balance government directives and consumer expectations regarding DEI programs. The article emphasizes that it is difficult to determine what “illegal DEI” means, and that companies are in a difficult spot as a result. Some experts, like Jason Schwartz of Gibson Dunn, anticipate a wave of additional reverse discrimination litigation from the government and private plaintiffs alike after the Supreme Court in June upheld the right of non-minority plaintiffs to sue under Title VII without meeting a heightened evidentiary standard. Jarvis cites a range of opinions on how employers should respond. According to Schwartz, companies are aiming to be more precise when describing their DEI programs, given that DEI is a highly charged term. According to Schwartz, this does not mean the end of DEI policies, but may mean more tightly circumscribed and rigorously defined policies.
Law.com, “Law Schools Are Quietly Changing DEI Messaging. What Does That Mean for Big Law’s Future Talent Pipeline?” (June 24): Christine Charnosky of Law.com reports that, in response to political backlash against DEI from the Trump Administration, as well as the Supreme Court’s 2023 ruling in Students for Fair Admissions v. Harvard, some law schools are playing down their DEI messaging. Charnosky notes that some law schools have dismantled their diversity-related scholarships, others have removed information about diverse admissions practices from their websites, and still others have taken down their diversity webpages and initiatives altogether. Still, Charnosky reports, law schools continue to pursue diverse classes by providing outreach and education about the law in underrepresented communities, including at the high school and college level. And Charnosky reports that minority applicants continue to apply to law school, with applications from Black, Hispanic, Asian, and Native American students up by 20–25% since June 2024.
Law360, “Shifting DEI Expectations Put Banks In Legal Crosshairs” (June 20): Writing for Law360, Dan Bray, Sean Kelly, and Shianne Thomas explore the implications of Executive Order 14173 for banks and other regulated financial institutions. First, the authors note, banks must ascertain whether they are subject to the EO by determining whether or not they are federal contractors. While OFCCP has maintained that banks may be classified as federal contractors by obtaining federal deposit insurance and acting as an issuing and paying agent for U.S. savings bonds and notes, other case law contradicts this view, according to the authors. Second, the authors explore whether banks’ compliance with the Community Reinvestment Act (“CRA”)—a law passed to combat redlining, and which requires banks to meet the credit needs of local “low- and moderate-income neighborhoods”—is consistent with EO 14173. They conclude that it is consistent, because the CRA does not require banks to address race or gender, beyond ensuring that banks are not engaging in illegal discrimination. Still, the authors argue, minority lending programs, while expressly authorized under the Equal Credit Opportunity Act (“ECOA”), may be at risk in light of EO 14173 and similar executive orders. While an executive order cannot override a federal statute like the ECOA, the authors write, an executive order can affect how regulators interpret and enforce the law. The authors argue that “[t]he most significant impact” from EO 14173 is to shift how regulators like the Consumer Financial Protection Bureau interpret existing statutes and regulations. The authors cite the recently issued Executive Order 14281, which directs federal agencies to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible,” as evidence of the administration’s goal to change how companies, including banks and financial institutions, serve underrepresented communities.

Case Updates:

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

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

Chicago Women in Trades v. Trump, et al., No. 1:25-cv-02005 (N.D. Ill. 2025): On February 26, 2025, Chicago Women in Trades (“CWIT”), a non-profit organization, sued President Trump, challenging EO 14151 and EO 14173 on constitutional grounds. On April 14, 2025, the court preliminarily enjoined enforcement of key provisions of the EOs, including a provision terminating one of CWIT’s federal grants. On May 14 and 21, 2025, the Department of Labor filed status reports indicating its continued compliance with the court’s preliminary injunction.
- Latest update: On July 7, 2025, the defendants moved to dismiss. The defendants argued that CWIT lacked standing to challenge certain “intra-governmental provisions” in the orders. They also argued that the court “should dismiss the President, DOJ and the Attorney General, and OMB and its Director based on considerations particular to those parties” and urged the court to reject each of CWIT’s claims as a matter of law. On July 8, 2025, the defendants filed a motion for an indicative ruling and partial stay. In their motion, the defendants “request[ed] that the Court issue an indicative ruling that on remand from the court of appeals it would modify the scope of its preliminary injunction” in light of Trump v. CASA’s holding that “district courts do not have equitable powers to issue a ‘universal injunction[.]’” The defendants also requested that the Court “stay the universal scope of the injunction pending resolution on appeal.” On July 25, 2025, the plaintiffs opposed this motion, asserting that “the government’s motion fails to raise any ground for reconsideration allowable under Federal Rule of Procedure 60(b).” The plaintiffs also asserted that the “injunction [the] Court entered does not conflict with CASA,” and that the government has not shown that it “would be irreparably harmed without a stay.”
Doe v. EEOC, No. 4:23-cv-03516 (S.D. Tex. 2023), No. 1:25-cv-01124 (D.D.C. 2025): On April 15, 2025, three law students, proceeding under pseudonyms, sued the EEOC, challenging the EEOC’s investigations into law firms’ demographic and diversity-related data. The plaintiffs allege that those investigations exceed the agency’s authority under Title VII because they are not based upon a charge. The plaintiffs further claim that the EEOC’s investigation into law firms violates the Paperwork Reduction Act because the EEOC did not undergo public comment or obtain approval from the Office of Management and Budget before posing “identical questions to the twenty firms.” The plaintiffs seek a declaratory judgment that the EEOC exceeded its authority, an injunction barring the collection of sensitive information through improper means, and an order compelling Acting EEOC Chair Andrea Lucas and the EEOC to withdraw the investigative letters and return any information collected pursuant to those letters. On May 16, 2025, the plaintiffs amended their complaint to bring the case as a proposed class action. On June 5, 2025, the plaintiffs moved to certify the putative class and moved for summary judgment the same day. On June 16, 2025, the EEOC moved to stay consideration of the plaintiffs’ motions for class certification and summary judgment and requested an extension to respond to the amended complaint. Specifically, the EEOC argued that the plaintiffs’ motions were premature, as the EEOC had yet to respond to the amended complaint. On June 18, 2025, the plaintiffs opposed the EEOC’s motion to stay, arguing that they would be prejudiced by the EEOC’s proposed stay. On June 26, the court granted the EEOC an extension of time to respond to the complaint and the summary judgment motion and dismissed the class certification motion without prejudice. The court denied the stay motion in all other respects.
- Latest update: On July 31, the EEOC moved to dismiss the complaint, moved in the alternative for summary judgment, and opposed the plaintiffs’ summary judgment motions. The defendants assert that the plaintiffs lack standing because they did not experience harm, and any harm they may experience would be caused by the law firms, not the EEOC. The defendants also challenge the ultra vires claim and assert that the plaintiffs “have identified no basis for such [an] expansive” remedy as injunctive or declaratory relief.”
E.K. v. Department of Defense Education Activity, 1:25-cv-00637 (E.D. Va. 2025), No. 1:25-cv-01124 (D.D.C. 2025): On April 15, 2025, twelve anonymous minor students at schools operated by the Department of Defense Education Activity (“DoDEA”) sued DoDEA, claiming DoDEA violated their First Amendment right to receive information by removing books and lesson content related to race and gender from their schools, allegedly in an effort to comply with EO 14168, EO 14185, and EO 14190. On May 5, 2025, the plaintiffs moved for a preliminary injunction. On May 23, 2025, DoDEA opposed the motion, arguing that the act of establishing a curriculum is “government speech” and that the First Amendment cannot prevent the government from “declining to express a view.” On June 3, 2025, the court orally ordered the defendants to provide a list of books under review. On June 11, 2025, the defendants filed a motion to reconsider the oral order, arguing that the deliberative process privilege protected disclosure of such a list and that the court did not need a list to address issues at the preliminary injunction stage, where “the Court is constrained to rule on the legal and factual issues only as presented by the parties.” On June 13, 2025, the plaintiffs opposed the defendant’s motion for reconsideration, arguing that the deliberative process privilege is inapplicable because it does not protect “factual information” so long as the information is “severable” from a protectable document, and that the court had discretion to request the list at this stage of the litigation. On June 16, 2025, the court ordered the DoDEA to make the list of books under review available ex parte for in camera review while the motion for reconsideration remains pending.
- Latest update: On July 11, 2025, the court denied the defendants’ motion for reconsideration and ordered that the list of books pending review by the Department of Defense be filed on the public docket. The court agreed with the plaintiffs that the list of books was purely factual and did not contain “any indicia” of deliberation. While the motion for reconsideration was pending, the defendants moved to dismiss the complaint on Juny 27, 2025. The defendants argue that the plaintiffs lack standing because they “failed to put forward any factual basis to establish that they sought information temporarily withdrawn from DoDEA’s bookshelves pending further review,” and because the First Amendment does not grant them a right to receive information. In the alternate, the defendants argue that curriculum changes and the curation of libraries constitute government speech, which is not regulated by the Free Speech Clause. On July 16, the plaintiffs opposed the motion, arguing that they have standing because they “are suffering ongoing and irreparable injury as a result of the government’s knee-jerk removal of library books and changes to school curricula.” The plaintiffs also asserted that they had successfully stated a claim under the First Amendment as to both the book and curricula removals. The motion remains pending.
NAACP v. Department of Education, et al., 1:25-cv-00637 (E.D. Va. 2025), 1:25-cv-01120 (D.D.C. 2025): On April 15, 2025, the National Association for the Advancement of Colored People (“NAACP”) sued the U.S. Department of Education (“DOE”) and various officials challenging recent DOE agency actions on the grounds that they violate the Administrative Procedure Act (“APA”) and the First and Fifth Amendments of the U.S. Constitution. The challenged actions include DOE’s February 14, 2025 Dear Colleague Letter, which instructed educational institutions to “(1) ensure that their policies and actions comply with existing civil rights law; (2) cease all efforts to circumvent prohibitions on the use of race by relying on proxies or other indirect means to accomplish such ends; and (3) cease all reliance on third-party contractors, clearinghouses, or aggregators that are being used by institutions in an effort to circumvent prohibited uses of race.” The NAACP also challenged DOE’s February 28 guidance document titled “Frequently Asked Questions About Racial Preferences and Stereotypes Under Title VI of the Civil Rights Act,” which addressed a range of issues relating to DEI initiatives in educational institutions and provided examples of DEI programming that the Trump Administration is likely to find discriminatory. Finally, the NAACP challenged DOE’s April 3, 2025 letter requiring state and local officials to certify their compliance with the Administration’s interpretation of Title VI in relation to DEI. On April 20, 2025, the NAACP moved to preliminarily enjoin these actions. On April 24, 2025, the court concluded that the NAACP was unlikely to succeed with its APA claims and that it lacked standing to challenge the February 14 Dear Colleague Letter and February 28 guidance document under the First or Fifth Amendment. However, the court determined that the NAACP had a substantial likelihood of success in challenging DOE’s April 3 letter as impermissibly vague under the Fifth Amendment and preliminarily enjoined DOE from enforcing that letter. On May 9, 2025, the NAACP filed its First Amended Complaint, asserting the same causes of action.
- Latest update: On June 23, 2025, DOE moved to dismiss the NAACP’s claims on four grounds: (1) failure to establish standing; (2) the challenged actions are not final agency actions and lack the force of law; (3) even if the challenged actions are final agency actions, the actions are interpretative rules not subject to notice-and-comment rulemaking; and (4) the constitutional claims fail as a matter of law. On July 14, 2025, the NAACP opposed DOE’s motion, countering that it had plausibly alleged standing and set forth sufficient factual allegations to survive the motion to dismiss.
National Education Association v. Department of Education, No. 1:25-cv-00091 (D.N.H. 2025), 1:25-cv-01120 (D.D.C. 2025): On March 5, 2025, the National Education Association and other groups, including the ACLU of New Hampshire, sued DOE, alleging that DOE’s letters to universities and colleges, threating to revoke federal funding for pursuing certain DEI programs, violated the First and Fifth Amendments of the U.S. Constitution and the APA. The challenged actions include the Department’s February 14, 2025 Dear Colleague Letter, described above. On April 24, 2025, the court granted the plaintiffs’ motion for a preliminary injunction, holding that plaintiffs were likely to succeed in their procedural challenge due to the Department’s failure to follow the procedural requirements that the APA imposes on legislative rules. The court also concluded that the Dear Colleague Letter was likely impermissibly vague in violation of the Due Process Clause. Finally, the court concluded that the agency actions likely violated the First Amendment by targeting speech based on viewpoint. On May 12, 2025, the plaintiffs filed an amended complaint, adding allegations that the Dear Colleague Letter and other DOE letters violate the Spending Clause of the U.S. Constitution because they exert “undue influence” by “attaching conditions to federal funds” that make them impermissibly coercive. The plaintiffs also added allegations that the Dear Colleague Letter and similar letters are unconstitutionally vague and ambiguous.
- Latest update: On June 10, 2025, the plaintiffs moved for summary judgment, contending, among other things, that the Dear Colleague Letter (1) is impermissibly vague under the First Amendment; (2) censors constitutionally protected academic speech; (3) is arbitrary and capricious under the APA; and (4) impermissibly attaches ambiguous and retroactive conditions to federal funds that are contrary to the purpose of the statutes authorizing the funding. On July 17, 2025, the defendants filed a cross-motion for summary judgment and an opposition to the plaintiffs’ motion for summary judgment. The defendants argue that none of the plaintiffs can establish standing, and that they lack a cause of action under the APA because the Dear Colleague Letter and corresponding FAQ documents are not final agency actions subject to review. Even if the letter and FAQ document were subject to review, the defendants argue they do not violate the APA. The defendants also argue that the plaintiffs’ constitutional claims fail as a matter of law. Finally, the defendants contend that “[e]ven if the Court concluded that any part of the challenged agency action is unlawful,” only vacatur—and not an injunction—would be an appropriate remedy.
National Urban League et al., v. Trump, et al., No. 1:25-cv-00471 (D.D.C. 2025), No. 1:25-cv-00471 (D.D.C. 2025): On February 19, 2025, the National Urban League, National Fair Housing Alliance, and AIDS Foundation of Chicago sued President Donald Trump challenging EO 14151, EO 14168, EO 14173, and related agency actions, as ultra vires and in violation of the First and Fifth Amendments and the APA. The plaintiffs allege that these orders penalize them for expressing viewpoints in support of diversity, equity, inclusion, accessibility, and transgender people. They also claim that, because of these orders, they are at risk of losing federal funding. The plaintiffs filed a motion for a preliminary injunction, which the court denied on May 2, 2025, finding that the plaintiffs failed to establish standing to challenge provisions of the EOs that are intra-governmental and “not aimed at them.” For the remaining challenged provisions of the EOs—including provisions mandating certification by government contractors that they do not operate unlawful DEI programs and terminating grants relating to DEI and gender ideology—the court concluded that the plaintiffs failed to show a likelihood that they would succeed on the merits. On May 20, 2025, the parties filed a joint motion to obtain leave for the plaintiffs to supplement their pleadings. The court granted the motion, setting forth deadlines for amendment and response to that amendment, as well as a briefing schedule for a motion to dismiss, should the defendants choose to file one.
- Latest update: On June 16, 2025, the National Fair Housing Alliance voluntarily dismissed its claims. On June 30, 2025, the remaining plaintiffs filed their amended complaint, which no longer includes an APA claim. The plaintiffs added factual allegations seeking to demonstrate how the EOs directly impact their operations and redrafted their claim for relief regarding ultra vires presidential action, outlining specific statutes authorizing their equity-related services. On July 7, 2025, the parties jointly moved for an extension of time for the defendants to respond to the plaintiffs’ amended complaint, which the court granted, ordering defendants to respond by August 8, 2025.
San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 4:25-cv-01824 (N.D. Cal. 2025), No. 1:25-cv-00471 (D.D.C. 2025): On February 20, 2025, several LGBTQ+ groups filed suit against President Trump, Attorney General Pam Bondi, and several other government agencies and actors, challenging the President’s executive orders regarding DEI (EO 14151, EO 14168, and EO 14173) on constitutional grounds. On March 3, 2025, the plaintiffs filed a motion for preliminary injunction. On April 11, 2025, the defendants opposed the motion, arguing that (i) the plaintiffs are not likely to establish the court’s jurisdiction; (ii) the plaintiffs’ claims will likely fail on the merits; (iii) the plaintiffs failed to show irreparable injury; and (iv) the balance of inequities and public interest weigh against granting relief. The defendants also argued that “to the extent the Court intends to grant Plaintiffs’ request for a preliminary injunction, such relief should be narrowly tailored to apply only to [the] defendant agencies, Plaintiffs, and the provisions that affect them” and that any injunctive relief should be stayed pending an appeal and bond.
- Latest update: On June 9, 2025, the court granted the preliminary injunction motion in part after finding that the plaintiffs faced the imminent loss of federal funding critical to their ability to provide lifesaving healthcare and support services to marginalized LGBTQ+ populations, but also denied the motion in part after concluding that the plaintiffs failed to demonstrate they were likely to succeed in their challenge to the EOs’ certification provision because the plaintiffs did not show that the provision goes beyond targeting DEI programs that violate federal antidiscrimination law. On June 13, 2025, the court enjoined the agency defendants from enforcing the funding provisions of the EOs. The agency defendants were further ordered to reinstate any terminated contracts or grant awards of the plaintiffs.
Young Americans for Freedom et al. v. Department of Education et al., No. 3:24-cv-00163 (D.N.D. 2024), on appeal at No. 25-2307 (8th Cir. 2025): On August 27, 2024, the University of North Dakota Chapter of Young Americans for Freedom (“YAF”) sued DOE over its McNair Post-Baccalaureate Achievement Program, a research and graduate studies grant program that supports incoming graduate students who are either low-income, first-generation college students or “member[s] of a group that is underrepresented in graduate education.” YAF alleges that the McNair program violates the Equal Protection Clause by restricting admission based on race. On September 4, 2024, YAF filed a motion for preliminary injunction. On December 31, 2024, the court denied the plaintiffs’ preliminary injunction motion and dismissed the case without prejudice for lack of subject matter jurisdiction, ruling that there was no Article III standing because the McNair Program is not exclusively administered by DOE. On January 24, 2025, the plaintiffs filed a motion to alter or amend the judgment, which the court denied on May 6, 2025, holding that the plaintiffs failed to identify a manifest error of law or fact and affirming its prior ruling that it lacked subject matter jurisdiction.
- Latest update: On July 1, 2025, the plaintiffs filed a notice of appeal.

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

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (“AAER”) sued the American Bar Association (“ABA”) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20–25 first-year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” The complaint alleges that “White students are not eligible to apply, be selected, or equally compete for the ABA’s scholarship.” AAER seeks a TRO and preliminary injunction barring the ABA from selecting winners for this year’s scholarship, as well as a permanent injunction barring the ABA from knowing or considering applicants’ race or ethnicity when administering the scholarship.
- Latest update: On June 16, 2025, the ABA moved to dismiss the complaint for failure to state a claim. The ABA argued that AAER lacks standing to pursue its Section 1981 claim because it failed to allege that it has any members with standing to pursue the claim on their own behalf. The ABA argued that AAER failed to state a Section 1981 claim because AAER did not allege a contractual relationship with the ABA. The ABA also argued that the relief sought would impede the ABA’s First Amendment rights to free speech and expression, and that the “ABA has a First Amendment right to distribute funds as it deems appropriate.” AAER filed an amended complaint on June 25, making new allegations about the ABA’s commitment to diversity and beliefs around refusing to contract with persons of certain races. On July 30, the ABA moved to dismiss the amended complaint on the same grounds it moved to dismiss the initial complaint, asserting that the new facts pled in the amended complaint failed to overcome the shortcomings of the initial complaint.

3. Employment discrimination and related claims:

Langan v. Starbucks Corporation, No. 3:23-cv-05056 (D.N.J. 2023): On August 18, 2023, a white, female former store manager sued Starbucks, claiming she was wrongfully accused of racism and terminated after she rejected Starbucks’ attempt to deliver “Black Lives Matter” T-shirts to her store. The plaintiff alleged that she was discriminated and retaliated against based on her race and disability as part of a company policy of favoritism toward non-white employees. On July 30, 2024, the district court granted Starbucks’ motion to dismiss, agreeing that the plaintiff’s claims under the New Jersey Law Against Discrimination (“NJLAD”) were untimely and that she failed to allege that her termination was based on anything other than her “egregious” discriminatory comments and her violation of the company’s anti-harassment policy. On August 11, 2024, the plaintiff filed an amended complaint. On November 8, 2024, Starbucks again moved to dismiss, arguing that the additional facts alleged to explain plaintiff’s untimeliness—specifically, her difficulty obtaining a right to sue letter—were insufficient to state a claim.
- Latest update: On June 20, 2025, in a single-page order, the court granted Starbucks’ motion to dismiss with prejudice.
Spitalnick v. King & Spalding, LLP, No. 4:23-cv-03516 (S.D. Tex. 2023), No. 24-cv-01367 (D. Md. 2024), on appeal at No. 25-1721 (4th Cir. 2025): On May 9, 2024, Sarah Spitalnick, a white, heterosexual female, sued King & Spalding, alleging that the firm violated Title VII and Section 1981 by deterring her from applying to its Leadership Counsel on Legal Diversity internship program. Spitalnick alleged that she believed she could not apply after seeing an advertisement that stated that candidates “must have an ethnically or culturally diverse background or be a member of the LGBT community.” On September 19, 2024, King & Spalding moved to dismiss, arguing that Spitalnick failed to state a claim, her claims were time-barred, and she lacked standing because she never applied to the program. On February 25, 2025, the court granted the defendant’s motion to dismiss, holding that the plaintiff had not adequately pled that she was “able and ready” to apply to the position she claims she was denied. On March 24, 2025, the plaintiff filed a motion for reconsideration, which the court denied.
- Latest update: On June 22, 2025, the plaintiff filed a notice of appeal. On June 26, 2025, the Fourth Circuit docketed the appeal and issued a briefing order.

4. Actions against educational institutions:

Johnson v. Fliger, et al., No. 1:23-cv-00848 (E.D. Cal. 2023), on appeal at No. 24-6008 (9th Cir. 2024): On June 1, 2023, Daymon Johnson, a professor at Bakersfield College, sued several Bakersfield and Kern Community College District officials, alleging that the district’s commitment to “embrac[e] diversity” and “anti-racism” through state and local district statutes, regulations, and policies imposes an “ideological orientation” on district faculty by suppressing opposing viewpoints and political speech in violation of Section 1983 and the First and Fourteenth Amendments of the U.S. Constitution. On July 20, 2023, the plaintiff sought a preliminary injunction against enforcement of the state and local statutes, regulations, and policies. On August 29, 2023, and October 3, 2023, multiple defendants separately moved to dismiss the plaintiff’s claims for, among other reasons, lack of standing and failure to state a claim. On September 23, 2024, the court granted the defendants’ motions to dismiss and denied the plaintiff’s motion for preliminary injunction as moot. The court reasoned that the plaintiff lacked standing to bring a pre-enforcement action because he failed to allege sufficient injury and dismissed the case without prejudice. On September 23, 2024, the plaintiff filed a notice of appeal.
- Latest update: On July 14, 2025, the Ninth Circuit reversed the district court’s conclusion that the plaintiff lacked standing to sue the defendants under certain California regulations, holding that (1) the plaintiff sufficiently alleged “an intention to engage in a course of conduct arguably affected with a constitutional interest” under the First Amendment, (2) his intended conduct was “arguably proscribed” by the regulations because they directly regulate the plaintiff as a community college employee and faculty member, and (3) the plaintiff adequately alleged a “credible threat” of enforcement under the relevant provisions. The court remanded the plaintiff’s motion for preliminary injunction for the district court to consider in the first instance.

Students Against Racial Discrimination v. Regents of the University of California et al., No. 8:25-cv-00192 (C.D. Cal 2025): On February 3, 2025, Students Against Racial Discrimination (“SARD”) sued the Regents of the University of California (“UC”), alleging that UC schools discriminate against Asian American and white applicants by using “racial preferences” in admissions in violation of Title VI and the Fourteenth Amendment of the U.S. Constitution. SARD alleged it has student members who are ready and able to apply to UC schools but are “unable to compete on an equal basis” because of their race.
- Latest update: On June 10, 2025, the plaintiffs filed their first amended complaint, and on June 24, 2025, the plaintiffs filed a response to the defendants’ recent notice of related cases to refute the defendants’ argument that the first amended complaint adds new claims against the UC medical schools. The plaintiffs argue that the first amended complaint narrows their claims by focusing on alleged discriminatory practices in the UC’s medical school, law school, and undergraduate admissions.

Students for Fair Admissions v. United States Naval Academy et al., No. 1:23-cv-02699 (D. Md. 2023), on appeal at No. 24-02214 (4th Cir. 2024): On October 5, 2023, Students for Fair Admissions (“SFFA”) sued the U.S. Naval Academy, arguing that consideration of race in its admissions process violates the Fifth Amendment because it was not narrowly tailored to achieve a compelling government interest. The dispute proceeded to a nine-day trial in September 2024, during which the Academy argued that its consideration of race was necessary to achieve a diverse officer corps, which furthers the compelling government interest in national security. On December 6, 2024, the district court issued a decision in favor of the Academy, holding that the Academy’s admissions process withstood strict scrutiny. SFFA then appealed the decision to the Fourth Circuit. Pursuant to President Trump’s Executive Order 14185, issued on January 27, 2025, the Academy subsequently changed its policy to prohibit the consideration of race in its admissions process. On April 1, 2025, the court granted a joint motion to hold appellate briefing in abeyance while the parties considered the recent changes to the Academy’s admission policy.
- Latest update: On June 16, 2025, the parties filed a joint motion to dismiss the appeal and vacate the district court’s judgment, as the complaint was rendered moot by the change to the Academy’s admission policy. On July 2, 2025, the court granted the parties’ motion.

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

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

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

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

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

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

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

The recent flurry of tariff announcements from the Trump Administration has further roiled the already uncertain trade environment facing countries and companies around the world. These new tariffs are set against the backdrop of increasingly complicated relationships between Washington and other states and continued doubts of the legality of many of the President’s tariffs. Join Gibson Dunn experts — including former senior trade officials — to discuss the latest announcements, what we know and don’t know, what we might expect going forward, and how global corporates can best navigate the uncertainties.

PANELISTS:

Ron Kirk is Senior Of Counsel in Gibson Dunn’s Dallas and Washington, D.C. offices. He is Leader of the International Trade Advisory and Enforcement Practice Group and a member of the Sports Law, Public Policy, Crisis Management and Private Equity Practice Groups. Ambassador Kirk has had an extensive career in Public Service. Prior to joining Gibson Dunn in April 2013, Ambassador Kirk served as United States Trade Representative (USTR) and was a member of President Obama’s Cabinet, serving as the President’s principal trade advisor, negotiator and spokesperson on trade issues. He also served as Mayor of Dallas from 1995 – 2001, and as Texas Secretary of State in 1994 appointed by Gov. Ann W. Richards.

Adam M. Smith is a partner in the Washington, D.C. office of Gibson Dunn and serves as co-chair of the firm’s International Trade Advisory and Enforcement and Sanctions and Export Enforcement Practice Groups. He is an experienced international lawyer with a focus on international trade compliance and white collar investigations, including federal and state economic sanctions enforcement, tariffs, CFIUS, embargoes, export and import controls, and anti-bribery/anti-corruption regulations. Clients benefit from Adam’s experience in the Obama Administration, where he was Senior Advisor to the Director of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and Director for Multilateral Affairs on the National Security Council. At OFAC, he was instrumental in shaping and enforcing sanctions policies, briefing congressional and private sector leaders, conducting extensive international outreach, and negotiating complex agreements. On the National Security Council, he advised the President on international sanctions, coordinated inter-agency efforts, and developed strategies to counter corruption and promote asset recovery.

Samantha Sewall is of counsel in the Washington, D.C. office of Gibson Dunn and a member of the firm’s International Trade Advisory and Enforcement and Sanctions and Export Enforcement Practice Groups. She advises clients on compliance with U.S. legal obligations at the intersection of global trade, foreign policy, and national security, focusing her practice on compliance with U.S. economic sanctions, export controls, national security reviews of foreign direct investment (CFIUS), customs, and anti-boycott laws. Samantha has experience advising companies across a wide range of sectors including aerospace, banking and financial institutions, defense, energy, medical devices and pharmaceuticals, shipping, retail, telecommunications, and travel.

Texas Supreme Court Round-Up – August 8, 2025

The Texas Supreme Court has issued all decisions for cases argued during the 2024–2025 term. Below we provide an overview of how many cases the Court heard, along with how each court of appeals fared.

Between September 2024 and March 2025, the Texas Supreme Court heard argument in 63 cases. At the end of June, the Texas Supreme Court finished issuing opinions in all argued cases.

Argument Numbers:

All but three of the fifteen courts of appeals in Texas had cases in front of the Court this year, with the most arising out of the Fifth Court of Appeals (Dallas) and none from the Ninth Court of Appeals (Beaumont), the Eleventh Court of Appeals (Eastland), or the newly constituted Fifteenth Court of Appeals (limited statewide jurisdiction):

First Court of Appeals (Houston): 8[1]
Second Court of Appeals (Fort Worth): 2
Third Court of Appeals (Austin): 6
Fourth Court of Appeals (San Antonio): 3
Fifth Court of Appeals (Dallas): 12
Sixth Court of Appeals (Texarkana): 1
Seventh Court of Appeals (Amarillo): 2
Eighth Court of Appeals (El Paso): 7
Ninth Court of Appeals (Beaumont): 0
Tenth Court of Appeals (Waco): 1
Eleventh Court of Appeals (Eastland): 0
Twelfth Court of Appeals (Tyler): 1
Thirteenth Court of Appeals (Corpus Christi & Edinburg): 4
Fourteenth Court of Appeals (Houston): 7
Fifteenth Court (limited statewide jurisdiction): 0[2]

The Court also heard argument in a direct appeal from the 205th District Court in El Paso County, an appeal from the Board of Disciplinary Appeals, a mandamus proceeding arising from the Multi-District Litigation Panel, and a mandamus proceeding seeking relief from the Comptroller. And the Court accepted and heard argument in five cases certified to it by the U.S. Court of Appeals for the Fifth Circuit.

[1] One was dismissed before decision.

[2] The Fifteenth Court of Appeals only began hearing cases in September 2024. For more information on this new court and its jurisdiction, see Gibson Dunn’s past alerts: here, here, here, and here.

Affirmance & Reversal Rates:

Below, we break down the Court’s term by the numbers—providing the Court’s overall affirmance and reversal rates and its affirmance and reversal rates by court of appeals.

These rates include only argued and decided cases funneling up from Texas state courts or other state entities, so the rates don’t include certified questions from the Fifth Circuit, cases decided on the briefing, or cases that were dismissed before the Court issued an opinion or on mootness grounds. That leaves a total of 56 cases.

For purposes of calculating the rates below, reversals include vacaturs, along with grants of mandamus relief for cases in which a party first sought relief in the court of appeals. And we’ve counted all cases with judgments that only reversed or affirmed in part as a tie, weighted with half a point each. That includes cases in which the Court reversed on all issues presented for review, but the parties didn’t challenge other parts of the court of appeals’ judgment.

Overall, the Court affirmed in 27.7% and reversed in 72.3% of the 56 cases in which it heard argument this term from a state court (or other state entity over which the Texas Supreme Court has jurisdiction) and issued a decision.

Affirmance and reversal rates in the state courts of appeals varied:

First Court of Appeals:
- Affirmed: 35.7% (2.5 out of 7)
- Reversed: 64.3% (4.5 out of 7)
Second Court of Appeals:
- Affirmed: 25% (.5 out of 2)
- Reversed: 75% (1.5 out of 2)
Third Court of Appeals:
- Affirmed: 8.3% (.5 out of 6)
- Reversed: 91.7% (5.5 out of 6)
Fourth Court of Appeals:
- Affirmed: 0% (0 out of 3)
- Reversed: 100% (3 out of 3)
Fifth Court of Appeals:
- Affirmed: 29.2% (3.5 out of 12)
- Reversed: 70.8% (8.5 out of 12)
Sixth Court of Appeals:
- Affirmed: 0% (0 out of 1)
- Reversed: 100% (1 out of 1)
Seventh Court of Appeals:
- Affirmed: 50% (1 out of 2)
- Reversed: 50% (1 out of 2)
Eighth Court of Appeals:
- Affirmed: 35.7% (2.5 out of 7)
- Reversed: 64.3% (4.5 out of 7)
Tenth Court of Appeals:
- Affirmed: 50% (.5 out of 1)
- Reversed: 50% (.5 out of 1)
Twelfth Court of Appeals:
- Affirmed: 0% (0 out of 1)

- Reversed: 100% (1 out of 1)
Thirteenth Court of Appeals:
- Affirmed: 75% (3 out of 4)
- Reversed: 25% (1 out of 4)
Fourteenth Court of Appeals:
- Affirmed: 21.4% (1.5 out of 7)
- Reversed: 78.6% (5.5 out of 7)

What It Means:

The Court’s overall affirmance rate of 27.7% rose slightly from last term’s affirmance rate of 25.4%. But the rate remains in line with the historical pattern that the Court affirms roughly 30% of cases each term. So the odds continue to favor the petitioner once the Court hears argument on a case.
The affirmance rates in the courts of appeals continue to fluctuate from year to year, largely due to relatively small sample sizes. For example, the affirmance rate in the Third Court of Appeals (Austin) dropped from 30.8% out of 13 cases in the 2023–2024 term to 8.3% out of 6 cases in the 2024–2025 term. In contrast, the affirmance rate in the Fifth Court of Appeals (Dallas) rose from 0% out of 8 cases in the 2023–2024 term to 29.2% out of 12 argued cases in the 2024–2025 term.
The Thirteenth Court of Appeals (Corpus Christi & Edinburg) is this term’s clear winner, with a 75% affirmance rate out of 4 cases. That’s a turnaround from its 0% affirmance rate on its only case up for review last year. On the opposite end of the scorecard is the Fourth Court of Appeals (San Antonio)—with a 0% affirmance rate out of 3 cases this year, compared to its top-scoring affirmance rate of 58.3% out of 6 cases last year.

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, Stephen Hammer, and Catherine Frappier.

From the Derivatives Practice Group: This week, Acting Chairman Pham announced the CFTC’s Crypto Sprint initiative aimed at implementing the recommendations from the President’s Working Group on Digital Asset Markets Report. As a first step, Acting Chairman Pham launched an initiative for listing spot crypto assets on designated contract markets (DCMs). For more information on the U.S. digital assets regulatory framework, please see Gibson Dunn’s recent client alert.

New Developments

CFTC Staff Issues No-Action Letter Regarding Event Contracts. On August 7, the CFTC’s Division of Market Oversight and the Division of Clearing and Risk announced they have taken a no-action position regarding swap data reporting and recordkeeping regulations for event contracts in response to a request from the Railbird Exchange, LLC, a designated contract market, and QC Clearing LLC, a derivatives clearing organization. [NEW]

SEC Division of Corporation Finance Issues Staff Statement on Certain Liquid Staking Activities. On August 5, the SEC issued a statement regarding certain liquid staking activities. The statement aims to provide greater clarity on the application of federal securities laws to crypto assets, specifically addressing a type of protocol staking known as “liquid staking.”

Liquid staking refers to the process of staking crypto assets through a software protocol or service provider and receiving a “liquid staking receipt token” to evidence the staker’s ownership of the staked crypto assets and any rewards that accrue to them. The statement clarifies the division’s view that, depending on the facts and circumstances, the liquid staking activities covered in the statement do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934. [NEW]

Acting Chairman Pham Launches Listed Spot Crypto Trading Initiative. On August 4, CFTC Acting Chairman Caroline D. Pham announced that the CFTC will launch an initiative for trading spot crypto asset contracts that are listed on a CFTC-registered futures exchange (a designated contract market). This is the first initiative in the CFTC’s crypto sprint to start implementation of the recommendations in the President’s Working Group on Digital Asset Markets report. [NEW]

Acting Chairman Pham Announces CFTC Crypto Sprint. On August 1, CFTC Acting Chairman Caroline D. Pham announced that the CFTC will kick off a crypto sprint to start implementation of the recommendations in the President’s Working Group on Digital Asset Markets report. [NEW]

CFTC Staff Issues No-Action Letter Regarding Swap Data Error Correction Notification Requirements. On July 31, the CFTC took a no-action position with respect to reporting counterparties that fail to submit a swap data error correction notification with respect to an error if, at the time the reporting counterparty initially discovers and assesses the impact of an error, the reporting counterparty makes a reasonable determination that the number of reportable trades affected by the error does not exceed five percent of the reporting counterparty’s open swaps for the relevant asset class in swaps for which it was the reporting counterparty.

Acting Chairman Pham Lauds Presidential Working Group Recommendations to Usher in Golden Age of Crypto in the U.S. On July 30, the President’s Working Group on Digital Asset Markets released a multi-agency report on recommendations to strengthen American leadership in digital financial technology. The report included input from multiple federal agencies, including the CFTC. Acting Chairman Pham stated that the “report represents a unified approach under the Trump Administration to usher in a golden age of crypto, and the CFTC stands ready to fulfill our mission to promote responsible innovation, safeguard our markets and ensure they remain the envy of the world.”

CFTC Staff Issues No-Action Letter on SEF Order Book. On July 30, the CFTC issued a no-action letter stating that it will not recommend the Commission commence an enforcement action against a swap execution facility (“SEF”) that does not provide a central limit order book as set forth in CFTC Regulation 37.3(a)(2), in connection with swap transactions executed on the SEF that are not subject to the trade execution requirement in Commodity Exchange Act section 2(h)(8).

SEC Permits In-Kind Creations and Redemptions for Crypto ETPs. On July 29, the SEC voted to approve orders to permit in-kind creations and redemptions by authorized participants for crypto asset exchange-traded product (“ETP”) shares. The orders reflect a departure from recently approved spot bitcoin and ether ETPs, which were limited to creations and redemptions on an in-cash basis. Bitcoin and ether ETPs, consistent with other commodity-based ETPs approved by the SEC, will be permitted to create and redeem shares on an in-kind basis.

CFTC Staff Issues No-Action Letter Regarding Event Contracts. On July 23, the CFTC’s Division of Market Oversight and the Division of Clearing and Risk announced they have taken a no-action position regarding swap data reporting and recordkeeping regulations in response to a request from the Chicago Mercantile Exchange Inc. (“CME”), a designated contract market and derivatives clearing organization. The divisions will not recommend the CFTC initiate an enforcement action against CME or its participants for failure to comply with certain swap-related recordkeeping requirements and for failure to report to swap data repositories data associated with binary option transactions executed on or subject to the rules of CME, subject to the terms of the no-action letter.

New Developments Outside the U.S.

ESMA Publishes Data for Quarterly Bond Liquidity Assessment. On August 1, ESMA published its new quarterly liquidity assessment of bonds. For this period, there are currently 1,346 liquid bonds subject to Markets in Financial Instruments Directive (“MIFID II”) transparency requirements. As indicated in the public statement released on March 27, 2024, the quarterly liquidity assessment of bonds will continue to be published by ESMA. [NEW]

ESMA Prepares for Switch Toward Single Volume Cap in October 2025. On July 24, ESMA announced an update of the volume cap system, which will pass from the previous double volume cap mechanism to a “single” volume cap mechanism (“VCM”) in October, according to the changes introduced by the Markets in Financial Instruments Regulation Review. The new VCM limits at 7% the trading volume under the reference price waiver in the EU, compared to the total aggregated trading volume in the EU over the last 12 months for each equity and equity-like financial instrument.

New Industry-Led Developments

ISDA Releases SwapsInfo First Half of 2025 and the Second Quarter of 2025. On August 7, ISDA released a research note that concludes interest rate derivatives trading activity increased in the first half of 2025, driven by continued interest rate volatility, evolving central bank policy expectations, and persistent macroeconomic uncertainty. Trading in index credit derivatives also rose, as market participants responded to a changing macroeconomic environment and sought to manage credit exposure. [NEW]

ISDA Responds to IFSCA on Derivatives Reporting and Clearing. On August 5, ISDA responded to the International Financial Services Centres Authority’s (“IFSCA”) consultation on reporting and clearing of over-the-counter (“OTC”) derivatives contracts booked in International Financial Services Centres. In the response, ISDA provided several recommendations including removing one-to-one hedging requirements for OTC derivatives, especially those referencing foreign or IFSC-listed securities, to align with global practice and support flexible risk management. [NEW]

ISDA Board Appoints New Chair. On July 31, ISDA announced that its Board of Directors elected Amy Hong as its new Chair. Ms. Hong is Head of Strategy, Investments and Partnerships in the Global Banking & Markets division at Goldman Sachs, responsible for leading strategic initiatives for the division with a focus on market structure, systemic and operational risks, and industry digitization. Ms. Hong succeeds Jeroen Krens, who has stepped down in accordance with ISDA’s bylaws following his departure from HSBC.

ISDA/IIF Responds to the PRA Consultation (CP10/25) on Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks. On July 30th, ISDA and the Institute of International Finance (“IIF”) responded to the PRA consultation (CP10/25) on enhancing banks’ and insurers’ approaches to managing climate-related risks, which proposes updates to the Supervisory Statement 3/19 on climate-related risk management for banks and insurers. ISDA and IIF indicated their broad support the PRA’s climate risk approach, but warned against overly prescriptive or bespoke climate-specific requirements.

ISDA Responds to EC on Exemption of Spot FX Benchmarks from BMR. On July 28, ISDA and the Global Foreign Exchange Division of the Global Financial Markets Association responded to the European Commission’s (“EC”) consultation on the need to exempt spot foreign exchange (“FX”) benchmarks under Article 18a of the EU Benchmarks Regulation (“BMR”). The consultation recommends applying the exemption to four currencies on the basis that their use in the EU either exceeds (Indian rupee, South Korean won, Taiwanese new dollar) or is very close to (Philippine peso) the significant benchmark threshold based on traded volume data provided by EU supervised entities.

ISDA CEO Issues Comment on Strengthening DC Governance. On July 23, ISDA CEO Scott O’Malia offered an informal comment on the role of Credit Derivatives Determinations Committees (“DCs”). He announced the formation of a governance committee that will be responsible for overseeing the operation of the DCs and making changes to the DC rules where necessary to ensure long-term viability and meet market expectations for efficiency and transparency in credit event determinations.

ISDA and CSA Issue Notification of Significant Error or Omissions Suggested Operational Practices. On July 22, ISDA and the Canadian Securities Administrators (“CSA”) developed a Suggested Operational Practices that considered current institutional processes and outlined suggested operational practices related to the new requirement under §26.3(2) of the Canadian Trade Repositories and Derivatives Data Reporting rules rewrite. This is intended to notify a Canadian regulator of a significant error or omission with respect to derivatives data.

ISDA Announces Paper on UPI Identifiers for MIFID Transaction Reporting. On July 22, ISDA announced a paper (titled UPI as the Foundation for OTC Derivatives Reporting: The Case for UPI) that it submitted to the UK Financial Conduct Authority on July 16. The paper was developed to complement ISDA’s response to the FCA’s discussion paper DP24/2: Improving the UK Transaction Reporting Regime, which is intended to improve transaction reporting under the UK Markets in Financial Instruments Regulation.

ISDA Releases Report on Interest Rate Derivatives Trading Activity Reported in EU, UK and US Markets: First Quarter of 2025. On July 21, ISDA released a report that analyzed interest rate derivatives trading activity reported in Europe. The analysis is based on transactions publicly reported by 30 European approved publication arrangements and trading venues.

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)

*Alice Wang, an associate in the firm’s Washington, D.C. office, is not admitted to practice law.

This update provides an overview of shareholder proposals submitted to public companies during the 2025 proxy season, including statistics and notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests.

As discussed below, based on the results of the 2025 proxy season, there are several key takeaways to consider for the coming year:

Shareholder proposal submissions fell for the first time since 2020.
The number of proposals decreased across all categories (social, governance, environmental, civic engagement and executive compensation).
No-action request volumes continued to rise and outcomes continued to revert to pre-2022 norms, with the number of no-action requests increasing significantly and success rates holding steady with 2024.
Anti-ESG proposals continued to proliferate in 2025, but shareholder support remained low.
Data from the 2025 season suggests that the Staff’s responses to arguments challenging politicized proposals (those proposals that express either critical or supportive views on ESG, DEI and other topics) were driven by the specific terms of the proposals and not by political perspectives.
New Staff guidance marked a more traditional application of Rule 14a-8, but the results of the 2025 season indicate that Staff Legal Bulletin 14M (“SLB 14M”) did not provide companies with a blank check to exclude proposals under the economic relevance, ordinary business or micromanagement exceptions.

Shareholder Proposal Developments

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

Aaron Briggs – San Francisco, CA (+1 415.393.8297, abriggs@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Julia Lapitskaya – New York, NY (+1 212-351-2354, jlapitskaya@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com)
Michael Titera – Orange County, CA (+1 949-451-4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202-887-3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York, NY (+1 212-351-2309, lzyskowski@gibsondunn.com)

Gibson Dunn is experienced in not only banking regulation and compliance and enforcement defense but in challenging agency action if needed and in related advocacy including in any rulemakings resulting from the Executive Order.

On August 7, 2025, President Trump signed an Executive Order directing the federal banking agencies, National Credit Union Administration (NCUA) and Small Business Administration (SBA) to investigate whether financial institutions have engaged in “politicized or unlawful debanking” practices in violation of federal law.[1] The Executive Order alleges that bank regulators have used their “supervisory scrutiny and influence” over banks to “direct” or “encourage” politicized or unlawful debanking activities, including debanking on the basis of political affiliation, religious belief, or engagement in lawful business activities.

The Executive Order mirrors language used by President Trump in recent months. In January, President Trump spoke via videoconference at the World Economic Forum in Davos, Switzerland, noting that “conservatives complain that the banks are not allowing them to do business ….”[2] This week, President Trump told CNBC that “banks discriminated against me very badly,” and that banks, “discriminate against many conservatives.”[3] However, it is important to note that much of the emphasis on reputation risk by financial institutions was in response to federal banking agencies and the imposition of supervisory expectations. These supervisory expectations required institutions to designate certain customer types as “high risk” and subject them to heightened onboarding and monitoring requirements – and failure to do so could result in supervisory findings, including fines and ratings downgrades.

The Executive Order’s stated aim is to protect Americans from being denied access to financial services on the basis of constitutionally or statutorily protected beliefs, affiliations, or political views, and to ensure that politicized or unlawful debanking is not used as a tool to inhibit such beliefs, affiliations, or political views. Instead, the Executive Order states, customer retention decisions must be made on the basis of “individualized, objective, and risk-based analyses.”

What’s next?

The Executive Order directs the “federal banking regulators” (which, in addition to the federal banking agencies, the Executive Order defines to include the Consumer Financial Protection Bureau (CFPB), NCUA, and SBA) to: (i) remove the use of reputation risk or equivalent concepts that could result in politicized or unlawful debanking from all guidance documents, manuals, and other materials; and (ii) consider rescinding or amending existing regulations to eliminate the risk of politicized or unlawful debanking and to ensure that an institution’s or customer’s reputation is “considered for regulatory, supervisory, banking, or enforcement purposes solely to the extent necessary to reach a reasonable and apolitical risk-based assessment.”

The federal banking agencies already have begun modifying their guidance, examination manuals and other policy documents on reputation risk well in advance of this Executive Order. On March 20, 2025, the Office of the Comptroller of the Currency (OCC) announced that it would remove reputation risk considerations from their supervisory and regulatory toolboxes – changes which the OCC has already begun implementing.[4] On March 24, 2025, Federal Deposit Insurance Corporation (FDIC) Acting Chairman Travis Hill indicated that the FDIC planned to “eradicate” reputation risk from its regulations, guidance, examination manuals, and other policy documents. Following suit, on June 23, 2025, the Federal Reserve announced that reputation risk will no longer be a component of examination programs in its supervision of banks – changes which the Federal Reserve, too, has begun implementing.[5] Similarly, the Financial Integrity and Regulation Management (FIRM) Act, which would prohibit the use of reputation risk as a supervisory factor, has advanced out of both the Senate Banking and House Financial Services Committees.

The Executive Order also requires the federal banking regulators to conduct a review of financial institutions subject to their jurisdiction to identify whether any institution has current or historical policies that encourage politicized or unlawful debanking that violates “applicable law.” Federal banking regulators are instructed to take “appropriate remedial action” to correct improper conduct identified pursuant to this review, including levying fines, issuing consent decrees, or imposing other disciplinary measures.

The Executive Order cites Section 5 of the Federal Trade Commission Act[6] (FTC Act), Section 1031 of the Consumer Financial Protection Act[7] (CFPA), and the Equal Credit Opportunity Act[8] (ECOA) as “applicable law” authorizing the federal banking regulators’ enforcement authority. The Executive Order citing to these statutes reveals the Administration’s views on the legality of politicized debanking practices and previews potential areas of focus for enforcement.

The FTC Act and CFPA prohibit “unfair and deceptive acts or practices.” The CFPA expands on the FTC Act by also prohibiting “abusive” acts or practices.[9] By citing to the FTC Act and CFPA, the Executive Order would expand the range of fact patterns that may give rise to enforcement action under those statutes beyond those that traditionally result in enforcement actions for unfair, deceptive, or abusive acts or practices. The CFPB has primary enforcement authority under the CFPA for banks and credit unions with assets exceeding $10 billion.[10]

ECOA prohibits creditors from discriminating against credit applicants on the basis of certain protected characteristics. Reliance on ECOA therefore limits “debanking” enforcement under that act to instances of denying credit on the basis of race, religion, or other protected status. In that connection, the Executive Order also requires the federal banking regulators to review their current supervisory and complaint data to identify potential instances of unlawful debanking on the basis of religion and to refer financial institutions to the Attorney General where the agency has reason to believe that one or more institutions “has engaged in a pattern or practice” of ECOA violations.[11] The CFPB also has enforcement authority under ECOA.[12]

Finally, the Executive Order directs the SBA to require financial institutions subject to SBA’s jurisdiction and supervision to “make reasonable efforts” to identify and reinstate clients denied SBA services due to politicized or unlawful debanking and to identify potential clients denied access to financial or payment processing services due to politicized or unlawful debanking at financial institutions subject to the SBA’s oversight and supervision and notify such clients of the “renewed option” to engage in “such services previously denied.”[13]

What’s relevant now?

“Debanking” and the agencies’ supervision and regulation of reputation risk has been a top-line area of focus since the change in administration and many institutions, as a result, have been grappling with the evolving regulatory and supervisory landscape for several months. Because the Executive Order directs federal banking regulators to conduct a lookback to identify potential instances of unlawful debanking, financial institutions may encounter a variety of challenges.

Financial institutions may receive broad information requests in connection with agency lookbacks. From a practical perspective, these lookbacks could be time-consuming and costly. Institutions may not have all data available in response to broad lookbacks and should aim to scope any lookback to narrowly define the type of client or business for which information is sought or the timeframe of any lookback. In certain scenarios, institutions may be able to demonstrate that then-current regulatory guidance and/or directives, supervisory requests or findings in the examination/supervisory process shaped the institution’s actions with respect to clients engaged in certain industries, and those institutions should be well-positioned to respond to requests from regulators in those instances.
Moreover, although the Executive Order on its face focuses on “unlawful debanking” on the basis of political or religious affiliation, customer “offboarding” for other reputation risks may also be in scope for enforcement. In recent months, President Trump and other Administration officials have identified the debanking of oil and gas companies, firearms manufacturers, and cryptocurrency companies as potentially problematic.[14] All possible enforcement angles should be considered when assessing potentials risks as a result of the Executive Order.

The regulatory and supervisory scheme with respect to reputation risk will continue to evolve. While many institutions have already commenced recalibrating how they assess reputation risk as a facet embedded within measurable, traditional risk domains in light of the Administration’s and agencies’ focus on the issue, there remains ample opportunity for the industry to continue to advocate with (i) policymakers in the implementation of legislation like the FIRM Act and (ii) regulators as the agencies shift away from subjective reputation risk assessments to the implementation of clearer, more objective guidance in the supervisory process. Clearly, the Executive Order suggests there is more guidance and scrutiny to come in this area. Despite the Executive Order’s focus on preventing politicized or unlawful debanking, financial institutions will continue to be expected to adhere to robust initial and ongoing due diligence inquiries of customers to address core banking risk assessments, including credit risk, market risk, operational risk, and legal and compliance risk, among other core banking risks.

Congress may launch investigations into financial institutions’ use of reputation risk in response to this Executive Order. Under President Trump, Congress has been focusing its oversight and investigations less on the executive branch and more on the private sector and causes perceived to be aligned with the political left. For example, for more than two years, the House Judiciary Committee has been investigating alleged efforts by social media companies and the Biden Administration to censor conservative speech. In light of the Executive Order and the fact that both House and Senate committees held hearings earlier this year on other aspects of debanking, it seems likely Congress also will examine the debanking allegations and issues addressed by the Executive Order. Congressional investigations often unfold through public letters and subpoenas, in committee or committee staff reports, and before television cameras in hearing rooms. It is advisable for financial institutions to begin thinking about the possibility of congressional investigations and organizing their responses. Effective responses to congressional investigations often involve thoughtful coordination among legal, government affairs, business, and communications resources. And the best time to marshal and organize such resources is before a crisis occurs. Here, with potential congressional investigations looming on the horizon, beginning to prepare is advisable.

In closing, we recognize that the Executive Order amplifies regulatory uncertainty on these issues given prior contrary guidance and enforcement (both formal and informal) regarding reputation risk. The Executive Order itself seemingly lays the groundwork for future penalties related to actions taken by financial institutions at the behest of their regulators. Gibson Dunn is experienced in not only banking regulation and compliance and enforcement defense but in challenging agency action if needed and in related advocacy including in any rulemakings resulting from the Executive Order. We stand ready to assist clients in thinking through the best strategies for navigating these changing tides.

Gibson Dunn will continue to closely monitor regulatory developments related to the Executive Order and other related agency actions, and our attorneys are available to support financial institutions in responding to requests for information and revising existing policies to ensure compliance with new developments and existing requirements, and to interface with government decisionmakers and strategize on approach in any further regulatory proceedings or examinations.

[1] https://www.whitehouse.gov/presidential-actions/2025/08/guaranteeing-fair-banking-for-all-americans/. The Executive Order defines “politicized or unlawful debanking” as an “act by a bank, savings association, credit union, or other financial services provider to directly or indirectly adversely restrict access to, or adversely modify the conditions of, accounts, loans, or other banking products or financial services to any customer or potential customer on the basis of the customer’s or potential customer’s political or religious beliefs, or on the basis of the customer’s or potential customer’s lawful business activities that the financial service provider disagrees with or disfavors for political reasons.” Executive Order, § 3(a).

[2] https://www.wsj.com/finance/banking/trump-big-bank-conservative-bias-accusations-168abb27?mod=article_inline.

[3] https://www.cnbc.com/video/2025/08/05/president-trump-banks-discriminated-against-me-after-i-was-president.html

[4] Press Release, OCC, OCC Ceases Examinations for Reputation Risk (Mar. 20, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-21.html. See also Comptroller’s Handbook, https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/bank-supervision-process/pub-ch-bank-supervision-process.pdf.

[5] Press Release, Board of Governors for the Federal Reserve System, Federal Reserve Board announces that reputational risk will no longer be a component of examination programs in its supervision of banks (June 23, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm. See also SR 95-51 (SUP): Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies, https://www.federalreserve.gov/supervisionreg/srletters/SR9551.htm.

[6] 15 U.S.C. § 45.

[7] 12 U.S.C. § 5531.

[8] 15 U.S.C. § 1691.

[9] 12 U.S.C. § 5531(a).

[10] 12 U.S.C. § 5515(a).

[11] 15 U.S.C. § 1691e(g).

[12] 15 U.S.C. § 1691c(a)(9).

[13] Executive Order, § 4(b).

[14] See https://www.wsj.com/politics/jpmorgan-targeted-by-republican-states-over-accusations-of-religious-bias-903c8b26?mod=article_inline; https://www.wsj.com/finance/banking/big-banks-worried-about-being-trumps-next-target-race-to-appease-republicans-15b6423a?mod=article_inline.

The following Gibson Dunn lawyers assisted in preparing this update: M. Kendall Day, Stephanie Brooker, Jason Cabral, Michael Bopp, Amy Feagles, Gene Scalia, Ro Spaziani, Helgi Walker, Rachel Jackson, Monica Murphy, and David Reck.

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, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Financial Institutions, Financial Regulatory, Administrative Law & Regulatory, Congressional Investigations, or White Collar Defense & Investigations practice groups:

Financial Institutions:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Jason J. Cabral – New York (+1 212.351.6267, jcabral@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
Ro Spaziani – New York (+1 212.351.6255, rspaziani@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)

Financial Regulatory:
William R. Hallatt – Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)
Michelle M. Kirschner – London (:+44 20 7071 4212, mkirschner@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Administrative Law & Regulatory:
Stuart F. Delery – Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)
Eugene Scalia – Washington, D.C. (+1 202.955.8673, dforrester@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)

Congressional Investigations:
Michael D. Bopp – Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com)
Sophia Brill – Washington, D.C. (+1.202.887.3530, sbrill@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@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)

Center for Biological Diversity, Inc. v. Public Utilities Com., S283614 – Decided August 7, 2025

The California Supreme Court today unanimously held that when courts review decisions of the Public Utilities Commission, they act as “the final arbiters of statutory meaning” and need not defer to Commission interpretations.

“An agency’s interpretation is one among several tools available to the court, but the court cannot abdicate a quintessential judicial duty—applying its independent judgment de novo to the merits of the legal issue before it.”

Justice Kruger, writing for the Court

Background:

For decades, when courts reviewed decisions of California’s Public Utilities Commission, they applied a “uniquely deferential” standard under which the Commission’s “interpretation of the Public Utilities Code should not be disturbed unless it fails to bear a reasonable relation to statutory purposes and language.” (Greyhound Lines, Inc. v. Public Utilities Com. (1968) 68 Cal.2d 406, 410-411.) But beginning in the mid-1990s, the Legislature enacted a series of laws expanding the scope of scope of judicial review and making clear that courts can review Commission decisions for “abuse of discretion” and can vacate decisions where the Commission did not “proceed[] in the manner required by law.” (Pub. Utilities Code, § 1757.1, subds. (a)(1)-(2).)

Following those amendments, lower courts in California were split over how to review Commission decisions. Some continued to apply the deferential standard of Greyhound Lines. But others applied the typical standard that governs review of an agency’s statutory interpretation, under which courts must “independently judge the text of the statute.” (Yamaha Corp. of America v. State Bd. of Equalization (1989) 19 Cal.4th 1, 7-8.) The California Supreme Court granted review to resolve that conflict.

Issue Presented:

What standard of review applies to judicial review of a Public Utilities Commission decision interpreting provisions of the Public Utilities Code?

Court’s Holding:

Courts reviewing decisions of the Public Utilities Commission must apply the normal standard for review of agency action and must independently interpret the Public Utilities Code rather than substantially deferring to the Commission’s interpretation.

What It Means:

The Court’s decision puts an end to decades of deference to the Commission’s interpretation of the Public Utilities Code, allowing courts to reach independent conclusions about how best to interpret the Code.
The decision will make it easier for litigants to challenge decisions of the Commission. Challengers will no longer have to show that the Commission’s interpretation of the Code is patently unreasonable; they will have to show only that their interpretation is better.
The Court made clear that some degree of deference to the Commission may remain appropriate. An agency’s interpretation, for instance, remains “one among several tools available to the court” in construing the Code, and that interpretation may warrant “great weight” in “appropriate circumstances.” And when a dispute turns on the reasonableness of the agency’s exercise of lawmaking authority rather than on a question of statutory interpretation, it “may be appropriate to defer to an agency’s reasonable exercise of . . . such authority.”

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 California Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

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This alert was prepared by Daniel R. Adler, Ryan Azad, and Matt Aidan Getz.

New York tax partners Eric Sloan, Matt Donnelly, and James Jennings and associate Sumaya Bouadi are the authors of “What a Long, Strange Trip It’s Been: The Economic Substance Doctrine at 90,” recently published in Tax Notes Federal (subscription required) and Tax Notes International (subscription required).

In their article, the authors examine the evolution of the economic substance doctrine and of the IRS’s position on its application, arguing that that position since 2022 diverges from the plain language of section 7701(o), contradicts established case law, and undercuts clear congressional intent.

This update provides a discussion on the President’s Report and other current developments in digital asset regulation related to market infrastructure, the banking system and broader payment activities, and taxation of digital assets.

Recent developments in the digital asset space aim to establish a clear regulatory framework for digital assets, while encouraging innovation and enabling a pathway of compliance for eligible current market participants. Given the Administration’s agenda to transform the United States into a global leader in digital assets and blockchain technology and Congressional support for this agenda, the digital asset regulatory framework is likely to take shape quickly—with rulemakings and specific guidance to follow over a substantially longer timeframe.

On July 30, 2025, the President’s Working Group on Digital Asset Markets (PWG) published the Strengthening American Leadership in Digital Financial Technology Report (Report) in response to Executive Order 14178. The Report reiterates the Administration’s support for digital assets and provides a roadmap of recommendations for Congress and regulators to modernize the U.S. digital asset regulatory framework, including in connection with digital asset market structure, banking and payments, countering illicit finance, and taxation. The Report emphasizes the need for a clear, fit-for-purpose system to foster innovation, protect investors, and position the United States as a global leader in digital financial technology.

In light of all of the moving pieces, below is a discussion on the Report and other current developments in digital asset regulation related to market infrastructure, the banking system and broader payment activities, and taxation of digital assets. For additional information on the Report’s recommendations for countering illicit finance, please see our accompanying Client Alert. In addition, for a fulsome discussion on the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), see our prior publication.

I. Market Infrastructure

The market structure for digital assets presents a web of potential licensing and registration requirements that have long been unaddressed. The reforms outlined in the Report, the launch of “Project Crypto” by the U.S. Securities and Exchange Commission (SEC), and pending legislation relating to market structure, including the envisioned roles of the SEC and the Commodity Futures Trading Commission (CFTC), aim to address these open questions to provide more certainty for industry participants. Specifically, we highlight components of the House of Representatives’ Digital Asset Market Clarity Act (CLARITY Act) and the Senate’s discussion draft of the Responsible Financial Innovation Act of 2025 (Discussion Draft), as well as the request for information from the industry in connection with the development of the digital assets market oversight framework.

A. The PWG Report

The Trump Administration has unequivocally articulated its ambition for the United States to position itself as an international leader at the forefront of technological advancement in the digital asset space, “usher[ing] in the Golden Age of Crypto” and “lead[ing] the blockchain revolution.”[1] The Report acknowledged risks within the digital assets space, but emphasizes the valuable opportunities for U.S. leadership in international standard-setting, including promoting technology-neutral regulatory approaches, ensuring standards accurately reflect risk profiles rather than political preferences, and maintaining the importance of the dollar in emerging digital payment systems. Throughout, the Report acknowledges a geopolitical dimension, noting that cross-border payment innovation may be crucial to maintaining dollar dominance as existing inefficiencies could create demand for alternatives that “may be filled by U.S. adversaries.”

In focusing on the market infrastructure, the Report addresses the evolving nature of digital asset markets and categorizes digital assets as security tokens, commodity tokens, and tokens for commercial and consumer use—emphasizing the importance of economic functionality in determining the appropriate regulatory fit.

The Report provides several recommendations for the SEC and the CFTC, encouraging both to use their rulemaking and exemptive authorities to foster the trading of digital assets and ensure American businesses remain competitive internationally. The Report also lauds the CLARITY Act, indicating that it provides an “excellent foundation” for the digital asset market in the United States. However, the PWG also provides the following key recommendations to Congress as it works to finalize this legislation:

The CFTC should have authority to regulate spot markets in non-security digital assets.
Registrants should be permitted to engage in multiple business lines under an efficient, clear, and simple licensing and regulatory framework.
Federal law should preempt state law for intermediaries, including for state virtual currency businesses, blue sky laws, and commodity broker laws.
Intermediaries should be permitted to lend, net, and hedge securities against non-securities, accounting for applicable risk characteristics.
Registrants should be required to adopt best practices for cybersecurity standards.
Trading platforms should be allowed to custody customer digital assets with appropriate controls.

B. Potential Legislation: The CLARITY Act and the Discussion Draft

The CLARITY Act currently awaits consideration in the Senate after passing in the House of Representatives on July 17 with strong bipartisan support (216 Republicans and 78 Democrats). However, on July 22, Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking Committee) Chairman Tim Scott, Subcommittee on Digital Assets Chair Cynthia Lummis, Senator Bill Hagerty, and Senator Bernie Moreno released the Discussion Draft as an alternative to the CLARITY Act. Along with the Discussion Draft, Senator Scott and his colleagues issued a Request for Information for stakeholders to submit feedback on the draft, posing a wide array of questions.

Both the CLARITY Act and the Discussion Draft aim to provide a foundation on which to develop a clear framework to classify digital assets and jurisdiction between the SEC and CFTC, depending on whether the digital assets are securities or commodities. It is important to note that unlike the CLARITY Act, which is a complete bill that passed the House with bipartisan support, the Discussion Draft is a preliminary discussion draft of a potential future bill and was issued by the Senate Banking Committee, which has jurisdiction over the SEC, and aims to build on the momentum of the CLARITY Act. The Senate Committee on Agriculture, Nutrition, and Forestry (Senate Agriculture Committee), which has jurisdiction over the CFTC, is also expected to introduce its own draft legislation on digital assets. The two committees will then need to reconcile the jurisdictional divide between the SEC and CFTC and other matters before a full bill can be advanced. The introduction of the Discussion Draft suggests that there may be some issues that will need to be considered more carefully in order to garner the necessary support for the CLARITY Act in the Senate.

A summary of certain components of the CLARITY Act and the Discussion Draft are set forth below.

1. Regulatory Oversight

The CLARITY Act would give the CFTC oversight of “digital commodities,” a defined category of digital assets that (1) are intrinsically linked to, and derive their value from, a “mature” blockchain system, (2) are sufficiently decentralized, and (3) do not confer ownership rights. Digital assets that are securities—such as tokens conferring equity, debt, or other rights similar to those conferred by securities—would fall under the SEC’s jurisdiction.

The CLARITY Act addresses the requirement to register offers and sales of securities under Section 5 of the Securities Act of 1933 (Securities Act) in two ways. First, it amends the definition of “investment contract” in Section 2(a)(1) to exclude a new term of art, the “investment contract asset,” and it also provides an exemption from the registration requirements of the Securities Act for offers and sales of investment contracts involving digital commodities on blockchains that are “mature” (i.e., sufficiently decentralized) or are “intended” to be “mature” within four years from the date of first sale, subject to specified conditions.

The Discussion Draft provides a preliminary structure predicated on preexisting definitions and authorities but provides only limited insight into a potential framework, pending input from the Request for Information, the expected draft legislation from the Senate Agriculture Committee, and reconciliation. In lieu of the CLARITY Act’s definitional exemption and offering exemption, the Discussion Draft employs the concept of an “ancillary asset,” defined as an intangible, fungible asset that is provided to a person in connection with the sale of a security through an investment contract. If certain conditions are satisfied in the offering process, including compliance with periodic disclosure requirements and a self-certification requirement, then, by operation of the Discussion Draft, the ancillary asset “shall not be a security.” The Discussion Draft calls for the SEC to promulgate rules under a proposed “Regulation DA” to define how and when a digital asset qualifies as an ancillary asset that becomes a commodity over time.

2. Licenses and Registration Requirements

The CLARITY Act and the Discussion Draft would impose different registration and licensing schemes on market participants.

The CLARITY Act creates three new categories of CFTC registrants: (i) digital commodity exchanges; (ii) digital commodity brokers; and (iii) digital commodity dealers. Each of these registrants would be required to register with the CFTC, similar to their traditional counterparts, and comply with digital asset-specific regulations. Additionally, U.S. issuers that issue no more than $75 million of digital commodities within a 12-month period would be exempt from registration under the Securities Act, and dual-registration would be available to entities transacting in both securities and digital commodities.

The Discussion Draft does not currently propose a new licensing regime for digital assets and instead calls for the SEC to tailor existing registration, disclosure, and reporting obligations for digital asset activities, and to promulgate rules under the proposed Regulation DA, which may include registration or licensing requirements. However, the Discussion Draft prohibits the SEC from imposing more onerous obligations on digital asset activities than would otherwise be applicable to functionally analogous conduct not in the digital asset space. As previously indicated, the Discussion Draft will likely be supplemented with CFTC-related requirements by the Senate Agriculture Committee.

3. Considerations for Foreign Issuers

The CLARITY Act and the Discussion Draft both aim to make the U.S. a more hospitable jurisdiction for digital assets. However, as one would expect, the CLARITY Act is more explicit than the Discussion Draft in addressing the regulatory treatment of foreign issuers and intermediaries, providing mechanisms for their participation in U.S. markets subject to disclosure and compliance requirements. The Discussion Draft touches on international cooperation and reciprocity but, as a discussion draft, is less detailed than the CLARITY Act on the specific obligations of foreign issuers.

4. Primary v. Secondary Trading

A critical issue is how digital asset sales in the primary market are treated as compared to trading in the secondary market. The CLARITY Act draws a clear line between the two, subjecting primary offerings of digital assets that originate as investment contracts to specific disclosure and reporting requirements and allowing for unrestricted secondary trading of such assets as digital commodities on CFTC-regulated platforms. Similarly, the Discussion Draft proposes to require “ancillary asset originators” to comply with certain disclosure requirements in connection with primary offerings, and gives jurisdiction over secondary transactions to the CFTC, contingent on a certification by the ancillary asset originator and a waiting period.

5. State Preemption

Both the CLARITY Act and the Discussion Draft provide for preemption of state law, although the CLARITY Act is more comprehensive.

The CLARITY Act would amend the Securities Act to classify digital commodities as “covered securities,” thereby restricting the ability of the states to impose separate registration or qualification requirements on offers or sales of the same. It also grants the CFTC exclusive jurisdiction over registered digital commodity exchanges, digital commodity brokers, and digital commodity dealers, preempting any related provision of law dealing with activities subject to the Commodity Exchange Act.

The Discussion Draft is, naturally, more nebulous but provides that any rules adopted under the proposed Regulation DA would preempt state registration requirements.

6. Regulatory Uncertainty Remains

Although the CLARITY Act and the Discussion Draft are a step toward the legislation of digital assets, many questions remain. The Discussion Draft remains just that, a discussion draft, and will need to be reconciled with responses to Senator Scott’s Request for Information and the Senate Committee on Agriculture’s own draft legislation, which remain pending. Notably, the Administration appears to support the CLARITY Act, as evidenced by the Report.

C. The PWG Report v. Proposed Legislation

The Report’s market structure recommendations broadly align with the spirit of the CLARITY Act and the Discussion Draft, but go further in certain respects. For instance, the Report and the proposed bills all acknowledge the importance of preserving decentralized finance (DeFi) innovation. However, the Report contemplates the integration of DeFi into mainstream finance while the CLARITY Act and the Discussion Draft merely propose to protect the ability to develop decentralized protocols by limiting burdensome registration requirements, but stop short of incorporating DeFi into the regulatory framework or into traditional financial infrastructure. Uncertainty remains as to what constitutes sufficient decentralization and how to address evolving governance models. Similarly, the PWG recommends that the SEC and CFTC “immediately enable” crypto trading within the existing regulatory framework, communicating a sense of urgency, whereas the proposed legislation contemplates a time horizon of up to a year for recommended rulemakings.

D. Project Crypto

On July 31, SEC Chairman Atkins announced the launch of “Project Crypto” at the SEC, an initiative led by himself and Commissioner Hester Peirce.[2] Project Crypto is aimed at swiftly implementing the Report’s recommendations within the SEC’s purview under five initiatives:

Clarifying the definitional confusion around what is a security, encouraging innovative offerings of digital assets, including tokenized securities, and bringing back and supporting more capital raising related to digital assets in the United States;
Providing maximum flexibility for market participants with respect to custody of and trading digital assets;[3]
Allowing securities intermediaries to offer a wide range of non-security cryptoassets, cryptoasset securities, traditional securities, and other services under a single license;
Updating archaic rules and regulations to “unleash the potential of on-chain software systems in our securities markets”; and
Fostering innovation and entrepreneurship by providing an “innovation exemption” that allows “innovators and visionaries . . . to immediately enter the market with new technologies and business models,” subject to compliance with “certain principles-based conditions designed to achieve the core policy aims of the federal securities laws.”

Chairman Atkins explicitly directed SEC staff to draft “clear and simple rules of the road,” in line with the PWG’s call for immediate regulatory clarity. Consistent with the recommendations of the PWG, Chairman Atkins also disclosed that while formal rules are in process, the SEC will consider employing interpretive and exemptive authorities to provide paths forward for industry participants.

II. Banking and Payments

The Report notes several key roles of traditional banks in the digital assets ecosystem and the Report’s recommendations for actions of the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), as well as state banking and insurance regulators.

Banks provide core services including commercial deposit accounts, loans, and capital markets advisory services to digital asset firms. The Report emphasizes that access to traditional banking services is “essential for any company or individual” and enables digital asset firms to “manage cash flows, pay employees and vendors, and conduct their operations efficiently.” Further, banks have focused on services and activities related to digital assets, including providing custody services and facilitating trade execution (primarily through finder authority).

A. Existing Regulatory Framework

While many of the activities referenced above are permissible for national banks and bank holding companies without further action from the OCC and the Federal Reserve, there are key gaps. The Report highlights several OCC Interpretive Letters that were originally issued during the first Trump Administration, including with regard to the ability of national banks to provide digital asset custody and execution services,[4] hold deposits that serve as reserves for stablecoins,[5] and use distributed ledger technology for certain payment activities,[6] which were reaffirmed by the OCC in 2025.[7] Notwithstanding those several OCC Interpretive Letters, the Report highlights that there remains uncertainty regarding the permissibility of digital asset-related activities at the depository institution level beyond those addressed in prior OCC Interpretive Letters or where clear authority already exists, and within the broader bank holding company ownership structure.

B. Key Recommendations for Banking Agencies

1. Clarify Permissible Activities

Of course, many of the highlighted activities are permissible under current regulations—e.g., custody, finder activities, payment facilitation—but additional clarity on expected risk management practices and capital requirements would enable more certainty by banks (and their holding companies) engaging in digital asset-related activities.

Specifically, the Report identifies several areas where additional clarity may be necessary:

Whether and how banks may use public, permissionless blockchains;
Whether banks may acquire and use digital assets to pay transaction fees (g., gas fees) for blockchain operations;
Whether banks may purchase and sell digital assets solely as riskless principals;
Whether banks may, and the potential limits to, create markets in digital assets; and
Guidelines for the tokenization of deposits and other financial products.

While the foregoing may benefit the industry, as noted, there is existing authority for banks to engage in a wide range of digital-asset related activities without additional rulemakings or formal guidance.

2. Adopt a Technology-Neutral Approach to Risk Management Expectations

The Report emphasizes a “technology-neutral” regulatory approach, whereby digital asset activities are evaluated on the basis of their actual risk profiles rather than on their technological characteristics. It highlights the importance of banks and other financial industry participants to innovate and that traditional banking institutions should be allowed to engage in “safe and sound” digital asset activities “without prior regulatory approval or notice.” This technology-neutral principle is especially important for permissionless blockchain usage, where the Report notes that other jurisdictions have allowed banks to interact with public chains for years while “the U.S. banking agencies have effectively prohibited it.” The new framework also identifies the need to implement carefully regulated pathways to facilitate such activities.

The Report also emphasizes that tokenization should not affect prudential treatment when the underlying risk profile remains unchanged. Specifically, the Report notes that Banking Agencies should “clarify the circumstances, using risk-based guidelines, under which tokenized assets and tokenized asset collateral would be subject to the same capital and liquidity treatment as the underlying asset or collateral.”

3. Implement Technology-Neutral Capital Requirements

The Report raises concerns with the existing Basel Committee on Banking Supervision (BCBS) cryptoasset standards, particularly with regard to the defined asset classes and risk weights that do not accurately reflect the risk profiles.

Currently, the BCBS framework divides cryptoassets into categories (which are further subdivided). In short, Group 1 assets are backed by traditional assets meeting specified conditions, and are subject to capital requirements based on underlying exposures. In contrast, Group 2 assets fail to meet at least one Group 1 condition and have a 100% capital charge, provided they meet hedge recognition criteria—otherwise they are subject to a 1250% risk weight.

The Report identifies several flaws in the BCBS approach. First, the current framework discriminates against permissionless blockchain-based assets regardless of their actual risk characteristics. Put differently, the Report notes that “cryptoassets relying on permissionless blockchains pose risks that may prevent them from being included in Group 1,” despite strong evidence to the contrary that technical risk mitigation strategies are being actively developed and implemented. Second, the Report contends that the current system fails to offer “a clear enough distinction between cryptoassets widely used for payment and investment purposes and other cryptoassets, such as memecoins.” And third, it may be the case that BCBS standards are simply outdated; they do not reflect “recent innovations and changes in the cryptoasset market since the BCBS standards were first published” in 2022.

The Report recommends that the U.S. adopt capital requirements that “accurately reflect the risk of the asset or activity” by:

Simplifying the cryptoasset grouping system;
Allowing for certain use of permissionless blockchain for cryptoassets, subject to continued development and implementation of risk mitigation strategies;
Adopting appropriate risk-based guidelines that ensure tokenized assets receive equivalent treatment to underlying assets; and
Implementing comprehensive data analysis that incorporates recent market developments.

However, in making the above recommendations, the Report further recommends that the United States advocate that the BCBS revisit the cryptoasset standards to ensure similar treatment to U.S. capital requirements.

C. Need for Global Coordination and Alignment

Although the U.S. has considerable flexibility in setting its own capital standards, the practical influence of BCBS recommendations on global banking practices means that the U.S. must weigh the implications of deviating from the BCBS standards. U.S. banks with international operations benefit from the U.S. capital regime’s alignment with BCBS standards and, to the extent there are material deviations from such standards, such U.S. banks may face heightened scrutiny from foreign regulators who view the U.S.’s oversight as inadequate. In addition, inducing more regulatory fragmentation may create compliance burdens for international banks operating across multiple jurisdictions.

As the Report notes, “[i]t is important for the United States to lead in such international forums” and it encourages the route of global engagement and coordination to minimize further roadblocks confronting financial institutions engaged in, or seeking to engage in, digital asset activities. Importantly, this represents another opportunity for stakeholders to engage with regulators and other policymakers through advocacy efforts to shape capital standards and mitigate or avoid unintended consequences that disrupt industry innovation efforts or increase capital costs to banks’ participation in such efforts.

III. Stablecoins and Payments

The Report highlights the GENIUS Act as foundational to the Administration’s ongoing digital asset strategy, identifying the following key objectives achieved through the GENIUS Act.

Regulatory Clarity: Establishing clear licensing regime for stablecoin issuers.
Consumer Protection: Requiring full reserve backing and segregated custody.
Market Integrity: Ensuring transparent reporting and auditing requirements.
Dollar Competitiveness: Promoting development of dollar-backed stablecoins globally.

Given the recent adoption of the GENIUS Act, the Report limits its analysis and recommendations on the potential framework for issuances, but rather focuses on a few key recommendations.

A. Support Stablecoins as Payment Infrastructure

The Report positions stablecoins as fundamental infrastructure for addressing inefficiencies in existing payment systems espousing several technological advantages, including (i) instantaneous settlement; (ii) reduced intermediation; (iii) continuous operation; and (iv) programmability of smart contracts to allow for automation of payment conditions. Partially as a function of these advantages, the Report explicitly links stablecoin development to the overall competitiveness of the U.S. dollar—implicitly emphasizing the need for stablecoins to be pegged to the U.S. dollar.

B. CBDC Policy Concerns

Separate from stablecoins, which are addressed in more detail in the GENIUS Act, the PWG reasserts its opposition to Central Bank Digital Currency (CBDC) development.[8] The Report identifies several specific concerns with retail CBDCs, including “compromising individual economic and privacy rights,” loss of control of over monetary policy, and undermining the private banking system.

The Report further emphasizes that at least 90 countries are actively considering or experimenting with CBDCs, including China’s e-CNY pilot project and the European Central Bank’s digital euro development. The Report emphasizes that “[r]etail CBDC efforts, both domestically and abroad, pose severe risks to individual rights, financial systems, and the sovereignty of the United States.”

In short, the PWG strongly favors private sector innovations like stablecoins over CBDCs to better preserve the economic liberty of money movements while capturing technological benefits.

C. Banking Agency Coordination and Guidance

In addition to the traditional banking activities and actions addressed in Part II, above, state and federal banking regulators are also responsible for the oversight of permissible payment stablecoin issuers and development of the regulations under the GENIUS Act. In furtherance of these responsibilities, the Report emphasizes that bank supervisors should apply risk management processes “based on risk, with the intensity and rigor of risk management corresponding to, among other things, the complexity, criticality, and magnitude of the technological change or new activity.” Additionally, banking agencies must ensure evaluation teams are “adequately educated on issues related to digital assets and the consistent application of best practices and standards across institutions.” And, once again referencing its broader technology-neutral approach, the Report states that banking agencies should “examine banks’ activities from a technology-neutral approach, focusing on such activities’ material risks and the banks’ abilities to manage such risks.”

In addition to the principles-based approach to supervision, the Report identifies the specific areas requiring immediate regulatory attention:

Provide “best practices” guidance for custody activities;
Clarify permissible sub-custodian and infrastructure provider arrangements;
Updated reserve guidance reflecting new GENIUS Act requirements;
Clarify on balance sheet and capital treatment for digital asset holdings;
Establish a pilot program framework for bank participation in digital asset initiatives; and
Provide guidance on risk-based standards for deposit tokenization and other activities.

D. Charter Applications

The Report emphasizes the need for transparency and predictability in the bank charter application process for digital asset firms and asserts three recommendations. While concerns on charter reviews and timelines are not specific to the digital asset space, we support the recommendations for clarity and objective standards for applications.

First, the Report recommends that banking agencies should “clarify and define in regulation the expected timelines for decision-making on completed applications for charter licensing (including federal deposit insurance where applicable) and requesting a Reserve Bank master account.” The Report further recommends that if regulatory timelines are not met for a given application, then, absent extraordinary circumstances, the application should be deemed approved.

Establishing a level of certainty around regulatory expectations and review timelines is critical for entities seeking licenses. From a practical perspective, establishing objective criteria to commence the review period is central to the concept of transparency in review timelines. We recognize that the banking agencies receive a wide variety of applications and, therefore, understand that the mere submission of an application is not in all cases the appropriate starting point. We encourage engagement with the industry on how to define the commencement of the timeline (i.e., when an application is deemed “complete” or “substantially complete”) and transparency for new applicants on the expectations for what constitutes a “complete” or “substantially complete” application.

The Report further recommends that banking agencies should confirm that “otherwise eligible entities are not prohibited from obtaining bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master accounts or services solely because they engage in digital asset-related activities.” In practice, the provision of what constitutes permissible activities under the various charters should align with this recommendation.

Lastly, the Report recommends that the banking agencies provide data on the average time to review and complete applications on an individual and aggregate basis, primarily with regard to bank mergers, de novo licensing, acquisition of federal deposit insurance, and Reserve Bank master account applications.

IV. Taxation

The Report indicates that the IRS has issued little guidance that deals directly with the taxation of digital assets. At a high level, current guidance provides that digital assets are treated as property for tax purposes, as opposed to currency, and that general federal income tax principles apply to digital asset transactions.[9]

The PWG highlighted certain recent legislative efforts, such as the joint resolution signed into law by the President in April 2025 to overturn prior efforts to define DeFi developers as “brokers” for tax purposes, as the type of “pro-innovation” approach to tax law that the Administration wants the federal government to embrace.

The Report identifies certain substantive tax issues, with calls for priority guidance recommendations to be implemented by the Treasury and the IRS intended to support the growth of digital assets, especially the future development of DeFi platforms. The Report also highlights several priority legislative recommendations for Congress, including modifying how digital assets are characterized for U.S. federal income tax purposes, and a number of lower priority issues on which stakeholders have requested guidance that could be addressed in future guidance or legislation. The final priority tax issue included in the Report is the reporting requirements for digital assets, with a special emphasis on reporting requirements for digital assets held by U.S. taxpayers on offshore digital exchanges. See Appendix A for the highlighted issues that the Report identifies and the related recommendations for Congress, the Treasury and the IRS.

V. Countering Illicit Finance

The Report provides an overview of the PWG’s view regarding the extent and types of risks in the digital asset space and outlines recommendations for the U.S. government’s strategic responses. It also emphasizes the need for updated regulatory frameworks, stronger but more targeted enforcement, strong cybersecurity practices to prevent attacks, and enhanced cooperation to mitigate systemic vulnerabilities. See our accompanying Client Alert for additional information.

VI. Conclusion

The Administration’s agenda to position the United States as a global leader in digital financial technology is rapidly taking shape. However, a significant amount of work remains to be done. The evolving regulatory landscape presents both significant opportunities and challenges for market participants and the PWG’s Report, the GENIUS Act, the CLARITY Act, the Discussion Draft, and Project Crypto all signal a strong commitment from the Administration, Congress, and federal agencies to work with both traditional financial institutions and the digital assets industry in developing and implementing a regulatory framework. Of course, as the framework continues to develop, proactive engagement will be essential.

APPENDIX A

PWG Report – Taxation Issues and Recommendations

I. Priority Administrative Regulatory Recommendations

A. Corporate Alternative Minimum Tax

The corporate alternative minimum tax (CAMT) requires certain corporations to pay U.S. federal income tax on their adjusted financial statement income (AFSI) at a rate of at least 15 percent. For the CAMT to apply, the corporation must meet certain AFSI thresholds over a three-year testing period. While the CAMT does not directly address digital assets, the PWG states that it “creates a potential punitive effect on the growth of the digital assets sector and contradicts the policy goals of Executive Order No. 14219,” directing agencies to identify and remove certain regulations and guidance that impede private enterprise and entrepreneurship.

The Report acknowledges that stakeholders have requested guidance that would provide that AFSI does not include financial accounting unrealized gains and losses on cryptocurrency, or on investments generally. The priority guidance recommendation falls short of that request, saying that Treasury and the IRS should publish guidance addressing the determination of AFSI with respect to financial accounting unrealized gains and losses on investment assets other than stock and partnership interests.

B. Staking

The Report states that many U.S. investment funds that hold digital assets that qualify as exchange-traded products under securities laws often choose to hold such investments in investment trusts treated as grantor trusts. Such trusts must meet certain requirements regarding their activities, but if those requirements can be met, the investors are treated as if they were the direct owners of trust assets. One of the priority guidance initiatives is publishing guidance addressing whether, assuming all other requirements are met, such a trust holding digital assets can stake those assets and receive staking awards.

C. Wrapping

Wrapping is a process used to convert a digital asset native to one blockchain into a digital asset native to another blockchain. The Report calls for priority guidance to address whether wrapping and unwrapping transactions are taxable transactions.

D. Non-Priority Issues

While not identified as priority items, the Report notes that stakeholders have requested guidance on the following issues that could be addressed in future guidance or legislation:

Clarification on timing of income from staking and mining awards and whether staking constitutes a trade or business for federal income tax purposes;
How to value digital assets that are traded on multiple exchanges or thinly traded;
How non-fungible tokens are generally taxed, including whether they are treated as collectibles for purposes of sections 408(m) and 1(h)(5);
Standards and acceptable proof for claiming worthlessness and abandonment, including with respect to thefts of digital assets;
Removing the requirement for a qualified appraisal for chartable donations of digital assets worth more than $5,000;
Whether tokenization of an asset gives rise to a new asset for federal income tax purposes, and if so under what circumstances;
The application of the investment company rules of sections 351(e) and 721(b) to digital assets;
Distributions of digital assets in partnership liquidations (the “marketable securities” rules) under section 731;
The application of the “hot asset” rules of section 751 to sales of partnerships holding digital assets;
Expanding the classes of assets that may be held by regulated investment companies to include digital assets;
The treatment of digital assets for purposes of the subpart F, global intangible low-taxed income (GILTI),[10] and passive foreign investment company rules;
The tax treatment of blockchain splits and mergers; and
The rules applicable to digital assets with respect to retirement accounts.

II. Priority Legislative Recommendations

A. Characterization of Digital Assets

As noted above, current guidance characterizes digital assets as property for tax purposes but does not specify whether a digital asset is considered a security or a commodity. The classification of an asset as a security or a commodity for U.S. federal income tax purposes impacts the application of multiple provisions of the Code, including the ability to elect to mark commodities to market under section 475(e), eligibility for trading commodities safe harbors under section 864(b)(2)(B), and eligibility for certain passive income exceptions for publicly traded partnerships under section 7704(d)(1)(G).

The Report recommends that Congress enact legislation that would treat digital assets as a new class of assets subject to modified legacy provisions determining the taxation of securities and commodities. Part of the recommendation includes expanding section 475 (mark-to-market election), section 864(b) (trading safe harbors), section 1058 (securities loans) and section 7704 (publicly traded partnership rules) to apply to this new class of asset.

The PWG also recommends that sections 1091 (wash sale rules) and 1259 (constructive sales) be expanded to explicitly apply to digital assets.

B. Stablecoins as Debt

The Report states that a stablecoin is a digital asset that is intended to maintain a stable value relative to a reference asset, usually a currency and most often the U.S. dollar. The GENIUS Act sets forth a framework for the issuance of payment stablecoins in the United States,[11] which are generally used in transactions in a manner similar to a cash-equivalent asset. Under the GENIUS Act, U.S.-licensed issuers of payment stablecoins will be obligated to convert, redeem, or repurchase such stablecoins for a fixed amount of monetary value and must be collateralized with high quality liquid assets.[12] Despite the tendency for stablecoins to be used as a cash-equivalent, the Report takes the position that it is unlikely that the tax law would treat them as currency for several reasons, including that no rules currently exist to deal with the possibility of gains or losses on payment stablecoins treated as currency. The PWG takes the position that characterizing payment stablecoins as debt is the most appropriate approach, provided that certain carveouts are made to ensure that the wash sale rules and the anti-bearer bond rules[13] do not apply to payment stablecoins. There are a few alternative recommendations included with respect to the wash sale rules including that the wash sale rules to not apply to payment stablecoins at all, that the wash sale rules do not apply to de minimis losses from payment stablecoins, or that, more broadly, gains and losses on payment stablecoins are disregarded for U.S. federal income tax purposes.

III. Reporting Recommendations

A. De Minimis Digital Asset Receipts

The Report outlines the many ways in which holders of digital assets receive new digital assets that may have minimal or speculative value, whether through staking or unsolicited airdrops related to marketing promotions. Digital assets acquired in this manner are often illiquid and hard to value. After an airdrop or a hard fork, the value of the digital assets often falls significantly. Under current IRS guidance,[14] taxpayers must recognize the fair market value of digital assets as income from the point at which the taxpayer has dominion and control over the asset. Citing the potential for a high volume of transactions involving low value assets, rapidly changing valuations, and difficulties around determining the precise moment a taxpayer takes dominion and control of an asset, the PWG recommends that the Treasury and IRS prioritize issuing administrative guidance that addresses reporting requirements for receipts of de minimis digital assets.

For similar reasons related to fluctuating valuations and difficulty determining exactly when the taxpayer has dominion and control over the asset, the Report also recommends that Congress, the Treasury, and the IRS consider measures to clarify or modify the guidance around the timing of income from staking and mining. Possible legislative proposals include deferring recognition of income from staking or mining until the year of the sale or other disposition of the rewards.

B. Foreign Digital Asset Reporting

The Report recommends that the Treasury and the IRS consider proposing regulations that would implement the Crypto-Asset Reporting Framework (CARF), an international tax transparency standard requiring digital asset service provides to report certain transactions to the tax authorities in the provider’s jurisdiction. The Report considers that adopting CARF would create several benefits. For taxpayers, the reporting could be coordinated with existing foreign financial reporting requirements such as FATCA and FBAR to ensure that owning digital assets does not create duplicative filing obligations. More importantly, the PWG expects that implementing CARF would discourage U.S. taxpayers from moving their digital assets to offshore digital asset exchanges, which supports the administration’s overall policy of promoting the growth and use of digital assets within the United States and on U.S. exchanges.

IV. Outlook for Market Participants

The Report’s recommendations for increased clarity on the taxation of digital assets and transactions involving digital assets should be beneficial for all marketplace participants as they plan future investments and activities. Key open questions for marketplace participants will include how much of the input from stakeholders that is included in the Report (that is generally favorable to marketplace participants) will make it into any tax guidance or legislation that is ultimately implemented. Another key open question for any marketplace participants with holdings in offshore digital asset exchanges will be timing around any potential adoption of CARF and what the tax implications will be of moving those holdings to U.S. exchanges or leaving them offshore.

[1] Fact Sheet: The President’s Working Group on Digital Asset Markets Releases Recommendations to Strengthen American Leadership in Digital Financial Technology, The White House (July 30, 2025), available at https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-presidents-working-group-on-digital-asset-markets-releases-recommendations-to-strengthen-american-leadership-in-digital-financial-technology/.

[2] As of February 2025, Commissioner Peirce has been designated head of the SEC’s Crypto Task Force.

[3] In addition to announcing Project Crypto, Chairman Atkins “asked the staff to evaluate the use of Commission authority to permit non-security crypto assets that are subject to an investment contract to trade on trading venues that are not registered with the Commission,” noting that he is “keen to pursue such a solution . . . .”

[4] See Interpretive Letters No. 1170 (July 2020) and No 1184 (May 2025).

[5] See OCC Interpretive Letter No. 1172 (September 2020).

[6] See OCC Interpretive Letter 1174 (January 2021).

[7] See OCC Interpretive Letters 1183 (March 2025).

[8] The Trump Administration previously addressed its opposition to CBDC in Executive Order No. 14178, which explicitly prohibiting federal agencies from undertaking actions to establish, issue, or promote CBDCs domestically or internationally. On July 17, 2025, the U.S. House of Representatives passed the Anti-CBDC Surveillance State Act (H.R. 1919) with a vote of 219-210. The act would prohibit the Federal Reserve from issuing a CBDC or using a CBDC to implement monetary policy.

[9] See 2014-16 I.R.B. 938 (April 14, 2014); Notice 2014-21. See also Rev. Rul. 2019-24, 2019-44 I.R.B. 1004 (Oct. 28, 2019) (addressing taxation of hard forks, which is when a blockchain changes the way it operates typically splitting the blockchain); Rev. Rul. 2023-214, 2023-33 I.R.B. 484 (Aug. 14, 2023) (addressing taxation of staking, which is the process of using the native asset of a blockchain to secure the network); Notice 2023-27, 2023-15 I.R.B. 634 (Apr. 10, 2023) (addressing taxation of non-fungible tokens, which is a type of token that is a unique digital asset and has no equal token).

[10] References to GILTI presumably included reference to net Controlled Foreign Corporations tested income, or “NCTI,” the successor regime to GILTI under the law commonly known as the One Big Beautiful Bill Act.

[11] S. 1582, 119th Cong. (2025) § 2(22).

[12] S. 1582, 119th Cong. (2025) § 2(22)(A)(ii)(I); See S. 1582, 119th Cong. (2025) § 4(a)(i)(A).

[13] See sections 149(a), 163(f), 165(j), 312(m), 871(h), 881(c), 1287, and 4701.

[14] Notice 2014-21.

The following Gibson Dunn lawyers prepared this update: Ro Spaziani, Jeffrey Steiner, Jason Cabral, Matt Donnelly, Mellissa Campbell Duru, Thomas Kim, Sara Weed, Blake Hoerster, Hayden McGovern, Alexis Levine, and Alice Wang*.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Fintech & Digital Assets practice group, or the authors:

Ro Spaziani – New York (+1 212.351.6255, rspaziani@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)
Jason J. Cabral – New York (+1 212.351.6267, jcabral@gibsondunn.com)
Matt Donnelly – New York/Washington, D.C. (+1 212.351.5303, mjdonnelly@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Sara K. Weed – Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)
Blake Hoerster – Dallas (+1 214.698.3180, bhoerster@gibsondunn.com)
Hayden K. McGovern – Dallas (+ 214.698.3142, hmcgovern@gibsondunn.com)
Alexis Levine – Dallas (+1 214.698.3194, alevine@gibsondunn.com)
Alice Wang* – Washington, D.C. (+1 202.777.9587, awang@gibsondunn.com)

*Alice Wang, an associate in the firm’s Washington, D.C. office, is not admitted to practice law.

This update provides a sequential discussion of the President’s Working Group on Digital Asset Markets’ description of the intersection of digital assets and illicit finance in its Report.

Government officials have stated that they aim to establish a clear regulatory framework for digital assets, while encouraging innovation and enabling a pathway of compliance for eligible current market participants. Given the Administration’s stated agenda is to transform the United States into a global leader in digital assets and blockchain technology, and Congressional support for this agenda, there is a good chance that there will be a set digital asset regulatory framework, with rulemakings and specific guidance to follow.

On July 30, 2025, the President’s Working Group on Digital Asset Markets (PWG) published the Strengthening American Leadership in Digital Financial Technology Report (Report) in response to Executive Order 14178. The Report reiterates the Administration’s support for digital assets and provides a roadmap of recommendations for Congress and regulators to update the U.S. digital asset regulatory framework, including in connection with digital asset market structure, banking and payments, countering illicit finance, and taxation. The Report emphasizes the need for a clear, fit-for-purpose system to foster innovation, protect investors, and position the United States as a global leader in digital financial technology.

Below is a sequential discussion of the PWG’s description of the intersection of digital assets and illicit finance in the Report. The PWG provides an overview of its view of the extent and types of risks in the digital asset space and outlines recommendations for the U.S. government’s strategic responses. The Report emphasizes the need for updated regulatory frameworks, stronger but more targeted enforcement, strong cybersecurity practices to prevent attacks, and enhanced cooperation to mitigate systemic vulnerabilities. For additional information on the Report’s recommendations for market structure, banking, payments, and taxation, please see our accompanying Client Alert. In addition, for a fulsome discussion on the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), see our prior publication.

I. Illicit Finance Risks

The Working Group begins by noting that the technology underlying digital assets enables ways to mitigate the risk of illicit transactions, and noting that the share of illicit finance transactions conducted using digital assets remains quite small, citing estimates placing illicit transactions at between 0.61% and 0.86% of all on-chain digital asset volumes. Still, the Working Group caveats that the harm from such illicit activity may not be commensurate with the comparatively low transactional value and lists funding of DPRK’s miliary efforts and losses from investment schemes as examples of activity that cause more harm than the dollar value might otherwise suggest.

The Report suggests that illicit actors may be attracted to the digital asset ecosystem primarily due to digital asset service providers with weak or nonexistent controls for anti-money laundering (AML) and combatting the financing of terrorism (CFT) risks, as well as the availability of tools and methods such as mixers, anonymity-enhanced cryptocurrencies (AECs), and chain hopping that can hinder law enforcement investigations. Finally, the Report posits that illicit actors also seek to exploit pseudonymity of self-custody and peer-to-peer payments in DeFi networks to conceal or quickly move illicit proceeds.

Key Considerations and Questions

Will the Administration and Congress use the Report’s illicit finance conclusions to guide regulation and legislation moving forward?
What steps should traditional financial institutions that interact with the digital asset ecosystem take in light of the Report’s conclusions?

II. Improving the AML/CFT and Sanctions Frameworks

The PWG next explains that mitigating and combatting the risks posed by illicit use are paramount to protecting the digital asset ecosystem and its users, and ultimately will serve to encourage further innovation and responsible use of digital assets. To carry out that goal, the PWG advocates for clear obligations that are tailored to the risk and structure of the digital asset industry while simultaneously respecting lawful use of digital assets and respecting Americans’ privacy rights. This section of the Report also promotes more supportive infrastructure to help digital asset businesses meet AML/CFT requirements. For example, many actors, particularly in the DeFi space, lack clarity on their obligations or the tools to implement effective compliance programs. The Report recommends targeted guidance for high-risk market segments and better coordination among U.S. regulators to reduce uncertainty.

The PWG makes some regulatory and legislative suggestions that could dramatically reshape how AML and CFT applies to both institutions and individuals within the digital asset ecosystem. First, the PWG suggests that Treasury revisit FinCEN’s 2013 and 2019 guidance documents related to the digital asset sector, which have stood as some of the preeminent guidance as to AML/CFT as applied to digital assets for years. Second, the PWG proposes that Congress amend the Bank Secrecy Act to provide further gradations in terms of how certain AML obligations apply to different financial institutions, with obligations based on the type of financial entity (e.g. “financial institution types or sub-types”) and also potentially by activity (e.g. “utiliz[ing] smart contracts”). The PWG also proposes legislative amendments to clarify the BSA’s extraterritorial reach, which could have important effects on the obligations of foreign-located actors. At the same time, the Working Group also recommends that Congress codify principles reinforcing the ability of individuals to lawfully hold or custody their own digital assets and engage in lawful, direct digital asset transfers without any financial intermediary.

Key Considerations and Questions

Industry specific guidance has led to more cooperation within certain industries, like casinos or banking. Digital asset providers should consider how gradated obligations might affect their relationships within their market category.
Some of the Working Group’s suggestions could mean that far more foreign-located actors are covered by the BSA. Market participants should review any forthcoming guidance carefully.

III. Equipping Digital Asset Actors to Mitigate Risk

Beyond fortifying AML/CFT frameworks, the PWG advocates for ways to increase the partnership between the public and private sectors. This section proposes expanding private sector authority to investigate and share information pertaining to illicit finance through safe harbors, and touts the benefits of prior efforts within Treasury to learn through round tables that convene an array of private sector and law enforcement professionals. While cautioning against the potential to infringe on civil liberties, the PWG nonetheless advocates for greater information sharing among a broader set of institutions to foster a safer digital asset ecosystem.

Key Considerations and Questions

If implemented, these suggestions could have a major impact on private sector tracing and blockchain analytics firms.

IV. Disrupting and Mitigating Systemic Illicit Finance Risks

The final section calls for proactive measures to dismantle networks that enable systemic illicit finance. The PWG advocates that Treasury should have expanded authority to restrict fund transmission and for continued use of OFAC sanctions in instances in which digital assets are used for specific illicit risks, like crimes targeting Americans, laundering proceeds or illicit drug and narcotics sales, and financing terrorist organizations. The section also proposes amendments that could expand law enforcement authority related to digital assets, from forfeiture laws to bank fraud statutes. In addition to highlighting some of the ways that Treasury is already working to reduce the risk of malicious cyber actors and advocating for greater public-private partnerships and information sharing, the PWG also recommends that relevant agencies develop principles-based requirements and standards for digital asset firms to address the risks of various industry participants and activities, such as those involving custody and smart contracts.

Key Considerations and Questions

Some of the PWG’s suggestions may have less impact, given how law enforcement already uses available authorities.
Other proposed changes could potentially lead to far more law enforcement action. For example, the Working Group proposes amending 18 U.S.C. § 1014 to cover all false statements in connection with obtaining or maintaining access to financial institution services, rather than solely false statements in loan and credit applications, and to include digital asset service companies within the definition of “financial institution.” Such a change could lead to further investigations and enforcement actions, even when the exchange or bank is not itself at risk of losing its funds.
If implemented, the PWG’s recommendation to develop principles-based requirements and standards could mean that digital asset market participants—custodians, wallet providers, etc.—are required to have security tools in place to prevent bad actors from engaging in attacks that lead to illicit finance on the blockchain.

V. PWG Recommendations

To implement the Trump Administration’s policy of encouraging innovation and responsible use of digital assets, the PWG states that the United States must protect the digital asset ecosystem and its users by implementing tools and measures to prevent attacks that lead to illicit finance activities and mitigating and combating the risks posed by illicit use. In light of the PWG’s emphasis on protecting market participants, proactively preventing the initial attack may be considered priority, given that blockchain transactions are immutable and thus cannot be reversed (as in some traditional financial sectors) after illicit finance activity is identified. The PWG proposes several measures towards this goal of deterring and combating illicit finance. These recommendations take a “whole of government” approach to disrupting and exposing illicit activity in the digital asset ecosystem, while also building confidence among U.S. users and firms seeking to grow domestically. Overall, the recommendations also build on themes that the Administration has articulated in other regulatory contexts as well:

Specificity: clear frameworks that expressly identify or define which types of actors or entities are subject to various laws and regulations (e.g., defining financial institutions and DeFi networks).
Tailoring: regulations are no more restrictive than necessary to curtail identified risks (e.g., AML/CFT regulations by entity type).
Balancing: appropriately consider individual privacy rights and burden to industry when regulating to mitigate risk (e.g., CVC mixing rule, SARs).

The recommendations are largely bifurcated between Treasury and Congress, representing a dual-tracked and whole-of-government approach to fortifying the digital asset ecosystem.

Digital Assets Policy Recommendations
Topic	Congress	Treasury
Financial Institutions	Statutory changes to define which entities are subject to the BSA, particularly as Congress considers changes to market structure and the creation of new types of financial institutions. Expand BSA applicability to foreign-located actors based on conduct and effects.	Tailor AML/CFT obligations by entity type. Adopt rules required under the GENIUS Act to treat permitted payment stablecoin issuers as financial institutions. Tailor AML/CFT obligations for payment stablecoin issuers. FinCEN should reconsider its 2013 and 2019 guidance given legislative and regulatory change.
DeFi	Define various actors in DeFi ecosystem and clarify which obligations apply to entities with some, but not all, DeFi characteristics. Codify principles affirming the right to self-custody. Codify that software provides that do not maintain total independent control over value are not engaged in money transmitters.	Tailor obligations to DeFi actors based on their role and associated risks. Reconsider proposed rule on CVC mixing in light of illicit finance risk, privacy and burden to financial sector.
Supervision	—	Provide needed guidance (alongside Federal banking agencies) clarifying AML/CFT obligations and expectations for financial institutions offering digital asset services.
BSA Reporting	Ensure BSA-required reporting to FinCEN under 31 U.S.C. 5331 aligns with IRS reporting rules to coordinate treatment of fiat and digital asset transactions.	Evaluate modernizing Suspicious Activity Report (SAR) reporting, including SAR form updates for digital asset-specific data.
Sanctions	—	Solicit sanctions compliance feedback from DeFi developers and technologists. Update OFAC’s Sanctions Compliance Guidance for the Virtual Currency Industry.
Privacy	—	Coordinate with the National Institute for Standards and Technology and other agencies to identify new approaches to customer identification in digital asset use cases. Gather information on tools for detecting illicit activity, including digital identity verification. Issuing guidance to financial institutions on using digital identity solutions in customer identification programs.
Investigations	Enact a digital asset-specific “hold law” to provide safe harbor for voluntary asset holds while institutions investigate risk of illicit activity.	Encourage greater information sharing between the public and private sectors via FinCEN’s 314(a) and 314(b) programs.
Treasury Authorities	Add a sixth special measure to Section 311 allowing FinCEN to restrict certain digital asset transfers.	Continue using OFAC’s sanctions authorities to combat illicit digital asset use.
Law Enforcement	Streamline victim compensation regulations and improve asset-forfeiture efforts in the digital assets space. Amend bank fraud statutes and associated sentencing guidelines to apply to institutions offering digital assets. Amend the National Stolen Property Act, anti-tip-off provisions and forfeiture laws to apply equally to digital assets.	—
Cybersecurity	—	Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) should identify opportunities to increase information sharing, including by providing U.S. regulated digital asset firms access to the Automated Threat Information Feed. OCCIP should harness existing public-private partnerships to identify gaps in addressing operational resiliency. Develop principles-based requirements and standards, as appropriate, for digital asset firms (along with other relevant agencies).

The following Gibson Dunn lawyers prepared this update: M. Kendall Day, Stephanie Brooker, Ro Spaziani, Jeffrey Steiner, Ella Alves Capone, Sam Raymond, Rachel Jackson, and Karin Thrasher.

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

Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@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)

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

Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson – New York (212.351.6260, rjackson@gibsondunn.com)

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

Toward the end of July, President Trump made a flurry of announcements that further complicate the tariff landscape. Country-specific reciprocal tariff rates are set to go into effect by August 7. Legal challenges to the tariffs face a long road ahead.

Over the last two days of July, President Trump made a flurry of announcements that further roil the tariff landscape, already in flux since the announcement of the Liberation Day tariffs on April 2, 2025. Operating under the International Emergency Economic Powers Act (IEEPA), President Trump sent letters to trading partners threatening imminent steep tariff increases, announced tariff-reducing deals with several countries, and issued tariff-related executive orders providing direction on the implementation of some (but not all) of the announced tariffs. This burst of activity further demonstrates President Trump’s strategy of leveraging trade tools for non-trade ends—many of the announced tariffs were not promulgated to address unfair trade practices or even trade deficits. Rather, some explicitly serve other ends: the newly imposed tariffs on Brazil, for instance, are based in part on President Trump’s concerns about the prosecution of former Brazilian President Jair Bolsonaro (these trade measures were pared with sanctions imposed on a Brazilian judge leading this prosecution). Higher tariffs on India seek to stem India’s growing trading relationship with Russia.

While the Trump Administration has continued to implement and enforce an unprecedented interpretation and use of IEEPA as an emergency-based tariff program, which Gibson Dunn has previously discussed here and here, the legality of these measures remains under review in several U.S. federal courts. Moreover, as of this writing, many of the announced trade deals remain handshake arrangements with few publicly disclosed terms, and some trading partners have offered different views of the terms (such as levels or types of planned investment in the United States) than those expressed by the White House. Taken together, these developments introduce the potential for both clearer rules (for example, new proposed tariff rates for 69 trading partners) and ongoing uncertainties (such as the potential for additional trade deals, or the tariff treatment of “transshipped” goods) into President Trump’s evolving trade policy.

Tariff Actions of July 31, 2025

On July 31, 2025, President Trump issued a suite of executive orders modifying U.S. tariff rates under the Administration’s evolving reciprocal trade and border security framework. In addition to reinstating and revising country-specific reciprocal tariffs, the White House announced increased duties on imports from Canada, claimed to be based on a continued flow of illicit drugs across the northern border.

A day prior to these tariff measures, the White House announced 40 percent IEEPA-based tariffs on Brazil, consisting of newly imposed “free speech” tariffs targeting Brazilian political and judicial actions that are alleged to undermine U.S. free speech rights and “the rule of law in Brazil.” These are imposed in addition to the 10 percent reciprocal tariffs on goods from Brazil.

Although the White House has emphasized progress in negotiations with certain U.S. trading partners, none of these negotiations have led to the complete elimination of tariffs against any country, and President Trump’s latest orders suggest that the President will continue to leverage tariffs to accomplish a range of different foreign policy objectives during the remainder of his administration, unless restricted by court or other action. Notably, many of the deals announced include agreements to on topics beyond the scope of the tariffs, such as agreements by trading partners to make substantial new investments in U.S. industries, purchase U.S. goods, or align on supply chain and economic security measures. Further, President Trump’s announcement of a new category of “free speech” tariffs targeting the Brazilian government may also signal his intent to use IEEPA-based tariffs to address foreign policy issues more traditionally addressed through other means, including sanctions programs.

I. Country-specific Reciprocal Tariffs Reinstated and Revised Reflecting Trade Negotiations

On July 31, 2025, President Trump issued an Executive Order titled “Further Modifying the Reciprocal Tariff Rates” (referred to hereafter as the “July 31 Reciprocal Order” or “Order”). The Order reinstates the reciprocal tariff framework announced on Liberation Day by Executive Order 14257—comprised of a 10 percent baseline (virtually worldwide) tariff and a schedule of higher country-specific rates set forth in an annex—and adjusts those country-specific rates based on “the status of trade negotiations, [trading partners’] efforts to retaliate against the United States . . . and [their] efforts to align with the United States on economic and national security matters.” The Order also introduces what appears to be a new tariff category—the “transshipment tariff”—aimed at curbing tariff evasion through transshipments used to secure preferential rates. All measures are announced pursuant to the President’s authority under the International Emergency Economic Powers Act (IEEPA).

These new tariffs come after a string of trade deals were announced, beginning with the May 8, 2025, announcement of the U.S.-UK Economic Prosperity Deal. That framework agreement was followed by announcements of trade deals with China, Vietnam, Indonesia, the Philippines, Japan, the European Union, and South Korea. Each of these announcements have indicated that trading partners have agreed to a certain “baseline” tariff on goods originating in that country (for example, 10 percent for the United Kingdom, 15 percent for the European Union, Japan, and South Korea, 19 percent for Indonesia and the Philippines, and 20 percent for Vietnam). In addition, the announcements have included commitments by some trading partners to make significant new investments in U.S. industries—according to the announcement, the European Union agreed to make new investments worth $600 billion in U.S. industries by 2028, Japan agreed to investments worth $550 billion, and South Korea agreed to $350 billion. The announcements also address a range of tariff and non-tariff trade issues, including commitments to establish preferential quotas for certain categories of goods, exemptions or partial relief from Section 232 duties (discussed further below), agreements to align on country of origin rules and cooperate to address duty evasion, commitments to negotiate non-tariff barriers (such as technical and safety standards, and importation formalities), and agreements to cooperate on economic security priorities, including supply chain resilience and investment security.

Effective Dates. The order provides that all modifications, either effectuated in the form of the 10 percent baseline tariffs or country-specific rates, will take effect “on or after 12:01 a.m. eastern daylight time 7 days after the date of this order,” or August 7, 2025.

For goods that are loaded onto a vessel at the port of loading and in transit on the final mode of transport before the effective date, and that are entered for consumption or withdrawn from warehouse for consumption before 12:01 a.m. EDT on October 5, 2025, the applicable duty rate will remain as previously imposed under Executive Order 14257, as amended.

Country-Specific Rates. Annex I[i] of the July 31 Reciprocal Order outlines specific tariff rates for U.S. trading partners, ranging from 10 percent to 41 percent. As noted above, several of these rates reflect the outcome of trade agreements announced in recent months. For instance, the United Kingdom secured the lowest rate—10 percent—matching the baseline reciprocal rate. The European Union obtained a two-tiered structure based on the existing Column 1 duty rates for goods originating in the European Union. For example, for EU-origin goods that already have a tariff rate over 15 percent under the United States’ Column 1 duty (this is the duty applicable to U.S. trading partners eligible for “normal trading relations” status, also referred to as “Most Favored Nation” rates), the reciprocal tariff rate will be zero. For EU-origin goods that have an existing tariff rate less than 15 percent, the reciprocal tariff rate is 15 percent minus the amount of the existing duty.

In contrast, countries that have not reached an agreement with the United States generally received higher rates. For example, India was assigned a 25 percent ad valorem rate; Laos, 40 percent; Switzerland, 39 percent; and Syria the highest, at 41 percent. The rates announced on July 31 are on average lower than those announced on Liberation Day, when the highest country-specific rate was 50 percent. However, many countries have received higher rates than originally proposed.

Notably, the Order leaves room for rapid revision, emphasizing that “[c]ertain foreign trading partners identified in Annex I to this order have agreed to, or are on the verge of concluding, meaningful trade and security agreements,” which may be formalized through “subsequent orders memorializing the terms of those agreements.”

10 Percent Baseline Tariff. Under the July 31 Reciprocal Order, goods from any foreign trading partner (other than Canada or Mexico) not listed in Annex I will be subject to an additional 10 percent ad valorem duty, consistent with the framework set forth in Executive Order 14257, as amended—thereby preserving the 10 percent baseline worldwide rate announced on Liberation Day.

It bears noting that the reciprocal tariff structure described above is separate from the Administration’s distinct tariff regime on imports from China, which is discussed further below. It is also separate from the fentanyl-related tariff framework applicable to Canada and Mexico.

The Transshipment Tariff. Notably, the July 31 Reciprocal Order appears to introduce a new subcategory within the reciprocal tariff framework: the so-called “transshipment tariff.” The Order states that “[a]n article determined by CBP to have been transshipped to evade applicable duties under section 2 of this order” will be subject to a 40 percent duty rate, replacing the reciprocal rate otherwise applicable.

While further guidance from U.S. Customs and Border Protection (CBP) will be necessary to clarify implementation, this new tariff category may carry significant implications. Traditionally, a country-of-origin analysis alone has governed the tariff rate that would be applied to imports originating from multi-country supply chains, subject to limited adjustment in certain trade cases where “circumvention” could be demonstrated. The “transshipment tariff,” by contrast, could introduce a second layer of inquiry—whether the item’s production or shipment history reflects an intent to circumvent duties but without the procedural and substantive limitations in the current “circumvention” rules that apply in some trade cases. If such a finding is made, the applicable rate could default to 40 percent regardless of a potentially more favorable country-of-origin determination. However, it is not clear from the language of the order what criteria CBP will use to distinguish “transshipment” or “evasion” from the everyday decisions companies make when selecting suppliers and manufactures in different jurisdictions—decisions that are often informed, at least in part, by tariff mitigation strategies.

Importantly, the application of the transshipment tariff rate is separate from and in addition to CBP’s existing authority to impose penalties for tariff evasion. The Order further directs CBP to “publish every 6 months a list of countries and specific facilities used in circumvention schemes,” intended to inform public procurement decisions, national security reviews, and commercial due diligence.

Available Exemptions. The Order provides that “[e]xcluding the changes set forth in subsections (a) through (d),” the terms of E.O. 14257, as amended, “continue to apply.” Based on this language, the exemptions previously established in Annex II of E.O. 14257—as well as the semiconductor exemption introduced in the April 11, 2025 presidential memorandum—appear to remain available under the July 31 Reciprocal Order.

The 14257 Order exemptions include:

Items that are exempt from regulation under IEEPA, such as informational materials and donations of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering;
Articles and derivatives of steel and aluminum that are subject to previously imposed 25 percent duties, subsequently raised to 50 percent duties, under Section 232 of the Trade Expansion Act of 1962 (Section 232). Section 232 is a statutory provision that authorizes the President to impose duties on articles that the U.S. Department of Commerce has determined are imported into the United States in quantities or under circumstances that threaten to impair national security;
Automobiles and automotive parts subject to additional 25 percent duties under a separate Section 232 action announced by President Trump on March 26, 2025;
Other items enumerated in Annex II to the April 2 Executive Order, including semi-refined and copper derivates (which now have a 50 percent tariff rate), refined copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy and energy products (the Trump Administration has separately initiated investigations into, or imposed tariffs on, most of these items under Section 232);
Articles from countries that do not have Permanent Normal Trade Relations (PNTR) with the United States, which presently includes Cuba, North Korea, Russia and Belarus (imports from these countries are subject to punitive tariffs, and may also be separately subject to restrictions under sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control); and
All articles that may become subject to duties pursuant to future actions under Section 232.

Separate Tariff Regime for Chinese Goods. The July 31 Reciprocal Order makes clear that “[n]othing in this order shall be construed to alter or otherwise affect Executive Order 14298 of May 12, 2025.” Executive Order 14298 provides that all goods imported from China—including goods from Hong Kong and Macau—remain subject to an additional 10 percent ad valorem duty under the reciprocal tariff structure established by E.O. 14257 of April 2, 2025.

The White House Fact Sheet that accompanied the May 12 order confirmed that the United States retained all previously imposed tariffs on Chinese-origin goods. As explained in our prior alert, these tariffs include a 20 percent IEEPA-based tariff tied to the fentanyl-related national emergency declared in Executive Order 14195. As a result, goods from China are currently subject to a cumulative IEEPA-related tariff burden of 30 percent. In addition to the IEEPA tariff burden, additional duties may apply depending upon the item, including (i) Most Favored Nation (or “normal trading relations”) tariffs; (ii) Section 301 tariffs; and (iii) industry-specific tariffs under Section 232.

The Section 301 tariffs, which were originally imposed during the first Trump Administration in response to China’s technology transfer and industrial policies, remain in effect and generally range from 7.5 percent to 25 percent, with certain products subject to duties as high as 100 percent.

Taken together, the effective average duty rate on most imports from China now ranges from approximately 40 to 55 percent, with higher duties for some products.

E.O. 14298 contemplates a potential sunset of this arrangement on August 12, 2025, unless a new agreement is reached. In effect, absent an additional agreement or a decision to extend the agreement reflected in E.O. 14298, the current 10 percent reciprocal tariff rate for goods of China and Hong Kong will increase to 34 percent (raising the cumulative average to approximately 65 to 79 percent, and higher for some products). As of this writing, neither the White House nor the Chinese government has announced such an agreement. We will continue to monitor developments in the ongoing negotiations.

Fentanyl-Related Duties on Canadian and Mexican Goods. In a separate executive order issued on July 31, titled “Amendment to Duties to Address the Flow of Illicit Drugs Across Our Northern Border,” President Trump increased fentanyl-related duties on Canadian goods, citing “Canada’s lack of cooperation in stemming the flood of fentanyl and other illicit drugs across our northern border.”

By way of background, President Trump initially imposed a 25 percent ad valorem duty on Canadian-origin goods in Executive Order 14193 of February 1, 2025, invoking national emergency authorities described in IEEPA to address fentanyl trafficking. (Unlike most other countries, Canada was not subject to reciprocal tariffs under E.O. 14257.) In the July 31 Order, President Trump raised the rate to 35 percent, while a 10 percent duty remains in place for a limited set of goods, including Canadian potash and energy products. The revised rates take effect at 12:01 a.m. EDT on August 1, 2025.

Notably, the Order preserves preferential treatment for goods that qualify as originating under the United States-Mexico-Canada Agreement (USMCA), which goods remain eligible for a zero percent duty rate. At the same time, the Order, similar to the July 31 Reciprocal Order, introduces a transshipment rule for non-USMCA qualifying goods, providing that “all articles of Canada that do not qualify as originating under USMCA and are determined by U.S. Customs and Border Protection (CBP) to have been transshipped to evade applicable duties” will be subject to a 40 percent duty in lieu of the otherwise applicable 35 percent. It remains unclear how this transshipment rule will apply to goods undergoing substantial transformation or assembly in Canada or Mexico for the purpose of satisfying USMCA origin rules or otherwise.

On the same day, President Trump and Mexican President Claudia Sheinbaum agreed to extend their existing tariff arrangement for an additional 90 days, during which the 25 percent fentanyl-related tariff—imposed under Executive Order 14194, as amended—on Mexican goods that do not qualify for USMCA remains in effect.

Suspension of Duty-Free De Minimis Treatment Universally. As part of the July 31 actions, President Trump issued an Executive Order suspending duty-free de minimis treatment for imports from all countries, which followed the Trump Administration’s targeted removal of de minimis tariff treatment for Chinese goods in E.O. 14298. The suspension takes effect on August 29, 2025. The Order provides that “all such shipments [that would have qualified for the duty-free de minimis exemption provided under 19 U.S.C. 1321(a)(2)(C)], except those sent through the international postal network, shall be subject to all applicable duties, taxes, fees, exactions, and charges.” For international postal shipments, duties are to be assessed in accordance with the methodology set forth in Section 3 of the Order. Section 3 offers two options for transportation carriers: (1) collect a duty equal to the IEEPA tariff rate applicable to the country of origin of the product assessed on an ad valorem basis, or (2) collect a specific duty (i.e. a flat fee) calculated according to a schedule: $80 per postal item for countries with an IEEPA tariff rate less than 16 percent, $160 for countries with a 16-25 percent IEEPA tariff rate, and $200 for countries with a 25 percent and higher IEEPA tariff rate. The second option will phase out after six months, after which time the ad valorem method of duty assessment will be required for international postal items.

II. Brazil IEEPA Tariffs and Section 301 Investigation

On July 30, President Trump issued an Executive Order resulting in a duty rate of 50 percent on certain goods of Brazil—adding a 40 percent “free speech” tariff to a range of goods in addition to the 10 percent reciprocal tariff rate for Brazil. Notably, the additional 40 percent rate will not apply to most of Brazil’s most significant exports to the United States, including certain aircraft parts, oil, coal, minerals, orange juice, various chemicals and Brazil nuts. However, this rate does apply to coffee and could disrupt U.S. coffee supply chains, as Brazil—already the world’s top grower and exporter—supplies roughly one-third of all U.S. coffee imports.

In parallel, on July 15, the U.S. Trade Representative (USTR) announced the initiation of an investigation of Brazil under Section 301 of the Trade Act of 1974. The investigation will “seek to determine whether acts, policies, and practices of the Government of Brazil related to digital trade and electronic payment services; unfair, preferential tariffs; anti-corruption interference; intellectual property protection; ethanol market access; and illegal deforestation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

A Section 301 investigation allows the USTR to investigate and act against foreign trade practices deemed unfair, unreasonable, or discriminatory and that burden or restrict U.S. commerce. In cases not involving trade agreements, USTR must make its determinations within 12 months after the investigation begins. If the investigation results in a determination that unfair practices exist, the United States may take the following actions:

Impose duties on goods or services. The statute includes a preference for the use of this remedy above the options below.
Withdraw or suspend trade agreement concessions.
Enter into a binding agreement with the offending country to eliminate discriminatory policies or practices or provide compensatory trade benefits.

Public comments on the investigation will remain open until August 18, with a public hearing scheduled for September 3, 2025.

In addition, the Trump Administration has imposed sanctions in response to actions by the government of Brazil that are alleged to threaten U.S. national security, foreign policy, and economic interests, including concerns regarding the ability of U.S. persons to engage in protected political speech on U.S. social media platforms and the government of Brazil’s pursuit of criminal charges against former Brazilian president Jair Bolsonaro for his alleged involvement in plans to stage a coup, among other charges. On July 30, the United States sanctioned Brazilian Supreme Court Justice Alexandre de Moraes, who is currently presiding over the criminal proceedings involving Bolsonaro.

III. IEEPA Legal Challenges and Implications

Since April 3, 2025, at least nine complaints have been filed challenging the tariffs imposed on the basis of IEEPA. Plaintiffs—including small businesses, universities, and state governments—argue that IEEPA, by its text, context, and legislative history, does not authorize the President to impose tariffs. Rather, the Constitution commits this power to Congress in Article 1, Section 8, where it states that the “Congress shall have power to lay and collect taxes, duties, imposts and excises…” By contrast, IEEPA makes no mention of “tariffs” and has never before been used to impose tariffs. Rather, that statute allows the President, following a declaration of a national emergency in response to “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States,” to exercise certain powers, including the power to “regulate … importation” of any property in which any foreign person has any interest. Across cases, plaintiffs tend to make the following arguments:

The alleged national emergencies related to illegal drugs, irregular migration, and/or the “large and persistent” U.S. goods trade deficits are not unusual or extraordinary circumstances;
Congress has expressly delegated authority to the President to impose increased tariffs, including to address national security concerns and balance-of-payment emergencies, under separate trade-related statutes that require investigations and procedures; and
Certain canons of constitutional law, including the Major Questions Doctrine and Non-Delegation Doctrine, require a reading of IEEPA that either does not include the ability to impose tariffs or imposes limits on the scope of tariff measures that can be imposed by the executive branch.

On May 28, 2025, the United States Court of International Trade (CIT) invalidated the IEEPA-based tariffs—including the fentanyl-related and reciprocal tariffs—and permanently enjoined their enforcement nationwide. The U.S. Government immediately appealed to the United States Court of Appeals for the Federal Circuit and sought a stay, which was granted the next day, reinstating the tariffs. On July 31, the United States Court of Appeals for the Federal Circuit heard oral arguments in the CIT case, with a number of the judges on the panel expressing skepticism that President Trump has the power to use IEEPA to impose tariffs.

On May 29, 2025, the United States District Court for the District of Columbia (D.C. District Court) similarly found that the IEEPA tariffs lacked statutory authority and issued a preliminary injunction halting tariff collection. This action has also been stayed pending appeal. While CIT and D.C. District Court relied on different reasoning, both decisions reflect constitutional concerns over the President wielding an apparently unbounded ability to set, revise, lift, or remove tariffs.

On June 20, 2025, the United States Supreme Court denied certiorari to hear an expedited challenge to the IEEPA-based tariffs, meaning the Supreme Court will not weigh in until at least October. In the meantime, the tariffs remain in effect.

If found invalid, tariffs levied under IEEPA could be vacated, in whole or in part. Notably, President Trump’s July 31 Reciprocal Order and other recent actions that rely upon IEEPA have included “severability” clauses that could keep in place measures that are not affected by a future judicial determination regarding the validity of some or all of the tariffs. If vacated, a court could order the United States to refund duties paid. If the IEEPA-based tariffs remain in place for most of the next year (when a final decision might be announced), the amount of such refunds could potentially reach hundreds of billions of dollars. Further, there could be procedural issues that would complicate the availability of a refund, including whether importers would be required to file formal “protests” to contest the finalization (i.e. “liquidation”) of duties in order to be eligible. The proceedings to date have not addressed the issue of remedies in detail, and much remains to be determined as the litigation progresses.

IV. Conclusion

The myriad tariff developments leading into August reflect a mix of some emerging clarity and persistent uncertainty. Informal trade deals and a flurry of executive orders—some introducing entirely new categories of tariffs—continue to add layers of complexity to the trade landscape. Moreover, we have already seen countries prepare retaliatory measures against U.S. tariffs, further unsettling the global trading system. Consequently, it remains critical for companies with international exposure to carefully assess their customs compliance practices, including product classification, country-of-origin determinations, valuation, duty mitigation measures, and contractual terms governing responsibility for paying the duties.

Uncertainty also exists with respect to the ongoing legal challenges against the IEEPA-based tariffs. As the use of tariffs is likely, absent judicial or other constraints, to play an increasingly central role in the Trump Administration’s foreign policy, it may become challenging for a court to wholly invalidate the trade measures. In addition, even if a final judicial determination finds that IEEPA does not provide authority for the President’s imposition of tariffs, the President has other statutory trade authorities to deploy, including Section 301 and Section 232 discussed above. While the President’s use of more traditional trade measures, such as Section 301 and 232, carry certain procedural provisions—such as an expectation that the administration will at least solicit public comments on potential tariffs and also provide the opportunity for a hearing—the resulting tariff actions could, at least for the products targeted by these measures, provide for tariff levels comparable to the IEEPA-based tariffs the Trump Administration has already imposed and be (based on historical precedent) less susceptible to judicial challenge. Accordingly, companies need to stay aware of the fluidity of trade rules and judicial decisions. Further, it will likely become even more important to monitor these possible trade actions such as Section 301 and Section 232, to participate in current and future public comment periods, and to plan possible countermeasures relating to these actions.

Gibson Dunn lawyers are working throughout the world to help clients navigate this rapidly evolving tariff landscape, to mitigate tariffs when possible, and to develop public comments and conduct other outreach to ensure that Administration officials are implementing the tariff orders with an understanding of how tariffs will impact different sectors.

[i] The chart below is compiled based on Annex I to the July 31 Reciprocal Order and E.O. 14257:

	Countries and Territories	Reciprocal Tariff, Adjusted (effective August 7, 2025)	Original Liberation Day Rate, as Announced in E.O. 14257 (of April 2, 2025)
1	Afghanistan	15%	10%
2	Algeria	30%	30%
3	Angola	15%	32%
4	Bangladesh	20%	37%
5	Bolivia	15%	10%
6	Bosnia and Herzegovina	30%	35%
7	Botswana	15%	37%
8	Brazil	10%	10%
9	Brunei	25%	24%
10	Cambodia	19%	49%
11	Cameroon	15%	11%
12	Chad	15%	13%
13	Costa Rica	15%	10%
14	Côte d`Ivoire	15%	21%
15	Democratic Republic of the Congo	15%	11%
16	Ecuador	15%	10%
17	Equatorial Guinea	15%	13%
18	European Union: Goods with Column 1 Duty Rate[1] > 15%	0%	20%
19	European Union: Goods with Column 1 Duty Rate < 15%	15% minus Column 1 Duty Rate	20%
20	Falkland Islands	10%	41%
21	Fiji	15%	32%
22	Ghana	15%	10%
23	Guyana	15%	38%
24	Iceland	15%	10%
25	India	25%	26%
26	Indonesia	19%	32%
27	Iraq	35%	39%
28	Israel	15%	17%
29	Japan	15%	24%
30	Jordan	15%	20%
31	Kazakhstan	25%	27%
32	Laos	40%	48%
33	Lesotho	15%	50%
34	Libya	30%	31%
35	Liechtenstein	15%	37%
36	Madagascar	15%	47%
37	Malawi	15%	17%
38	Malaysia	19%	24%
39	Mauritius	15%	40%
40	Moldova	25%	31%
41	Mozambique	15%	16%
42	Myanmar (Burma)	40%	44%
43	Namibia	15%	21%
44	Nauru	15%	30%
45	New Zealand	15%	10%
46	Nicaragua	18%	18%
47	Nigeria	15%	14%
48	North Macedonia	15%	33%
49	Norway	15%	15%
50	Pakistan	19%	29%
51	Papua New Guinea	15%	10%
52	Philippines	19%	17%
53	Serbia	35%	37%
54	South Africa	30%	30%
55	South Korea	15%	25%
56	Sri Lanka	20%	44%
57	Switzerland	39%	31%
58	Syria	41%	41%
59	Taiwan	20%	32%
60	Thailand	19%	36%
61	Trinidad and Tobago	15%	10%
62	Tunisia	25%	28%
63	Turkey	15%	10%
64	Uganda	15%	10%
65	United Kingdom	10%	10%
66	Vanuatu	15%	22%
67	Venezuela	15%	15%
68	Vietnam	20%	46%
69	Zambia	15%	17%
70	Zimbabwe	15%	18%

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, Chris Timura, Matt Axelrod, Don Harrison, Ron Kirk, Samantha Sewall, Hui Fang, and Alana Sheppard.

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

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@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)
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)
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 (+1 949.451.3850, 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)
Hui Fang – Hong King/Washington, D.C. (+852 2214 3805, hfang@gibsondunn.com)
Dharak Bhavsar – Hong Kong/New York (+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)

Writing for Practical Law The Journal (free with registration), associate Graham Valenta provides an analysis of gun-jumping violations in oil and gas acquisitions under the Hart-Scott-Rodino Act. The article gives guidance on drafting interim operating covenants to reduce the risk of these violations.

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q2 2025. The Update is available in .pdf format at the below link, and addresses news on the following topics that we hope are of interest to you:

PCAOB Survives One Big Beautiful Bill but Board Changes Underway
SEC Considers Changing Definition of Foreign Private Issuer
SEC Maintains but FINRA Plans to Revise Off-Channel Communications Settlements
White House and DOJ Announce Criminal Enforcement Measures
Fifth Circuit Scrutinizes FDIC Internal Enforcement Actions
Supreme Court Issues Decisions on Agency Deference, Employment Lawsuits, and Federal Fraud
Federal District Court Bars Clawback of Accidentally Produced Privileged Documents
U.K. Serious Fraud Office Issues Guidance on Corporate Self-Reporting and Cooperation
Other Recent SEC and PCAOB Regulatory and Enforcement Developments

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

Download Full Newsletter

Warmest regards,
Jim Farrell
Monica Loseman
Michael Scanlon

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

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

Accounting Firm Advisory and Defense Group Chairs:

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

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

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

In this update, we review the most significant trends and developments in anti-money laundering (AML) regulation and enforcement during the first six months of 2025.

President Trump has appointed experienced individuals to high offices at Treasury and DOJ, suggesting that there will be consistency in AML enforcement even where the underlying policy rationale will be focused on administration priorities. Indeed, the first half of 2025 and Trump Administration policy statements indicate that the federal government will continue to aggressively police anti-money laundering generally and particularly as it relates to focal areas of narcotics trafficking and national security broadly defined. At the same time, federal authorities have taken a more deregulatory approach, and reduced some limited-in-scope AML-related regulations that would otherwise complicate the management of businesses. We summarize these developments and more below.

1. Key Appointments at Treasury and DOJ

President Trump has nominated several individuals who have and will continue to shape AML enforcement and policy.

At the Treasury Department, the newly minted Deputy Secretary Michael Faulkender wasted little time articulating the Administration’s regulatory agenda and BSA modernization efforts.[1] In a speech to the 62nd Bank Secrecy Act Advisory Group plenary meeting on June 18, 2025, Faulkender emphasized the importance of hearing from “Main Street financial institutions,” stated that Treasury is “working to change the AML/CFT status quo so that the framework focuses on our national security priorities and highest risk areas and explicitly permits financial institutions to de-prioritize lower risks,” and previewed further changes to streamline Suspicious Activity Report and Currency Transaction Report filings.[2]

Separately, our clients are interested in how AML enforcement and guidance will be impacted by John Hurley’s July 23, 2025 confirmation as Undersecretary for Terrorism and Financial Intelligence (TFI).[3] Hurley assumes the reins of TFI and oversees the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), along with the Office of Terrorist Financing and Financial Crimes, Office of Intelligence and Analysis, and the Treasury Executive Office for Asset Forfeiture. One major question is whether and to what extent Hurley will retain existing leaders at OFAC and FinCEN or, as has been a pattern in prior administrations, consider new leadership. Andrea Gacki remains the Director of FinCEN, a position she assumed in July 2023 after serving as Director of OFAC for approximately five years, and Brad Smith remains the Director of OFAC, a position he has held since Director Gacki moved from OFAC to FinCEN.

President Trump’s nominees and appointments to the Department of Justice have similarly issued early guidance applicable to AML enforcement and policy. Attorney General Pam Bondi, the former Attorney General for the State of Florida, was confirmed by the Senate on February 5, 2025, and issued a slew of memoranda, discussed below, that same day. Todd Blanche, a former defense attorney and federal prosecutor, was confirmed as Deputy Attorney General on March 6, 2025, and he issued a memorandum addressing prosecution of offenses related to digital assets about a month later. In March 2025, Matthew Galeotti, a former federal prosecutor, was named Head of the Criminal Division, and on June 5, 2025, John Eisenberg, a long-time attorney within government, was confirmed as Assistant Attorney General for the National Security Division. As described further below, memoranda and guidance issued by Attorney General Bondi, Deputy Attorney General Blanche, and Mr. Galeotti have provided important standards for ongoing AML enforcement, and we anticipate Assistant Attorney General Eisenberg will also shape enforcement.

2. Guidance Documents

a. Executive Orders Deemphasize Regulatory Violations, Unless They Involve Cartels or TCOs

President Trump has issued a series of executive orders that bear on AML guidance and enforcement. As described in the following section, one of the most important orders relates to the government’s focus on cartels and transnational criminal organizations (TCOs).

On May 9, 2025, President Trump signed an Executive Order aimed at combatting “overcriminalization in federal regulations.”[4] This executive order states that “it is the policy of the United States” that “[c]riminal enforcement of criminal regulatory offenses is disfavored,” except as to “the enforcement of the immigration laws or regulations” or “laws or regulations related to national security or defense.” Because the Bank Secrecy Act is a regulatory violation, the Order could deemphasize enforcement of pure BSA violations (such as AML program offenses), except when the violations implicate immigration or national security. Whether the May 9th EO will impact criminal prosecutions remains to be seen, however, since for criminal prosecution the BSA requires the government to establish a defendant acted “willfully,”[5] and the Order recognizes that enforcement “[p]rosecutions of criminal regulatory offenses should focus on matters where a putative defendant is alleged to have known his conduct was unlawful.”

b. AG Memoranda Streamlines Internal DOJ Protocols and Prioritizes Sanctions Evasion and TCOs

Immediately after being sworn in, Attorney General Pam Bondi issued 14 memoranda, which foreshadowed a sizable shift in enforcement priorities under the Trump Administration. Although Gibson Dunn has analyzed these memoranda in more depth here and here, this update focuses on the changes most relevant to the Department of Justice’s approach to anti-money laundering enforcement:

The “Total Elimination” Memorandum seeks to implement President Trump’s January 20, 2025 executive order directing that government policy is to ensure the total elimination of cartels and TCOs. Attorney General Bondi directed DOJ resources toward cartels and TCOs, including by making bureaucratic changes to expedite prosecution of such cases, and prioritizing resources from the Money Laundering and Asset Recovery section (MLARS), which typically enforces Bank Secrecy Act violations, to prioritize cases relating to cartels and TCOs.[6]
A separate memorandum describing the Department’s “General Policy Regarding Charging, Plea Negotiations, and Sentencing,” which prioritized immigration enforcement, human trafficking and smuggling, transnational organized crime, cartels, gangs, protecting law enforcement, and shifting resources in the National Security Division. This memorandum also disbanded NSD’s Corporate Enforcement Unit.[7]

Read together with the policies discussed below, Attorney General Bondi’s Memoranda indicate that the Justice Department will continue to prioritize criminal enforcement of national security offenses, including sanctions evasion, which are often investigated alongside money laundering or anti-money laundering violations.

c. Criminal Division Memoranda Refine Corporate Enforcement Priorities

As Gibson Dunn previously reported, the Criminal Division issued four foundational guidance documents in May 2025: a memorandum outlining the new White-Collar Enforcement Plan (Enforcement Plan), an update to the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (Corporate Enforcement Policy), an update to the Department of Justice Corporate Whistleblower Awards Pilot program, and an updated memorandum describing the process for implementing monitorships and selecting monitors (collectively, the “May 12, 2025 Guidance Documents”).

The Enforcement Plan lists 10 high-impact areas on which the Criminal Division will be “laser-focused,” including areas that involve violations of the Bank Secrecy Act, and in particular, offenses that implicate sanctions. As laid out in the Enforcement Plan, “exploitation of our financial system” can “enable underlying criminal conduct,” and “[f]inancial institutions, shadow bankers, and other intermediaries aid U.S. adversaries by processing transactions that evade sanctions.” The Enforcement Plan further identifies as priorities:

“Conduct that threatens the country’s national security, including threats to the U.S. financial system by gatekeepers, such as financial institutions and their insiders that commit sanctions violations or enable transactions by Cartels, TCOs, hostile nation-states, and/or foreign terrorist organizations;”
“Complex money laundering, including Chinese Money Laundering Organizations, and other organizations involved in laundering funds used in the manufacturing of illegal drugs;” and
With reference to the Digital Assets DAG Memorandum discussed below, “willful [registration and compliance] violations that facilitate significant criminal activity.”

The Enforcement Plan also directs the Criminal Division, which includes MLARS, the Main Justice component which prosecutes and oversees investigations of Bank Secrecy Act violations, to review existing agreements between the Criminal Division and companies to determine whether to terminate any monitorship agreements early based on factors including but not limited to the duration of the post-resolution period, a change in a company’s risk profile, the state of the company’s compliance program, and whether the company self-reported the conduct. This directive may help align previously resolved matters with new guidance limiting the use of independent compliance monitors and revised policies on self-reporting.

Finally, the Criminal Division also expanded the Whistleblower Awards Pilot Program, which was first announced in August 2024, to cover eligible tips related to the priority areas identified in the Enforcement Plan, while maintaining the Department’s focus on violations by financial institutions or their employees for schemes involving money laundering and violations of the Bank Secrecy Act.

d. Blanche Memo De-emphasizes Crypto Prosecutions Absent Aggravating Factors

In a significant shift from the prior administration’s oft-criticized focus on bringing cases targeting the crypto industry, Deputy Attorney General Todd Blanche directed DOJ to “[e]nd[] [r]egulation [b]y [e]nforcement” in the context of digital asset cases, including with respect to enforcement of money transmission laws and Bank Secrecy Act violations.[8]

In an April 7, 2025 Memorandum (Blanche Memo), Deputy Attorney Blanche explained that “[t]he Department of Justice is not a digital assets regulator” and stated that “[t]he Justice Department will no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets while President Trump’s actual regulators do this work outside the punitive criminal justice framework.”[9] Contrasting against areas that DOJ will prioritize—like cases against individuals that “(a) cause financial harm to digital asset investors and consumers; and/or (b) use digital assets in furtherance of other criminal conduct”—the Blanche Memo directs the Department not to pursue “regulatory violations in cases involving digital assets—including but not limited to unlicensed money transmitting under 18 U.S.C. §1960(b)(1)(A) and (B) [or] violations of the Bank Secrecy Act, [or other registration-related charges]—unless there is evidence that the defendant knew of the licensing or registration requirement at issue and violated such a requirement willfully.” The Blanche Memo explains that “matters premised on regulatory violations resulting from diffuse decisions made at lower levels of digital asset companies often fail to advance the priorities of the Department.”

In the first applications of the Blanche Memo, DOJ has dismissed some money transmitting charges brought pursuant to the purely registration violations of 18 U.S.C. § 1960(b)(1)(A) and (B). However, DOJ has continued prosecutions against the same defendants on theories that the digital asset companies they ran violated the third prong of the money transmitting statute, that prohibits businesses that “otherwise involve[] the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.” 18 U.S.C. § 1960(b)(1)(C). It remains to be seen how much of an effect the Blanche Memo will have on actual criminal prosecutions brought by DOJ.[10]

e. Relevant Regulatory Actions

The Trump Treasury Department has issued three important regulatory actions related to anti-money laundering.

First, FinCEN and Treasury provided some finality to the obligations of businesses under the Corporate Transparency Act (CTA). That law was enacted in 2021, and was designed to require certain corporations and other entities to file a beneficial ownership interest report with FinCEN identifying, among other information, the natural persons who are beneficial owners of the entity.[11] In September 2022, FinCEN issued a rule implementing the CTA.[12]

After President Trump’s inauguration and years of litigation, culminating in appeals to the Fifth Circuit and Supreme Court, in March 2025, the Department of the Treasury announced[13] and then FinCEN issued an interim final rule, that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information to FinCEN under the CTA.[14] This Interim Final Rule means that only certain companies, namely those formed under the law of a foreign country and registered to do business in the United States, must file beneficial ownership information with FinCEN, and even then must only disclose information regarding their non-U.S. beneficial owners. FinCEN is also soliciting comments from the public on a permanent rule that the agency intends to adopt later this year.[15]

Second, on March 11, 2025, FinCEN issued a Geographic Targeting Order (GTO) “to further combat the illicit activities and money laundering of Mexico-based cartels and other criminal actors along the southwest border of the United States.”[16] Pursuant to the GTO and the associated Frequently Asked Questions guidance published by FinCEN, all money services businesses located in 30 zip codes must file Currency Transaction Reports (CTRs)—complete with details regarding the identity of the person presenting the transaction—with FinCEN for cash transactions totaling at least $200, effectively reducing the $10,000 threshold that typically applies.[17]

Within a few weeks of the GTO, two separate lawsuits were filed challenging its constitutionality. As of this writing, a judge in the Western District of Texas issued a preliminary injunction barring enforcement of the GTO against the plaintiffs named in the suit before him;[18] and a judge in the Southern District of California issued a preliminary injunction barring enforcement as to all money services businesses located in the Southern District of California.[19] The cases remain pending in the district courts as the judges decide whether to enter permanent injunctions; the preliminary injunctions are currently on appeal, respectively, to the Fifth and Ninth Circuit Courts of Appeal.[20]

Third, FinCEN, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA), issued a coordinated order that was later also adopted by the Federal Reserve permitting banks to collect Tax Identification Number (TIN) information from a third party rather than from the bank’s customer.[21] This order, issued in response to an interagency request for information, grants an exemption from the Customer Identification Program (CIP) rules[22] applicable to banks.[23] While by its terms, the CIP rules require banks to obtain TIN from their customers before allowing the customers to open accounts, the order allows banks to use an alternative collection method. FinCEN and the banking agencies issued this order after stating that they “recognize that the way customers interact with banks and receive financial services has changed significantly since 2001,” and that the new order “reduces burden by providing banks with greater flexibility in determining how to fulfill their existing regulatory obligations without presenting a heightened risk of money laundering, terrorist financing, or other illicit finance activity.”

Fourth, as we have previously reported, on July 21, 2025, FinCEN announced that it intends to postpone the effective date for the final IA AML Rule establishing AML/CFT program and SAR filing requirements for SEC-registered investment advisers and exempt reporting advisers.[24] The effective date will be delayed from January 1, 2026 to January 1, 2028 to allow for a broader review of the rule’s scope and substance to ensure it is efficient and appropriately tailored. During the postponement period, FinCEN plans to revisit the substance of the IA AML Rule through a future rulemaking process. In addition, FinCEN, in coordination with the SEC, intends to reconsider the joint proposed rule regarding customer identification program requirements for investment advisers.

3. Enforcement Actions

a. End of the Biden Administration

At the end of the Biden Administration, the outgoing SEC resolved a series of actions involving alleged anti-money laundering violations.

i. Broker-Dealer Action

On January 13, 2025, the SEC settled charges with two affiliated broker-dealers relating to a variety of alleged compliance violations.[25] According to the SEC, the alleged deficiencies were remediated in or around June 2022 after the brokers “hired managers and other AML personnel with specialized experience in investigating such activity,” “updated their procedures, implemented additional training and guidance for personnel, implemented a new system for tracking and managing investigations, and implemented a new transaction surveillance system.”[26] One entity agreed to pay a $33.5 million penalty and the other agreed to pay an $11.5 million penalty.[27]

ii. Broker-Dealer and Investment Adviser

On January 17, 2025, the SEC sued and settled with a broker-dealer and investment adviser, alleging that from May 2019 through December 2023, the company experienced failures in its customer identification program, including a failure to timely close accounts for which it had not properly verified the customer’s identity.[28] The company also allegedly failed to close or restrict thousands of high-risk accounts, such as cannabis-related and foreign accounts, that were prohibited under the company’s AML policies.[29] According to the SEC, after the SEC contacted the company regarding its investigation, the company retained a third-party compliance consultant to conduct a review and assessment of the company’s CIP and customer due diligence program, and it has taken steps to address the consultant’s recommendations. The company has new personnel in key legal and compliance roles and has increased resources for compliance. The company also agreed to undertake additional remedial steps, and to pay an $18 million fine.[30]

iii. Investment Adviser

On January 14, 2025, the SEC sued and settled with an investment adviser, alleging that the company made misrepresentations with respect to its AML procedures and had compliance failures.[31] Specifically, the SEC alleged that between October 2018 and January 2022, the company made statements in various documents addressed to private fund investors that the firm was compliant with AML due diligence laws even though the company allegedly “did not, in fact, always conduct the AML due diligence as described.”[32] As part of its settlement, the company agreed to pay a $150,000 civil penalty.[33]

b. Beginning of the Trump Administration

In the first months of the Trump Administration, FinCEN and DOJ have both announced public enforcement actions and resolutions related to the BSA and AML. Some of the most notable actions are discussed below.

i. Seychelles-Based Crypto Exchange

On January 27, 2025, a Seychelles-based cryptocurrency exchange pled guilty to one count of operating an unlicensed money transmitting business.[34] In March 2024, the exchange, along with two of its founders, had been charged with violations of the BSA and operation of an unlicensed money transmitting business.[35] According to that initial Indictment, the exchange had allegedly operated as a money transmitting business by operating in the United States without registering as an MSB with FinCEN or implementing an adequate AML program.[36]

As part of its plea agreement, the exchange agreed to criminally forfeit $184.5 million and pay a criminal fine of approximately $112.9 million. The exchange also agreed to exit the U.S. market for at least the next two years, and the charged founders reached deferred prosecution agreements whereby they agreed to no longer have any role in the exchange’s management or operations.

ii. Seychelles-Based Crypto Exchange

On February 24, 2025, a different Seychelles-based cryptocurrency exchange pled guilty to one count of operating an unlicensed money transmitting business.[37] According to DOJ, the exchange allegedly operated as an unlicensed money transmitting business in the United States, without registering with FinCEN or implementing an adequate AML program. In total, the company agreed to pay monetary penalties totaling more than $504 million.

iii. Armored Car Company

On February 6, 2025, the U.S. Attorney’s Office for the Southern District of California announced an NPA,[38] and FinCEN announced a consent order, with an armored car service company.[39] The company allegedly failed to register with FinCEN as a money services business or implement an effective AML program. The company agreed to pay approximately $42 million in penalties, and agreed to an AML program review.

iv. FinCEN 311 Action Against Cambodia Financial Services Conglomerate

On May 1, 2025, FinCEN issued a proposed rule that identified Huione Group—a Cambodia-based financial institution—as a “primary money laundering concern pursuant to Section 311 of the USA PATRIOT Act”[40] According to FinCEN, Huione Group has been critical for laundering proceeds of cyber heists by the Democratic People’s Republic of Korea and for convertible virtual currency scams conducted by transnational criminal organizations in Southeast Asia.[41] The rule effectively prohibits U.S. financial institutions from engaging in financial transactions with Huione Group.[42]

v. Application of Statute to Target Illicit Opioid Trafficking

On June 25, 2025, FinCEN issued three orders that identified Mexico-based financial institutions—CIBanco S.A., Institution 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 “primary money laundering concern[s] in connection with illicit opioid trafficking.”[43] The orders effectively prohibit U.S. financial institutions from engaging in financial transactions with the three entities. According to FinCEN, the entities have “collectively played a longstanding and vital role in laundering millions of dollars on behalf of Mexico-based cartels” and have facilitated payments to China-based companies for the “procurement of precursor chemicals needed to produce fentanyl.”[44] These orders are notable as they are the first orders issued by FinCEN pursuant to the Fentanyl Sanctions Act and the FEND Off Fentanyl Act. FinCEN stated that this action reflects an unprecedented commitment by FinCEN to “us[e] all tools at [its] disposal” to target financial institutions that may aid “criminal and terrorist organizations trafficking fentanyl and other narcotics.”[45]

4. State Regulators

When President Trump was elected, there was much speculation that certain state regulators would become more aggressive, in light of the anticipated deregulatory federal environment. So far, that appears to have been borne out, as state regulators have been active in bringing actions under the BSA.

a. Casino

On May 15, 2025, the Nevada Gaming Control Board (NGCB) imposed a $5.5 million fine on a casino for “activities related to unregistered money transmitting businesses, facilitating international monetary transactions, [and] allowing proxy betting and other prohibited monetary transactions.”[46] According to NGCB, former employees of the casino allegedly “allowed international patrons to obtain and/or transfer money improperly for the purposes of wagering, and also allowed wagers to be placed for other patrons at” the casino.[47] As part of its settlement, the casino agreed to improve its AML program and provide employee training in AML requirements.[48]

b. Licensed Money Transmitter

On July 9, 2025, DFS and state regulators from Massachusetts, Texas, California, Minnesota, and Nebraska entered into a consent order with a licensed money transmitter related to alleged inadequacies in the company’s BSA/AML/CFT program. The company agreed to pay a $4.2 million penalty and take a number of corrective actions to remediate alleged deficiencies in its AML/CFT Program, including conducting a lookback for previously closed accounts, enhancing its reporting procedures for suspicious activity, strengthening its due diligence procedures for AML/CFT risk, and improving its systems for data integrity regarding customer accounts.[49]

Conclusion

The first half of 2025 was notable as the new Administration refined its enforcement priorities and the effects of those changes began to take root. We anticipate that the remainder of 2025 will be similarly active, as the Trump Administration relies on AML enforcement as a way to advance its own policy priorities involving national security and TCO offenses. We will continue to monitor these developments and report accordingly on steps individuals and entities should take to navigate the ever-changing regulatory regime.

[1] Press Release, Dep’t of Treasury, Deputy Secretary Faulkender Lays Out Guiding Principles for Bank Secrecy Act Modernization (June 18, 2025), https://home.treasury.gov/news/press-releases/sb0173. The Treasury Department designates Faulkender as acting essentially as a Chief Operating Officer for the Department. See Michael Faulkender, https://home.treasury.gov/about/general-information/officials/michael-faulkender. Faulkender is thus responsible for overseeing the formulation and implementation of policies and programs at Treasury, including those pertaining to the Bank Secrecy Act.

[2] Press Release, Dep’t of Treasury, Deputy Secretary Faulkender Lays Out Guiding Principles for Bank Secrecy Act Modernization (June 18, 2025), https://home.treasury.gov/news/press-releases/sb0173.

[3] Press Release, Dep’t of Treasury, John Hurley Confirmed by the United States Senate (July 23, 2025), https://home.treasury.gov/news/press-releases/sb0204. Hurley is a former hedge fund manager, who served on President Trump’s first-term Intelligence Advisory Board.

[4] Executive Order, Fighting Overcriminalization in Federal Regulations (May 9, 2025), https://www.whitehouse.gov/presidential-actions/2025/05/fighting-overcriminalization-in-federal-regulations/. For further insight and analysis, please see our client alert. Gibson Dunn: New Executive Order Seeks to Combat “Overcriminalization in Federal Regulations” (May 16, 2025).

[5] 31 U.S.C. § 5322.

[6] Total Elimination of Cartels and Transnational Criminal Organizations (Feb. 5, 2025), https://www.justice.gov/ag/media/1388546/dl?inline.

[7] General Policy Regarding Charging, Plea Negotiations, and Sentencing (Feb. 5, 2025), https://www.justice.gov/ag/media/1388541/dl?inline.

[8] Ending Regulation by Prosecution (Apr. 7, 2025), https://www.justice.gov/dag/media/1395781/dl?inline.

[9] Id.

[10] Gibson Dunn attorneys provided more thoughts on this topic in a Law 360 Article analyzing the Blanche Memo.

[11] See William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, Division F; 31 U.S.C. § 5336.

[12] FinCEN, Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498.

[13] Press Release, Dep’t of Treasury, Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies, https://home.treasury.gov/news/press-releases/sb0038.

[14] Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension, 90 Fed. Reg. 13688.

[15] For the history of the litigation and Gibson Dunn’s prior client alerts, please see Gibson Dunn’s Corporate Transparency Act Resource Center: Insights and Updates.

[16] Press Release, FinCEN, FinCEN Issues Southwest Border Geographic Targeting Order (Mar. 11, 2025), https://www.fincen.gov/news/news-releases/fincen-issues-southwest-border-geographic-targeting-order.

[17] Id.; see also Updated Geographic Targeting Order Involving Certain Money Services.

Businesses in California and Texas on the Southwest Border, Frequently Asked Questions (Apr. 16, 2025), https://www.fincen.gov/sites/default/files/shared/SWB-MSB-GTO-Order-FINAL508.pdf.

[18] Texas Ass’n of Money Servs. Businesses v. Bondi, No. CV SA-25-CA-00344-FB, 2025 WL 1540621, 13–16 (W.D. Tex. May 19, 2025).

[19] Novedades y Servicios, Inc. v. FinCEN, No. 25-CV-886 JLS (DDL), 2025 WL 1501936, at *8–10, 22 (S.D. Cal. May 21, 2025).

[20] Texas Ass’n of Money Servs. Businesses v. Bondi, No. 25-50481 (5th Cir.); Novedades y Servicios, Inc. v. FinCEN, No. 25-4238 (9th Cir.).

[21] Press Release, FinCEN, FinCEN Permits Banks to Use Alternative Collection Method for Obtaining TIN Information (June 27, 2025), https://www.fincen.gov/news/news-releases/fincen-permits-banks-use-alternative-collection-method-obtaining-tin-information; Press Release, Federal Reserve Board of Governors, Federal Reserve Board joins other federal financial institution regulatory agencies in providing banks the flexibility to use an alternative method for collecting certain customer identification information (July 31, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250731a.htm.

[22] 31 C.F.R. § 1020.220; 12 C.F.R. § 21.21(c)(2); 12 C.F.R. § 326.8(b)(2); and 12 C.F.R. § 748.2(b)(2).

[23] A “bank” is defined in the BSA and its associated regulations as including each agent, agency, branch, or office within the United States of banks, savings associations, credit unions, and foreign banks. 31 C.F.R. § 1010.100(d). The exemption applies only to those banks subject to the jurisdiction of the OCC, FDIC, and NCUA.

[24] Press Release, U.S. Dep’t of the Treasury, Treasury Announces Postponement and Reopening of Investment Adviser Rule (July 21, 2025), https://home.treasury.gov/news/press-releases/sb0201; Press Release, FinCEN, Treasury Announces Postponement and Reopening of Investment Adviser Rule (July 21, 2025), https://www.fincen.gov/news/news-releases/treasury-announces-postponement-and-reopening-investment-adviser-rule.

[25] SEC Order Instituting Administrative and Cease and Desist Proceedings at ¶ 5 (Jan. 13, 2025), available at https://www.sec.gov/files/litigation/admin/2025/34-102170.pdf.

[26] Id. at ¶¶ 64–66.

[27] Press Release, Securities and Exchange Commission (Jan. 13, 2025), https://www.sec.gov/newsroom/press-releases/2025-5.

[28] Press Release, Securities and Exchange Commission (Jan. 17, 2025), https://www.sec.gov/newsroom/press-releases/2025-17.

[29] Id.

[30] Id.

[31] Press Release, Securities and Exchange Commission (Jan. 14, 2025), https://www.sec.gov/newsroom/press-releases/2025-8.

[32] Id.

[33] Id.

[34] Press Release, Dep’t of Justice (Jan. 27, 2025), https://www.justice.gov/usao-sdny/pr/kucoin-pleads-guilty-unlicensed-money-transmission-charge-and-agrees-pay-penalties; United States v. Peken Global Limited et al., 24 Cr. 168 (S.D.N.Y.), Dkt. No. 19 (Consent Preliminary Order of Forfeiture/Money Judgment).

[35] United States v. Peken Global Limited et al., 24 Cr. 168 (S.D.N.Y.), Dkt. No. 1 (Sealed Indictment).

[36] Id.

[37] Press Release, Dep’t of Justice (Feb. 24, 2025), https://www.justice.gov/usao-sdny/pr/okx-pleads-guilty-violating-us-anti-money-laundering-laws-and-agrees-pay-penalties.

[38] Press Release, Dep’t of Justice (Feb. 6, 2025), https://www.justice.gov/usao-sdca/pr/brinks-forfeits-50-million-failing-register-money-transmitting-business; https://www.justice.gov/usao-sdca/media/1388711/dl?inline.

[39] Press Release, U.S. Dep’t of the Treasury (Feb. 26, 2025), https://www.fincen.gov/news/news-releases/fincen-announces-37000000-civil-money-penalty-against-brinks-global-services-usa.

[40] Press Release, U.S. Dep’t of the Treasury, FinCEN, FinCEN Finds Cambodia-Based Huione Group to be of Primary Money Laundering Concern, Proposes a Rule to Combat Cyber Scams and Heists (May 1, 2025), https://www.fincen.gov/news/news-releases/fincen-finds-cambodia-based-huione-group-be-primary-money-laundering-concern.

[41] Id.

[42] Id.

[43] Press Release, U.S. Dep’t of the Treasury, FinCEN, Treasury Issues Historic Orders under Powerful New Authority to Counter Fentanyl (Jun. 25, 2025), https://home.treasury.gov/news/press-releases/sb0179.

[44] Id.

[45] Id. To see more about these orders, please review the Gibson Dunn client alert.

[46] Press Release, Nevada Gaming Control Board (May 15, 2025), https://gaming.nv.gov/uploadedFiles/gamingnvgov/content/Home/Features/News%20Release%20-%20NGCB-Wynn%20LV%20(15May2025).pdf.

[47] Id.

[48] Id.

[49] Press Release (July 9, 2025), https://www.dfs.ny.gov/reports_and_publications/press_releases/pr20250709; https://www.dfs.ny.gov/system/files/documents/2025/07/ea20250709-co-mse-wise-us-inc.pdf (Consent Order).

The following Gibson Dunn lawyers assisted in preparing this update: Stephanie Brooker, M. Kendall Day, Ella Alves Capone, Sam Raymond, and Rachel Jackson.

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

Anti-Money Laundering / Financial Institutions:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@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)

White Collar Defense and 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)

Global Fintech and Digital Assets:
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)
Sara K. Weed – Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

Global Financial Regulatory:
William R. Hallatt – Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)
Michelle M. Kirschner – London (:+44 20 7071 4212, mkirschner@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

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

Partner David Woodcock delivered opening remarks at a symposium hosted by the Texas A&M University School of Law, on the topic of the Texas Business Court and the future of corporate governance.

In his remarks, covered by the Journal of Law & Civil Governance at Texas A&M, David discussed the latest developments in Texas’s corporate regulatory environment and how the creation of the Texas Business Court could further enhance the state’s appeal to business and innovation.

Partner Samuel Ogunlaja and associates Vlad Zinovyev and Andrea Calla examine the latest trends and developments in petroleum-related activities in the United Arab Emirates (UAE) in an updated version of their article for Chambers and Partners guide, Oil, Gas, and the Transition to Renewables.

The article, the first version of which was published in 2024, explores the most recent developments in domestic and international upstream assets, key downstream projects, and the broader energy transition. It also assesses changes in the debt and equity capital markets, as well as the impact of political events on the UAE’s upstream sector.

The team further highlights the UAE’s drive to become a “Green Falcon Economy,” its expanding investments in international oil and gas companies, and the transformative role of AI in shaping the country’s energy landscape.

From the Derivatives Practice Group: This week, the President’s Working Group on Digital Asset Markets released a multi-agency report on recommendations to strengthen American leadership in digital financial technology.

New Developments

New Developments Outside the U.S.

ESAs Publish Guide on DORA Oversight Activities. On July 15, the European Supervisory Authorities (“ESAs”) published a guide on oversight activities under the Digital Operational Resilience Act (“DORA”). The aim of this guide is to provide an overview of the processes used by the ESAs through the Joint Examination Teams to oversee critical Information and communication technology third party service providers (“CTPPs”). This guide provides high-level explanations to external stakeholders regarding the CTPP Oversight framework. Furthermore, it provides an overview of the governance structure, the oversight processes, the founding principles and the tools available to the overseers.

New Industry-Led Developments

ISDA Launches Notices Hub and Protocol to Streamline Delivery and Receipt of Critical Notices. On July 17, ISDA launched the ISDA Notices Hub and the ISDA 2025 Notices Hub Protocol, giving users a faster and more efficient method for delivering critical notices and reducing the uncertainty and risk of losses that can result from delays. The ISDA Notices Hub is a secure online platform provided by S&P Global Market Intelligence that enables fast delivery and receipt of termination notices and waivers and ensures address details for physical delivery are updated centrally.

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)

*Alice Wang, an associate in the firm’s Washington, D.C. office, is not admitted to practice law.

Gibson Dunn is pleased to announce its DOJ Data Security Program Task Force—a cross-disciplinary team designed to help clients understand and comply with the U.S. Department of Justice’s (DOJ) new regulatory framework: the Data Security Program (DSP). Under rules issued by the DOJ’s National Security Division (NSD), this framework restricts access to bulk U.S. sensitive personal data and U.S. government-related data and affects a broad range of U.S. businesses—particularly those that collect, process, transfer, or grant access to such data through relationships with foreign vendors, investors, partners, or service providers.

The Task Force brings together seasoned lawyers from Gibson Dunn’s market-leading National Security, White Collar Defense and Investigations, Cybersecurity, International Trade, and Corporate Governance Practice Groups. This integrated team offers clients comprehensive, practical counsel on how to identify, assess, and manage potential legal obligations and compliance risks under the DSP.

“As the federal government sharpens its focus on the protection of sensitive personal and government data, companies must be prepared to meet new and evolving compliance obligations,” said Vivek Mohan, a Task Force member who Co-Chairs the Artificial Intelligence Practice Group and is a member of the Privacy, Cybersecurity, and Data Innovation Practice Group. “At its core, the DSP reflects a new paradigm for regulating access to data under U.S. law—subjecting globally integrated companies to U.S. national security scrutiny and exposing businesses to potential civil or criminal penalties if risks are not properly assessed and managed. Our Task Force is uniquely positioned to provide strategic, actionable guidance that addresses these challenges while aligning with overlapping obligations under domestic and international privacy, security, and trade frameworks.”

Stephenie Gosnell Handler, a Task Force member and Partner in the International Trade and Privacy, Cybersecurity, and Data Innovation Practice Groups, added: “The DOJ’s new Sensitive Data Regulations create a complex, high-stakes compliance environment for businesses that handle large volumes of personal data or work with the U.S. government. These rules are a regulatory chimera—adapting concepts from export controls, CFIUS, sanctions, cybersecurity, and data protection laws in a manner intended to achieve national security objectives and carrying significant enforcement implications. Our Data Security Program Task Force is designed to help clients cut through that complexity. We bring together regulatory depth, investigative insight, and real-world experience to help companies build durable, defensible compliance strategies that align with DOJ expectations and global data regimes.”

Gibson Dunn’s Data Security Program Task Force includes former senior government officials, former in-house legal department leaders, and experienced white collar defense counsel. The team is equipped to advise on:

Assessing exposure to DOJ data security regulations;
Implementing compliance frameworks and policies aligned with DOJ expectations;
Managing competing obligations under U.S. and international data protection regimes;
Advising senior leadership on their oversight and management responsibilities;
Responding to DOJ inquiries and enforcement actions; and
Demonstrating proactive compliance posture to regulators and stakeholders.

DOJ DATA SECURITY PROGRAM TASK FORCE:

The Task Force underscores Gibson Dunn’s ongoing commitment to helping clients navigate complex legal environments with forward-thinking, multidisciplinary solutions. For more information, please visit DOJ Data Security Program Task Force, or feel free to contact any member of the team:

David P. Burns – Washington, D.C.
(+1 202.887.3786, dburns@gibsondunn.com):
David is a litigation partner and co-chair of the firm’s National Security Practice Group, and a member of the White Collar and Investigations and Crisis Management practice groups. His practice focuses on white-collar criminal defense, internal investigations, national security, and regulatory enforcement matters. David represents corporations and executives in federal, state, and regulatory investigations involving securities and commodities fraud, sanctions and export controls, theft of trade secrets and economic espionage, the Foreign Agents Registration Act, accounting fraud, the Foreign Corrupt Practices Act, international and domestic cartel enforcement, health care fraud, government contracting fraud, and the False Claims Act.

Mellissa Campbell Duru – Washington, D.C.
(+1 202.955.8204, mduru@gibsondunn.com):
Mellissa is a corporate partner and a member of the firm’s Securities Regulation and Corporate Governance Practice Group. Prior to joining Gibson Dunn, Mellissa served as Deputy Director of the Division of Corporation Finance’s Legal Regulatory Policy group at the U.S. Securities and Exchange Commission (SEC). As Deputy Director, Mellissa oversaw transactional filings, rules, interpretative guidance, and exemptive and no-action relief requests within the Division of Corporation Finance’s Office of Mergers & Acquisitions, Office of International Corporation Finance, Office of Small Business Policy, Office of Rulemaking, and Office of Structured Finance.

Melissa Farrar – Washington, D.C.
(+1 202.887.3579, mfarrar@gibsondunn.com):
Melissa is a partner and member of the firm’s White Collar Defense and Investigations Practice Group. Melissa represents and advises multinational corporations in internal and government investigations on a wide range of topics, including the U.S. Foreign Corrupt Practices Act, the False Claims Act, anti-money laundering, export controls compliance, and accounting and securities fraud, including defending U.S. and global companies in civil and criminal investigations pursued by the DOJ and the SEC. Melissa also routinely counsels corporations on the design and implementation of their corporate ethics and compliance programs. She frequently leads corporate compliance program assessments and has experience in all areas of corporate compliance, including policy and procedure and code of conduct development, program governance and structure design, risk assessment planning and implementation, and the conduct of internal investigations, among others.

Stephenie Gosnell Handler – Washington, D.C.
(+1 202.955.8510, shandler@gibsondunn.com):
Stephenie is a partner and member of the International Trade and Privacy, Cybersecurity, and Data Innovation practices. She advises clients on complex legal, regulatory, and compliance issues relating to international trade, cybersecurity, and technology matters. Stephenie ’s legal advice is deeply informed by her operational cybersecurity and in-house legal experience at McKinsey & Company, and also by her active duty service in the U.S. Marine Corps. Stephenie returned to Gibson Dunn as a partner after serving as Director of Cybersecurity Strategy and Digital Acceleration at McKinsey & Company, where she led development of the firm’s cybersecurity strategy and advised senior leadership on public policy and geopolitical trends relating to cybersecurity, technology, and data.

Vivek Mohan – Palo Alto
(+1 650.849.5345, vmohan@gibsondunn.com):
Vivek is a partner and Co-Chair of the top-ranked Artificial Intelligence practice and a core member of the Privacy, Cybersecurity and Data Innovation practice. Vivek advises clients on legal, regulatory, compliance, and policy issues on a global scale with a focus on cutting-edge technology issues. His practice spans counseling, regulatory response, incident response, advocacy, and transactional matters, allowing him to provide clients with strategic advice whether they are developing a new product or service, responding to a regulatory inquiry, setting up a privacy program, responding to a data breach, or negotiating a complex agreement. Vivek previously worked at Apple Inc., where he was head of information security law and a leader of the company’s global privacy law & policy team and was responsible for privacy and security legal issues associated with the company’s products, services, and corporate infrastructure.

F. Joseph Warin – Washington, D.C.
(+1 202.887.3609, fwarin@gibsondunn.com):
F. Joseph Warin is chair of the 250-person Litigation Department in Washington, D.C. and co-chair of the firm’s global White Collar Defense and Investigations Practice Group. Mr. Warin’s practice includes representation of corporations in complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. Mr. Warin has handled cases and investigations in more than 40 states and dozens of countries involving federal regulatory inquiries, criminal investigations, and cross-border inquiries by dozens of international enforcers. He is the only person ever to serve as a compliance monitor or counsel to the compliance monitor in three separate FCPA monitorships, pursuant to settlements with the SEC and DOJ.

Contributing Associates:

Christine A. Budasoff – Washington, D.C. (+1 202.955.8654, cbudasoff@gibsondunn.com)

Kyle D. Clendenon – Houston (+1 346.718.6641, kclendenon@gibsondunn.com)

Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)

Amanda Estep – Palo Alto (+1 650.849.5241, aestep@gibsondunn.com)

Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)

Writing for Compliance & Enforcement, partners Jeffrey Steiner, Jason Cabral, Rosemary Spaziani, and Sara Weed examine the provisions and implications of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), signed into law on July 18, 2025.

The GENIUS Act establishes a comprehensive framework for the U.S. approach to digital assets and related activities.

Their article discusses the Act’s framework to become a permitted stablecoin issuers, the dual-licensing framework, including the potential impact on state law pre-emption, restrictions on permitted stablecoin features, and answers other key questions the Act.