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.
ESG Update: Texas Federal Court Cites Loper Bright in Upholding Biden-Era ESG 401(k) Investing Rule
A Biden-era US Department of Labor (DOL) Rule permitting consideration of environmental, social, and governance (ESG) factors when choosing investments as a “tiebreaker” was recently upheld by Texas federal Judge Matthew Kacsmaryk. This decision applied the US Supreme Court’s 2024 ruling in Loper Bright v. Raimondo, revisiting three topics lost in 2025’s Department of Government Efficiency-era drama.
With a February 14 decision, Judge Kacsmaryk upheld the Biden-era Rule allowing retirement plan fiduciaries to consider ESG factors when choosing investments as a “tiebreaker.” In other words, when all other considerations for competing investments are equal. The court held that the Rule was in accordance with a strict reading of the Employment Retirement Income Security Act of 1974 (ERISA). The decision is available here.
Below, we break down the court’s decision and answer four questions on the minds of regulatory decisionmakers.
But first, some background. Until President Trump took office in January, ESG litigation, Loper Bright, and indeed, Judge Kacsmaryk were among our most chronicled topics:
Past content referencing ESG litigation is here, here, and here.
Here and here are discussions of the impact of the Supreme Court’s decision in Loper Bright v. Raimondo.
We last discussed Judge Kacsmaryk here, here, and here.
What Is in the Rule?
The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights Rule (Investment Duties Rule) was adopted in late 2022 and became effective on January 30, 2023. The DOL intended this rule to permit consideration of “climate change and other environmental, social, and governance factors” by plan investors “as they make decisions about how to best grow and protect” retirement savings, clarifying the duties of fiduciaries to ERISA employee benefits plans. The Biden Administration’s Rule neutralized a Trump-era Rule forbidding retirement plan fiduciaries from considering nonpecuniary factors — generally considered as factors that do not have a material effect on financial risk, financial return, or both — when making investment decisions.
In Texas federal court, 26 states and several other parties challenged the DOL’s Investment Duties Rule. After the case was filed, defendants moved to transfer the case to the US District Court for the District of Columbia or a district court where a plaintiff resided. The plaintiffs in turn amended their complaint to add the State of Oklahoma and Alex L. Fairly, an Amarillo, Texas, resident, as plaintiffs. After this amendment, a Texas federal court determined that the venue was proper.
What Is in the Decision?
The Valentine’s Day decision in Utah v. Micone, which began as Utah v. Walsh then Utah v. Su, came after a 2024 Fifth Circuit remand for reconsideration after the Supreme Court’s decision in Loper Bright, which overruled precedent giving rise to “Chevron deference.” Chevron deference used to require a court to defer to the relevant agency’s interpretation of an ambiguous statute so long as the agency interpretation of the statute was reasonable. In Loper Bright, the Supreme Court overruled Chevron and held that courts must “exercise their independent judgment” when interpreting federal statutes and may not defer to agency interpretations simply because they determine that a statute is ambiguous.
Earlier, the initial Northern District of Texas ruling upheld the Biden-era Rule relying, in part, on Chevron deference, holding that the DOL’s interpretation of fiduciary duty provisions in ERISA was reasonable. On remand, the Fifth Circuit instructed the District Court to reconsider whether the Rule violated ERISA under a post-Chevron, Loper Bright analysis.
To some’s surprise (particularly considering another Northern District of Texas ruling issued days earlier, read more here), Judge Kacsmaryk again upheld the Rule as being in accordance with ERISA following remand. The opinion rejected Republican-state (and other) plaintiffs’ claim that the Investment Duties Rule’s nonpecuniary factor or tiebreaker provision violates ERISA’s text. The opinion explained that ERISA’s fiduciary provisions require that “a fiduciary must always discharge his duties in the interest of the beneficiary alone and only for the purpose of gaining financial benefit.” However, the provisions do not explicitly limit what a fiduciary may consider while discharging his or her duty.
Does Loper Bright Indicate the Executive Branch Always Loses?
The court stated that, under a strict textual reading, “ERISA’s text does not invalidate” tiebreaker provisions. In conclusion, Judge Kacsmaryk warns fiduciaries against letting impermissible considerations taint their decisions but further notes it is not the province of the court to decide the “wisest” outcome, ultimately holding that the Investment Duties Rule “does not permit a fiduciary to act for other interests than the beneficiaries’ or for other purposes than the beneficiaries’ financial benefit. For that reason, under the Loper Bright standard, it is not contrary to law.”
Despite the court’s cautioning and explicit reference to the replaced Trump-era Rule as potentially wise guidance, the decision remains significant. While narrow, the decision acts as a considerable example of a court approving the use of ESG principals and stands as a potential case study for the limited impact Loper Bright may have on agency deference decisions.
What Happens Next?
It is no secret that the Trump Administration does not support ESG investment considerations. Republicans have consistently stated that embracing ESG considerations ignores fiduciary duties, and both Florida and Texas have enacted laws prohibiting ESG considerations and banning money managers that engage in climate-action causes.
With the Biden-era Rule now affirmed at the District Court level, we see three paths forward for the Trump Administration: (1) stand back while plaintiffs potentially appeal the decision to the Fifth Circuit, allowing another bite at the apple for overturning the Rule without executive action; (2) begin a DOL formal notice-and-comment rulemaking process to issue a new Rule, revoking and replacing the Investment Duties Rule promulgated in 2022; or (3) work through a less formal process, allowing agencies like the DOL’s Employee Benefits Security Administration to use their sub-regulatory power to interpret law and make enforcement recommendations.
While the regulations do not carry legal weight in the same way a formal rule would, they can impact the actions and decisions those regulated take. There is certainly precedent for such an approach, provided by the 2022 DOL compliance assistance release, which warned against 401(k) investments into cryptocurrency and was upheld after a federal court challenge.
Whichever route is taken, we think it is unlikely the Trump Administration will allow the Rule to remain on the books into perpetuity.
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.
SEC Staff Issues New Guidance on Shareholder Proposals With SLB 14M
On February 12, 2025, the Staff of the SEC Division of Corporation Finance released Staff Legal Bulletin No. 14M (SLB 14M), which addresses various aspects of the Rule 14a-8 shareholder proposal process. Going forward, public companies navigating proxy season will have more flexibility in excluding certain shareholder proposals, especially those related to environmental and social issues. Most notably, SLB 14M rescinds Staff Legal Bulletin No. 14L (SLB 14L), issued in 2021, which imposed a higher burden on public companies seeking to exclude shareholder proposals. SLB 14M also reinstates guidance that was previously rescinded by SLB 14L.
What SLB 14M Means for Companies
The new guidance highlights a significant shift in the SEC Staff’s approach to shareholder proposals under the Trump Administration. SLB 14M reasserts a more company-friendly approach and eliminates guidance that, in practice, led to an increase in shareholder proposals and fewer requests for no-action relief.
Looking back, under the now-rescinded SLB 14L, the SEC Staff imposed a series of restrictions on public companies attempting to disqualify shareholder proposals from going to a vote. The 2021 guidance tightened some exemptions and allowed the Staff to go beyond the enumerated exclusions to consider a proposal’s “broad societal impact” when deciding whether to grant an exemption request. Following its issuance, shareholder proposals, particularly those on environmental and social issues, surged, while the success rate for no-action letters declined.
Now, SLB 14M is expected to lower the threshold for excluding shareholder proposals, particularly under Rules 14a-8(i)(5) and (i)(7). Companies will now have more leeway in requesting no-action relief from the SEC Staff as the guidance for omitting certain proposals has broadened.
This new guidance comes at a time when many companies have already submitted no-action requests for 2025 annual meetings in which they set forth an argument under SLB 14L’s prior framework. However, companies that submitted no-action requests prior to the publication of SLB 14M do not need to resubmit. If a company wishes to raise new legal arguments in light of SLB 14M, it may still file a supplemental set of arguments. The SEC Staff will also consider the publication of SLB 14M to be “good cause” for companies making a late no-action request, as long as the legal arguments in the request relate to the new SEC Staff guidance.
A Brief Summary of the New Staff Guidance
As explained in more detail below, SLB 14M:
Reinstates a company-specific approach to evaluating whether the subject matter of a shareholder proposal transcends ordinary business. The Staff will assess whether a specific policy issue raised in a proposal is significant to a particular company, rather than evaluating whether the proposal addresses issues with broad societal impact or universal significance. This approach allows a company to more easily exclude broad social policy shareholder proposals if the proponent does not establish that the issues are significant in relation to the company.
Broadens the application of the micromanagement exemption by expanding the circumstances under which a proposal would be considered to micromanage a company. Therefore, companies will now have more flexibility in excluding certain proposals that require the company to adopt a specific method for implementing a complex policy.
Refocuses the Staff’s “economic relevance” analysis. As a result, shareholder proposals that raise social and ethical issues must tie those matters to a significant effect on the company’s business, and the mere possibility of reputational or economic harm alone will not suffice. This change affords companies a greater ability to exclude proposals related to social and ethical matters unless they are significantly related to the company.
Advises that companies submitting no-action requests under Rules 14a-8(i)(5) and 14a-8(i)(7) are not required to include an analysis from the board of directors regarding the significance of the policy issue raised in a shareholder proposal. However, a company may still provide a board analysis if it believes it would be beneficial.
Provides additional guidance stating:
companies may exclude graphics or images from shareholder proposals if they make the proposal materially false or misleading;
companies no longer have to send a second deficiency letter to specifically identify proof of ownership defects that were already addressed in an initial deficiency letter;
the Staff’s views on the use of email confirmation receipts for submission of proposals, delivery of deficiency notices and responses; and
companies should adopt a plain meaning approach, rather than being overly technical, when interpreting the language of the proof of ownership letters.
In Light of SLB 14M, Companies Should Consider the Following
Companies should consider revisiting the shareholder proposals they previously determined were not excludable under the old guidance and re-evaluate them in light of the new guidance.
Companies should not feel the need to resubmit any no-action requests in light of SLB 14M unless they want to address new legal arguments. SLB 14M confirms that the Staff will apply SLB 14M when reviewing pending no-action requests.
For companies that have not yet submitted no-action requests, even if the deadline has passed, consideration should be given to whether exclusionary arguments can be made in light of SLB 14M guidance, especially for proposals related to environmental or social issues.
Companies should consider whether to re-engage with certain shareholder proposals. In light of SLB 14M, shareholder proponents may be more willing to engage and agree on a basis to withdraw their proposals, since the new guidance is more favorable to companies.
A Detailed Summary of SLB 14M
A Refresher on the Ordinary Business Exemption
Exchange Act Rule 14a-8(i)(7), often referred to as the ordinary business exemption, allows a company to exclude a shareholder proposal that “deals with a matter relating to the company’s ordinary business operations.” The policy underlying the ordinary business exemption rests on two key considerations. One is that it allows a company to exclude a shareholder proposal from a company’s proxy materials if the proposal deals with a matter that is “so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight.” However, shareholder proposals that pertain to ordinary business matters, but focus on a significant policy issue, cannot be excluded under this first consideration if they transcend the company’s day-to-day business matters. The other consideration is the micromanagement prong, which provides that a shareholder proposal should not seek to “micromanage” the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment. SLB 14M does not upend this approach, but rather changes the Staff’s analysis of these considerations as they relate to no-action requests.
The Ordinary Business Exemption Under SLB 14M: A Return of the Company-Specific Approach and Broadened Micromanagement Exclusions
As explained above, the SEC Staff rests the ordinary business exemption on two considerations: the proposal’s “subject matter” and whether the shareholder proposal “micromanages” the company.
Under the “subject matter” consideration, SLB 14M rescinds and replaces the SLB 14L guidance with a company-specific approach.
Again, under the ordinary business exemption, shareholder proposals that deal with a company’s ordinary business matters can be excluded. But, shareholder proposals that focus on “sufficiently significant” policy issues that transcend ordinary business typically do not fall under the exemption. Traditionally, the SEC would consider the nexus between the policy issue and the company when determining whether the issue transcends ordinary business.
SLB 14L had the effect of making it more difficult for companies to exclude certain social policy proposals by not requiring them to demonstrate their particular significance to the company’s business. Instead, the SEC Staff focused on whether the social policy proposal raised issues with broad societal impact, such that they transcended the ordinary business of the company, regardless of whether there was a direct connection between the policy issue and the particular company seeking to exclude the proposal.
The new SLB 14M guidance returns to a company-specific approach, where SEC Staff will evaluate significance based on the individual company, rather than focusing on whether a proposal raises an issue with broad societal impact. Essentially, companies will likely not have to include as many shareholder proposals in their proxy materials that raise issues of broad societal importance, such as environmental or ethical issues, unless there is a specific nexus between the issue and the company. The change broadens companies’ ability to exclude a wider range of shareholder proposals that address policy issues of societal significance only.
Under the “micromanagement” consideration, SLB 14M reinstates past guidance that is stricter on proposals that “micromanage” the company.
SLB 14M reinstates parts of several other SLBs, Staff Legal Bulletin Nos. 14I, 14J and 14K, that were overridden by SLB 14L. Under SLB 14L, the micromanagement exclusion had been interpreted more narrowly. SLB 14L took the approach that proposals seeking detail or seeking to promote timeframes or methods would not necessarily constitute micromanagement, so long as the proposals afforded discretion to management as to how to achieve such goals. For example, proposals that requested companies to adopt timeframes and targets for addressing climate change were not excludable if they allowed management the discretion to achieve these targets.
The reinstated guidance, under SLB 14M, takes a much stricter approach in favor of companies and will evaluate whether the shareholder proposal “involves intricate detail, or seeks to impose specific timeframes or methods for implementing complex policies,” such as a proposal that seeks an intricately detailed study or report. Therefore, a proposal may be excludable if it prescribes specific actions without providing the company enough flexibility or discretion to address the issue. SLB 14M also confirms that the micromanagement standard can apply to proposals addressing executive compensation or corporate governance topics.
Revitalizing the Economic Relevance Exemption Under Rule 14a-8(i)(5)
SLB 14M now requires a shareholder proposal that raises social and ethical issues to demonstrate its significance to the company, otherwise, it may be excluded. The analysis is now dependent on the specific circumstances of the company to which the proposal is submitted.
Economic relevance, under Rule 14a-8(i)(5), is another basis for the exclusion of shareholder proposals. It permits a company to exclude a proposal that “relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” Historically, the SEC Staff and courts have interpreted this rule as not allowing for the exclusion of a proposal related to social and ethical issues, regardless of its economic relevance to the company, and as a result, this rule has been infrequently used.
SLB 14M redirects the focus on Rule 14a-8(i)(5) and the shareholder proposal’s significance to the company’s business. Under SLB 14M, the analysis is now viewed as “dependent upon the particular circumstances of the company to which the proposal is submitted.” The SEC Staff explains that a matter significant to one company may not be significant to another. Thus, if a proposal’s significance to a company is not apparent on its face, the proposal may be excludable unless the proponent demonstrates that it is “otherwise significantly related to the company’s business.” However, the SEC Staff generally views substantive governance matters as significantly related to most companies.
Additionally, the mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business.” In evaluating whether a proposal is “otherwise significantly related to the company’s business,” the SEC Staff will now consider the proposal in light of the “total mix” of information about the company.
This exclusion is also viewed as more favorable to companies because it allows shareholder proposals on social and ethical issues related to operating, which account for less than 5 percent of total assets, net earnings and gross sales, to be more easily excluded, unless the proponent can demonstrate its particular significance to the company’s business.
No Requirement for Board Analysis Simplifies No-Action Request Preparation
SLB 14M also confirms that the SEC Staff will not expect a company’s no-action request to include a discussion of the board’s analysis of whether a particular policy issue is significant to the company when arguing for exclusion of a shareholder proposal under Rule 14a-8(i)(5) and/or Rule 14a-8(i)(7).
The prior SLBs had encouraged companies seeking to exclude proposals under Rule 14a-8(i)(5) or Rule 14a-8(i)(7) to include a discussion in their no-action requests setting forth an analysis by the company’s board of directors as to whether or not the particular issue raised by a shareholder proposal was significant to the company’s business.
Under SLB 14M, preparing a no-action request will be simpler for companies, as the SEC Staff will no longer expect a no-action request to include a discussion reflecting the board’s analysis. While companies are still permitted to submit such an analysis, it is no longer required.
Additional Topics Addressed by SLB 14M
SLB 14M also provides further guidance on several other shareholder proposal topics, including the following:
Shareholder proposals may contain graphics or images, and their exclusion may be appropriate if: (1) images make the proposal materially false or misleading; (2) the images used in the proposal would make it inherently vague or indefinite; (3) images would impugn the character, integrity or personal reputation of someone without a factual basis; (4) the images are irrelevant to a consideration of the proposal’s subject matter; or (5) the total number of words in a proposal (plus the words in any graphics) exceed 500 words.
Companies are not required to send a second deficiency notice if the company previously sent an adequate deficiency notice and believes the proponent’s response to the initial deficiency notice contains a defect.
Proponents and companies should request acknowledgment from the recipient to confirm the receipt of emails for submitting shareholder proposals, sending deficiency notices and responding to deficiency notices. The SEC Staff encourages both parties to provide such confirmation replies.
Companies should avoid an overly technical interpretation of proof of ownership letters and instead adopt a plain meaning approach to understanding the language of the letters. However, proponents must still provide clear and adequate evidence of their eligibility to submit a shareholder proposal.
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.
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.
Captive Power Projects: A Summary of the Western Africa Regulatory Environment
Recent increases in construction and financing costs are directly affecting the development of energy projects across Africa. Captive power projects (CPPs) offer the possibility of mitigating this challenging landscape for both the developers themselves and those funding them. For those unfamiliar with the concept, CPPs are a type of power plant which provide a localised source of power to the end consumer. They are typically used in power-intensive industries for which a continual and consistent energy supply is paramount. In West Africa, CPPs are of particular interest to mining companies looking for reliable sources of energy. However, the successful development of CPPs in the region will be largely determined by the level of liberalisation in the country’s energy sector, and the right of non-state entities to develop, construct, operate and maintain these projects.
The energy sector across Western Africa has traditionally been restricted to a public monopoly closely associated with the sovereignty of a country, designed to protect the national utility company. When this type of regulatory framework prohibits or inhibits the production, transport and supply of electricity, two structures are usually considered:
where the development, construction, operation, and maintenance of a CPP serves the company’s own needs and this is permitted by the state’s regulation, the project falls under the self-production model (SPM) and the company can, as is often the case, subcontract with energy companies to ensure the supply of energy; or
where the relevant regulation permits development, construction, operation, and maintenance of a CPP for the purpose of supplying electricity to a separate private company, the project falls under the independent producer model (IPM) and can supply energy via off-grid infrastructure.
Bracewell has prepared a report summarising the applicable regulations for the two models outlined above which covers the following 11 countries: Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Democratic Republic of Congo, Guinea (Conakry), Mali, Mauritania, Sénégal and Togo.
This report provides a high-level overview of existing and proposed regulation based on available sources. It is not a substitute for bespoke legal advice from lawyers in the jurisdictions concerned. Due to the nature of the region, the relatively recent development of the CPP landscape, and the inherent uncertainty in the interpretation of these regulations, we recommend a thorough technical and legal analysis of projects which should consider specific location and bankability issues prior to committing to a CPP project.
As the report illustrates, the energy sector of several countries — such as Burkina Faso, Mali and Togo — remains largely monopolised by the national electricity company, even where the company’s monopoly has been officially terminated by new legislation. In other counties — such as the Republic of Guinea — the legislation remains under development, so while the current framework gives limited guidance, there are no prohibitions laid down either. In contrast, many regions in West Africa have renovated the structure and essence of their energy legislation, demonstrating an intentional and welcome movement away from state-governed monopolies. Countries including Mauritania, Benin, Cameroon and Côte d’Ivoire have all implemented (to varying degrees) a legal framework or, as often called, electricity or energy codes, that allow freedom of energy production. These enable the development of CPPs via either of the two models outlined above. However, it is worth noting that the transmission (rather than production) of the electricity is often still state-regulated. In some countries, such as Chad, while the transmission is under state monopoly, the distribution and construction of CPPs can be carried out by private actors.
In several regions, the relevant authorisations, concessions and/or licences for off-grid production in relation to IPMs are dependent on power purchase agreements being entered into with entities that constitute “Eligible Clients,” a term usually defined in the relevant energy code which shows a maintained, albeit reduced, level of control on the part of the state. The authorisation of SPMs is largely dependent on the installed capacity of the CPP, where sale of surplus is authorised, but the amount is capped by reference to a restricted percentage of the project’s installed capacity. The identity of the buyer is also often restricted, as above, to an entity constituting an “Eligible Client” or, in some jurisdictions, such as Togo, the grid operator. The various authorisations and concessions are granted by the relevant ministerial committees responsible for the state’s energy sector.
For the sake of comprehensiveness, references in the report are occasionally made to regimes with installed capacity thresholds that are likely too low to support the development of a CPP project.
While the report has outlined some of the trends we are seeing as regulations develop, the details for each state vary, with some requiring further investigation with the relevant administration. It is therefore important to ensure that each CPP proposal is tailored and considered in line with the relevant state’s particular legislation and restrictions.
White House Policy Aims to Reshape Foreign Investment in the United States
What Happened
On February 21, 2025, President Trump issued a National Security Memorandum on America First Investment Policy (the Foreign Investment Memo) outlining the administration’s foreign direct investment policy, including initiatives for a regulatory “fast track” process, additional scrutiny for Chinese investors, and key changes to reviews by the Committee on Foreign Investment in the United States (CFIUS), including CFIUS’s use of national security agreements.
The Bottom Line
The Foreign Investment Memo represents an explicit shift in how the United States regulates foreign direct investment. Going forward, partners and allies are likely to see some regulatory burdens ease while investors from China and other countries identified as adverse will see significantly expanded restrictions. Federal agencies have been directed to establish new rules that will specifically target Chinese investment in the United States and new or expanded restrictions on US outbound investment in China in sensitive or emerging technologies. The memo also suggests that the government may reconsider Chinese companies’ access to US capital markets.
The Foreign Investment Memo calls for expanding CFIUS jurisdiction over real estate and greenfield projects. At the same time, the Foreign Investment Memo directs the US Environmental Protection Agency (EPA) and others to reduce barriers to foreign investment from countries that are not identified as foreign adversaries and specifically directs CFIUS to limit the use of national security agreements, which has grown in recent years. Companies and other investors from outside of the United States should carefully consider these changes, which will impact foreign direct investment in the United States going forward.
The Full Story
Upon taking office on January 20, 2025, President Trump issued a Memorandum on America First Trade Policy calling for, among other things, “a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, [and] defends our economic and national security.” The issuance of the February 21, 2025, Foreign Investment Memo builds on the January 20 statement by aiming to both promote investment from US allies while at the same time preserving and expanding regulatory controls on investment in the United States from, and investment by US persons in, “foreign adversary” countries—defined in the Foreign Investment Memo as the People’s Republic of China, including the Hong Kong Special Administrative Region and the Macau Special Administrative Region; the Republic of Cuba; the Islamic Republic of Iran; the Democratic People’s Republic of Korea; the Russian Federation; and the regime of Venezuelan politician Nicolás Maduro.
Inbound Investment Promotion for Non-Adverse Countries
The Foreign Investment Memo aims to promote investment from countries that are US allies or other friendly countries in the ways described below, with a number of open questions as to how the policy will manifest for foreign investors.
The Foreign Investment Memo directs federal agencies to implement a “fast track” investment process consisting of expedited national security reviews in some cases and expedited environmental reviews for large investments.
Who is eligible for the “fast track” for national security reviews?
This “fast track” process will apply for “specified allies and partner sources” in US businesses involved with US advanced technology and other important areas. The Foreign Investment Memo does not detail which “specified allies and partner sources” will be eligible for this “fast track” process. The existing CFIUS rules exempt investors from Australia, Canada, New Zealand and the United Kingdom from certain mandatory filing requirements (but maintain CFIUS jurisdiction to review controlling investments from these investors on a non-mandatory basis). Whether these countries will be the starting point for a list of “specified allies and partner sources” or whether government policy will be something else entirely will ultimately be answered by federal agencies’ implementation of these principles.
What will the “fast track” mean for national security reviews?
The current CFIUS rules already provide a less onerous filing option for foreign investors known as a “declaration.” This process has been available for filers since 2020 under the CFIUS rules promulgated under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). In practice, declarations are used for less complex reviews with limited national security implications. At present, the decision of whether to make a filing with CFIUS as a short-form declaration or long-form notice depends on the foreign investor’s own assessment of whether obtaining CFIUS clearance is likely through the declaration process. The Foreign Investment Memo directs the US Secretary of the Treasury (Treasury), in consultation with the US Secretary of State, the US Secretary of Defense, the US Secretary of Commerce, the United States Trade Representative, and the heads of other executive departments and agencies as deemed appropriate by Treasury and in coordination with other members of CFIUS, to take actions to implement the “fast track,” including the promulgation of new rules and regulations. Accordingly, significant implementation of the “fast track” will likely be detailed in forthcoming rulemakings by the US Department of the Treasury. In the meantime, the Foreign Investment Memo is likely to inform CFIUS reviews within the existing regulatory framework. Additionally, the Foreign Investment Memo directs that the “fast track” will be conditioned on requirements that the specified foreign investors avoid partnering with foreign adversaries.
What about the “fast track” for environmental reviews?
The Foreign Investment Memo directs the Administrator of the US Environmental Protection Agency to carry out expedited environmental reviews for any investment over $1 billion in the United States. Although included in the Foreign Investment Memo, environmental reviews are not traditionally a part of foreign direct investment regulation in the United States and the inclusion of this element in the Foreign Investment Memo appears to be a part of the administration’s broader policy to reduce environmental regulatory and permitting requirements.
The Foreign Investment Memo calls for an end to certain CFIUS practices with respect to mitigation agreements.
CFIUS has the authority to negotiate, enter into or impose any agreement, condition or order with any party to mitigate national security risk arising from a covered transaction or covered real estate transaction. In recent years, CFIUS has increasingly relied on these “mitigation agreements” to address perceived national security risks with open-ended obligations for investors. As of 2023 year-end, CFIUS was engaged in the ongoing monitoring 246 mitigation agreements and had begun to assess civil monetary penalties on investors for alleged violations of mitigation agreement conditions. CFIUS practitioners have anecdotally observed that the increasing use of mitigation agreements may in some cases dissuade foreign investors from making non-mandatory filings with CFIUS. Our prior coverage tracking the increasing reliance on mitigation agreements through CFIUS’s annual reports to Congress is available here.
The Foreign Investment Memo acknowledges that the increasing use of mitigation agreements creates uncertainty and administrative burdens for investors and directs that mitigation agreements going forward should consist of concrete actions that companies can complete within a specific time, rather than perpetual compliance obligations.
Inbound Investment Restrictions for China
The Foreign Investment Memo reaffirms and expands on existing US foreign direct investment policy and regulation with respect to investors from “foreign adversaries.” Given that the “foreign adversary” countries identified in the Foreign Investment Memo (other than China) are generally subject to significant economic sanctions that in practice render investment in the United States illegal or impractical, the most significant changes under the Foreign Investment Memo concern China as described below.
Expanding CFIUS jurisdiction over real estate and greenfield investments.
The Foreign Investment Memo announces that the new administration will take steps to protect US farmland and real estate near sensitive facilities such as military, ports and shipping terminals, as well as expand CFIUS authority over “greenfield” investments in order to restrict foreign adversary access to US sensitive technologies, including artificial intelligence and “emerging and foundational” technologies. This announcement aligns with recent actions to expand the scope of real estate under CFIUS jurisdiction, including a rule making late last year that expanded the list of sensitive facilities triggering CFIUS jurisdiction, and efforts by the US Congress and several US states to limit Chinese investments in US agricultural real estate. Notably, the Foreign Investment Memo calls for Treasury to expand CFIUS authority regarding “greenfield” investments to restrict access to US sensitive technologies indicates that the current exception for “greenfield” investments may be limited by a future rulemaking to provide CFIUS with additional authority over investments in potential new businesses that involve US sensitive or emerging and foundational technologies.
Expanding restrictions on investments in US critical infrastructure.
The Foreign Investment Memo provides as a general policy that the United States should not allow China to “take over” US critical infrastructure and states that “for investment in US businesses involved in critical technologies, critical infrastructure, personal data, and other sensitive areas (referred to under the current CFIUS rules as ‘TID US businesses’), restrictions on foreign investors’ access to United States assets will ease in proportion to their verifiable distance and independence from the predatory investment and technology-acquisition practices of [China] and other foreign adversaries or threat actors.” The Foreign Investment Memo specifies that the administration will use CFIUS to restrict China-affiliated persons from investing in US technology, critical infrastructure, healthcare, agriculture, energy, raw materials or other strategic sectors.
In practice, the explicit targeting of China with respect to foreign direct investment does not represent a deviation from current CFIUS practice. CFIUS has historically aggressively scrutinized Chinese investment in US critical infrastructure and technology. Under current CFIUS rules, mandatory filings are required for certain investments in TID US businesses involved in “emerging and foundational” technologies as identified by the US Department of Commerce. In implementing the Foreign Investment Memo, it is likely that Treasury will promulgate rules to expand mandatory filing requirements and potentially promulgates the first CFIUS rules that call out foreign investors from specific countries, crystallizing existing practice into regulations for Chinese investors.
Expanding barriers for Chinese investors.
As noted above, CFIUS has increasingly relied on mitigation agreements in recent years to allow foreign investment to move forward while limiting national security concerns. In practice, investors from China came to expect mitigation agreements in many circumstances where CFIUS was willing to consider mitigation and accepted such conditions as a palatable alternative to having the transaction blocked. Although anecdotal reports indicate that CFIUS has been less willing to rely on mitigation agreements with Chinese investors in recent years, the Foreign Investment Memo’s policy of ending mitigation agreements with ongoing monitoring compliance obligations may remove this option altogether if risks cannot be mitigated by concrete actions within set times.
Outbound Investment Restrictions
The Foreign Investment Memo also addresses US outbound investment in China and Chinese owned entities. Announcing that the administration will use all necessary legal instruments to further deter US persons from investing in China’s military-industrial sector, the Foreign Investment Memo lays out four tools to discourage US investment in China:
Sanctions. Currently, US sanctions on China restrict equity investment in publicly traded companies identified by Treasury as comprising part of China’s military-industrial complex. The Foreign Investment Memo states that the administration will consider actions to deter US investment in China through the imposition of sanctions under the International Emergency Economic Powers Act (IEEPA) through the blocking of assets of identified individuals or entities or through expanding the existing sanctions on China. The Foreign Investment Memo does not itself impose sanctions or announce that sanctions will be imposed. Nonetheless, the administration is signaling that it will consider expanded economic sanctions as a viable means to deter US investment in China’s military-industrial sector.
Outbound Investment Rules. On January 2, 2025, new regulations promulgated by Treasury in accordance with Executive Order 14105 went into effect that regulate US outbound investment in China’s semiconductors and microelectronics, quantum information technologies and artificial intelligence sectors (the Outbound Investment Rules). Our prior coverage of the Outbound Investment Rules is available here. The Foreign Investment Memo states that the new administration is reviewing Executive Order 14105 (as directed in the January Memorandum on America First Trade Policy) and indicates that the purpose of this review will be to expand the Outbound Investment Rules to restrict investment in additional sectors such as biotechnology, hyper-sonics, aerospace, advanced manufacturing, directed energy and other areas implicated by China’s national “Military-Civil Fusion” strategy. The administration considers that the sectors covered by the Outbound Investment Rules should be regularly reviewed and updated and that additional investment types should be addressed by the rules. The Foreign Investment Memo specifically calls out private equity, venture capital, greenfield investments, corporate expansions and investments in publicly traded securities, from sources including pension funds, university endowments and other limited-partner investors. Accordingly, it is reasonable to anticipate that the Outbound Investment Rules will expand under this policy.
US Capital Markets. Notably, the current Outbound Investment Rules include exceptions for certain publicly traded securities. The Foreign Investment Memo appears to target this exception where it states that Chinese companies “raise capital by: selling to American investors securities that trade on American and foreign public exchanges; lobbying United States index providers and funds to include these securities in market offerings; and engaging in other acts to ensure access to United States capital and accompanying intangible benefits.” The Foreign Investment Memo further directs Treasury, in consultation with other federal agencies and law enforcement, to provide a written recommendation on the risk posed to US investors based on the auditability, corporate oversight, and evidence of criminal or civil fraudulent behavior for all foreign adversary companies currently listed on US exchanges.
Trade. The Foreign Investment Memo announces that the administration will review whether to suspend or terminate the 1984 United States-The People’s Republic of China Income Tax Convention, which the memorandum states is partly responsible, along with China’s admission to the World Trade Organization, for offshoring resulting in the deindustrialization of the United States and the technological modernization of China’s military. This appears to align the Foreign Investment Memo within the new administration’s broader trade policy toward China and signals further efforts by the administration to incentivize the de-linking of US firms from China.
Notably, although the Foreign Investment Memo mentions protecting US personal data, it does not mention the new restrictions related to cross-border data transfers (the Bulk Data Transfer Rules) scheduled to go into effect on April 8, 2025, which restrict or in some cases prohibit sharing certain US personal data with Chinese companies.
Considerations
The implementation of the steps outlined in the Foreign Investment Memo will have the greatest impact on Chinese investors and other foreign investors with ties to China seeking to invest in the United States. However, these steps will generally lead to expanded diligence and related compliance obligations on both foreign and US investors broadly.
Staff Statement on Meme Coins Signals Significant Shift in SEC Position on Digital Assets
In an action that could have broad implications, U.S. Securities and Exchange Commission Staff (Staff) issued a statement on February 27, 2025, through its Division of Corporation Finance, providing clarity on the application of federal securities laws to meme coins. This statement offers crucial insights for crypto market participants and potentially signals a significant change in the SEC’s interpretation of what does and doesn’t constitute a security. Below, we summarize the key points and explore the potential implications of this guidance.
Key Points from the SEC Staff Statement
Definition and Characteristics of Meme Coins: Meme coins are crypto assets inspired by internet memes, characters, or trends. They are primarily purchased for entertainment, social interaction and cultural purposes, with their value driven by market demand and speculation, akin to collectibles. These coins typically have limits or no use or functionality and are not tied to any business or revenue stream, leading to significant market price volatility. While the guidance provided clarity on meme coins that have no functionality or use, it may not be applicable to ones that do have functionality or are offered in a different manner.
Meme Coins and Securities Laws: The Staff clarified that transactions involving memecoins do not constitute the offer and sale of securities under federal securities laws. Consequently, participants in memecoin transactions are not required to register with the SEC under the Securities Act of 1933 (“Securities Act”), nor do they need to fall within the Securities Act’s exemptions from registration. The Staff also points out that while the registration obligations in respect of the Securities Act do not apply to creators of memecoins, others in the memecoin ecosystem – users, buyers/sellers and collectors – also are not afforded protections under the Securities Act.
Investment Contract Analysis: The Staff notes that a meme coin does not fall within the enumerated list of common financial instruments (e.g., “stock,” “note,” “bond”) in the definition of “securities” provided in the Securities Act (as well as the Securities Exchange Act of 1934). Interestingly, the staff tied that to the generation of yield or conveyance of rights to future income, profits or assets of a business. The Staff then applied the “Howey test” to determine whether a meme coin might be offered and sold as part of an “investment contract”. The Howey test evaluates whether there is an investment in an enterprise with a reasonable expectation of profits derived from the efforts of others. The Staff concluded that meme coins do not meet these criteria, as their value is derived from speculative trading and market sentiment, instead of the managerial efforts of promoters. Distinguishing the contract from the coin itself in this manner also marks a break from the SEC’s long-standing yet eroded position that the tokens themselves might be investment contracts.
Fraudulent Conduct and Other Legal Considerations: While meme coins may not be subject to federal securities laws, fraudulent conduct related to their offer and sale could still be subject to enforcement action by other federal or state agencies under different laws.
Implications for the Cryptocurrency Market
The Staff’s statement provides much-needed clarity for the cryptocurrency market, particularly for traders and issuers of meme coins; however, it is worth noting that projects building businesses and investors investing in businesses are not directly impacted by the Staff’s statement – as tokens that derive value based on the operations of the business (i.e., there is an expectation of profits derived from the efforts of others, through the lens of the Howey test) are not meme coins, and they may be considered “securities” pursuant to the Howey test. By confirming that meme coins are not securities, the Staff has removed a regulatory overhang from meme coin related transactions. However, this does not mean that meme coins are free from all legal scrutiny. Industry participants must remain vigilant against fraudulent practices, as these could still attract enforcement actions or private lawsuits under other legal frameworks.
Further, while the Staff statement only specifically applied to memecoins, the rationale articulated could also apply to other assets. For instance, the same rationale could apply to NFTs that only represent artwork or collectibles. In addition, it could apply to other speculative assets where the value of the asset does not rely on the efforts of others, such as sneakers and sports cards.
Ongoing Legal Considerations
Persons dealing with meme coins should still consider the following legal implications:
Compliance with Other Laws: While meme coins may not be securities, organizations or memecoin creators must ensure compliance with other applicable federal and state laws, particularly those related to anti-money laundering, fraud and consumer protection. Further, these assets might still be regulated or restricted in other countries, particularly since the “investment contract” test is fairly unique to U.S. securities laws.
Risk Disclosures: Given the speculative nature and volatility of meme coins, organizations or memecoin creators should provide clear risk disclosures to potential purchasers, emphasizing the lack of utility and the potential for financial loss.
Commodities: If meme coins are not securities, then they clearly are commodities. While the Commodity Futures Trading Commission does not have the power to regulate the spot market, it does have the power to enforce illegal abuses of the spot market. Further, much like Bitcoin, dealing in derivatives of meme coins may be a regulated activity.
Monitoring Regulatory Developments: The Staff’s statement is not a rule or regulation and does not have legal force, but is merely a statement from a portion of the SEC’s staff (and not the portion that brings enforcement actions). Industry participants should stay informed about any future regulatory changes or guidance that may impact the treatment of meme coins.
In conclusion, the statement on meme coins offers insight into the fundamental question of “Which crypto assets are securities?” Further, it signals a potential shift in how the SEC regulates the industry by proactively providing informal guidance. We see the statement as a sensible step towards regulatory clarity and a very overdue shift away from the SEC’s recent history of “regulation by enforcement” and “regulation by speechmaking” before that.