Update: Federal Judge Reinstates National Labor Relations Board (NLRB) Member (US)
President Donald Trump’s removal of Gwynne Wilcox, a Biden-appointed NLRB Member (which we discussed in a prior post), has been reversed by a federal judge. On March 6, 2025, U.S. District Court Judge Beryl Howell held that the President does not have the authority to terminate NLRB Members at will, and thus President Trump’s removal of Member Wilcox violated the law. Member Wilcox’s removal had caused the NLRB to lose a quorum of three Members, meaning that since January 28, 2025, the NLRB had been without the authority to decide cases. With her status restored, that authority also has now been restored.
That said, Member Wilcox’s status as a Board member is likely far from decided. The Trump Administration is likely to appeal the decision and may request a stay. And the legal battle over presidential authority appears to be ultimately destined for the United States Supreme Court.
We expect and will track additional changes at the NLRB under the Trump Administration.
If You Wanted Heat, You Should Have Put It In The Lease
A D.C. hospital operator’s effort to get its HVAC system upgraded has backfired in nightmarish fashion for the operator.
Hospital operator DCA leased its Northeast D.C. premises from Capitol Hill Group starting in late 2014.
Shortly before the lease was signed, Capitol Hill Group had broken off a portion of the building as a residential property and decoupled the existing HVAC system, which involved installing HVAC components in the remaining hospital premises. The DCA lease acknowledged that Capitol Hill Group “has installed a new HVAC system within the [b]uilding.”
Upon occupying the premises, DCA came to believe that this “new HVAC system” did not adequately heat, cool, and ventilate the hospital. The alleged inadequacy related to the fact that Capitol Hill Group had installed only new boilers, chillers, and pumps, not new distribution components (i.e., air handlers and fan-coil units).
After fruitlessly complaining to Capitol Hill Group about the alleged inadequacy of the HVAC system, DCA began to withhold rent payments over the issue (and other issues not relevant here). This led to litigation, initially filed by Capitol Hill Group to recover the unpaid rent.
The lawsuit turned on whether the lease required Capitol Hill Group to install new distribution components as part of the “new HVAC system.” The courts – ultimately including the D.C. Court of Appeals, in an opinion decided March 6, 2025 – concluded that the lease did not require new distribution components. This holding was based on, among other things, the fact that the “new HVAC system” statement in the lease simply acknowledged what was already in place. Both parties knew what that was – and it did not include new distribution components. And nothing in the lease entitled DCA to something more.
Perhaps the worst part of the result for DCA is that it must pay $2.7 million in attorney fees to Capitol Hill Group as the prevailing party in the case.
So in the end – DCA is operating with (so it says) an inadequate HVAC system; is out of pocket for its expenses relating to the alleged inadequacy of the system; must pay late fees and interest on the rent it withheld over the HVAC issue; had to pay its lawyers to handle a lengthy lawsuit over these issues; and now must pay the fees of its landlord’s lawyers, as well.
All of which could have been avoided had DCA not signed a lease containing no assurances about HVAC distribution components or, indeed, the adequate functioning of the HVAC system in general.
If you need it, put it in the lease. And, if you don’t put it in the lease – think twice before playing hardball to get it.
BREAKING: District Court Restores Status Quo Ante At NLRB
On March 6, 2025, a D.C. federal judge reinstated former National Labor Relations Board (“NLRB” or “Board”) Member Gwynne A. Wilcox, restoring the Board to a quorum, which under the National Labor Relations Act (“NLRA” or the “Act”) requires at least three members. See New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010).
In doing so, Judge Beryl Howell found that President Trump violated Section 3(a) of the Act, which stipulates that, “Any member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” 29 U.S.C. 153(a).
Wilcox was fired by President Trump on January 27, 2025, prior to which no president had ever terminated a Board member before the end of their five-year term, as we reported here. Wilcox now returns to the Board alongside Chair Marvin E. Kaplan and Member David M. Prouty.
The Trump administration will likely appeal Wilcox’s reinstatement based on oral arguments, where it indicated that it views Section 3(a)’s removal protections as conflicting with Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. 197 (2020) and Humphrey’s Executor v. United States, 295 U.S. 602 (1935), the 90-year-old Supreme Court precedent affirming Congress’ power to limit the president’s ability to remove officers of independent administrative agencies created by legislation, as we reported here.
During oral arguments, the Trump administration argued that the Act’s removal protections are unconstitutional under Article II, which requires that the president “shall take Care that the Laws be faithfully executed,” meaning the president cannot be prohibited from hiring and firing certain administrative officials, such as Board members, at will. Judge Howell spent much of her time during oral arguments asking both parties for their interpretations of Humphrey’s Executor, which was reflected in her decision’s focus on the case.
Employers have made similar arguments that the Act’s removal protections for members (and administrative law judges [“ALJs”]) are unconstitutional, as we reported here, here, and here.
In the short term, now that the Board has regained a quorum, it can resume ruling on pending appeals from ALJ decisions and address requests for review regarding, for example, regional director decisions on union elections.
However, in the long term, the Trump administration will likely appeal this decision to the Supreme Court and seek to use it as a vehicle to overturn Humphrey’s Executor.
Navigating the Changing Landscape of Corporate Transparency Act Compliance
Both the U.S. Department of the Treasury and FinCEN, a bureau within the Treasury Department, have issued statements, which, taken together, indicate a significant reduction in the enforcement of the Corporate Transparency Act (CTA) beneficial ownership information (BOI) reporting requirements against U.S. citizens and domestic reporting companies. Specifically, the Treasury Department has indicated its intent to narrow, via forthcoming rule changes, the scope of the BOI reporting requirements to foreign reporting companies only and to halt any penalties or fines against U.S. citizens and domestic reporting companies following implementation of these rule changes.
The Treasury Department has yet to issue the proposed rulemaking reflecting these changes to the scope of BOI reporting requirements, and it will be important to see the proposed rulemaking to better understand how the Treasury Department and FinCEN plan to effect these changes. Items to look out for in any proposed rulemaking include:
Whether U.S. citizens who are beneficial owners of foreign reporting companies will need to comply with BOI reporting efforts of foreign reporting companies.
Whether domestic reporting companies with foreign beneficial owners will be subject to any BOI reporting requirements.
How the language regarding ending enforcement of penalties and fines against U.S. citizens and domestic reporting companies for non-compliance is worded (i.e., eliminating altogether enforcement against all U.S. citizens and domestic reporting companies or a general, discretionary pause by FinCEN).
In addition, the validity or legality of any proposed rulemaking regarding the narrowed scope of the CTA may be challenged in the courts. And, as noted in our previous alert, there are still a number of court cases pending, and Congress is also considering bills that would affect the CTA. Accordingly, this is unlikely to be the last update in the CTA enforcement saga.
The U.S. Department of the Treasury issued the following release regarding enforcement of the CTA:
Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies
The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
In addition, FinCEN issued the following release regarding enforcement of the CTA:
FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines
WASHINGTON––Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.
No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.
FinCEN also intends to solicit public comment on potential revisions to existing BOI reporting requirements. FinCEN will consider those comments as part of a notice of proposed rulemaking anticipated to be issued later this year to minimize burden on small businesses while ensuring that BOI is highly useful to important national security, intelligence, and law enforcement activities, as well to determine what, if any, modifications to the deadlines referenced here should be considered.
The EU’s Omnibus Package: A Step Back on Sustainability?
We reported in previous blog posts (here and here) on the European Commission’s Green Deal initiatives and their impact on companies doing business in Europe as well as the significant recent headwind against these instruments.
On Wednesday, 26 February 2025, the European Commission (the “Commission”) published the first set of proposals – the omnibus package, which includes considerable simplification in the areas of sustainable finance disclosure, sustainability due diligence, the European Union (EU) taxonomy, the border carbon adjustment mechanism and European investment programs.
The Commission aims to reduce complexity of EU requirements for all businesses, in particular SMEs and small mid-caps (SMCs, i.e. companies with not more than 500 employees) while focusing on larger companies with potential bigger impact on climate. This article focuses on the changes affecting the Directive (EU) 2022/2464 on corporate sustainability (“CSRD”) and the Directive (EU) 2024/1760 on corporate sustainability due diligence (“CS3D”).
The relevant draft directives can be found here and here.
Background to the original CSRD and CS3D
The CSRD, which entered into force on 5 January 2023, with a deadline for implementation into national laws on 6 July 2024, is a legislative measure introduced by the EU to improve the quality, consistency and comparability of sustainability information provided by companies. The CSRD requires some companies, based on their size, to report sustainability information. For details, please see our previous article here.
The CS3D, which entered into force on 25 July 2024 with a deadline for implementation on 26 July 2026, aims to foster sustainable and responsible corporate behaviour in companies’ operations and across their global value chains. As we reported, the French authorities published a memorandum on 20 January 2025 urging the EU to modify the CSRD and the CS3D, which they consider not to be aligned with the competitiveness challenges EU companies are facing. For details, please see our previous article here.
With its omnibus package, the European Commission is now proposing to address some of the criticisms raised against the existing directives.
The proposed changes to the CSRD
The current CSRD requires EU large undertakings, as well as EU and non-EU listed companies (excluding micro-undertakings) to report sustainability information. Moreover, in some cases, non-EU undertakings are targeted and their EU subsidiary or branch have to make available the sustainability report.
The initial timeframe for applying the CSRD differs depending on the type of undertaking: financial year (“FY”) 2024 for large undertakings which are public interest entities with more than 500 employees; FY 2025 for other large undertakings; FY 2026 for listed SMEs; and FY 2028 for non-EU undertakings with net EU turnover above EUR 150 million (through their subsidiary or branch).
The Commission now proposes to increase the threshold and require EU large undertakings with more than 1,000 employees to comply with the reporting obligations starting with FY 2027, and non-EU undertakings with net turnover above EUR 450 million starting with FY 2028.
It is also proposed to simplify and streamline the European Sustainability Reporting Standards (“ESRS”) through a Delegated Act by reducing mandatory datapoints, prioritizing quantitative data, distinguishing between mandatory and voluntary datapoints, ensuring global compatibility, and improving clarity and consistency with EU laws. Under the proposal, the Commission will no longer be able to adopt sector-specific standards and to propose the option to convert a limited assurance requirement to a reasonable assurance requirement.
The new proposed reporting obligations and timelines can be summarized as follows:
Existing Categories of Companies
Existing Timeframes
New Proposed Categories
New Proposed Timeframes
Large public interest (“PIE”) companies and parent companies of a large group exceeding at least two of the following three thresholds: > 500 employees > EUR 50 million turnover > EUR 25 million balance sheet
In 2025 for FY 2024
Large undertakings with more than 1,000 employees and exceeding one of the following thresholds: > EUR 50 million turnover > EUR 25 million balance sheet
In 2028 for FY 2027
Other large EU undertakings
In 2026 for FY 2025
Listed SMEs
In 2027 for FY 2026
Deleted
Deleted
Non-EU undertakings with: > EUR 150 million turnover ; and at least 1 subsidiary in the EU that is itself covered by the CSRD or a branch in the EU that generated a net turnover of EUR 40 million
In 2029 for FY 2028
Non-EU undertakings with: > EUR 450 million turnover ; and at least one large EU subsidiary or a branch in the EU that generated a net turnover of EUR 50 million
In 2029 for FY 2028
While exempt, companies can opt for voluntary reporting based on the voluntary standards for SMEs (“VSME Standard”) developed by European Financial Reporting Advisory Group (“EFRAG”). This standard is proportionate to their size and capacity, focusing on providing essential sustainability information without the complexities required of larger companies.
The proposed changes to the CS3D
The current CS3D applies to EU limited liability companies and partnerships with more than 1,000 employees and a net worldwide turnover of more than EUR 450 million, as well as ultimate parent companies of a corporate group that meet these thresholds on a consolidated basis, and franchisors/licensors meeting certain conditions and thresholds. The CS3D also applies to non-EU undertakings of a legal form comparable to LLCs/partnerships with a net turnover of more than EUR 450 million generated in the EU, as well as ultimate parent companies of a corporate group that meets the threshold on a consolidated basis, and franchisors/licensors meeting certain conditions and thresholds.
The current timeframe for applying the CS3D differs depending on the type of undertaking: July 2027 for EU companies with more than 5,000 employees and EUR 1,500 million worldwide turnover, as well as non-EU companies with more than EUR 1,500 million turnover generated in the EU; July 2028 for EU companies with more than 3,000 employees and EUR 900 million worldwide turnover, as well as non-EU companies with more than EUR 900 million turnover generated in the EU; and July 2029 for all other companies in scope.
The Commission proposes to extend the transposition deadline of the Directive into national law by one year to 26 July 2027 with the first phase of application for the largest companies postponed to 26 July 2028 (instead of July 2027). The omnibus package proposes new turnover and employee thresholds and changes to the dates when reporting is required under the CR3D. The below table summarises the existing and proposed new rules:
Current CS3D
Omnibus changes
Categories
When
Categories
When
EU companies > 5,000 employees > EUR 1,5 billion worldwide turnover
From 26 July 2027
EU companies > 3,000 employees > EUR 900 million worldwide turnover
From 26 July 2028
EU companies > 3000 employees > EUR 900 million worldwide turnover
From 26 July 2028
Non-EU companies > EUR 1,5 billion worldwide turnover
From 26 July 2027
Non-EU companies > EUR 900 million worldwide turnover
From 26 July 2028
Non-EU companies > EUR 900 million worldwide turnover
From 26 July 2028
Deleted
Deleted
EU undertakings >1000 employees and EUR 450 million net worldwide turnoverNon-EU undertakings >450 million net worldwide turnover
From 26 July 2029
No change: From 26 July 2029
No change: From 26 July 2029
The Commission announced it would issue guidelines by July 2026, to help companies adapt and rely more on best practices rather than extensive legal and advisory services.
Substantive changes to the CS3D include the following elements:
due diligence efforts are primarily directed at direct business partners, rather than the entire supply chain
companies are required to conduct in-depth assessments only when there is plausible information suggesting potential or actual adverse impacts at the level of indirect partners;
the obligations concerning indirect business partners are limited to cases of circumvention or when there is credible information about likely or actual adverse impacts
the frequency of mandatory monitoring exercises is reduced, alleviating the administrative burden on companies
regular monitoring is required every five years, with additional assessments triggered by significant changes or new risks
companies are required to engage only with relevant stakeholders, focusing on those directly affected by their operations
the trickle-down effect is reduced by the limitation of information that in-scope undertakings can request from their SME and SMCs business partners to the information specified in the VSME Standard, unless in-scope undertakings require additional information to complete the mapping (e.g. on impacts not covered by the standards) and they cannot obtain this information in any other reasonable way.
Outlook and next steps
For the Omnibus Package to become law, it requires approval from both the European Parliament and a majority of EU member states in the European Council. Once law, directives would then have to be transposed into national laws. Until then, existing national laws remain in effect.
It is too early to predict a clear outcome, as significant criticism has been raised against the Omnibus Package from different parts of the EU suggesting that easing sustainability reporting rules could undermine long-term green growth and corporate accountability and impact on human rights and environmental protections.
However, given that key EU member states are in favour of the Omnibus Package and the drive to increase competitiveness, the weight of the Draghi Report and the fact the EC has asked for the legislative process to be fast-tracked, we would expect that a lot of the proposed changes will become EU law likely in months, not years.
Some EU countries may well decide to further goldplate their national laws to address some of the raised criticisms, which would risk a divergence of approach to reporting standards on a national level. This would be an unfortunate outcome and make the monitoring of reporting obligations burdensome.
Navigating Disclosure Options for Private Placements: What Issuers Need to Know
When a company is thinking about launching a private securities offering, one of the first questions that arises is what disclosures are required to be provided by the company to investors. The answer to this question can depend on a number of factors, including 1) the number and type of investors the company is soliciting for the offering, 2) the risk tolerance of the company, 3) the company’s budget for the capital raise, and 4) the size of the offering. This article explains the disclosure options available to companies for private placements and key factors management needs to know when deciding which option is best for them.
Securities Law Requirements for Private Placements
State and federal securities laws require issuers to provide investors with full, fair, and complete disclosure of all “material” facts about the offering and the issuer, its management, business, operations, and finances. Information is deemed to be material if a reasonable investor would consider the information important in making an investment decision. While materiality is a difficult concept to define precisely, at a minimum, a fact is “material” if you do not want to disclose the information because if the investors know about it, they would not buy the securities. Facts that are disclosed must be developed fully.
Even though a securities offering may not be required to be registered with the SEC, the issuer and its control persons must comply with state and federal anti-fraud provisions. The federal anti-fraud provisions arise primarily from the well-known Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 as well as the lesser-known Section 12(a)(2) of the Securities Act of 1933. Failure to comply with these provisions can result in civil liabilities (i.e., money damages) and, in some instances, criminal liability. The liability can be personal as to the issuer company and its officers, directors, managers, principal equity-holders, promoters, and others associated with the offering. These anti-fraud provisions collectively prohibit any person in connection with the purchase or sale of any security from misrepresenting or omitting a material fact or engaging in any act or practice that constitutes a “fraud” or deceit upon any other person.
Fraud, for securities law purposes, is a much broader concept than it first appears – it includes omissions in disclosure (sometimes even unintentional ones) rather than just deliberate misrepresentations. Therefore, regardless of whether an issuer intends to defraud an investor, should the issuer and its management and principals fail to disclose a material fact, the issuer, as well as its management, promoters, and control persons, may be liable.
If the securities will only be sold to accredited investors under Regulation D of the Securities Act, there are no absolute disclosures that the SEC requires issuers to make in writing to investors. The rationale is that accredited investors are deemed to be sophisticated enough to know the right questions to ask and presumably have the economic leverage to obtain such information. If the issuer is offering and selling securities to non-accredited investors, the issuer may be required to provide certain specific written disclosures that contain substantially the same information as disclosure statements from companies that are registering their securities offerings with the SEC, including audited financial statements. To satisfy these disclosure requirements and comply with the anti-fraud provisions of the securities laws, a disclosure document in the form of a Private Placement Memorandum (PPM) or Offering Memorandum is usually prepared that would resemble a prospectus for an initial public offering.
That said, many issuers do not want to go through the time, effort, and cost of producing a PPM for their offering, either because they feel they need to get to market quickly for the offering and they have investors waiting to contribute capital, or the offering amount is low enough where the client does not perceive the utility in preparing and distributing a PPM. In this case, there are other disclosure options available to clients providing varying levels of protection from securities law liability. Following is a summary of the disclosure options available to an issuer for a private securities offering, depending on how much legal protection the issuer wants and how much money and effort the client wants to expend in producing disclosures for investors. These options are presented based on a “continuum” of legal protection, starting with the least protective and moving up to the most protective, which is a PPM.
Continuum of Disclosure Options
No Disclosures and No Subscription Agreement – Under this option, the issuer provides no written disclosures of any nature to investors. The investors sign the operating agreement, partnership agreement, or similar organizational document of the issuing company and make their capital contributions. This provides no legal protection to the issuer or its control persons for securities fraud liability.
Subscription Agreement – The issuer prepares a subscription agreement containing the principal terms of the purchase and sale of the securities, and various reps and warranties from the investor, including a representation that the investor has been given a full opportunity to ask questions and receive materials from the issuer regarding the company and the offering. No separate disclosure document is provided to investors. This option provides little legal protection to the issuer and its control persons, but more protection than providing no disclosures or subscription documents.
Subscription Document Package – The issuer prepares a short disclosure document containing summary descriptions of the offering, company, use of proceeds, capitalization, and rights of the offered securities, along with risk factors. A full subscription agreement and confidential purchaser questionnaire is attached to the disclosure document to establish the investor’s suitability to invest in the offering. This option provides greater legal protection to the issuer and its control persons than the first two options above.
Stock/Securities Purchase Agreement w/ Full Due Diligence Opportunity – The issuer does not provide a disclosure document to the investors, but rather prepares and enters into a detailed stock/securities purchase agreement with the investor(s) with detailed reps and warranties regarding the investor’s investment intent, suitability, accredited investor status, and other matters. The issuer also opens up a data room and provides the investor(s) with a full due diligence opportunity to review company documentation, have meetings with the company’s board and executive officers, and receive full answers to questions. This option is frequently used by more sophisticated private equity and venture capital investors who are confident in their own due diligence processes and would rather rely on those processes to determine whether to invest, rather than receiving a disclosure document that may not provide them what they desire to know about the company and its business. This option provides a high level of legal protection to the issuer and its control persons.
Full PPM – The issuer prepares and distributes a full, detailed PPM to prospective investors providing fulsome disclosures regarding the offering, the company’s business, management, capitalization, organizational documents, risk factors, competitors, and other disclosures. This option provides the highest level of legal protection to the issuer and its control persons.
Many times, deciding the best disclosure option for a company can mean the difference between a successful and unsuccessful private offering. Any company considering launching a private offering should evaluate its options carefully and seek the assistance of experienced counsel.
Unfair Competition Defense- Episode 16: An Increased Interest in Credit Card Surcharges [Podcast]
In this episode, Greenberg Traurig shareholder Ed Chansky joins Greg Nylen to explore the evolving landscape of credit card surcharges in the U.S. From state-level quirks and disclosure requirements to recent regulatory developments, this episode delves into the legal complexities surrounding merchants’ ability to pass credit card processing fees onto consumers.
Greenberg Traurig’s Unfair Competition Defense Podcast focuses on consumer protection statutes at the state and federal levels. Claims under these laws frequently are brought as proposed consumer class action litigation across many different industries. Each episode addresses key principles under these laws, new developments and, most importantly, defense strategies.
What Every Multinational Company (Doing Business in Mexico) Should Know About … Mitigating Risks From ATA Scrutiny in a New Enforcement Regime
Mexican cartels dominate large swaths of the Mexico-United States border and the Bajío region (an area encompassing relevant parts of Queretaro, Guanajuato, Aguascalientes, San Luis Potosí, Jalisco, and Michoacán), and they control significant economic segments/activities in these territories. These are the same areas in which multinational companies maintain significant manufacturing operations.
In an Executive Order issued on January 20, 2025[1], the White House announced a shift toward increased enforcement of the Immigration and Nationality Act (INA) and International Emergency Economic Powers Act (IEEPA), which are key statutes in the United States’ fight against terrorism. Though these statutes are not new, the Trump Administration plans to broaden U.S. enforcement activity to cartels and transnational criminal organizations (TCOs) by allowing for the designation of cartels or TCOs as Foreign Terrorist Organizations and/or Specially Designated Global Terrorists. This new focus of enforcement resources, along with the expansive inclusion of cartels or TCOs within the purview of the INA and IEEPA, creates a heightened risk for multinational companies doing business in Mexico and other areas where cartels operate, as the companies can be perceived as — and then prosecuted for — engaging in terrorism or aiding terrorists, as explained below.
Under the INA, the Secretary of State can designate groups as Foreign Terrorist Organizations (FTOs)[2] based on an assessment of the State Department’s Bureau of Counterterrorism regarding the group’s terrorist activity. Once a group has received an FTO designation, multinationals subject to U.S. jurisdiction — which is interpreted very broadly by U.S. regulators — may face strict criminal and civil penalties under 18 U.S.C. § 2339B (the Antiterrorism Act or ATA) if they knowingly provide, or attempt or conspire to provide, “material support or resources” to the FTO.[3]
The State Department currently designates more than 60 organizations as FTOs. Trump’s January 20, 2025, Executive Order directs the State Department to scrutinize drug cartels — especially Mexico-based drug cartels and two cartels mentioned by name, Tren de Aragua (TdA) and La Mara Salvatrucha (MS-13) — for designation as FTOs. Since the order, Secretary of State Marco Rubio already has designated eight cartels as FTOs, most of which have operations in Mexico. We anticipate this number will sharply rise as the administration works together with OFAC to identify additional cartels and TCOs. This raises a number of concerns for companies that operate in areas known to have cartel or TCO activities, because the following types of regularly conducted business activities may be viewed through the lens of providing material support or resources to an FTO:
Making payments to secure employee safety or the ongoing operation of a physical plant;
Engaging in business dealings with local companies that themselves are in business with cartels or that are making such payments; and
Recording payments to said local companies or to cartels in the books and records of publicly traded companies.
The expansion of enforcement scrutiny also may expand the types of risks facing companies, including:
Combined OFAC and DOJ investigations of conduct that potentially violates both the INA and OFAC regulations;
Matters that formerly would have been dealt with as civil matters by OFAC can become criminal matters pursued by DOJ;
New designations can be combined with anti-money laundering laws to expand the potential violations of U.S. laws; and
The expansion of the reach of OFAC designations to non-U.S. companies, since the material support statute has extraterritorial effect.
The January 20 Executive Order also heightens the risk of private civil litigation for multinationals doing business in Mexico. The ATA creates a civil remedy for U.S. national victims and their estates or heirs against defendants alleged to have caused an “injury arising from an act of international terrorism committed, planned, or authorized by an organization that had been designated as a foreign terrorist organization under section 219 of the [INA]” where “liability may be asserted as to any person who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism” (emphasis added). Under the ATA, “[a]ny national of the United States injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” 18 U.S.C. § 2333(a). The line of culpability under this section remains unsettled, as lower courts attempt to apply recent Supreme Court precedent regarding the “knowing” provision of “substantial assistance” to FTOs.[4] But the designation of cartels and TCOs as FTOs exposes companies that operate in countries with heightened cartel activity to litigation under the ATA.
For several years, Mexican cartels have shifted revenue sources from drug smuggling into the United States to racketeering in Mexico. The latter typically consists of Mexican cartels extorting regular payments from small-to-medium-sized businesses, many of which provide goods or services to larger companies such as the multinationals operating in Mexico. In addition to direct extortion, cartels engage in behaviors such as forcing suppliers on companies that in turn do business with multinational companies, establishing “front” entities to provide miscellaneous services, selling protection against rival organizations, establishing prices for goods or services, and receiving payments for not carrying out threatened violence.
Multinational companies in Mexico are thus in constant risk of having indirect contacts with these cartel FTOs within their local supply chain and, even if they are unaware of such touch points, multinationals must guard against being seen as actively complicit or willfully blind if they fail to take reasonable precautions.
To safeguard against these risks, multinationals subject to U.S. jurisdiction that do business in Mexico should take precautions such as:
Conducting due diligence on all business counterparties, especially when onboarding new suppliers or other new business partners;
Updating due diligence and requiring certifications of compliance with the laws prohibiting conducting business activities with TCOs and FTOs;
Conducting routine OFAC and FTO screenings to assess the company’s risk profile with respect to potential touchpoints with cartels and TCOs;
Mapping supply chains, including for sub-suppliers, to confirm zero contact with cartel or TCO activities throughout the supply chain;
Based on risk assessments, following up and conducting audits to ensure the company’s supply chain is in compliance with the updated legal requirements;
Implementing and maintaining vendor management systems for payments to suppliers and other business partners;
Conducting financial audits on suppliers or other business partners to identify potential payments to cartels or TCOs;
Alerting suppliers or other business partners regarding their potential connections to cartels or TCOs and help monitor to avoid risk; and
Incorporating prohibitions on cartel and TCO connections, in addition to FTO restrictions, into agreements with third parties.
[1] “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” Executive Order (Jan. 20, 2025) available at https://www.whitehouse.gov/presidential-actions/2025/01/designating-cartels-and-other-organizations-as-foreign-terrorist-organizations-and-specially-designated-global-terrorists/.
[2] Though this article focuses on the FTO designation under the INA, the Specially Designated Global Terrorist designation under IEEPA creates a separate set of enforcement issues for multinationals, as well as additional sanctions under IEEPA for FTOs. IEEPA is the governing authority for most economic sanctions overseen by the Office of Foreign Assets Control (OFAC), which has long maintained robust restrictions on U.S. persons, or any other person subject to U.S. law, to the primary U.S. economic sanctions. OFAC has sanctioned numerous drug cartels, as well as companies and individuals, using its authorities under its Significant Narcotics Traffickers program pursuant to Executive Order 12978 and the Kingpin Act. Because OFAC uses an expansive definition of U.S. jurisdiction, restrictions under these designations include the activities of non-U.S. persons that take place on U.S. territory, use the U.S. financial system, or otherwise trigger U.S. jurisdiction. Proper compliance requires that any persons with a U.S. jurisdictional nexus take into account all the potential ways U.S. law can apply to them, including both the new emphasis on the INA/IEEPA and the longstanding OFAC regulations.
[3] 18 U.S.C. § 2339A defines “material support or resources” to include “any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel . . . and transportation, except medicine or religious materials.”
[4] See Twitter, Inc. v. Taamneh 598 U.S. 471 (2023).
What Every Multinational Company Should Know About … The Rising Risk of Customs False Claims Act Actions in the Trump Administration
On February 20, 2025, the Deputy Assistant Attorney General for the Commercial Litigation Branch at the U.S. Department of Justice (DOJ), Michael Granston, emphasized using the False Claims Act (FCA) to address U.S. Customs & Border Protection (Customs) violations at the Federal Bar Association’s annual qui tam conference. According to Granston, the Trump administration will seek to “aggressively” deploy the FCA as a “powerful” enforcement mechanism against importers that take steps to evade customs duties, including all the new tariffs being imposed by the Trump administration.
The application of the FCA for underpayments of customs tariffs is already a growing trend. The increased tariffs and attention will combine to increase the number of FCA actions targeting tariff underpayments and the potential amount of recoveries. The U.S. government has unparalleled access to detailed import data covering nearly all imports, giving it the ability to run algorithms to see discrepancies and anomalies that might indicate the underpayment of tariffs. The FCA also can be enforced by whistleblowers who file qui tam suits in the government’s name, in hopes of receiving a share of the recovery in successful cases. Taken together, these factors mean the scene is set for a vast expansion of the use of the FCA as a tool to combat tariff underpayments.
Against this scrutiny, importers should ensure they accurately determine and pay all tariffs, including the new Trump tariffs. The remainder of this article summarizes the heightened risks that the FCA poses in the Trump administration, as well as some practical steps companies can take to minimize the risk of an FCA action.
The Application of the False Claims Act to Customs Violations
The False Claims Act, 31 U.S.C. § 3729 et seq., is a special form of civil remedy used by the government to recover funds the government paid as a result of fraud — typically, a false statement or document that supports a demand for government monies. The FCA allows the government to recover treble damages plus penalties up to $28,619 for each violation. Thus, the FCA authorizes the government to seek not only any tariff underpayments but also three times the amount of the underpayment and penalties for each instance of underpayment. Needless to say, the FCA poses enormous financial risk to importers.
The statute also enables private individuals to act as whistleblowers (or “relators”) by filing qui tam actions on behalf of the government. If the action is successful, the relator can receive up to 30% of the money recovered in the litigation, plus attorney’s fees, with the rest going to the government. This potential for recovery has spawned an active plaintiffs bar that encourages the filing of qui tam actions.
Indeed, the 979 qui tam actions filed by relators in the fiscal year ending in September 2024 constituted a 37% increase over the prior year and a 60% increase over 2019 filings. In addition, the government also originated 423 investigations on its own — almost triple the number the government originated five years ago. Further, the government reported that it recovered almost $3 billion in settlements and judgments in 2024, which followed a nearly-as-high recovery of $2.8 billion recovered in 2023.
In his speech, Granston explained the FCA could be a powerful tool in recovering under-reported tariffs. With the Trump administration announcing a dizzying array of new tariffs, the amount of tariffs imposed — and the risk of FCA actions — are both certain to increase. The emphasis on tariffs and trade continued at the conference. Jamie Ann Yavelberg, director of the Fraud Section of the Civil Division, identified tariff evasion as a “key area” for enforcement, with a focus on false statements about country of origin, declared value of goods, and the number of goods involved.
The following are examples of the Department of Justice’s use of the FCA to address underpayment of customs duties and show the broad range of customs issues that can support an FCA action:
One importer paid almost $22.8 million to settle FCA allegations that it misclassified its vitamin products to avoid paying the full amount of customs duties due, as well as its failure to pay back duties owed after correcting certain misclassifications.
Another importer paid $22.2 million to settle FCA allegations that it misrepresented the nature, classification, and valuation of its imported construction products to evade antidumping and countervailing duties, as well as improperly claiming preferential treatment under free trade agreements, with the relator receiving $3.7 million.
A third importer paid $45 million to resolve allegations that it misrepresented the country of origin on goods that should have been declared to be of Chinese or Indian origin, thereby evading high antidumping and countervailing duties imposed on the entries from those countries.
A fourth importer paid $5.2 million for allegedly evading antidumping and other duties by falsely describing wooden bedroom furniture imported from China as “metal” or “non-bedroom” furniture on documents submitted to CBP while also manipulating images of their products in packing lists and invoices, directing their Chinese manufacturers to ship furniture in mislabeled boxes and falsifying invoices to try to evade detection.
Finally, another importer paid $4.3 million for allegedly failing to include assists (customer-provided production aids) in the declared value of its entries.
Key areas where FCA cases are most likely to arise include:
The misclassification of goods, to move them from a higher to a lower tariff classification.
The misclassification of goods, to move them out of the coverage of the new Trump tariffs such as those imposed on aluminum and steel derivative products.
Incorrectly declaring the wrong country of origin, to avoid the Section 301 tariffs imposed on China or on countries subject to the new tariff proclamations such as China, Canada, or Mexico.
Failing to pay antidumping or countervailing duties, which often have very high tariff rates.
Failing to accurately declare the correct value of goods.
Failing to include assists (production aids provided by the customer) or royalties within the declared value.
Failing to have a customs transfer pricing study in place, if this results in the undervaluation of goods imported from an affiliated company.
Failing to correct past entry information if Customs notifies the importer of a change that impacts the duty rate, such as by issuing a Form 28 Request for Information or Form 29 Notice of Action. When this occurs, Customs expects that importers will use the Post-Summary Corrections Process to correct all analogous prior entries and to pay back duties on those prior entries.
Another factor that increases FCA risk is that Customs maintains two additional whistleblower programs of its own — one under the Enforcement and Protect Act (EAPA), for reporting of antidumping and countervailing duty evasion, and an eAllegations portal for all other claims of tariff evasion. It remains to be seen whether the new administration will mine these sources for FCA enforcement purposes.
Practical Steps Importers Can Take to Minimize Potential FCA Actions
Given the likelihood of increased enforcement, as well as the sharply rising levels and types of tariffs, importers should prioritize customs compliance, as any underpayments raise the specter not only of customs penalties but also potential FCA damages and penalties.
Customs-Related Steps
In a high-tariff environment, the stakes for compliance miscues are substantial and include potential penalties and interest for underpayments as well as FCA risks. Some key areas to consider for ongoing customs compliance include the following:
Inaccurate classifications can result in incorrect duties or penalties, so confirm your company has procedures to correctly classify goods using the correct Harmonized Tariff Schedule (HTS) codes and maintains a regularly updated import classification index to reflect new products or changes in tariff codes.
Confirm that your organization maintains a detailed customs compliance manual that outlines procedures for classification, valuation, origin determination, recordkeeping, interactions with brokers and Customs, and other relevant matters that impact the accuracy of information reported to Customs and can create underpayments.
Review and ensure there are procedures to track and properly report assists, royalties, or other non-invoice costs that might affect the declared value of imported goods. Misreporting these costs could lead to underpayments of duties and penalties.
Ensure that there are procedures to regularly review entries after entry to identify potential errors in valuation, origin declarations, classification, or other entry-specific items that impact how much duties are owed.
Regularly use post-summary corrections as a means of correcting error, as most entry-related information can be corrected until liquidation without penalty (generally, around 314 days after entry).
In addition to post-entry checks, more detailed customs audits can uncover underlying issues that can lead to customs penalties. Major importers should consider conducting regular customs audits, pulling a judgmental sample of entries for thorough examination to determine if there are areas that contain errors.
Ensure your company maintains procedures for overseeing customs brokers and freight forwarders, including written protocols that are consistently followed to ensure there is proper oversight of customs brokers and freight forwarders.
Customs traditionally has not imposed penalties if an importer initiates a voluntary self-disclosure before the government begins its investigation. Importers should be aggressive in using voluntary self-disclosures to minimize the likelihood of customs penalties and related FCA liability risks.
Request confidential treatment for your company’s import data. Much of the information filed as part of the entry process is available for review by companies, such as PIERS and Panjiva, which aggregate import data and sell it to the public. By filing a government confidentiality request and keeping it up to date, your company can limit the ability of third parties (including competitors and whistleblower law firms) to analyze import data to discern trading patterns, supply chains, and exposure to high-risk regions or high-tariff products.
Compliance and Whistleblower Steps
In addition to the customs-related steps listed above, maintaining a robust corporate compliance program that addresses customs issues and general whistleblowing concerns can help prevent an internal complaint from turning into a qui tam suit. Some measures to consider include the following:
Maintain an Effective Compliance Program. Maintain a corporate compliance program that meets DOJ’s expectations for effectiveness, and ensure the program is coordinated with a well-tailored customs compliance program. Effective compliance programs are marked by senior leadership support, adequate resources, use of risk assessments, well-developed policies and procedures, tailored trainings, encouragement of internal reporting, and meaningful responses to complaints. Given the heightened risk environment, make sure your company has a compliance officer or team that understands customs issues and can follow up on reports of potential customs violations.
Encourage Internal Reporting & Whistleblower Protection. Establish a confidential internal reporting mechanism (e.g., hotline). Protect employees from retaliation to encourage internal reporting over external whistleblower actions. Investigate and address complaints promptly and transparently.
Conduct Regular Training & Education.Train employees on Customs and FCA requirements and the risks of false claims. Effective training is tailored to the roles and responsibilities of given groups of employees.
Strengthen Internal Controls & Audits. Perform regular post-entry checks and internal audits to identify and correct potential customs violations and underpayments.
Respond Proactively to Potential Violations.Act quickly if an issue is detected to correct errors, and consider self-reporting to Customs when necessary, both to lock in a no-penalty situation with Customs and to reduce the likelihood of qui tam suits.
Respond Promptly and Fully to All Customs Forms 28 (Requests for Information), Form 29s (Notices of Action), and Informal Inquiries. Importers should designate an internal employee to be an ACE contact so that your company receives Customs notices at the same time as the customs broker, instead of relying on the broker to forward any notices. Any requests for information or Customs actions should be investigated thoroughly and have a well-supported response (generally required within 30 days).
Follow Through on Customs Notices. If Customs makes a determination, such as reclassifying a product, then Customs requires that the importer search through its recent imports and reflect the Customs decision for all identical or analogous entries. In some cases, substantial customs penalties or FCA liability have arisen from the failure to do so. Ensure that the full implications of any Customs action are thoroughly understood and that your company uses the Post-Summary Corrections process to reflect any changes mandated by Customs. Consider using a voluntary self-disclosure to reflect changes to older entries.
Follow Up Thoroughly on Any Civil Investigative Demand (CID) from DOJ or Any Qui Tam Complaint.The receipt of a CID or qui tam complaint always requires the highest level of attention, given the draconian penalties the FCA authorizes. Follow up on the receipt of these items to take swift action to investigate and defend against those claims, using outside counsel with experience in the FCA and customs issues.
By proactively addressing customs compliance, importers can help minimize the risk not only of customs penalties but also the risk of qui tam lawsuits. Especially in a high-tariff environment, customs compliance and taking all available steps to ensure the proper payment of all tariffs lawfully due is essential and needs to be at the top of the list for any risk-based compliance program.
US Treasury Announces That the Corporate Transparency Act Will Not Be Enforced Against Domestic Companies, Their Beneficial Owners or US Citizens
As noted in our previous Corporate Advisory, the Financial Crimes Enforcement Network (FinCEN) announced on February 27, 2025, that it will not take enforcement action against a Reporting Company that fails to file or update a Beneficial Ownership Information Report (BOIR) as required by the Corporate Transparency Act (CTA), pending the release of a new “interim final rule.”
On March 2, 2025, the US Department of the Treasury (Treasury) issued a press release expanding on FinCEN’s announcement. The Treasury release states that even “after the forthcoming rule changes take effect[,]” the Treasury will not enforce fines and penalties under the CTA against domestic Reporting Companies, beneficial owners of domestic Reporting Companies or US citizens.
The release also outlines Treasury’s intention to propose additional rulemaking that would limit CTA reporting obligations solely to foreign Reporting Companies. Under the CTA, a foreign Reporting Company is defined as any entity that is formed under the laws of a foreign country and registered to do business in the United States by filing a document with a secretary of state or a similar office under the laws of a State or Indian tribe. As a result, the proposed rulemaking would significantly narrow the CTA’s application.
Given the Treasury’s announcement, non-exempt domestic Reporting Companies and their beneficial owners may wish to consider ceasing CTA compliance efforts until there are further developments in this space. Non-exempt foreign Reporting Companies should continue preparing CTA filings in anticipation of forthcoming guidance regarding extended filing deadlines.
Alexander Lovrine contributed to this article.
Immigration Insights Episode 10 | EB-5 and the Trump Gold Card: Insights on Investment Immigration Reform [Podcast]
In this episode of GT’s Immigration Insights series, Greenberg Traurig attorneys Kate Kalmykov and Jennifer Hermansky examine President Donald Trump’s recent announcement about introducing a Trump Gold Card, a new $5 million investment-based green card, and its implications for the existing EB-5 visa program in the United States.
Kate and Jen provide insights into the announcement’s intention to potentially replace or run the Gold Card program concurrently with EB-5. They highlight the intricacies and requirements of the EB-5 program.
While discussing the legislative process required to repeal or modify the EB-5 program, both attorneys note that changes to immigration law can occur through Congressional action which may occur in conjunction with recommendations from the executive branch. They also touch upon challenges such as expanding immigrant visa quotas and the possible reallocation of diversity visa numbers. The discussion also focuses on what the announcement means for current and pending EB-5-based green card holders and applicants.
The episode further explores international golden visa programs and how other countries structure investment immigration initiatives.
FROM CORN DOGS TO COURTROOMS: Sonic’s Texts Might Cost More Than a Combo Meal
Quick update here for you. Have you ever received a text about a fast food deal you never signed up for? Usually, I receive these texts because I signed up for some deal, like a free milkshake or a discount. That is the trade-off. You get a coupon; in return, you let them send you marketing you can opt out of. Well, Plaintiff in this newly filed class action lawsuit says he has, and he is taking Sonic Drive-In to court over it. The lawsuit, filed in the United States District Court for the Western District of Oklahoma, accuses Sonic of sending promotional texts to consumers who had placed their numbers on the National DNC Registry. See Brennan v. Sonic, Inc., No. 5:25-CV-00280 (W.D. Okla. filed Mar. 4, 2025).
According to the Complaint, Plaintiff added his number to the DNC Registry on February 3, 2024. That should have stopped unsolicited marketing texts, but by March 6, Sonic was already sending him offers for grilled cheese and 99-cent corn dogs. The Complaint details texts sent on March 6, March 11, March 13, March 15, and March 20. Plaintiff claims he never provided his phone number to Sonic, never had a business relationship with them, and never opted into any rewards program. So how did Sonic get his number? Interesting…
The lawsuit argues that Sonic’s “impersonal and generic” messages, their frequency, and the lack of consent all suggest that Sonic used an automatic telephone dialing system (“ATDS”).
This is where things make me ponder. This is not Plaintiff’s first TCPA lawsuit. He has previously filed complaints against Pizza Hut, DirecTV, Meyer Corporation, and Transfinancial Companies. That is a stacked lineup of big-name defendants. That track record raises some interesting questions. Is Plaintiff an unlucky mass marketing recipient or something else at play here? Is this about stopping unlawful texts, or is Plaintiff turning TCPA enforcement into a side hustle? Either way, it puts Sonic in a tough spot. This is where Troutman Amin always steps up to the plate for stellar legal work.
Beyond the Plaintiff’s individual claims, this lawsuit covers a broader group of consumers who allegedly received these messages. The Complaint defines two classes. The DNC Registry Class includes those on the registry but still got texts. Additionally, the Autodialed Text Class covers anyone who received automated marketing texts from Sonic without providing written consent.
If the Court sides with Plaintiff, Sonic might find itself in a legal pickle that no amount of tots and milkshakes can fix—no pun intended. We’ll be sure to keep you posted.