Trump Administration Efforts to Eliminate Cartels Pose Heightened Risk for Financial Institutions
As discussed in Bracewell’s February 11 and February 26 updates, the executive branch is prioritizing the “total elimination” of cartels and transnational criminal organizations, both through edicts from the Oval Office and through agency initiatives. Each action is significant on its own, but taken together, this concerted effort increases the potential criminal and civil liability of any company — but particularly financial institutions — that conducts business in Mexico and certain parts of Central and South America. Below we break down three significant pieces of this effort and provide guidance on how companies should navigate this new risk landscape.
Designation of Cartels as FTOs and SGDTs Expands Scope of Criminal and Civil Liability
Pursuant to Executive Order 14157, the US State Department designated eight international cartels and transnational organizations[1] as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SGDTs). The list includes six Mexican cartels, TdA (a cartel active in parts South America) and MS-13 (a cartel active in parts of Central America). These new designations increase the risk of criminal and civil liability for both US and foreign companies that may interact with these cartels knowingly or unknowingly, directly, through third-party vendors, or when paying certain “fees” and to conduct business in areas controlled by the cartels.
Criminal Liability. Providing any of the cartels now designated as FTOs with money, financial services, lodging, personnel or transportation may constitute the criminal offense of providing “material support” to a terrorist organization in violation of 18 U.S.C. § 2339B. Because the reach of 18 U.S.C. § 2339B is not confined to US entities or activities on US soil, these charges have been brought against foreign companies for transactions in foreign countries, including against Lafarge, a French building materials manufacturer for sharing revenue with FTOs (ISIS and ANF) in Syria, and Chiquita Banana for making payments to an FTO (the AUC) in Colombia. By increasing the number of FTOs, the new designations increase the risk of similar prosecutions directed at any company providing material support to these newly designated FTOs operating in Mexico and in parts of Central and South America. While some of these entities may previously have been subject to US sanctions, criminal liability creates an even greater threat.
Civil Liability. The Anti-Terrorism Act, 18 U.S.C. § 2333, allows US nationals injured by an act of terrorism to bring claims against companies that engage in or aid and abet an act of international terrorism by providing material support or knowingly providing substantial assistance to the FTO who perpetrated, planned or authorized the attack. The potential liability is considerable, because the statute allows the victims to “recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” In Linde v. Arab Bank, PLC,[2] for example, a jury found Arab Bank Plc liable for knowingly supporting militant attacks in Israel linked to Hamas — an FTO — based on the bank’s providing financial services to charities that plaintiffs allege were agents of Hamas set up to solicit and launder money to support the FTO’s operations. Before the verdict was overturned on appeal, the bank was facing at least $100 million in damages. Ultimately, Arab Bank Plc reached a settlement with the plaintiffs for an undisclosed amount.
Justice Department Expedites Cartel-Related Prosecutions
Historically, certain types of prosecutions required approvals by various stakeholders within the Department of Justice. To facilitate the “aggressive prosecution” of cartels and transnational criminal organizations (TCOs), Attorney General Pam Bondi has suspended certain approval requirements, to which she referred as “bureaucratic impediments,” that might slow down or impede prosecutors from bringing charges against cartels, TCOs or their affiliates for some terrorism charges,[3] violations of the International Emergency Economic Powers Act (IEEPA), racketeering, violations of the Foreign Corrupt Practices Act and money laundering and asset forfeiture. See Bondi Memorandum regarding Total Elimination of Cartels and Transnational Criminal Organizations (Bondi Memo).
Before this suspension, a prosecutor would need approval from either the Criminal Division or the National Security Division (NSD) before issuing warrants and filing the charges listed above. Now, prosecutors are able to proceed more easily, without the same level of oversight. The Bondi Memo does, however, encourage consultation with the NSD and requires that prosecutors provide 24 hours’ advance notice of the intention to seek charges or apply for warrants. Nevertheless, the requirement to provide NSD with 24 hours’ notice, as compared to the requirement to meet NSD’s approval requirements, will allow for more charges to be brought more quickly.[4]
In addition to increasing the number of charges brought against cartels and their members directly, these changes will likely lead to an increase in the number of charges brought against companies for various crimes, including providing “material support” to a terrorist organization in violation 18 U.S.C. § 2339B, as described above; facilitating payments related to the human smuggling or illegal drugs, which has been declared a national emergency under IEEPA; and laundering money used for activities of the cartels.
Financial institutions are particularly at risk of tripping these wires. Banks that may provide financial services, or money transfer businesses (MTBs) that facilitate payments to cartels, for example, could be the subject of the criminal prosecutions described above. Given that cartels are woven into the fabric of many industries in Mexico, Central and South America, banks may be providing these services unwittingly. To address this threat, banks must reevaluate their Customer Due Diligence and KYC policies and reassess their current customers.
OFAC Highlights Risk for Financial Institutions Related to Cartel Designations
Reinforcing the increased risk of liability to financial institutions described above, the Office of Foreign Asset Control (OFAC) issued an alert on March 18, 2025 (OFAC Alert), warning of exposure to sanctions and civil or criminal penalties, especially for providing material support to foreign terrorist organizations in violation of 18 U.S.C. 2339B. The OFAC Alert is specifically directed at US and foreign financial institutions, noting that “foreign financial institutions that knowingly facilitate a significant transaction or provide significant financial services for any of the designated organizations could be subject to US correspondent or payable-through account sanctions.” This could suggest that the administration is not only aware that its new approach may ensnare financial institutions, but that doing so is one of its aims, likely calculating that such a focus will decrease cartel access to finances.
There is a precedent for such prosecutions of financial institutions for failing to maintain effective anti-money laundering programs and to conduct appropriate due diligence to avoid transacting with customers located in countries subject to sanctions enforced by OFAC. These prosecutions can result in fines and penalties greater than $1 billion. Now, the OFAC Alert serves as a warning that financial institutions may be prosecuted if they provide financial services to any of the cartels now designated as FTOs.
[1] The first round of designations include: Tren de Aragua (TdA); La Mara Salvatrucha (MS-13); Cártel de Sinaloa; Cártel de Jalisco Nueva Generación (CJNG); Cártel del Noreste (CDN); La Nueva Familia Michoacana (LNFM); Cártel del Golfo (CDG); and Cártel Unidos (CU).
[2] Case No. 04-cv-2799 in the United States District Court for the Eastern District of New York.
[3] The terrorism charges for which NSD approval has been suspended include: 18 U.S.C. §§ 2332a, 2332b, 2339, 2339A, 2339B, 2339C, 2339D, 21 U.S.C. § 960A, and 50 U.S.C. § 1705. This policy does not exempt from NSD’s approval and concurrence requirements cases involving 18 U.S.C. §§ 175, 175b, 219, 793, 794, 831, 951, and 1030(a)(l).
[4] Although it is not entirely clear in the Bondi Memo, these changes appear to apply only to “investigations targeting members or associates of cartels or TCOs.” The suspension of approval requirements could be interpreted, or may be amended, to include all charges under the enumerated statutes.
SEC Policy Shift and Recent Corp Fin Updates – Part 1
Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.
Regulation 13D-G
On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.
New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.
Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.
For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.
Proxy Rules and Schedules 14A/14C
Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.
On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.
For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.
Tender Offer Rules
On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.
In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.
New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.
In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.
In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.
Conclusion
This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.
Corporate Transparency Act Update: Drastic Reduction in Scope of BOI Reporting in March 21, 2025 FinCEN Guidance
On March 21, 2025, the United States Treasury announced a significant reduction in scope of the definition of “reporting company” under the Corporate Transparency Act, limiting the obligation to file beneficial ownership reports to foreign entities only and removing the obligation to file from U.S. persons and U.S. companies.
As noted in our previous online posts, following significant litigation regarding the constitutionality of the regulation, on February 19, 2025, FinCEN suspended reporting obligations under the CTA and promised further guidance on reporting obligations to be issued on or before March 21, 2025. On March 21, 2025, FinCEN issued an interim final rule:
The new rule exempts U.S. persons from having to disclose BOI under the regulations by narrowing the definition of a “reporting company”. This means that any entity created in the United States does not need to report beneficial ownership to FinCEN under the CTA, even if it has non-US persons as beneficial owners.
The rule is now narrowed to only foreign entities that are registered to do business in the United States by the filing of a document with a secretary of state or similar office. The rule reduces the scope of the CTA dramatically, as most foreign enterprises doing business in the United States will have created a legal subsidiary within the country in order to conduct business. As above, U.S. entities are exempt from reporting.
Entities in existence prior to Friday have 30 days to complete their BOI filings with FinCEN. Entities that come into existence after the issuance of the rule have 30 days following formation to complete their filing obligations.
FinCEN continues to accept comments to this interim final rule and intends on issuing a final rule later this year. The final rule may change the scope of the CTA, and litigation continues before the courts regarding the CTA. We will continue to follow the law’s progress and will provide updates as this regulation evolves.
Our prior posts on CTA developments can be found here:
Client Alert: Corporate Transparency Act Beneficial Ownership Information Reporting On Hold – Business Law
Client Alert: Supreme Court Allows Corporate Transparency Act Enforcement But FinCEN Notes Another Stay Prevents Current Implementation – Business Law
CTA Reporting Now Required, but FinCEN Waives Penalties and Indicates New Reporting Deadline Extension Likely Later This Year – Business Law
Immigration Enforcement and Healthcare Facilities: Key Considerations for Providers
Recent changes in federal immigration enforcement practices have prompted renewed attention to how healthcare providers manage requests from law enforcement agencies. While federal policy continues to recognize healthcare facilities as sensitive environments, there has been increased interest in enforcement activity in or around such locations. Healthcare organizations should consider taking this opportunity to review internal protocols and confirm they are prepared to respond in a manner that is consistent with applicable federal and state law.
This post outlines key considerations related to patient privacy, facility access, and provider obligations when immigration enforcement activity intersects with clinical operations.
Patient Privacy and Requests for Information
Healthcare providers remain subject to the requirements of the Health Insurance Portability and Accountability Act (HIPAA), which generally prohibits the disclosure of protected health information (PHI) without patient authorization, except in limited circumstances. One such exception is when disclosure is required by law—for example, pursuant to a valid court order or a judicial warrant.
Providers should be aware that administrative warrants issued by immigration authorities alone typically do not meet HIPAA’s “required by law” standard. In such instances, providers should consider verifying whether the request is supported by sufficient legal authority before disclosing patient information. Internal policies and staff training may help ensure that any disclosures are appropriately limited in scope and consistent with federal and state privacy laws.
Facility Access and On-Site Enforcement Activity
In some cases, immigration officials or other law enforcement personnel may seek to enter a healthcare facility to interview or take custody of an individual. Providers should consider preparing for such scenarios by identifying points of contact for handling law enforcement inquiries, establishing protocols for reviewing documentation, and confirming when legal counsel should be contacted.
Importantly, hospitals and other emergency care providers remain obligated to comply with the Emergency Medical Treatment and Labor Act, which requires the screening and stabilization of patients seeking emergency care, regardless of their background or circumstances.
Nondiscrimination and Access to Care
Providers that participate in Medicare or Medicaid are also subject to federal nondiscrimination requirements under the Civil Rights Act and Section 1557 of the Affordable Care Act, as well as state civil rights laws. These laws generally prohibit denying care on the basis of national origin or perceived immigration status. Healthcare organizations may wish to review their policies to ensure they reflect these ongoing obligations.
State and Local Considerations
In addition to federal law, healthcare providers should consider any applicable state or local requirements related to law enforcement interactions, patient rights, or data privacy. Several state attorneys general and regulatory agencies have issued advisories or guidance materials to assist providers in navigating these issues. For example, Maryland’s attorney general released guidance for Maryland providers in light of the recent policy changes on immigration enforcement. Reviewing such materials in consultation with counsel may help organizations develop compliant, well-informed operational protocols.
Conclusion
As enforcement practices evolve, healthcare providers would benefit from reviewing their procedures for responding to law enforcement activity—particularly in contexts involving patient privacy, facility access, and legal process. A proactive approach can help ensure compliance with relevant laws and support the delivery of uninterrupted, nondiscriminatory care.
Providers with questions about specific scenarios or legal requirements are encouraged to consult our team to assess how these considerations apply in their jurisdiction and operational context.
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FedRAMP 20x – Major Overhaul Announced to Streamline the Security Authorization Process for Government Cloud Offerings
On March 24, 2025, the Federal Risk and Authorization Management Program (“FedRAMP”) announced a major overhaul of the program, which is being called “FedRAMP 20x.” The FedRAMP 20x announcement stated there are no immediate changes to the existing authorization path based on agency sponsorship and assessment against the FedRAMP Rev 5 baseline.[1] However, once the initiative kicks off, we expect major changes to speed up and streamline that authorization path that likely will be welcomed by industry partners and cloud service providers participating in the program. Below are key points based on the recent FedRAMP 20x announcement.
The primary goals of the FedRAMP 20x initiative include:
Seeking to implement the use of automated validation for 80% of FedRAMP requirements, which would leave about 20% of narrative as opposed to the current 100% narrative explanations required in the document submission package.
Leaning on industry partners to provide continuous simple standardized machine-readable validation of continuous monitoring decisions.
Fostering trust between industry and federal agencies to promote direct relationships between cloud service providers and customers. Note, this appears to indicate that the FedRAMP Program Management Office (“PMO”) will have a much smaller role moving forward with respect to the authorization process and assessments.
Replacing annual assessments with simple automated checks.
Replacing the significant change process with an approved business process that will not require additional oversight to be developed in collaboration with industry.
FedRAMP 20x is an initiative that will be implemented in phases. The timeline for Phase 1 has not been announced but, once it is open, Phase 1 seeks to streamline the authorization process for eligible participants and authorized cloud service offerings in weeks rather than months. Phase 1 will focus on Software-as-a-Service offerings with the following characteristics:
Deployed on an existing FedRAMP Authorized cloud service offering using entirely or primarily cloud-native services;
Minimal or no third party cloud interconnections with all services handling federal information FedRAMP Authorized;
Service is provided only via the web (browser and/or APIs);
Offering supports a few standard customer configured features needed by federal agencies (or the cloud provider willing to build that capability quickly); and
Existing adoption of commercial security frameworks are a plus (SOC 2, ISO 27000, CIS Controls, HITRUST, etc.).
The practical implications of Phase 1 appear to be positive. Cloud service providers will be able to submit fewer pages for authorization submissions (i.e., less narrative, and more standard configuration choices for documentation). The documentation required for Phase 1 includes (1) documentation of security controls implemented by the cloud service provider and (2) materials demonstrating the cloud service provider’s existing commercial security framework to the extent it overlaps with FedRAMP requirements (e.g., a Security & Privacy Policy). There will be an automated validation component for Phase 1 authorizations, which may involve making configuration changes as needed to meet certain security controls. Following the assessment process, the cloud service offering will receive a score related to Confidentiality, Integrity, and Availability of federal information, and federal agencies will review this information to make risk assessments prior to adoption. Lastly, there will be changes to continuous monitoring with the replacement of annual assessments with simple automated checks and a new significant change process that will not require additional oversight.
Overall, with less documentation and narrative explanation, a more automated process with quicker authorization timelines, and less burdensome continuous monitoring activities due to enhancements through automation, the goal of FedRAMP 20x changes is to establish more efficient authorization and continuous monitoring processes. This should make it easier for cloud providers to sell their offerings to the government. Industry participation is a major focus of the new initiative. There are community engagement groups planning to begin meeting immediately and there will be opportunities for public comment as new ideas and documentation are rolled out. The community group meetings are focused on four topics: (1) Rev 5 Continuous Monitoring, (2) Automating Assessments, (3) Applying Existing Frameworks, and (4) Continuous Reporting. For those in this space, it will be important to participate to ensure industry partners are involved in shaping the program. The schedule for the meetings can be found here.
FOOTNOTES
[1] The FedRAMP Rev. 5 baseline aligns with National Institutes of Standards and Technology (“NIST”) Special Publication (“SP”) 800-53, Security and Privacy Controls for Federal Information Systems and Organizations, Revision 5.
USDA Will Fund 543 Projects in 29 States Through Higher Blends Infrastructure Incentive Program
On March 31, 2025, the U.S. Department of Agriculture (USDA) announced that it will release obligated funding under the Higher Blends Infrastructure Incentive Program (HBIIP) for 543 projects totaling $537 million in 29 states. According to the press release, USDA is “aggressively exploring additional ways to unleash American energy and incentivize the production and use of homegrown U.S. biofuels, including working alongside the Environmental Protection Agency (EPA) to develop Renewable Volume Obligations (RVO) that support the biofuel industry, as well as supporting EPA’s review of any potential emergency fuel waivers to allow the nationwide year-round sale of E15.” USDA provides HBIIP grants to fueling station and distribution facility owners, including marine, rail, and home heating oil facilities, to help expand access to domestic biofuels. USDA notes that expanding the biofuel infrastructure “broadens the availability of fuels like E15, E85, and B20, made from American-made agricultural commodities.”
SEC Provides Further Clarity in Rule 506(c) Offerings
On March 12, 2025, the Securities and Exchange Commission (the “SEC”) issued a No-Action Letter that provided guidance regarding the ways issuers can satisfy the accredited investor verification requirements of offerings made pursuant to Rule 506(c) under Regulation D. Specifically, the SEC confirmed that an issuer will satisfy the requirement that it take “reasonable steps” to verify the accredited investor status of an investor if the issuer requires purchasers to agree to certain minimum investment amounts, coupled with such investor’s self-certification of certain representations related to its investment.
Rule 506(c) provides a non-exhaustive list of steps which include collecting bank statements, verification letters, credit reports, or other sensitive documentation, which many issuers find too burdensome. The SEC’s clarification could make it easier for issuers relying on Rule 506(c) to make general solicitations to accredited investors.
Under the guidance provided by the No-Action Letter, an issuer can satisfy the verification requirement if:
The offering requires a minimum investment of at least $200,000 from natural persons or $1 million for legal entities (in either case, including binding commitments to invest at least the minimum amount in one or more installments when called by the issuer); and
The investor provides written representations that (a) the purchaser is an accredited investor; and (b) the purchaser’s minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.
The DEI Dilemma: New EEOC Guidance on DEI Initiatives
On March 20, 2025, the Equal Employment Opportunity Commission (“EEOC”) issued two key pieces of guidance: What To Do If You Experience Discrimination Related to DEI at Work and What You Should Know About DEI-Related Discrimination at Work. This guidance provides insights into the issues the EEOC will be monitoring regarding employers’ Diversity, Equity, and Inclusion (“DEI”) policies.
What Are Considered “DEI Policies”?
DEI consists of programs and policies that seek to promote the fair treatment and full participation in the workplace. Traditionally thought of as a remedial measure, DEI policies have focused on balancing the workplace by establishing organizational frameworks and initiatives, such as putting a spotlight on hiring and retaining members of particular groups who may have historically been underrepresented or subject to discrimination, including women, racial and religious minorities, and persons with disabilities.
Identifying Potential DEI Discrimination
Title VII of the Civil Rights Act of 1964 (“Title VII”), a statute enforced by the EEOC, prohibits employment discrimination based on protected characteristics such as race and sex. Different treatment based upon any characteristic protected by Title VII can be unlawful discrimination, no matter which employees are harmed; Title VII’s protections apply equally to all religious, racial, ethnic, and national origin groups, and regardless of sex. The EEOC’s position is that “there is no such thing as ‘reverse’ discrimination; there is only discrimination.” As noted by the guidance, “DEI policies, programs, or practices may be unlawful if they involve an employer or other covered entity taking an employment action motivated, in whole or in part, by an applicant’s or employee’s race, sex, or another protected characteristic.”
The EEOC’s guidance cautions that DEI initiatives could violate Title VII if they result in disparate treatment in the terms, conditions, or privileges of employment—including intangible terms such as exclusion from mentoring or sponsorship programs or workplace networking events, exclusion from training or fellowships, and selection preferences for interviews. Prohibited DEI conduct includes actions that may limit, segregate, or classify individuals based on a protected characteristic; examples provided in the guidance include limiting membership in workplace groups (such as affinity groups) to certain protected groups, and separating employees into groups based on a protected characteristic when administering DEI or other trainings—even if the separate groups receive the same programming content. Even if affinity groups or programs aren’t created or maintained by the employer, making company time, facilities, or premises available, and other forms of official or unofficial encouragement or participation may be seen by the EEOC as the employer “sponsoring” those activities, thus making the company liable for any prohibited exclusion by those groups.
According to the EEOC, “[d]epending on the facts, DEI training may give rise to a colorable hostile work environment claim.” If an individual is subjected to unwelcome remarks or conduct based upon race, sex, or other protected characteristics and it either (i) results in an adverse change to a term, condition, or privilege of their employment, or (ii) it is so frequent or severe that a reasonable person would consider it intimidating, hostile, or abusive, those circumstances may constitute a Title VII violation. Further, an employee’s “[r]easonable opposition to DEI training may constitute protected activity if the employee provides a fact-specific basis for his or her belief that the training violates Title VII.”
Potential Risks
Employees and applicants who have been subjected to unlawful discrimination or retaliation under Title VII are entitled to recover back- and front-pay damages, compensatory damages up to between $50,000 and $300,000 (depending upon the employer’s size), punitive damages, and attorneys’ fees. In cases involving intentional age discrimination, or in cases involving intentional sex-based wage discrimination under the Equal Pay Act, individuals cannot recover compensatory or punitive damages but can recover liquidated damages if the discrimination is found to be especially malicious or reckless.
An individual alleging discrimination based on an employer’s generally applicable policy also has a basis to join with others who have been negatively affected by that policy, creating a significant risk an employer may face a collective action with a nationwide class of employees.
Practical Advice for Employers
To avoid potential issues under Title VII (and potentially applicable state laws), employers should take the following action:
Review workplace policies, employee handbook, and training materials to ensure they comply with the EEOC’s recent guidance. Consider whether the EEOC would view them as violative of Title VII, such as by indicating a preference for particular races or sex. Ensure that any employee affinity groups are open to all employees. A “Working Mothers” group or “Minority Mentorship” program that is not open to everyone, for example, may violate Title VII in the EEOC’s view.
Provide training to all employees. Ensure your managers and employees are aware of Title VII’s protections against harassment, discrimination, and retaliation. Ensure that such training is inclusive and respectful of all employees, and includes discussion of how employees can report suspected violations.
If in doubt, contact legal counsel. The law and agency guidance around DEI and equal employment policies can be complicated, and the legal landscape—both at the federal and local levels—shifts frequently. Experienced employment counsel can help clients navigate these issues, ensuring the company and employees’ and applicants’ rights are protected.
US Treasury Extends Recordkeeping Requirement for Economic Sanctions Compliance to 10 Years
On March 20, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a final rule (Final Rule) extending the recordkeeping requirement for compliance with U.S. economic sanctions regulations from five to 10 years. This change aligns with the April 2024 legislation (Pub. L. 118-50) that increased the statute of limitations for economic sanctions violations under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1705, and the Trading with the Enemy Act (TWEA), 50 U.S.C. § 4315 to 10 years. The Final Rule took effect March 21, 2025.
10-Year Recordkeeping Requirement for Sanctions Compliance
The April 2024 legislation doubled the statute of limitations for civil and criminal violations of IEEPA and TWEA. Subsequently, OFAC issued an interim final rule (89 Fed. Reg. 74832) in September 2024 to amend its recordkeeping requirements, consistent with the revised statute of limitations. After reviewing public comments, OFAC finalized the rule, officially codifying the 10-year recordkeeping requirement at 31 C.F.R. 501.601 and requiring that:
[E]very person engaging in any transaction subject to [U.S. sanctions regulations] shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 10 years after the date of such transaction.
Additionally, individuals or entities holding blocked property must keep a full and accurate record of that property for at least 10 years after the date of unblocking.
Implications for Financial Institutions
Financial institutions – including banks, casinos, and money services businesses – subject to the Bank Secrecy Act (BSA) must implement risk-based measures to address compliance risks related to money laundering and terrorist financing.
Previously, the BSA’s recordkeeping requirements aligned with OFAC’s five-year retention period. With the Final Rule’s extension, financial institutions must reassess their record retention policies and update internal frameworks to comply with the new 10-year requirement. Regulatory agencies will expect institutions to revise policies, procedures, and controls to reflect this change.
Key Takeaways
The extended recordkeeping requirement applies only to sanctions compliance and does not affect the five-year retention requirements for the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR).
Companies should review their existing recordkeeping and record retention policies to determine updates or adjustments to be made to align with the new 10-year OFAC period, as well as evaluate potential conflicts with other regulatory record retention periods to be reconciled. Companies should also evaluate from an operational standpoint whether their systems, resources, and technologies can support the longer retention period, including assessing potential impacts on data management, storage costs, access controls, and cybersecurity.
Compliance measures should include updating record-retention policies, enhancing automated systems, and conducting organization-wide training to ensure adherence to the new rules.
This change carries significant operational and compliance implications, particularly for financial institutions, which must ensure readiness to meet the extended requirements while maintaining secure and accessible records for regulatory purposes.
VHA and DLA Enter Into Another Interagency Agreement: Déjà Vu All Over Again?
In March 2025, the Defense Logistics Agency (“DLA”) and the Veterans Health Administration (“VHA”) entered into another interagency agreement. The agencies announced that the purpose of the 10-year, $3.6 billion agreement is to align supply chain requirements and centralize logistical support DLA will provide to all VHA healthcare facilities nationwide.
The 2025 agreement follows three DLA and VHA interagency agreements entered into between 2018 and 2020. In 2018, DLA and VHA entered into an agreement under which VHA began transitioning its medical supplies purchasing to DLA’s Electronic Catalog (“ECAT”). In 2019, the agencies entered into another interagency agreement which allowed VHA to access medical and surgical items by leveraging the DLA supply chain and provided for creating a centralized ordering system, rather than using the separate VHA and DLA systems.
In December 2020, the agencies expanded their 2019 agreement. The 2020 agreement created a strategic partnership allowing VHA to pilot adoption of the DLA Defense Medical Logistics Standard Support (“DMLSS”) inventory management system. DMLSS serves as the primary system for DLA’s Medical Surgical Prime Vendor (“MSPV”) program. In 2021, the agencies announced plans to merge their MSPV programs. The plan was for the VA MSPV program to wind down and transition to the DLA MSPV program by September 2023. However, the merger was scuttled because of a bid protest filed at the U.S. Court of Federal Claims.
Companies selling medical and surgical supplies to the federal government might wonder whether the March 2025 agreement is nothing more than another interagency agreement between DLA and VHA extending their partnership. Alternatively, because we currently are living in a Department of Government Efficiency (“DOGE”) government contracts streamlining environment, the March 2025 agreement could mean DLA and VHA are getting ready to take another run at consolidating their MSPV programs.
Kentucky Legislature Ends Judicial Deference To State Agencies
In a realignment of judicial review standards, the Kentucky General Assembly overrode Governor Andy Beshear’s (D-KY) veto of Senate Bill (SB) 84, effectively abolishing judicial deference to all agency interpretations of statutes and regulations. This development marks a shift in administrative law in the Commonwealth.
A RESPONSE TO CHEVRON AND TO KENTUCKY COURTS
SB 84 invokes the Supreme Court of the United States’ 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine and ended judicial deference to federal agency interpretations of statutes. The bill’s preamble provides:
In Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the United States Supreme Court ruled that the federal judiciary’s deference to the interpretation of statutes by federal agencies as articulated in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its progeny was unlawful.
However, SB 84 does more than align Kentucky with the new federal standard. It also repudiates the approach taken by Kentucky’s own courts. The bill notes that decisions such as Metzinger v. Kentucky Retirement Systems, 299 S.W.3d 541 (Ky. 2009), and Kentucky Occupational Safety and Health Review Commission v. Estill County Fiscal Court, 503 S.W.3d 924 (Ky. 2016), which embraced Chevron-like deference at the state level, is a practice that the legislature now declares inconsistent with the separation of powers under the Kentucky Constitution.
KEY PROVISIONS: DE NOVO REVIEW MANDATED
The operative language of SB 84 creates two new sections of the Kentucky Revised Statutes (KRS) and amends an existing provision by establishing a de novo standard of review for agency, including the Kentucky Department of Revenue, interpretations:
An administrative body shall not interpret a statute or administrative regulation with the expectation that the interpretation of the administrative body is entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
The interpretation of a statute or administrative regulation by an administrative body shall not be entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
A court reviewing an administrative body’s action… shall apply de novo review to the administrative body’s interpretation of statutes, administrative regulations, and other questions of law. (New Section of KRS Chapter 446.)
The court shall apply de novo review of the agency’s final order on questions of law. An agency’s interpretation of a statute or administrative regulation shall not be entitled to deference from a reviewing court. (Amended KRS 13B.150.)
This means Kentucky courts must now independently review all legal interpretations made by agencies, including in tax cases before the Kentucky Board of Tax Appeals, without any presumption of correctness.
A CONSTITUTIONAL FLASHPOINT
Governor Beshear vetoed the bill, arguing in his veto message that it violates the separation of powers by dictating to the judiciary how it should interpret laws. Governor Beshear’s message provides that:
Senate Bill 84 is unconstitutional by telling the judiciary what standard of review it must apply to legal cases…It prohibits courts from deferring to a state agency’s interpretation of any statute, administrative regulation, or order. It also requires courts to resolve ambiguous questions against a finding of increased agency authority. The judicial branch is the only branch with the power and duty to decide these questions.
Republican lawmakers countered that SB 84 strengthens the judiciary’s independence. Senate leadership said in a statement that:
SB 84 aligns Kentucky with a national legal shift that reaffirms the judiciary’s role in interpreting statutes. The bill does not weaken governance—it strengthens separation of powers by removing undue deference to regulatory agencies and restoring courts’ neutrality in legal interpretation.
The governor’s constitutional objections should not apply to cases before the state’s Office of Claims and Appeals (which includes the Board of Tax Appeals), which the legislature itself created.
CONSIDERATIONS FOR TAX PRACTITIONERS
For tax practitioners, SB 84 could reshape tax litigation strategy in Kentucky. Courts reviewing Department of Revenue guidance or interpretations – whether in audits, refund claims, or administrative appeals – are no longer bound by any deference. The Department of Revenue’s legal position is now just that – a position, not a presumption. Whether Kentucky courts fully embrace this legislative mandate or chart their own course remains to be seen.
Either way, this is a welcome development for taxpayers and practitioners who have long argued that state agencies should not have the last word on the meaning of tax statutes. By mandating de novo review, Kentucky reinforces a neutral playing field, one where legal questions are resolved by courts without institutional bias in favor of the agency.
Other states should take note and follow suit. Just last year, Idaho, Indiana, and Nebraska passed similar amendments restoring judicial independence from executive branch interpretations of state laws. SB 84 offers a legislative blueprint for restoring judicial independence and curbing agency overreach in the tax context. As more states grapple with the implications of Loper Bright, Kentucky’s approach provides a model for how legislatures can proactively realign administrative law with core separation of powers principles.
Recent Division of Corporation Finance Guidance Relating to Regulation 13D-G Beneficial Ownership Reporting, Proxy Rules, and Tender Offer Rules
Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.
Regulation 13D-G
On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.
New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.
Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.
For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.
Proxy Rules and Schedules 14A/14C
Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.
On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.
For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.
Tender Offer Rules
On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.
In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.
New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.
In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.
In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.
Conclusion
This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.