First Circuit Adopts But-For Causation Standard for Kickback-Premised False Claims Act Actions
On 18 February 2025, the First Circuit Court of Appeals issued its decision in United States v. Regeneron Pharmaceuticals, Inc., determining that “but-for” causation is the proper standard for False Claims Act (FCA) actions premised on kickback and referral schemes under the Anti-Kickback Statute (AKS). This issue has divided circuits in recent years, with the Third Circuit requiring merely some causal connection, and the Sixth Circuit and Eighth Circuit requiring the more defendant-friendly proof of but-for causation between an alleged kickback and a claim submitted to the government for payment.
This issue has major implications for healthcare providers, pharmaceutical manufacturers, and other entities operating in the healthcare environment. Both the government and qui tam relators have frequently brought FCA actions premised on alleged kickback schemes, and these actions pose significant potential liability. A higher but-for standard for proving causation represents a key tool for FCA defendants to defend against such actions. There is a good chance that the government petitions the US Supreme Court to review the First Circuit’s decision, and, given the growing split, there is certainly a possibility that this becomes the next issue in FCA jurisprudence that finds itself before the high court.
Background on AKS-Premised FCA Actions and the Growing Circuit Split
To establish falsity in an AKS-premised FCA action, a plaintiff has historically needed to show that the defendant (1) knowingly and willfully, (2) offered or paid remuneration, (3) to induce the purchase or ordering of products or items for which payment may be made under a federal healthcare program. In 2010, Congress added the following language to the AKS at 42 U.S.C. § 1320a-7b(g): “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].” (Emphasis added). Courts have generally agreed that the AKS, therefore, imposes an additional causation requirement for FCA claims premised on AKS violations. However, courts have been divided on how to define “resulting from” and the applicable standard for proving causation.
In 2018, the Third Circuit was faced with this issue and explicitly declined to adopt a but-for causation standard. Relying on the legislative history, the Third Circuit determined that a defendant must demonstrate “some connection” between a kickback and a subsequent reimbursement claim to prove causation.
Four years later, the Eighth Circuit declined to follow the Third Circuit and instead adopted a heightened but-for standard based on its interpretation of the statute. The court noted that the US Supreme Court had previously interpreted the nearly identical phrase “results from” in the Controlled Substances Act to require but-for causation. In April 2023, the Sixth Circuit joined the circuit split, siding with the Eighth Circuit and adopting a but-for causation standard.
Eyes Turn Toward the First Circuit
In mid-2023, two judges in the US District Court for the District of Massachusetts ruled on this causation issue as it related to two different co-pay arrangements, landing on opposite sides of the split. In the first decision, United States v. Teva Pharmaceuticals USA, Inc., the district court adopted the Third Circuit’s “some connection” standard. The court indicated it was following a prior First Circuit decision—Guilfoile v. Shields—though Guilfoile had only addressed the question of whether a plaintiff had adequately pled an FCA retaliation claim, as opposed to an FCA violation. In the second decision, Regeneron, the district court declined to follow Guilfoile (given Guilfoile dealt with the requirements for pleading an FCA retaliation claim); instead, the district court in Regeneron followed the Sixth Circuit and Eighth Circuit in applying a but-for standard. These dueling decisions set the stage for the First Circuit to weigh in on the circuit split.
First Circuit Adopts But-For Standard
On 18 February 2025, the First Circuit issued its opinion in Regeneron, affirming the district court’s decision and following the Sixth Circuit and Eighth Circuit in adopting a but-for standard. The court first determined that Guilfoile neither guided nor controlled the meaning of the phrase “resulting from” under the AKS. Turning to an interpretation of the statute, the First Circuit noted that “resulting from” will generally require but-for causation, but the court may deviate from that general rule if the statute provides “textual or contextual indications” for doing so. After a thorough analysis of the textual language and its legislative history, the First Circuit concluded that nothing warranted deviation from interpreting “resulting from” to require but-for causation. The court also rejected the government’s contention that requiring proof of but-for causation would be such a burden to FCA plaintiffs that the 2010 amendments to the AKS would have no practical effect.
Notably, the First Circuit made clear that its decision was limited to FCA actions premised on AKS violations under the 2010 amendments to the AKS. The court distinguished such actions from FCA actions premised on false certifications, where a plaintiff asserts that an FCA defendant has falsely represented its AKS compliance in certifications submitted to the government.
Takeaways
The growing confusion and disagreement among district and circuit courts over this issue, coupled with the issue’s import to FCA jurisprudence, creates the potential that this could be the next FCA issue decided by the US Supreme Court.
Until this split is resolved, FCA practitioners must pay close attention to the choice of venue for AKS-premised FCA actions.
But-for causation presents an important tool for FCA defendants in AKS-premised FCA actions. But-for causation may allow a defendant to argue that even if it had acted with an intent to induce referrals, no actual referrals resulted from the conduct, which would allow a defendant to avoid FCA liability altogether. Alternatively, but-for causation may allow a defendant to argue that FCA damages are lower than the total referrals made where the plaintiff is unable to prove all referrals “resulted from” the improper arrangement.
While this is a significant win for FCA defendants, its impact may be somewhat limited for FCA actions that are not premised on AKS violations. It also remains to be seen whether the government and relators will begin bringing FCA actions premised on alleged false certifications of compliance with the AKS (rather than solely relying on an alleged AKS violation itself).
The firm’s Federal, State, and Local False Claims Act practice group practitioners will continue to closely monitor developments on this issue, and we are able to assist entities operating in the healthcare environment that are dealing with AKS-premised FCA actions.
First Circuit Joins Other Circuits in Adopting Stricter Causation Standard in FCA Cases Based on Anti-Kickback Statute
On February 18, 2025, the First Circuit joined the Sixth and Eighth Circuits in adopting a “but for” causation standard in cases involving per se liability under the federal Anti-Kickback Statute (AKS) and the False Claims Act (FCA). In U.S. v. Regeneron Pharmaceuticals, the First Circuit held that for an AKS violation to automatically result in FCA liability, the government must show that the false claims would not have been submitted in the absence of the unlawful kickback scheme. The decision is the latest salvo in the battle over what it means for a false claim to “result from” a kickback, as discussed in our False Claims Act: 2024 Year in Review.
With the fight becoming increasingly one-sided — the Third Circuit remains the only circuit that has adopted a less stringent causation standard — the government may look at alternative theories to link the AKS and FCA.
Key Issues and the Parties’ Positions
As outlined in our previous posts on the issue, the legal dispute revolves around the interpretation of the 2010 amendment to the AKS, which states that claims “resulting from” a kickback constitute false or fraudulent claims under the FCA.
In this case, the government accused Regeneron of violating the AKS by indirectly covering Medicare copayments for its drug, Eylea, through donations to a third-party foundation. The government’s key argument relied on the Third Circuit’s Greenfield decision, the AKS’s statutory structure, and the 2010 amendment’s legislative history to argue that a stringent causation standard would defeat the amendment’s purpose. It urged the court to find that once a claim is tied to an AKS violation, it should automatically be considered false under the FCA — without the need to prove that the violation directly influenced the claim.
Regeneron, on the other hand, argued that an FCA violation only occurs if the kickback was the determining factor in the submission of the claim. Relying on the Eighth and Sixth Circuits’ decisions, prior Supreme Court precedent, and a textual reading of the amendment, Regeneron contended that the phrase “resulting from” could only mean actual causation and nothing less.
The Court’s Decision
The First Circuit sided with Regeneron. It found that, given the Supreme Court’s prior interpretation of “resulting from” phrase as requiring but-for causation, this should be the default assumption when a statute uses that language. While acknowledging that statutory context could, in some cases, suggest a different standard, the court concluded that the government failed to provide sufficient contextual justification for a departure from but-for causation.
The court rejected the government’s argument that, in the broader context of the AKS statutory scheme, it would be counterintuitive for Congress to impose a more stringent causation standard for civil AKS violations than for criminal AKS violations, which require no proof of causation. The court also dismissed the government’s legislative history argument — specifically, the claim that a but-for causation standard would undermine the impetus for the amendment.
Implication: False Certification Theories May Become More Prominent
The First Circuit was careful to distinguish between the per se liability at issue in this case and liability under a false certification theory. While the government must show but-for causation for an AKS violation to automatically give rise to FCA liability, the court said that the same is not true for false certification claims.
Any entity that submits claims for payment under federal healthcare programs certifies — either explicitly or implicitly — that it has complied with the AKS. The court noted that nothing in the 2010 amendment requires proof of but-for causation in a false certification case. The government may take this as a cue to pivot toward false certification claims as a means of linking the AKS and FCA, potentially leaving the 2010 amendment argument behind.
Final Thoughts
The First Circuit’s decision in U.S. v. Regeneron Pharmaceuticals further cements the dominance of the “but for” causation standard in linking AKS violations to FCA liability, making it increasingly difficult for the government to pursue claims under a per se liability theory. With three circuits now aligned on this interpretation and only the Third Circuit standing apart, the tide appears to be turning in favor of a stricter causation requirement.
However, as the court acknowledged, this ruling may not foreclose other avenues for FCA liability — particularly false certification claims, which at least this court has found do not require the same level of causal proof. Given this, the government may shift its focus toward alternative enforcement strategies to maintain the strength of its anti-kickback enforcement efforts. As the legal landscape continues to evolve, healthcare entities and compliance professionals should remain vigilant, as new litigation trends and regulatory responses may reshape the interplay between the AKS and FCA in the years to come.
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Ping-Pong Match Appears Over: US Companies Apparently Definitively Relieved of Compliance Obligations Under the Corporate Transparency Act
The Corporate Transparency Act (the CTA) requires a range of entities, primarily smaller, unregulated companies, to file reports with FinCen, and arm of the Treasury Department, identifying the entities’ beneficial owners, and the persons who formed the entity. The purpose of the CTA was to aid in the detection of terrorism, money-laundering, and tax evasion.
As previously reported, the federal courts in Texas preliminarily enjoined the enforcement of the CTA. When a court recently lifted the last such injunction, FinCen set a new deadline for compliance, but on March 2nd FinCen announced that it would not enforce the CTA pending its issuance of new rules that would make the CTA applicable only to “foreign reporting companies,” as outlined in our client alert.
While we don’t expect any of this to change materially, we advise that you continue to watch this space as the status of the CTA has been quite volatile. We also recommend that you take into account that the CTA is technically effective, just not being enforced. Thus, pending the anticipated adoption of new rules, failure to comply is technically a violation for the purposes, for example, of reps and warranties in transaction documents.
How to Report Anti-Money Laundering Violations and Earn a Whistleblower Award
The Department and Justice (DOJ) and Financial Crime Enforcement Network (FinCEN) actively take enforcement actions against individuals and companies that violate anti-money laundering (AML) laws and Bank Secrecy Act (BSA) regulations. To strengthen these efforts, Congress included a robust whistleblower reward program in the Anti-Money Laundering Act (AMLA) of 2020. The AMLA Whistleblower Reward Program requires the Department of the Treasury (Treasury) to provide monetary awards to whistleblowers who voluntarily provide original information that leads to successful enforcement actions for AML violations.
The AMLA whistleblower law is posed to be a game changer in AML enforcement, enhancing national security by combating illicit financing, including money laundering through banks and cryptocurrency companies. Under the AMLA Whistleblower Reward Program, whistleblowers may receive awards of between 10% and 30% of the monetary sanctions collected in successful enforcement actions. Given the potential for significant fines in AML enforcement actions, whistleblowers have a strong incentive to report AML violations. Additionally, whistleblowers can submit tips anonymously if represented by an attorney.
This article outlines recent enforcement actions for AML violations and explains how whistleblowers can report AML violations and qualify for whistleblower awards.
Recent Enforcement Actions for AML Violations
TD Bank Agrees to Pay $1.8 Billion for Violations of the BSA and Money Laundering
On October 10, 2024, the DOJ and FinCEN announced that TD Bank agreed to pay over $1.8 billion in penalties to resolve investigations into BSA and money laundering violations. This penalty marks the largest-ever fine under the BSA and the largest penalty against a depository institution in U.S. Treasury and FinCEN history.
The DOJ and FinCEN’s investigations revealed that TD Bank failed to maintain an adequate AML program for nearly a decade, allowing criminals to launder hundreds of millions of dollars through its systems. TD Bank neglected to update its compliance measures, prioritizing cost-cutting and customer convenience over legal obligations. Between 2018 and 2024, nearly 92% of TD Bank’s transaction volume went unmonitored, totaling about $18.3 trillion. Consequently, three major money laundering networks moved more than $670 million through TD Bank accounts from 2019 to 2023, with employees even accepting bribes to facilitate illegal transactions.
OKX Crypto Exchange Pays More Than $504 Million for AML Violations
On February 24, 2025, OKX, a major cryptocurrency exchange, pleaded guilty to operating an unlicensed money-transmitting business and agreed to pay over $504 million in penalties.
In the DOJ’s press release announcing the enforcement action, the Acting U.S. Attorney said:
For over seven years, OKX knowingly violated anti-money laundering laws and avoided implementing required policies to prevent criminals from abusing our financial system. As a result, OKX was used to facilitate over five billion dollars’ worth of suspicious transactions and criminal proceeds. Today’s guilty plea and penalties emphasize that there will be consequences for financial institutions that avail themselves of U.S. markets but violate the law by allowing criminal activity to continue.
The DOJ’s investigation found that since 2017, OKX had:
Facilitated over $1 trillion in transactions involving U.S. customers.
Enabled more than $5 billion in suspicious and illicit financial activity.
Failed to implement AML laws, including Know-Your-Customer (KYC) measures.
Allowed customers to bypass verification through VPNs and false information.
Emphasizing the consequences for financial institutions that disregard U.S. regulations, the FBI Assistant Director stated:
Blatant disregard for the rule of law will not be tolerated, and the FBI is committed to working with our partners across government to ensure that corporations that engage in this type of conduct are held accountable for their actions.
How to Report Anti-Money Laundering Violations and Earn a Whistleblower Award
Under the AMLA, the Treasury shall pay an award to whistleblowers who voluntarily provide original information to
their employer,
the Secretary of the Treasury, or
the Attorney General,
and their information leads to a successful enforcement action with monetary sanctions exceeding $1 million. Whistleblower awards range from 10% to 30% of the monetary sanctions collected in the enforcement actions.
Prior to submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the AMLA whistleblower law to, among other things, understand eligibility rules and consider the factors that can significantly increase or decrease the size of a future whistleblower award.
Michigan Federal Court Holds CTA Reporting Rule Unconstitutional, Enjoins Enforcement Against Named Plaintiffs
On March 3, 2025, a Michigan federal district court in Small Business Association of Michigan v Yellen, Case No. 1:24-cv-413 (W.D Mich 2025) (SBAM), held that the CTA’s reporting rule is unconstitutional under the Fourth Amendment (unreasonable search) and entered a judgment permanently enjoining the enforcement of the CTA reporting requirements against the named plaintiffs and their members only. The district court did not find it necessary to, and did not, rule on the plaintiffs’ separate Article 1 and Fifth Amendment constitutional claims, instead leaving them “to another day, if necessary.”
The SBAM plaintiffs include (a) the Small Business Association of Michigan and its more than 30,000 members, (b) the Chaldean American Chamber of Commerce and its more than 3,000 members, (c) two individual reporting company plaintiffs, and (d) two individual beneficial owner plaintiffs owning membership interests in reporting companies.
We are not aware as of the date of this Alert whether the defendants have, or intend to, appeal the SBAM judgment to the Sixth Circuit Court of Appeals.
Treasury May Be Shifting CTA Reporting Rule Away from Domestic and Toward Foreign Reporting Companies
On March 2, 2025, the United States Department of Treasury announced that it will not enforce fines or penalties based on the existing deadlines for reporting beneficial ownership information under the CTA beneficial ownership reporting rule.[1] This follows earlier guidance issued by FinCEN.[2]
Treasury further announced that it will be engaging in proposed rule-making to limit the CTA reporting rule to foreign reporting companies, noting that even after the new rules are in effect, it will not enforce any fines or penalties on any U.S. citizens, domestic reporting companies or their beneficial owners. No other details of the proposed rule-making or its timing were announced, including whether any changes might be proposed as to the definitions of domestic[3] or foreign[4] reporting companies under the reporting rule or any exemptions.
Treasury noted that this action is “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.”
[1] See Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies | U.S. Department of the Treasury.
[2] On February 18, 2025, the Financial Crimes Enforcement Network of the Department of Treasury (FinCEN) issued a notice extending beneficial ownership reporting deadlines for most reporting companies to March 21, 2025. See FinCEN Notice, FIN-2025-CTA1, FinCEN Extends Beneficial Ownership Information Reporting Deadline by 30 Days; Announces Intention to Revise Reporting Rule (February 18, 2025) and an updated FinCEN Alert (February 19, 2025) Beneficial Ownership Information Reporting | FinCEN.gov. Subsequently, on February 27, 2025, FinCEN announced that it was suspending enforcement of the CTA reporting rule, including any fines or penalties, pending its further extension of reporting deadlines in an interim reporting rule to be issued not later than December 21, 2025. See FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines | FinCEN.gov.
[3] A “domestic reporting company” is currently defined under the CTA and the reporting rule as any entity that is formed by filing a document with a secretary of state or similar office under the laws of a State or Indian tribe (including, for example, most LPs, LLPs and statutory, business and other trusts if the laws of a state or tribal jurisdiction require such filing to create the entity), subject to exemptions from the definition included in the CTA and the reporting rule. See 31 U.S.C. § 5336(a)(11)(A)(i) and 31 CFR 1010.380(c)1(i)).
[4] A “foreign reporting company” is currently defined under the CTA and the reporting rule as any entity that is formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a State or Indian tribe subject to exemptions from the definition included in the CTA and the reporting rule. See 31 U.S.C. § 5336(a)(11)(A)(ii) and 31 CFR 1010.380(c)(1)(ii).
CFTC Issues Enforcement Advisory on Benefits of Self-Reporting, Cooperation, and Remediation
On Feb. 25, 2025, the Division of Enforcement (Division) of the Commodity Futures Trading Commission (CFTC) issued an Enforcement Advisory (2025 Advisory) outlining the benefits of self-reporting, cooperation, and remediation for violations of the Commodities Exchange Act (CEA). The 2025 Advisory embodies a further refinement of the Division’s approach over the last decade in connection with evaluating an entity’s or individual’s self-reporting, cooperation, and remediation when recommending enforcement actions to the Commission. The 2025 Advisory and the accompanying statement by CFTC Acting Chairman Caroline Pham underscore that the CFTC is emphasizing efficient use of enforcement resources and pursuing a more structured framework designed to create more concrete financial incentives for self-reporting to, and cooperating with, the Division.
Background
A brief review of the Division’s prior pronouncements in this area provides background and context to the 2025 Advisory. In January 2017, the Division updated the CFTC’s cooperation guidelines (2017 Update) by encouraging entity and individual self-reporting. The 2017 Update provided that self-reporting of wrongdoing and cooperating throughout an investigation could result in speedier settlements, substantially reduced penalties and, in rare cases, no prosecution at all. However, the 2017 Update did not provide specific guidance or concrete reductions, estimated or otherwise, for self-reporting, cooperation, and remediation. In May 2020, the Division issued a memorandum (2020 Memo), which provided further guidance and clarification regarding the factors the Division would consider when recommending civil monetary penalties to the Commission for violations of the CEA or the CFTC’s rules and regulations. The factors referenced in the 2020 Memo were incorporated into the Division’s updated Enforcement Manual. Taking the same general approach as the 2017 Update, however, the 2020 Memo did not provide specific guidance or concrete reductions for self-reporting, cooperation, and remediation.
The 2025 Advisory
The 2025 Advisory attempts to incentivize self-reporting, cooperation, and remediation of potential violations, and the Division’s stated policy objective for the 2025 Advisory is to provide clarity to the benefits of self-reporting and cooperating through reduced penalties. In contrast to the 2017 Update and the 2020 Memo, the 2025 Advisory indicates that the Division will now use a matrix to calculate the applicable mitigation credit (Credit), thereby creating tangible financial incentives for firms and individuals to come forward proactively and receive reduced penalties and/or sanctions. The Division noted that the new policy is aligned with best practices for assessing appropriate penalties used by the Department of Justice and other U.S. financial and commodity regulators. For example, the Federal Energy Regulatory Commission has a long-standing Policy Statement on Penalty Guidelines (based on the U.S. Sentencing Guidelines) for enforcement actions including credit through reduction in the “culpability score” for self-reporting and cooperation that can reduce civil penalties.
Aligned with the principles of regulatory consistency, transparency, and clarity, the 2025 Advisory details both the structure and framework the Division will utilize when assessing self-reporting, cooperation, and remediation in connection with investigations and enforcement actions. Specifically, with respect to self-reporting and entitlement to Credit, the 2025 Advisory states that the Division will utilize a three-tier scale: No Self-Report, Satisfactory Self-Report, and Exemplary Self-Report. To receive “Exemplary” self-reporting credit, the self-report must be timely and voluntary, made to either the Division or one of the other CFTC divisions with oversight responsibility, provide information that assists the Division in conserving resources in its investigation, and include all material information known at the time of the self-report.
With respect to its evaluation of cooperation and remediation, the 2025 Advisory states that the Division will assess cooperation using a four-tiered scale: No Cooperation, Satisfactory Cooperation, Excellent Cooperation, and Exemplary Cooperation. The Division will assess remediation as a part of its evaluation of cooperation and will consider further whether the entity or individual engaged in efforts to prevent future violations.
The Division’s assessment of the level of cooperation will also consider whether the entity or individual fully complied with subpoenas, voluntarily provided documents and information, made presentations to the Division, and, where applicable, made witnesses available for interviews or testimony. “Exemplary Cooperation” may include all of the foregoing, as well as evidence of significant remediation. The Division also included in the 2025 Advisory examples of behavior considered uncooperative, including untimely subpoena compliance, failure to preserve material information, bad faith attempts to improperly shape testimony, as well as harm to clients, counterparties, or customers.
Finally, the Advisory provides the Credit matrix (Matrix) detailing hypothetical/presumptive Credits. For example, the Matrix indicates that an entity or individual may be eligible to receive a Credit up to 55% for Exemplary Self-Reporting and Exemplary Cooperation, 40% for Exemplary Self-Reporting and Excellent Cooperation, 30% for Exemplary Self-Reporting and Satisfactory Cooperation, and 20% for Exemplary Self-Reporting and No Cooperation. The 2025 Advisory also notes that the Division’s assessment of cooperation is discretionary and will require a case-by-case analysis of the specific facts and circumstances of each matter.
Conclusion
The 2025 Advisory states that it is the “Division’s sole policy on self-reporting, cooperation, and remediation,” superseding all previous advisories and the Division’s Enforcement Manual, and is thus a critical read for any practitioner before the CFTC. Entities and individuals subject to CFTC jurisdiction should carefully consider the various tiers with counsel when contemplating a self-report, and practitioners should consult the 2025 Advisory in order to position clients to receive credit under the newly announced Matrix.
No Funny Business: The Supreme Court Should Get Sirois
As you might have guessed from the title of this post, we are returning to cover new developments in the United States v. Sirois case. A few months ago, the First Circuit released an opinion that we discussed in an earlier post. As we predicted, the Rohrabacher-Farr issues have reappeared, with the Defendants in Sirois now petitioning the United States Supreme Court to grant them certiorari and review the case.
Rohrabacher-Farr Refresher
Just as a reminder, the Rohrabacher-Farr Amendment is an appropriations rider that was first passed in 2014. It bars the DOJ from using government funds to investigate and prosecute state-compliant medical marijuana operations. However, it does not on its face protect individuals who participate in adult-use marijuana operations, even if those operations are legal at the state level. Nor does it suspend the federal Controlled Substances Act. Remember, marijuana cultivation, sales, and use are still illegal under federal law, even in states with medical marijuana programs.
In practice, Rohrabacher-Farr allows state-compliant medical marijuana businesses to operate with much less fear that they will be prosecuted by the federal government.
Risky Business – United States v. Sirois
Before we head down to D.C., let’s take the third boxcar, midnight train up to our destination: Bangor, Maine. The Sirois Defendants were charged with a number of crimes, including violating the Controlled Substances Act while running their marijuana cultivation and sorting business based in Farmington, Maine. They were accused of, among other things, operating the business as a “collective” in violation of Maine law and facilitating illegal interstate sales of marijuana. Although the DEA initially claimed an even broader multi-drug conspiracy, it seems that the DOJ quickly gave up on proving that most of these people really still deal cocaine.
The trial court dismissed the Defendants’ attempt to enjoin their prosecution based on the Rohrabacher-Farr Amendment. The First Circuit upheld that decision, reasoning that the Defendants failed to show “substantial compliance” with state law and that they were not immune from prosecution due to their “blatantly illegitimate activity.”
Now, the Sirois Defendants have filed a petition for writ of certiorari to the U.S. Supreme Court. The petition seeks to resolve a split between Ninth and Eleventh Circuit precedent and get the Supreme Court to shift the burden of proof — requiring the DOJ to prove that a criminal defendant is noncompliant, rather than forcing the defendant to prove it was in either substantial or strict compliance with state law. The petition previews the Sirois Defendants’ arguments. It reasons that not only were the Defendants in compliance with state law, but that the current state of the law is uncertain, overburdens defendants, and allows the DOJ to overstep and disregard Congressional limits on its power.
We cannot know whether or how the Supreme Court will decide this case. However, given the Circuit split and the current tenor of discussions around executive overreach, this case is ripe for Court review.
Paranoia, Paranoia
Don’t worry, this is not cause for massive alarm. I know most medical marijuana operators out there don’t need to hear this, but we will say it anyway. Everyone is not, in fact, coming to get you. As we said in our last post on this case, we do not believe that Sirois signals mass-scale federal prosecution of state-legal medical marijuana businesses. It is also important to remember, too, that rescheduling may not actually affect the current state of affairs for state-legal operators (although it may make compliance more onerous, with added FDA, DEA, and state pharmaceutical oversight and licensing requirements).
If the Supreme Court grants certiorari, this case will almost certainly clarify the questions that the Sirois Defendants raise. First, state-licensed and authorized medical marijuana operators and patients will better know when the DOJ can criminally investigate and prosecute them for cultivating, distributing, possessing, or using medical marijuana. Second, those same parties will know whether they have the burden to prove they acted in compliance with state law. And third, they will know what they must show to prove that they were actually sufficiently compliant.
If you are still unconvinced, if nothing seems to satisfy you, and you feel like you’ll lose your mind trying to make sure you are following the law, give us a call. Your friends at Bradley are happy to advise you on any regulatory or compliance issues that your cannabis business faces.
Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies
The Treasury Department announced plans to significantly narrow beneficial ownership information (BOI) reporting obligations under the Corporate Transparency Act (CTA).
In a press release issued on March 2, 2025, the Treasury Department stated the following:
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.
The Department’s announcement would appear to end the CTA regulatory regime for all entities other than foreign companies that have registered to do business in the U.S.
Client Alert: The Uncertainty Continues – Another Major Update to The Corporate Transparency Act
As reported in our Client Alert dated Feb. 20, 2025, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued guidance on Feb. 19, 2025, stating that the requirement to file beneficial ownership interest reports (“BOIR”) under the Corporate Transparency Act (“CTA”) is once again in effect. This guidance impacted deadlines to file BOIRs as follows:
Entities in existence as of Dec. 31, 2023, had until March 21, 2025, to file their BOIRs.
Entities that were created or registered between Jan. 1, 2024, and Dec. 31, 2024, originally had 90 days from the date of creation or registration to file their BOIRs. They had until March 21, 2025, to file BOIRs.
Reporting companies that were previously given a reporting deadline later than the March 21, 2025, deadline had to file their initial BOIR by that later deadline. For example, if an entity’s reporting deadline was in April 2025 because it qualified for certain disaster relief extensions, it was to follow the April deadline, not the March deadline.
Entities that were created or registered on or after Jan. 1, 2025, had until the later of March 21, 2025, or 30 days after their creation or formation, to file their BOIRs.
The past tense is intentionally used with respect to the deadlines specified above because on Feb. 27, 2025, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on failure to file or update BOIRs 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. FinCEN stated that no later than March 21, 2025, FinCEN intends to issue an interim final rule extending BOIR deadlines. Recognizing the need to provide new guidance and clarity as quickly as possible, the rule must ensure that beneficial ownership interest information that is highly useful to important national security, intelligence, and law enforcement activities is reported.
Then, on March 2, 2025, the U.S. Treasury Department issued the following announcement:
“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.”
During the past several months, with respect to filing BOIRs, entities were vacillating between taking take a “wait and see approach” and incurring the risk of having to make a filing quickly. Other entities were more proactive and made a voluntary filing. Now, with FinCEN’s March 2, 2025 announcement, and presuming that the Treasury Department does not change course again, domestic entities will not need to file BOIRs; only foreign entities will need to file BOIRs in accordance with a rule to be promulgated at some point by the Treasury Department.
Important Update – Treasury Will Not Enforce CTA Against U.S. Citizens, Domestic Reporting Companies and Their Beneficial Owners – New Rules To Follow (March 3, 2025 Edition)
The U.S. Department of the Treasury announced on Sunday March 2, 2025 that it will “not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners [ …]” This press release from Treasury followed the February 27, 2025 release wherein FinCEN committed to (i) extending the existing March 21, 2025 filing deadline, (ii) re-writing the reporting rules (and opening the process to public comment) and (iii) not enforcing the CTA based on violations of the extended deadlines.
Thus, once the new reporting rules have been issued, and absent further change, U.S. citizens or domestic reporting companies or their beneficial owners are not expected to have reporting obligations. Non-U.S. entities that have filed in a U.S. jurisdiction to do business are expected to have a CTA filing obligation; however, for now, the scope of such an obligation has not been set, and the applicable deadline has not been determined.
As suggested by Treasury and FinCEN, subject to the additional commitments, the obligations (and applicable timelines) are as follows:
U.S. Citizens, Domestic Reporting Companies and Their Beneficial Owners: No enforcement of the CTA will be effected.
Foreign Reporting Companies (and other stakeholders not included above):
Now (as of February 27, 2025): FinCEN will not issue fines or penalties for failures to file, correct or update beneficial ownership information (BOI) reports by current deadlines and therefore filing, while mandatory (and subject to changing obligations with respect to the forthcoming new reporting rule), is at your discretion as to timing for the moment.
By March 21, 2025: FinCEN expressed its intent to issue an interim final rule extending certain, as yet undisclosed, BOI reporting deadlines.
Later in 2025: FinCEN expressed its plans to solicit public comments on potential revisions to BOI reporting requirements and issue a notice of proposed rulemaking.
There will be additional developments in this space, so it is necessary to pay careful attention to CTA updates as they develop.
Navigating the Risks of Cartel Terrorist Designation for Companies Operating in Mexico and Latin America
Introduction
The U.S. Department of State recently designated Tren de Aragua (“TdA”), Mara Salvatrucha (“MS-13”), Cártel de Sinaloa, Cártel de Jalisco Nueva Generación (“CJNG”), Cártel del Noreste (“CDN”), La Nueva Familia Michoacana (“LNFM”), Cártel de Golfo (“CDG”), and Cárteles Unidos (“CU”) as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These designations have introduced significant legal and compliance challenges for companies operating in Mexico and Latin America. This move, aimed at curbing the influence of powerful cartels, has far-reaching implications for businesses that must now navigate a complex landscape of anti-terrorism regulations. This alert explores the risks associated with the cartel terrorist designation and provides strategic recommendations for companies to mitigate these risks.
Background on Cartel Terrorist Designation
On his first day in office, President Trump issued an Executive Order (“EO”) pursuant to the International Emergency Economic Powers Act creating, “a process by which certain international cartels (the Cartels) and other organizations will be designated as [FTOs], consistent with section 219 of the INA (8 U.S.C. 1189), or [SDGTs], consistent with IEEPA (50 U.S.C. 1702) and EO 13224 of September 23, 2001 (Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), as amended.” These instructions to designate cartels as terrorist organizations is part of a broader strategy to combat the influence of these criminal groups, which are involved in drug trafficking, human smuggling, and other illicit activities. The EO aims to disrupt the financial networks of these cartels and enhance the enforcement capabilities of U.S. law enforcement agencies.
The EO is also meant to work in conjunction with the “Day One Memo” issued by the U.S. Department of Justice (“DOJ”) calling for the Total Elimination of Cartels and Transnational Criminal Organizations. The Memo realigns DOJ priorities and resources to aggressively target cartels and removes bureaucratic impediments to doing so.
Legal Risks
The designation of cartels as FTOs significantly increases the legal and compliance risks for companies operating in affected regions. Under U.S. law, providing material support to a designated terrorist organization is a serious offense that can result in severe penalties, including significant fines and imprisonment.
Companies operating in areas controlled by these cartels, or doing business with them, face increased risks of U.S. sanctions violations, potential criminal investigations, and civil liability and asset forfeiture. Simply paying fees to a designated organization for protection, to operate in an area they control, or selling them goods or services can constitute material support subject to criminal penalties. For example, paying a designated cartel fees to transport goods through, or be allowed to operate in, a certain territory or providing financial services to, or conducting financial transactions for, a cartel-owned business exposes a company or financial institution, and its employees, to criminal enforcement risk, including but not limited to criminal investigation by U.S. law enforcement, civil lawsuits, sanctions designation and enforcement, and asset forfeiture.
The reach of the Anti-Terrorism Act (“ATA”), 18 U.S.C. § 2339B(d) is explicitly extraterritorial, meaning these restrictions are intended to regulate the actions of non-U.S. entities. While Specially Designated Nationals (“SDNs”) restrictions have allowed the United States to sanction extra-territorial actors in limited circumstances, they primarily target U.S. entities and transactions involving U.S. entities or U.S. dollars (“USD”). The ATA has no such limitation and is unbounded by U.S. nexus. In short, a non-U.S. company doing business with an FTO in Latin America can be prosecuted through the extraterritorial reach of the ATA without having a presence in the United States.
Economic Sanctions Risks
Each of the eight organizations listed above has been added to the Office of Foreign Assets Control’s Specially Designated Nationals List (“SDN List”). This means that any property or interests in property of those organizations that is in the United States or in the possession or control of U.S. persons, including U.S. financial institutions, is blocked.
U.S. persons, and non-U.S. persons subject to U.S. sanctions jurisdiction, risk violating U.S. sanctions regulations and facing civil and criminal liability if they engage in virtually any activity, directly or indirectly, involving these organizations. In the case of non-U.S. persons, the United States may bring enforcement actions where transactions (i) are directly or indirectly prohibited as to U.S. persons (e.g., involve SDNs or other blocked persons such as these organizations or their property and interests in property), and (ii) have a direct or indirect U.S. nexus (e.g., the use of USD).
Whether or not there is a U.S. nexus, the U.S. government may impose blocking sanctions (i.e., secondary sanctions) on non-U.S. persons determined to have provided “material support” to any of these organizations. The U.S. government may also impose correspondent account/payable through account (“CAPTA”) restrictions on non-U.S. financial institutions determined to have knowingly conducted or facilitated a significant transaction on behalf of an SDGT.
Criminal Liability for Providing “Material Support” to an FTO
Importantly, in addition to the sanctions risked involved with dealing with the designated entities described above, U.S. persons, and non-U.S. persons subject to U.S. jurisdiction as set out in the ATA, that knowingly provide “material support” to FTOs may face criminal liability. The definition of “material support” broadly encompasses “any property, tangible or intangible, or service.” The term excludes, medicine and religious materials but includes currency, monetary instruments, financial securities, financial services, lodging, training (i.e., instruction or teaching designed to impart a specific skill), and expert advice or assistance (i.e., advice or assistance derived from scientific, technical, or other specialized knowledge), among others.
The ATA also provides another robust mechanism for the U.S. government to combat terrorism: the use of asset forfeiture, which allows for the seizure of assets belonging to individuals or entities that provide material support to FTOs. This includes funds, property, and other tangible or intangible assets.
Case Study
Background
A European multinational company faced serious allegations of complicity in human rights violations and financing terrorism in a Middle Eastern country. Between 2012 and 2014, the company’s subsidiary continued operations at its facility despite the escalating conflict in the region.
Allegations and Charges
The company was criminally charged by the United States Attorney’s Office for conspiring to provide material support and resources to two designated FTOs. The specific conduct involved:
Payments to Terrorist Groups: The company allegedly paid these groups to ensure safe passage for employees and goods. This included direct payments to terrorist organizations to secure the safety of their operations.
Purchasing Raw Materials: The company allegedly bought raw materials from suppliers who were controlled by or affiliated with terrorist groups. This enabled the subsidiary to continue its production activities.
Revenue Generation: By maintaining operations and securing raw materials through these means, the subsidiary was able to generate millions in revenue during the period in question.
Legal Proceedings
In October 2022, the company, in a first-of-its-kind agreement, pleaded guilty to a one-count criminal information charge of conspiring to provide material support to FTOs. The U.S. District Court sentenced the company to probation and imposed financial penalties, including criminal fines and forfeiture, totaling hundreds of millions of dollars.
Impact and Implications
This case underscores the intersection of corporate crime and national security. It highlights the severe consequences for companies that operate in specific regions, especially in high-risk environments. The case serves as an example of the importance of investing in robust compliance programs, paying vigilant attention to national security compliance risks, and conducting thorough due diligence.
Civil Liability Under the Anti-Terrorism Act
Financial institutions and other companies that interact with FTOs may also face civil lawsuits under the ATA. The Act provides a private right of action for U.S. citizens injured by an act of international terrorism to claim treble damages, costs, and attorney’s fees. Liability extends to those who materially supported, aided and abetted, or conspired with the FTO to commit the act of terrorism creating an extremely inclusive regime of liability.
Numerous plaintiffs have filed lawsuits in the United States against various entities, including banks, telecom providers, social media companies, and state-owned enterprises, accused of aiding and abetting or supporting FTOs. The Supreme Court clarified that aiding and abetting liability requires a defendant to have knowingly provided substantial assistance to another person in committing the act of international terrorism.
In multiple lawsuits in the Southern District of New York and around the country, plaintiffs who were victims or representatives of victims of various terrorist attacks by FTOs brought claims under the ATA. The plaintiffs have alleged multiple theories, including that financial institutions provided financial services to these designated FTOs, which substantially contributed to the attacks. In recent cases, Courts have denied motions to dismiss in similar cases finding that plaintiff’s had adequately alleged that financial institutions were generally aware that they were playing a role in the FTOs overall terrorist activities, and that the defendants provided knowing and substantial assistance with respect to terrorist attacks.
Companies must ensure that their operations do not inadvertently support these organizations, either directly or indirectly.
Impact on Companies Operating in Mexico and Latin America
The designation of cartels as FTOs poses several challenges for companies operating in Mexico and Latin America:
Increased Due Diligence Requirements: Companies must conduct thorough due diligence to ensure that their business partners, suppliers, and customers are not affiliated with designated cartels. This includes implementing robust screening processes and regularly updating risk assessments.
Heightened Regulatory Scrutiny: U.S. regulatory agencies are likely to increase their scrutiny of companies operating in regions affected by the cartel designations. This may result in more frequent audits, investigations, and enforcement actions.
Operational Disruptions: Companies may face operational disruptions if they are forced to sever ties with business partners or suppliers linked to designated cartels. This can impact supply chains, production schedules, and overall business continuity.
Reputational Damage: Being associated with designated terrorist organizations can cause significant reputational damage. Companies must proactively manage their public image and communicate their commitment to compliance and ethical business practices.
Strategic Recommendations for Companies
To mitigate the risks associated with the cartel terrorist designation, companies should consider the following strategic recommendations:
Enhance Compliance Programs: Companies should strengthen their compliance programs to address the specific risks associated with the cartel designations, including anti-money laundering and counter-terrorism financing and sanctions controls. This includes updating policies and procedures, providing training to employees, and implementing robust monitoring and reporting mechanisms.
Conduct Comprehensive Risk Assessments: Regular risk assessments are essential to identify and mitigate potential exposure to designated cartels. Companies should assess their entire value chain, including suppliers, customers, and third-party intermediaries.
Strengthen KYC and Third-Party Due Diligence: Implementing strict know-your-customer (“KYC”) and third-party screening, background checks, and management procedures is critical to identify and remediate active risks. The identification of third-party risk is essential to identify and avoid the most likely source of liability to the company.
Engage with Legal and Compliance Professionals: Given the complexity of the legal and regulatory landscape, companies should seek guidance from legal and compliance professionals with experience in anti-terrorism regulations. This can help ensure that their compliance programs are effective and up-to-date.
Develop Contingency Plans: Companies should develop contingency plans to address potential operational disruptions resulting from the cartel designations. This includes identifying alternative suppliers, diversifying supply chains, and establishing crisis management and dawn raid protocols.
Foster a Culture of Compliance: Building a strong culture of compliance is critical to ensuring that employees understand the importance of adhering to anti-terrorism regulations. Companies should promote ethical behavior and encourage employees to report any suspicious activities.
Conclusion
The designation of drug cartels as FTOs by the U.S. government has introduced significant challenges for companies operating in Mexico and Latin America. By understanding the risks and implementing robust compliance measures, companies can navigate this complex landscape and mitigate potential legal, operational, and reputational risks. Proactive engagement with legal and compliance professionals, comprehensive risk assessments, and a strong culture of compliance are essential components of an effective strategy to address the challenges posed by the cartel terrorist designation.