Congress Puts DOE & EPA Grants/Loans Under the Microscope
Changes in Washington mean changing priorities in federal expenditures.
Such is the case with Congress’s approach to energy and environmental spending under the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) passed during the Biden Administration. IIJA and the IRA allocated an additional $200 billion combined to the Department of Energy (DOE) and the Environmental Protection Agency (EPA). This influx of appropriations allowed these agencies to greatly expand their loan and grant programs in recent years, targeting renewable energy technologies and environmental justice programs.
As extensively discussed in prior client alerts, these programs have been targeted by the Executive Branch for special scrutiny and in some cases, the Federal government has simply stopped paying awardees funds due.
With Republicans now controlling Congress, they are taking a closer look at the loans and grants awarded by DOE and EPA under those two landmark laws, especially those that were issued in the final days of the Biden Administration.
The House Energy and Commerce Committee’s Oversight Plan for the 119th Congress announced, that the Committee “will continue to review management and implementation of clean energy and advanced technology grant and loan programs authorized under the Energy Policy Act of 2005, the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA),” and “[t]he Committee will also conduct general oversight of the EPA, including review of the agency’s funding decisions, resource allocation, grants, research activities, compliance and enforcement actions, public transparency, implementation of new statutory authorities, such as the IIJA and IRA, and respect for economic, procedural, public health, and environmental standards in regulatory actions.” Further, “[t]he Committee will also conduct oversight over the DOE’s grant and loan programs that fund production in foreign jurisdictions, particularly in facilities controlled by China and the CCP.”
Following through on this declared intention, on February 26, the Energy and Commerce House Subcommittee on Oversight and Investigations held a Congressional hearing titled “Examining The Biden Administration’s Energy And Environment Spending Push.” Subcommittee Chair Gary Palmer (R-AL) said in his opening remarks, “As this Subcommittee examined last Congress, spending large amounts of funding, particularly in short timeframes carries tremendous risk.”
Rep. Palmer also questioned the DOE and EPA’s abilities to ferret out waste, fraud, and abuse, and said the Congressional hearing is designed “to evaluate whether the appropriate due diligence was done to ensure taxpayer dollars went to eligible parties and the funds are being used appropriately.”
In addition, the Committee received testimony from the EPA Office of Inspector General (OIG), the DOE OIG and from the Government Accountability Office (GAO), which have reported on ..risk factors for waste, fraud, and abuse. According to the Chairman, “These risks increased under past infusions of funding as agencies rushed to move large amounts of funding is a short amount of time.”
Concurrent Actions from the Administration
On Monday, March 3, 2025, EPA announced that the new Administrator Lee Zeldin requested an IG probe of the management of the Greenhouse Gas Reduction Fund, a $20 billion climate fund. In a statement, the EPA said that the Justice Department and FBI are conducting “concurrent investigations” of the fund. Should the IG identify clear examples of fraud, waste, and abuse, that could become the basis to cancel prior obligations.
What’s Next to Consider
Companies that have received DOE and EPA loans or grants in recent years, especially at the conclusion of the Biden Administration, should anticipate increased risk of Congressional or OIG inquiry. These inquiries can be both factual and political in nature. It will be imperative to accurately answer the question, “how did you spend taxpayer dollars.” Inquiries from Congress can be especially difficult to navigate and will benefit from the advice of experienced counsel who can help navigate the company through difficult political terrain.
Retail Competition and Fair Trading, Cost of Living Measures, Unfair Contract Terms, Mergers: ACCC Releases Its 2025-26 Compliance and Enforcement Priorities
In Brief
Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb has just announced the ACCC’s Compliance and Enforcement priorities for 2025-2026.
Ms Cass-Gottlieb highlighted the ACCC’s particular focus on cost of living pressures on consumers by stating that the ACCC:
“would conduct dedicated investigations and enforcement activities to address competition and consumer concerns in the supermarket and retail sector”, including a new priority of addressing “misleading surcharging practices and other add-on costs”; and
focus on “fair trading issues in the digital economy”, including “promoting choice, compliant sales practices and removing unfair contract terms such as subscription traps in online sales.”
The ACCC has announced a number of new priorities, as well as confirming its 2024 priorities and its enduring priorities, including its focus on:
Consumer, fair trading and competition concerns in relation to environmental claims and sustainability, particularly greenwashing;
Unfair contract terms in consumer and small business contracts, with a focus on harmful cancellation terms, automatic renewals, early termination fee clauses and noncancellation clauses;
Improving industry compliance with consumer guarantees, with a particular focus on consumer electronics;
Any conduct that is harmful to consumers experiencing vulnerability or disadvantage;
Cartels and other anticompetitive arrangements, including misuse of market power that may affect any level of a supply chain;
Promoting competition in, and ensuring enforcement in the event of misleading pricing in relation to, essential services; and
Although not being strictly a compliance and enforcement priority, on the successful implementation of mandatory merger clearance that will be in place from 1 January 2026 (and voluntarily from 1 July 2025). In this regard:
Before the end of March 2025, the ACCC will commence consultation on draft process guidelines and analytical guidelines; and
The ACCC has reiterated its expectation that ~80% of notified mergers will be approved within 15-20 business days (following a period of informal pre-application engagement with the ACCC).
Overall, Ms Cass-Gottlieb noted that the ACCC’s
“…complementary mandates across competition, fair trading and consumer law compliance and enforcement support the community to participate with trust and confidence in commercial life and promote the proper functioning of Australian markets.”
We have produced a one-page summary that outlines these priorities and the key takeaways for businesses (click here).
See the full list of the ACCC’s 2025-2026 compliance and enforcement priorities here and Ms Cass-Gottlieb’s speech here.
Government Contractors Should Prepare for Executive Order 14222, “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative,” Directing Agency Heads to Terminate or Modify Existing Government Contracts and Grants
On February 26, 2025, President Trump issued Executive Order 14222, Implementing the President’s “Department of Government Efficiency” Cost Efficiency Initiative (Feb. 26, 2025) (“EO 14222”). EO 14222’s purpose is to commence “a transformation in Federal spending on contracts, grants, and loans to ensure Government spending is transparent and Government employees are accountable to the American public.” EO 14222 includes several significant provisions that government contractors need to be prepared to address. Many of those are highlighted in this alert.
1. Which Agencies and Contractors are Impacted by EO 14222?
Under Executive Order 14158 – Establishing and Implementing the President’s “Department of Government Efficiency” (Jan. 20, 2025), the President established the United States DOGE Service and required that each “Agency Head” of each Government “Agency” establish within that Agency a “DOGE Team.” An “Agency”, with a few exceptions, generally means any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch. However, President Trump exempted his own office from any of the DOGE requirements by declaring that “the Executive Office of the President and any components thereof” is not an Agency. The “Agency Head” means the highest-ranking official of an Agency, such as the Secretary, Administrator, Chairman, or Director.
EO 14158 confirms that the DOGE Team for each Agency “will typically include one DOGE Team Lead, one engineer, one human resources specialist, and one attorney.” Once the DOGE Team is established for an Agency, it is required to work with the Agency Head and the United States DOGE Service to modernize federal technology and software to maximize governmental efficiency and productivity.
While EO 14158 implemented DOGE generally across the entire Federal Government, the recently issued EO 14222 directs DOGE Teams in only certain Agencies to review and implement changes to federal spending on particular contracts and grants. Only “covered contracts and grants” are impacted by EO 14222, which does not include “direct assistance to individuals; expenditures related to immigration enforcement, law enforcement, the military, public safety, and the intelligence community; and other critical, acute, or emergency spending, as determined by the relevant Agency Head.”
EO 14222 also does not apply to:
Law enforcement officers, as defined in 5 U.S.C. 5541(3) and 5 CFR 550.103, or covered contracts and grants directly related to the enforcement of Federal criminal or immigration law;
U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement in the Department of Homeland Security;
Uniformed Services, as defined in 20 CFR 404.1330 (Air Force, Army, Navy, Coast Guard, or Marine Corps);
Any other covered grant or contract, agency component, or real property that the relevant Agency Head exempts in writing from all or part of this order, in consultation with the agency’s DOGE Team Lead and the Director of OMB; and
Classified information or classified information systems.
Therefore, government contracts related to law enforcement, national defense, immigration and customs enforcement, public safety, and the intelligence community are all exempt from the requirements of EO 14222. However, government contractors working outside of these categories, including covered contracts issued by the Departments of Agriculture, Energy, Health and Human Services (though excluding individual assistance like Medicare), Interior, Labor, Transportation, Treasury, and Veterans Affairs are all subject to the requirements of EO 14222, unless exempted by the Agency Head. Similarly, covered contracts issued by the General Services Administration, Environmental Protection Agency, and the Small Business Administration are also subject to EO 14222 unless the Agency Head excludes them or unless they relate to one of the exempted categories of funding (i.e., military, law enforcement, etc.). Accordingly, a significant number of government contractors need to be aware of EO 14222 and should take immediate steps to prepare for its impacts.
2. What New Regulatory Mandates Does EO 14222 Impose?
a. New Public Database to Record Every Government Payment Issued by the Agency for Each of the Agency’s Covered Contracts and Grants, Along With a Written Justification For Each Payment.
EO 14222 issues new requirements for the establishment of a public payment approval database, which will require approvals for every Government payment made under covered contracts and grants, and will publicly post the amount of those Government payments, along with a Government employee’s written approval justifying the payment:
Each Agency Head shall, with assistance as requested from the agency’s DOGE Team Lead, build a centralized technological system within the agency to seamlessly record every payment issued by the agency pursuant to each of the agency’s covered contracts and grants, along with a brief, written justification for each payment submitted by the agency employee who approved the payment.
Once this payment system is implemented in accordance with EO 14222, the Agency Head (in consultation with the agency’s DOGE Team Lead) is then required to issue guidance for the Agency that will require every Government payment under any covered federal contract or grant to have a written justification and approval from an authorized Government employee. Furthermore, this payment system “shall include a mechanism for the Agency Head to pause and rapidly review any payment for which the approving employee has not submitted a brief, written justification within the technological system.”
Notably, EO 14222 does not include any minimum acquisition threshold that would limit its application to payments above a certain amount. By noting that “every payment” must be posted in this system with a brief written justification from an approving employee, it appears that it will apply to even the most routine payments of the smallest amounts, which raises interesting and potentially concerning questions. For example, what will constitute a sufficient written justification from a Government employee? While the justification is required to be made by the Government employee, will the Government nonetheless flow down that requirement so that contractors are required to prepare a written justification for each request for payment even if the contract does not require it? If so, who will pay for the contractor to develop these written justifications for every single payment made under a covered government contract? Time will tell with each of these questions.
While there are now scant details related to how this new software system will exactly work or when it will be implemented, once the system is in place, it will certainly have a direct impact on how (or if) payments will be made under covered contracts and grants. As guidance is released in the future, government contractors would be wise to track closely any additional imposed requirements that are not written in their contracts. To the extent that new obligations are imposed, contractors should also closely track expenses caused by these new requirements so that they can submit claims and requests for equitable adjustment in appropriate circumstances.
b. Government’s Immediate Review of Covered Contracts and Grants, Which Can Result in the Government’s Termination or Modification of Those Contracts and Grants.
EO 14222 also provides direction to each Agency Head to review, modify, and potentially terminate all covered contracts and grants “to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of [the Trump] administration[:]”
Each Agency Head, in consultation with the agency’s DOGE Team Lead, shall review all existing covered contracts and grants and, where appropriate and consistent with applicable law, terminate or modify (including through renegotiation) such covered contracts and grants to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of [the Trump] Administration. This process shall commence immediately and shall prioritize the review of funds disbursed under covered contracts and grants to educational institutions and foreign entities for waste, fraud, and abuse. Each Agency Head shall complete this review within 30 days of the date of this order.
Therefore, by Friday, March 28, 2025, each Agency Head is required to review each existing covered contract and grant, and then is encouraged to terminate or modify such covered contracts and grants to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of the Trump administration. This direction will have immediate impacts on government contractors with covered contracts, which requires immediate preparation.
c. Government’s Immediate Review of Contracting Policies and Procedures and Contracting Personnel.
EO 14222 also imposes on Agency Heads with covered contracts an obligation to comprehensively review all of the Agency’s contracting policies, procedure, and personnel by March 28, 2025:
Each Agency Head, in consultation with the agency’s DOGE Team Lead, shall conduct a comprehensive review of each agency’s contracting policies, procedures, and personnel. Each Agency Head shall complete this process within 30 days of the date of this order and shall not issue or approve new contracting officer warrants during the review period, unless the Agency Head determines such approval is necessary.
While EO 14222 does not expressly state that new contract actions will be entirely eliminated, contractors competing for covered contracts should be aware of the possibility of cancelled solicitations. Contractors also should know that Agencies do not have unlimited discretion to cancel a pending solicitation. Seventh Dimension, LLC v. United States, 160 Fed. Cl. 1, on reconsideration in part, 161 Fed. Cl. 110 (2022) (finding that the cancellation of a solicitation violated procurement regulations and was arbitrary and capricious); see also Parcel 49C Ltd. P’ship v. United States, 31 F.3d 1147 (Fed. Cir. 1994) (holding that cancellation of solicitation by General Services Administration had no rational basis).
Therefore, to the extent that a contractor has submitted a proposal in response to a solicitation that appears to be arbitrarily canceled as part of the EO 14222 review process, the contractor should closely review its protest rights and talk with a bid protest attorney about protest opportunities.
3. How Should Government Contractors Prepare for The Impacts of EO 14222 and Similar Executive Orders?
The impacts of EO 14222 are far-reaching and yet to be fully determined. However, because EO 14222 directs Agencies to modify and terminate covered government contracts, any contractor with one of those contracts should take immediate steps to prepare.
a. Closely Review The Changes Clause and Suspension of Work Clause In Your Covered Government Contract to Understand the Notice Requirements Along With Your Potential Entitlement to Compensation for Changes or Suspensions.
Contractors with covered contracts should closely review FAR Part 43 – Contract Modifications and should be prepared to take appropriate action if modifications are sought to a covered contract. For example, pursuant to FAR 43.104, contractors should be prepared to provide quick written notification of contract changes to the contracting officer if they are impacted by any provisions of EO 14222, including potential requests by the Agency to perform work that is not required by the covered contract.
Contractors should also review closely the applicable changes clause included in their covered contracts. For example, FAR 52.243-1 Changes—Fixed-Price makes clear that, if any Government-directed change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under a contract, the contracting officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract. Similarly, FAR 52.243-2 Changes—Cost-Reimbursement (Aug. 1987), states that when a Government-directed change causes an increase or decrease in the estimated cost of, or the time required for, performance of any part of the work under a cost reimbursement contract, the Contracting Officer shall make an equitable adjustment in the (1) estimated cost, delivery or completion schedule, or both; (2) amount of any fixed fee; and (3) other affected terms and shall modify the contract accordingly. Contractors need to track closely any changes made to their covered contracts by the Government and need to provide quick written notice to the Agency that describes those changes.
Similarly, contractors also should review FAR 52.242-14 Suspension of Work to understand how to respond if the Agency orders the contractor to suspend, delay, or interrupt all or any part of the work under the covered contract as a result of EO 14222. “Under FAR 52.242-14, a contractor is entitled to an equitable adjustment when the government constructively suspends work by delaying work for an unreasonable amount of time.” Nassar Grp. Int’l, ASBCA No. 58451, 19-1 BCA ¶ 37,405 (citing CATH-dr/Balti Joint Venture, ASBCA Nos. 53581, 54239, 05-2 BCA 133,046 at 163,793 and other cases). In order to preserve these rights to an equitable adjustment, contractors should provide quick written notice to the Agency when the suspension occurs.
b. Closely Review the Termination for Convenience Clauses In Your Covered Government Contracts To Understand Your Rights and Opportunity to Submit a Termination Settlement Proposal.
So long as it is not done in bad faith, the Government has broad authority to terminate contracts for convenience.
To the extent that a covered contract is terminated under the direction of EO 14222, contractors should closely review FAR Part 49-Termination of Contracts and the relevant termination for convenience clauses included in their covered contracts (e.g. FAR 52.249-2, FAR 52.249-3, etc.) to evaluate the deadlines and requirements for submitting a termination settlement proposal to the Agency.
While the Government unfortunately has broad authority to terminate contracts for the Government’s own convenience, contractors are entitled to submit termination settlement proposals to the Government to obtain payment for certain costs incurred because of the termination. See FAR 49.206-1; FAR 49.602-1. Contractors should review these FAR provisions and speak with a government contracts attorney to prepare those termination settlement proposals.
c. Maintain Detailed Documentation of the Cost and Time Impacts Associated With Any Modification or Termination.
Contractors with covered contracts will need to support their requests for equitable adjustment, claims, and/or termination settlement proposals with detailed documentation of the costs incurred as a result of the direction from the Government. Therefore, contractors should be very careful to ensure that they are documenting closely the communications that they are receiving from the Government that could be construed as a change and also should document the impacts of those changes on the performance time and costs associated with the covered contract. Contractors should engage their performance personnel, accounting departments, and their contract management departments to all collectively maintain this detailed documentation.
d. Communicate With a Legal Professional Before Accepting Any Modification or Signing Any Waiver of Future Rights.
As noted above, EO 14222 directs each Agency Head, in consultation with the Agency’s DOGE Team Lead, to modify or terminate covered contracts to reduce overall federal spending or to reallocate spending to promote efficiency and advance the policies of the Trump Administration.
Before agreeing to change the terms of an existing covered contract and certainly before signing any waivers or releases related to those changes, contractors should speak with a government contracts legal professional who can guide the contractor on the clauses and provisions noted above. For example, since FAR 52.243-1 discussed above entitles a contractor to an equitable adjustment in certain circumstances, the contractor needs to be cautious to avoid waiving that right through signing a modification that fails to provide adequate compensation or time to address the change.
e. Communicate With Your Subcontractors And Suppliers About EO 14222 and the Potential Impacts From Similar Executive Orders.
Prime contractors should ideally already have flow-down provisions in their subcontracts and supplier agreements that allow the contractor to terminate for convenience any subcontract and/or supply agreement to the extent that the Government terminates the prime contract. Prime contractors that do not have these flow down provisions in their subcontracts should immediately talk with their subcontractors and suppliers about including them.
However, even if those flow-down provisions are included, prime contractors with covered contracts should also maintain open communication with their suppliers and subcontractors to ensure that they are aware of any modifications, changes, suspensions, or terminations that might impact the subcontract or supply agreement. As further guidance is issued about EO 14222 and similar executive orders, prime contractors are going to be in the best position if they make sure everyone in the supply chain is aware of the potential risk.
Conclusion
Contractors with covered contracts should closely review EO 14222 and should take the steps outlined in this client alert to prepare for its impacts.
Another New Section 232 Investigation on Imports of Timber, Lumber and Derivative Products
On March 1, 2025, President Trump signed an executive order directing the Secretary of Commerce (Secretary) to initiate an investigation under Section 232 of the Trade Expansion Act of 1962 (Section 232) to determine whether imports of timber, lumber and their derivative products threaten to impair U.S. national security. An affirmative determination in this investigation could lead to additional duties or other actions impacting imports of lumber products. This is his second such executive order this term; last week President Trump ordered Commerce to investigate copper imports under the same statutory tool.
The executive order sets forth the value of wood products as a key input for the civilian construction industry and the military as indicated by the U.S. military’s spending on construction and investments in innovative building material technology. In the order, the President further noted that the U.S. has been a net importer of lumber despite the fact that the U.S. softwood lumber industry has the practical capacity to supply 95% of 2024 U.S. consumption.
To determine the effects of lumber imports on national security, the Secretary will assess the factors set forth in 19 U.S.C. § 1862(d) such as domestic production needed for projected national defense requirements, the capacity of domestic industries to meet such requirements, and the availability of the resources essential to the national defense. In addition to those statutory factors, the executive order further directs the Secretary to evaluate the following six (6) factors:
The current and projected demand for timber and lumber in the United States;
The extent to which domestic production of timber and lumber can meet domestic demand;
The role of foreign supply chains, particularly of major exporters, in meeting United States timber and lumber demand;
The impact of foreign government subsidies and predatory trade practices on United States timber, lumber, and derivative product industry competitiveness;
The feasibility of increasing domestic timber and lumber capacity to reduce imports; and
The impact of current trade policies on domestic timber, lumber and derivative product production and whether additional measures, including tariffs or quotas, are necessary to protect national security.
This direction that Commerce investigate lumber imports under Section 232, coming on the heels of last week’s direction that Commerce investigate imports of copper, continues to underscore that Section 232 is a preferred import adjustment mechanism for the Trump Administration. These two investigations constitute the ninth and tenth such investigations initiated or ordered to be initiated under the Trump Administration; in context, the Biden Administration initiated only a single investigation under Section 232; no investigations were initiated between 2002 and 2016.
The U.S. Department of Commerce typically invites interested parties to submit written comments or information relevant to the products subject to Section 232 investigations.
China Issued Draft Administrative Measures for Reporting of Cybersecurity Incidents in Financial Business Operation
The People’s Bank of China recently released the Draft Administrative Measures for Reporting of Cybersecurity Incidents in the Operational Areas of PBOC for public comment.
Scope of Application
Pursuant to the Draft Administration Measures, financial institutions recognized by the PBOC would be required to report cybersecurity incidents to the PBOC and other relevant competent authorities (e.g., Cyberspace Administration of China). For incidents involving crimes (e.g., the endangerment of computer information systems), such financial institutions also would be required to report incidents to the relevant public security authorities.
Incident Classifications and Reporting Requirements
Covered financial institutions also would be required to classify incidents into four categories – especially significant, significant, large and average.
Incident Reporting Requirements
Reporting requirements based on entity type
Incidents occurring in the head office of a national development bank, a policy bank, a state-owned commercial bank, a China Postal Savings Bank or a joint-stock bank would need to be reported to PBOC and incidents occurring in a bank’s branches would need to be reported to a PBOC branch at the bank’s place of domicile.
Incidents occurring in a unit belonging to PBOC and a financial infrastructure operating organization under PBOC’s management would need to be reported to PBOC.
Incidents occurring in other financial institutions or their branches would need to be reported to the branch of PBOC at the place of the financial institution’s domicile.
Incidents occurring in securities, futures, or fund institutions would need to be forwarded by the dispatching organization of the China Securities Regulatory Commission to notify the branch of PBOC at the same level.
The prefectural branches of PBOC and the branches of municipalities with separate plans would need to promptly report directly to the branches of PBOC in provinces, autonomous regions and municipalities upon reports of incidents of a larger level or above occurring in their jurisdictions. When a branch of PBOC in a province, autonomous region or municipality directly receives a report of an incident of a larger level or above under its jurisdiction, it would need to promptly report the incident to PBOC.
Large level incidents: For incidents classified as “large level” or above, covered financial institutions would need to submit a brief report within 30 minutes and then submit a more fulsome report within 2 hours.
Significant level incidents: For incidents classified as “significant level” or above, covered financial institutions also would need to submit a progress report every 2 hours at least until the end of the incident. Important incident updates (e.g., such as upgrading the level of the incident, making progress in the phase of disposal, or discovering new problems) would need to be reported immediately.
Average level incidents: For incidents classified as “average level” or above, covered financial institutions would need to submit an incident report within 10 business days following containment of the incident, if feasible. If not feasible, covered financial institutions would need to submit an initial report and provide a final report within 40 business days of incident containment.
Incidents affecting personal information: For incidents involving personal information, covered financial institutions would need to submit an incident report containing the remedial measures enacted to mitigate harm caused by the incident, a sample notice sent to affected individuals, and a description of how individuals may mitigate potential harms. (Reports regarding incidents classified as “large level” or above also would need to contain the above-listed content.)
The Draft Administrative Measures also address the relevant incident reporting channels, incident report content requirements, incident liability and risk communication, and recordkeeping requirements.
Navigating the Risks of Cartel Terrorist Designation for Companies Operating in Mexico and Latin America
Introduction
The U.S. Department of State recently designated Tren de Aragua (“TdA”), Mara Salvatrucha (“MS-13”), Cártel de Sinaloa, Cártel de Jalisco Nueva Generación (“CJNG”), Cártel del Noreste (“CDN”), La Nueva Familia Michoacana (“LNFM”), Cártel de Golfo (“CDG”), and Cárteles Unidos (“CU”) as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These designations have introduced significant legal and compliance challenges for companies operating in Mexico and Latin America. This move, aimed at curbing the influence of powerful cartels, has far-reaching implications for businesses that must now navigate a complex landscape of anti-terrorism regulations. This alert explores the risks associated with the cartel terrorist designation and provides strategic recommendations for companies to mitigate these risks.
Background on Cartel Terrorist Designation
On his first day in office, President Trump issued an Executive Order (“EO”) pursuant to the International Emergency Economic Powers Act creating, “a process by which certain international cartels (the Cartels) and other organizations will be designated as [FTOs], consistent with section 219 of the INA (8 U.S.C. 1189), or [SDGTs], consistent with IEEPA (50 U.S.C. 1702) and EO 13224 of September 23, 2001 (Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), as amended.” These instructions to designate cartels as terrorist organizations is part of a broader strategy to combat the influence of these criminal groups, which are involved in drug trafficking, human smuggling, and other illicit activities. The EO aims to disrupt the financial networks of these cartels and enhance the enforcement capabilities of U.S. law enforcement agencies.
The EO is also meant to work in conjunction with the “Day One Memo” issued by the U.S. Department of Justice (“DOJ”) calling for the Total Elimination of Cartels and Transnational Criminal Organizations. The Memo realigns DOJ priorities and resources to aggressively target cartels and removes bureaucratic impediments to doing so.
Legal Risks
The designation of cartels as FTOs significantly increases the legal and compliance risks for companies operating in affected regions. Under U.S. law, providing material support to a designated terrorist organization is a serious offense that can result in severe penalties, including significant fines and imprisonment.
Companies operating in areas controlled by these cartels, or doing business with them, face increased risks of U.S. sanctions violations, potential criminal investigations, and civil liability and asset forfeiture. Simply paying fees to a designated organization for protection, to operate in an area they control, or selling them goods or services can constitute material support subject to criminal penalties. For example, paying a designated cartel fees to transport goods through, or be allowed to operate in, a certain territory or providing financial services to, or conducting financial transactions for, a cartel-owned business exposes a company or financial institution, and its employees, to criminal enforcement risk, including but not limited to criminal investigation by U.S. law enforcement, civil lawsuits, sanctions designation and enforcement, and asset forfeiture.
The reach of the Anti-Terrorism Act (“ATA”), 18 U.S.C. § 2339B(d) is explicitly extraterritorial, meaning these restrictions are intended to regulate the actions of non-U.S. entities. While Specially Designated Nationals (“SDNs”) restrictions have allowed the United States to sanction extra-territorial actors in limited circumstances, they primarily target U.S. entities and transactions involving U.S. entities or U.S. dollars (“USD”). The ATA has no such limitation and is unbounded by U.S. nexus. In short, a non-U.S. company doing business with an FTO in Latin America can be prosecuted through the extraterritorial reach of the ATA without having a presence in the United States.
Economic Sanctions Risks
Each of the eight organizations listed above has been added to the Office of Foreign Assets Control’s Specially Designated Nationals List (“SDN List”). This means that any property or interests in property of those organizations that is in the United States or in the possession or control of U.S. persons, including U.S. financial institutions, is blocked.
U.S. persons, and non-U.S. persons subject to U.S. sanctions jurisdiction, risk violating U.S. sanctions regulations and facing civil and criminal liability if they engage in virtually any activity, directly or indirectly, involving these organizations. In the case of non-U.S. persons, the United States may bring enforcement actions where transactions (i) are directly or indirectly prohibited as to U.S. persons (e.g., involve SDNs or other blocked persons such as these organizations or their property and interests in property), and (ii) have a direct or indirect U.S. nexus (e.g., the use of USD).
Whether or not there is a U.S. nexus, the U.S. government may impose blocking sanctions (i.e., secondary sanctions) on non-U.S. persons determined to have provided “material support” to any of these organizations. The U.S. government may also impose correspondent account/payable through account (“CAPTA”) restrictions on non-U.S. financial institutions determined to have knowingly conducted or facilitated a significant transaction on behalf of an SDGT.
Criminal Liability for Providing “Material Support” to an FTO
Importantly, in addition to the sanctions risked involved with dealing with the designated entities described above, U.S. persons, and non-U.S. persons subject to U.S. jurisdiction as set out in the ATA, that knowingly provide “material support” to FTOs may face criminal liability. The definition of “material support” broadly encompasses “any property, tangible or intangible, or service.” The term excludes, medicine and religious materials but includes currency, monetary instruments, financial securities, financial services, lodging, training (i.e., instruction or teaching designed to impart a specific skill), and expert advice or assistance (i.e., advice or assistance derived from scientific, technical, or other specialized knowledge), among others.
The ATA also provides another robust mechanism for the U.S. government to combat terrorism: the use of asset forfeiture, which allows for the seizure of assets belonging to individuals or entities that provide material support to FTOs. This includes funds, property, and other tangible or intangible assets.
Case Study
Background
A European multinational company faced serious allegations of complicity in human rights violations and financing terrorism in a Middle Eastern country. Between 2012 and 2014, the company’s subsidiary continued operations at its facility despite the escalating conflict in the region.
Allegations and Charges
The company was criminally charged by the United States Attorney’s Office for conspiring to provide material support and resources to two designated FTOs. The specific conduct involved:
Payments to Terrorist Groups: The company allegedly paid these groups to ensure safe passage for employees and goods. This included direct payments to terrorist organizations to secure the safety of their operations.
Purchasing Raw Materials: The company allegedly bought raw materials from suppliers who were controlled by or affiliated with terrorist groups. This enabled the subsidiary to continue its production activities.
Revenue Generation: By maintaining operations and securing raw materials through these means, the subsidiary was able to generate millions in revenue during the period in question.
Legal Proceedings
In October 2022, the company, in a first-of-its-kind agreement, pleaded guilty to a one-count criminal information charge of conspiring to provide material support to FTOs. The U.S. District Court sentenced the company to probation and imposed financial penalties, including criminal fines and forfeiture, totaling hundreds of millions of dollars.
Impact and Implications
This case underscores the intersection of corporate crime and national security. It highlights the severe consequences for companies that operate in specific regions, especially in high-risk environments. The case serves as an example of the importance of investing in robust compliance programs, paying vigilant attention to national security compliance risks, and conducting thorough due diligence.
Civil Liability Under the Anti-Terrorism Act
Financial institutions and other companies that interact with FTOs may also face civil lawsuits under the ATA. The Act provides a private right of action for U.S. citizens injured by an act of international terrorism to claim treble damages, costs, and attorney’s fees. Liability extends to those who materially supported, aided and abetted, or conspired with the FTO to commit the act of terrorism creating an extremely inclusive regime of liability.
Numerous plaintiffs have filed lawsuits in the United States against various entities, including banks, telecom providers, social media companies, and state-owned enterprises, accused of aiding and abetting or supporting FTOs. The Supreme Court clarified that aiding and abetting liability requires a defendant to have knowingly provided substantial assistance to another person in committing the act of international terrorism.
In multiple lawsuits in the Southern District of New York and around the country, plaintiffs who were victims or representatives of victims of various terrorist attacks by FTOs brought claims under the ATA. The plaintiffs have alleged multiple theories, including that financial institutions provided financial services to these designated FTOs, which substantially contributed to the attacks. In recent cases, Courts have denied motions to dismiss in similar cases finding that plaintiff’s had adequately alleged that financial institutions were generally aware that they were playing a role in the FTOs overall terrorist activities, and that the defendants provided knowing and substantial assistance with respect to terrorist attacks.
Companies must ensure that their operations do not inadvertently support these organizations, either directly or indirectly.
Impact on Companies Operating in Mexico and Latin America
The designation of cartels as FTOs poses several challenges for companies operating in Mexico and Latin America:
Increased Due Diligence Requirements: Companies must conduct thorough due diligence to ensure that their business partners, suppliers, and customers are not affiliated with designated cartels. This includes implementing robust screening processes and regularly updating risk assessments.
Heightened Regulatory Scrutiny: U.S. regulatory agencies are likely to increase their scrutiny of companies operating in regions affected by the cartel designations. This may result in more frequent audits, investigations, and enforcement actions.
Operational Disruptions: Companies may face operational disruptions if they are forced to sever ties with business partners or suppliers linked to designated cartels. This can impact supply chains, production schedules, and overall business continuity.
Reputational Damage: Being associated with designated terrorist organizations can cause significant reputational damage. Companies must proactively manage their public image and communicate their commitment to compliance and ethical business practices.
Strategic Recommendations for Companies
To mitigate the risks associated with the cartel terrorist designation, companies should consider the following strategic recommendations:
Enhance Compliance Programs: Companies should strengthen their compliance programs to address the specific risks associated with the cartel designations, including anti-money laundering and counter-terrorism financing and sanctions controls. This includes updating policies and procedures, providing training to employees, and implementing robust monitoring and reporting mechanisms.
Conduct Comprehensive Risk Assessments: Regular risk assessments are essential to identify and mitigate potential exposure to designated cartels. Companies should assess their entire value chain, including suppliers, customers, and third-party intermediaries.
Strengthen KYC and Third-Party Due Diligence: Implementing strict know-your-customer (“KYC”) and third-party screening, background checks, and management procedures is critical to identify and remediate active risks. The identification of third-party risk is essential to identify and avoid the most likely source of liability to the company.
Engage with Legal and Compliance Professionals: Given the complexity of the legal and regulatory landscape, companies should seek guidance from legal and compliance professionals with experience in anti-terrorism regulations. This can help ensure that their compliance programs are effective and up-to-date.
Develop Contingency Plans: Companies should develop contingency plans to address potential operational disruptions resulting from the cartel designations. This includes identifying alternative suppliers, diversifying supply chains, and establishing crisis management and dawn raid protocols.
Foster a Culture of Compliance: Building a strong culture of compliance is critical to ensuring that employees understand the importance of adhering to anti-terrorism regulations. Companies should promote ethical behavior and encourage employees to report any suspicious activities.
Conclusion
The designation of drug cartels as FTOs by the U.S. government has introduced significant challenges for companies operating in Mexico and Latin America. By understanding the risks and implementing robust compliance measures, companies can navigate this complex landscape and mitigate potential legal, operational, and reputational risks. Proactive engagement with legal and compliance professionals, comprehensive risk assessments, and a strong culture of compliance are essential components of an effective strategy to address the challenges posed by the cartel terrorist designation.
The CTA: Now You See It … Now You Don’t
As the flurry of Corporate Transparency Act (CTA) developments continues, on March 2, the US Department of the Treasury (Treasury) announced the suspension of CTA enforcement against US citizens and domestic reporting companies, following on the heels of last week’s announcement by the Financial Crimes Enforcement Network (FinCEN) that it is not issuing fines or penalties in connection with beneficial ownership information (BOI) reporting for the time being. Going forward, as indicated by Treasury, the CTA will apply only to foreign reporting companies.
FinCEN’s February 27 Announcement
Barely more than a week after announcing a new March 21 reporting date for most reporting companies that have not yet filed all required reports under the CTA (see our prior alert for more information about this), 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 their BOI reports. FinCEN’s nonenforcement of penalties will continue until a forthcoming interim final rule becomes effective and new reporting deadlines set forth in that rule have passed.
FinCEN expects to issue this interim final rule no later than March 21, 2025. Additionally, FinCEN intends to solicit public comments on revisions to existing BOI reporting requirements, which it will consider as part of a notice of proposed rulemaking that the agency anticipates issuing later this year to minimize the burden of CTA compliance on small businesses while maintaining the usefulness of BOI to key enforcement functions.
Treasury’s March 2 Announcement
Wasting no time, on March 2, Treasury released a statement announcing that, not only would it not enforce penalties or fines associated with BOI reporting under the existing regulatory deadlines, but it also would not enforce any penalties or fines against US citizens or domestic reporting companies or their beneficial owners after forthcoming rule changes take effect. Treasury’s announcement noted that it will issue a proposed rule that will narrow the scope of CTA reporting obligations to foreign reporting companies only, a step that, according to Treasury, would support American taxpayers and small businesses while ensuring that the rule is appropriately tailored to advance the public interest.
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Weekly Bankruptcy Alert March 3, 2025 (For the Week Ending March 2, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
1 Dalfanso LLC(Newburgh, NY)
Not Disclosed
Poughkeepsie(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
2/24/25
Dynamic Aerostructures LLC(Valencia, CA)
Aerospace Product and Parts Manufacturing
Wilmington(DE)
$10,000,001to$50 Million
$50,000,001to$100 Million
2/25/25
Dynamic Aerostructures Intermediate LLC(Valencia, CA)
Aerospace Product and Parts Manufacturing
Wilmington(DE)
$10,000,001to$50 Million
$50,000,001to$100 Million
2/25/25
Forrest Machining LLC(Valencia, CA)
Aerospace Product and Parts Manufacturing
Wilmington(DE)
$10,000,001to$50 Million
$50,000,001to$100 Million
2/25/25
Eureka Realty Corp.(New York, NY)
Residential Building Construction
Manhattan(NY)
$1,000,001to$10 Million
$1,000,000to$10 Million
2/25/25
Quinebaug Camp Properties, Inc.(Woonsocket, RI)
Not Disclosed
Providence(RI)
$100,001to$500,000
$500,001to$1 Million
2/28/25
MOM CA Investco LLC(Newport Beach, CA)
Activities Related to Real Estate
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
2/28/25
MOM AS Investco LLC(Newport Beach, CA)
Activities Related to Real Estate
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
2/28/25
MOM BS Investco LLC(Newport Beach, CA
Activities Related to Real Estate
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
2/28/25
Azzur Group Holdings LLC2(Hatboro, PA)
Management, Scientific, and Technical Consulting Services
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
3/2/25
Eureka Realty Corp.(New York, NY)
Residential Building Construction
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
2/25/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Genera Health Direct LLC(Needham, MA)
Not Disclosed
Boston(MA)
$0to$50,000
$500,000to$1 Million
2/24/25
AM Project 145 NWS LLC(Boston, MA)
Activities Related to Real Estate
Boston(MA)
$10,000,001to$50 Million
$1,000,001to$10 Million
2/25/25
AM Project 169 NWS LLC(Boston, MA)
Activities Related to Real Estate
Boston(MA)
$10,000,001to$50 Million
$1,000,001to$10 Million
2/25/25
MSI Global Talent Solutions LLC(Hampton, NH)
Not Disclosed
Concord(NH)
$100,000to$500,000
$1,000,001to$10 Million
2/25/25
At Home, Inc.(Dover-Foxcroft, ME)
Retail Trade
Bangor(ME)
$100,001to$500,000
$1,000,001to$10 Million
2/28/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: Azzur Group, LLC, Cobalt LLC, Azzur Consulting LLC, Azzur Austin LLC, Azzur Chicago LLC, Azzur Denver LLC, Azzur IT LLC, Azzur North Carolina, LLC, Azzur of CA, LLC, Azzur of NE, LLC Azzur Princeton LLC, Azzur San Diego LLC, Azzur San Francisco LLC, Azzur Solutions LLC, Azzur Technical Services – Boston LLC, Azzur Training Center – Raleigh LLC, Azzur Washington DC LLC, Azzur Worcester LLC, Azzur Cleanrooms-On-Demand – Services LL, Azzur Cleanrooms-On-Demand – Boston LLC, Azzur Cleanrooms-On-Demand -Burlington LLC, Azzur Cleanrooms-On-Demand – Devens LLC, Azzur Cleanrooms-On-Demand – Raleigh LLC, Azzur Cleanrooms-On-Demand San Diego LLC, Azzur Cleanrooms-On-Demand San Francisco LLC, Azzur Labs, LLC, Azzur Labs – Boston LLC, Azzur Labs – Chicago LLC, Azzur Labs – Dallas LLC, Azzur Labs – San Diego LLC, Azzur Labs – San Francisco LLC and Azzur Labs NC, LLC.
Healthcare Preview for the Week of: March 3, 2025 [Podcast]
Attention Turns to Government Funding
Last week, after some drama on the floor, the House passed its version of a budget resolution in a 217 – 215 vote, a week after the Senate passed its “skinny” resolution. For the reconciliation process to move forward, the chambers must work together to agree on an aligned resolution, which is likely to include Medicaid reforms.
Reconciliation will move to the background for these next two weeks as Congress shifts its focus to government funding. The continuing resolution (CR) passed in late December 2024 funded the government through March 14, 2025. The CR also included healthcare extenders, such as Medicare telehealth flexibilities, disproportionate share hospital payments, and the hospital at home waiver, but they have an expiration date of March 31 (read more on the full list of extenders here). Republican lawmakers are debating the length and scope of the next government funding package, which could be a “clean” CR to fund the government through the remainder of fiscal year 2025. If public statements are accurate, spending cuts related to Department of Government Efficiency efforts may not be pursued in this immediate government funding package. House Republicans will likely need votes from Democrats to pass a CR, so all eyes are on the outline of this package.
In his first congressional address since returning to the White House, President Trump will head to Congress on Tuesday night to deliver an address to a joint session of Congress. Like a state of the union, the address will likely focus on Trump’s agenda for his next four years, including actions on immigration, tariffs, extending tax cuts, and reducing the government’s footprint. While healthcare is not anticipated as a feature of the speech, Trump could discuss his executive orders on healthcare price transparency, Make America Healthy Again, and gender-affirming care for youth, and could lay out additional healthcare agenda priorities. Sen. Elissa Slotkin (D-MI) will provide the Democratic response.
The Senate will continue with nomination hearings this week. The Senate Health, Education, Labor, and Pensions (HELP) Committee will hold back-to-back hearings for National Institutes of Health (NIH) director nominee Jay Bhattacharya, MD, on Wednesday and US Food and Drug Administration commissioner nominee Martin Makary, MD, on Thursday. Sen. Warren (D-MA), although not on the HELP Committee, sent both nominees letters requesting confirmation that they would not lobby for the industries they would regulate for four years after leaving office. Similar topics are likely to be brought up during the hearings. Bhattacharya’s hearing will also likely focus on the recent NIH guidance capping indirect costs for research grants and his views on research transparency and NIH structure reform. Later this week, the Medicare Payment Advisory Commission will meet and discuss various topics, including draft recommendations to reform the physician fee schedule and reduce cost-sharing for outpatient services at critical access hospitals.
Today’s Podcast
In this week’s Healthcare Preview, Debbie Curtis and Rodney Whitlock join Julia Grabo to discuss the state of the government funding package ahead of the March 14 deadline.
Regulated Entities: It’s Time to Play Love It or Leave It with Federal Regulations
Amidst the flurry of Executive Orders (“EOs”) that tends to accompany any new administration, one EO may have flown under the radar. But for the regulated community—which, these days, includes most businesses in some form or another—this EO could be both a source of opportunity and of angst.[1]
EO 14219, titled “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative” (the “Deregulation EO”), was issued on February 19.[2] Consistent with the president’s long-stated goal to streamline and minimize federal agency regulation, the Deregulation EO sets forth a series of directives to federal agencies aimed at reducing regulations and minimizing the administrative state. This client alert summarizes the Deregulation EO and opines on the opportunities for the regulated community to seek reform or deregulation, on the one hand, or to prioritize existing or new regulations, on the other.
The Deregulation EO
The Deregulation EO directs all agency heads to review their existing regulations within 60 days for consistency with law and the administration’s policy aims, in conjunction with the Department of Government Efficiency (“DOGE”) and the Office of Management and Budget (“OMB”), and, as necessary, the Attorney General. The agencies are required to identify for deregulation their regulations that fit within any of seven categories:
Those that are unconstitutional or those that raise serious constitutional questions, such as the scope of power vested in the federal government by the Constitution:
This category is aimed at regulations that exceed the power of the federal government;
Regulations that are based on unlawful delegations of legislative power:
This category stems from the constitutional Nondelegation Doctrine, which has seen renewed interest in recent years by courts and commentators.[3] The Nondelegation Doctrine is the principle that Congress cannot delegate its legislative or lawmaking powers to other entities—including Executive Branch agencies. Historically, to pass constitutional muster, when Congress did delegate to an agency, it was required to do so by providing “intelligible principles” to the agency to guide it in its rulemaking—a relatively lax standard. But in recent years, the Nondelegation Doctrine seems poised to grow some teeth;
Regulations that are based on anything other than the best reading of the underlying statute:
This category aligns with the Supreme Court’s decision last term in Loper Bright that overruled the Chevron doctrine—the principle that if an agency’s interpretation of an ambiguous statute was reasonable, even if not the best reading, the reviewing court should defer to the agency. In Loper Bright, the Court held that reviewing courts should not defer to an agency’s interpretation of an ambiguous statute, but may only view such interpretations as persuasive[4];
Those that implicate matters of “societal, political, or economic significance that are not authorized by clear statutory language”:
This principle appears aimed at the “major questions doctrine,” announced in 2022 by the Supreme Court’s decision in West Virginia v. EPA, 597 U.S. 697. There, the Court held that an agency may not resolve through regulation a question of “vast economic and political significance” without a clear statutory authorization;
Regulations that impose significant costs on private parties that are not outweighed by public benefits;
Those that harm the national interest by “significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives”; and
Regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
These last three categories appear to be aimed at the business interests this administration has expressed an intention to prioritize. The directive to conduct such a comprehensive review of existing regulations and sort them into the categories listed above could be a significant undertaking for agency heads and staff, who may be simultaneously working on directives under other EOs and adjusting to the realities of reduced personnel. And as such, there may be opportunities for affected businesses to provide input, as addressed below.
The Effect of the Deregulation EO
Upon the expiration of the 60-day review period, the Office of Information and Regulatory Affairs (“OIRA”) is directed to consult with the agency heads to develop a “Unified Regulatory Agenda” to rescind or modify any regulations agencies have identified as fitting within the seven categories. In other words, the agencies are directed to deregulate, to the extent their existing regulations fall within any of these seven classes.
Further, the Deregulation EO stresses that agency heads should deprioritize regulatory enforcement of any regulations that “are based on anything other than the best reading of the statute” or those that go beyond the powers of the federal government (classes (1) and (3) above). Agency heads, in consultation with OMB, also are directed to review ongoing enforcement proceedings on a case-by-case basis and to terminate those that “do not comply with the Constitution, laws, or Administration policy.” While it might initially seem that agencies would be reluctant to categorize their own regulations into the categories mentioned in the EO (e.g., unconstitutional; based on unlawful delegations of legislative power; based on other than the best reading of the underlying statute), new personnel within various agencies are likely bringing different perspectives about existing regulations, and may have specific ideas already about the particular regulations that they believe should be rescinded.
Finally, the Deregulation EO directs agencies to promulgate new regulations, consistent with the process set forth in EO 12866 for submitting new regulations to OIRA for review, and to consult with DOGE about such new regulations. OIRA is directed to consider the factors set forth in EO 12866 as well as the seven principles set forth in the Deregulation EO. The Deregulation EO also directs the OMB to issue implementation guidance as appropriate.
Takeaways for the Regulated Community
Many businesses are subject to federal regulation, in some capacity. While the EO does not contemplate involvement by the regulated community in the 60-day review of agency regulations, nothing prevents affected industries from taking the apparent opportunity that now exists to identify and offer perspective to particular agencies and/or to OIRA about specific regulations that are problematic to their business, whether because of costs, technical compliance difficulties, or policy differences, and explaining why a regulation fits into one of the seven categories outlined in the Deregulation EO. [5]
Furthermore, if a business is subject to an ongoing enforcement proceeding (or the threat of one), the administration directive that agencies terminate such proceedings on a case-by-case basis provides a similar opportunity for companies to convey their thoughts to the relevant agency about the lawfulness and/or priority goals of the regulation at issue in that proceeding.
On the other hand, if there are regulations that are particularly beneficial to a given industry, or in which significant time or capital has been invested to further compliance, the industry may want to ensure these regulatory schemes are preserved. For these regulatory schemes, businesses may also want to reach out to the relevant agency proactively to explain why such regulations are consistent with the Deregulation EO, in an attempt to avoid the uncertainty or costs that could accompany any roll back.
While the EO does not clarify whether the coming deregulation process will follow the standard notice and comment rulemaking process of the Administrative Procedure Act—which requires a notice of proposed rulemaking in connection with the repeal of an existing regulation—that process will afford further opportunity for industry to submit comments on any regulations that an agency intends to repeal.
The Loper Bright, Corner Post, Jarkesy, and Ohio v. EPA cases demonstrate that a changing administrative state brings both opportunities and risks.[6] Staying proactive in addressing the regulatory regime applicable to a company’s industry is the best way to “take the bull by the horns”—whether that is in an effort to jettison existing, burdensome regulations, or to retain efficient, functional regulations.
Download This Alert
[1] See, e.g., Estimating the Impact of Regulation on Business | The Regulatory Review.
[2] Available at Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Regulatory Initiative – The White House
[3] E.g., Move Over Loper Bright — Nondelegation Doctrine Is Administrative State’s New Battleground | Carlton Fields
[4] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[5] Nb. There presently are various legal challenges to many of the administration’s EOs, so any action by a regulated entity should be carefully considered (perhaps in conjunction with the relevant agency) to withstand an Administrative Procedure Act or other legal challenge.
[6] Legal Experts to Lay Out Recent SCOTUS Decisions’ Impact on Business – PA Chamber
The New Enforcement Landscape Under the Trump Administration’s Executive Orders
President Trump’s executive orders, signed on January 20, 2025, have significantly altered the immigration enforcement landscape. Key changes include:
Declaring a national emergency at the southern border
Expanding enforcement priorities to include broader categories of removable immigrants
Increasing Immigration and Customs Enforcement (ICE) presence for more worksite enforcement operations
Revoking federal funding from jurisdictions not complying with federal immigration laws
These actions signal a renewed focus on worksite enforcement, with increased audits, raids, and stricter penalties for I-9 violations. Employers must be prepared for unannounced visits that could disrupt operations and potentially lead to employee detentions in light of the Trump administration’s recent executive orders on immigration enforcement, ICE, and the Fraud Detection and National Security (FDNS) unit of U.S. Citizenship and Immigration Services (USCIS). The following guide outlines critical steps employers should take to ensure I-9 compliance, E-Verify compliance, and prepare for potential site visits.
I-9 Compliance Guide
The cornerstone of immigration compliance for employers is proper completion and maintenance of I-9 forms. Here are the essential steps to ensure I-9 compliance:
1. Timely Completion
Ensure Section 1 is completed by the employee on or before the first day of employment.
Complete Section 2 within three business days of the employee’s start date.
2. Document Verification
Physically examine documents presented by employees to establish identity and work authorization.
For E-Verify participants, ensure that List B documents contain a photograph.
3. Record Keeping
Retain I-9 forms for all current employees and for terminated employees as required by law.
Store I-9 forms securely, separate from other personnel records.
4. Regular Audits
Conduct internal audits of I-9 forms to identify and correct errors.
Consider using electronic I-9 systems to streamline compliance and reduce errors.
5. Training
Provide comprehensive training to HR personnel on I-9 compliance requirements.
Ensure staff understands proper completion, storage, and retention of forms.
E-Verify Compliance Guide
To prepare for a potential E-Verify site visit, employers should take the following compliance steps:
1. Account Maintenance
Ensure at least one program administrator is listed on the E-Verify account.
Keep the company profile up to date.
Verify all users have completed required tutorials, including refresher training.
2. Documentation and Record-Keeping
Maintain organized and secure storage of all I-9 forms and E-Verify records.
Be prepared to present all information originally submitted with E-Verify petitions.
Ensure List B identity documents have a photo.
3. Correct Records, as Needed
As per the E-Verify User Manual, if an employer discovers they inadvertently failed to create a case by the third business day, they should bring themselves into compliance immediately by creating a case for the employee. However, this applies to recent hires, not long-term employees.
The E-Verify User Manual goes on to say, “Do not create a case for an employee whose first day of employment is before the effective date of the employer’s MOU.”[1] As such, for employees who have been with the company for a while, submitting an E-Verify case long after their start date is generally not recommended.
4. Workplace Notifications
Clearly display E-Verify Notice of Participation and Right to Work posters in English and Spanish.
Consider displaying posters digitally, online, or providing copies with job applications.
5. Training and Preparation
Ensure all staff involved in I-9 verification are well-trained and up to date on procedures.
Conduct regular internal audits to identify and correct any compliance issues.
Consider having an attorney conduct an external audit to preserve privilege.
Preparing for Site Visits
With the increased possibility of ICE or FDNS site visits, employers should take proactive steps to prepare:
1. Develop a Written Response Protocol — create a comprehensive plan that outlines:
Designated points of contact for handling site visits;
Steps for verifying the identity and authority of visiting agents;
Procedures for notifying legal counsel and management; and
Guidelines for employee interactions with agents.
2. Designate and Train Key Personnel
Appoint primary and alternate contacts familiar with immigration compliance.
Ensure these representatives are prepared to greet inspectors and facilitate the visit.
Train front-line employees on how to respond to agent arrivals.
3. Know Your Rights and Limits
Understand the difference between administrative and judicial warrants.
Be aware that ICE agents cannot enter private areas without a valid judicial warrant or consent.
Clearly mark and designate private areas within your workplace.
4. Prepare Documentation
Maintain organized and easily accessible I-9 records.
Keep copies of visa petitions, Labor Condition Applications, and other relevant immigration documents for foreign national employees readily available.
Consider creating a “compliance binder” with key information about your organization and employees.
5. Educate Employees
Inform employees about their rights during a site visit, including the right to remain silent and request legal representation, and the right to refuse to sign documents without legal advice.
Provide “Know Your Rights” cards to employees, which are available in multiple languages.
Conduct mock site visits to train/familiarize staff with procedures and teach them how to best respond to inquiries politely and assertively.
During a Site Visit:
If ICE or FDNS agents arrive at your workplace, follow these steps:
Verify Credentials: Ask to see and record the agents’ identification and badge numbers.
Review Warrants: If presented with a warrant, carefully review its scope and validity.
Contact Legal Counsel: Immediately notify your designated legal representative.
Limit Access: Only provide access to areas and documents specified in a valid warrant (for ICE visits) or (in FDNS visits) documents, information, and interviews related to information that was provided in an immigration benefits filing for a foreign national worker.
Document the Visit: Take detailed notes of all interactions, including questions asked and answers provided.
Accompany Agents: Do not leave agents unattended in your workplace.
Maintain Calm: Encourage employees to remain calm and professional throughout the process.
Post-Visit Actions
After a site visit, take the following steps:
Debrief with legal counsel and the management team.
Review notes and documentation from the visit.
Address any compliance issues identified during the inspection.
Consider conducting a full I-9 audit, if not recently completed.
Reinforce training for employees based on the visit experience.
Potential Consequences and Penalties
Employers should be aware of the increased penalties for I-9 violations in 2025:
Type of Violation
Old Fine
New Fine
Substantive Form I-9 violations (minimum)
$281
$288
Substantive Form I-9 violations (maximum)
$2,789
$2,861
Knowingly employing undocumented workers – 1st order
$698–$5,579
$716–$5,724
Knowingly employing undocumented workers – 2nd order
$5,579–$13,946
$5,724–$14,308
Knowingly employing undocumented workers – subsequent
$8,369–$27,894
$8,586–$28,619
Document fraud – 1st order
$575–$4,610
$590–$4,730
Document fraud – subsequent order
$4,610–$11,524
$4,730–$11,823
Prohibition of indemnity bonds
$2,789
$2,861
Further, E-Verify participation may be terminated and employers will be reported to agencies that investigate illegal employment activities if E-Verify finds evidence of misuse, abuse, discrimination, and/or fraud.
These steep penalties underscore the importance of maintaining strict compliance with immigration laws and being prepared for potential site visits.
In Conclusion
As the enforcement landscape evolves under the new administration, employers must prioritize I-9 compliance and preparation for potential site visits. By implementing robust compliance programs, training staff, and developing clear response protocols, businesses can mitigate risks associated with immigration enforcement actions.
Remember, while cooperation is generally advisable, employers also have rights during these visits. Balancing cooperation with protection of your business interests is crucial. By staying informed, prepared, and proactive, employers can navigate this challenging environment while maintaining compliance.
[1] “MOU” refers to the E-Verify Memorandum of Understanding for Employers.
Alabama Legislature Weighs Substantial Cannabis Reforms: Let’s All Take a Deep Breath
Well, it’s officially crazy season. An annual tradition in the Alabama statehouse since the inception of Alabama’s medical cannabis program, last week we saw a flurry of cannabis-related bills introduced with great fanfare and the accompanying panic amongst cannabis stakeholders in Alabama. I was inundated with a high volume of calls, texts, and emails unseen since the last Alabama legislative session.
And there was a little something for everyone involved in cannabis, both on the hemp and medical cannabis side. The good news? Things may be trending in the right direction.
Let’s get into it.
Medical Cannabis Proposal Encounters Substantial Opposition, Drawing to a Head Whether There Is a Real Need for a “Legislative Fix”
Shortly before he gaveled his committee to order, Sen. Tim Melson introduced a substitute to Senate Bill 72. As a reminder, the original version of SB72 would have, in relevant part: (1) expanded the total number of integrated licenses from five to seven; (2) shifted the authority of issuing licenses from the AMCC to a consultant; and (3) shielded the decision from any judicial review. And, just as important, licenses wouldn’t be issued until well into 2026, assuming there was no litigation – an assumption I defy any serious person to tell me with a straight face is valid.
When the original version of SB72 was introduced, I wrote:
In my opinion, this bill has little chance of becoming law as drafted. I base that on my opinion that the Alabama Legislature has little interest in revisiting cannabis proposals at this time, my conversations with various stakeholders (including well-heeled applicants that employ influential governmental affairs specialists), and by the knowledge that it is easier to defeat legislation than it is to pass it.
For what it’s worth, I do believe the Legislature would pass a bill if all of the relevant stakeholders agreed it was the right way forward. Unfortunately, and this is inherent in any limited license situation, we are operating in a zero-sum game where there will be winners and there will be losers and those who believe a proposal will end in their defeat will fight tooth and nail to stop it.
The substitute bill would change the agencies tasked with appointing the consultant and would allow for the Alabama Court of Civil Appeals to review the award of licenses if the award was arbitrary or capricious or constituted a gross abuse of discretion. It would also move up the time to issue licenses, but it would still be in 2026, again assuming no lawsuits. While the substitute is a small step in the right direction and an acknowledgment of the flaws in the original bill, I still do not see it as the right path forward.
And here’s why: I reject that Alabama’s medical cannabis program requires a “legislative fix.” I believe that the original medical cannabis law, passed four years ago, isn’t broken. Major provisions in the law are currently awaiting a decision from the Alabama Court of Civil Appeals. I attended that oral argument in person – the first oral argument heard by the appellate court about the medical cannabis program. In my opinion, and the nearly unanimous opinion of people I trust to call balls and strikes, the panel signaled with unusual clarity and unanimity that it would be upholding the law and the challenged actions of the AMCC. If that is the case, we may be mere months away from issuing licenses to dispensaries and integrated facilities.
Once a single dispensary license is issued, Alabama doctors can begin obtaining certifications to qualify patients for medical cannabis and Alabamians with qualifying conditions can begin to obtain medical cannabis cards. So, if you believe that the appellate court offers a path forward that may allow medical cannabis in 2025, why would you press for a bill that would ensure that it isn’t? Put simply, if it ain’t broke, don’t legislatively “fix” it.
Psychoactive Hemp Ban Appears to Be Heading Towards Reasonable Compromise
Shortly before he gaveled his committee to order, Melson introduced a substitute to Senate Bill 132. As a reminder, that legislation would, in relevant part, “provide that only non-psychoactive cannabinoids derived from or found in hemp are exempt from [Alabama’s] Schedule I controlled substances list, thus classifying psychoactive cannabinoids as controlled substances” under Alabama law. That means “[i]f enacted into law, that’s the ballgame for nearly all non-industrial hemp products in Alabama. Say goodbye to your increasingly popular THC-infused seltzers. Adios federally compliant gummies and the like.”
I wrote at the time:
I suspect that certain psychoactive hemp restrictions will become law in Alabama in the current legislative session or in the coming years.
If it were my call, I would choose a path that regulates these products to ensure safety and only adult access, rather than to ban them outright. Put simply: Regulate, don’t eliminate.
If the stated goals of the supporters of SB132 are to keep psychoactive hemp out of the hands of minors and ensure that psychoactive hemp is safe, then why not pass laws to keep psychoactive hemp out of the hands of minors and ensure that psychoactive hemp is safe?
When it comes to keeping psychoactive hemp out of the hands of minors, the purveyors of psychoactive hemp products should be required to employ the same type of age-gating policies employed by sellers of tobacco and alcohol. These policies have been in place for years and should be able to govern psychoactive hemp sales without much difficulty. And law enforcement – aided by law-abiding psychoactive hemp companies policing bad actors – should take the law seriously and enforce it just as they do tobacco and alcohol.
When it comes to ensuring that psychoactive hemp products are safe for consumption, the law should require that products undergo the same type of rigorous testing and analysis required of marijuana products. The products should be tested by independent laboratories, and the results should be easily accessible and made available to consumers. Any batch that fails to meet the legal requirements for hemp or reveals unsafe materials in the batch should be destroyed before it is made available to the public.
In Alabama, this would be a substantial burden to many hemp manufacturers and retailers. But there are (at least) two reasons why it makes sense. First, responsible hemp operators welcome these types of regulation, and most of them are taking these steps already. Second, the law creates a higher barrier to entry into the psychoactive hemp market and makes it more difficult for less capitalized and unsavory companies. That should have the dual benefit of eliminating untested products and reducing the shelf space of what I call “gas station crank.”
This proposal would, as a practical matter, mean that the psychoactive hemp market would be dominated by increasingly popular hemp beverages and low-THC edibles. Those are two of the most popular versions of psychoactive hemp and have been widely accepted as alternatives to alcohol and controlled substances by cohorts ranging from young adults looking to turn away from alcohol in increasing numbers, middle-aged consumers looking to cut down on their midweek alcohol intake, and older Alabamians who increasingly look to psychoactive hemp for pain relief and sleep aids.
The substitute bill addresses many of the concerns I expressed about the original version of SB132. With a few tweaks, I think it could be a workable model for other states trying to adopt responsible hemp programs.
The substitute is essentially a two-part bill that separately addresses rules for (1) “hemp beverages” and (2) “psychoactive hemp products.”
Hemp beverages would essentially be treated like beer and wine. They would be subject to the traditional three-tiered model (manufacturer to distributor to retailer) and subject to the same franchise laws. They would be subject to much stricter testing rules to ensure conformance with federal and state laws, and they would have labeling requirements to ensure both that the products are not targeting children or making health claims and that a certificate of analysis was embedded in a QR code so that consumers could be confident that the beverage is what it purports to be. There would also be a 6% excise tax on hemp beverages in addition to any other applicable sales taxes.
The substitute defines and permits under certain defined circumstances the sale of “psychoactive hemp products.” The bill would define “psychoactive hemp product” to include:
A liquid that contains psychoactive cannabinoids and may include flavorings or other ingredients that are intended for use in an electronic nicotine delivery system or any other product marketed to consumers as an electronic cigarette, electronic cigarillo, electronic pipe, electronic hookah, vape pen, vape tool, vaping device, or any variation of these terms.
A candy, gummy, capsule, or other product that contains psychoactive cannabinoids and is intended to be ingested into the body.
An oil or tincture that contains psychoactive cannabinoids and is marketed to deliver to the body sublingually psychoactive cannabinoids.
Psychoactive hemp products may not contain more than a total of 10 milligrams of psychoactive cannabinoids per serving, and one gummy may not contain more than one serving.
Each product must be labeled in a manner that includes all of the following:
The name and website of the manufacturer
The batch number
The total number of milligrams of psychoactive cannabinoids found in a single serving
The International Intoxicating Cannabinoid Product Symbol (IICPS)
A list of ingredients, including identification of any major food allergens declared by name
So, What Now?
Loyal readers of Budding Trends will recall that multiple proposals were voted out of the same committee last legislative session and did not become law. They will also recall that it took more than one legislative session to pass a medical cannabis law in the first place. Is past prologue or is this another example of reform taking time?
The Montgomery political ecosystem is largely an echo chamber powered by rumors, innuendo, gossip, and occasionally facts purveyed specifically to influence the actions of legislators. This influence can take the form of flattery, a well-intended desire for positive change, or fear. Not fear of physical harm, but fear of being out of the loop; fear of being out of touch; fear of being on the wrong side.
Anyone who can get someone to pay them to offer an opinion on what will happen moving forward can probably get whatever the opinion they are paying to hear. After all, what’s the point in hiring someone in a government affairs role if they can’t convince you they can accomplish your objectives? With that in mind, and with full disclosure that I have clients who wish for differing outcomes (although I’m obviously not working any client against another), I think the best advice is to just read the room. What is leadership in the House and Senate saying publicly on the issue? What are the implications of the fact that the Alabama Court of Civil Appeals is currently deciding a case that could bring finality (or more confusion) to the issue? Who benefits most from change? Who suffers? And what is the chance that the Alabama Legislature could see this fight unfold and decide a medical cannabis program simply isn’t workable?
Find someone who can tell you the answers to those questions, and you’ll be in good hands.