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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DOJ Announces Intent to Use False Claims Act To Target Diversity and DEI Initiatives
At a Glance
The Department of Justice (DOJ) will use the False Claims Act (FCA) to investigate and pursue claims against entities that violate federal civil rights laws, including anti-discrimination and equal employment opportunity obligations, which may include diversity, equity, and inclusion (DEI) programs. Unlike many federal civil rights laws, the FCA allows for significant uncapped damages.
To the extent your organization receives an inquiry from the Department of Justice or any agency inquiring about compliance with federal civil rights laws or DEI, contact your counsel. Recipients of federal funds should carefully review any representations regarding federal civil rights laws or DEI associated with federal contracts or grants. Further, recipients of federal funds should proactively review their compliance with federal civil rights laws and initiate such review promptly, prioritizing review of externally facing information, as such information could trigger an investigation.
The DOJ has announced a new “Civil Rights Fraud Initiative” (Initiative) under which it will use the government’s chief anti-fraud statute, the FCA, to pursue claims against institutions for violating civil rights laws including the anti-discrimination and equal employment opportunity obligations under Title VII of the Civil Rights Act of 1964 (Title VII) and specifically illegal diversity and DEI initiatives.
Under the FCA, 31 U.S.C. § 3729, the government may recover treble damages as well as significant penalties from any recipient of federal funds that makes a false claim for such funds. Further, unlike many federal civil rights laws, such as Title VII, the FCA does not have caps on damages. Under this Initiative, DOJ is targeting recipients of federal funds who “falsely certify” compliance with federal civil rights laws. In its announcement, DOJ specifically outlined situations in which it believes institutions–in particular universities–may violate civil rights laws and thus provide a basis for an FCA cause of action, including: “encourage[ing] antisemitism, refus[ing] to protect Jewish students, allow[ing] men to intrude into women’s bathrooms, or require[ing] women to compete against men in athletic competitions.”
The Initiative will be led by the Fraud Section of DOJ’s Civil Division, which typically oversees FCA matters, as well as the Civil Rights Division, which enforces federal laws prohibiting discrimination. The effort will also be supported by the various United States Attorney’s offices as well as DOJ’s Criminal Division. And, further, the announcement directs DOJ to engage with other agencies such as the Department of Education, the Department of Health and Human Services, the Department of Housing and Urban Development, and the Department of Labor in pursuit of this work—highlighting that recipients of federal funding distributed by these agencies may be the first in line for DOJ scrutiny.
The Administration’s Anti-DEI Efforts
This new Initiative is part of the administrations’ larger effort to combat DEI and other policies, as articulated in President Trump’s Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing;” Executive Order 14168, “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government;” and Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” Read Polsinelli’s analysis of recent Executive Orders and other developments here.
Notably, Attorney General Pam Bondi had already issued a memorandum entitled “Ending Illegal DEI and DEIA Discrimination and Preferences” on February 5th, which directed DOJ’s Civil Rights Division to develop recommendations for enforcing civil-rights laws against DEI policies. The Initiative is an early indication of the enforcement steps DOJ will be taking to further the Executive Orders.
Legal Challenges to Anti-DEI Efforts
The administration’s anti-DEI Executive Orders have already been subject to numerous legal challenges.
In National Association of Diversity Officers in Higher Education v. Trump, Case No. 25-1189 (D.M.D.), plaintiffs challenged the executive orders on the basis that they violated the First Amendment’s free speech protections and the Fifth Amendment’s due process clause. Though successful at the district court level, on March 14, 2025, the Fourth Circuit stayed the district court’s preliminary injunction pending appeal.
In Chicago Women in Trades v. Trump, Case No. 25-2005 (N.D. Ill), a similar case, the district court issued a nationwide injunction on April 14, 2025, that restricts the Department of Labor (DOL) from requiring a federal contractor to make certifications relating to their DEI programs. 1
Polsinelli will continue to monitor these cases as they develop. The legal challenges to these Executive Orders—such as violation of the First or Fifth Amendments—will inform whether and how DOJ may pursue FCA claims as laid out by the Initiative.
FCA Potential Theories and Risks
To state a claim under the FCA, DOJ must show a false claim, knowledge of the falsity on the part of the defendant and materiality of the false statement to the government’s decision to pay.
Executive Order 14173 referenced above requires government agencies to ensure that federal contractors and grant recipients make certifications that they do not engage in any DEI or other programs that the administration believes violate anti-discrimination laws. While the DOL is currently enjoined from enforcing the DEI certification requirement, other government agencies are permitted to move forward with the certification requirement. These certifications will almost certainly be used to provide express false certifications for the purposes of FCA claims involving illegal DEI programs.
Further, Executive Order 14173 requires that government agencies include a term in every contract or grant award indicating that “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions.” This language has started to be rolled out by various government agencies and will be used to try to satisfy the FCA’s materiality requirement.
The FCA also includes a qui tam provision that allows individuals to file lawsuits on behalf of the government and, if successful, receive a portion of the recovered funds. In addition to DOJ enforcement actions, whistleblower complaints related to illegal DEI programs pose a substantial risk to federal contractors and grant recipients.
Even if no DEI certification is made, other representations made or implied by recipients of federal funding in their interactions with the government could also form a basis for an FCA inquiry.
These issues will no doubt be the subject of legal challenges to future FCA enforcement actions brought by both the DOJ and whistleblowers.
Key Takeaways
Recipients of federal funding should proceed cautiously. Further, such recipients should proactively review their diversity and DEI programs and documentation now with the assistance of experienced counsel to allow time for the review and implementation of any recommended changes. Under this new Initiative, DEI and other programs, especially those externally facing, may draw DOJ or whistleblower attention. In addition, representations made as part of contracting or other communications with the government, particularly any direct representations regarding DEI or other programs, should be made carefully.
Recipients of federal funding should continue to monitor the development of legal challenges to the various Executive Orders. As these cases wind through the courts and result in nationwide or more limited injunctions, there will be substantial uncertainty in their enforceability and the validity of any related FCA claims.
To the extent that you receive any inquiry from DOJ, any funding agency or other law enforcement entities regarding DEI or other policies, seek counsel. Such inquiries may indicate an underlying FCA investigation.
[1] Other challenges include Shapiro et al. v. U.S. Department of the Interior et al., Case No. 25-763 (E.D. Pa.), National Urban League v. Trump, Case No. 25-00471 (D.D.C.), and San Francisco AIDS Foundation et al. v. Trump et al., Case No. 25-1824 (D.D.C.).
Key Compliance Tips on How to Respond to Information Requests from OFSI
On 8 May 2025, the United Kingdom’s Office of Financial Sanctions Implementation (OFSI) of HM Treasury published a penalty notice regarding a breach of financial sanctions by a UK registered company—Svarog Shipping & Trading Company Limited (Svarog). OFSI imposed a monetary penalty of £5,000 on Svarog for failing, without reasonable excuse, to respond to a Request for Information (RFI) issued by OFSI.
Request for Information
OFSI has statutory powers to request documents and information for certain purposes, including establishing whether financial sanctions may have been breached or monitoring compliance with certain financial sanctions regulations or licences. OFSI will specify the legislative basis for the request and the time period within which the information should be provided (if no period is specified, the information must be provided within a reasonable time). Failure to comply with an RFI is a criminal offence which can lead to prosecution or a monetary penalty.
OFSI issued an RFI to Svarog on 26 January 2024 pursuant to OFSI’s statutory powers under Regulation 72 of The Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations). OFSI directed that a response was required by 9 February 2024. Despite OFSI sending a number of reminders, Svarog did not respond by the deadline. Svarog only responded to the RFI once OFSI contacted Svarog’s auditors. OFSI concluded that Svarog had failed to respond to OFSI’s RFI and, in the absence of a reasonable excuse, had breached Regulation 74(1)(a) of the Russia Regulations. OFSI imposed a monetary penalty of £5,000 for the breach.
Key Compliance Lessons
This case emphasises the importance of timely and accurate responses to RFIs and highlights a number of key compliance lessons, which are summarised below.
Respond Promptly to RFIs
Do not ignore the request. Failing to respond to an RFI can act as an aggravating factor in OFSI’s overall assessment of the severity of the breach.
Seek clarification if the request seems unclear or the deadline is challenging to adhere to.
If you believe you have missed a statutory deadline but you have a reasonable excuse, you should provide that excuse proactively for OFSI to consider, accompanied by a full explanation of the circumstances.
Recipients of RFIs should be aware of the importance of responding promptly, failing which can significantly impede OFSI’s ability and effectiveness to assess compliance, enforce financial sanctions and maintain compliance with the sanction’s regimes.
Understand the Legal Basis
Determine the statutory basis of OFSI’s RFI. If you are unsure, seek advice from sanctions or regulatory legal teams.
Engage Proactively and Candidly With OFSI When It Comes to RFIs
Be aware of any time limits specified in the RFI.
Provide accurate information to OFSI, ensuring it is truthful and accurate.
Engage with OFSI’s published guidance and seek professional advice on sanctions obligations if necessary.
Have Effective Communication and Monitoring Systems in Place
Keep detailed records of compliance procedures, risk assessments and responses to the RFI.
Demonstrate awareness of sanction compliance duties, including record keeping.
Appoint responsible personnel, monitoring and maintaining up-to-date contact information to ensure effective communication with OFSI RFIs.
OFSI expects firms to have effective communication and monitoring systems in place so that firms can promptly identify and respond to any RFI they might receive from OFSI.
Plan for Follow Up
Be prepared for follow-up queries or interviews. OFSI may ask for clarification, more documents or meetings after the initial response.
Consider Other Compliance and Reporting Obligations
Whilst the penalty in this case related to the failure to respond to an RFI without a reasonable excuse, other types of failures to provide information can also constitute breaches leading to penalties. For example:
Non-compliance with reporting obligations, including both failure to report and late reporting without reasonable excuse.
Incomplete or otherwise non-compliant reporting on specific and general licences, reporting requirements on licences and failures to report frozen assets.
Conclusion
You should ensure you are aware of your obligations and your requirement to comply with an RFI by OFSI.
DOJ Announces Long-Awaited Corporate Enforcement Priorities
On May 12, 2025, the Department of Justice’s (DOJ) Criminal Division issued a much-anticipated memorandum outlining its enforcement priorities and policies for prosecuting corporate and white-collar crimes. The memorandum, issued by Matthew R. Galeotti, Head of the Criminal Division, is a notable realignment of the Criminal Division’s priorities to promote policy goals of the Trump administration, including national security, foreign trade, and market integrity. It instructs prosecutors to “avoid overreach that punishes risk-taking and hinders innovation,” explaining that the Division’s policies are intended to “strike an appropriate balance between the need to effectively identify, investigate, and prosecute corporate and individuals’ criminal wrongdoing while minimizing unnecessary burdens on American enterprise.” The memorandum identifies the administration’s focus areas for white-collar criminal enforcement but also emphasizes its intent to reward corporate cooperation and remediation.
The DOJ’s Ten Focus Areas for Corporate Enforcement
The memorandum directs that the Criminal Division be “laser-focused on the most urgent criminal threats to the country,” seemingly suggesting that the DOJ’s focus during the prior administration was too broad. It identifies ten areas of focus that it asserts significantly impact the harms posed by white-collar crime:
1. Waste, fraud, and abuse, including health care fraud and federal program and procurement fraud that harm the public fisc;
2. Trade and customs fraud, including tariff evasion;
3. Fraud perpetrated through variable interest entities;[1]
4. Fraud that victimizes U.S. investors, individuals, and markets including, but not limited to, Ponzi schemes, investment fraud, elder fraud, servicemember fraud, and fraud that threatens the health and safety of consumers;
5. Conduct that threatens the country’s national security, including threats to the U.S. financial system by gatekeepers, such as financial institutions and their insiders that commit sanctions violations or enable transactions by cartels, transnational criminal organizations (TCOs), hostile nation-states, and/or foreign terrorist organizations;
6. Material support by corporations to foreign terrorist organizations, including recently designated cartels and TCOs;
7. Complex money laundering, including Chinese Money Laundering Organizations, and other organizations involved in laundering funds used in the manufacturing of illegal drugs;
8. Violations of the Controlled Substances Act and the Federal Food, Drug, and Cosmetic Act (FDCA), including the unlawful manufacture and distribution of chemicals and equipment used to create counterfeit pills laced with fentanyl and unlawful distribution of opioids by medical professionals and companies;
9. Bribery and associated money laundering that impact U.S. national interests, undermine U.S. national security, harm the competitiveness of U.S. businesses, and enrich foreign corrupt officials; and
10. As provided by an April 7, 2025 memorandum from the Deputy Attorney General: crimes (1) involving digital assets that victimize investors and consumers; (2) that use digital assets in furtherance of other criminal conduct; and (3) willful violations that facilitate significant criminal activity. Cases impacting victims, involving cartels, TCOs, or terrorist groups, or facilitating drug money laundering or sanctions evasion shall receive the highest priority.
The memorandum also emphasizes that Criminal Division prosecutors will “prioritize efforts to identify and seize assets that are the proceeds of, or involved in, such offenses and, where authorized under law, use forfeited assets to compensate victims of these offenses.”
Revisions to Corporate Enforcement and Voluntary Self-Disclosure Policies
Mr. Galeotti also directed amendments to several corporate enforcement policies. Specifically, the DOJ clarified and enhanced the benefits available to companies that voluntarily self-report, tightened its monitor selection policy, and added four priority areas to its recently announced whistleblower program.
Although the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) has been applied across the Division since 2018, Mr. Galeotti has directed several significant changes. First, the memorandum states that companies that self-disclose will be entitled to a declination, as opposed to a presumption of a declination. In other words, companies that satisfy the requirements of the CEP (voluntary self-disclosure, full cooperation, and timely remediation without aggravating circumstances) will not be required to enter into a criminal resolution.
The memorandum also directs the Criminal Division’s Fraud Section and the Money Laundering and Asset Recovery Section to “revise the CEP and clarify that additional benefits are available to companies that self-disclose and cooperate, including potential shorter terms.” The memorandum notes that “[i]t is individuals—whether executives, officers, or employees of companies—who commit these crimes, often at the expense of shareholders, workers, and American investors and consumers.” The memorandum also instructs that agreements with companies that cooperate and remediate should last for an appropriate term as necessary but should not be longer than three years “except in exceedingly rare cases.” The memorandum directs the Fraud Section and the Money Laundering and Asset Recovery Section to review the terms of all existing agreements with companies to determine if they should be terminated early.
The memorandum emphasizes its goal of streamlining corporate investigations, which it notes can be “costly and intrusive for businesses, investors, and other stakeholders” and “significantly interfere with day-to-day business operations and cause reputational harm that may at times be unwarranted.” The memorandum, therefore, directs prosecutors to “move expeditiously” when investigating cases and making charging decisions. The DOJ will track investigations to ensure they “do not linger and are swiftly concluded.”
Finally, the memorandum announced an individualized review of all existing independent compliance monitorships and instructed the narrowly tailored use of monitors. Mr. Galleoti announced a new monitor selection memorandum intended to (1) “clarif[y] the factors that prosecutors must consider when determining whether a monitor is appropriate and how those factors should be applied; and (2) ensur[e] that when a monitor is necessary, prosecutors narrowly tailor and scope the monitor’s review and mandate to address the risk of recurrence of the underlying criminal conduct and to reduce unnecessary costs.”
Conclusion
There has been much speculation about how the Trump administration would approach white-collar criminal enforcement while increasing enforcement of immigration and other criminal statutes. The DOJ memo appears to reaffirm a commitment to corporate criminal enforcement and prosecution consistent with the administration’s priorities. We expect the DOJ to continue its focus on fraud, waste, and abuse, specifically concerning health care fraud, federal program fraud, procurement fraud, trade and customs fraud (including tariff evasion), and violations of the FDCA, specifically including the manufacture and distribution of materials used to manufacture fentanyl and other unlawful opioids.
Endnotes
1. The memorandum describes variable interest entities as “typically Chinese-affiliated companies listed on the U.S. exchanges that carry significant risks to the investing public[.]”
Federal Take It Down Act Targeting Revenge-Porn Becomes Law
On May 19, 2025, President Donald Trump signed into law the Take It Down Act (S.146). The federal legislation criminalizes the publication of non-consensual intimate imagery and AI-generated pornography. It comes following approximately forty states already enacting legislation targeting online abuse.
What are the Take It Down Act’s Requirements?
The federal Take It Down Act creates civil and criminal penalties for knowingly publishing or threatening to share non-consensual intimate imagery and computer-generated intimate images that depict real, identifiable individuals. If the victim is an adult, violators face up to two years in prison. If a minor, up to three years.
Social media platforms, online forums, hosting services and other tech companies that facilitate user-generated content are required to remove covered content within forty-eight hours of request and implement reasonable measures to ensure that the unlawful content cannot be posted again.
Consent to create an image will not be a defense.
Exempt from prosecution are good faith disclosures or those made for lawful purposes, such as legal proceedings, reporting unlawful conduct, law enforcement investigations and medical treatment.
What Online Platforms are Covered Under the Take It Down Act?
Covered Platforms include any website, online service, application, or mobile app that that serves the public and either: (i) provides a forum for user-generated content (e.g., videos, images, messages, games, or audio), or (ii) in the ordinary course of business, regularly publishes, curates, hosts or makes available non-consensual intimate visual depictions.
Covered Platforms do not include broadband Internet access providers, email services, or online services or websites with primarily preselected content where the content is not user-generated but curated by the provider – and interactive features are merely incidental or directly related to the pre-selected content.
What are the Legal Obligations for Covered Online Platforms?
The Take It Down Act requires covered platforms to ensure compliance via, without limitation: (i) providing a clear and accessible complaint and removal process; (ii) providing a secure method for secure identity verification; and (iii) removing unlawful content and copies thereof within forty-eight hours of receipt of a verified complaint.
The new law also contained recordkeeping and reporting requirements.
While not expressly required, platforms are well-advised to address content moderation filtration policies. Reasonable efforts are, in fact, required to identify and remove any known identical copies of non-consensual intimate imagery.
Website agreements, as well as reporting and removal processes are amongst the legal regulatory operational compliance areas that warrant consideration and attention.
Who is Empowered to Enforce the TAKE IT DOWN Act?
The Federal Trade Commission has been authorized to enforce the Take It Down Act notice and takedown requirements against technology platforms that fail to comply. Violations are considered deceptive or unfair.
Good faith, prompt compliance efforts may be considered a safe harbor and a mitigating factor for platforms in the context of regulatory enforcement. Internal processes that document good faith compliance efforts, including the documentation of all takedown actions, should be implemented in order to avail oneself of the safe harbor.
Removal and appeals processes must be implemented on or before May 19, 2026.
Takeaway: Covered online platforms including, but not limited to, those that host images, videos or other user-generated content should consult with an FTC and State Attorneys General Defense and Investigations to discuss compliance with the Act’s strict takedown obligations and so in advance of the effective date in order to minimize potential liability exposure.
New York Attorney General Advances Consumer Protection FAIR Act Intended to Bolster GBL Section 349
In March 2025, Office of the Attorney General for the State of New York introduced the Fostering Affordability and Integrity Through Reasonable (“FAIR”) Business Practices Act in the State Senate and State Assembly. The proposed legislation is intended to revise Article 22-A of New York’s General Business Law.
The FAIR Act is designed to expand and strengthen consumer and small business protections, in part, by amending New York’s General Business Law §349 to also cover “unfair” and “abusive” practices, rather than just “deceptive” practices. Many other states have already enacted UDAP statutes. The bill may foreshadow what is to come from numerous state consumer protection enforcers as federal consumer protection enforcement is being rolled back and policy under the current administration remains uncertain.
As drafted, the program bill would provide the New York Attorney General and private plaintiffs the ability to seek enhanced civil penalties and restitution in amounts significantly more than available statutory damages pursuant to New York General Business Law Section 349. The FAIR Act would significantly increase statutory damages available under GBL §349 from $50 to $1,000, and permit recovery of actual and punitive damages. Penalties for unfair, deceptive or abusive practices could potentially include penalties of up to $5,000, per violation. Knowing or willful violations could result in penalties totaling the greater of $15,000 or three times the amount of restitution, per violation. Prevailing plaintiffs in private actions would also be permitted to recover attorneys’ fees and costs.
Analogous to federal policy, the proposed legislation provides for enhanced civil penalties for harm to vulnerable people, veterans and those with limited English proficiency. The FAIR Business Practices Act contemplates stopping lenders, including auto lenders, mortgage servicers, and student loan servicers, from deceptively steering people into higher cost loans. It would purportedly reduce unnecessary and hidden fees and stop unfair billing practices by health care companies.
The bill would also permit the NY AG and private plaintiffs (individuals, small businesses and non-profits) to enforce even a single instance of unfair, deceptive and abusive acts and practices, including, but not limited to, false advertising. Moreover, its prohibitions apply regardless of whether the act or practice is “”consumer-oriented,” possesses a “public impact,” or is part of a “pattern of conduct” – judicially imposed limitations that presently exist pursuant to GBL §349.
“This legislation will strengthen New York’s consumer protection law, GBL §349, to protect New Yorkers from a wide array of scams, including deed theft, artificial intelligence (AI)-based schemes, online phishing scams, hard-to-cancel subscriptions, junk fees, data breaches, and other unfair, deceptive, and abusive practices. Forty-two other states and federal law already prohibit unfair practices, making New York’s current law both antiquated and inadequate,” according to the NY Office of the Attorney General.
New York’s current consumer protection law, GBL §349, currently prohibits only deceptive business acts and practices, not unfair or abusive acts by companies and individuals. The FAIR Business Practices Act is designed to protect New Yorkers from unfair and abusive business acts, such as:
The imposition of hidden “junk fees” in various industries
Companies that make it difficult for consumers to cancel subscriptions
Student loan servicers that steer borrowers into the most expensive repayment plans
Car dealers that refuse to return a customer’s photo ID until a deal is finalized and charge for add-on warranties that the customer did not actually purchase
Nursing homes that routinely sue relatives of deceased residents for their unpaid bills despite not having any basis for liability
Companies that take advantage of consumers with limited English proficiency and obscure pricing information and fees
Debt collectors that collect and refuse to return a senior’s Social Security benefits, even though they are exempt from debt collection
Health insurance companies that use long lists of in-network doctors who turn out not to accept the insurance
The proposed legislation reflects the federal Consumer Financial Protection Act that prohibits unfair, deceptive or abusive acts and practices (“UDAAP”).
The Fair Business Practices Act provides specific definitions for the following terms:
Unfair: An act or practice is considered unfair when it causes or is likely to cause substantial injury to a person, the injury is not reasonably avoidable by such person, and the injury is not outweighed by countervailing benefits to consumers or competition. Note, however, that the FAIR Act’s definition of “unfair” does not possess a provision similar to the CFPA’s § 5531(c)(2) that permits regulatory agencies to weigh public policy when assessing whether an act or practice is unfair.
Deceptive: An act or practice is deceptive when the act or practice misleads or is likely to mislead a person and the person’s interpretation of the act or practice is reasonable under the circumstances.
Abusive: An act or practice is abusive when it materially interferes with the ability of a person to understand a term or condition of a product or service, or it takes unreasonable advantage of (i) a person’s lack of understanding of the material risks, costs, or conditions of the product or service; (ii) a person’s inability to protect such person’s interests in selecting or using a product or service; or (iii) a person’s reasonable reliance on a person covered by this section to act in such person’s interests.
New York business groups have criticized the consumer protection bill intended to strengthen consumer protection against deceptive practices such as junk fees and hard-to-cancel subscriptions. Business groups are aggressively resistant to the program bill, asserting that the legislation would be exploited, resulting in frivolous and abusive litigation that will weaken New York’s ability to attract and keep businesses.
Affirmative defenses to the Fair Business Practices Act could potentially include, without limitation, a private plaintiff meeting minimum threshold standing requirements, the alleged harm being capable of remedy via federal securities or intellectual property laws, and/or the alleged harm arising during the course of a high-value experienced commercial transaction and directed to the involved parties only. Contact a States Attorney General law firm if you or your business are the subject of a New York State or other State Attorney General subpoena or inquiry.
The Act is intended to expand consumer and small business protections, and enhance the scope of available remedies. If passed, it is anticipated that the law will result in a dramatic increase in private consumer lawsuits, and New York State Attorneys General investigation and enforcement.
Takeaway: New York’s existing consumer protection law is primarily governed by GBL §349 which focuses primarily on “deceptive” acts and practices. According to the New York AG, GBL §349 is antiquated and insufficient to adequately protect New Yorkers. Businesses operating in New York should consult with an Attorney General defense lawyer and monitor the progress of the FAIR Act. As drafted, the bill would increase the damages available in a private right of action from the greater of $50 or actual damages under current law to $1,000 in statutory damages, plus the aggrieved person’s actual damages, if any. In cases involving willful or knowing violations, courts would be mandated to award treble damages, reasonable attorneys’ fees and costs to a prevailing plaintiff. The Act would also permit class action lawsuits to recover actual, statutory or punitive damages if the prohibited act or practice has caused damage to others similarly situated. The availability of supplemental civil penalties for vulnerable persons would also be significantly expanded. If enacted into law, an experienced State Attorneys General law firm can assist with the implementation of business practices designed to comply with applicable New York State legal regulatory requirements, including, but not limited to additional restrictions relating to “unfair” and “abusive” acts or practices, and the review of applicable business and advertising practices.
CNIPA Permanently Suspends Three Chinese Trademark Firms for Bribery
On May 22, 2025, China’s National Intellectual Property Administration (CNIPA) released three administrative penalty decisions permanently suspending three trademarks firms from accepting trademark work. Per Tianyancha (geoblocked) and a court decision, one firm in particular was found to have bribed a CNIPA trademark examiner from 2013 to 2021 totaling 1.29 million RMB. The firm was criminally convicted and fined 100,000 RMB and the illegal gains of 1,382,680 RMB were seized.
A translation of one of the Decisions follows. The original text of the Decisions can be found here, here and here. A screen shot from Tianyancha can be found here courtesy of 知识产权界.
After investigation, it was found that from 2013 to 2021, the party bribed state officials many times in the process of carrying out trademark agency business, asking them to handle trademark examination, trademark information inquiry and other matters, and seeking improper benefits. On December 22, 2023, the People’s Court of Wendeng District, Weihai City, Shandong Province, rendered a criminal judgment （2023）鲁1003刑初31号 in accordance with the law, and found that the party was guilty of corporate bribery.
On March 11, 2025, our office served the party concerned with the “Notice of Administrative Penalty by the State Intellectual Property Office” (State Intellectual Property Office Letter [2025] No. 3), informing the party concerned of the facts, reasons, basis and content of the proposed administrative penalty, and informing the party concerned of the rights they enjoy. After receiving the notice, the party concerned did not make a statement, defense or request for a hearing within the statutory period.
Our bureau believes that the party concerned, as a trademark agency, failed to abide by laws and regulations and operate in good faith, and provided convenience for agency business by bribing trademark registration and management staff, and obtained improper benefits. Moreover, the bribery was frequent, lasted for a long time, and the circumstances were serious, constituting the act of “disrupting the trademark agency market order by other improper means” as stipulated in Article 68, paragraph 1, item (2) of the Trademark Law of the People’s Republic of China. In accordance with Article 68, paragraph 1, item (2) and paragraph 2 of the Trademark Law of the People’s Republic of China, Article 90 of the Regulations for the Implementation of the Trademark Law of the People’s Republic of China, and Article 34, paragraph 1 of the Regulations on the Supervision and Administration of Trademark Agencies, the following penalty decision is made:
Permanently stop accepting trademark agency business from Beijing Zhonglian Aizhi Intellectual Property Agency Co., Ltd.
The above-mentioned behavior of the party concerned falls under the provisions of Article 9, Item (2) of the “Administrative Measures for the List of Serious Illegal Dishonesty in Market Supervision and Administration”, “engaging in serious illegal patent and trademark agency behavior”. According to the relevant provisions of Article 2 and Article 12 of the “Administrative Measures for the List of Serious Illegal Dishonesty in Market Supervision and Administration”, it is decided to include Beijing Zhonglian Aizhi Intellectual Property Agency Co., Ltd in the list of serious illegal dishonest companies in Market Supervision and Administration, publicize it through the National Enterprise Credit Information Publicity System, and implement corresponding management measures. The inclusion period is from May 7, 2025 to May 6, 2028. After one year, the party concerned may apply to our bureau for early removal from the list of serious illegal dishonest companies in accordance with Articles 16 and 17 of the “Administrative Measures for the List of Serious Illegal Dishonesty in Market Supervision and Administration”, stop publicizing relevant information and lift corresponding management measures.
If the parties are dissatisfied with this decision, they may apply for administrative reconsideration to the CNIPA within 60 days from the date of receipt of this decision, or file an administrative lawsuit with the People’s Court with jurisdiction within 6 months from the date of receipt of this decision. During the reconsideration and litigation, the above decision shall not be suspended.
OSH Law Primer, Part XIII: Criminal Penalties and Sanctions
This is the thirteenth installment in a series of articles intended to provide the reader with a very high-level overview of the Occupational Safety and Health (OSH) Act of 1970 and the Occupational Safety and Health Administration (OSHA) and how both influence workplaces in the United States.
By the time this series is complete, the reader should be conversant in the subjects covered and have developed a deeper understanding of how the OSH Act and OSHA work. The series is not—nor can it be, of course—a comprehensive study of the OSH Act or OSHA capable of equipping the reader to address every issue that might arise.
The first article in this series provided a general overview of the OSH Act and OSHA; the second article examined OSHA’s rulemaking process; the third article reviewed an employer’s duty to comply with standards; the fourth article discussed the general duty clause; the fifth article addressed OSHA’s recordkeeping requirements; the sixth article covered employees’ and employers’ respective rights; the seventh article addressed whistleblower issues; the eighth article covered the intersection of employment law and safety issues, the ninth article discussed OSHA’s Hazard Communication Standard (HCS); the tenth article examined voluntary safety and health self-audits; the eleventh article, in two parts, reviewed OSHA’s citation process; and the twelfth article covered OSHA inspections and investigations. In this article, we examine OSHA’s ability to seek criminal penalties.
Quick Hits
OSHA’s Hazard Communication Standard (HCS) was established in 1982 to ensure that employees who are exposed—or are reasonably likely to be exposed—to chemicals in the workplace are aware of the hazards and know how to protect themselves effectively.
The HCS mandates that all employers use a hazard communication program to inform employees about the hazardous chemicals to which employees may be exposed.
The standard has been amended several times since 1982, most recently with a final rule issued in May 2024 to align with international standards.
As readers likely know, employers charged with violating the OSH Act and its regulations can face substantial civil penalties. Less well-known is that certain violations may also be subject to criminal sanctions. While many federal agencies have the power to seek civil and criminal penalties for a wide variety of offenses, OSHA’s authority to seek criminal penalties is restricted to three narrow circumstances. First, any person who gives advance warning of an inspection may be subject to criminal penalties. Second, any individual or employer that knowingly makes any false statement, representation, or certification under the OSH Act may be prosecuted. Finally, an employer whose willful violation of an OSHA standard results in the death of an employee may face criminal penalties.
Moreover, unlike civil complaints, which are prosecuted by the U.S. Department of Labor (DOL), criminal charges may be prosecuted only by the U.S. Department of Justice (DOJ). Thus, criminal prosecutions are subject to substantially more vetting than run-of-the-mill civil citations. Indeed, DOJ officials have to concur that a particular case is worthy of prosecution, merits using scarce departmental resources, and is winnable. Not surprisingly, only a few cases get through this screening process.
Basis for Liability
As noted above, the OSH Act creates potential criminal liability for any person who gives advance warning of an inspection. The OSH Act also makes the unauthorized disclosure of forthcoming inspections punishable by a fine of $1,000 and imprisonment for up to six months.
The OSH Act also creates potential criminal liability for making false statements to OSHA. While perjury, or lying under oath, as well as making false statements to federal officers, are illegal under federal criminal law, OSHA’s increased emphasis on paperwork and various types of required recordkeeping exposure may exist from what otherwise might seem routine clerical activities. For example, an employer’s OSHA 300 logs must be accompanied by a signature attesting to the truth and accuracy of the logs. Knowing violation of this oath is a crime punishable by up to six months in prison and/or a $10,000 fine.
The most serious penalties result from the willful violation of an OSHA standard or rule when that violation results in the death of an employee. While for a first-time offender the penalty is identical to that for making false statements—maximum penalties of $10,000 and six months’ imprisonment—for a repeat offender these penalties double to $20,000 and one year in prison.
Process of Prosecution
OSHA’s criminal referral process can be quite drawn out and complicated. The process begins with the responsible area director sending a recommendation for criminal prosecution to his or her supervising regional director. If the regional director agrees with the recommendation, he or she will then hand the case to a DOL solicitor, either regional or national, who then has to decide whether the case meets the factual and legal grounds, and on sensitive matters the OSHA head office will decide whether the case warrants referral to the DOJ for possible prosecution.
The referral is just the first half of the process. The DOJ has to act on the referral by bringing actual cases to court. This is where many cases get held up. For whatever reason—workload, the nebulous nature of the offenses, the difficulty of showing intent, or other factors—local prosecutors have not been eager to bring these cases. Indeed, between 1970 and 2022, the DOJ prosecuted only 115 workplace death cases.
Is Change Coming?
Given the limited effectiveness of OSH Act criminal penalties coupled with a belief by some that the criminal penalties provided are inadequate to serve a deterrence effect, calls have been made to toughen the OSH Act by expanding the range of activities that result in criminal liability, as well as increase the penalties provided under the Act. Numerous bills have been introduced over the years in the U.S. Congress, yet no action has been taken. It is yet to be seen if it ever will.
Think Compliance Got Easier? Think Again—DOJ’s New Era in White-Collar Enforcement (Part 3)
In our prior two posts, we’ve delved into the memorandum issued by the Head of the Department of Justice’s (Department) Criminal Division, Matthew R. Galeotti—”Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime[JH1] .” Those posts discussed the Focus and Fairness tenets in the Galeotti memorandum. In this post, we explore the final tenet—Efficiency. As Galeotti explains, the Efficiency tenet aims to maximize the Efficiency of Department investigations in order to minimize costs and intrusiveness and prevent unwarranted reputational damage to businesses. The Galeotti Memorandum identifies two main areas for improvement: the investigative process and use of corporate monitors.
With respect to investigations, the Department’s goal of Efficiency is particularly targeted to the length of investigations. The Galeotti Memorandum notes that it is not unusual for white-collar investigations to go on for years. Galeotti instructs prosecutors to “take all reasonable steps” to move expeditiously in their investigations and reduce the “collateral impact of their investigations,” while acknowledging that white-collar schemes are often complex and take substantial time to unravel. The Criminal Division will exercise more oversight to track investigations and make sure they are “swiftly concluded.”
As for monitorships, the Galeotti Memorandum emphasizes that monitorships should only be imposed when necessary—namely, “when a company cannot be expected to implement an effective compliance program or prevent recurrence of” misconduct without external oversight. When monitorships are deemed appropriate, their mandates must be carefully scoped to minimize expense, burden, and business disruption. Further, the Department is reviewing all existing monitorships to determine whether they remain necessary.
The Galeotti Memorandum also references the Memorandum on Selection of Monitors in Criminal Division Matters, which updates the monitor selection process. The Department’s monitor memorandum updates the factors to be considered “when determining whether a monitor is appropriate” and ensures that monitorships are narrowly tailored “to address the risks of recurrence of the underlying criminal conduct” and avoid unnecessary expenses. The factors prosecutors should evaluate when deciding whether to impose a monitor are:
The “[r]isk of recurrence of criminal conduct that significantly impacts U.S. interests,”
The “[a]vailability and efficacy of other independent government oversight,”
The “[e]fficacy of the compliance program and culture of compliance at the time of the resolution,” and
The “[m]aturity of the company’s controls and its ability to independently test and update its compliance program.”
The monitor memorandum also walks through three steps the Criminal Division will take to ensure monitorships are properly tailored:
The cost of a monitorship should be proportional to “the severity of the” criminal conduct at issue, the company’s profits, and “the company’s present size and risk profile.”
The Criminal Division will have “at least biannual tri-partite meetings” with the monitor and company.
The Criminal Division will work collaboratively with the monitor and company throughout the monitorship “to achieve a single goal: an appropriately tailored and effective, risk-based corporate compliance program designed to detect and prevent the recurrence of the misconduct underlying the agreement.”
The Galeotti Memorandum reaffirms that the new administration does not intend to get lax on white-collar crime within the areas it has targeted. That said, there will be shifts in how the government approaches various types of misconduct in the white-collar sector, and companies should carefully consider those changes as they develop their compliance program and evaluate how to address instances of misconduct in their operations.
Unpacking the Federal Anti-Kickback Statute’s Application to Payments to Medicare Advantage Agents and Brokers
On December 11, 2024, the U.S. Department of Health & Human Services’ Office of Inspector General (OIG), issued a Special Fraud Alert (Alert) focusing on financial arrangements involving Medicare Advantage (MA) Organizations (MAOs), their agents and brokers, and health care professionals (HCPs).[1] This blog post will unpack OIG’s commentary on these arrangements and discuss how – and if – the federal Anti-Kickback Statute (AKS) applies to them.
The first section provides a brief background on the Centers for Medicare & Medicaid Services’ (CMS) regulations applicable to compensation for agents and brokers for MA plans with a focus on the regulations that were to be effective for Contract Year 2025 but have been stayed (i.e., delayed) pending the outcome of court cases in the Northern District of Texas. The second section provides an overview of OIG’s 2024 Alert, and the final section explores the application of the AKS to arrangements involving payments to MA plan agents and brokers.
CMS Revised Agent, Broker & TPMO Compensation Regulations
By statute, CMS is given regulatory authority over MA agent and broker compensation – see Social Security Act (SSA) § 1851(j)(2)(D), 42 U.S.C. § 1395w-21(j)(2)(D) – which describes prohibited activities and limitations related to eligibility, election, and enrollment, including “[t]he use of compensation other than as provided under guidelines established by the Secretary. Such guidelines shall ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs.” That statutory authority is implemented through CMS regulation at 42 C.F.R. § 422.2274, which addresses MA plan payments to agents and brokers.
In its April 2024 Final Rule revising section 422.2274, CMS outlined the following approach for revisions to the agent, broker and third-party marketing organization (TPMO) compensation structures:
generally prohibit contract terms between MA organizations and agents, brokers or other TPMOs that may interfere with the agent’s or broker’s ability to objectively assess and recommend the plan which best fits a beneficiary’s health care needs;
set a single agent and broker compensation rate for all plans, while revising the scope of what is considered “compensation”; and
eliminate the regulatory framework which currently allows for separate payment to agent and brokers for administrative services.[2]
In several places in the Final Rule, CMS noted that, depending on the circumstances, agent and broker relationships can also be problematic under the AKS if they involve, for example, compensation in excess of fair market value (FMV), compensation structures tied to the health status of the beneficiary (e.g., cherry picking for the most profitable enrollees), or compensation that varies based on the attainment of certain enrollment targets.[3]
On July 3, 2024, the U.S. District Court for the Northern District of Texas issued preliminary injunctions in Americans for Beneficiary Choice v. HHS, No. 4:24-cv-00439, and Council for Medicare Choice v. HHS, No. 4:24-cv-00446, which stayed for the duration of the litigation the effective date of certain of the provisions of the revised CMS agent/broker/TPMO compensation provisions, specifically, those amending 42 C.F.R. § 422.2274(a), (c), (d), (e) (and for Medicare Part D at § 423.2274(a), (c), (d) and (e)). Therefore, the regulatory language within those subsections that were effective prior to the issuance of the final rule will be in effect in Contract Year 2025 so long as the stay remains in place.[4]
To be clear, with or without the revisions to the compensation provisions, the agent, broker and TPMO compensation regulations at 42 C.F.R. § 422.2274 currently and as revised allow compensation that is quite different than what is reflected in the AKS safe harbors and OIG guidance on the provider side. For example, the CMS regulations allow per enrollment fees to brokers or agents based on successfully enrolling beneficiaries into MA plans (a “success fee”), which have caps set at “fair market value” amounts (defined in the regulation) determined by CMS.[5] Further, payments for referrals (up to $100) are specifically allowed (e.g., a lead fee) for the “recommendation, provision, or other means of referring beneficiaries to an agent, broker or other entity for potential enrollment into a plan.”[6] These compensation methodologies have been commonplace in the insurance market for decades, but they are quite different than sales agent compensation for providers that are paid by the federal health care programs.
Overview: OIG Special Fraud Alert
In the wake of CMS’ Final Rule, OIG released a Special Fraud Alert, which focuses on:
marketing arrangements between MAOs and HCPs and
arrangements between HCPs and agents and brokers for MA plans.[7]
The Alert illustrates how OIG views the application of AKS in arrangements between HCPs and agents and brokers for MA plans.
OIG noted that a substantial area of risk involves MAOs, directly or indirectly, paying remuneration (i.e., anything of value) to HCPs or their staff in exchange for referring patients to the MAOs’ plans.[8] OIG acknowledged that CMS regulations allow HCPs to engage in certain limited marketing related functions on behalf of an MAO, but MAOs must ensure that HCPs acting on their behalf do not “[a]ccept compensation from the [MAO] for any marketing or enrollment activities performed on behalf of the [MAO],”[9] citing a CMS regulation. (The OIG cited a recent Department of Justice settlement for $60 million involving alleged kickbacks paid to insurance agents in Medicare Advantage patient recruitment.[10])
The Alert noted that the second area of risk involves payments from HCPs to agents and brokers, e.g., payments from an HCP to agents and brokers to recommend that HCP to a particular MA enrollee or refer to the enrollee to the HCP.[11] According to OIG, in some cases, HCPs make these payments to refer Medicare enrollees to the HCP, in return to become designated as the primary care provider for the enrollee at their particular MA plan.[12]
OIG is concerned that agents, brokers and HCPs may skew the guidance they provide related to HCPs or MA plans based on their financial self-interest.[13] When a party knowingly and willfully pays remuneration to induce or reward referrals of items or services payable by a federal health care program, the AKS may be implicated.[14] By its terms, the statute ascribes liability to parties on both sides of an impermissible kickback transaction. Arrangements involving HCP compensation to an agent or broker could implicate the statute if the HCP offers or pays an agent or broker to refer enrollees to the HCP for the furnishing or provision of items or services that are reimbursable by a federal health care program.[15] Similarly, arrangements involving MAO compensation to an HCP or their staff could implicate the statute if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare.[16]
Based on its experience, OIG provides a list of “suspect characteristics” that “taken together or separately, could suggest that an arrangement presents a heightened risk of fraud and abuse.”[17] These characteristics include, but are not limited to:
MAOs, agents, brokers, or any other individual or entity offering or HCPs or their staff remuneration (such as bonuses or gift cards) in exchange for referring or recommending patients to a particular MAO or MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying HCPs remuneration that is disguised as payment for legitimate services but is actually intended to be payment for the health care provider’s referral of individuals to a particular MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying HCPs or their staff remuneration in exchange for sharing patient information that may be used by the MAOs to market to potential enrollees.
MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that varies based on the number of individuals referred for enrollment in an MA plan.
HCPs offering or paying remuneration to an agent, broker, or other third party that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
HCPs offering or paying remuneration to an agent, broker, or other third party to recommend that HCP to a Medicare enrollee or refer an enrollee to the HCP.
HCPs offering or paying remuneration to an agent, broker, or other third party that varies with the number of individuals referred to the HCP.[18]
Application of the Federal AKS to Arrangements Involving Agents and Brokers for MA Plans
On the provider side, the AKS is well known and should be carefully navigated. The AKS prohibits providers from knowingly and willfully soliciting, receiving, offering, or paying, directly or indirectly, any remuneration in return for either making a referral for an item or service covered by a federal health care program (including Medicare and Medicaid) or ordering any covered item or service.[19] For purposes of this statute, remuneration includes the transfer of anything of value, in cash or in kind, directly or indirectly, covertly or overtly.[20] OIG has promulgated AKS regulations, which provide safe-harbor protection for certain activities that might otherwise be subject to scrutiny under the AKS.[21] If a safe harbor applies to an arrangement, it must satisfy all elements of the safe harbor to receive protection. If an arrangement does not fall within a safe harbor, OIG will review the full facts and circumstances to make a compliance determination.
In the Alert, OIG suggests that financial arrangements involving agents and brokers for MA plans may implicate the AKS. Arrangements involving HCP compensation to an agent or broker could implicate the statute if the HCP offers or pays an agent or broker to refer enrollees to the HCP for the furnishing or provision of items or services that are reimbursable by a federal health care program.[22] Similarly, arrangements involving MAO compensation to an HCP or their staff could implicate the AKS if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare.[23]
However, the AKS’s application to agent/broker arrangements is murky territory, which we explore further below.
i. AKS History
In 1972, the federal AKS was created in two (2) identically worded sections of the SSA in title XVIII (SSA § 1877) (Medicare) and title XIX (SSA § 1909) (Medicaid). Until 1999, there were Parts A and B of Medicare, but no Part C – i.e., no Medicare Advantage (previously called Medicare+Choice).[24] The AKS prohibition related then, as it does now, to referrals of “items or services” and purchasing, leasing, ordering or arranging for or recommending purchasing, leasing, or ordering any good, facility, service or item for which payment may be made in whole or in part “under the [Medicare and Medicaid] title.” (That payor language is now “under a Federal health care program.”[25])
The Medicare definitions for that original SSA section 1877 were found in SSA section 1861 (42 U.S.C. § 1395x) (under Part E – Miscellaneous Provisions). Under the Medicare definitions (SSA Sec. 1861 Definition of services, institutions, etc.), “item or service” is not specifically defined, but there are references to its meaning in the other definitions in that section. For example, SSA section 1861(n) “The term ‘physicians’ services means professional services performed by physicians, including surgery, consultation, and home, office, and institutional calls….”[26] SSA section 1861(s) “The term ‘medical and other health services’ means any of the following items or services: (1) physician services; (2)(A) services and supplies…; (B) hospital services…(C) diagnostic services….”[27]
In 1987, Congress moved SSA section 1909 to section 1128B and repealed the anti-kickback provisions of SSA section 1877. (Remember SSA sections 1877 and 1909 were identically worded.) SSA section 1128B is under SSA title XI (General Provisions, Peer Review and Administrative Simplification) and does not have a definition of “item or service.”[28] However, the definitions section under SSA title XVIII (Medicare) at section 1861 still exist. Further, and as previously noted, in 1999, Medicare Part C (also known as Medicare+Choice, now Medicare Advantage) was created and is part of the SSA title XVIII.
The meanings of items or services have remained at SSA title XVIII, section 1861 (entitled “Definitions”). As such, items include, e.g., prescription drugs and supplies; services include, e.g., physician services. Items and services have never been interpreted as being a Medicare Advantage plan itself.
ii. Agent/Broker Payments
Payments tied to marketing for enrollment of beneficiaries into an MA plan do not implicate the AKS because such plan marketing services are not referrals of items or services nor are such plan marketing services purchasing, leasing, ordering or arrangement for or recommending purchasing, leasing, or ordering any good, facility, service or item.
AKS does apply to health plans, but in looking at the AKS regulatory safe harbors (the OIG’s implementing regulations), it is clear that the statute’s application (and the meaning of items and services), does not include marketing and other pre-enrollment activities.
1. 42 C.F.R. § 1001.952(l) Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans. “(1) As used in section 1128B of the Act, ‘remuneration’ does not include the additional coverage of any item or service offered by a health plan to an enrollee or the reduction of some or all of the enrollee’s obligation to pay the health plan or a contract health care provider for cost-sharing amounts (such as coinsurance, deductible, or copayment amounts) or for premium amounts attributable to items or services covered by the health plan, the Medicare program, or a State health care program, as long as the health plan complies with all of the standards within one of the following two categories of health plans….”
2. 42 C.F.R. § 1001.952(m) Price reductions offered to health plans. “As used in section 1128B of the Act, ‘remuneration’ does not include a reduction in price a contract health care provider offers to a health plan in accordance with the terms of a written agreement between the contract health care provider and the health plan for the sole purpose of furnishing to enrollees items or services that are covered by the health plan, Medicare, or a State health care program, as long as both the health plan and contract health care provider comply with all of the applicable standards within one of the following four categories of health plans….”
3. 42 C.F.R. § 1001.952(t) Price reductions offered to eligible managed care organizations. “(1) As used in section 1128B of the Act, ‘remuneration’ does not include any payment between: (i) an eligible managed care organization and any first tier contractor for providing or arranging for items or services, as long as the following three standards are met — (A) the eligible managed care organization and the first tier contractor have an agreement that: (1) Is set out in writing….
(2) For purposes of this paragraph, the following terms are defined as follows:
…(iv) Items and services meanshealth care items, devices, supplies or services or those services reasonably related to the provision of health care items, devices, supplies or services including, but not limited to, non-emergency transportation, patient education, attendant services, social services (e.g., case management), utilization review and quality assurance. Marketing and other pre-enrollment activities are not “items or services” for purposes of this section.”
4. 42 C.F.R. § 1001.952(u) Price reductions offered by contractors with substantial financial risk to managed care organizations. “(1) As used in section 1128(B) of the Act, “remuneration” does not include any payment between: (i) A qualified managed care plan and a first tier contractor for providing or arranging for items or services, where the following five standards are met — (A) The agreement between the qualified managed care plan and first tier contractor must: (1) Be in writing and signed by the parties;….
(2) For purposes of this paragraph, the following terms are defined as follows:
…(iv) Items and services means health care items, devices, supplies or services or those services reasonably related to the provision of health care items, devices, supplies or services including, but not limited to, non-emergency transportation, patient education, attendant services, social services (e.g., case management), utilization review and quality assurance. Marketing or other pre-enrollment activities are not “items or services” for purposes of this definition in this paragraph.”
Except for the Alert discussed in this Article, there is no OIG regulatory or sub-regulatory guidance providing direction related to MA plan-agent/broker arrangements. The recent Alert discusses arrangements involving MAO compensation to an HCP or their staff that could implicate AKS if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare. The Alert’s analysis concludes applicability of the AKS while it jumps past (or around) the “conduct” – i.e., the recommendation of the MAO plan enrollment – to the items and services provided by a plan.
Prior to the most recent Alert, OIG’s last discussion of such arrangements was in 1996 (even before MA) and noted that the issue of independent agents and brokers in the managed care arena was beyond the scope of the 1996 final rule (regarding safe harbors for protecting health plans) and “would require separate notice and public comment in order to be adopted.”[29] There has been no such separate notice and comment.
The 2008 and 2024 rules from CMS noted that “agents and broker relationships can be problematic under the federal anti-kickback statute if they involve, by way of example only, compensation in excess of fair market value, compensation structures tied to the health status of the beneficiary (for example, cherry picking), or compensation that varies based on the attainment of certain enrollment targets.”[30] OIG, not CMS, has authority to interpret the AKS and its safe harbors. Thus, this CMS preamble language is interesting, but it is not OIG guidance, or more fundamentally a statutory expansion that would apply the AKS to incentives related to MA plan choices.
In the 2024 Final Rule, in its discussion of AKS, CMS also referenced a 2010 OIG report, but that 2010 report specifically stated: “Finally, we [OIG] did not determine whether plan sponsors’ payments complied with the Federal anti-kickback statute. A legal analysis of whether plan sponsor payments violated the Federal anti-kickback statute was beyond the scope of this study.”[31]
Conclusion
The AKS is broadly applicable to items and services provided by the federal health care programs, but it is not currently applicable to MA broker and agent compensation related to MA plan choices that are not “items and services.” CMS has broad authority related to MA broker, agent and TPMO compensation by statute and regulation. Without a statutory change to the AKS, CMS is the sole authority over MA broker, agent and TPMO compensation in accordance with the rules set forth at 42 C.F.R. § 422.2274.
[1] U.S. Dep’t. of Health & Hum. Servs. Office of Inspector General, Special Fraud Alert: Suspect Payments in Marketing Arrangements Related to Medicare Advantage and Providers (Dec. 11, 2024) (available at https://oig.hhs.gov/compliance/alerts/).
[2] 89 Fed. Reg. 30,448, 30,620 (CMS Final Rule, Apr. 23, 2024).
[3]Id. at 30,617, 30,618 and 30,624.
[4] CMS, Medicare Drug and Health Plan Contract Administration Group, UPDATED Contract Year 2025 Agent and Broker Compensation Rates, Submissions, and Training and Testing Requirements (July 18, 2024) available at https://22041182.fs1.hubspotusercontent-na1.net/hubfs/22041182/Memo_Updated%20AB%20Compensation%20and%20T%20and%20Testing%20Requirements%20CY2025_Final.pdf.
[5] 42 C.F.R. § 422.2274(a), (d).
[6]Id. § 422.2274(f).
[7] U.S. Dep’t. of Health & Hum. Servs. Office of Inspector General, Special Fraud Alert: Suspect Payments in Marketing Arrangements Related to Medicare Advantage and Providers (Dec. 11, 2024), available at https://oig.hhs.gov/documents/special-fraud-alerts/10092/Special%20Fraud%20Alert:%20Suspect%20Payments%20in%20Marketing%20Arrangements%20Related%20to%20Medicare%20Advantage%20and%20P.pdf (hereinafter, “Alert”).
[8]Id. at 2.
[9] 42 C.F.R. § 422.2266.
[10]See Press Release, U.S. Department of Justice, Oak Street Health Agrees to Pay $60 Million to Resolve Alleged False Claims Act Liability for Paying Kickbacks to Insurance Agents in Medicare Advantage Patient Recruitment Scheme (Sept. 18, 2024), https://www.justice.gov/opa/pr/oak-street-health-agrees-pay-60m-resolve-alleged-falseclaims-act-liability-paying-kickbacks.
[11] Alert at 2.
[12]Id.
[13]Id. at 3.
[14]Id. at 4.
[15]Id.
[16]Id.
[17]Id. at 5.
[18]Id.
[19] SSA 1128B(b)(1), 42 U.S.C. § 1395a-7b(b)(1).
[20]Id.
[21] 42 C.F.R. § 1001.952.
[22] Alert at 4.
[23]Id.
[24]See Balance Budget Act of 1997, P. L. 105-33, 111 Stat. 251, tit. IV (Aug. 5, 1997).
[25] “Federal health care program” is defined as “(1) any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the health insurance program under chapter 89 of title 5); or (2) any State health care program, as defined in section 1320a-7(h) of this title.” SSA 1128B(f), 42 U.S.C. § 1320a-7b(f).
[26] SSA § 1861(n), 42 U.S.C. § 1395x(n).
[27] SSA § 1861(s), 42 U.S.C. § 1395x(s).
[28]See generally SSA § 1861, 42 U.S.C. § 1395x.
[29] 61 Fed. Reg. 2122, 2124 (OIG Final Rule, Jan. 25, 1996).
[30]See, e.g., 89 Fed. Reg. 30,448, 30,617 (Final Rule, Apr. 23, 2024).
[31] 89 Fed. Reg. at 30,618 (citing Levinson, Daniel R, Beneficiaries Remain Vulnerable to Sales Agents Marketing of Medicare Advantage Plans (March 2010), https://oig.hhs.gov/oei/reports/oei-05-09-00070.pdf)).
DOJ Civil Rights Fraud Initiative: FCA Enforcement Expanding Into Alleged Discrimination
On May 19, 2025, the U.S. Department of Justice (DOJ) announced a new Civil Rights Fraud Initiative that will leverage the federal False Claims Act (FCA) to investigate and litigate against universities, contractors, health care providers, and other entities that accept federal funds but allegedly violate federal civil rights laws.
The initiative will be led jointly by the DOJ Civil Division’s Fraud Section and the Civil Rights Division—with support from the Criminal Division, federal civil rights agencies, and state partners.
The initiative implements President Donald Trump’s Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (January 21, 2025), directing agencies to combat unlawful discrimination through the FCA, and complements Attorney General (AG) Bondi’s February 5 memorandum, “Ending Illegal DEI and DEIA Discrimination and Preferences.”
How DOJ Plans to Use the FCA to Combat Discrimination
DOJ signaled it will rely on the FCA’s “false certification” theory of liability: When a funding recipient expressly or implicitly certifies compliance with statutes such as Title VI or IX of the Civil Rights Act of 1964 (CRA) to obtain payment, any knowing violation that is “material” to the government’s decision to pay can trigger treble damages and statutory penalties under the FCA.
Deputy AG Todd Blanche issued a memorandum the same day (the “Blanche Memo”) underscoring that the FCA is implicated when a federal contractor or recipient of federal funds knowingly violates civil rights laws—including Titles IV, VI, and IX of the CRA—and falsely certifies compliance with those civil rights laws. The Blanche Memo, however, notes that liability does not attach to all diversity programs per se, but only when race, ethnicity, or national origin determines the allocation of benefits or burdens. This is significant because, even if an antidiscrimination false certification claim is assumed to meet the materiality standard, a diversity, equity, and inclusion (DEI) program should not be deemed improper if it does not “assign benefits or burdens on [the basis of] race, ethnicity or national origin.”
Enforcement Dynamics
Unlike many FCA matters, which often originate with whistleblowers (also known as qui tam relators) filing suit, we expect DOJ to initiate early cases itself, limiting defendants’ ability to oppose intervention or invoke typical qui tam defenses (e.g., first-to-file rule, public disclosure bar, and original source rule). DOJ nevertheless “strongly encourages” whistleblowers to come forward to report “instances of such discrimination”—a reminder that suspected violations may quickly morph into FCA investigations.
Courts will ultimately decide whether civil rights violations pass muster under the U.S. Supreme Court’s “rigorous” and “demanding” Escobar materiality standard.[1]
Key Takeaways
DOJ’s Civil Rights Fraud Initiative is poised to test the outer limits of the FCA. Whether courts embrace this expansion—or cabin it—is yet to be seen. In the meantime, entities receiving federal funds should assume heightened scrutiny and ramp up compliance efforts.
The Blanche Memo draws an uncertain line between “diversity” and “religion,” and even suggests that DOJ may apply the terms “race” or “racist” differently today than they were understood when Congress enacted the CRA. Courts, however, have yet to endorse the FCA as a generalized antidiscrimination vehicle, largely because the statute’s “rigorous” materiality standard remains a high hurdle. One district court observed that if the FCA is not an “’all-purpose antifraud statute,” it is “surely not an all-purpose antidiscrimination statute” either.[2]
When DOJ unveiled its Civil Rights Fraud Initiative, The New York Times predicted the program was “all but certain” to face immediate legal challenges. Even so, DOJ can bring FCA cases with relative ease and without many of the hurdles that slow private whistleblower suits: The government’s own complaints are immune from first-to-file and public disclosure bar defenses, and defendants cannot oppose DOJ intervention like they can in qui tam cases.
Implied certification cases are also unlikely to disappear. As we have advised previously, organizations that contract with—or receive funds from—the federal government should rigorously re-examine their contract terms and scrutinize DEI policies with counsel to ensure they would not be branded as “illegal DEI” under the FCA.
Importantly, DOJ’s new civil rights focus is one of several avenues through which the Trump administration can wield implied certification theories (e.g., compliance with cybersecurity requirements and Anti-Kickback Statute compliance, among others). Health care entities are squarely in the cross-hairs: We expect to see FCA investigations tied to Medicare and Medicaid reimbursement conditions, price-transparency obligations, and quality-of-care metrics—all areas where the administration argues that noncompliance fuels escalating federal costs. Because reining in health care spending enjoys strong bipartisan support, defendants should expect vigorous enforcement and limited political appetite to scale back those efforts.
Epstein Becker Green Staff Attorney Ann W. Parks contributed to the preparation of this blog post.
ENDNOTES
[1] See Universal Health Services, Inc. v. United States ex rel. Escobar et al., 579 U.S. 176, 194 (2016). And while the government’s decision to expressly identify a provision as a condition of payment is relevant, it is not automatically dispositive under Escobar.
[2] U.S. ex rel. Lee v. Northern Metropolitan Foundation for Healthcare Inc., 2021 WL 3774185 (E.D.N.Y. 2021).