Minnesota Employment Legislative Update 2025, Part III: Regular Session Ends in Stalemate and Stagnation
On May 19, 2025, the Minnesota Legislature’s regular session adjourned without completing the two-year budget, leaving a long list of outstanding bills in limbo. The Minnesota Legislature will now enter a special session to tackle unfinished business. Despite the regular session’s anti-climactic ending, state lawmakers managed to pass a handful of bills that have been signed by Governor Tim Walz and will create new obligations for employers.
Quick Hits
Minnesota’s regular legislative session adjourned on May 19, 2025, but a special session is expected to convene soon to complete remaining budgetary matters.
Governor Walz signed the Brady Aune and Joseph Anderson Safety Act, imposing new requirements on employers with commercial scuba divers.
The legislature amended Minnesota’s medical cannabis law, among other laws, which creates new obligations for employers.
Other significant proposed bills aimed at amending existing labor and employment laws failed to make it to Governor Walz’s desk for approval.
Brady Aune and Joseph Anderson Safety Act
A new statute, Minn. Stat. § 182.679, titled the “Brady Aune and Joseph Anderson Safety Act,” applies to “persons who are conducting self-contained underwater breathing apparatus (scuba) diving at a place of employment while making improvements to the land, including the removal of aquatic plants” took effect May 2, 2025. Under this new statute, which is included in the Minnesota Occupational Safety and Health Act (Minn. Stat. § 182), employers:
may not allow an individual to scuba dive unless the individual has an acceptable open-water scuba diver certificate;
must require certain equipment when an individual is scuba diving;
must ensure that a standby diver is available while a diver is in the water; and
must ensure all individuals scuba diving or serving as standby divers are trained in CPR and first aid.
An employer may be cited by the commissioner of labor and industry for violations under this statute.
Amendments to Minnesota’s Medical Cannabis Law
Minnesota’s medical cannabis law (Minn. Stat. § 342.57) went into effect on March 1, 2025, and prohibits employers from discriminating against a person in hiring, termination of employment, or any term or condition of employment if the discrimination was based on the person’s enrollment in a cannabis registry program. It also prohibits employers from taking adverse action against an employee for a positive drug test for cannabis components or metabolites, unless the employee used, possessed, sold, transported, or was impaired by medical cannabis flower or a medical cannabinoid product on work premises, during working hours, or while using an employer’s vehicle, equipment, or machinery. These protections apply unless compliance would violate federal or state laws or regulations or cause an employer to lose a monetary or licensing-related benefit under federal law or regulations.
Senate File (SF) 2370 / House File (HF) 1615 amended Minnesota’s medical cannabis law in several ways, including:
expanding the protection of this bill to cover employees who are enrolled in a Tribal medical cannabis program. Thus, an employer may not take any adverse action against an employee based on the employee’s enrollment in this type of program;
requiring an employer to notify employees at least fourteen days before the employer takes an adverse employment action due to the specific federal law or regulation the employer believes would be violated if it does not take the action and the monetary or licensing-related benefit the employer would lose if it does not take the action;
prohibiting employers from retaliating against an employee for asserting the employee’s rights or seeking remedies under the Minn. Stat. §§ 342.57 or 152.32;
increasing the civil penalty for violating Minn. Stat. §§ 342.57, subds. 3, 4, or 5 from $100 to $1,000.
giving employees the option to seek injunctive relief to prevent or end a violation of Minn. Stat. §§ 342.57, subds. 3 to 6a.
Governor Walz signed the bill on May 23, 2025, and it took effect the following day.
Amendments to Wage Theft and Whistleblower Laws
On May 23, 2025, Governor Walz also signed bills that amended Minnesota’s wage theft and whistleblower statutes.
Wage Theft: SF 1417 / HF 2432 amends Minn. Stat. § 388.23 to give the county attorney (or deputy attorney if authorized by the county attorney in writing) the authority to subpoena and require the production of records of an employer or business entity that is the subject of or has information related to a wage theft investigation, including: accounting and financial records (such as books, registers, payrolls, banking records, credit card records, securities records, and records of money transfers); records required to be kept pursuant to section 177.30, paragraph (a); and other records that relate to the wages or other income paid, hours worked, and other conditions of employment or of work performed by independent contractors, and records of any payments to contractors, and records of workers’ compensation insurance.
SF 1417 / HF 2432 will go into effect on August 1, 2025.
Whistleblowers: SF 3045 / HF 2783: Amends Minn. Stat. § 181.931 (Minnesota’s whistleblower law) to add definitions of “fraud,” “misuse,” and “personal gain”:
“Fraud” means an intentional or deceptive act, or failure to act, to gain an unlawful benefit.
“Misuse” means the improper use of authority or position for personal gain or to cause harm to others, including the improper use of public resources or programs contrary to their intended purpose.
“Personal gain” means a benefit to a person; a person’s spouse, parent, child, or other legal dependent; or an in-law of the person or the person’s child.
SF 3045 / HF 2783 will go into effect on July 1, 2025.
Looking Ahead
Several omnibus bills include provisions that, if enacted, would amend Minnesota’s meal and rest break law, add employer unemployment insurance fraud penalties, make “political activity” a new protected characteristic under the Minnesota Human Rights Act, revise Minnesota Paid Family and Medical Leave and Earned Sick and Safe Time laws, and create valid circumstances for noncompete agreements. However, when the regular session ended, these bills were stranded in the legislative pipeline, awaiting potential revival in the special session.
The legislature has until July 1, 2025, to enact the rest of its budget to avoid a government shutdown, and Governor Walz is expected to call the special session soon after Memorial Day. With a track record of embedding labor and employment laws into lengthy budget bills, employers may want to prepare for any developments from the special session.
Find the previous parts of this series here: Part I & Part II
A Gap in the Market for Corruption Enforcement
This article will examine the evolving attitudes of the United Kingdom (“UK”), European Union (“EU”) and United States (“US”) toward corruption enforcement and will assess whether the UK and EU will be able to plug the potential enforcement gap created by President Trump’s recent Executive Order.
The United States
On February 10, 2025, President Trump issued an Executive Order titled, ‘Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security’ (the “EO”). As discussed in our previous article, this directs the US Department of Justice (“DOJ”) to pause enforcement of the Foreign Corrupt Practices Act (“FCPA”) for 180 days, while the Attorney General reviews the guidelines and policies governing FCPA investigations and enforcement actions.
The EO does not remove all bribery and corruption risks because, among other things and notwithstanding the temporary pause, it does not apply to civil actions brought by the US Securities and Exchange Commission, it does not repeal the FCPA, and the FCPA’s statute of limitations remains five years, which could run longer that the current enforcement pause. However, the EO, in addition to numerous other Executive Orders (which can be found here), highlights a shift in enforcement priorities under the Trump administration, the full effects of which are yet to be seen.
European Union
While the US has signalled that it is scaling back on enforcement that “actively harms American economic competitiveness,”[1] the EU is demonstrating an increased commitment to robust bribery and corruption enforcement.
On May 3, 2023, the European Commission put forward an anti-corruption package, which included a proposal for a directive focused on tackling corruption. The proposal’s explanatory memorandum described corruption as an “impediment to sustainable economic growth, diverting resources from productive outcomes”. The Council of the EU approved the general approach for the directive on June 14, 2024, and noted that the EU’s current instruments are “not sufficiently comprehensive, and the current criminalisation of corruption varies across Member States hampering a coherent and effective response across the Union.” The Council of the EU said the directive will establish “minimum rules concerning the definition of criminal offences and criminal and non-criminal penalties in the area of corruption, as well as measures to better prevent and fight corruption.”
In addition to potential legislative changes, on March 20, 2025, the creation of the International Anti-Corruption Prosecutorial Taskforce (the “Taskforce”) was announced. The Taskforce, which includes the UK’s Serious Fraud Office (“SFO”), the Office of the Attorney General of Switzerland and France’s Parquet National Financier, issued a Founding Statement, recognizing “the significant threat of bribery and corruption and the severe harm it causes.”[2] The Taskforce seeks to deliver a Leaders’ Group for exchanging insight and strategy, a Working Group for devising proposals for co-operation, increased best practice sharing, and a strengthened foundation to seize opportunities for operational collaboration.
United Kingdom
The UK has also taken positive action to ameliorate its corruption detection and enforcement strategy.
First, the Economic Crime and Corporate Transparency Act 2023, introduced the failure to prevent fraud offence (“FTPFO”), which means that large organizations, wherever located, can be held criminally liable if a fraud offence is committed by an “associated person” for, or on behalf of, the organisation with the intention of benefitting the organization or its clients. The SFO’s Business Plan 2025-26, emphasized that the “deployment of the failure to prevent fraud offence in September will be a landmark moment which will widen the reach and breadth of prosecutions.”[3]
Also included in the SFO Business Plan was an intention to “progress whistleblower incentivisation reform.” Whistleblower incentivization increases the likelihood of reports being made which first reduces corruption by acting as a deterrent but also aids enforcement as an information gathering tool. The Financial Conduct Authority and Prudential Regulatory Authority have previously cautioned against providing financial incentives for whistleblowers, due to concerns over entrapment, malicious reporting, the quality of reports, and the cost-effectiveness of such schemes.[4] This position is at odds with that adopted by the US where, for example, the US Department of the Treasury’s Financial Crimes Enforcement Network has implemented a whistleblower program that incentivizes individuals to report anti-money laundering or sanctions violations. A report by RUSI highlights that US incentivization schemes are so effective, “that US regulators are consistently benefiting from information provided by Canadian and UK citizens.”[5] At his first public speech as director of the SFO, Nick Ephgrave QPM attributed the UK’s change of direction to his intention to concentrate efforts on evidence gathering routes that would lead straight to the evidence and find “smoking guns.” Mr Ephgrave’s intention to adopt a US-style approach suggests the UK may be well-placed to plug any potential enforcement gap left by the US.
On April 24, 2025, the SFO published Guidance on Corporate Co-Operation and Enforcement in relation to Corporate Criminal Offending. This guidance outlines the SFO’s key considerations under the public interest stage of the Full Code Test for Crown Prosecutors when deciding whether to charge a corporate or invite it to enter negotiations for a deferred prosecution agreement. The guidance will make it simpler for corporates to report suspected wrongdoing by a direct route to the SFO’s Intelligence Division via a secure reporting portal.
Finally, on December 12, 2024, the UK Security Minister, Dan Jarvis MP MBE, announced the introduction of a pilot Domestic Corruption Unit (the “Unit”), set up by the City of London Police and the Home Office. The Unit will “bring together the different pieces of the system, such as national agencies, local forces [and] devolved policing bodies” and “lead proactive investigations, providing much needed capacity and a dedicated response in areas where previously this has been lacking”. [6]
Conclusion
The fate of bribery and corruption enforcement in the US is unclear. Instead of spearheading prosecution sand compliance efforts globally, the US appears, at least for the time being, to have taken a step back. However, since before President Trump took office, the EU and UK have been sharpening their enforcement capabilities. Therefore, while Nick Ephgrave QPM has been clear that the Taskforce was not in response to the EO, companies cannot rely on a period of relaxed enforcement on either side of the Atlantic.
[1] The White House, Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security – The White House ((February 10, 2025)
[2] International Anti-Corruption Prosecutorial Taskforce, International_Anti-Corruption_Prosecutorial_Taskforce.pdf (March 20, 2025)
[3] Serious Fraud Office, SFO_2025-26__Business_Plan.pdf (April 3, 2025)
[4] Financial Conduct Authority, Prudential Regulation Authority, Financial Incentives for Whistleblowers (July, 2014)
[5] Royal United Services Institute, The Inside Track: The Role of Financial Rewards for Whistleblowers in the Fight Against Economic Crime (December, 2024)
[6] Home Office, Working with partners to defeat economic crime – GOV.UK (December 12, 2024)
Will There Be Light? FinCEN’s New Reporting Rule Faces Legal Challenge
The U.S. real estate market has long been a cornerstone of the American dream—a path to stability, investment, and generational wealth. But at the margins, that same market has also provided an opportunity for illicit actors who exploit all-cash deals to quietly launder dirty money into legitimate assets. Recognizing this vulnerability, in August 2024, the Financial Crimes Enforcement Network (FinCEN) introduced a new rule aimed at shedding light on all-cash real estate transactions and closing a loophole in the fight against money laundering.
FinCEN’s Residential Real Estate Rule (the RRE Rule) requires certain industry professionals to report information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust. Title companies and settlement agents are now on the frontlines of the federal government’s fight against real estate money laundering. The industry has argued that the rule will impose an undue burden on businesses and that its costs outweigh its benefits. On May 21, one of the industry’s biggest players—Fidelity National Financial (FNF)— filed a lawsuit in the Middle District of Florida to block the rule. Fidelity National Finance, Inc. et al. v. Treasury, et al., 3:25-cv-00554 (M.D.Fla. May 20, 2025). United States District Judge Wendy Berger, a Trump appointee, will now consider whether FinCEN has exceeded its statutory authority.
It is too early to predict the outcome of the FNF suit, but the issue illustrates the tension between two Trump administration priorities. On the one hand, the administration has generally advocated for a deregulatory, pro-industry agenda. On the other hand, the administration remains focused on anti-money laundering and financial crime, particularly as it relates to foreign adversaries and drug cartels who are most likely to exploit the residential real estate market to launder illicit gains. Affected businesses should be preparing to comply with the RRE Rule scheduled to take effect in December to ensure they are not caught off guard should legal challenges fail.
How Did We Get Here? (The Abridged Version)
The RRE Rule is the latest development in a 55-year evolution of anti-money laundering (AML) laws and regulations in the United States. In 1970, Congress passed the Bank Secrecy Act (BSA), which provided the Treasury Department with broad authority to require financial institutions to keep records and file reports to help detect and prevent money laundering. The BSA sat dormant for 15 years until First National Bank of Boston pleaded guilty to willfully failing to comply with the BSA by not reporting more than $1 billion in reportable cash transactions in 1985.
In 1986, Congress passed the Money Laundering Control Act, which established money laundering as a financial crime and established the notion of a BSA/AML “program” by directing banks to maintain policies and procedures to monitor BSA compliance. FinCEN was created in 1990, shortly after which Congress passed the Annunzio-Wylie Anti-Money Laundering Act of 1992, which required banks to file Suspicious Activity Reports (SARs).
The terrorist attacks of September 11, 2001, prompted Congress to enact the USA PATRIOT Act, which dramatically expanded the scope and rigor of U.S. AML laws. Specifically, Title III of the Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act, criminalized terrorism financing, strengthened customer identification procedures (CIP), prohibited financial institutions from dealing with foreign shell banks, and required enhanced due diligence for certain accounts. The most significant overhaul of the U.S. AML regime since the PATRIOT Act came with the Anti-Money Laundering Act of 2020 (AMLA 2020). AMLA 2020’s central theme was security through transparency. It introduced the Corporate Transparency Act (CTA), requiring corporations, limited liability companies, and similar entities to report beneficial ownership information to FinCEN. While the CTA’s implementation has been subject to delays and litigation, its intent is clear: to pierce the veil of anonymity that shields illicit actors in the financial system.
The statutory history is important context, but the RRE Rule’s true origin rests in the history of FinCEN’s geographic targeting orders (GTO). GTOs are temporary orders that impose additional reporting requirements on financial institutions. They usually last 180 days and are subject to renewal. FinCEN issued its first GTO in 1996, subjecting money remitter agents in New York City to report remittances of cash to Colombia of $750 or more. This was a significant expansion of BSA enforcement to the non-bank financial sector and set a precedent for real estate GTOs.
In January 2016, FinCEN began using GTOs to target all-cash luxury real estate purchases in New York and Miami. The GTO followed a multi-series expose by the New York Times entitled the “Towers of Secrecy,” which documented how criminals, kleptocrats, and corrupt officials were buying millions in U.S. real estate anonymously. FinCEN has repeatedly renewed and expanded real estate GTOs to include certain counties and major metropolitan areas across 14 states and a purchase price threshold of $300,000. FinCEN most recently renewed the GTO on April 14, 2025, effective through October 9, 2025.
The RRE Rule at a Glance
The RRE Rule seeks to increase transparency in all-cash real estate transactions by requiring certain professionals to report certain information, including the identities of beneficial owners behind purchases, in the hopes of preventing money laundering through anonymous property deals.
The RRE Rule applies to all non-financed (i.e., all-cash) transfers of residential real property to legal entities (e.g., LLCs, corporations) or trusts, subject to certain exceptions. The rule requires that the “reporting person” (typically the settlement or closing agent, but determined by a cascading hierarchy) file a “Real Estate Report” with FinCEN, disclosing, among other information, (1) the identities and details of the transferor and transferee, (2) beneficial ownership information for the transferee, (3) information on individuals signing on behalf of the transferee, (4) property details, and (5) transaction details, such as the purchase price, payment method, and account information.
The rule carves out several categories of low-risk or routine transactions, including: (1) grants, transfers, or revocations of easements, (2) transfers resulting from death or divorce, and (3) transfers to bankruptcy estates. The default reporting person in the cascading hierarchy may shift the responsibility to another (e.g., the deed filer), subject to a designation agreement. In effect, parties can contract to shift the filing requirements. Notably, FinCEN has not yet published the Real Estate Report to be filed.
Reporting persons may reasonably rely on information provided by others, absent knowledge of facts that would call its reliability into question. For beneficial ownership, a written certification from the transferee or its representative is required. Reporting persons must retain copies of beneficial ownership certifications and designation agreements for five years. Reports must be filed electronically with FinCEN by the later of the last day of the month following the closing date or 30 days after the closing date. Penalties for noncompliance include civil and criminal sanctions under the BSA.
FNF’s Legal Challenge to the RRE Rule
In its suit, FNF contends the RRE Rule should be vacated pursuant to the Administrative Procedure Act because it exceeds FinCEN’s statutory authority under the BSA, which limits reporting obligations to “suspicious transactions relevant to a possible violation of law or regulation.” FNF argues that the rule’s blanket requirement for reporting all non-financed transfers to legal entities and trusts, without specific indicia of suspicious activity, violates this statutory limitation. Plaintiff notes that FinCEN has never claimed that all, or even most, of the estimated 850,000 transactions that will be reported annually are likely connected with illegal activity, and that the rule will result in millions of lawful transactions being “swept into FinCEN’s dragnet.”
While plaintiff’s anchor argument focuses on FinCEN’s lack of statutory authority, they also raise constitutional concerns, including that: (1) the rule violates the Fourth Amendment’s prohibition of unreasonable searches by mandating the collection of private information without articulable suspicion or connection to illegal activity; (2) the rule infringes on the First Amendment’s prohibition on compelled speech by requiring the disclosure of extensive personal and financial information for all covered transactions, regardless of any criminal nexus; and (3) Congress did not delegate authority to the Treasury Department to regulate such transactions under the Commerce Clause or other Article I powers.
Of course, FNF leans heavily on arguments connected to the industry’s financial and compliance burden. Using FinCEN’s own compliance cost estimates of between $428.4 million and $690.4 million in the first year, FNF argues the rule is arbitrary and capricious due to FinCEN’s failure to conduct a proper cost-benefit analysis. Plaintiff argues that in the face of staggering costs, FinCEN has made no serious effort to estimate the economic benefits or estimate the anticipated reduction in illicit activity.
What Industry Professionals Must Do to Prepare
The evolution of FinCEN’s regulation of residential real estate transactions—from the BSA through the GTOs and now to a comprehensive nationwide reporting rule—reflects a growing recognition of the sector’s vulnerability to money laundering and the need for greater transparency. The new rule represents a paradigm shift for real estate professionals, who must now play a central role in the fight against illicit finance.
With the new rule set to take effect on December 1, 2025, industry professionals—including settlement agents, title insurers, attorneys, and others involved in real estate closings—must prepare for significant changes in compliance obligations. Waiting and hoping Judge Berger strikes down the rule is not the prudent course of action. So, what can companies and professionals do to prepare?
Assess Applicability and Identify Covered Transactions. Businesses need to determine if they are involved in non-financed transactions of residential real estate to entities or trusts and familiarize themselves with the exceptions to avoid unnecessary reporting.
Establish Internal Policies and Procedures. Organizations should assign responsibility for compliance and document processes for identifying reportable transactions, collecting required information, and filing reports.
Securely Collect and Verify Information. Businesses need to develop protocols for obtaining and retaining beneficial ownership information, including ensuring secure IT systems are in place to retain and transmit the required transaction, payment, and personal information.
Leverage Designation Agreements. Where appropriate, organizations should use written designation agreements to assign and clarify reporting duties, particularly in complex transactions.
Prepare for Regulatory Scrutiny. Businesses need maintain thorough records of compliance activities, including training and internal audits, as well as maintaining copies of all designation agreements and beneficial ownership certifications for at least five years. Noncompliance with the RRE Rule can result in significant civil and criminal penalties.
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DOJ’s Civil Rights Fraud Initiative: Key Considerations for Health Care Providers
The Department of Justice’s (“DOJ”) May 19, 2025 “Civil Rights Fraud Initiative” memorandum, issued by Deputy Attorney General Todd Blanche (the “Initiative”), marks a consequential policy shift for False Claims Act (“FCA”) enforcement. The Initiative instructs every U.S. Attorney’s Office to “aggressively pursue” compliance with federal civil rights laws, as those laws have been interpreted by the Supreme Court under the 2023 Harvard admissions decision. The effect of this order is to treat a recipient’s knowing violation of federal civil rights laws as a “false claim” whenever that recipient has certified, impliedly or expressly, that it would comply with those laws as a condition of receiving federal dollars.
Building upon the Trump administration’s Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (Jan. 21, 2025) (“EO 14173”), under the Initiative, prohibited diversity, equity and inclusion (“DEI”) programs will be treated like financial fraud — they will be investigated and, where warranted, litigated under the FCA’s treble-damages regime. The Initiative also “strongly encourages” qui tam filings, inviting private whistleblowers to report suspected violations to the DOJ.
Although the Initiative specifically takes aim at colleges and universities, health care providers (both academic and non-academic) should take stock of its potential implications.
Before the Initiative was issued, the U.S. Department of Health and Human Services (“HHS”) Office for Civil Rights (“OCR”) began enforcement of EO 14173 by initiating investigations into medical schools and hospitals that receive HHS funding to determine whether such organizations “may operate medical education, training, or scholarship programs for current or prospective workforce members that discriminate on the basis of race, color, national origin, or sex.”1
Importantly, HHS’s National Institutes of Health (“NIH”) is the largest public funding source for biomedical research in the world.2 On April 21, 2025, NIH issued NOT-OD-25-090, which modified the terms and conditions for all NIH grants, cooperative agreements, and other transaction awards to incorporate EO 14173’s prohibition on DEI programs. As we noted in a recent blog post, when a federal funding recipient signs a grant agreement or accepts reimbursement through a federal benefits program, the recipient is required to “self-certify” compliance with federal civil rights laws. The Initiative explicitly characterizes such certifications as “claims for payment” under the FCA. If the recipient knows or acts in deliberate ignorance or reckless disregard of the truth or falsity of its certification, the DOJ will assert that the claim is “false.”
While all recipients of federal grant funds face some risk, the Initiative’s potential impact may be especially acute for community-based behavioral health care providers and other organizations that rely heavily on grants from the Substance Abuse and Mental Health Services Administration (“SAMHSA”). SAMHSA primarily supports these services through block grants awarded to States, which are then distributed through localities and non-profits.3
Moreover, the Initiative, like EO 14171, applies to “federal contractors” and “recipients of federal funds.” But it does not clarify whether it is intended to capture every provider that submits a claim for reimbursement from Medicare or Medicaid programs. In practice, each time a health care provider submits a claim for reimbursement to the Centers for Medicare & Medicaid Services, or a health plan, payor or contractor, they are required, much like recipients of federal grant awards, to certify compliance with all applicable federal laws, including, arguably, federal civil rights laws within the scope of the Initiative and EO 14171. As a result, Medicare and Medicaid providers receive no safe harbor; on the contrary, the sheer scale of the Medicare and Medicaid programs may make them targets for future enforcement.
Deputy Attorney General Blanche’s memorandum cements civil rights compliance as a core dimension of FCA liability and ensures that federal dollars will be conditioned not only on accurate financial claims, but also on the active fulfillment of anti-DEI mandates. Proskauer’s Health Care Group has significant experience at the intersection of the health care and FCA compliance and stands ready to assist stakeholders who are navigating the evolving regulatory landscape.
OCR clarified that its interpretation of EO 14173 encompassed “not only to student admissions at HHS-funded institutions but also to academic and campus life, including the operations of university hospitals and clinics.” See U.S. Department of Health and Human Services, HHS’ Civil Rights Office Clarifies Race-Based Prohibitions for Medical Schools to Advance Values of Initiative, Hard Work, and Excellence (May 6,2025), https://www.hhs.gov/press-room/guidance-med-schools-dear-colleague-letter.html. ↩︎
See National Institutes of Health, Grants & Funding, https://www.nih.gov/grants-funding. See also, Patrick Boyle, What’s At Stake When Clinical Trials Research Gets Cut, Association of American Medical Colleges (April 24, 2025), https://www.aamc.org/news/whats-stake-when-clinical-trials-research-gets-cut#:~:text=The%20NIH%20is%20the%20largest,on%20academic%20medical%20center%20campuses (“In 2024, more than 80% of the [NIH’s] $47 billion budget went to support research (including lab and clinical trials) at over 2,500 scientific institutions. Sixty percent of this extramural research occurred on academic medical center campuses.”).
See Congressional Research Service, Substance Abuse and Mental Health Services Administration (SAMHSA): Overview of the Agency and Major Programs (June 23, 2020), https://www.congress.gov/crs-product/R46426. ↩︎
Supreme Court Resolves Circuit Split on Wire Fraud and Fraudulent Inducement
The Supreme Court resolved a circuit split on the scope of the federal wire fraud statute, 18 U.S.C. § 1343, in Kousisis v. United States, 605 U.S. ___ (May 22, 2025). The case arose from the Pennsylvania Department of Transportation (PennDOT) soliciting bids for the restoration of historic buildings in Philadelphia. Because the project was funded with federal grant funds, those bidding on the project had to demonstrate that they worked with disadvantaged businesses as defined in federal regulation.
Defendant Alpha Painting and Construction Co. secured the government contracts. Alpha represented in its bid that it would use a disadvantaged business as its supplier. But that representation proved false, and Alpha submitted false documentation to cover up its misrepresentation.
Alpha was charged and convicted of wire fraud. The government’s theory was that Alpha had fraudulently induced the PennDOT to enter into the contract and was therefore guilty of wire fraud. Alpha argued that mere fraudulent inducement was not sufficient to sustain a conviction under the federal wire fraud statute, 18 U.S.C. § 1343. Because it provided value to the government for its services, Alpha contended there was no net pecuniary loss and therefore no criminal fraud. The Supreme Court disagreed.
Wire fraud is committed when the perpetrator uses the wires to defraud the victim of “money or property.” Id. The Court noted that the United States Circuit Courts of Appeal were divided on the question of whether a fraud conviction could stand “when the defendant did not seek to cause the victim net pecuniary loss.” Slip op. at 4.
The Court resolved the split, holding that as long as the defendant “obtained” something through the fraudulent scheme, the statute was satisfied. Id. at 7. Whether the defendant gave something in return, such as the restoration services Alpha provided, was not relevant because “the meaning of ‘obtain’ does not turn on the value of the exchanged items.” Id. at 7-8. The Court said that “a defendant violates § 1343 by scheming to ‘obtain’ the victim’s ‘money or property,’ regardless of whether he seeks to leave the victim economically worse off. A conviction premised on fraudulent inducement thus comports with § 1343.” Id. at 8.
The case is significant because it resolves a circuit split and interprets a widely used federal criminal statute. The decision may also lead to prosecutors’ broader use of the wire fraud statute.
Guiding the Fight Against Fakes: PTO Opens Public Comment Period
The US Patent & Trademark Office (PTO) issued a notice inviting feedback from intellectual property rights holders and online marketplaces regarding proposed voluntary guidelines aimed at curbing the sale of counterfeit goods on online marketplaces. 90 Fed. Reg. 21291 (May 19, 2025). Public comments will be accepted through June 27, 2025.
The PTO will also hold a public hearing in Washington, DC, on June 5, 2025, to solicit feedback on newly drafted guidelines, which were developed by the Organization for Economic Cooperation and Development (OECD) and focus on key enforcement areas, including repeat infringers, international cooperation, transparency, public awareness, sanctions, and market surveillance. The PTO emphasized that it is working with both government and private sector partners to strengthen efforts against counterfeiting, which has become increasingly prevalent in e-commerce.
According to a recent report by the OECD and the EU Intellectual Property Office, the global trade in counterfeit goods reached $467 billion in 2021, with apparel, footwear, and leather goods constituting the most-seized items. The report identified China and Hong Kong as the top sources of counterfeit products.
The OECD’s anticounterfeiting initiative follows a three-phase approach:
Defining the scope of the problem and outlining a strategic response
Developing voluntary guidelines to combat illicit trade
Facilitating global dialogue among public and private stakeholders to refine and implement best practices
The PTO’s June 5 hearing marks the start of the OECD’s third phase: facilitating dialogue between public and private stakeholders. Additional hearings will be held in other countries as part of this global effort.
The hearing comes on the heels of high-profile enforcement efforts, including a recent federal court order in Illinois that extended a freeze on assets linked to overseas sellers accused of distributing counterfeit National Basketball Association merchandise.
The PTO hopes the hearing will help refine the proposed best practices and identify remaining gaps, as policymakers and industry leaders work together to combat the growing threat of illicit online trade.
Why the DOJ’s New Whistleblower Program Remains Relevant
On May 12, 2025, the U.S. Department of Justice (DOJ) issued a memorandum outlining the Criminal Division’s enforcement priorities and policies for prosecuting corporate and white-collar crimes in the new Administration. Later that week, Matthew R. Galeotti, head of the DOJ’s Criminal Division, addressed the new policies in a speech at the SIFMA Anti-Money Laundering and Financial Crimes Conference. Galeotti emphasized that the DOJ is “turning a new page on white-collar and corporate enforcement,” with a renewed focus on crimes that pose the greatest risk to U.S. interests. His remarks, coupled with the recent expansion of the DOJ’s Corporate Whistleblower Awards Pilot Program, signal a new era of accountability, transparency, and proactive compliance for portfolio companies operating in high-risk sectors.
Voluntary Self-Disclosure Policy – a Clear Path to Declination
The new policies include revisions to the Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP). The revised CEP is designed to provide clearer guidance on the benefits of cooperation and a more predictable resolution process. Notably, companies that voluntarily self-disclose misconduct (in a “reasonably prompt” manner), fully cooperate, remediate appropriately and promptly, and have no aggravating circumstances will now receive a declination — not merely a presumption of a declination as previously offered. Moreover, a declination is still possible for cases with aggravating circumstances as prosecutors will have discretion to weigh the severity of those aggravating circumstances against the company’s cooperation and remediation efforts. Finally, the policy provides additional flexibility for companies that self-disclose in good faith where the government is already aware of the misconduct — such companies may still qualify for significant benefits, such as reduced fines and the avoidance of compliance monitors.
Expansion of the Whistleblower Pilot Program
While incentivizing self-reporting and cooperation, the new policies significantly broadened the scope of the Corporate Whistleblower Awards Pilot Program, announced in August 2024. Originally limited to violations by financial institutions, foreign and domestic corruption (including FCPA violations), and certain health care frauds, the program now covers a wider array of misconduct, including:
procurement and federal program fraud;
trade, tariff, and customs fraud;
violations of federal immigration law;
violations involving sanctions;
material support of foreign terrorist organizations, or those that facilitate cartels and transnational criminal organizations, including money laundering, narcotics, and Controlled Substances Act violations.
This expansion tracks the newly announced enforcement priorities and reflects the DOJ’s recognition that financial crime is often intertwined with broader threats to national security and global stability.
Competing Incentives for Whistleblowers and Companies
The financial incentives for whistleblowers who provide actionable information remain substantial. If a whistleblower provides information that leads to a successful forfeiture exceeding $1,000,000 in net proceeds, the whistleblower can receive up to 30% of the first $100 million in net forfeitures, and up to 5% of amounts between $100 million and $500 million.
At the same time, the incentives for companies to self-report a whistleblower complaint and still be eligible for a declination remain even stronger. Indeed, the Corporate Whistleblower Awards Pilot Program has an exception — if a whistleblower makes both an internal report to a company and a whistleblower submission to the Department, the company will still qualify for a presumption of a declination of charges under the CEP — even if the whistleblower submits to the Department before the company self discloses — provided that the company: (1) self-reports the conduct to the Department within 120 days after receiving the whistleblower’s internal report; and (2) meets the other requirements for voluntary self-disclosure and presumption of a declination under the policy.
What This Means for Companies
The message to corporate America is clear — compliance is a strategic imperative. Therefore, companies must:
Strengthen Internal Controls: Ensure compliance programs are tailored to the company’s risk profile and are actively monitored and updated.
Encourage Internal Reporting: Foster a culture where employees feel empowered to report concerns internally before going to regulators.
Review Investigation Protocols: Update internal investigation and remediation procedures to align with DOJ expectations.
Act Proactively: Voluntary self-disclosure and cooperation can significantly mitigate penalties and reputational damage.
Key Takeaways
The DOJ’s recent moves — both in policy and tone — reflect a maturing enforcement philosophy. Rather than wielding the stick indiscriminately, the Department is offering a clearer path for companies to do the right thing and receive the full benefits of cooperation. But the stakes remain high. With an expanded whistleblower program and a renewed focus on high-impact crimes, the cost of non-compliance has never been greater.
For portfolio companies willing to invest in integrity and transparency, the DOJ’s evolving framework offers not just protection — but opportunity.
Seetha Ramachandran, Nathan Schuur, Robert Sutton, Jonathan M. Weiss, William D. Dalsen, Adam L. Deming, Adam Farbiarz, and Hena M. Vora contributed to this article
Supreme Court Addresses Fraudulent Concealment and Indemnification in Post-Closing Dispute
The Delaware Supreme Court provides useful clarification regarding when a fraudulent concealment claim tolls the statute of limitations for indemnification claims, in LGM Holdings, LLC v. Gideon Schurder, et al., Del. Supr., No. 314, 2024 (April 22, 2025).
Background
In this post-closing dispute involving claims of intentional breach of representations and warranties in an acquisition agreement as well as fraudulent concealment, the court considered evidence of wrongdoing the sellers found after closing and in connection with an investigation by the FDA and the United States DOJ.
The post-closing investigation was the basis for claims that triggered indemnification. After the investigation, a separate letter agreement between the parties imposed caps on indemnification–but only for certain claims related to the government investigation.
Key Legal Principles
The high court explained that when contract interpretation is at issue, the trial court may not grant a motion to dismiss when there is more than one reasonable interpretation. See Slip op. at 16, 20-21.
The Supreme Court also instructed that when additional support for a key argument made at the trial level is presented for the first time on appeal, that additional support is not waived even if not presented to the trial court. Slip op. at 20.
The court addressed when fraudulent concealment will–or will not–toll the statute of limitations. The court’s analysis should be reviewed in its entirety but a few highlights include the following:
Under the doctrine of fraudulent concealment, the statute of limitations can be disregarded, like “stopping a clock,” when a defendant has fraudulently concealed from a plaintiff facts necessary to put the plaintiff on notice of the truth.
Specifically, a plaintiff must allege “an affirmative act of actual artifice” by the defendant that either prevented the plaintiff from being aware of material facts or led the plaintiff away from the truth. Slip op. at 22.
The statute of limitations begins to run when the plaintiff is objectively aware of the facts giving rise to the wrong, i.e., on inquiry notice. Slip op. at 23.
The tolling stops on the date the plaintiff was put on inquiry notice of the claim—if the plaintiff successfully proves fraudulent concealment. Slip at 25. The trial court erred when it instead held that the plaintiff was put on inquiry notice such that the plaintiff had sufficient time to file a claim. Id.
Partial disclosure of facts in a misleading or incomplete way can rise to the level of the requisite actual artifice. Slip op. at 26.
DOJ Focuses on FCA Enforcement for Federal Healthcare Programs
On May 12, 2025, the Criminal Division of the Department of Justice (“DOJ”) published a memorandum to all Criminal Division personnel with the subject “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime.” The memo sets forth the priorities for DOJ enforcement of corporate crime. The number one priority listed in the memo is a focus on waste, fraud, and abuse, including health care fraud and federal program and procurement fraud. The government’s primary vehicle for prosecuting such misconduct and recovering fraudulently obtained funds is the False Claims Act (“FCA”), which permits whistleblowers (called “relators”) to initiate a lawsuit on the government’s behalf, provides a portion of recovery to the relator, and carries the potential for treble damages for companies that have committed fraud against the government.
The DOJ memorandum also referenced the Criminal Division’s update of its “Corporate Enforcement and Voluntary Self-Disclosure Policy.” The updated policy includes a focus on encouraging corporate self-reporting and self-remediation efforts through a policy of automatic declinations for cooperating companies. According to the memo, “[i]t is critical to American prosperity to promote policies that acknowledge law-abiding companies and companies that are willing to learn from their mistakes,” specifically companies that self-report potential misconduct to the DOJ.
This DOJ guidance and recent enforcement actions, including a $202 million settlement of an FCA lawsuit against Gilead Sciences, provide a reminder that corporations operating in the health care industry must continue to ensure their compliance standards conform to corporate best practices and are consistent with all applicable laws. While the risk of FCA cases brought by DOJ and by relators for healthcare fraud has not abated, DOJ’s willingness to deal favorably with cooperating companies as expressed in the newly announced policies provides potential opportunities to bring any non-compliant behavior into compliance without risk of prosecution.
Medical Speaker Programs
One recent area of focus for DOJ FCA enforcement relates to medical speaker programs, which are programs in which medical professionals provide presentations and information on specific medical topics—often related to specialized prescription medications—to other healthcare professionals. These programs are commonly used by pharmaceutical and medical device companies to educate and engage with physicians and other healthcare providers. For such programs to comply with the federal Anti-Kickback Statute and avoid FCA risk, such programs cannot constitute renumeration in exchange for referring patients or services that are reimbursable by federal healthcare programs. That is, compliant medical speaker programs cannot use financial incentives to encourage clinical decision-making.
On April 29, 2025, the DOJ announced a $202 million FCA settlement with Gilead Sciences in connection with a relator’s allegations that Gilead used speaker programs to pay illegal kickbacks to doctors to induce them to prescribe Gilead’s drugs. According to the DOJ, as part of its marketing efforts, and to increase sales, Gilead conducted a medical speaker program in which it would pay a physician to present a slide deck (prepared by Gilead) and facilitate discussion with other healthcare providers about one of the drugs manufactured by Gilead. While the speaker programs were supposed to be educational in nature and the cost of any meals provided was supposed to be modest, DOJ considered the program to constitute illegal renumerations because the speaker events were held at high-end restaurants, Gilead permitted attendees to attend the same event multiple times despite a lack of educational need, and Gilead provided free travel to physicians and their families to speak at desirable locations, among other allegations. The speaker program did not comply with Gilead’s internal compliance policy, which is often a significant red flag. Gilead admitted responsibility for the alleged misconduct.
Compliance, Reporting, and Voluntary Self-Disclosure
In addition to articulating the Department’s enforcement priorities, the DOJ’s memorandum also referenced the Criminal Division’s update of its “Corporate Enforcement and Voluntary Self-Disclosure Policy,” which provides, under certain circumstances, a “presumption that [a cooperating] company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender.”
The Corporate Enforcement and Voluntary Self-Disclosure Policy reflects the DOJ’s “first priority” of prosecuting the individuals who actually perpetrate a crime, “often at the expense of shareholders, workers, and American investors and consumers.” Before prosecuting a company, the DOJ policy requires the consideration of factors “including whether the company reported the conduct to the Department, its willingness to cooperate with the government, and its actions to remediate the misconduct.” Cooperation in this context requires companies to enter “into agreements with the Criminal Division [to] agree to implement corporate compliance programs, report relevant misconduct, cooperate with the government, and more.” Cooperating companies must also “pay all disgorgement/forfeiture, and/or restitution/victim compensation payments resulting from the misconduct at issue.”
Absent aggravating circumstances, such as “involvement by executive management of the company in the misconduct; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism,” cooperating companies should expect to receive automatic declinations of prosecution under the policy. And even if aggravating circumstances are present, “prosecutors may nonetheless determine that a declination is an appropriate outcome if the company demonstrates to the Criminal Division that it has met” certain requirements, including voluntary self-disclosure, an effective compliance program and internal accounting controls, and “extraordinary remediation.”
In the event that corporate prosecution is warranted, the DOJ has expressed a preference for recommending fine reductions and avoiding long-term corporate monitoring regimes where companies have voluntarily self-disclosed and remediated their misconduct.
Key Takeaways
Companies that promote medical speaker programs should be reminded that speaking fees for physicians must be consistent with the market value of the speaker’s time. Speaker programs must also meet an actual educational need, meaning that providers cannot attend the same educational program multiple times, and health care companies cannot offer lavish food and drink amenities during the programs. Likewise, any other perks given to health care providers must take into account the total value being transferred, including the cost of traveling to conferences, accommodations, appearing on advertisements, and the like. Family members of health care providers should never receive benefits of any kind. Significantly, the best practice is for medical speaker programs to be coordinated by a company’s medical educational group rather than its salespeople.
Moreover, with the DOJ’s increased focus on combatting fraud against the government, companies should review their internal guidelines and ensure that company policies are consistent with current best practices and are actually implemented and adhered to by the company and its employees. The DOJ’s updated self-reporting policy provides potential opportunities to bring any non-compliant behavior into compliance without risk of prosecution. Self-monitoring of internal compliance is particularly important due to the DOJ’s focus on whether companies are complying with their own guidelines, and whether those guidelines are consistent with the law. Due to the updated incentives for companies with compliance and self-reporting programs in place, companies should ensure that they have implemented an adequate compliance program, provided internal reporting mechanisms, and have policies in place to encourage whistleblowers and protect whistleblowers from retaliation. Self-investigating and self-reporting to the DOJ any deviations from company policy or other violations of the law will best position the company to be protected under the voluntary self-disclosure program.
Footnotes
1) https://www.justice.gov/criminal/media/1400046/dl?inline.
2) https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline=.
3) https://www.justice.gov/usao-sdny/pr/us-attorney-announces-202-million-settlement-gilead-sciences-using-speaker-programs.
4) https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline=.
Department of Justice Announces New Initiative to Combat Civil Rights Fraud Using the False Claims Act
From time to time, the Department of Justice (“DOJ”) has established initiatives, task forces, or strike teams to advance its enforcement priorities. In recent years, DOJ has announced a Procurement Collusion Strike Force, a COVID-19 Fraud Enforcement Task Force, and a Civil Cyber-Fraud Initiative, in each instance explicitly invoking a plan to use the False Claims Act (“FCA”) for civil enforcement.
DOJ announced the latest version of this enforcement approach on May 19, 2025, when Deputy Attorney General (“DAG”) Todd Blanche issued a memorandum announcing a new Civil Rights Fraud Initiative (“the Initiative”), described as a coordinated and “vigorous” effort to leverage the specter of FCA liability against recipients of federal funding alleged to be violating civil rights laws. The types of alleged civil rights violations targeted by this Initiative relate to diversity, equity, and inclusion (“DEI”) programs, antisemitism, and transgender policy, all of which dovetail with a number of Executive Orders (“EOs”) expressing President Trump’s approach to these issues.
Relevant Executive Orders
Some of the EOs relevant to the Civil Rights Fraud Initiative include:
EO No. 14151: Ending Radical and Wasteful Government DEI Programs and Preferencing (January 20, 2025). This EO directs federal government agencies to end DEI and diversity, equity, inclusion, and accessibility (“DEIA”) programs, to eliminate positions such as “Chief Diversity Officer,” and to terminate grants and contracts related to DEI and DEIA. It also orders a review of federal employment practices to ensure they focus on individual merit rather than DEI factors.
EO No. 14168: Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (January 20, 2025). This EO declares, as United States’ policy, that there are two immutable sexes (male and female), based on biological reality. It requires changes to government-issued identification documents and prohibits federal funding for so-called “gender ideology.”
EO No. 14173: Ending Illegal Discrimination and Restoring Merit-Based Opportunity (January 21, 2025). This EO requires that all federal contracts and grants include a certification that recipients do not operate any DEI programs that violate applicable antidiscrimination laws and affirms that compliance with federal anti-discrimination laws is material to government payment decisions. Additionally, the EO directs DOJ to identify key sectors and entities for DEI-related enforcement, and to recommend strategies to end “illegal DEI discrimination” in the private sector.
EO No. 14188: Additional Measures To Combat Anti-Semitism (January 29, 2025). This EO reaffirms EO 13899 from December 11, 2019, which aimed to combat antisemitism, particularly in educational institutions. It directs various federal agencies to identify actions to curb antisemitism and recommends monitoring foreign students and staff for antisemitic actions.
EO No. 14201: Keeping Men Out of Women’s Sports (February 5, 2025). This EO aims to exclude transgender individuals from competing in women’s sports. It directs the Secretary of Education to rescind funding from educational institutions that do not comply.
Structure of the Civil Rights Fraud Initiative
Against the backdrop of these EO policy statements, DOJ’s Civil Rights Fraud Initiative presents a concrete risk of investigation—and potentially FCA liability—for companies, organizations, and institutions that receive federal funding.
The Initiative will be led by the Civil Division’s Fraud Section and the Civil Rights Division, who are directed to coordinate and share information about potential violations.[1] Those units are instructed to work with the Criminal Division of DOJ and other agencies that “enforce civil rights requirements for federal funding recipients,” including the Departments of Education, Health and Human Services (“HHS”), Housing and Urban Development (“HUD”), and Labor. Additionally, each of the United States Attorney’s Offices must designate an Assistant United States Attorney to support the Initiative’s efforts, and DOJ also anticipates involving state Attorneys General.
Scope of Intended FCA Enforcement
The Blanche memorandum casts a broad net describing the scope of the Initiative’s work. It invokes civil rights laws, “including but not limited to Title IV, Title VI, and Title IX, of the Civil Rights Act of 1964.” These statutory provisions generally prohibit discrimination on the basis of race or sex in educational settings and other programs that are supported by federal funding. DOJ’s Civil Rights Division is responsible for investigating and enforcing violations of these provisions, and the Division traditionally seeks relief in the form of litigation, consent decrees with mandatory reporting, and required remediation measures designed to cure the unlawful practices, as well as coordinated audit efforts with the Equal Employment Opportunity Commission.
The Blanche memorandum identifies other areas of focus for the Initiative without reference to particular statutes, regulations, or standard contract provisions, including:
Antisemitism: “… a university that accepts federal funds could violate the False Claims Act when it encourages antisemitism, [or] refuses to protect Jewish students.”
Transgender participation: a university that “allows men to intrude into women’s bathrooms or requires women to compete against men in athletic competitions.”[2]
DEI programs: The memorandum states that the Initiative will use the FCA to stop the “fraud, waste, and abuse” that allegedly occurs when recipients of federal funding “certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities.” The memorandum further states that “many corporations and schools continue to adhere to racist policies and preferences—albeit camouflaged with cosmetic changes that disguise their discriminatory nature.”
A Clarion Call to Whistleblowers
The Blanche memorandum states that DOJ “alone cannot identify every instance of civil rights fraud,” and the DOJ therefore “strongly encourages” potential whistleblowers to participate in the Initiative by filing lawsuits under the FCA’s qui tam provisions. These provisions allow a private party to file (under seal) a lawsuit on behalf of the United States alleging the FCA violations, and to continue pursuing that lawsuit even if DOJ declines, usually after lengthy investigation, to intervene in the case. The FCA rewards these “qui tam relators” with a share—up to 30 percent—of any amounts recovered in the case. Successful qui tam relators are also entitled to recover their reasonable attorney’s fees and costs from the defendant.[3]
Given these considerable financial incentives, the Initiative likely will result in qui tam lawsuits related to DEI, antisemitism, or transgender policies in women’s sports or in women’s bathrooms.[4] Aside from the option to file suit, the Blanche memorandum asks “anyone with knowledge of discrimination by federal-funding recipients to report that information” so that DOJ can take action.
Applying the FCA to Civil Rights
Courts historically have interpreted the FCA’s basic elements of “knowingly” submitting (or causing the submission of) “false claims” to the government broadly, to reach all manner of alleged schemes—from billing for healthcare services that were not provided to impliedly certifying compliance with complex cybersecurity standards; from alleged misuse of federal grant funds to avoiding customs duties.
In these more conventional applications, DOJ (or a qui tam relator) alleges noncompliance with an underlying contract term, statute, or regulatory requirement under an express or implied “false certification” theory of FCA liability. In those cases, the FCA’s materiality element serves as an important check. Only if the underlying violation or compliance issue is “material” to the government’s decision to pay does FCA liability attach.[5]
Because DOJ has other mechanisms at its disposal to investigate and correct non-compliance with civil rights laws, using the FCA to address discrimination has been relatively uncommon. Application of the FCA to civil rights matters is not entirely without precedent, however. For example, in 1995, the government pursued FCA claims against a locality for ignoring conditional spending requirements attached to housing grants.[6] A decade later, DOJ announced a significant settlement against Westchester County, New York, to resolve a qui tam lawsuit alleging that the county falsely certified its compliance with fair housing obligations in order to receive federal funds through a block grant.[7] In 2024, DOJ resolved qui tam allegations that the City of Los Angeles knowingly failed to meet accessibility requirements for the disabled in seeking federal grant funds to build affordable housing.[8] Each of these cases was premised on a “false certification” theory, meaning the government relied upon the defendants’ allegedly false certifications that they would comply with federal fair housing or accessibility laws when funding the grants or contracts at issue. DOJ claimed that those recipients of federal funds violated clearly stated contractual, statutory, or regulatory requirements.
Challenges to Proving FCA Liability
The civil rights violations that the Blanche memorandum discusses most extensively relate to DEI programs. But, as we discussed in an earlier client alert, the government will face a number of challenges to establishing FCA liability based on an entity’s DEI program, even when a DEI certification requirement (such as those mandated by EO 14173) is at issue. The DEI certifications that have been promulgated to date do not use standardized language across the government, incorporate undefined terms, and are not part of any overarching statutory or regulatory framework with which federal funding recipients (or even judges) are familiar. In these circumstances, the government (or a qui tam relator) will have difficulty establishing the FCA elements of falsity and scienter (“knowledge”).
The FCA’s materiality element will also be challenging for the government to prove, since the broad DEI certifications currently being imposed on contractors from EO 14173 rarely bear any connection to the purpose of the government contract or grant agreement. In the cases mentioned above, the alleged false certification tied directly to the reason for funding, e.g., an agreement to abide by fair housing requirements to receive federal funds to build housing. By contrast, it seems unlikely that even a known DEI compliance issue would cause the government to withhold payment of invoices for work or goods that fulfilled the contract.
Nonetheless, DOJ’s announcement of the Initiative presents a number of unanswered questions as to when an entity might face investigation, whether or not liability can be proven. For instance, it is not clear whether a company that is found liable for—or even settles—an employment discrimination claim could be subject to inquiry on the basis that the company “knows” it has violated Title VII.
Similarly, the Blanche memorandum’s suggestion that an FCA investigation could be triggered for universities (and perhaps companies) that allow transgender access to women’s bathrooms raises further questions. There is no express certification in government contracts or grants on this issue; nor is there a federal law specifically governing access to women’s bathrooms, making it difficult to imagine how the falsity, scienter, or materiality elements of the FCA could be proven. In the aggressive enforcement environment that the Blanche memorandum heralds, however, this may be precisely the kind of test case that a qui tam relator may decide to pursue.
Somewhat ironically, the Blanche memorandum’s threat of FCA liability based on EO policy statements (in contrast to the specific statutory regimes it mentions), contradicts the first Trump administration’s declaration that enforcement should not be based on “sub-regulatory guidance.” The January 25, 2018 memorandum by then-Associate Attorney General Rachel Brand sought to curtail prosecutions of alleged violations of policy. Even though the Brand memo was rescinded during the Biden administration, its approach aligned with the FCA principle that, for a claim to the government to be actionable, there must be some demonstrable noncompliance with a material contract-term, statute, or regulatory provision. The Blanche memorandum deviates from this approach by suggesting that DOJ will investigate and pursue as FCA matters conduct that the administration deems objectionable.
Conclusion
With the new Initiative, DOJ is signaling its intent to aggressively pursue civil FCA enforcement actions for conduct that violates existing civil rights laws as well as the administration’s policy views. Time will tell whether this Initiative broadens the scope of FCA liability, but it certainly increases the risk that companies and organizations will need to deal with whistleblowers, lengthy investigations and potentially costly litigation, and the attendant reputational harm that can arise from being the target of allegations of fraud against the government.
[1] According to recent reports, DOJ’s Civil Rights Division will lose more than half of its attorney staff by the end of May 2025. See 70% of the DOJ’s Civil Rights Division lawyers are leaving because of Trump’s reshaping : NPR (“Some 250 attorneys — or around 70% of the division’s lawyers — have left or will have left the department in the time between President Trump’s inauguration and the end of May, according to current and former officials.”),
[2] The reference to “men” appears to refer to transgender women, in keeping with EO 14168 establishing as the “policy” of the United States “to recognize two sexes, male and female.”
[3] See 31 U.S.C. § 3730(b)-(d) (actions by private persons; rights of the parties to qui tam actions; award to qui tam plaintiff).
[4] Over the past forty years, qui tam relators have brought cases yielding recoveries to the United States of more than $55 billion. Relators collectively have received about $9.5 billion in recoveries, exclusive of claims for attorney’s fees and costs. See Civil Division, Department of Justice, “Fraud Statistics Overview: October 1, 1986-September 30, 2024.” (Jan. 15, 2025), available at https://www.justice.gov/archives/opa/media/1384546/dl.
[5] The Supreme Court has described FCA materiality as a rigorous—and often fact-intensive—gatekeeper. To demonstrate that an underlying violation was not material to the government’s payment decision, however, defendants may need to collect extensive evidence during litigation and discovery.
[6] United States v. Incorporated Village of Island Park, 888 F. Supp. 419 (E.D.N.Y. 1995).
[7] United States ex rel. Anti-Discrimination Center of Metro New York, Inc. v. Westchester County, New York, 668 F. Supp. 2d 548 (S.D.N.Y. 2009).
[8] United States ex rel. Ling, et al. v. City of Los Angeles, et al., CV11-974-PG (C.D. Cal.); See United States Department of Justice Press Release
Mind the Gap: How Shifting Federal Priorities Are Reshaping Parallel Investigations
As federal enforcement priorities shift, the balance of investigative power is beginning to change. This alert is the first in a series examining how evolving dynamics are reshaping the enforcement landscape. Here, we focus on the growing role of state and regulatory agencies in parallel investigations. A forthcoming alert will explore how the SEC is recalibrating its insider trading enforcement strategy under the Atkins Commission.
A New Era in Enforcement
In 2025, the federal government has enacted sweeping changes to its law enforcement and regulatory priorities, fundamentally altering the landscape for parallel criminal, civil, and regulatory investigations. Traditionally, federal agencies such as the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) have played a central role in white-collar enforcement. However, a marked shift in focus toward immigration, transnational crime, and narcotics trafficking has redirected significant federal resources away from white-collar matters. As a result, state authorities and regulatory agencies are stepping in to fill the enforcement gap, creating a more complex and dynamic environment for companies and individuals facing government scrutiny.
Federal Realignment: The Galeotti Memo
As a panel of experts recently discussed at the Securities Enforcement Forum West 2025, federal criminal authorities have undertaken a dramatic realignment of resources. Recent remarks by Matthew R. Galeotti, the new Chief of DOJ’s Criminal Division, underscore this strategic pivot. The DOJ is now “laser-focused” on the most urgent threats to the nation—namely, fraud targeting individuals, taxpayers, and government programs, as well as cases involving transnational criminal organizations and hostile actors. This realignment means that many traditional white-collar cases are now falling outside the DOJ’s core priorities. Notably, up to 40% of FBI resources in major field offices have reportedly been redirected to immigration enforcement, significantly constraining federal capacity to pursue white-collar investigations.
State Attorneys General and the SEC Step Forward
This evolving federal posture has not gone unnoticed. State attorneys general are increasingly asserting their authority, leveraging consumer protection statutes and state analogs to federal securities laws to pursue complex fraud and securities matters. Recent examples include California Attorney General’s announcement to use the State’s Unfair Competition Law to police Foreign Corrupt Practices Act (FCPA) violations, Oregon’s legal action against a prominent cryptocurrency platform, and continued activity by New York and Massachusetts regulators in the digital asset space.
Simultaneously, the U.S. Securities and Exchange Commission (SEC) has restructured its Division of Enforcement to prioritize investor protection, with a renewed focus on safeguarding retail investors. As federal law enforcement resources are diverted elsewhere, the SEC is poised to play an even more prominent role in investigating and prosecuting securities fraud.
Practical Implications and Best Practices
Given this rapidly changing enforcement landscape, companies and their counsel must adapt to a new reality—one where state investigations are more likely, less predictable, and potentially more volatile. The following best practices are essential for navigating this environment:
1. Act Decisively in the First 48 HoursImmediately secure all potential sources of data, including emails, messaging apps, and mobile devices. Early control over evidence is critical to establishing credibility with regulators and investigators.
2. Ensure Investigative IndependenceThe independence and expertise of the investigative team are paramount. Regulators will scrutinize not only the findings but also the process and personnel involved. Engaging experienced, independent counsel and forensic experts can facilitate effective engagement with authorities and inform strategic decision-making.
3. Structure Information FlowTo maintain the integrity of the investigation and preserve privilege, management should be insulated from factual findings until the investigation concludes. A disciplined approach to information management minimizes witness contamination and credibility risks.
4. Be Proactive, Consistent, and CoordinatedWith federal and state agencies operating independently, proactive engagement and consistent messaging are vital. Where appropriate, encourage coordination among agencies to ensure fairness and reduce exposure.
5. Recognize the Central Role of State EnforcementState agencies are no longer peripheral players. Understanding the priorities and remedies available to each enforcement authority is now a core component of any effective defense strategy.
Conclusion
As federal priorities shift and state and regulatory agencies assume a more prominent role, companies must be prepared to respond to a new and evolving enforcement landscape. Retaining experienced and credible advisors is not just prudent—it is essential. Navigating parallel investigations now requires a nuanced understanding of both federal and state mandates, as well as the agility to respond to multiple authorities with differing objectives and tools. In this environment, readiness and expertise are your best defense.
Customs Fraud Investigations Will Be a DOJ Area of Focus
On May 12, 2025, Department of Justice (DOJ) Criminal Chief Matthew Galeotti issued a memorandum addressing the “Fight Against White-Collar Crime.” The memorandum lists several priorities for white-collar criminal prosecutions. While the first priority – healthcare fraud and federal program and procurement fraud – is not surprising, the second priority – trade and customs fraud, including tariff evasion – is a new focus.
Emphasizing its new focus on trade and customs fraud, the Criminal Division is also amending the Corporate Whistleblower Awards Pilot Program to add trade, tariff and customs fraud by corporations to the list of subject matters that whistleblowers can report for a potential bounty. Under this program, previously reported here, whistleblowers can recover a percentage of the government’s ultimate forfeiture amount.
Looking at previous trade and customs cases provides insight into both how the DOJ may be planning to pursue them and what whistleblowers are likely to report. The alleged misconduct in tariff evasion cases generally falls in three areas that affect the duties owed: (1) misrepresenting the classification/type of product, (2) undervaluing the product, and (3) misrepresentation of the country of origin and/or transshipment cases. Even well-intentioned companies may find themselves making missteps in these areas because the nuance in the governing regulations makes them surprisingly complicated. Appropriate classification of a product can be challenging, and the country of origin is often unclear when manufacturing occurs in multiple countries.
Civil False Claims Act Cases
As our regular blog readers know, the False Claims Act (FCA) is a federal law that imposes civil liability for submitting false claims to the federal government. The law imposes treble damages and civil penalties on those who submit false claims. In fiscal year 2024, FCA settlements and judgments totaled over $2.9 billion. Under the FCA, whistleblowers (called “relators”) can file cases under seal on behalf of the government. The government then opens an investigation to determine whether they should intervene in the case. Much like they can share in criminal forfeitures through the Corporate Whistleblower Awards Pilot Program discussed above, the relators who bring FCA violations to the government’s attention share in the civil recovery obtained by the government.
International Vitamins Corporation
In January 2023, International Vitamins Corporation (IVC) entered a civil settlement for $22,865,055, admitting that it misclassified 32 of its products imported from China under the HTS as duty-free, over an almost five-year period. IVC also admitted that even after it retained a consultant in 2018 who informed IVC that it had been misclassifying the covered products, IVC failed to implement the correct classifications for over nine months and never remitted duties that it knew it had previously underpaid to the United States because of its misclassification. This case was originally brought as a whistleblower lawsuit by a former financial analyst at IVC (U.S. ex rel. Welin v. International Vitamin Corporation et al., Case No. 19-Civ-9550 (S.D.N.Y.)).
Samsung C&T America, Inc. (SCTA)
In February 2023, Samsung C&T America, Inc. (SCTA) resolved a FCA lawsuit that was initially filed by a whistleblower. SCTA admitted that, between May 2016 and December 2018, it misclassified imported footwear under the United States’ Harmonized Tariff Schedule (HTS) and underpaid customs duties. SCTA further admitted that it had reason to know that certain documents provided to its customs brokers inaccurately described the construction and materials of the imported footwear and that SCTA failed to verify the accuracy of this information before providing it to its customs brokers.
SCTA, with its business partner, imported footwear manufactured overseas, including from manufacturers in China and Vietnam. The tariff classifications for footwear depend on the characteristics of the footwear, including the footwear’s materials, construction, and intended use. Depending on the classification of the footwear, the duties varied significantly.
In the settlement agreement, SCTA specifically admitted and accepted responsibility for the following conduct:
As the importer of record (IOR), SCTA was responsible for paying the customs duties on the footwear and providing accurate documents to the United States Customs and Border Protection (CBP) to allow CBP to assess accurate duties.
SCTA and its business partner provided SCTA’s customs brokers with invoices and other documents and information that purportedly reflected the tariff classification of the footwear under the HTS, as well as the corresponding materials and construction of the footwear. SCTA knew that its customs brokers would rely on the documents and information to prepare the entry summaries submitted to CBP, which required classifying the footwear under the HTS, determining the applicable duty rates, and calculating the amount of the customs duties owed on the footwear.
SCTA had reason to know that certain documents provided to its customs brokers, including invoices, inaccurately stated the materials and construction of the footwear. SCTA failed to verify the accuracy of this information before providing it to its customs brokers. Thus, SCTA materially misreported the classification of the footwear under the HTS and misrepresented the true materials and construction of the footwear.
SCTA, through its customs brokers, misclassified the footwear at issue on the associated entry documents filed with CBP and, in many instances, underpaid customs duties on the footwear.
This case makes clear that the company and/or IOR bears responsibility for accurately reporting to CBP and that the government will not allow an importer to pass the blame to the customs broker when it has reason to know that it is providing the customs broker with inaccurate information.
Ford Motor Company
In March 2023, Ford Motor Company (Ford) agreed to pay the United States $365 million to resolve allegations that it violated the Tariff Act of 1930 by misclassifying and understating the value of hundreds of thousands of its Transit Connect vehicles. This settlement is one of the largest recent customs penalty settlements.
While Ford did not admit to any wrongful conduct, the settlement resolves allegations that it devised a scheme to avoid higher duties by misclassifying cargo vans. Specifically, the government alleged that from April 2009 to March 2013, Ford imported Transit Connect cargo vans from Turkey into the United States and presented them to CBP with sham rear seats and other temporary features to make the vans appear to be passenger vehicles. The government alleged that Ford included these seats and features to avoid paying the 25% duty rate applicable to cargo vehicles instead of the 2.5% duty rate applicable to passenger vehicles. The settlement also resolves allegations that Ford avoided paying import duties by under-declaring to CBP the value of certain Transit Connect vehicles.
King Kong Tools LLC (King Kong)
In November 2023, a German company and its American subsidiary agreed to pay $1.9 million to settle allegations of customs fraud under the FCA. The government alleged that King Kong was falsely labelling its tools as “made in Germany” when the tools were really made in China. By misrepresenting the origin of the tools, King Kong avoided paying a 25% tariff.
This case began when a competitor of King Kong filed a whistleblower complaint alleging that King Kong was manufacturing cutting tools in a Chinese factory (U.S. ex rel. China Pacificarbide, Inc. v. King Kong Tools, LLC, et al.,1:19-cv-05405 (ND Ga.) ). The tools were then shipped to Germany, where additional processing was performed on some, but not all, of the tools. The tools were then shipped to the United States and declared to be “German” products.
Homestar North America LLC
In December 2023, Homestar North America LLC (Homestar) agreed to pay $798,334 to resolve allegations that it violated the FCA by failing to pay customs duties owed for furniture imports from China between September 2018 and December 2022. The government alleged that the invoices were created and submitted to the CBP containing false, lower values for the goods. The settlement resolved allegations that Homestar and its Chinese parent company conspired to underreport the value of imports delivered to Homestar following two increases on Section 301 tariffs for certain products manufactured in China under the HTS.
This case was filed by a whistleblower in the Eastern District of Texas under the FCA, and the government subsequently intervened (U.S. ex rel. Larry J. Edwards, Jr. v. Homestar North America, LLC, Cause No. 4:21-cv-00148 (E.D. Tex.)).
Alexis LLC
In August 2024, women’s apparel company Alexis LLC agreed to pay $7,691,999.63 to resolve a FCA case also initially filed by a whistleblower (U.S. ex rel. CABP Ethics and Co. LLC v. Alexis et al., Case No. 1:22-cv-21412-FAM (S.D. Fla.)). The settlement, which was not an admission of liability by Alexis, resolved claims that from 2015 to 2022 Alexis materially misreported the value of imported apparel to CBP and thereby avoided paying the customs duties and fees owed on the imports. Alexis did, however, admit and acknowledge certain errors and omissions regarding the value and information reported on customs forms. Specifically, the errors related to failure to include and apportion the value of certain fabric and garment trims, discrepancies between customs forms and sales-related documentation, misclassifying textiles, and listing incorrect ports of entry.
In negotiating this settlement, Alexis and its senior management received benefits for its cooperation with the government. For example, Alexis voluntarily and timely submitted relevant information and records to the government. These submissions assisted the government in determining the amount of losses. Also, Alexis and its management implemented compliance procedures and employee training to prevent future issues.
Criminal Case
Kenneth Fleming and Akua Mosaics, Inc. (Akua Mosaics)
Kenneth Fleming and Akua Mosaics, Inc. plead guilty to a conspiracy to smuggle goods into the United States under 18 U.S.C. §§371 and 545. According to the plea agreements, from 2021 through June 2022, the defendants conspired to defraud the United States by smuggling and importing porcelain mosaic tiles manufactured in China by falsely representing to the CBP that the merchandise was of Malaysian origin. This was done with the intent to avoid paying antidumping duties of approximately 330.69%, countervailing duties of approximately 358.81%, and other duties of approximately 25%.
Fleming and Akua Mosaics conspired with Shuyi Mo, a citizen and resident of China who was arrested when he was attempting to flee the United States. They caused “Made in Malaysia” labels to be placed on boxes containing tiles manufactured in China and then caused a container with tiles manufactured in China to be shipped from Malaysia to Puerto Rico, misrepresenting the country of origin as Malaysia. The amount of unpaid duties and tariffs on this shipment was approximately $1.09 million. At sentencing, Fleming was ordered to pay restitution of $1.04 million and was sentenced to two years of probation.
Takeaways
Based upon DOJ’s new prioritization of trade and customs fraud, companies that import or export goods should ensure that they have the resources and training for employees working in jobs related to customs. Even simple errors and omissions could have more significant monetary consequences with increased tariffs. Companies should implement compliance programs to properly train employees and to identify and correct any issues as they occur.
Companies should also work with experienced trade counsel to determine if they are following the law. Failure to heed trade counsel’s advice could potentially put a company in a worse situation, like in the IVC matter discussed above.
If there is any indication of a criminal or civil investigation, companies should be proactive in retaining counsel with expertise in this area. Regardless of whether they dispute or settle the matter, experienced counsel is key in reaching a favorable resolution. Counsel can help determine when and how best to cooperate with the government to maximize cooperation credit in any settlement, as discussed above in the Alexis LLC matter.
Finally, companies should be diligent in their employment law practices. That means not only complying with applicable employment law when dealing with whistleblowers, but also ensuring that personnel files are appropriately documented when there are employee issues. FCA whistleblowers are often former, disgruntled employees who were terminated for performance issues. However, the employees’ files often do not reflect their poor performance, which can create unnecessary challenges in defending whistleblower claims. Companies that import or export goods should expect to see more whistleblowers come forward, both as traditional FCA relators and because DOJ has now added trade, tariff, and customs fraud issues to the Criminal Division’s Corporate Whistleblower Awards Pilot Program. All such companies will be best served by being diligent and prepared for DOJ’s new focus in this area.
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