FinCEN Adopts Interim Final Rule Limiting CTA Reporting Requirements to Foreign Reporting Companies
US legal entities are no longer subject to the reporting requirements of the Corporate Transparency Act (CTA). On March 21, 2025, the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of Treasury (Treasury), adopted an interim final rule that (i) narrows the CTA reporting requirements to entities previously defined as “foreign reporting companies,” (ii) extends the earliest reporting deadline to April 25, 2025 and (iii) exempts foreign reporting companies from having to report the ownership information of any US person who is a beneficial owner.
The interim final rule amends the definition of a “reporting company” to legal entities formed under the law of a foreign country and registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. The interim final rule did not eliminate any of the original 23 exemptions from the definition of reporting company.
If you read our previous reports to determine whether to file or update a report on behalf of an entity formed under the law of a US State or Indian tribe, you can feel comfortable that no such beneficial ownership information report will be required without further rule changes.In adopting the interim final rule, FinCEN acknowledged that it intends to issue a final rule this year, after review of public comments. The comment period for the interim final rule ends May 27, 2025.
Federal Regulators Continue Crypto Rationalization
Following President Trump’s Executive Order on Digital Assets, which instructed agencies to streamline and rationalize regulation of the digital asset space in a way that is technology-neutral, federal agencies have been responding. Below we summarize recent activities by the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Commodity Futures Trading Commission (CFTC).
On March 7, 2025, the OCC, which supervises national banks, issued Interpretive Letter 1183 regarding Certain Crypto-Asset Activities for national banks. IL 1183 withdraws several previous interpretive letters that limited national banks’ ability to engage in various crypto-asset activities. Instead, the OCC sought to “ensure that bank activities will be treated consistently, regardless of the underlying technology.”
On March 28, the FDIC took similar action and issued Financial Institution Letter 7-2025 to establish a process for banks engaging in crypto-related assets. FIL 7-2025 replaces prior guidance, FIL 16-2022, and affirms that FDIC-supervised institutions may engage in permissible activities, including activities involving new and emerging technologies such as crypto-assets and digital assets, provided that they adequately manage the associated risks. In contrast to FIL-16-2022, which established a prior notification requirement specific to crypto-related activities, FIL 7-2025 clarifies that FDIC-supervised institutions may engage in certain permissible crypto-related activities without receiving prior FDIC approval.
Also on March 28, the CFTC staff announced the withdrawal of its prior staff advisory entitled Review of Risks Associated With Expansion of DCO Clearing of Digital Assets. In withdrawing the prior guidance, the CFTC staff noted that its regulatory treatment of digital asset derivatives does not vary from its treatment of other products. Instead, the staff conducts its supervision of clearing activities and oversight of compliance with the Commodity Exchange Act and Commission regulations regardless of the specific commodity underlying relevant contracts.
Europe: UK Sanctions Regulator Highlights Compliance Failures
On 13 February 2025, the UK’s Office of Financial Sanctions Implementation (OFSI) published an assessment of suspected sanctions breaches involving UK financial services firms since February 2022. It highlights three areas of concern:
Compliance
OFSI has identified several common issues that contribute to non-compliance by UK financial institutions:
Improper maintenance of frozen assets, particularly in relation to debits from accounts held by sanctioned persons (DPs);
Breaches of specific and general OFSI license conditions;
Inaccurate ownership assessments; and
Inaccurate UK nexus assessments.
Russian DPs and Enablers
Professional and non-professional enablers have been increasingly providing the following services on behalf of Russian DPs:
Maintaining the lifestyles and assets of DPs;
Attempting to front on behalf of DPs to claim ownership of frozen assets; and
Employing increasingly sophisticated measures to evade UK financial sanctions prohibitions, particularly through the exploitation of crypto-assets.
Indicators of enablers might include:
Individuals associated with DPs receiving funds of significant value;
Regular payments between companies controlled or owned by DPs;
New individuals making payments formerly made by a DP;
Discrepancies in name spellings or transliterations (esp. from Cyrillic);
Recently obtained non-Russian citizenships; and
Frequent name changes.
Intermediary Countries
Suspected breaches of UK financial sanctions prohibitions by Russian DPs often involve intermediary jurisdictions including Austria, British Virgin Islands, the Cayman Islands, Cyprus, Guernsey, Isle of Man, Luxembourg, Switzerland, Turkey, and United Arab Emirates. The assessment includes a non-exhaustive list of suspicious activities that the OFSI has observed in several of these countries.
Conclusion
Financial institutions need to adopt a proactive approach to avoid their services being exploited as instruments of evasions and in turn avoid financial and reputational repercussions of non-compliance.
For further information, please see our corresponding alert.
Seeking a Revenge Premium in Business Divorce: Resisting the Urge to Plunge Headfirst Into Quicksand
When longtime business partners in private companies go through a business divorce, emotions often run high. One or both of the partners may be seeking a “revenge premium” in the business divorce process based on their perceived mistreatment by the other partner during their time together. While the urge to extract a pound of flesh from a soon-to-be former partner during a business divorce is understandable, it is likely to be self-defeating. Seeking pay back from the other partner is likely to result in heightened conflicts, a longer time to complete the process, and more distractions for the business. By contrast, when partners keep their emotions in check, they can achieve mutually positive financial outcomes and increase the opportunity to preserve their business and personal relationships.
Introduction – The Costs of Pursuing a Revenge Premium
Securing a revenge premium from the other partner during a business divorce is not just difficult to obtain; the decision to go down this road virtually guarantees that both partners will be engaged in a more protracted, expensive process. These negative results include: (1) incurring substantial legal fees that may escalate rapidly into six figures (or more), (2) participating in multiple rounds of negotiations that do not produce a financial windfall, and (3) dealing with the negative reactions from other key stakeholders in the business, including employees, clients and other owners. In addition, the company’s performance and total value may decline precipitously in the midst of a contentious business divorce because management will be focusing on conflicts between the partners rather than prioritizing the company’s operations.
The lose-lose type of scenario described above is one that both partners should take pains to avoid. Pursuing a business strategy that is guaranteed to increase conflicts, expense and time away from a focus on the business is akin to voluntarily jumping into quicksand. The remainder of this post therefore focuses on strategies for business partners to consider in efforts to optimize the outcome of their business divorce.
Opt-In Strategies
When a business divorce takes place, the majority business owner may have become frustrated by the minority partner’s conduct and therefore insist that the minority partner accept a purchase price for the partner’s interest in the business that is less than its fair market value. That is what we refer to as a revenge premium. To head off the serious conflicts likely to ensue from the pursuit of a revenge premium, however, the majority owner may want to consider an entirely different strategy and approach to the business divorce.
Majority Owners: Paying a Peace Premium to Departing Minority Partners
Specifically, the majority owner is advised to consider paying a purchase price for the minority owner’s interest that is well above its fair market value (FMV), which we refer to as the “peace premium.” We are not suggesting that the majority owner deliver a huge windfall to the minority partner, but instead to consider a purchase price that is 20%-35% larger than the FMV of the minority interest. The majority owner’s initial reaction to this suggestion may be that making this “excess” payment is rewarding bad behavior by the minority partner in the past, but for the reasons set forth below, the majority owner may want to consider biting the bullet and paying the peace premium to the minority partner.
A prompt exit that results from the payment of the peace premium to the minority partner will save the majority owner both time and money because it will lessen the legal expense involved and remove a significant distraction for the owner in the operation of the business. When the minority partner’s exit from the business results in addition by subtraction, securing the benefits of this exit as promptly as possible is good for the company (and the majority owner).
If the business is on a positive trajectory, the longer the minority partner remains part of the company, the higher the price the majority owner will have to pay to purchase the minority interest. Stated another way, if the business is appreciating in value, all of that appreciation (or the lion’s share of it if there are other partners) will be going to the majority owner once the minority partner has been bought out.
To the extent that other owners and employees in the business learn that a peace premium was paid to the minority investor, this will serve as an incentive. It will show that the company is healthy, that the returns on exit from the business will be substantial, and that departing partners are treated fairly and with respect.
Finally, paying a peace premium to the departing minority partner should also engender some good will from that partner. This payment will tend to make the minority partner a continued positive spokesperson for the company, and it will help to maintain a good personal relationship between the partners themselves.
Minority Investors: Buying Into a Soft Exit From the Business
For minority partners, their approach may be to demand an exorbitant purchase price for their interest, which is paid to them promptly. If the minority partner has not secured a buy-sell agreement from the majority owner, however, the minority partner has no contractual basis to issue a buyout demand to the majority owner. Therefore, making a demand like this would be akin to seeking a revenge premium because the minority partner has no legal basis for it. Indeed, in response to demands of this nature from the minority partner, the majority owner may elect to remove the minority partner from all operational and management roles in the business. When this type of squeeze out is implemented, the minority partner will be left with no access to further compensation, distributions or dividends from the company, and the partner may have to wait for years for some type of liquidity event to take place to monetize the investment in the business.
While the minority partner who has no buy-sell agreement in place with the majority owner can resort to a litigation strategy in efforts to bring the owner to the bargaining table to secure a buyout, a more effective, less contentious approach should be considered. Specifically, the minority investor could propose a soft exit from the business that permits the investor’s interest to be purchased over time by the company and on terms that do not create a financial hardship for the business.
This type of structure might involve a combination of a cash payment that is paid to the minority partner over time, as well as a revenue share for some period of years. All of these terms are subject to negotiation, but a soft exit for the minority partner could look like this:
The minority partner accepts a purchase price of an amount that is below the FMV of the business, which is paid out over five years with 20% paid up front. This would not be a steep discount, but perhaps 10-20% below the FMV;
To balance the shortfall in the purchase price for the minority partner’s interest, the company also agrees to pay the minority partner a set percentage of the company’s revenues for three years; and
The minority partner and the company agree on a ceiling and a floor for the revenue share. In this regard, the company guarantees that the total amount of the future revenue share paid to the partner will not be less than a set amount, and the parties also agree that the amount of the revenue share will not exceed a capped total amount. Thus, the parties agree to a range of additional potential payments to be made to the minority partner after closing.
This type of soft (negotiated) exit from the business provides an opportunity for the minority partner to secure an exit from the company for a value that may meet the investor’s financial objectives, but without bankrupting the company.
A Third Path: An Exit Facilitated by Third Parties
Another path for business partners to consider when they need a business divorce is one facilitated by third parties. The agreements the partners entered into may require them to attend a pre-suit mediation, but even if a mediation is not required by contract, there is generally little downside to attending a mediation with a business mediator skilled in facilitating business divorces. This type of pre-suit process is non-binding, and it will permit the mediator to help the parties explore efforts to resolve their claims/differences in a creative manner, which will avoid the time, substantial expense, and inconvenience of engaging in litigation.
If a mediation is not successful, the partners may also consider submitting specific issues to arbitration. It is not unusual for the main conflict between partners in a business divorce to be the value of the business, and if they are at an impasse regarding valuation, they may end up in court over this issue. When litigation is the only option, that will result in a battle of the experts where both parties hire business valuation experts and present competing valuation reports to the judge or the jury for resolution. That approach will involve years of costly litigation, which will require the partners to incur the fees of both their legal counsel and valuation experts.
One alternative is to limit the partners’ dispute to the issue of valuation and submit that issue for resolution by a single arbitrator or arbitration panel. This type of arbitration is much faster than litigation as it can take place in a matter of a few months rather than over multiple years; the company’s value will be determined by experienced business lawyers or former judges selected by the parties; and the arbitrator’s determination will be final without any appeal. If the partners are confident in their determination of the company’s value, this may be a better, less costly option to consider when company valuation is the primary conflict between them.
Conclusion
Businesspeople are not immune to emotional reactions, and business divorces tend to magnify the feelings of the partners that caused them to separate. That is why it is common for business partners in this situation to pursue outcomes that seek to extract some type of revenge premium. But when partners ratchet down the emotions and engage in efforts to find pragmatic solutions — such as peace premiums, soft exits or the use of mediation or arbitration — they can save themselves from severe financial headaches and lasting emotional heartaches.
Partners who are able to control their emotions during a business divorce can achieve outcomes that produce an array of positive benefits, which extend beyond their own transaction. More specifically, partners who focus on securing a win-win outcome in their business divorce place themselves in position to secure reasonable value for themselves; they will maintain (and perhaps enhance) their professional reputations; they will protect the enduring value of the business; and they will preserve their personal relationships. Setting aside the urge to obtain vindication is not just an appeal to the better angels of business partners, it is a strategy that is designed to produce the best possible outcome for them and also for the business.
This focus on the continued success of the business also applies to the departing minority partner, who should care about the business even after the partner’s interest has transferred. First, the departing partner may have a revenue share that is directly tied to the future performance of the business. Second, even if the departing partner does not have a revenue share arrangement in place with the company, there is likely a payout of the purchase price, and the partner will not want to deal with a monetary default if things go south in the business. Finally, if the business does continue to flourish, the departing partner should be able to point to his or her role in the business with legitimate pride in having contributed to the company’s success.
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NLRB Firing Decision Stayed; Board to Stay Without a Quorum
On March 28, 2025, the United States District Court of Appeals for the D.C. Circuit stayed the District Court’s order reinstating former National Labor Relations Board (“NLRB” or “Board”) Member Gwynne A. Wilcox. The Board is again left without a quorum, which, under the National Labor Relations Act (“NLRA” or the “Act”), requires at least three members. See New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010).
As reported here, on March 6, 2025, a D.C. federal judge had reinstated Member Wilcox, finding that President Trump’s unprecedented firing violated Section 3(a) of the NLRA, which states that, “[a]ny member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” 29 U.S.C. 153(a).
The D.C. Circuit did not include a majority opinion with its order, which simply indicated that “the emergency motions for stay be granted.” Instead, the Court attached two concurring opinions (by Judge Justin Walker and Judge Karen Henderson, respectively) and one dissenting opinion (by Judge Patricia Millett).
The opinions focused on the constitutionality of Section 3(a)’s removal protections, grappling with Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. 197 (2020), Collins v. Yellen, 594 U.S. 220 (2021), and Humphrey’s Executor v. United States, 295 U.S. 602 (1935), to determine whether the NLRB exercises sufficient “executive power,” such that it might not be covered by the Humphrey’s Executor exception to presidential removal. As referenced here, that decision affirmed Congress’ power to limit the president’s ability to remove officers of independent administrative agencies created by legislation.
As Judge Henderson indicated in her concurrence, the “continuing vitality” of Humphrey’s Executor might be in doubt after Seila and Collins, and the Trump administration will likely seek to overturn the decision through the Wilcox appeal. In the interim, and possibly until the Supreme Court rules on this issue, the Board will remain without a quorum. As reported here, while the NLRB indicated that it will function to the extent possible absent a quorum, employers can expect Board processes to move slowly and resolution of matters pending to be delayed.
We will continue to track the Wilcox litigation and its impact upon the NLRB.
What are the Odds that FanDuelDraftKingsBet365 Can Save Tax-Exempt Bonds?
A document leaked earlier this year and attributed to the House Ways and Means Committee included the repeal of tax-exempt bonds[1] as a source of revenue to help defray the cost of extending the provisions of the Tax Cuts and Jobs Act that otherwise will expire at the end of 2025. Apoplexy ensued.
This consternation is fueled by the notion that Congress has the untrammeled authority to prevent states, and the political subdivisions thereof, from issuing obligations the interest on which is excluded from gross income for federal income tax purposes. This notion appears to ignore a line of precedent that culminated in making Bet365, DraftKings, FanDuel, et al. indistinguishably omnipresent.
Curious? Read on after the break.
The concern that Congress has the unfettered right to proscribe the issuance of all tax-exempt bonds emanates from the U.S. Supreme Court’s (the “Court”) decision in South Carolina v. Baker.[2] The Court held in that case that Congress violated neither the principles of intergovernmental tax immunity[3] nor the Tenth Amendment to the U.S. Constitution by enacting a prohibition against the issuance of tax-exempt bearer bonds.
The portion of the Court’s opinion pertaining to the Tenth Amendment cited Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985), for the proposition that the political process establishes the limitations under the Tenth Amendment on Congressional authority to regulate the activities of the states and their political subdivisions. Under this formulation of Tenth Amendment jurisprudence, the courts do not define spheres of Congressional conduct that pass or fail constitutional muster. The Court concluded that the political process functioned properly in this instance and did not fail to afford adequate protection under the Tenth Amendment to South Carolina.
The Court also rejected the contention that Congress had, in violation of the Tenth Amendment, commandeered the South Carolina legislature by prohibiting the issuance of tax-exempt bearer bonds and questioned whether the concept of anti-commandeering originally contained in FERC v. Mississippi, 456 U.S. 742 (1982), survived the Court’s decision in Garcia.
Aside from the portion that dealt with the Tenth Amendment, Justice Antonin Scalia joined the opinion of the Court, and Chief Justice William Rehnquist concurred in the Court’s judgment but did not join the Court’s opinion. In the view of Justices Rehnquist and Scalia, the Court should have upheld the prohibition against the issuance of tax-exempt bearer bonds because it had a de minimis effect on state and local governments, which would have ended the analysis under the Tenth Amendment. They asserted that the Court’s opinion regarding the Tenth Amendment mischaracterized the holding of Garcia and unnecessarily cast doubt on whether the Tenth Amendment prohibits Congress from dictating orders to the states and their political subdivisions.
Justice Sandra Day O’Connor dissented and stated that “the Tenth Amendment and principles of federalism inherent in the Constitution prohibit Congress from taxing or threatening to tax the interest paid on state and municipal bonds.” In Justice O’Connor’s view, the prohibition against the issuance of tax-exempt bearer bonds intruded on state sovereignty in contravention of the Tenth Amendment and the structure of the Constitution. This incursion would have negative effects on state and local governmental budgets and activities – effects she said that would only metastasize as Congress enacted further restrictions on the issuance of tax-exempt obligations, including, potentially, the elimination of such obligations.[4]
Four years later, when confronted anew with an anti-commandeering question in New York v. United States,[5] the Court demonstrated that it was receptive to the argument that the protection of state prerogatives under the Tenth Amendment is not limited to the political process. The Court held that Congress cannot compel a state government to take title to radioactive waste or, alternatively, assume liability for such waste generated within the state’s borders, because the Tenth Amendment forbids the issuance of orders by the federal government to the various state governments to carry out regulatory schemes adopted by the federal government.
In her opinion for the Court in New York, Justice O’Connor developed the themes articulated in her dissent in Baker. Namely, the Tenth Amendment was ratified to ensure that the federal government adhered to the federalist structure devised by the Constitution, a structure that contrasted starkly with the Articles of Confederation that the Constitution replaced. Under the Articles of Confederation, the federal government had limited, if any, power to govern the citizens of the various states. Instead, the Articles of Confederation constrained the federal government to acting upon the state governments, and state governments were the sole sovereign with respect to their citizens. Under this constraint, the federal government could not tax the citizens; it could only issue requisitions to the state governments to raise funds.
The federal government at that time did not possess the wherewithal to enforce the dictates and requisitions it had imposed upon the states. As a result, the United States was hardly a cohesive whole. The Constitution was ratified to create a more robust federal government and, thus, a truly unified United States. Under the Constitution, the federal government may use the powers conferred upon it to directly govern the citizens. Justice O’Connor observed that the Tenth Amendment guarantees adherence to the Constitutional structure, because it prohibits the federal government from issuing orders, dictates, and requisitions to the state governments, as the federal government could do under the Articles of Confederation.
The Court applied the foregoing rationale to hold in Printz v. United States[6] that the Tenth Amendment precludes the federal government from commandeering state officials to carry out a federal regulatory program. The Court once again followed this rationale when it held in Murphy v. National Collegiate Athletic Association[7] that, where Congress had not prohibited sports gambling throughout the United States, the Tenth Amendment barred Congress from preventing a state legislature from enacting laws that permit sports gambling within the state. As a result of Murphy, 39 states now allow sports gambling, and the FanDuelDraftKingsBet365 Borg has relentlessly endeavored to assimilate us.
This durable line of Tenth Amendment precedent should give one pause before concluding that Congress can completely repeal the ability of state and local governments to issue tax-exempt bonds. As noted above, a complete repeal of tax-exempt bonds is projected to generate $364 billion in revenue to the federal government over a 10-year period. Under New York, Printz, and Murphy, Congress clearly cannot issue a requisition to the states seeking remittance of $364 billion to help finance a federal income tax cut. The elimination of tax-exempt bonds is the economic equivalent of such a requisition by the federal government to the states and their political subdivisions. State and local governments will be required to pay bondholders higher, taxable interest rates on debt obligations that they issue.[8] If the projections noted above are accurate, $364 billion of this increased interest paid by state and local governments will be remitted by the bondholders to the federal government.[9]
Does the Tenth Amendment allow the federal government to impose an indirect requisition on state and local governments that the federal government cannot issue directly? Does the legal incidence of the tax on the bondholders suffice to avoid the anti-commandeering principle developed by New York, Printz, and Murphy? If it does, would the Court distinguish its holding in Baker on the basis that prohibiting the issuance of tax-exempt bearer bonds has a trivial effect on state and local governmental sovereignty, while a full elimination has a much more profound effect? If Congress eliminates tax-exempt bonds, will one or more states invoke the right of original jurisdiction[10] to present these questions directly to the U.S. Supreme Court?
With all this on the table, it might be a bad bet to conclude that Congress can parlay the elimination of tax-exempt bonds into a revenue offset to help pay for a federal tax cut.
[1] The document scored the repeal of tax-exempt bonds as raising $250 billion over 10 years and the repeal of “private activity bonds” as generating $114 billion over the same timeframe. The reference in that document to “private activity bonds” means “qualified bonds” under Section 141(e) of the Internal Revenue Code of 1986, as amended. Qualified bonds are private activity bonds that would, absent legislative enactment by Congress, constitute taxable bonds. Some common examples of qualified bonds include qualified 501(c)(3) bonds (which are frequently issued to finance educational, healthcare, and housing facilities owned or operated by 501(c)(3) organizations), exempt facility airport bonds (which are issued to finance improvements to terminals and other airport facilities in which private parties, such as airlines, hold leasehold interests or other special legal entitlements), and exempt facility qualified residential rental project bonds. For ease, references to “tax-exempt bonds” in this post are to both tax-exempt governmental use bonds and tax-exempt qualified bonds.
[2] 485 U.S. 505 (1988).
[3] In so holding, the Court overruled Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429 (1895). The Court in Pollock espoused the doctrine of intergovernmental tax immunity to conclude that the federal government lacks the authority under the U.S. Constitution to tax the interest on obligations issued by state or local governments.
[4] Justice O’Connor was quite prescient.
[5] 505 U.S. 144 (1992).
[6] 521 U.S. 898 (1997).
[7] 584 U.S. 453 (2018).
[8] The Public Finance Network estimates that the repeal of tax-exempt bonds will raise borrowing costs for state and local governments by $823.92 billion between 2026 and 2035, which will result in a state and local tax increase of $6,555 per each American household.
[9] It should be noted that taxing the interest paid on state and local debt does not, as some claim, result in an economic charge imposed on the wealthy. As an initial matter, retirees and others of more modest means hold a significant amount of currently outstanding tax-exempt bonds, because they want to allocate a portion of their savings to a secure investment. Assuming arguendo that tax-exempt bondholders tend to be wealthier, they will be compensated for the tax in the form of increased interest rates. They will suffer no economic detriment because their after-tax return on taxable state and local bonds will equal the return available on tax-exempt bonds. State and local governments will, however, need to raise taxes or limit governmental services so that they can pay the higher interest rates demanded on taxable obligations. Less wealthy constituents will bear the brunt of this. The less wealthy tend to be the recipients of more governmental services than the wealthy. Moreover, the less wealthy devote a larger share of their income to the payment of sales tax (the form of taxation on which state and local governments increasingly rely) than is the case with wealthier constituents. Consumption taxes, such as sales taxes, are by their nature regressive, because the less wealthy spend a greater percentage of their income than do the wealthy, who can save a larger share of their income. These savings are not subjected to a consumption tax.
[10] U.S. Const. Art. III, Sec. 2.
D.C. Federal Court Judge Blocks Efforts to Dismantle the CFPB
On Friday, Judge Amy Jackson of the United States District Court for the District of Columbia granted a preliminary injunction sought by the National Treasury Employees Union, over efforts by Acting Director Russell Vought to shutter the agency. The union, which represents the Bureau’s employees, had sought an injunction that would have stopped Vought from eliminating jobs and contracts at the agency, and protect key CFPB functions from being shut down while the litigation was in progress.
In her opinion, Judge Jackson stated that the union had made a convincing case for emergency relief. She noted that the “defendants were fully engaged in a hurried effort to dismantle and disable the agency entirely – firing all probationary and term-limited employees without cause, cutting off funding, terminating contracts, closing all of the offices, and implementing a reduction in force that would cover everyone else.” She stated that “[t]hese actions were taken in complete disregard for the decision Congress made 15 years ago, which was spurred by the devastating financial crisis of 2008 and embodied in the United States Code, that the agency must exist and that it must perform specific functions to protect the borrowing public.” She concluded that if the defendants were not enjoined, “they will eliminate the agency before the Court has the opportunity to decide whether the law permits them to do it, and as the defendants’ own witness warned, the harm will be irreparable.”
The preliminary injunction bars Vought from deleting agency records, firing employees without cause or seeking to “achieve the outcome of a work stoppage.”
Putting It Into Practice: The decision is a major win for CFPB employees and their union. Many employees fired by the Acting Director were put back on the CFPB’s payroll earlier this month, under a temporary restraining order issued in a separate Maryland court case brought by the City of Baltimore (see our discussion here). Judge Jackson’s preliminary injunction seems to require the rehiring of the remainder. We will continue to monitor this case for new developments.
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CFTC Unveils Replacement Penalty Mitigation Policy Focused on Self-Reporting, Cooperation, and Remediation
The Commodity Futures Trading Commission (CFTC), an independent U.S. government agency that regulates the U.S. derivatives markets, including futures, options, and swaps, has announced a new policy for mitigating potential penalties, potentially cutting them in half, based on the level of voluntary self-reporting, cooperation, and remediation of potential misconduct.
Quick Hits
The CFTC’s new policy allows companies to potentially reduce penalties by up to 55 percent through voluntary self-reporting, cooperation, and effective remediation of misconduct.
The policy introduces a matrix for mitigating penalties based on the level of voluntary self-reporting, ranging from “No Self-Report” to “Exemplary Self-Report,” and the level of cooperation, ranging from “No Cooperation” to “Exemplary Cooperation.”
The policy emphasizes a proactive approach, enabling companies to demonstrate good faith through cooperation and remediation efforts in enforcement actions.
On February 25, 2025, the CFTC’s Division of Enforcement issued a new advisory detailing how it will evaluate companies’ self-reporting, cooperation, and remediation and reduce penalties accordingly in enforcement actions.
The CFTC, through its Division of Enforcement, investigates violations of the Commodity Exchange Act (CEA) and the CFTC Regulations. Violations can be certain actions or behavior in connection with futures, options, and swaps and in connection for a contract of sale of any commodity in interstate commerce.
The CFTC’s new advisory replaces prior guidance with a new matrix that the Division of Enforcement will use to determine an appropriate reduction in penalties, or a “mitigation credit,” which can reach up to 55 percent of a possible penalty. The CFTC characterized the new guidance as a significant step toward transparency in enforcement actions.
“From the beginning, I have encouraged firms to self-report to proactively take ownership, ensure accountability, and prevent future violations,” Acting Chairman Caroline D. Pham said in a statement. “By making the CFTC’s expectations for self-reporting, cooperation, and remediation more clear—including a first-ever matrix for mitigation credit—this advisory creates meaningful incentives for firms to come forward and get cases resolved faster with reasonable penalties.”
Acting Chairman Pham further emphasized that the new program implements President Donald Trump’s EO 14219, “Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative,” which calls for streamlining federal government processes.
Three-Tiered Scale for Self-Reporting
The advisory outlines a three-tiered scale the CFTC Division of Enforcement will use to evaluate the “voluntariness” of self-reporting:
No Self-Report—The advisory states that this factor would apply when an organization has not self-reported in a timely manner, “no timely self-report,” or when a self-report was not “reasonably related to the potential violation or not reasonably designed to notify the Commission of the potential violation.”
Satisfactory Self-Report—This factor applies when there was notification of a potential violation to the Commission, but the notification lacked “all material information reasonably related to the potential violation that the reporting party knew at the time of the self-report.”
Exemplary Self-Report—This factor applies when a comprehensive notification includes all material information and additional information that assists with the investigation and conserves the agency’s resources.
According to the advisory, to receive full credit, disclosures must be (1) voluntary, (2) made to the Commission, (3) timely, and (4) complete. Reports can be made to the Division of Enforcement or other relevant CFTC divisions. The CFTC will provide a safe harbor for good faith self-reporting, allowing for corrections of any inaccuracies discovered post-reporting.
Cooperation and Remediation
Similarly, the advisory explains that the division will evaluate cooperation on a four-tiered scale:
No Cooperation: According to the advisory, the division will apply this factor in cases where there has been compliance with legal obligations but no substantial assistance.
Satisfactory Cooperation: This factor applies when documents, information, and witness interviews have been voluntarily provided.
Excellent Cooperation: This factor applies when there has been consistent, substantial assistance, including internal investigations and thorough analysis.
Exemplary Cooperation: This factor applies when there has been proactive engagement and significant resource allocation to assist the Division of Enforcement.
Additionally, according to the advisory, the division will consider remediation efforts as part of a company’s cooperation evaluation. Specifically, the division will assess whether substantial efforts were made to prevent future violations, including corrective actions and implementation of appropriate remediation plans. In some cases, a compliance monitor or consultant may be recommended to ensure the completion of undertakings.
Mitigation Credit Matrix
The advisory further introduces a “Mitigation Credit Matrix,” which explains a “mitigation credit” will be applied based on the levels of voluntariness and cooperation as a percentage of the initial civil monetary penalty. The matrix ranges from 0 percent for no self-report and no cooperation to 55 percent for exemplary self-report and exemplary cooperation. However, the division said it will retain discretion to deviate from the matrix based on each case’s unique facts and circumstances.
Next Steps
The advisory and Mitigation Credit Matrix provides more clarity and transparency about how the CFTC will evaluate voluntary self-reporting of potential misconduct and cooperation with subsequent CFTC enforcement actions, applying a new matrix that considers the levels of voluntariness and cooperation. Prior guidance had focused on whether an entity self-reported or not and whether cooperation “materially advanced” the division’s investigation.
Future enforcement and administration of the advisory will be necessary to clarify how the Trump administration will handle self-reporting and cooperation. Further, the CFTC has maintained discretion in applying the matrix and mitigation factors, and there is still some room for ambiguity in applying the factors. CFTC Commissioner Kristin N. Johnson dissented from the issuance of the new guidance. In a separate statement, Commissioner Johnson said that while she supports improvements to “transparency, clarity, and efficiency” processes to incentivize self-reporting, cooperation, and remediation, the CFTC “must be careful not to muddy the waters.”
The new advisory comes amid a broader push by federal enforcement agencies, including the CFTC, to encourage self-reporting and whistleblowing, at least under the Biden administration.
The advisory makes it clear it is now the division’s sole policy on self-reporting, cooperation, and remediation and explains that all previously announced policies, including those contained in six different division advisories as well as in the division’s enforcement manual, are no longer the policy of the division.
Thus far, no federal enforcement agencies have indicated their whistleblower protections will be weakened under the Trump administration.
CFTC-regulated businesses may want to review and update their compliance programs and related policies, considering the CFTC’s self-reporting, cooperation, and remediation incentive mechanisms. According to the advisory, entities must undergo an “exemplary self-report” and “exemplary cooperation” to maximize the potential for lowered penalties.
Moreover, entities regulated by other federal enforcement agencies may want to consider that the CFTC advisory could signal a revised approach generally under the Trump administration and keep a close watch on whether any modifications similar to those set forth in this advisory are adopted by other agencies.
FinCEN Exempts U.S. Companies and U.S. Persons from Beneficial Ownership Reporting Requirements
An interim final rule issued by the Financial Crimes Enforcement Network (FinCEN), makes the following significant changes to beneficial ownership information reporting (BOIR) requirements:
defines a “reporting company” subject to BOIR requirements to mean only those entities previously defined as a “foreign reporting company” (created under the law of a foreign country and registered to do business in the United States, including registration with any Tribal jurisdiction, through filing a document with a secretary of state or similar office)
exempts domestic reporting companies from BOIR requirements
exempts foreign reporting companies from having to report the beneficial ownership information of any U.S. person who is a beneficial owner of such foreign reporting company
exempts U.S. persons from having to provide such beneficial ownership information to any foreign reporting company of which it is a beneficial owner
subject to certain exceptions, extends the deadlines applicable to beneficial ownership information reports required to be filed or updated by such foreign reporting companies.
Following the comment period, FinCEN intends to issue a final rule later this year.
The interim final rule follows recent announcements by FinCEN on February 27, 2025, and the U.S. Department of the Treasury on March 2, 2025, indicating that there would be a significant reduction in enforcement of BOIR requirements against U.S. citizens and domestic reporting companies. Additional information regarding these announcements can be found in our prior legal alert.
FinCEN’s full release is available here:
FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons, Sets New Deadlines for Foreign Companies
Immediate Release: 3.21.25
WASHINGTON –– Consistent with the U.S. Department of the Treasury’s March 2, 2025, announcement, the Financial Crimes Enforcement Network (FinCEN) is issuing an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.
In that interim final rule, FinCEN revises the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.
Thus, through this interim final rule, all entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
Upon the publication of the interim final rule, the following deadlines apply for foreign entities that are reporting companies:
Reporting companies registered to do business in the United States before the date of publication of the IFR must file BOI reports no later than 30 days from that date.
Reporting companies registered to do business in the United States on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
FinCEN is accepting comments on this interim final rule and intends to finalize the rule this year.
CFPB to Withdraw BNPL Interpretive Rule Amid Broader Agency Rollback
The CFPB has announced plans to withdraw its May 2024 interpretive rule that subjected buy-now, pay-later (BNPL) products to regulations applicable to credit cards under the Truth in Lending Act (TILA). The move was revealed in court filing in the CFPB’s ongoing litigation with a fintech-focused trade organization which challenged the rule as procedurally improper and ill-suited to short-term, interest-free BNPL loans.
The interpretive rule, issued under former Director Rohit Chopra, would have extended traditional credit card protections—such as dispute rights and refund guarantees—to BNPL offerings (previously discussed here). The parties jointly requested to stay the case pending revocation of the rule.
This shift comes as part of a broader reorientation of the CFPB under President Trump. Under the current administration, the Bureau has moved to pause or roll back a slew of enforcement and rulemaking efforts initiated during the Biden administration (previously discussed here, here, and here).
Putting It Into Practice: The CFPB’s withdrawal of the BNPL interpretive rule signals a lighter regulatory touch on emerging consumer credit products. While welcomed by BNPL providers, the move may prompt increased scrutiny from state regulators and consumer advocates concerned about potential protection gaps. Industry participants should prepare for a patchwork of regulatory expectations in the near term.
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FHFA Rescinds UDAP Oversight Bulletin and SPCP-Based Renter Protections
The Federal Housing Finance Agency (FHFA) has taken two significant deregulatory steps affecting its oversight of the government-sponsored enterprises, Fannie Mae and Freddie Mac (GSEs). The agency rescinded a 2024 advisory bulletin asserting its authority to regulate unfair or deceptive acts or practices (UDAP) by Fannie Mae and Freddie Mac. Additionally, the FHFA withdrew renter protection requirements—previously scheduled to take effect on May 31—for multifamily loans made through Special Purpose Credit Programs (SPCPs) backed by the GSEs.
UDAP Advisory Bulletin Rescinded
FHFA stated that enforcement of unfair or deceptive acts or practices should remain with the FTC, which is the primary administrator of Section 5 of the FTC Act. The agency emphasized its focus on the safety and soundness of the GSEs, rather than duplicating existing consumer protection authority.
The rescinded bulletin had stated that FHFA would evaluate whether the GSE’s actions or inactions could be considered unfair or deceptive under established standards, and would hold the enterprises accountable if they facilitated or failed to prevent such conduct. It also emphasized UDAP concerns could arise in connection with third-party servicers or counterparties acting on behalf of GSEs. By revoking the bulletin, FHFA clarified that it does not intend to impose separate or parallel UDAP obligations on the enterprises beyond those enforced by the FTC or CFPB.
SPCP-Based Tenant Protections Withdrawn
FHFA has formally reversed course on renter protections that were previously tied to multifamily loans issued through SPCPs backed by GSEs. These conditions, which had been scheduled to take effect on May 31, would have required landlords to implement a five-day grace period before charging late fees and to provide at least thirty days’ notice before modifying lease terms.
The protections were introduced as part of the GSEs’ Equitable Housing Finance Plans and were aimed at improving housing stability for very low-, low-, and moderate-income renters. FHFA’s current leadership characterized the requirements as exceeding the agency’s role and stated that lease-related protections should be governed by state and local law.
Putting It Into Practice: The FHFA’s recission of its UDAP bulletin and SPCP-based renter protections reflects a shift toward a narrower role for the agency, centered on institutional supervision and market stability. Financial institutions should continue look to the FTC, CFPB, and state regulators for UDAP enforcement, tenant protection standards, and other consumer-facing compliance obligations.
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Virginia Governor Vetoes Rate Cap and AI Regulation Bills
On March 25, Virginia Governor Glenn Youngkin vetoed two bills that sought to impose new restrictions on “high-risk” artificial intelligence (AI) systems and fintech lending partnerships. The vetoes reflect the Governor’s continued emphasis on fostering innovation and economic growth over introducing new regulatory burdens.
AI Bias Bill (HB 2094)
The High-Risk Artificial Intelligence Developer and Deployer Act would have made Virginia the second state, after Colorado, to enact a comprehensive framework governing AI systems used in consequential decision-making. The proposed law applied to “high-risk” AI systems used in employment, lending, and housing, among other fields, requiring developers and deployers of such systems to implement safeguards to prevent algorithmic discrimination and provide transparency around how automated decisions were made.
The law also imposed specific obligations related to impact assessments, data governance, and public disclosures. In vetoing the bill, Governor Youngkin argued that its compliance demands would disproportionately burden smaller companies and startups and could slow AI-driven economic growth in the state.
Fintech Lending Bill (SB1252)
Senate Bill 1252 targeted rate exportation practices by applying Virginia’s 12% usury cap to certain fintech-bank partnerships. Specifically, the bill sought to prohibit entities from structuring transactions in a way that evades state interest rate limits, including through “rent-a-bank” models, personal property sale-leaseback arrangements, and cash rebate financing schemes.
Additionally, the bill proposed broad definitions for “loan” and “making a loan” that could have reached a wide array of service providers. A “loan” was defined to include any recourse or nonrecourse extension of money or credit, whether open-end or closed-end. “Making a loan” encompassed advancing, offering, or committing to advance funds to a borrower. In vetoing the measure, Governor Youngkin similarly emphasized its potential to discourage innovation and investment across Virginia’s consumer credit markets.
Putting It Into Practice: The vetoes of the High-Risk Artificial Intelligence Developer and Deployer Act (previously discussed here) and the Fintech Lending Bill signal Virginia’s preference for a more flexible, innovation friendly-oversight. This development aligns with a broader pullback from federal agencies with respect to oversight of fintech and related emerging technologies (previously discussed here and here). Fintechs and consumer finance companies leveraging AI should continue to monitor what has become a rapidly evolving regulatory landscape.
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