Administrative & Regulatory – Page 14

Cannabis Day: Top 10 Weed Roundup of Budding Trends’ Trendiest Blog Posts of the Year 2025

As the hallowed cannabis holiday for stoners-turned-business-entrepreneurs falls upon us, we find ourselves in the shifting sands of change in the cannabis industry as usual. Not surprisingly, many states have seen legislation brought to the table, decisions made at the courts, and commentary presented by politicians that will directly impact cannabis businesses, medical marijuana dispensaries, hemp cultivators, and more. In our 2025 “Weed Roundup” of the top 10 most read Budding Trends blog posts, we visit North Carolina, California, Georgia, Alabama, Michigan, and federal marketplaces for updates (search our posts for updates from Mississippi, Tennessee, Colorado, Ohio, Arizona, Texas, South Carolina, Missouri, Kentucky, Virginia, among others). As we delve into each state’s unique legal journey in adapting or resisting new cannabis norms, trust our expert editors to provide you with the most comprehensive and timely analyses in the cannabis industry.
Don’t believe us? First, check out the editors’ Top Trends in 2024 and 2025 Predictions blog posts.
Now, to the countdown:
Does Kamala Harris Support Marijuana Legalization? Squaring Words with Actions in an Evolving Political Environment
As she did just prior to becoming the Democratic Party nominee for president, Vice President Kamala Harris has announced her support for legalizing adult-use marijuana use at the federal level. Just to remind you of the interesting times we are living in, the veep did so during a guest appearance on the sports podcast “All the Smoke.”
“I just think we have come to a point where we have to understand that we need to legalize it and stop criminalizing this behavior,” Harris said. Harris made a point to argue that her support of legalization was not new, saying that “I have felt for a long time we need to legalize it.”…read more.
Joint Effort: Why a New Crop of House Members, a New Speaker, and Continued Bipartisan Support Could Finally Light the Way for Medical Marijuana in N.C.
In November 2023, we pondered whether 2024 might be “the year” for medical marijuana legalization in North Carolina. Well, it wasn’t.
Why, you ask? How can a state whose population has expressed overwhelming bipartisan support for medical marijuana legalization still have nothing to show for it? How can a state whose Senate has shown overwhelming bipartisan support for medical marijuana legalization still have nothing to show for it? …read more.
California Bans Most Hemp Products and Illuminates Battle Between Hemp and Marijuana Businesses
What if I told you that California of all places – where virtually any adult can purchase marijuana on demand – was trying to harsh the mellow of citizens trying to access certain hemp-derived products? On the next 30 for 30, “California Schemin’.”
Welcome to the next front of the battle between marijuana and hemp.
California Gov. Gavin Newsom recently announced “emergency” regulations that would ban products derived from industrial hemp that contain any intoxicating cannabinoids and set an minimum age of 21 years old to purchase hemp products… read more.
Georgia Legislature Considering Substantial Overhaul to Medical Marijuana, Hemp Laws
I’ve had Georgia on my mind these days. I needed to get that out immediately because otherwise I would have been hearing that song in my head the entire time I was writing.
As is the case in many capitals around the country during legislative sessions, there’s cannabis reform afoot in Georgia. Before we dig into it, perhaps a brief vocabulary lesson is in order. “Cannabis” is essentially a scientific term that refers to the cannabis plant. “Marijuana” and “hemp” are legal terms distinguishing between strains of the cannabis plant. At the federal level, for example, “hemp” has been defined as a strain of the cannabis plant containing less than 0.3% delta-9 THC on a dry weight basis… read more.
Trump Expresses Support for Marijuana Reform, Coy on Psychedelics
Cannabis consumers can be forgiven for feeling the need for a more liberal cannabis policy as they weather this seemingly unending campaign cycle.
Republican presidential candidate Donald Trump recently made clear how he would be voting personally on the legalization of the recreational use of marijuana. Posting on Truth Social, Trump stated:
As a Floridian, I will be voting YES on Amendment 3 this November… read more.
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… read more.
DEA Reschedules Rescheduling, and I’m Feeling a Little Like Charlie Brown Trying to Kick the Football
No, it’s not (just) a cruel play on words. Last week, the Drug Enforcement Administration announced that a much-anticipated public hearing on the proposal to reschedule marijuana would be moved from early December until the first quarter of 2025. I’m not sure I specifically predicted this, but it’s just about the most predictable thing ever. And it has a number of people thinking (wrongly in my opinion) that rescheduling may not even happen given the results of the recent elections… read more.
Michigan Court Prohibits Sale of Illegal Marijuana in a Ruling Straight Out of “Duh” Magazine
Believe it or not, I actually spend a lot of time deciding whether something is worth taking the time to write about. Cannabis news is developing as rapidly as any area of the law, and there are only so many hours in a day. I’ll admit up front that this was a close call.
There could be some angle that I’m not quite getting that would allow for unlicensed marijuana sales in states that have adopted marijuana licensing regimes, but I’m leaning towards thinking this may be one of the silliest, most obvious cases I’ve seen in years (and I see some wild cases in this line of work)… read more.
Federal Appeals Court: Pay That Man His Money, Unless That Money Is Illegal Marijuana Money
Good news, bad news if you’re a cannabis operator that owes money to a creditor. But probably bad news for the rule of law.
A federal appellate court has ruled that a cannabis operator is obligated to repay his debts to an ex-business partner, but it raised questions about whether the money used to repay the debt could violate federal marijuana laws.
What does this mean for a cannabis operator and potential investors? …read more.
How Will the Cannabis World Look When Marijuana Is Rescheduled?
A few weeks ago, someone at a holiday party asked “Whitt, why doesn’t Budding Trends take on the weighty legal issues of the day and instead resort to cheap pop culture references and puns?” I thought about responding with a quote from “Run Like an Antelope” but then it hit me: Maybe we should give some thought to a more high-minded discussion about the practical implications of marijuana rescheduling. (Editor’s note: This exchange did not actually happen.) So, I guess set the gear shift for the high gear of your soul, and let’s dive in… read more.
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Old North State Report – April 21, 2025

UPCOMING EVENTS
April 22, 2025
NC Chamber Spring Member Roundtable – Asheville
April 24, 2025
RTAC – Association of Corporate Counsel Spring Reception – (Raleigh)
April 28, 2025
Thinkers Lunch: Rob Christensen
May 13, 2025
NC Chamber Business Summit on Mental Health
June 5, 2025
Triangle Business Journal 2025 State of Health Care in the Triangle
LEGISLATIVE NEWS
SENATE PASSES BUDGET PLAN
On Monday, the North Carolina Senate unveiled Senate Bill 257, their budget plan for state spending, which includes raising pay for teachers and state workers, advancing income tax cuts, and allocating funds for future Hurricane Helene recovery efforts. The GOP’s budget plan, spanning 440 pages, promises to cut out “waste” and “bloated” spending. The proposed budget for the next two years totals $32.6 billion for 2025-26 and $33.3 billion for the following year.
The budget designates $700 million for Hurricane Helene response and an additional $1.1 billion for the state’s “rainy day fund,” which could be used for more Helene aid or other expenses. This adds to the $1.5 billion already spent on recovery since the storm occurred six months ago.
Most state employees would receive a raise of 1.25% next year, along with $3,000 in bonuses over two years. Some employees in specific roles, especially correctional staff and law enforcement, would receive even larger raises with average increases set at 3.3% for teachers, 8.9% for correctional officers, 9.2% for Highway Patrol, and 14.4% for Alcohol Law Enforcement and SBI officers. The budget plan would include a review of state government spending, led by State Auditor Dave Boliek.
Other highlights from the proposal include:

An overall increase in funding for health care, including sizeable investments in the Medicaid Contingency Reserve, reflective of Medicaid expansion.
A $535.5 million investment in a new 500-bed pediatric hospital with UNC Health and Duke Health.
$25 million to reinstate coverage of GLP-1 weight-loss drugs for certain state workers.
Overhauls to NCInnovation’s funding model, asking for the return of $500 million the organization received from the state in 2023.
Additional funds for teacher signing bonuses, mentorship programs, and initiatives to improve reading scores.
Doubling the tax rate for sports betting operators from 18% to 36%.
Allocating $3.5 billion over two years to the State Capital Infrastructure Fund, which finances construction initiatives at universities.
Reducing the income tax rate to 3.49% in 2027 and 2.99% in 2028, with potential for further reductions.
Increasing unemployment benefits to $400 per week.
Establishing a fund for state veterans’ cemeteries within the Department of Military and Veterans Affairs.
Restoring the “Rainy Day” reserves fund to $4.75 billion.
Allocating $110 million for PFAS monitoring through the Department of Environmental Quality.
Designating $1.5 billion in federal funds for rural broadband internet.
Would Repeal the state’s Certificate of Need Law

The Senate passed the budget proposal on Thursday morning with a vote of 30-15, which included four Democrats voting with the Republican majority. The House is expected to release their proposed budget in May, with negotiations between the chambers following thereafter.
Read more be NC Newsline
Read more by WRAL News (Doran) (4/15/25)
Read more by WRAL News (Doran) (4/17/25)
Read more by News & Observer (4/15/25)
Read more by News & Observer (4/16/25)
HOUSE PASSES REINS ACT
The North Carolina House of Representatives has passed House Bill 402, known as the “Regulations from the Executive in Need of Scrutiny (REINS) Act. ” This bill increases legislative control over state agency rulemaking, requiring approval from the North Carolina General Assembly for any regulation with economic impacts over $1 million. The House passed the bill with a 68-44 vote, gaining support from all Republicans and one Democrat.
Representative Allen Chesser (R-Nash) stated that the bill makes lawmakers accountable for significant regulatory decisions, providing citizens with someone to hold responsible. “Right now, we’ve got over 110,000 regulations on the books in North Carolina, and almost 100% of them pass through our current system,” Chesser explained on the House floor. “Very few would cross this threshold to where it comes into our body, where we get to get to review it. What we’re saying is that the people should have someone to hold accountable, and that should be us.”
Bill sponsors in the North Carolina General Assembly claim the REINS Act increases government accountability in regulatory reform, giving more power to the people and their representatives.
Chesser mentioned in committee that the final version is less intrusive than the original draft. However, Democrats opposing the bill raised concerns about possible constitutional issues regarding the separation of powers.
Read more by The Carolina Journal
MORE ACTION ON ENERGY POLICY
In 2021, the General Assembly required the Utilities Commission to take all reasonable steps to reach a 70% reduction in carbon dioxide emissions from electric public utilities in North Carolina by 2030 and carbon neutrality by 2050. Senate Bill 261, passed by the Senate on March 13, would eliminate the interim 70% goal. The bill would also allow public utilities to increase base rates to recapture costs for construction work in process outside the general rate case process. Language similar to Senate Bill 261 was included in the Senate’s proposed budget.
Read more by The Carolina Journal
Read more by NC Newsline
EMPLOYMENT PREFERENCE FOR MILITARY VETERANS COULD EXPAND
A bill to expand hiring preferences for military veterans, their spouses, and dependents in state government received a favorable hearing in the Committee on Homeland Security and Military and Veterans Affairs. House Bill 114 aims to improve current law by:

Removing the requirement that service must relate to a war period.
Including those on active duty.
Including members of the U. S. Armed Forces Reserve.
Including spouses or dependents of qualified individuals.

Representative Charles Smith (D-Cumberland), a co-sponsor, stated that the bill modernizes outdated laws, as veterans currently must have served during wartime, with the Vietnam War defined as the last such conflict. “Time has passed, and so to expand that preference to a greater pool of veterans, it strips away that language [defining the Vietnam War as the nation’s last],” Smith said.
Expanding preferences could help fill job vacancies in the state government. The veteran unemployment rate was 3.7% in March, with 84,900 civilian federal employees in North Carolina, including 28,000 veterans and 33,200 spouses of veterans or active-duty members. A quarter of the VA’s 482,000 employees are veterans.
The bill has been sent to the House Committee on Commerce and Economic Development.
Read more by NC Newsline
HOME GAMING LEGISLATION ADVANCES
House Bill 424 aims to make home card and dice games legal, although some critics worry it could lead to high-stakes gambling. The bill states that North Carolina’s gambling rules do not apply to recreational games in private homes or clubhouses.
The bill’s sponsor, Representative David Willis (R-Union), introduced it after a HOA board complaint about a card game at a public clubhouse. It allows people to play games for money in a private setting, but no mechanical devices can be used, and only personal winnings are allowed.
The bill, which passed a committee on April 1, has new restrictions for charitable game nights, limiting them to 24 per year and no more than two per week. An amendment was suggested to limit high-stakes gambling. The updated bill was approved and sent to the Rules Committee.
Read more by State Affairs Pro
BILL BANNING SOCIAL MEDIA FOR MINORS PASSES HOUSE COMMITTEE
A bill to ban social media for minors under age 14 has passed the House Commerce and Economic Development Committee. House Bill 301 requires parental consent for teens aged 14 and 15 to create social media accounts. The bill holds social media platforms accountable for removing unauthorized accounts and deleting personal data.
Platforms must verify user ages and can face fines up to $50,000 for violations. The NC Department of Justice can investigate and enforce compliance, with proceeds from penalties funding the state’s Civil Penalty and Forfeiture Fund.
The bill’s sponsor, Jeff Zenger (R-Forsyth), pointed out the strong support for the bill from parents of different political views. “One thing that’s been interesting is the overwhelming support from parents across the political spectrum. I didn’t expect such unanimous approval, but it’s been clear that parents are fully behind this.”
Some lawmakers are concerned about enforcement, but Zenger argues that action is necessary for children’s safety.
Read more by The Carolina Journal

Utah, West Virginia, and Wyoming Enact Laws Defining Male and Female

Utah, West Virginia, and Wyoming recently passed laws aligning with recent executive orders issued by President Donald Trump defining sex as binary and immutable.

Quick Hits

Utah, West Virginia, and Wyoming lawmakers recently enacted state laws recognizing only two genders, male and female.
The state legislators acted after President Donald Trump issued an executive order establishing that the federal government’s new policy is to recognize only two sexes, male and female, despite contravening federal law.
The three states restrict transgender and nonbinary individuals from using public school bathrooms and locker rooms that align with their gender identity.

Utah, West Virginia, and Wyoming joined Iowa and other states in passing state laws redefining gender as binary (e.g., male and female only) and immutable, thus attempting to reject governing Supreme Court of the United States case law recognizing gender identity as a protected characteristic under Title VII of the Civil Rights Act of 1964.
The Supreme Court ruled in Bostock v. Clayton County, Georgia that the firing of an employee because of the employee’s sexual orientation or gender identity constituted unlawful sex discrimination under Title VII. Various courts have since applied Bostock to prohibit discrimination on the basis of gender identity by protecting rights to use bathrooms corresponding to gender identity and to use pronouns reflecting one’s gender identity. Despite the fact Bostock remains good law, on January 20, 2025, President Trump signed an executive order to define sex as binary and immutable. The laws in Utah, West Virginia, and Wyoming track the executive order.
Utah Law
On January 30, 2025, Utah Governor Spencer Cox signed a law requiring transgender and nonbinary people to use bathrooms, locker rooms, and showers that correspond with their sex assigned at birth. The new law applies only to government buildings and public schools, but took effect immediately.
The new law defines female as “an individual whose biological reproductive system is of the general type that functions in a way that could produce ova.” It defines male as “an individual whose biological reproductive system is of the general type that functions to fertilize the ova of a female.”
As of September 1, 2024, Utah’s legal code defines sex as being “male or female, at birth, according to distinct reproductive roles as manifested by sex and reproductive organ anatomy; chromosomal makeup; and endogenous hormone profiles.”
West Virginia Law
On March 18, 2025, West Virginia Governor Patrick Morrisey signed into law a bill establishing only two sexes, male and female, under state law. It defines female as “an individual who naturally has, had, will have through the course of normal development, or would have but for a developmental anomaly, genetic anomaly, or accident, the reproductive system that at some point produces, transports, and utilizes ova for fertilization.” It defines male as “an individual who naturally has, had, will have through the course of normal development, or would have but for a developmental anomaly, genetic anomaly, or accident, the reproductive system that at some point produces, transports, and utilizes sperm for fertilization.” This law will take effect on June 16, 2025.
The law also states there must be a reasonable accommodation, such as a single-occupancy restroom or changing area, for people who are not willing or able to use the facility assigned to their biological sex.
Wyoming Law
On March 5, 2025, the Wyoming legislature passed a bill that defines sex as being male or female at birth. It defines female as “a person who has, had, will have or would have had, but for a congenital anomaly or intentional or unintentional disruption, the reproductive system that at some point produces, transports and utilizes eggs for fertilization.” It defines male as “a person who has, had, will have or would have had, but for a congenital anomaly or intentional or unintentional disruption, the reproductive system that at some point produces, transports and utilizes sperm for fertilization.”
This bill became law on March 14, 2025, without the governor’s signature. It took effect immediately.
On March 3, 2025, Governor Mark Gordon signed a different bill into law that requires public school students to use bathrooms and locker rooms that align with their sex assigned at birth.
That law took effect immediately.
Next Steps
Amid the changes in federal guidance and state law, Bostock remains good law and prohibits harassment and discrimination based on sexual orientation and gender identity. Further, the U.S. Equal Employment Opportunity Commission’s (EEOC) sex harassment guidelines voted on by the EEOC and issued in April 2024 remains active guidance. The EEOC’s acting chair, Andrea Lucas, has stated she wants to rescind all or part of the earlier guidance related to gender identity, in particular bathroom and pronoun usage, once a quorum exists as the EEOC.
Employers in public schools and government buildings in Utah, West Virginia, and Wyoming may wish to review their policies and practices to ensure employees have safe access to single-sex facilities, as required under the Occupational Health and Safety Act’s general duty clause, and carefully evaluate compliance with all applicable, federal, state, and local laws regarding access to bathrooms, locker rooms, dorms, and showers. The restrictions passed in the states do not apply to private employers in private buildings.

Not So Fast: DOL Releases Annual Funding Notice Guidance Just Before the Distribution Due Date

Takeaway

Plan administrators should review their plan’s 2024 annual funding notice against the model notice and determine whether their plan’s 2024 annual funding notice is compliant. If not, plan administrators are expected to take corrective action.

New Jersey Supreme Court Confirms: Commissions Are Wages Under the New Jersey Wage Payment Law

In a decision with significant implications for employers and employees alike, the New Jersey Supreme Court on March 17, 2025, clarified that commissions constitute wages under the New Jersey Wage Payment Law (“NJWPL”).
In Musker v. Suuchi, Inc. et al., the Court reversed the rulings of both the trial court and the Appellate Division, holding that commissions paid for an employee’s labor or services “always constitute a wage under the WPL.”
In drawing its conclusion, the court focused on the NJWPL’s definition of “wages,” which is defined as “direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, task, piece, or commission basis.” N.J.S.A. 34:11-4.1(c) (emphasis added).
Case Background
Rosalyn Musker, the plaintiff in the case, was a sales employee at Suuchi, Inc., a technology-driven fashion supply chain platform. Her compensation included an $80,000 base salary and sales commissions under Suuchi’s Sales Commission Plan. Traditionally, she sold software subscriptions to apparel companies.
However, as the COVID-19 pandemic hit in 2020, Suuchi pivoted its business model and began selling personal protective equipment (PPE)—and Musker was tasked with selling it. While the company did not formally update the commission plan to reflect this new line of business, it did send an email outlining sales terms for PPE transactions.
Musker delivered results. Yet, when it came time for commission payments, she alleged that the company failed to fully compensate her. She filed a lawsuit under the NJWPL, asserting that her unpaid PPE commissions constituted “wages” that were wrongfully withheld.
Suuchi disagreed, characterizing the commissions as “supplementary incentives”—a term that the NJWPL explicitly excludes from the definition of wages.
The Lower Courts’ Takes
At both the trial and appellate levels, the courts sided with Suuchi. The judges found that because Musker already received a base salary, the PPE commissions were not essential compensation for her services, but rather “extras”—in other words, not protected wages.
But the New Jersey Supreme Court saw it differently—and laid down a clear and employee-friendly interpretation of the law
The New Jersey Supreme Court’s Decision
The NJWPL defines “wages” as “direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, task, piece, or commission basis.” (N.J.S.A. 34:11-4.1(c)). The law excludes “supplementary incentives and bonuses” that are calculated independently of regular wages.
The Supreme Court found this statutory language to be “clear and unambiguous.” To reinforce its interpretation, the Court turned to dictionary definitions—focusing on the terms “labor,” “services,” and “commission.” It found that “commission” payments are indeed direct compensation for the labor or services an employee performs—making them squarely within the NJWPL’s definition of wages.
In contrast, “supplementary incentives” are payments meant to motivate employees beyond their required duties. And that’s the critical distinction: commissions like Musker’s were tied to services she was obligated to perform as part of her sales role. Selling PPE became part of her job, even if it was a new product offering. Thus, the Court concluded that Musker’s commissions were wages, not optional incentives.
Takeaways
If an employee earns a commission for work required as part of their job, it is a wage—and must be paid accordingly. For companies operating in fast-moving industries—where roles, duties, and compensation structures shift quickly—this ruling is a timely reminder to reassess how compensation is structured and documented. Informal changes to compensation plans, like the email Suuchi sent regarding PPE commissions, do not absolve employers of their legal obligations.
The consequences for non-compliance with the NJWPL are steep. Employers who fail to pay wages—including commissions—may face not only the amount owed but also liquidated damages (up to 200% of the unpaid wages) and attorneys’ fees.
Jessica Hajdukiewicz, a Law Clerk – Pending Admission (not admitted to the practice of law) in the firm’s New York office, contributed to the preparation of this post.

Jepson Claims No Substitute for Written Description in Patents

Federal Circuit Holds That the Preamble of Jepson-Style Claims Must Be Supported by an Adequate Written Description
U.S. patent claims have a preamble, and, in most cases, the preamble is not limiting.[1] Jepson-style patent claims, however, do typically have a limiting preamble.[2] In Jepson-style claims, the preamble can be used to describe the “conventional or known” elements or steps, followed by a transition phrase such as “wherein the improvement comprises” and then an identification of the elements that “the applicant considers as the new or improved portion.”[3] In other words, the preamble can first recite the prior art and then claim an improvement over the prior art.[4]
In In re Xencor, Inc. (“Xencor”), the Federal Circuit recently held that the preamble in a Jepson-style patent claim must be supported by an adequate written description even though there is an implied admission that most, if not all, of the preamble is known, prior art.[5] Xencor is important because it precludes the use of Jepson-style claims to expand the scope of the written description contained in the patent specification by simply including additional information in the preamble and, thereby, implicitly asserting that the new information is well-known in the art. This is particularly significant for the so-called unpredictable arts, such as the life sciences and chemistry, where the written description requirements are often more stringent.[6]
In Xencor, the Federal Circuit considered whether the preamble of a Jepson-style claim must also meet the written description requirement for patents.[7] Under 35 U.S.C. § 112(a), the specification of a patent must “contain a written description of the invention.”[8] To satisfy the written description requirement of § 112(a), “the specification must describe an invention understandable to that skilled artisan and show that the inventor actually invented the invention claimed.”[9]
On March 13, 2025, in Xencor, the Federal Circuit rejected the patent applicant’s argument that because the “invention” in a Jepson claim is the improvement, only the improvement, and not the prior art in the preamble, needed sufficient written description.[10] Rather, the Federal Circuit held that the preamble in a Jepson claim requires an adequate written description.[11] In other words, “the applicant must establish that what is claimed to be well-known in the prior art is, in fact, well-known in the prior art.”[12]
In reaching this conclusion, the Federal Circuit explained that when the Jepson format is used, the preamble defines the claimed invention and limits the scope of the claims.[13] Although a Jepson claim is directed to the improvement made to the prior art, the Federal Circuit further explained that “the claim is a singular thing and cannot be separated; its totality is what must have written description support, which necessarily includes support sufficient to lead an ordinary artisan to understand that the inventor did, indeed, possess what the patent contends was in the prior art.”[14] According to the Federal Circuit, “[a] patentee cannot be permitted to use a Jepson claim to avoid the requirement that she be in possession of the claimed invention simply by asserting something is well-known in the art.”[15]
The Federal Circuit further explained that “[t]he amount and content of the disclosure that is necessary to supply an adequate written description will vary depending on factors including the level of knowledge of the person of ordinary skill in the art, the unpredictability of the art, and the newness of the technology.”[16] As with all written description inquiries, the finder of fact conducting a written description inquiry for a Jepson claim may consider not only the disclosures in the patent itself, but also evidence outside the patent in order to understand what a person of ordinary skill in the art would have known.[17]
The patent application at issue in Xencor was related to modifying antibodies with certain amino acid substitutions in order to provide for longer staying power in the body and reduce the need for more frequent treatment.[18] The application included a Jepson-style claim for an improvement of “a method of treating a patient by administering an anti-C5 antibody with an Fc domain.”[19] However, an appellate review panel (“ARP”) and administrative review board (“Board”) both determined that the limitation in the Jepson preamble, the anti-C5 antibodies, was not well-known in the art and the specification did not otherwise contain an adequate written description to support it.[20] As noted by the ARP, “[t]the Specification does not describe what patients with what diseases or conditions can be successfully treated with an anti-C5 antibody. Nor is there a single working example describing treatment of patients with a disease or condition with an anti-C5 antibody possessing the claimed Fc modifications.”[21] Ultimately, the Federal Circuit affirmed the ARP’s and the Board’s rejection of the Jepson claim as unpatentable for lack of written description.[22]
Even before Xencor, Jepson-style claims were infrequently used in U.S. patent applications. Following Xencor, the Jepson format may still prove beneficial in a few specific, limited circumstances. For example, a Jepson-style claim can be used to distinguish one claimed invention from another, particularly when seeking to overcome, or prevent, a double patenting rejection for a similar invention. Likewise, use of the Jepson format is common in some foreign countries, so U.S. applications that originate outside the United States sometimes include Jepson claims.
Jepson-style claims, however, have several disadvantages. In contrast to the general rule, the preamble of a Jepson claim is not only limiting, but Xencor now also requires an adequate written description to support it.[23] In addition, use of the Jepson format is often taken as an implied admission that the previous invention described in the preamble is prior art.[24] While the implied admission can be rebutted, this typically occurs only when the Jepson format was used to avoid a double patenting rejection in a co-pending application.[25]
These potential disadvantages, including the new written description requirement for the preamble, should be considered by a practitioner when deciding whether to draft a claim using the Jepson format. The Xencor decision makes it clear that including a limitation in the preamble of a Jepson-style claim does not automatically mean that it is well-known in the art. Instead, patent practitioners should ensure that there is adequate support to satisfy the written description requirement for the preamble of a Jepson-style claim, either in the patent itself or through extrinsic evidence that conclusively establishes the knowledge of a person of ordinary skill in the art.
Footnotes
[1]E.g., Am. Med. Sys., Inc. v. Biolitec, Inc., 618 F.3d 1354, 1358-59 (Fed. Cir. 2010) (quoting Allen Eng’g Corp. v. Bartell Indus., Inc., 299 F.3d 1336, 1346 (Fed. Cir. 2002)). Nonetheless, a preamble may limit a claim “if it recites essential structure or steps, or if it is ‘necessary to give life, meaning, and vitality’ to the claim.” Catalina Mktg. Int’l, Inc. v. Coolsavings.com, Inc., 2839 F.3d 801, 808 (Fed. Cir. 2001) (quoting Piney Bowes, Inc. v. Hewlett-Packard Co., 182 F.3d 1298, 1305 (Fed. Cir. 1999)).
[2] E.g., Catalina Mktg. Int’l, Inc., 289 F.3d at 808 (“Jepson claiming generally indicates intent to use the preamble to define the claimed invention, thereby limiting claim scope”).
[3] Artic Cat Inc. v. GEP Power Prods., Inc., 919 F.3d 1320, 1330 (Fed. Cir. 2019) (quoting 37 C.F.R. § 1.75(e)). This practice was approved in Ex parte Jepson, 243 Off. Gaz. Pat. Office 525, 528 (1917) (“When an applicant presents a claim, as in this case, which does particularly point out his exact invention, there is certainly nothing in the law to interdict his doing it by including the old parts of the structure in a preamble and set apart from the structure which constitutes the real invention.”). The practice has since been codified in 37 C.F.R. § 1.75(e):
When the nature of the case admits, as in the case of an improvement, any independent claim should contain in the following order, (1) a preamble comprising a general description of all the elements or steps of the claimed combination which are conventional or know, (2) a phrase such as “wherein the improvement comprises,” and (3) those elements, steps and/or relationships which constitute that portion of the claimed combination which the applicant considers as the new or improved portion.
[4] Dow Chemical Co. v. Sumitomo Chemical Co., Ltd., 257 F.3d 1364, 1368 (Fed. Cir. 2001).
[5] In re Xencor, Inc., 130 F.4th 1350, 1361 (Fed. Cir. 2025).
[6] E.g., Juno Therapeutics, Inc. v. Kite Pharma, Inc., 10 F.4th 1330, 1341 (Fed. Cir. 2021).
[7] In re Xencor, Inc., 130 F.4th at 1360-63.
[8] 35 U.S.C. § 112(a).
[9] E.g., Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010); United Therapeutics Corp. v. Liquidia Techs., Inc., 74 F.4th 1360, 1370 (Fed. Cir. 2023).
[10] In re Xencor, Inc., 130 F.4th at 1360-61.
[11] Id. at 1361.
[12] Id. at 1362.
[13] Id. at 1361 (“The invention is not only the claimed improvement, but the claimed improvement as applied to the prior art, so the the inventor must provide written description sufficient to show possession of the claimed improvement to what was known in the prior art.”) (emphasis in original).
[14] Id.
[15] Id. at 1362.
[16] Id.

[17] Id.
[18] Id. at 1354.
[19] Id. at 1354-55.
[20] Id. at 1362.
[21] Id. at 1356.
[22] Id. at 1362-63.
[23] Id. at 1361.
[24] In re Fout, 675 F.2d 297, 301 (C.C.P.A. 1982) (“We hold that appellants’ admission that they had actual knowledge of the prior Pagliaro invention described in the preamble constitutes an admission that it is prior art to them.”); see also Application of Ehrreich, 590 F.2d 902, 909-10 (C.C.P.A. 1979) (“We agree that the preamble elements in a Jepson-type claim are impliedly admitted to be old in the art, but it is only an implied admission.”) (citations omitted).
[25] See Ehrreich, 590 F.2d at 909-10.

Modernizing Permitting and Securing Minerals: Key Takeaways from Recent Presidential Actions

On April 15, 2025, President Trump took two additional actions building on previous initiatives focused on streamlining and supporting domestic mining and mineral production, including the Immediate Measures to Increase American Mineral Production executive order issued on March 20, 2025 (the Mining Order) and the Unleashing American Energy executive order from January 20, 2025. These actions are:

Updating Permitting Technology for the 21st Century, which seeks to modernize and streamline the federal permitting process for infrastructure projects (the Permitting Directive); and
Ensuring National Security and Economic Resilience Through Section 232 Actions on Processed Critical Minerals and Derivative Products, which mandates an evaluation of how the importation of processed critical minerals and their derivative products could affect national security.

Together, these actions reflect an urgent commitment to facilitate domestic mineral production, enhance national security, and promote economic growth. In addition, on April 18, 2025, the Federal Permitting Improvement Steering Council (Permitting Council), released its initial list of ten transparency projects under the Priority Projects directive of the Mining Order. There will be more to come on this action in an upcoming post.
Permitting Directive
The Permitting Directive mandates that executive departments and agencies maximize the use of technology in environmental reviews and permitting processes. The directive is intended to apply to all types of infrastructure projects such as mines, roads, bridges, factories, and power plants. Key highlights include:

Digital Transition: The directive seeks to eliminate paper-based applications and reduce the duplication of data submissions. This is intended to facilitate better cooperation among agencies (including the ability for interagency use of the same analyses) and streamline the approval process to increase transparency and predictability of permit schedules.
Establishment of the Permitting Technology Action Plan: The chairman of the Council on Environmental Quality (CEQ) is tasked with developing a strategy to modernize the technology used in federal permitting and environmental reviews resulting in a Permitting Technology Action Plan.
Creation of the Permitting Innovation Center: The chairman of the CEQ is also tasked with establishing and leading an interagency Permitting Innovation Center. This new center will focus on designing and testing new prototypes to enhance the efficiency of the permitting process, ensuring that federal infrastructure projects can move forward on a timely basis.

Tariff Probe on Critical Minerals
In conjunction with the Permitting Directive, President Trump ordered an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether imports of processed critical minerals and their derivative products threaten to impair national security. This action aims to address risks to and vulnerabilities of the US manufacturing and defense industrial bases by reliance on global supply chains for critical minerals and derivative products. Key highlights of the executive order include:

National Security Concerns: The order identifies potential risks to national security and economic stability due to US reliance on global supply chains for critical minerals and derivative products that are crucial inputs for US manufacturing and the industrial base, including risks of potential disruption due to geopolitical events or natural disasters and potential for price and market manipulation.
Review Timeline: Commerce Secretary Howard Lutnick has been directed to begin a national security review under Section 232 of the Trade Expansion Act of 1962 and has been given 180 days to report findings, including recommendations on whether to impose tariffs. Section 232 of the Trade Expansion Act of 1962 allows the President to request that the Department of Commerce investigate to determine the effect of specific imports on US national security.
Focus on Domestic Production: The review is intended to assess vulnerabilities in the US critical minerals (including rare earths and uranium) supply chain, the economic impact of foreign market distortions, and potential trade remedies to ensure a secure and sustainable domestic supply of these essential materials. The Commerce Secretary is directed to report on the following:

Identification of current US imports of processed critical minerals and derivative products, the foreign sources of such critical minerals and derivative products, and the percent, volume, and dollar value of such imports by country;
Risks associated with source countries of critical minerals and derivative products and analysis of the distortive effects of any predatory economic, pricing, and market manipulation strategies and practices used by such countries
The demand for processed critical minerals by manufacturers of derivative products in the US and globally; and
A review and risk assessment of global supply chains for processed critical minerals and their derivative products and an analysis of the current and potential capabilities of the US to process critical minerals and their derivative products.

These recent actions reflect a dual strategy to bolster US mining, energy, and manufacturing and address vulnerabilities in the critical mineral supply chain. By integrating technology into the permitting process and identifying supply chain vulnerabilities, the administration aims to enhance domestic manufacturing, mineral production, and energy and secure long-term economic resilience and national security.

New Seventh Circuit Decision Signals Greater Flexibility for Healthcare Marketing Services

On April 14, 2025, the United States Court of Appeals for the Seventh Circuit issued a decision in a case involving the federal Anti-Kickback Statute (“AKS”) and marketing services that the court framed as an appeal “test[ing] some of the outer boundaries of the [AKS]….”
In United States vs. Mark Sorensen, the Court of Appeals overturned the judgment of conviction against Mark Sorensen from the United States District Court for the Northern District of Illinois. In the district court case, Sorensen, the owner of SyMed Inc., a durable medical equipment (“DME”) distributor, was found guilty of one count of conspiracy and three counts of offering and paying kickbacks in return for the referral of Medicare beneficiaries to his DME company, which the United States claimed resulted in SyMed’s fraudulently billing $87 million and receiving $23.6 million in payments from Medicare. The district court judge denied Sorensen’s post-trial motions for acquittal and for a new trial, finding that the evidence regarding willfulness allowed the jury to find beyond a reasonable doubt that Sorensen “knew from the beginning of the agreement in 2015 that the percentage fee structure and purchase of the [doctors’] orders violated the law.” He was sentenced to 42 months in prison and ordered to forfeit $1.8 million.
The charges against Sorensen stemmed from SyMed’s arrangements with several advertising and marketing companies, a DME manufacturer, and a billing company. Under the business model for which Sorensen was convicted, the marketing companies published advertisements for orthopedic braces, to which interested patients could respond using an electronic form providing their names, addresses, and doctors’ contact information. This information was forwarded to call centers where sales agents from the marketing companies would contact the patients to discuss ordering braces and generating prescription forms. After collecting additional information, and with consent from patients to proceed, the sales agents faxed the prefilled, but unsigned, prescription forms to patients’ physicians. The prescription forms contained SyMed’s name and corporate logo and listed the devices to be ordered. SyMed paid the DME manufacturer 79 percent of the payments it received from Medicare or another payor, and kept 21 percent, from which it paid the billing company for its services. The DME manufacturer paid the marketing companies out of its 79 percent share based on the number of leads each company generated. The government argued that the payments to these marketing companies constituted illegal kickbacks under the AKS because they were intended to induce the referral of Medicare beneficiaries.
According to the Seventh Circuit, a critical fact leading to its reversal of Sorensen’s conviction was that the physicians who received these unsigned prescription forms got to decide whether to sign and return the forms to SyMed and the billing company for review—or to ignore them. According to the court’s decision, physicians declined 80 percent of the orders from one of the marketing companies and “regularly ignored forms sent by” the other marketing company.
The appellate court reversed the district court’s decision for insufficient evidence, noting that “[t]he other individuals and businesses Sorensen paid were advertisers and a manufacturer. They were neither physicians in a position to refer their patients nor other decisionmakers in positions to ‘leverage fluid, informal power and influence’ over healthcare decisions.” The Seventh Circuit characterized the marketing companies’ communications to physicians as “proposals for care, not as referrals”, noting that to the extent they could be considered “recommendations” to physicians, “they were frequently overruled.” The appellate court further stated, “[t]he key point is that, on this record, physicians always had ultimate control over their patients’ healthcare choices and applied independent judgment in exercising that control.” Consequently, the appellate court concluded that “Sorensen’s payments thus were not made for “referring” patients within the meaning of the statute.” Interestingly, the court focused more on the percentage payments to the DME manufacturer and less on the “per lead” payments to the marketing companies. This was likely due to the low use or conversion of orders for orthopedic braces by physicians using these prefilled forms by the marketing companies which, to the court, demonstrated that the physicians retained and exercised control over whether an orthopedic brace would be ordered for their patients.
In considering whether the 80 percent declination rate experienced by the one marketing company was dispositive, the Seventh Circuit declined to adopt a bright-line rule. Instead, the appellate court noted in a footnote to its decision that “[o]ur focus is on whether a payee exerts informal but substantial influence so that a physician’s choice of care becomes a formality rather than an exercise of independent medical judgment.”
The Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) has previously considered pay per lead arrangements with advertising companies in advisory opinion (“AO”) 08-19. In AO 08-19, the HHS-OIG allowed a pay per lead arrangement involving chiropractors under the limited circumstances presented in that AO: the advertising company was not a health care provider, the advertising did not target only Federal health care program beneficiaries, fees paid by the chiropractors would not depend on whether the lead became an actual patient, and the advertisers would not steer patients to a particular chiropractor. The OIG’s analysis in AO 08-19 also relied on the fact that the advertising company did not collect any health care information, such as payor information, medical history, or diagnosis information about prospective patients using the advertiser’s platform.
The Seventh Circuit’s decision signals that payments to marketing firms for services like advertising and lead generation are less likely to be considered illegal kickbacks, provided that (1) the marketing firms do not exert direct influence over prescribing physicians, and (2) physicians retain genuine autonomy in their medical decisions, in which one factor that may be considered is the conversion rate of a marketing lead to a physician order. While the Seventh Circuit did not provide an explicit definition of the term “referrals” for purposes of the AKS, the court’s emphasis on the independent decision-making of the physicians suggests a potential limit on what actions by a third party can be considered to trigger the AKS’s prohibition against payments for referrals. This could create a clearer path forward for legitimate marketing activities while still prohibiting direct inducements to healthcare providers for specific referrals. We will monitor how other Circuits treat similar issues and report back on our findings.

Federal Court Finds False Claims Act Penalty Unconstitutionally Excessive

On February 26, 2025, the U.S. District Court for the Northern District of Texas issued a significant False Claims Act (FCA) ruling in United States of America ex rel. Cheryl Taylor v. Healthcare Associates of Texas, LLC, finding that the application of the FCA’s mandatory per-claim penalty violated the Eighth Amendment. The Court upheld the jury verdict finding the defendants liable under the FCA, but substantially reduced the $448 million in penalties imposed, citing the Eighth Amendment’s Excessive Fines Clause.
The relator-whistleblower alleged that the defendants employed fraudulent Medicare billing practices in violation of Medicare billing rules. After a two-week trial, the jury found that Healthcare Associates of Texas (HCAT) submitted 21,844 false or fraudulent claims and collected $2,753,641.86 in overpayments.
In assessing potential damages under the FCA, the overpayment amount—roughly $2.75 million in this case—is merely the starting point. The statute allows private whistleblowers or the Government to seek up to three times that amount and to impose penalties between $13,946 and $27,894 for every single false claim. As a practical matter, the Department of Justice often settles FCA cases by applying a multiplier between 1.25 and 2 times the amount of actual damages, while seeking per-claim penalties is far less common.
Relator sought treble damages as well as the maximum statutory penalties. Although the amount of the overpayment was less than $2.75 million, the jury imposed per-claim penalties and awarded Relator $448,817,000—more than 100 times the amount the Government actually reimbursed Defendants for the allegedly fraudulent claims.
HCAT argued that such an award would violate the Excessive Fines Clause, which prohibits “grossly disproportional” fines relative to the offense. The Court agreed, noting that the ratio of statutory to actual damages was over 100 to 1 and that the conduct at issue was based on rules violations as opposed to more egregious conduct like billing for fictitious services. Thus, based on constitutional concerns under the Excessive Fines Clause, the Court reduced the statutory damages to three times the actual damages, setting total liability at $16,521,851.16.
While the FCA mandates per-claim penalties, which often result in extraordinary damage calculations, courts increasingly ask whether they are constitutional and may reduce excessive fines when they result in disproportionate liability. Given these concerns, those facing disproportionally large FCA penalties may consider raising Eighth Amendment arguments early in the litigation, particularly when statutory fines vastly exceed actual damages.
This ruling highlights critical considerations for health care providers and their legal counsel navigating FCA enforcement actions.

Mexico Overhauls Federal Data Protection Law

Isabel Davara F. de Marcos of Davara Abogados S.C. reports that on March 20, 2025, the Mexican Congress approved a new Federal Law on the Protection of Personal Data Held by Private Parties (“LFPDPPP”), replacing the previous 2010 federal data protection law. The LFPDPPP, which became effective March 21, 2025, represents a substantial change in Mexico’s data protection framework, impacting the scope of application, legal bases for data processing, and individual rights. Relevant updates and considerations for companies operating in Mexico include:

expanded definition of personal data;
broader legal bases for processing;
stricter privacy notice requirements;
enhanced individual rights over automated processing; and
increased fines and a new judicial structure (i.e., the creation of specialized data protection courts to handle legal proceedings, including constitutional rights lawsuits).

The LFPDPPP dissolves the National Institute for Transparency, Access to Information and Personal Data Protection, transferring its authority to a newly created Secretariat of Anti-Corruption and Good Governance. This body will oversee compliance, conduct investigations, and impose sanctions.
Promulgating regulations are expected to be issued within 90 days from the law’s effective date, which are expected to clarify the scope and operational details of the law.

OFAC Issues Updated Guidance to Shipping and Maritime Sector Regarding Evasion of Iranian Oil Sanctions

On April 16, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an update to its Sept. 2019 advisory, addressed to the global shipping and maritime sector, regarding sanctions evasion activities in connection with the shipment of Iranian-origin petroleum, petroleum products, and petrochemical products. The update was prompted by the Feb. 4, 2025 National Security Presidential Memorandum (NSPM-2), which directs the U.S. Department of the Treasury to implement a vigorous sanctions program to deny Iran and its terrorist proxies access to revenue.
Previously, on Oct. 11, 2024, Secretary of the Treasury Janet Yellen, in consultation with Secretary of State Anthony Blinken, had designated the petroleum and petrochemical sectors of the Iranian economy pursuant to Executive Order 13902, which authorizes the imposition of sanctions on any designated sector of the Iranian economy.
Iran relies on oil sales revenues to fund its malign activities, including its nuclear weapons and ballistic missile programs, and its support of terrorist groups. The oil shipments create significant sanctions risks for shipping companies, vessel owners, managers, operators, insurers, port operators, port service providers, financial institutions, and others in, or that work with, the maritime industry.
Iran’s Deceptive Practices
Iran-linked networks deploy an array of deceptive practices designed to circumvent sanctions, including:

Use of a “shadow fleet” of tankers. Iranian cargo is often transported on a shadow fleet of tankers, comprised of older, poorly maintained vessels that operate outside of standard maritime regulations. On Dec. 6, 2023, the International Maritime Organization (IMO) issued a resolution urging relevant stakeholders to avoid aiding illegal operations by the shadow fleet, but some stakeholders and jurisdictions continue to do so, by allowing substandard tankers to call at their ports; by overlooking adherence to international maritime regulations such as regular port state control inspections; and by providing bunkering, flagging, and crew management services to tankers sanctioned by OFAC or to other shadow fleet vessels. Iran also uses a separate shadow fleet of gas carriers to transport liquefied petroleum gas, primarily to China.
Use of ship-to-ship transfers to obscure origin and destination. While ship-to-ship (STS) transfers can be legitimate, Iran often uses multiple such transfers (typically three to five per shipment) to obfuscate the origin of the cargo and/or the involvement of sanctioned vessels. Multiple transfers are a strong risk factor for sanctions evasion. This is especially so when the transfers are conducted at night, in unsafe waters, near sanctioned jurisdictions, terminals, or refineries, or involve a vessel with missing or manipulated Automatic Identification System (AIS) data.
Use of falsified documents. To obscure the origin and destination of shipments, Iran-linked networks falsify cargo and vessel documents, including bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call.
Disabling or tampering with AIS transponders. To mask their movements, including port calls and STS transfers, vessels transporting Iranian cargo often disable or tamper with their transponders. This is usually done together with other data manipulation, such as falsely reporting the Maritime Mobile Service Identity (MMSI) number or IMO number of the vessel. The updated guidance cautions not to rely solely on a single data point in verifying vessel activity for compliance.
Use of complex vessel ownership and management structures. Iran-linked networks use multiple shell companies and vessel-owning SPVs in high-risk, low-transparency, and low-regulation jurisdictions. Ship brokers in lax jurisdictions help facilitate transfers between and among shell companies.
Oil brokering networks. Oil brokers outside Iran help facilitate sales of Iranian petroleum and petroleum products, largely to China, often several steps removed from the initial sale. These oil brokers frequently create or distribute falsified documents, as noted above.

Identifying and Mitigating Sanctions Risks
To safeguard against these practices, and to avoid unwitting violations of sanctions laws, the updated guidance advises maritime sector stakeholders to review their sanctions compliance programs, and to enhance their due diligence and strengthen their internal controls as appropriate. The recommendations include:

Verify cargo origin. Recipients of cargo should conduct due diligence to corroborate the origin of goods. Red flags include vessels exhibiting deceptive behavior, or suspected links to sanctioned persons or locations. Testing samples of the cargo can reveal chemical signatures unique to Iran’s oil fields. Certificates of origin from Oman, the UAE, Iraq, Malaysia, or Singapore should be thoroughly investigated. Shipowners or charterers involved in STS transfers should request documentation regarding vessel STS history or verification of the last time the tank of the offloading vessel was empty, to ensure the cargo is not of Iranian origin.
Verify insurance. Parties should verify that vessels have adequate and legitimate insurance coverage, and are not relying on sanctioned insurance providers, or on new and untested providers without valid basis.
Verify flag registration. Vessels registered in jurisdictions known to service shadow fleet vessels, or that have flown multiple flags in a short period of time should be investigated as to ownership, voyage history, and flag history. The IMO’s Global Integrated Shipping Information (GISIS) database should be checked, to see if the vessel is flying a “FALSE” or “UNKNOWN” flag.
Review shipping documentation. Any indication that shipping documentation has been manipulated is a red flag that should be fully investigated. Documents related to STS transfers should establish that the cargo was delivered to the port reflected on the shipping documentation.
Know your customer (KYC) and know your vessel (KYV). In addition to conducting KYC due diligence (enhanced as appropriate), there should be KYV due diligence conducted on vessels, vessel owners, ultimate beneficial owners and group ultimate owners, and operators involved in contracts, shipments, and related maritime transactions. For vessels, this includes researching the IMO number and vessel history, including travel patterns, available STS history, ownership history, insurance, flag history, ties to evasive activities, actors, or regimes, and assessing risks associated with the owners, operators, or managers.
Monitor for manipulation of vessel location data. Irregularities in AIS data (including gaps in the data) could indicate manipulation, a serious red flag, warranting enhanced due diligence before further engagement.
Implement contractual controls. Contracts should contain representations and warranties that counterparties are not engaging in activity that violate, or that would cause a U.S. person to violate, U.S. sanctions laws, and that allow termination when such circumstances arise. In addition, contracts should allow termination based on certain types of suspicious activity.
Refuse service or port entry to sanctioned vessels. Port agents, operators, and terminals should engage in due diligence to ascertain whether a vessel is sanctioned, and should refuse service or port entry to such vessels.
Leverage available resources. A fair amount of information is available through open-source databases and from organizations in the maritime sector. These resources should be consulted.

The U.S. government continues to prioritize efforts to curtail Iran’s ability to generate revenue from its energy sector. Iran-linked networks have been finding ways to thwart U.S. sanctions. Companies in the maritime sector are particularly at risk of sanctions violations, which – even if inadvertent – potentially carry steep penalties, as the OFAC sanctions program is a “strict liability” regime. Up-to-date sanctions compliance programs are essential. Katten is ready to assist in implementing and upgrading sanctions compliance programs, and guiding clients through these deep and turbulent waters.

Navigating New Compliance Challenges for Financial Institutions and Payment Processors: The U.S. Treasury’s Enhanced Terrorist Finance Tracking Program

In a significant move to combat illicit financial activities focused on cartels, the U.S. government has intensified its scrutiny of cross-border payments, particularly those linked to Mexico. This development follows the designation of several Mexican cartels as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These actions, coupled with the expanded use of the U.S. Treasury’s Terrorist Finance Tracking Program (“TFTP”), signal a new era of regulatory oversight for financial institutions and payment processors.
Key Developments

Cartel Designations and Legal Implications: On February 20, 2025, the U.S. Department of State designated eight cartels, including six based in Mexico, as FTOs and SDGTs. These designations expand criminal liability for knowingly providing material support to these organizations and authorize the U.S. Treasury to block financial transactions involving designated entities and their affiliates.
Southwest Border Geographic Targeting Order (“GTO”): The Financial Crimes Enforcement Network (“FinCEN”) has issued a Southwest Border GTO, requiring money services businesses (“MSBs”) in 30 ZIP codes across California and Texas to report cash transactions exceeding $200 but not more than $10,000 within 15 days effective from April 14 through September 9, 2025. This measure increases recordkeeping or reporting requirements and aims to enhance monitoring of financial flows near the United States-Mexico border. FinCEN also encourages the filing of SARs to report transactions conducted to evade the $200 threshold despite the SAR regulation dollar threshold (i.e., transactions that involve or aggregate to at least $2,000).
Enhanced Role of TFTP: The TFTP will play a pivotal role in monitoring and enforcing these new sanctions. By leveraging financial intelligence tools, U.S. regulators aim to identify potential sanctions violations, even in routine business transactions.
Penalties for Failing to Report: If a business or its representatives willfully violate a GTO as of March 14, 2025, they may face: (1) Civil Penalties: The higher of $71,545 or the transaction amount, up to $286,184, with separate penalties for each violation; or (2) Criminal Penalties: Fines up to $250,000 and/or up to five years of imprisonment.

FinCEN released FAQ’s on the GTO on April 16, 2025.
Implications for Financial Services and Payment Processors

Increased Recordkeeping or Reporting Requirements: Financial institutions are now required to block funds in which a designated cartel or its agents have an interest. This will test already existing compliance frameworks, including enhanced due diligence and transaction monitoring systems. The Southwest Border GTO further intensifies these requirements by mandating Currency Transaction Reports for cash transactions exceeding $200 in designated regions. Institutions also face strict liability for sanctions breaches under the SDGT designations.
Regulatory Risks: Companies engaged in cross-border transactions, particularly with Mexico, may face greater regulatory scrutiny. This includes industries or entities directly or indirectly linked to designated organizations. The TFTP enables regulators to flag routine transactions for additional review, increasing the risk of enforcement actions.
Technology: Payment processors and MSBs must adapt to new reporting requirements and should consider implementing advanced analytics to detect potential sanctions violations. This includes leveraging financial intelligence tools to identify suspicious patterns and mitigate risks.
Data Privacy and Security: The TFTP’s reliance on financial transaction data raises questions about data privacy and security. Institutions should balance compliance with privacy regulations while ensuring the integrity of their systems.

To navigate the evolving regulatory landscape shaped by the U.S. Treasury’s Terrorist Finance Tracking Program (TFTP) and related measures, financial services and payment processing companies should take proactive steps to monitor and react to these changes.