Corporate Transparency Act : Enforcement Suspended and New Rules to Come
FinCEN and the Department of the Treasury both provided updates this week regarding the Corporate Transparency Act.
On February 27, FinCEN announced that it would release an interim final rule before the current filing deadline of March 21. It will not issue any fines, penalties, or other enforcement actions against any companies (foreign or domestic) for failing to file or update their BOI reports by March 21. Any fines, penalties, or other enforcement actions will only proceed once the interim final rule becomes effective and the new deadlines in the interim final rule have passed.
On March 2, the Treasury Department provided a further update regarding the upcoming rule changes. The proposed rule is expected to narrow the CTA’s scope so that U.S. citizens and domestic reporting companies are exempt, and only foreign reporting companies will be required to comply.
SuperValu Wins False Claims Act Case with a “No Harm, No Foul” Jury Verdict
On March 5, 2025, SuperValu, Inc. (SuperValu), a grocery store chain that operates in-store pharmacies, was cleared of liability by a Central District of Illinois federal jury—finally quashing whistleblower claims that the company improperly over-billed the government and violated the False Claims Act (FCA). This jury verdict came after a long 14-year battle, which included a Supreme Court reversal of lower court decisions on the FCA’s scienter standard.
In 2006, SuperValu’s pharmacies began discounting generic drugs through a price-matching system (if a customer provided evidence of a cheaper price for certain drugs available at another pharmacy, SuperValu would match that price) and other loyalty programs. Many of SuperValu’s customers took advantage of these programs. However, when the company reported its “usual and customary” price to federal and state governments for reimbursement, SuperValu reported the much higher retail price of the drugs. After these programs ended, whistleblowers brought suit against SuperValu under the FCA’s qui tam provision. In the qui tam actions, plaintiffs alleged that SuperValu offered discounted pricing through these programs to so many customers that the discounted price was effectively their “usual and customary” price. As SuperValu did not offer the discounted pricing to Medicare and Medicaid, which were required by law to be charged the “usual and customary price,” the whistleblowers alleged SuperValu overcharged the government for years when seeking reimbursements for prescription drugs.
In 2020, the District Court granted SuperValu’s motion for summary judgment, holding that SuperValu had submitted false claims as defined under the FCA, but concluding that SuperValu did not possess the required scienter necessary to establish FCA liability. The government appealed to the Seventh Circuit, which affirmed the lower court’s decision. The Seventh Circuit applied a two-part test to determine if SuperValu knowingly or recklessly submitted false claims:
Was the defendant’s interpretation of law objectively reasonable (including not being ruled out by prior precedent); and
If the defendant’s interpretation was not objectively reasonable, did the defendant have a subjective belief the claims they were submitting were false?
If the defendant’s interpretation was not objectively reasonable, and the defendant had a subjective belief it was submitting false claims, the defendant knowingly or recklessly submitted false claims. The Seventh Circuit held that SuperValu’s interpretation of the law was objectively reasonable and, therefore, SuperValu did not possess the required scienter under the FCA.
In 2023, the Supreme Court reversed the Seventh Circuit, holding that, whether a defendant possessed scienter sufficient to satisfy the FCA requirements depended solely on that defendant’s subjective knowledge—doing away with the Seventh Circuit’s “objectiveness” test. Focusing on the plain language of the FCA, the Supreme Court held that, to prove a false claim, two elements must be satisfied: (1) the claim that was submitted was, in fact, false and (2) the defendant subjectively believed the claim was false.
Nearly fourteen years after its initial filing, the case returned to the District Court on remand from the Supreme Court for a jury trial. While the jury ultimately found that SuperValu did knowingly submit false claims under the Supreme Court’s scienter standard, the question of whether the jury would impose liability came down to whether the federal or state governments suffered damages due to SuperValu’s false claims. In a pre-trial motion, SuperValu argued that any evidence the plaintiffs offered of the alleged overpayments was evidence only of a gain to SuperValu—not a loss to the government. Because the government determines reimbursement rates under Medicare Part D plans, SuperValu argued that plaintiffs would have to prove that the alleged false claims changed the amount government actually paid and, thus, caused damages. It appears the jury accepted this argument. The jury unanimously decided the plaintiffs had not proved that either the federal or state governments suffered damages and, as a result, SuperValu was found “not liable.” After a long and tortured history, the whistleblowers’ claims were finally put to rest. The case ultimately ended with a “no harm, no foul” verdict, and SuperValu avoided liability under the FCA. The case suggests a potent line of defense for companies defending against FCA allegations.
What Does the Phrase “Resulting From” Mean? Circuit Courts Split on Standard for Determining When an AKS Violation Is a False Claim
Dating back to the 19th century, the U.S. Supreme Court has held that when construing a statute, the courts are to “give effect, if possible, to every clause and word of a statute, avoiding, if it may be, any construction which implies that the legislature was ignorant of the meaning of the language it employed.”[1]
However, there’s currently a split among the federal courts regarding how to interpret a phrase in a 15-year-old amendment to the Anti-Kickback Statute (AKS).[2] In 2010, Congress amended the AKS to provide that where the statute is violated, in addition to criminal penalties, any “claim that includes items or services resulting from [that] violation of [the AKS] constitutes a false or fraudulent claim for purposes of the [False Claims Act (FCA)].”[3] The circuit courts disagree over what it means for a claim to “result from” a violation of the AKS.
On February 18, 2025, the U.S. Court of Appeals for the First Circuit, in United States v. Regeneron Pharmaceuticals, held that to show a claim “results from” a violation of the AKS, the government must prove that a claim would not have been submitted “but for” the illegal kickback. [4] While this ruling aligns with recent decisions by the Sixth[5] and Eighth[6] Circuits, it conflicts with a Third Circuit decision[7] holding that the government must merely prove a “causal connection” between an illegal kickback and a claim being submitted for reimbursement. This Insight explores the courts’ approaches to evaluating what the words “resulting from” mean in the context of the AKS.
History of the Relationship Between the AKS and the FCA
The AKS makes it a crime to knowingly and willingly offer, pay, solicit, or receive any remuneration to induce referrals or services reimbursable by a federal health care program (e.g., Medicare, Medicaid). Each offense under the AKS is punishable by a fine of up to $100,000 and imprisonment for up to 10 years. Violators of the AKS can also be excluded from federal health care programs and face civil monetary penalties: (i) up to $50,000 and (ii) three times the amount of the remuneration in question.[8] Significantly, the 2010 amendment to the AKS clarified that a person or entity must act willfully to violate the statute, even though “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of [the AKS].” [9]
The FCA is the primary vehicle through which the government (on its own behalf and by virtue of the FCA private right of action provision) pursues fraud, waste, and abuse in the health care industry. Generally, the statute imposes liability on anyone who knowingly presents, or causes to be presented or conspires to present, a false or fraudulent claim for payment or approval.[10]
To establish a violation of the FCA, the government must prove by a “preponderance of the evidence”—a lesser standard than the criminal “beyond a reasonable doubt” standard—that a defendant “knowingly” violated the statute. The FCA defines the terms “knowing” and “knowingly” to mean that a person “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (ii) acts in reckless disregard of the truth or falsity of the information.” The statute further clarifies that proof of specific intent to defraud is not required.[11]
Before 2010, federal law did not specifically address whether a violation of the AKS could result in a claim being considered false for purposes of the FCA. For almost two decades, the government and qui tam relators attempted to “bootstrap” anti-kickback claims to the FCA to obtain civil penalties based on alleged AKS violations. This bootstrapping theory was premised on the argument that when a provider submits a claim to a federal health care program, the claim includes an implicit certification that the provider was in compliance with applicable laws, including the AKS.
For instance, in Roy v. Anthony,[12] a whistleblower sued under the FCA alleging that physicians in a medical practice referred patients to diagnostic centers in violation of the AKS. The defendants settled the case for more than $1.5 million following a district court decision holding that the plaintiff could prove that the charged claims were false because they were submitted in violation of the AKS. Similarly, the district court in Pogue v. American Healthcorp held that a violation of the AKS could constitute a false claim under the FCA if the whistleblower or the government could show that the defendants engaged in fraudulent conduct with the purpose of inducing payment from the government.[13]
In 2010, as part of the Patient Protection and Affordable Care Act,[14] Congress attempted to resolve the highly litigated issue of whether a violation of the AKS can serve as a basis for liability under the FCA by amending the AKS to state that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of the [FCA].”[15]
Split Among the Courts Interpreting the Causation Standard
Despite the 2010 amendment, the debate has not ended regarding the relationship between the AKS and the FCA, with the courts splitting on what it means for a claim to “result from” a violation of the AKS. The Third Circuit has held that the government must merely prove a “causal connection” between an illegal kickback and a claim being submitted for reimbursement, while the First, Sixth, and Eighth Circuits have adopted the stricter “but-for” standard of causation.
Third Circuit: The “Causal Connection” Standard
In 2017, in United States ex rel. Greenfield v. Medco Health Solutions Inc., the Third Circuit first examined this issue in a case where the qui tam relator argued that the defendant’s alleged kickback scheme amounted to a violation of the FCA because at least some referrals or recommendations were for Medicare beneficiaries and because the defendant falsely certified compliance with the AKS.[16]
Relying on the U.S. Supreme Court’s ruling in Burrage v. United States, the defendant argued that “resulting from” requires “proof the harm would not have occurred in the absence of—that is, but for—the defendant’s conduct.”[17] The government/qui tam relator responded that requiring but-for causation would lead to the “incongruous” result that a defendant could be convicted of criminal conduct under the AKS but be insulated from civil liability under the FCA.
In interpreting the 2010 amendment, the Third Circuit examined the legislative history surrounding its passage. Specifically, the court referenced language from the congressional record in which one senator explained that Congress wanted to “strengthen” actions under the FCA and “ensure that all claims resulting from illegal kickbacks are considered false claims for the purpose of civil action[s] under the False Claims Act.”[18] The court agreed with the government’s position, concluding that imposing a “but-for” standard “would hamper FCA cases under the provision even though Congress enacted it to strengthen[] whistleblower actions based on medical care kickbacks.”
While the Third Circuit sided with the government by rejecting a but-for causation standard, the court, nevertheless, held in favor of the defendant. The complaint alleged that (1) the defendant paid illegal kickbacks to Party A, (2) Party A forwarded that money to Party B, (3) Party B included the defendant as an approved provider for Party B’s members, (4) the defendant filed claims on behalf of 24 federally insured patients, and (5) the defendant violated the FCA because the defendant incorrectly certified that it did not pay any illegal kickbacks. The Third Circuit disagreed, relying on an Eleventh Circuit case holding that a plaintiff cannot “merely … describe a private scheme in detail but then … allege … that claims requesting illegal payments must have been submitted, were likely submitted[,] or should have been submitted to the Government.”[19] Instead, the government/relator must provide evidence of the actual submission of a false claim. In Medco, the Third Circuit held that even if it were to assume the defendant paid illegal kickbacks, “that is not enough to establish that the underlying care to any of the 24 patients was connected to a breach of the AKS; we must have some record evidence that shows a link between the alleged kickback and the medical received by at least one” of the patients.
First, Sixth, and Eighth Circuits: The “But-For” Causation Standard
While the Third Circuit refused to find the Supreme Court’s Burrage decision controlling, the First, Sixth, and Eighth Circuits relied on Burrage to support the but-for causation standard.
In 2022, in United States ex rel. Cairns v. DS Medical LLC,[20] the Eighth Circuit relied on Burrage, as well as on several dictionary definitions of the words/phrases “resulting” and “results from,” and concluded that these words require a “but-for” causal connection. The Eighth Circuit addressed the Third Circuit’s holding in Medco and declined to follow that case, rejecting the Third Circuit’s approach of relying on legislative history and “the drafters’ intentions.” The Eighth Circuit held that if Congress had not intended to impose this “but-for” causation standard, then it could have adopted a different standard such as “tainted by” or “provided in violation of.”
The following year, the Sixth Circuit, relying on Burrage and United States ex rel. Cairns v. DS Medical LLC, held that the government/whistleblowers needed to satisfy the but-for causation standard and ruled in favor of the defendants where there was no evidence that the alleged kickback arrangement changed any of the parties’ behaviors. In other words, regardless of the improper payments, the same referrals would have occurred, and the same claims would have been submitted to the federal government. [21]
The First Circuit recently joined the Eighth and Sixth Circuits in adopting the but-for causation standard. The First Circuit noted that while the Supreme Court has held that “as a result from” imposes a requirement of causality—meaning that the harm would not have occurred but for the conduct—“that reading serves as a default assumption, not an immutable rule.” Nevertheless, the First Circuit determined that nothing in the 2010 amendment contradicts the notion that “resulting from” requires proof of but-for causation.
While it agreed that the criminal provisions of the AKS do not include a causation requirement, the First Circuit observed that different evidentiary burdens can exist for claims being brought for purposes of criminal versus civil liability. The First Circuit concluded that although the AKS may criminalize kickbacks that do not ultimately cause a referral, a different evidentiary standard can and should be applied when the FCA is triggered. As a result, the First Circuit affirmed the lower court’s decision that “to demonstrate falsity under the 2010 amendment, the government must show that an illicit kickback was the but-for cause of a submitted claim.”
In light of this decision, a majority of the Circuits that have addressed this issue have adopted the “but-for” causation standard based on the 2010 amendment, leaving the Third Circuit as the only circuit court to adopt the more lenient “causal connection” standard. Notably, while three Circuits have now aligned on interpreting the “resulting from” language in the 2010 amendment to require but-for causation, this standard applies to those FCA cases based upon AKS violations that do not involve a false certification theory. These but-for cause decisions do not address causation in AKS-based FCA cases where the alleged falsity is a false certification of compliance with the AKS. This false certification theory remains viable, which the First Circuit specifically addressed in Regeneron.
Conclusion
Entities in the health care and life sciences industries facing allegations of AKS and FCA violations should be aware of the current state of the law and be prepared to vigorously challenge efforts by the government, or qui tam relators, to seek to deviate from the but-for causation standard.
Although the U.S. Supreme Court denied a petition to review this specific issue in 2023, it may once again be called upon to weigh in, as there inevitably will continue to be a division in how the courts interpret this “resulting from” language.
ENDNOTES
[1] Montclair v. Ramsdell, 107 U.S. 147 (1883).
[2] See 42 USC § 1320a-7b(b).
[3] See 42 USC § 1320a-7b(g) (emphasis added). The federal False Claims Act (FCA) can be found at 31 U.S.C. § 3729 et seq.
[4] United States v. Regeneron Pharmaceuticals, 2025 WL 520466 (1st Cir. Feb. 18, 2025).
[5] United States ex rel. Martin v. Hathaway, 63 F.4th 1043, 1052–55 (6th Cir. 2023).
[6] United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828, 834–35 (8th Cir. 2022).
[7] United States ex rel. Greenfield v. Medco Health Solutions Inc., 880 F.3d 89, 100 (3d Cir. 2018).
[8] See 42 U.S.C. § 1320a-7b(b).
[9] See 42 U.S.C. § 1320a-7b(h).
[10] See 31 U.S.C. § 3729(a)(1).
[11] See 31 U.S.C. § 3729(b)(1).
[12] See United States ex rel. Roy v. Anthony, No. C-1-93-0559 (S.D. Ohio 1994).
[13] See United States ex rel. Pogue v. American Healthcorp., Inc., 1995 WL 626514 (M.D. Tenn. Sept. 14, 1995); United States ex rel. Pogue v. American Healthcorp., Inc., 914 F. Supp. 1507 (1996).
[14] Patient Protection and Affordable Care Act (PL 111-148).
[15] Id. at § 6402(f)(1) codified at 42 U.S.C. § 1320a-7b(g).
[16] United States ex rel. Greenfield v. Medco Health Solutions Inc., 880 F.3d 89, 100 (3d Cir. 2018). It should be noted that, in this case, the government originally declined to intervene.
[17] Id. quoting Burrage v. United States, 134 S. Ct. 881, 887-888 (2014).
[18] Id. citing 155 Cong. Rec S10852, S10853 (daily ed October 28, 2009).
[19] Id. citing United States ex rel. Clausen v. Lab Corp. of Am., 290 F3d 1301, 1311 (11th Cir. 2002).
[20] United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828, 834–35 (8th Cir. 2022).
[21] United States ex rel. Martin v. Hathaway, 63 F.4th 1043, 1052–55 (6th Cir. 2023).
What DOJ’s New Focus on Immigration Enforcement Means for Businesses
The Department of Justice (DOJ) has announced its intention to expand the use of criminal statutes to address illegal immigration. This move underscores the administration’s commitment to enforcement initiatives that hold employers accountable for compliance failures.
This policy shift may result in companies facing criminal charges in cases that the DOJ has not previously pursued. This includes charges for harboring undocumented individuals, engaging in unlawful employment practices, and committing document fraud in the I-9 process.
Information will be gathered through various methods, including raids, I-9 Notices of Inspection, and document subpoenas. The directive mandates that DOJ prosecutors accept and pursue the most serious criminal violations referred by law enforcement agencies, with limited discretion to decline cases.
Employers should be prepared for site visits from the USCIS Fraud Detection and National Security (FDNS) Directorate. These visits are conducted to investigate compliance related to sponsored visas, typically H-1B visas. Although FDNS visits are nothing new, any form of misrepresentation now may be referred for further DOJ investigation. Companies should consider preparing their businesses and employees for site visits, conducting regular internal audits of their verification records, and ensuring their compliance practices are sound.
Employers can expect increased scrutiny and should be prepared for potential inspections and investigations.
China’s Supreme People’s Procuratorate Releases 2025 Work Report – 21,000 People Prosecuted For IP Crimes
On March 8, 2025, China’s Supreme People’s Procuratorate (SPP) released its 2025 Work Report at the 14th National People’s Congress. Regarding intellectual property, the SPC states that 21,000 people we prosecuted for IP crimes in 2024 and highlighted the trade secret case of Zhang, who was prosecuted under China’s version of the Economic Espionage Act. Other significant criminal IP cases were surprisingly not highlighted, like the 9-year prison sentence for criminal copyright infringement of Lego bricks.
The opening ceremony of the third session of the 14th National People’s Congress was held in the Great Hall of the People in Beijing.
The IP section from the SPP’s work report follows:
Serve innovation-driven development. Strengthen judicial protection of intellectual property rights, promote the cultivation and growth of emerging industries such as artificial intelligence and biomedicine, assist in the transformation and upgrading of traditional industries, and protect the development of new quality productivity in accordance with local conditions. We prosecuted 21,000 people for crimes such as infringement of trademark rights, patent rights, copyrights and trade secrets. In one case, Zhang and others illegally obtained a company’s core chip technology, and the Shanghai Procuratorate filed a public prosecution for suspected infringement of trade secrets. We handled 4,219 civil, administrative and public interest litigation cases involving intellectual property rights, protect the legitimate rights and interests of scientific and technological innovation entities in accordance with the law, and serve high-level scientific and technological self-reliance.
The full text is available here (Chinese only)
CTA Enforcement Halted Again: Treasury Department Suspends CTA Requirements for Domestic Reporting Companies
In yet another update to the ongoing saga of the Corporate Transparency Act (CTA), the Financial Crimes Enforcement Network (FinCEN), the agency of the U.S. Department of the Treasury (“Treasury Department”) that enforces the CTA, announced on February 27, 2025, that it would not issue any fines or penalties or take any other enforcement actions against companies for a failure to provide beneficial ownership information (BOI) until a new interim final rule on the CTA is released.
On March 2, 2025, the Treasury Department provided further guidance on the CTA, announcing that it would halt enforcement of the CTA with respect to U.S. citizens and domestic reporting companies.
In its press release announcing this update, the Treasury Department stated that it will not enforce any penalties or fines associated with the BOI reporting requirements under the existing CTA rules; however, it will also issue a new proposed rule (to be released no later than March 21, 2025, according to FinCEN’s February 27, 2025, announcement) that will narrow the scope of the reporting requirements under the CTA to “foreign reporting companies only.”
Under the CTA, a “foreign reporting company” is any entity that is formed under the law of a foreign country and has registered to do business in the United States by the filing of a document with a secretary of state or any similar office, while a “domestic reporting company” is any entity that is formed in the United States by the filing of a document with a secretary of state or any similar office. We note, however, that the Treasury Department could seek to modify these definitions as part of its new proposed rule.
The immediate takeaway, based on this guidance from the Treasury Department, is that all domestic reporting companies are no longer required to file BOI and will not be subject to liability for not filing.
We will continue to monitor additional developments regarding the CTA, including the expected further guidance from the Treasury Department, to determine what the CTA filing requirements and deadlines will be for foreign reporting companies.
New Rulemaking Announced: Treasury Department Suspends Reporting, Enforcement and Fines under the Corporate Transparency Act until Further Notice
How Did We Get Here?
The Corporate Transparency Act (CTA) went into effect on January 1, 2024, and was enacted as part of the Anti-Money Laundering Act of 2020. Administered by the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury (FinCEN), the CTA is designed as another tool in the mission to protect the financial system from money laundering, terrorism financing, and other illicit activity. FinCEN issued the implementing final rules on September 29, 2022. Pursuant to these rules, reporting companies[1] formed before 2024 were to file their initial beneficial ownership reports (BOIRs) with FinCEN by January 1, 2025. Reporting companies formed after January 1, 2024, and before January 1, 2025, were to file their initial BOIR within 90 days following their formation.
In late 2024, multiple lawsuits were filed challenging the constitutionality of the CTA. Plaintiffs in those cases sought, and in many cases obtained, injunctions excusing them from filing their initial BOIRs until the merits of the case were decided. In two of the cases, federal judges issued nationwide injunctions excusing all reporting companies from filing their initial BOIR during the pendency of the case. As we recently reported, the United States Supreme Court on January 3, 2025 overturned the nationwide injunction in one of those cases, narrowing the injunction to just the plaintiffs in that particular case. On February 18, 2025, the district court judge in the other case narrowed his nationwide injunction to just the plaintiffs in that case. All of the cases continue to work their way through the federal court system.
As a result, on February 19, 2025, FinCEN issued a notice declaring a new filing deadline of March 21, 2025, for initial BOIRs. Then on February 27, 2025, FinCEN announced that by March 21, 2025, it would propose an interim final rule that further extends BOIR deadlines. Moreover, FinCEN stated it would not issue fines or penalties or take any enforcement actions until that forthcoming interim final rule became effective and the new relevant due dates in the interim final rule have passed. The Treasury Department also issued a comparable press release on February 27, 2025, but added that it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect. The Treasury Department stated that the interim final rule that it would issue by March 21, 2025, would propose narrowing the scope of the rule to foreign reporting companies only.
Current Status
The recently announced actions by the Department of Treasury effectively mean that:
FinCen won’t enforce penalties or fines against companies or beneficial owners who do not file by the March 21 deadline.
If your reporting company was created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe and all of the beneficial owners of your reporting company are U.S. citizens, the Department of Treasury has stated it intends to amend the rules to eliminate the obligation for your reporting company to ever file a BOIR report and accordingly, FinCEN will never enforce penalties or fines against your reporting company or its U.S. beneficial owners.
If your reporting company was created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe and some of the beneficial owners are NOT U.S. citizens, FinCEN won’t currently enforce any penalties or fines against the company or its foreign beneficial owners until after the new rules go into effect. The Department of Treasury press release suggests that it will eliminate the obligation to file a BOIR for your domestic reporting company with non-U.S. beneficial owners, but we must await the proposed new rule to see if FinCen is proposing to narrow the rule in this manner. The CTA itself defines what is a reporting company without this distinction of ownership by U.S. citizens or non-U.S. citizens. Given that the CTA’s stated objective to combat illicit activity, it would seem useful for FinCEN to have information about the non-U.S. citizenship ownership of a domestic reporting company.
If your reporting company was created by the filing of a document outside of the United States and you have registered your company with a secretary of state or a similar office under the law of a State or Indian Tribe, FinCEN won’t currently enforce any penalties or fines against the company or its foreign beneficial owners until after the new rules go into effect. Foreign companies are currently subject to the BOIR only if they are registered to do business in the United States. Foreign registered companies who are not registered to do business in the United States are not currently subject to the BOIR requirements (even if they are doing business here). Narrowing the BOIR reporting rules in this manner would seem to result in far fewer reporting companies. We await further communication from the Department of Treasury on this position.
State Level Developments
Lastly, we note that with this major development on the federal level, states may adopt CTA-like legislation for entities created or registered under their state law. The State of New York has already done so by enacting the New York Limited Liability Company Transparency Act (the NY LLCTA) which mirrors the CTA in many respects, with key differences. The NY LLCTA applies only to limited liability companies (LLCs) created under New York law or registered to do business in New York. Under the NY LLCTA, these reporting LLCs must disclose their beneficial owners to the New York State Department of State (DOS) beginning on January 1, 2026. LLCs that qualify for one of the CTA’s 23 exemptions will be exempt under NY LLCTA, but must file an “attestation of exemption” with DOS.
It is not clear whether any other states will enact comparable legislation. This includes Delaware, which has always been the preferred state for domestic businesses to incorporate, including 30% of Fortune 500 companies. More recently, however, Texas and Nevada have been courting companies to reincorporate in their states. These other states offer tax breaks and perceived business-friendly regulations. Faced with potentially losing corporate business to other states, it is not known whether Delaware would risk giving companies another reason to consider incorporating elsewhere.
ENDNOTES
[1] A “reporting company” is defined under the CTA as “a corporation, limited liability company, or other similar entity” that is either “created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe” or “formed under the law of a foreign country and registered to do business in the United States.”
Navigating the Changing Landscape of Corporate Transparency Act Compliance
Both the U.S. Department of the Treasury and FinCEN, a bureau within the Treasury Department, have issued statements, which, taken together, indicate a significant reduction in the enforcement of the Corporate Transparency Act (CTA) beneficial ownership information (BOI) reporting requirements against U.S. citizens and domestic reporting companies. Specifically, the Treasury Department has indicated its intent to narrow, via forthcoming rule changes, the scope of the BOI reporting requirements to foreign reporting companies only and to halt any penalties or fines against U.S. citizens and domestic reporting companies following implementation of these rule changes.
The Treasury Department has yet to issue the proposed rulemaking reflecting these changes to the scope of BOI reporting requirements, and it will be important to see the proposed rulemaking to better understand how the Treasury Department and FinCEN plan to effect these changes. Items to look out for in any proposed rulemaking include:
Whether U.S. citizens who are beneficial owners of foreign reporting companies will need to comply with BOI reporting efforts of foreign reporting companies.
Whether domestic reporting companies with foreign beneficial owners will be subject to any BOI reporting requirements.
How the language regarding ending enforcement of penalties and fines against U.S. citizens and domestic reporting companies for non-compliance is worded (i.e., eliminating altogether enforcement against all U.S. citizens and domestic reporting companies or a general, discretionary pause by FinCEN).
In addition, the validity or legality of any proposed rulemaking regarding the narrowed scope of the CTA may be challenged in the courts. And, as noted in our previous alert, there are still a number of court cases pending, and Congress is also considering bills that would affect the CTA. Accordingly, this is unlikely to be the last update in the CTA enforcement saga.
The U.S. Department of the Treasury issued the following release regarding enforcement of the CTA:
Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies
The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
In addition, FinCEN issued the following release regarding enforcement of the CTA:
FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines
WASHINGTON––Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.
No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.
FinCEN also intends to solicit public comment on potential revisions to existing BOI reporting requirements. FinCEN will consider those comments as part of a notice of proposed rulemaking anticipated to be issued later this year to minimize burden on small businesses while ensuring that BOI is highly useful to important national security, intelligence, and law enforcement activities, as well to determine what, if any, modifications to the deadlines referenced here should be considered.
Navigating Disclosure Options for Private Placements: What Issuers Need to Know
When a company is thinking about launching a private securities offering, one of the first questions that arises is what disclosures are required to be provided by the company to investors. The answer to this question can depend on a number of factors, including 1) the number and type of investors the company is soliciting for the offering, 2) the risk tolerance of the company, 3) the company’s budget for the capital raise, and 4) the size of the offering. This article explains the disclosure options available to companies for private placements and key factors management needs to know when deciding which option is best for them.
Securities Law Requirements for Private Placements
State and federal securities laws require issuers to provide investors with full, fair, and complete disclosure of all “material” facts about the offering and the issuer, its management, business, operations, and finances. Information is deemed to be material if a reasonable investor would consider the information important in making an investment decision. While materiality is a difficult concept to define precisely, at a minimum, a fact is “material” if you do not want to disclose the information because if the investors know about it, they would not buy the securities. Facts that are disclosed must be developed fully.
Even though a securities offering may not be required to be registered with the SEC, the issuer and its control persons must comply with state and federal anti-fraud provisions. The federal anti-fraud provisions arise primarily from the well-known Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 as well as the lesser-known Section 12(a)(2) of the Securities Act of 1933. Failure to comply with these provisions can result in civil liabilities (i.e., money damages) and, in some instances, criminal liability. The liability can be personal as to the issuer company and its officers, directors, managers, principal equity-holders, promoters, and others associated with the offering. These anti-fraud provisions collectively prohibit any person in connection with the purchase or sale of any security from misrepresenting or omitting a material fact or engaging in any act or practice that constitutes a “fraud” or deceit upon any other person.
Fraud, for securities law purposes, is a much broader concept than it first appears – it includes omissions in disclosure (sometimes even unintentional ones) rather than just deliberate misrepresentations. Therefore, regardless of whether an issuer intends to defraud an investor, should the issuer and its management and principals fail to disclose a material fact, the issuer, as well as its management, promoters, and control persons, may be liable.
If the securities will only be sold to accredited investors under Regulation D of the Securities Act, there are no absolute disclosures that the SEC requires issuers to make in writing to investors. The rationale is that accredited investors are deemed to be sophisticated enough to know the right questions to ask and presumably have the economic leverage to obtain such information. If the issuer is offering and selling securities to non-accredited investors, the issuer may be required to provide certain specific written disclosures that contain substantially the same information as disclosure statements from companies that are registering their securities offerings with the SEC, including audited financial statements. To satisfy these disclosure requirements and comply with the anti-fraud provisions of the securities laws, a disclosure document in the form of a Private Placement Memorandum (PPM) or Offering Memorandum is usually prepared that would resemble a prospectus for an initial public offering.
That said, many issuers do not want to go through the time, effort, and cost of producing a PPM for their offering, either because they feel they need to get to market quickly for the offering and they have investors waiting to contribute capital, or the offering amount is low enough where the client does not perceive the utility in preparing and distributing a PPM. In this case, there are other disclosure options available to clients providing varying levels of protection from securities law liability. Following is a summary of the disclosure options available to an issuer for a private securities offering, depending on how much legal protection the issuer wants and how much money and effort the client wants to expend in producing disclosures for investors. These options are presented based on a “continuum” of legal protection, starting with the least protective and moving up to the most protective, which is a PPM.
Continuum of Disclosure Options
No Disclosures and No Subscription Agreement – Under this option, the issuer provides no written disclosures of any nature to investors. The investors sign the operating agreement, partnership agreement, or similar organizational document of the issuing company and make their capital contributions. This provides no legal protection to the issuer or its control persons for securities fraud liability.
Subscription Agreement – The issuer prepares a subscription agreement containing the principal terms of the purchase and sale of the securities, and various reps and warranties from the investor, including a representation that the investor has been given a full opportunity to ask questions and receive materials from the issuer regarding the company and the offering. No separate disclosure document is provided to investors. This option provides little legal protection to the issuer and its control persons, but more protection than providing no disclosures or subscription documents.
Subscription Document Package – The issuer prepares a short disclosure document containing summary descriptions of the offering, company, use of proceeds, capitalization, and rights of the offered securities, along with risk factors. A full subscription agreement and confidential purchaser questionnaire is attached to the disclosure document to establish the investor’s suitability to invest in the offering. This option provides greater legal protection to the issuer and its control persons than the first two options above.
Stock/Securities Purchase Agreement w/ Full Due Diligence Opportunity – The issuer does not provide a disclosure document to the investors, but rather prepares and enters into a detailed stock/securities purchase agreement with the investor(s) with detailed reps and warranties regarding the investor’s investment intent, suitability, accredited investor status, and other matters. The issuer also opens up a data room and provides the investor(s) with a full due diligence opportunity to review company documentation, have meetings with the company’s board and executive officers, and receive full answers to questions. This option is frequently used by more sophisticated private equity and venture capital investors who are confident in their own due diligence processes and would rather rely on those processes to determine whether to invest, rather than receiving a disclosure document that may not provide them what they desire to know about the company and its business. This option provides a high level of legal protection to the issuer and its control persons.
Full PPM – The issuer prepares and distributes a full, detailed PPM to prospective investors providing fulsome disclosures regarding the offering, the company’s business, management, capitalization, organizational documents, risk factors, competitors, and other disclosures. This option provides the highest level of legal protection to the issuer and its control persons.
Many times, deciding the best disclosure option for a company can mean the difference between a successful and unsuccessful private offering. Any company considering launching a private offering should evaluate its options carefully and seek the assistance of experienced counsel.
What Every Multinational Company (Doing Business in Mexico) Should Know About … Mitigating Risks From ATA Scrutiny in a New Enforcement Regime
Mexican cartels dominate large swaths of the Mexico-United States border and the Bajío region (an area encompassing relevant parts of Queretaro, Guanajuato, Aguascalientes, San Luis Potosí, Jalisco, and Michoacán), and they control significant economic segments/activities in these territories. These are the same areas in which multinational companies maintain significant manufacturing operations.
In an Executive Order issued on January 20, 2025[1], the White House announced a shift toward increased enforcement of the Immigration and Nationality Act (INA) and International Emergency Economic Powers Act (IEEPA), which are key statutes in the United States’ fight against terrorism. Though these statutes are not new, the Trump Administration plans to broaden U.S. enforcement activity to cartels and transnational criminal organizations (TCOs) by allowing for the designation of cartels or TCOs as Foreign Terrorist Organizations and/or Specially Designated Global Terrorists. This new focus of enforcement resources, along with the expansive inclusion of cartels or TCOs within the purview of the INA and IEEPA, creates a heightened risk for multinational companies doing business in Mexico and other areas where cartels operate, as the companies can be perceived as — and then prosecuted for — engaging in terrorism or aiding terrorists, as explained below.
Under the INA, the Secretary of State can designate groups as Foreign Terrorist Organizations (FTOs)[2] based on an assessment of the State Department’s Bureau of Counterterrorism regarding the group’s terrorist activity. Once a group has received an FTO designation, multinationals subject to U.S. jurisdiction — which is interpreted very broadly by U.S. regulators — may face strict criminal and civil penalties under 18 U.S.C. § 2339B (the Antiterrorism Act or ATA) if they knowingly provide, or attempt or conspire to provide, “material support or resources” to the FTO.[3]
The State Department currently designates more than 60 organizations as FTOs. Trump’s January 20, 2025, Executive Order directs the State Department to scrutinize drug cartels — especially Mexico-based drug cartels and two cartels mentioned by name, Tren de Aragua (TdA) and La Mara Salvatrucha (MS-13) — for designation as FTOs. Since the order, Secretary of State Marco Rubio already has designated eight cartels as FTOs, most of which have operations in Mexico. We anticipate this number will sharply rise as the administration works together with OFAC to identify additional cartels and TCOs. This raises a number of concerns for companies that operate in areas known to have cartel or TCO activities, because the following types of regularly conducted business activities may be viewed through the lens of providing material support or resources to an FTO:
Making payments to secure employee safety or the ongoing operation of a physical plant;
Engaging in business dealings with local companies that themselves are in business with cartels or that are making such payments; and
Recording payments to said local companies or to cartels in the books and records of publicly traded companies.
The expansion of enforcement scrutiny also may expand the types of risks facing companies, including:
Combined OFAC and DOJ investigations of conduct that potentially violates both the INA and OFAC regulations;
Matters that formerly would have been dealt with as civil matters by OFAC can become criminal matters pursued by DOJ;
New designations can be combined with anti-money laundering laws to expand the potential violations of U.S. laws; and
The expansion of the reach of OFAC designations to non-U.S. companies, since the material support statute has extraterritorial effect.
The January 20 Executive Order also heightens the risk of private civil litigation for multinationals doing business in Mexico. The ATA creates a civil remedy for U.S. national victims and their estates or heirs against defendants alleged to have caused an “injury arising from an act of international terrorism committed, planned, or authorized by an organization that had been designated as a foreign terrorist organization under section 219 of the [INA]” where “liability may be asserted as to any person who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism” (emphasis added). Under the ATA, “[a]ny national of the United States injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” 18 U.S.C. § 2333(a). The line of culpability under this section remains unsettled, as lower courts attempt to apply recent Supreme Court precedent regarding the “knowing” provision of “substantial assistance” to FTOs.[4] But the designation of cartels and TCOs as FTOs exposes companies that operate in countries with heightened cartel activity to litigation under the ATA.
For several years, Mexican cartels have shifted revenue sources from drug smuggling into the United States to racketeering in Mexico. The latter typically consists of Mexican cartels extorting regular payments from small-to-medium-sized businesses, many of which provide goods or services to larger companies such as the multinationals operating in Mexico. In addition to direct extortion, cartels engage in behaviors such as forcing suppliers on companies that in turn do business with multinational companies, establishing “front” entities to provide miscellaneous services, selling protection against rival organizations, establishing prices for goods or services, and receiving payments for not carrying out threatened violence.
Multinational companies in Mexico are thus in constant risk of having indirect contacts with these cartel FTOs within their local supply chain and, even if they are unaware of such touch points, multinationals must guard against being seen as actively complicit or willfully blind if they fail to take reasonable precautions.
To safeguard against these risks, multinationals subject to U.S. jurisdiction that do business in Mexico should take precautions such as:
Conducting due diligence on all business counterparties, especially when onboarding new suppliers or other new business partners;
Updating due diligence and requiring certifications of compliance with the laws prohibiting conducting business activities with TCOs and FTOs;
Conducting routine OFAC and FTO screenings to assess the company’s risk profile with respect to potential touchpoints with cartels and TCOs;
Mapping supply chains, including for sub-suppliers, to confirm zero contact with cartel or TCO activities throughout the supply chain;
Based on risk assessments, following up and conducting audits to ensure the company’s supply chain is in compliance with the updated legal requirements;
Implementing and maintaining vendor management systems for payments to suppliers and other business partners;
Conducting financial audits on suppliers or other business partners to identify potential payments to cartels or TCOs;
Alerting suppliers or other business partners regarding their potential connections to cartels or TCOs and help monitor to avoid risk; and
Incorporating prohibitions on cartel and TCO connections, in addition to FTO restrictions, into agreements with third parties.
[1] “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” Executive Order (Jan. 20, 2025) available at https://www.whitehouse.gov/presidential-actions/2025/01/designating-cartels-and-other-organizations-as-foreign-terrorist-organizations-and-specially-designated-global-terrorists/.
[2] Though this article focuses on the FTO designation under the INA, the Specially Designated Global Terrorist designation under IEEPA creates a separate set of enforcement issues for multinationals, as well as additional sanctions under IEEPA for FTOs. IEEPA is the governing authority for most economic sanctions overseen by the Office of Foreign Assets Control (OFAC), which has long maintained robust restrictions on U.S. persons, or any other person subject to U.S. law, to the primary U.S. economic sanctions. OFAC has sanctioned numerous drug cartels, as well as companies and individuals, using its authorities under its Significant Narcotics Traffickers program pursuant to Executive Order 12978 and the Kingpin Act. Because OFAC uses an expansive definition of U.S. jurisdiction, restrictions under these designations include the activities of non-U.S. persons that take place on U.S. territory, use the U.S. financial system, or otherwise trigger U.S. jurisdiction. Proper compliance requires that any persons with a U.S. jurisdictional nexus take into account all the potential ways U.S. law can apply to them, including both the new emphasis on the INA/IEEPA and the longstanding OFAC regulations.
[3] 18 U.S.C. § 2339A defines “material support or resources” to include “any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel . . . and transportation, except medicine or religious materials.”
[4] See Twitter, Inc. v. Taamneh 598 U.S. 471 (2023).
What Every Multinational Company Should Know About … The Rising Risk of Customs False Claims Act Actions in the Trump Administration
On February 20, 2025, the Deputy Assistant Attorney General for the Commercial Litigation Branch at the U.S. Department of Justice (DOJ), Michael Granston, emphasized using the False Claims Act (FCA) to address U.S. Customs & Border Protection (Customs) violations at the Federal Bar Association’s annual qui tam conference. According to Granston, the Trump administration will seek to “aggressively” deploy the FCA as a “powerful” enforcement mechanism against importers that take steps to evade customs duties, including all the new tariffs being imposed by the Trump administration.
The application of the FCA for underpayments of customs tariffs is already a growing trend. The increased tariffs and attention will combine to increase the number of FCA actions targeting tariff underpayments and the potential amount of recoveries. The U.S. government has unparalleled access to detailed import data covering nearly all imports, giving it the ability to run algorithms to see discrepancies and anomalies that might indicate the underpayment of tariffs. The FCA also can be enforced by whistleblowers who file qui tam suits in the government’s name, in hopes of receiving a share of the recovery in successful cases. Taken together, these factors mean the scene is set for a vast expansion of the use of the FCA as a tool to combat tariff underpayments.
Against this scrutiny, importers should ensure they accurately determine and pay all tariffs, including the new Trump tariffs. The remainder of this article summarizes the heightened risks that the FCA poses in the Trump administration, as well as some practical steps companies can take to minimize the risk of an FCA action.
The Application of the False Claims Act to Customs Violations
The False Claims Act, 31 U.S.C. § 3729 et seq., is a special form of civil remedy used by the government to recover funds the government paid as a result of fraud — typically, a false statement or document that supports a demand for government monies. The FCA allows the government to recover treble damages plus penalties up to $28,619 for each violation. Thus, the FCA authorizes the government to seek not only any tariff underpayments but also three times the amount of the underpayment and penalties for each instance of underpayment. Needless to say, the FCA poses enormous financial risk to importers.
The statute also enables private individuals to act as whistleblowers (or “relators”) by filing qui tam actions on behalf of the government. If the action is successful, the relator can receive up to 30% of the money recovered in the litigation, plus attorney’s fees, with the rest going to the government. This potential for recovery has spawned an active plaintiffs bar that encourages the filing of qui tam actions.
Indeed, the 979 qui tam actions filed by relators in the fiscal year ending in September 2024 constituted a 37% increase over the prior year and a 60% increase over 2019 filings. In addition, the government also originated 423 investigations on its own — almost triple the number the government originated five years ago. Further, the government reported that it recovered almost $3 billion in settlements and judgments in 2024, which followed a nearly-as-high recovery of $2.8 billion recovered in 2023.
In his speech, Granston explained the FCA could be a powerful tool in recovering under-reported tariffs. With the Trump administration announcing a dizzying array of new tariffs, the amount of tariffs imposed — and the risk of FCA actions — are both certain to increase. The emphasis on tariffs and trade continued at the conference. Jamie Ann Yavelberg, director of the Fraud Section of the Civil Division, identified tariff evasion as a “key area” for enforcement, with a focus on false statements about country of origin, declared value of goods, and the number of goods involved.
The following are examples of the Department of Justice’s use of the FCA to address underpayment of customs duties and show the broad range of customs issues that can support an FCA action:
One importer paid almost $22.8 million to settle FCA allegations that it misclassified its vitamin products to avoid paying the full amount of customs duties due, as well as its failure to pay back duties owed after correcting certain misclassifications.
Another importer paid $22.2 million to settle FCA allegations that it misrepresented the nature, classification, and valuation of its imported construction products to evade antidumping and countervailing duties, as well as improperly claiming preferential treatment under free trade agreements, with the relator receiving $3.7 million.
A third importer paid $45 million to resolve allegations that it misrepresented the country of origin on goods that should have been declared to be of Chinese or Indian origin, thereby evading high antidumping and countervailing duties imposed on the entries from those countries.
A fourth importer paid $5.2 million for allegedly evading antidumping and other duties by falsely describing wooden bedroom furniture imported from China as “metal” or “non-bedroom” furniture on documents submitted to CBP while also manipulating images of their products in packing lists and invoices, directing their Chinese manufacturers to ship furniture in mislabeled boxes and falsifying invoices to try to evade detection.
Finally, another importer paid $4.3 million for allegedly failing to include assists (customer-provided production aids) in the declared value of its entries.
Key areas where FCA cases are most likely to arise include:
The misclassification of goods, to move them from a higher to a lower tariff classification.
The misclassification of goods, to move them out of the coverage of the new Trump tariffs such as those imposed on aluminum and steel derivative products.
Incorrectly declaring the wrong country of origin, to avoid the Section 301 tariffs imposed on China or on countries subject to the new tariff proclamations such as China, Canada, or Mexico.
Failing to pay antidumping or countervailing duties, which often have very high tariff rates.
Failing to accurately declare the correct value of goods.
Failing to include assists (production aids provided by the customer) or royalties within the declared value.
Failing to have a customs transfer pricing study in place, if this results in the undervaluation of goods imported from an affiliated company.
Failing to correct past entry information if Customs notifies the importer of a change that impacts the duty rate, such as by issuing a Form 28 Request for Information or Form 29 Notice of Action. When this occurs, Customs expects that importers will use the Post-Summary Corrections Process to correct all analogous prior entries and to pay back duties on those prior entries.
Another factor that increases FCA risk is that Customs maintains two additional whistleblower programs of its own — one under the Enforcement and Protect Act (EAPA), for reporting of antidumping and countervailing duty evasion, and an eAllegations portal for all other claims of tariff evasion. It remains to be seen whether the new administration will mine these sources for FCA enforcement purposes.
Practical Steps Importers Can Take to Minimize Potential FCA Actions
Given the likelihood of increased enforcement, as well as the sharply rising levels and types of tariffs, importers should prioritize customs compliance, as any underpayments raise the specter not only of customs penalties but also potential FCA damages and penalties.
Customs-Related Steps
In a high-tariff environment, the stakes for compliance miscues are substantial and include potential penalties and interest for underpayments as well as FCA risks. Some key areas to consider for ongoing customs compliance include the following:
Inaccurate classifications can result in incorrect duties or penalties, so confirm your company has procedures to correctly classify goods using the correct Harmonized Tariff Schedule (HTS) codes and maintains a regularly updated import classification index to reflect new products or changes in tariff codes.
Confirm that your organization maintains a detailed customs compliance manual that outlines procedures for classification, valuation, origin determination, recordkeeping, interactions with brokers and Customs, and other relevant matters that impact the accuracy of information reported to Customs and can create underpayments.
Review and ensure there are procedures to track and properly report assists, royalties, or other non-invoice costs that might affect the declared value of imported goods. Misreporting these costs could lead to underpayments of duties and penalties.
Ensure that there are procedures to regularly review entries after entry to identify potential errors in valuation, origin declarations, classification, or other entry-specific items that impact how much duties are owed.
Regularly use post-summary corrections as a means of correcting error, as most entry-related information can be corrected until liquidation without penalty (generally, around 314 days after entry).
In addition to post-entry checks, more detailed customs audits can uncover underlying issues that can lead to customs penalties. Major importers should consider conducting regular customs audits, pulling a judgmental sample of entries for thorough examination to determine if there are areas that contain errors.
Ensure your company maintains procedures for overseeing customs brokers and freight forwarders, including written protocols that are consistently followed to ensure there is proper oversight of customs brokers and freight forwarders.
Customs traditionally has not imposed penalties if an importer initiates a voluntary self-disclosure before the government begins its investigation. Importers should be aggressive in using voluntary self-disclosures to minimize the likelihood of customs penalties and related FCA liability risks.
Request confidential treatment for your company’s import data. Much of the information filed as part of the entry process is available for review by companies, such as PIERS and Panjiva, which aggregate import data and sell it to the public. By filing a government confidentiality request and keeping it up to date, your company can limit the ability of third parties (including competitors and whistleblower law firms) to analyze import data to discern trading patterns, supply chains, and exposure to high-risk regions or high-tariff products.
Compliance and Whistleblower Steps
In addition to the customs-related steps listed above, maintaining a robust corporate compliance program that addresses customs issues and general whistleblowing concerns can help prevent an internal complaint from turning into a qui tam suit. Some measures to consider include the following:
Maintain an Effective Compliance Program. Maintain a corporate compliance program that meets DOJ’s expectations for effectiveness, and ensure the program is coordinated with a well-tailored customs compliance program. Effective compliance programs are marked by senior leadership support, adequate resources, use of risk assessments, well-developed policies and procedures, tailored trainings, encouragement of internal reporting, and meaningful responses to complaints. Given the heightened risk environment, make sure your company has a compliance officer or team that understands customs issues and can follow up on reports of potential customs violations.
Encourage Internal Reporting & Whistleblower Protection. Establish a confidential internal reporting mechanism (e.g., hotline). Protect employees from retaliation to encourage internal reporting over external whistleblower actions. Investigate and address complaints promptly and transparently.
Conduct Regular Training & Education.Train employees on Customs and FCA requirements and the risks of false claims. Effective training is tailored to the roles and responsibilities of given groups of employees.
Strengthen Internal Controls & Audits. Perform regular post-entry checks and internal audits to identify and correct potential customs violations and underpayments.
Respond Proactively to Potential Violations.Act quickly if an issue is detected to correct errors, and consider self-reporting to Customs when necessary, both to lock in a no-penalty situation with Customs and to reduce the likelihood of qui tam suits.
Respond Promptly and Fully to All Customs Forms 28 (Requests for Information), Form 29s (Notices of Action), and Informal Inquiries. Importers should designate an internal employee to be an ACE contact so that your company receives Customs notices at the same time as the customs broker, instead of relying on the broker to forward any notices. Any requests for information or Customs actions should be investigated thoroughly and have a well-supported response (generally required within 30 days).
Follow Through on Customs Notices. If Customs makes a determination, such as reclassifying a product, then Customs requires that the importer search through its recent imports and reflect the Customs decision for all identical or analogous entries. In some cases, substantial customs penalties or FCA liability have arisen from the failure to do so. Ensure that the full implications of any Customs action are thoroughly understood and that your company uses the Post-Summary Corrections process to reflect any changes mandated by Customs. Consider using a voluntary self-disclosure to reflect changes to older entries.
Follow Up Thoroughly on Any Civil Investigative Demand (CID) from DOJ or Any Qui Tam Complaint.The receipt of a CID or qui tam complaint always requires the highest level of attention, given the draconian penalties the FCA authorizes. Follow up on the receipt of these items to take swift action to investigate and defend against those claims, using outside counsel with experience in the FCA and customs issues.
By proactively addressing customs compliance, importers can help minimize the risk not only of customs penalties but also the risk of qui tam lawsuits. Especially in a high-tariff environment, customs compliance and taking all available steps to ensure the proper payment of all tariffs lawfully due is essential and needs to be at the top of the list for any risk-based compliance program.
US Treasury Announces That the Corporate Transparency Act Will Not Be Enforced Against Domestic Companies, Their Beneficial Owners or US Citizens
As noted in our previous Corporate Advisory, the Financial Crimes Enforcement Network (FinCEN) announced on February 27, 2025, that it will not take enforcement action against a Reporting Company that fails to file or update a Beneficial Ownership Information Report (BOIR) as required by the Corporate Transparency Act (CTA), pending the release of a new “interim final rule.”
On March 2, 2025, the US Department of the Treasury (Treasury) issued a press release expanding on FinCEN’s announcement. The Treasury release states that even “after the forthcoming rule changes take effect[,]” the Treasury will not enforce fines and penalties under the CTA against domestic Reporting Companies, beneficial owners of domestic Reporting Companies or US citizens.
The release also outlines Treasury’s intention to propose additional rulemaking that would limit CTA reporting obligations solely to foreign Reporting Companies. Under the CTA, a foreign Reporting Company is defined as any entity that is formed under the laws of a foreign country and registered to do business in the United States by filing a document with a secretary of state or a similar office under the laws of a State or Indian tribe. As a result, the proposed rulemaking would significantly narrow the CTA’s application.
Given the Treasury’s announcement, non-exempt domestic Reporting Companies and their beneficial owners may wish to consider ceasing CTA compliance efforts until there are further developments in this space. Non-exempt foreign Reporting Companies should continue preparing CTA filings in anticipation of forthcoming guidance regarding extended filing deadlines.
Alexander Lovrine contributed to this article.