Ghost Guns and the Bankruptcy Code: Neither Provides Ammunition for Dismissing Actions – SCOTUS Today
The Supreme Court decided two cases today, continuing the release of opinions on which the Court is not deeply divided. The tougher ones are yet to come.
Despite the fact that today’s cases come from highly specialized areas of practice—firearms control and bankruptcy—both are interesting because they involve the interpretation of text, as Justices of all stripes continue to apply textual, literalist principles of interpretation rather than couching their views in a broader, arguably political, analysis of implied congressional intent.
The more closely watched of today’s two cases is Bondi v. Vanderstok, in which an interesting array of Justices—Justice Gorsuch wrote for himself and six other members of the Court (with Justices Thomas and Alito dissenting)—upheld a 2022 regulation of the Biden administration governing the sale and possession of so-called “ghost guns,” i.e., firearms made from kits constructed from untraceable parts. The regulation in question subjects the do-it-yourself “ghost gun” kits to the same requirements as fully assembled firearms, requiring serial numbers, background checks, and records of sales or transfers to private buyers. The Gorsuch opinion endorsed the position that the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) had the authority to issue the rule under the Gun Control Act of 1968 (GCA). The law “embraces, and thus permits ATF to regulate, some weapon parts kits and unfinished frames or receivers,” Gorsuch wrote. One notes that the Trump administration took no position in the case. The 7-2 decision keeps in force the 2022 regulation. Justice Gorsuch’s leadership as to the decision—a rare reversal of the U.S. Court of Appeals for the Fifth Circuit—is particularly interesting because of his alignment with three conservatives (Chief Justice Roberts, the increasingly independent Justice Barrett, and Justice Kavanaugh) and the Court’s three liberals.
Turning to the stated language of the GCA, Justice Gorsuch writes that the GCA authorizes ATF to regulate “any weapon . . . which will or is designed to or may readily be converted to expel a projectile by the action of an explosive.” This language creates two requirements. First, there must be a “weapon.” Second, the weapon “must be able to expel a projectile by the action of an explosive, designed to do so, or susceptible of ready conversion to operate that way.” According to the Court, “[A]t least some kits will satisfy both.” Rejecting the application of the rule of lenity and the rule of constitutional avoidance, Justice Gorsuch held that neither of those rules “has any role to play where ‘text, context, and structure’ decide the case. . . . The GCA embraces, and thus permits ATF to regulate, some weapons parts kits and unfinished frames or receivers, including those we have discussed. Because the court of appeals held otherwise, its judgment is reversed, and the case is remanded for further proceedings consistent with this opinion.”
Justice Thomas dissented, arguing that the statutory terms did not cover the unfinished frames in the parts kits and that those kits, by themselves, did not fit the definition of a “firearm.” Justice Alito argued that the majority decided the case on grounds that were not raised or decided in the courts below. Both dissents are swamped by the strong bipartisan majority that, as Justice Gorsuch made clear, was conscious of the regulation’s origin in the wake of the assassination of Dr. Martin Luther King, Jr.
From a Court “politics” standpoint, the other case decided today, United States v. Miller, is just as interesting. In this case, Justice Jackson’s majority opinion was joined by all of the other Justices, save for Justice Gorsuch, who dissented. The case involved the power of a bankruptcy trustee under the Bankruptcy Code, 11 U.S.C. §544(b)(1), to set aside, or “avoid,” certain fraudulent transfers of a debtor’s assets. The Court held that the Bankruptcy Code’s waiver of sovereign immunity only waives sovereign immunity with respect to the federal cause of action created by Section 544(b), which gives the trustee the power to avoid certain transfers that would be “voidable under applicable law”—that is, voidable outside of bankruptcy proceedings. However, it doesn’t encompass sovereign immunity for state law claims nested within that federal claim. Ultimately, the case is remanded to allow the courts below to consider an argument based on state law that was not briefed or considered by the Supreme Court.
Again, we note that the Court continues to deal with the “easy” stuff. There remain more than a few storm clouds on the horizon. So, keep your rubber boots on and look out for lightning in the days to come.
FinCEN Eliminates Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons and Sets New Deadlines for Foreign Companies
On March 21, 2025, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule under the Corporate Transparency Act (“CTA”) to eliminate the requirement for U.S. companies and U.S. persons to report any beneficial ownership information (“BOI”) to FinCEN under the CTA.
Under the interim final rule only foreign legal entities formed in a foreign country and registered to do business in the United States by filing with secretaries of state or similar offices (these entities are referred to herein as “foreign reporting companies”) are required to report BOI as reporting companies under the CTA. However, under the interim final rule foreign reporting companies are no longer required to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company and U.S. persons are exempt from having to provide such information to any foreign reporting company in which they are a beneficial owner. Accordingly, foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirements to report any beneficial owners.
While the interim final rule does not substantially change the requirement for foreign reporting companies that registered to do business in the United States by filing with secretaries of state or similar offices before March 26, 2025, it does extend the deadline for such entities to file initial BOI reports and to update or correct previously filed BOI to April 25, 2025. In addition, on or after March 26, 2025, a foreign reporting company will be required to file an initial BOI report within 30 calendar days of the date it registered to do business in the United States by filing with secretaries of state or similar offices.
Although the interim rule is still subject to a comment period ending on May 27, 2025, the interim final rule became effective on March 26, 2025.
New Office of Financial Sanctions Implementation Financial Services Threat Assessment
On 13 February 2025, the Office of Financial Sanctions Implementation (OFSI) published its assessment of suspected sanctions breaches involving financial services firms since February 2022 (the Assessment). The Assessment forms part of a series of sector-specific assessments by OFSI that address threats to UK financial sanctions compliance by UK financial or credit institutions.
The Assessment highlights three areas of main concern:
Compliance;
Russian-Designated Persons (DPs) and enablers; and
Intermediary Countries.
This alert provides a summary of these concerns and suggests action financial services firms can take to combat these threats when developing their risk-based approach to compliance.
Compliance
OFSI has identified several compliance issues and advised steps that firms can take to improve and strengthen their compliance. These include:
Improper Maintenance of Frozen Assets
All DPs accounts and associated cards, including those held by entities owned or controlled by DPs, must be operated in accordance with asset freeze prohibitions and OFSI licence permissions. Financial institutions should review existing policies or contracts as these can often automatically renew, resulting in debits from DP accounts.
Breaches of Specific and General OFSI Licence Conditions
Firms need to carefully review permissions when assisting with transactions they believe are permitted under OFSI licences. Firms must ensure that OFSI licenses are in date, bank accounts are specified in OFSI licences and licence reporting requirements are adhered to.
Inaccurate Ownership Assessments
Firms must be able to identify entities that are directly owned by Russian DPs, and subsidiaries owned by Russian conglomerates that are themselves designated or majority owned by a Russian DP. Firms should conduct increased due diligence where necessary and regularly update due diligence software.
Inaccurate UK Nexus Assessments
Firms should take extra care to understand the involvement of UK nationals or entities in transaction chains when assessing the application of a UK nexus. They must also ensure they understand the difference between United Kingdom, European Union and United States sanctions regimes to make correct assessments of how UK sanctions might be engaged.
Russian DPs and Enablers
OFSI defines an enabler as “any individual or entity providing services or assistance on behalf of or for the benefit of DPs to breach UK financial sanctions prohibitions.” Broadly, there are two types of enablers:
professional enablers that provide professional services “that enable criminality. Their behaviour is deliberate, reckless, improper, dishonest and/or negligent through a failure to meet their professional and regulatory obligations”; and
non-professional enablers, such as family members, ex-spouses or associates.
Maintaining Lifestyles and Assets
Most identified enabler activity has been in relation to maintaining the lifestyles of Russian DPs and assets as they face growing liquidity pressures from UK sanctions.
OFSI urges firms to scrutinise the following red flags:
New individuals or entities making payments to satisfy obligations formerly met by a DP;
Individuals connected to Russian DPs receiving funds of substantial value;
Regular payments between companies owned or controlled by a DP;
Crypto-asset to fiat transactions involving close associates of a Russian DP;
Family member of a DP that is an additional cardholder on a purchasing card that uses the card for personal expenses and overseas travel; and
Deposits of large sums of cash without sufficient explanation;
Fronting
With a significant value of the assets of DPs having been frozen in the United Kingdom, an increasing amount of enablers are attempting to front on behalf of DPs and claim ownership of frozen assets. The links between enablers fronting on behalf of DPs are not always clear, and so OFSI has outlined several red flags for firms to be aware of:
Individuals with limited profiles in the public domain, for instance, those with limited related professional experience;
Inconsistent name spellings or transliterations;
Recently obtained non-Russian citizenships; and
Repeated or unexplained name changes or declared location of operation.
Utilising Alternative Payment Methods to Breach Prohibitions
Financial services firms need to remain diligent when assessing the threat posed by the increasingly sophisticated methods employed by DPs and enablers to evade UK financial sanctions prohibitions. Particular attention should be paid to attempts at money laundering on behalf of Russian DPs, including any indications of high value crypto-asset to cash transfers.
Intermediary Countries
Emphasis is placed on the use of intermediary jurisdictions in suspected breaches of UK financial sanctions prohibitions. The following jurisdictions are utilised most often: British Virgin Islands, Guernsey, Cyprus, Switzerland, Austria, Luxembourg, United Arab Emirates and Turkey. These jurisdictions offer secrecy or particular commercial interests.
There has also been a change in the third countries referenced in suspected breach reports, with increased activity in the Isle of Man, Guernsey, United Arab Emirates and Turkey. Indeed, the United Arab Emirates accounted for the largest section of suspected breaches reported to OFSI in the first quarter of 2024. This shift has likely been caused by various factors, including capital flight by Russians to jurisdictions that do not have sanctions on Russia.
The Assessment helpfully outlines a non-exhaustive list of specific activities in various countries that could be indicative of UK financial sanctions breaches. Financial institutions are encouraged to review and familiarise themselves with this list so that they can identify potential threats to sanctions compliance. Businesses should then consider the involvement of these jurisdictions when conducting due diligence, and evaluate the risks associated with various transactions.
Conclusion
The recent expansion of the United Kingdom’s financial sanctions regime, particularly in relation to Russia’s invasion of Ukraine, has resulted in sanctions evasion becoming increasingly sophisticated and widespread. Considering the scale of evasion being conducted, financial institutions need to remain proactive and vigilant in identifying transaction activity that may be indicative of attempts to circumvent UK sanctions regimes.
When designing sanctions compliance programmes, financial institutions should refer to the Assessment to account for methodologies of evasion and recognise specific behaviours that might present warning signs. By taking a proactive approach to prevent their services from being exploited as instruments of circumvention, financial institutions will contribute to efforts to combat sanctions evasion, whilst avoiding the financial and reputational repercussions of non-compliance.
If you have any questions on the Assessment or want further advice on developing your policies for UK sanctions compliance, please do not hesitate to contact our Policy and Regulatory practice.
Termination Requirements Around the Globe
In the realm of global employment, the concept of termination payments can be a complex and often surprising issue for U.S.-based employers. Unlike in the United States, where the at-will employment doctrine generally allows employers to dismiss employees at any time with or without cause (as long as the reason is not unlawful), many countries have stringent laws that mandate significant benefits and entitlements upon termination of employment.
Before setting up shop in a new country, employers may want to examine the intricacies of these statutory payments and understand how best to navigate the challenges they present.
Quick Hits
U.S. at-will employment is not common internationally; other countries require valid reasons and advance notice for termination.
Statutory severance pay is mandatory in many countries, calculated based on length of service and salary, and non-negotiable.
Additional benefits include accrued but unused vacation, pro-rata thirteenth-month salary, earned bonuses, and seniority premiums.
Good cause termination requires specific procedures and evidence, making it challenging to avoid severance payments.
Employers may want to understand local laws, plan financially, and accrue liabilities to manage employment termination costs effectively.
At-Will Employment vs. International Norms
In the United States, at-will employment generally allows employers to dismiss an employee for almost any reason (or no reason at all) as long as the reason is not illegal. This concept, however, is foreign to most other countries. Internationally, employers must often provide a valid reason for employment termination or face substantial financial penalties. These penalties can include statutory severance pay and other mandatory benefits.
Statutory Severance Pay: A Misunderstood Term
One of the most misunderstood aspects of international termination payments is statutory severance pay. Unlike in the United States, where severance is typically associated with layoffs or reductions in force, statutory severance pay is a mandatory payment in many countries, generally when there is no “good cause” to terminate the employment relationship. Basically, the termination payment is a penalty for employers that are terminating the employment relationship that the employee expected would continue indefinitely. This payment is often calculated based on the employee’s length of service and salary, and it is enshrined in labor codes, making it non-negotiable. Note that some countries impose caps on severance payments. For example, in China, the cap is based on the city-specific minimum wage, while in the United Arab Emirates (UAE), the end-of-service gratuity has no salary cap but cannot exceed a total of two years’ pay.
Additional Benefits and Entitlements
Beyond having to provide a notice period (or payment in lieu as allowed by certain countries) and severance pay, employees in many countries are entitled to other benefits upon termination of employment, regardless of the reason for their departure. These benefits can include:
Accrued but Unused Vacation: In many jurisdictions, employers must pay for any accrued but unused vacation days. This can be a significant financial burden, especially in countries where vacation days can carry over for several years.
Thirteenth-Month Salary: Many countries require employers to pay a thirteenth-month salary or Christmas bonus. Upon termination of employment, employees are often entitled to a pro-rata portion of this payment.
Earned Bonuses: In some countries, employees are entitled to bonuses they have earned, even if they are no longer employed at the time of payment and regardless of any language included in the bonus plan.
Seniority Premium: This payment compensates employees for their loyalty and length of service. It is separate from severance pay and is due even if the employee resigns.
The Challenge of Demonstrating Good Cause
Generally, one of the ways employers can avoid paying notice periods and severance is to terminate employment for good cause. Demonstrating that good cause exists, however, can be a complex and lengthy process in many countries. Poor performance is not generally considered a valid reason to terminate employment. Rather, employers must prove that the employee behaved in a way that is prohibited under the relevant labor code, such as fraud, theft, and gross misconduct. Employers must follow specific procedures, including conducting hearings, collecting evidence, and issuing decisions within strict timeframes. Failure to adhere to these procedures can lead to a wrongful termination claim, potentially resulting in legal liability for the employer to pay damages to the separated employee, and in some cases, reinstatement.
Preparing for Termination Costs
To avoid being caught off guard by termination payments, U.S. employers may want to consider the following steps:
Understanding Local Employment Laws: Before setting up operations in a new country, employers may want to seek a summary of the local employment laws, including termination payment obligations—for employees, independent contractors, and contingent workers employed through an employer of record (EOR).
Planning Financially: Employers may want to consider setting aside funds to cover potential termination costs. The total balance in such a fund could include the cost per employee per year, including not only base salary but also social security contributions and additional benefits and payments. Being prepared will allow employers to make business decisions regarding employment relationships that are not bound by finances.
Accruing Liabilities: In some jurisdictions, employers are required to accrue liabilities for mandatory entitlements. Being aware of these obligations can help employers manage their financial responsibilities effectively.
Conclusion
Navigating the complexities of termination payments for international workforces requires a thorough understanding of local employment laws and careful financial planning. By being proactive and informed, U.S. employers can avoid surprises and ensure compliance with international labor regulations.
FHA Overhauls Appraisal Rules: Three Appraisal Policy Related Mortgagee Letters Rescinded
On March 19, 2025, the Federal Housing Administration (FHA) issued Mortgagee Letter (ML) 2025-08 titled “Rescinding Multiple Appraisal Policy Related Mortgagee Letters.” As the title suggests, FHA rescinded three mortgagee letters relating to Appraisal Fair Housing Compliance and Appraisal Review and Reconsideration. While this is a major change in how appraisals will be handled under FHA guidelines, these policy shifts reflect the FHA’s ongoing efforts to streamline policies and reduce regulatory and financial burden.
Two of the three rescinded mortgagee letters (ML 2024-07 and ML 2024-16) were issued just last year and related to the implementation of new Appraisal Review and Reconsideration of Value (ROV) guidelines established by the FHA. Specifically, ML 2024-07 enhanced FHA’s policy on standards for appraisal reviews, and provided specific requirements related to borrower-initiated ROV requests. Notably, FHA emphasized that a mortgagee’s appraisal review process must include protocols for addressing potential appraisal bias or appraisal discrimination, including by allowing borrowers to request a ROV, request a general correction, explanation, or substantiation, or obtain a second appraisal. In light of operational challenges with implementing ML 2024-07, ML 2024-16 extended the implementation date for the new appraisal review and ROV guidelines from September 2, 2024, to October 31, 2024.
ML 2021-27, titled “Appraisal Fair Housing Compliance and Updated General Appraiser Requirements,” is the third rescinded mortgagee letter. According to FHA, ML 2021-27 clarified existing FHA requirements for appraisers and mortgagees relating to compliance with fair housing laws. In rescinding ML 2021-27, FHA notes that subsequent amendments to the Uniform Standards of Professional Appraisal Practice (USPAP) resolved the concerns that 2021-27 was intended to address.
Overall, the FHA’s decision to rescind these three appraisal related mortgagee letters reflects its broader goal of reducing regulatory and financial burdens within the mortgage process. Lenders, appraisers, and mortgagees should stay informed and adapt their policies to align with the evolving landscape.
The policy changes established in ML 2025-08 will be incorporated into the FHA Single Family Housing Policy Handbook (Handbook 4000.1). The provisions of this ML are effective immediately.
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The Digital Chamber Publishes US Blockchain Roadmap
The Digital Chamber (TDC), a trade association focused on advancing blockchain adoption and regulatory clarity, has unveiled its U.S. Blockchain Roadmap, a plan aimed at enhancing America’s leadership in blockchain technology. The roadmap emphasizes blockchain’s potential in reshaping financial systems, global trade, and digital infrastructure. It argues that blockchain development could impact the United States’ economic growth, financial sovereignty, and technological competitiveness.
The roadmap outlines several priority areas and policy recommendations. These include integrating digital assets into the nation’s financial infrastructure, protecting decentralized networks, and establishing clear regulatory frameworks. It also examines Bitcoin mining’s potential role in strengthening U.S. energy security and recommends modernizing the banking system to adapt to the evolving digital economy. Additionally, the roadmap explores blockchain’s potential applications in government operations and fiscal oversight.
Corporate Debtors and Transactions at an Undervalue–Lessons From the UK Supreme Court: El-Husseini and Another v Invest Bank Psc
The UK Supreme Court’s recent decision in El-Husseini and another v Invest Bank PSC [2025] UKSC 4 has clarified the circumstances in which section 423 of the Insolvency Act 1986 (the Act) provides protection against attempts by debtors to “defeat their creditors and make themselves judgment-proof”. This is a critical decision for insolvency practitioners, any corporate or fund which is involved in distressed deals and beyond to acquirers who were not aware they were dealing in distressed assets. It is potentially good news for the former, improving or fine-tuning weapons deployed for the benefit of creditors. It is potentially awkward news for the latter, who may have to look rather more broadly at insolvency issues when acquiring assets not only from distressed vendors but potentially also from vendors with distressed owners.
The case concerned an individual debtor, Mr Ahmad El-Husseini, but the decision has ramifications for corporate debtors. It confirms a broad interpretation of “transactions at an undervalue” applicable to section 423 (transactions defrauding creditors) of the Act and gives clear guidance that this interpretation applies to section 238 (transactions at an undervalue) of the Act, such that the assets which are the subject of the transaction do not need to be legally or beneficially owned by the debtor to be subject to these provisions. Instead, they can catch transactions in which a debtor agrees to procure a company which they own to transfer an asset at an undervalue.
Section 423 and Section 238 of the ACT
Section 423 of the Act (which applies to both individuals and corporates, whether or not they are or later become insolvent) is engaged where a party enters into a transaction at an undervalue for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing their interests.
Section 238 of the Act (which applies to companies in administration or liquidation) is engaged where a company enters a transaction at an undervalue within two years of the onset of insolvency and the company was insolvent at the time of the transaction or became insolvent as a result of the transaction.
If a claim pursuant to section 423 or 238 of the Act is successful, the court has the power to restore the position as if the transaction had not been entered into.
The Facts in El-Husseini and Another V Invest Bank PSC
Seeking to enforce a United Arab Emirates (UAE) judgement in the sum of approximately £20 million, Invest Bank PSC (the Bank) identified valuable assets linked to Mr El-Husseini. In its judgment, the Supreme Court proceeded on the basis that Mr El-Husseini was the beneficial owner of a Jersey company which owned a valuable central London property. Further, that Mr El-Husseini had arranged with one of his sons that he would cause the Jersey company to transfer the property to the son for no consideration. As a result, the value of Mr El-Husseini’s shares in the Jersey company was reduced and the Bank’s ability to enforce the UAE judgement was prejudiced. The Bank brought claims under section 423 of the Act.
Defining A “Transaction” Falling Within Section 423 and the Ramifications For Section 238
The fundamental issue for the Supreme Court was whether, as asserted by the Bank, section 423 of the Act could apply to a transaction where the relevant assets were not legally or beneficially owned by the debtor but instead by a company owned or controlled by the debtor.
The Supreme Court ruled in the Bank’s favour, including on grounds that:
The plain language of section 423 strongly supports the conclusion that the provision contains no requirement that a transaction must involve a disposal of property belonging to the debtor personally.
A restrictive interpretation of “transaction” such that it was limited to transactions directly involving property owned by the debtor would undermine the purpose of section 423.
It was appropriate to rely on the purpose of section 423 to construe a provision which was common to section 423, 238 and 339 (which provides a remedy in the case of transactions at an undervalue where the debtor has subsequently been declared bankrupt) of the Act. These sections share a common purpose: to set aside or provide other redress when transactions at an undervalue have prejudiced creditors. The Supreme Court considered it impossible to think of circumstances in which a “transaction” was held to be within section 423 when it would not fall within section 238 and 339 of the Act. In any event, there was no reason as a matter of policy or purpose why a transfer by a company owned by an insolvent company or individual should not fall within those sections.
Thus, not only does the judgment confirm the broad interpretation of “transactions at an undervalue” applicable to section 423, but it also gives clear guidance that this interpretation applies equally to section 238.
Key Takeaways
Debtors cannot hide behind corporate structures – The ruling confirms that a corporate structure does not shield debtors who procure the transfer at an undervalue of assets belonging to companies owned by them to evade their obligations to creditors.
Stronger protections for creditors – Creditors will welcome the decision, which makes it harder for debtors to circumvent enforcement.
Greater clarity – The judgment provides clear guidance that the broad interpretation of “transactions at an undervalue” applicable to claims under section 423 of the Act can be relied upon for the purposes of claims under section 238.
SEC Marketing Rule Update: New Staff FAQs on Performance Presentations
On March 19th, Staff from the Securities and Exchange Commission (SEC) issued much needed (and anticipated) relief in the form of two new frequently asked questions (FAQs) related to rule 206(4)-1 under the Investment Advisers Act of 1940 (the Marketing Rule).
Key Takeaways
The Staff’s “open door” policy, in which it invites comments from industry participants on their top-of-mind concerns and regulatory “sticking points,” is underway.
Don’t skip the footnotes! The FAQs provide useful additional context. For example:
gross and net performance of the total portfolio do not need to be presented on the same page to meet the “prominent” requirement – in some cases, presenting this information prior to the extracted performance and/or portfolio characteristic may be sufficient;
while the FAQ provides some examples of typical portfolio characteristics or risk metrics (e.g., yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analysis, Sharpe Ratio, Sortino Ratio), the Staff provides in a footnote other examples which in its view, would not be covered by the FAQ (e.g., total return, time-weighted return, return on investment, internal rate of return, multiple of invested capital, or total value to paid in capital); and
with regard to portfolio characteristics and risk metrics, the Staff is not opining on whether any such characteristics or metrics constitute “performance” under the Marketing Rule (and thus would be subject to all other aspects of the Marketing Rule).
Note that the FAQs primarily address a narrow aspect of the Marketing Rule – specifically, rule 206(4)-1(d)(1), which requires that any presentation of gross “performance” also present net performance – it does not alter other obligations when presenting “performance” or the more general obligations under the general prohibitions (rule 206(4)-1(a)) or section 206 antifraud provisions.
The Issues
The first FAQ addresses a widely-know “pain point” for investment advisers when seeking to include in marketing materials individual portfolio positions (or groups of positions from within a portfolio), which falls within the definition of “extracted performance” under the Marketing Rule and must therefore be presented on a net basis. Doing so has been challenging for advisers because such fees are typically charged at the portfolio level. This presents the adviser with a difficult decision:
developing an allocation approach that at best, serves a regulatory purpose but no business purpose and, at worst, may result in misleading investors; or
deciding not to present the information despite believing that the information is meaningful to clients and potential clients.
The second FAQ presents a different but related challenge for advisers: determining if a portfolio characteristic or risk metric falls within the meaning of “performance” (which is not defined in the Marketing Rule) and, therefore, must also be presented on a net basis. Such a result similarly restrains an adviser’s ability to present meaningful information about an adviser’s strategy and risk management processes because those metrics often do not lend themselves to net-of-fee presentation (as required under the Marketing Rule).
What the FAQs Permit
The Staff has set forth a “safe harbor” where it essentially offers a no-action position for an adviser who includes in an advertisement either “extracted performance” (which would include presenting case studies or lists of individual investments) or characteristics of a portfolio or investment, in both cases on a gross basis only, if:
the extracted performance and/or portfolio characteristic is clearly identified as being calculated “gross” (or without the deduction of fees and expenses);
the extracted performance and/or portfolio characteristic is accompanied by a presentation of the total portfolio’s gross and net performance;
the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the extracted performance and/or portfolio characteristic; and
the gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the extracted performance and/or portfolio characteristic is calculated.
CTA UPDATE: FinCEN Issues Interim Final Rule Exempting Domestic Companies and US Beneficial Owners From Reporting Requirements
Go-To Guide:
Domestic companies and their beneficial owners are now exempt from the requirement to file beneficial ownership information (BOI) reports, or to update or correct previously filed BOI reports.
Foreign reporting companies that do not qualify for an exemption must report BOI by April 25, 2025, but need not report their U.S. beneficial owners.
The Financial Crimes Enforcement Network (FinCEN) is soliciting public comments on the interim final rule and intends to issue a final rule later this year.
On March 21, 2025, FinCEN issued an interim final rule narrowing the scope of the CTA’s BOI Reporting Rule (Reporting Rule) to foreign reporting companies and foreign beneficial owners. This change follows a series of shifts in the status of the CTA since Dec. 3, 2024,1 when a Texas district court in Texas Top Cop Shop, Inc. v. Bondi preliminarily enjoined the CTA and the Reporting Rule on a nationwide basis.
Going forward, entities formed in the United States (regardless of when) are categorically exempt from CTA reporting requirements and do not have to report BOI to FinCEN, nor update or correct any BOI that may previously have been reported to FinCEN.
Foreign reporting companies (i.e., entities formed in a foreign country that are registered to do business in the United States) that do not qualify for an exemption must file their BOI reports by no later than April 25, 2025. Newly registered foreign reporting companies will have 30 days from their registration in the United States to comply with BOI reporting requirements.
Notably, foreign reporting companies need not report the BOI of any beneficial owners who are U.S. persons (including U.S. persons who are beneficial owners of foreign pooled investment vehicles by virtue of their substantial control). U.S. beneficial owners are likewise exempt from having to report their BOI with respect to foreign reporting companies in which they hold interests.
The Interim Final Rule does not exempt reporting of U.S. persons who serve as company applicants for foreign reporting companies.2
The Interim Final Rule significantly reduces the number of entities subject to BOI reporting. FinCEN now estimates approximately 12,000 reporting companies must comply with the CTA and its implementing regulations—down from the 32.6 million projected under the previous rule.
Looking Ahead
FinCEN is accepting comments on the Interim Final Rule until May 27, 2025. A final rule is expected to be issued later this year. The Interim Final Rule, with its narrower scope of reporting requirements, will be in effect in the meantime.
Foreign reporting companies should prepare to comply with the CTA and the Reporting Rule, as amended by the Interim Final Rule. Interested parties may also consider submitting written comments to FinCEN by the May 27, 2025, deadline. Additionally, all companies should stay updated on FinCEN announcements, including with respect to the final rule.
It remains to be seen whether the Interim Final Rule will be the subject of any legal challenges. In the appeal pending in the Texas Top Cop Shop challenge, the Fifth Circuit has asked for supplemental briefing on whether the dispute remains live in light of the Interim Final Rule.
For additional information regarding the CTA and its reporting requirements, visit GT’s CTA Task Force page.
1 On Dec. 3, 2024, the CTA and its Reporting Rule were preliminarily enjoined on a nationwide basis, approximately four weeks ahead of a key Jan. 1, 2025, deadline. FinCEN appealed that ruling, and on Dec. 23, 2024, a motions panel of the U.S. Court of Appeal for the Fifth Circuit stayed the injunction, allowing the CTA to go back into effect. Three days later, on Dec. 26, 2024, a merits panel of the Fifth Circuit vacated the motion panel’s stay, effectively reinstating the nationwide preliminary injunction against the CTA and Reporting Rule. On Dec. 31, 2024, the government filed an emergency application with the U.S. Supreme Court to stay that preliminary injunction. On Jan. 23, 2025, the Supreme Court granted that application (SCOTUS Order), staying the nationwide preliminary injunction in Texas Top Cop Shop, Inc. v. Bondi. See McHenry v. Texas Top Cop Shop, Inc., 145 S. Ct. (2025). Then, notwithstanding the SCOTUS Order staying the injunction in Texas Top Cop Shop, on Jan. 24, 2025, FinCEN confirmed that reporting companies were not required to file BOI Reports with FinCEN due to the separate nationwide relief entered in Smith v. U.S. Department of the Treasury (and while the order in Smith remained in effect). No. 6:24-CV-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). On Feb. 5, 2025, the government appealed the ruling in Smith to the U.S. Court of Appeals for the Fifth Circuit and asked the District Court to stay relief pending that appeal. On Feb. 18, 2025, the District Court in Smith granted a stay of its preliminary injunction pending appeal, thereby reinstating BOI reporting requirements once again. In response, on Feb. 19, 2025, FinCEN announced that the new filing deadline to file an initial, updated, and/or corrected BOI report was generally March 21, 2025. On March 2, the U.S. Department of the Treasury issued a press release announcing that it will not enforce any penalties or fines under the CTA against U.S. citizens, domestic reporting companies, or their beneficial owners under the current Reporting Rule or after the forthcoming rule changes take effect.
2 A company applicant, in this context, would be (a) the person who directly files the document that registers the company in a U.S. state; and (b) if more than one person is involved with the document’s filing, the person who is primarily responsible for directing or controlling the filing.
(UK) The Issue With Hybrid Insolvency Claims Rumbles On
Should a claim be struck out where the applicant has failed to comply with the procedural requirements relating to “hybrid” claims? In the recent case of Park Regis Birmingham LLP [2025] EWHC 139 (ch), the High Court held that it would be disproportionate to strike out the claim on that basis.
Hybrid Claims
Hybrid claims are those that include claims under the insolvency legislation (e.g. “transaction avoidance” claims), as well as company claims (e.g. unlawful dividends or sums owing under a director’s loan account). Previously, it was common practice for such claims to be issued as a single insolvency act application, rather than as a Part 7 claim.
Since the Manolete Partners plc v Hayward and Barrett Holdings case in 2021, applicants have been required to issue these claims separately, with the insolvency claims being issued as an insolvency application, and the company claims being issued as a separate Part 7 claim. The applicant can then issue an application to request that the separate proceedings are managed together e.g. at a single trial. This has meant that the costs of issuing such claims have increased, as the issue fee for a Part 7 claim can be up to £10,000, whereas the issue fee for an insolvency application is £308.
Facts
In the Park Regis case, the applicants had incorrectly issued a hybrid claim as a single insolvency application, without issuing the separate Part 7 claim for the company claims. However, when issuing the application, the applicant’s lawyers had informed the Court that the issue fee for the application would be £10,000, as the claim was a hybrid claim, and therefore the £10,000 fee was paid.
The respondents applied to strike the claim out, on the basis that the applicant had failed to comply with the Hayward and Barrett Holdings case and argued that the applicant’s approach constituted an abuse of process.
The judge held that the applicant had failed to comply with the procedural requirements regarding hybrid claims. However, in exercising her discretion about whether to strike out the claim, the judge held that striking out the claim would be too severe a penalty for that failure. The judge therefore exercised her discretion (under CPR 3.10) to waive the procedural defect and allowed the claim to proceed as if it had been properly issued.
Commentary
While the judge in this case declined to strike out the claim, the judge was clear that the applicant’s attempt to issue the claim by way of a single insolvency application, but paying the higher Part 7 issue fee, was procedurally incorrect. Had this approach been endorsed it would have made issuing such applications more straightforward for practitioners, but the judge noted the absolute requirement for separate proceedings.
We understand that this decision has been appealed – so watch this space for further comment. In the interim practitioners should continue to apply the Hayward and Barrett Holdings approach and issue two sets of proceedings to avoid the risk of a claim being struck out. Although the procedural defect was waived in this case, the power to do that is a discretionary one!
The Insolvency Service in the First Review of the Insolvency Rules has reported that they are considering whether an amendment to the Rules is required to address the Hayward and Barrett Holdings case which would hopefully see a return to previous practice – one set of proceedings with one court fee. But to date there has been no indication from the Insolvency Service when (if) they will progress that and unless further clarity is provided on appeal it seems the sensible approach for practitioners is to follow Hayward when pursuing a claim.
Board of Directors 101: Roles, Responsibilities, and Best Practices
Serving on a board of directors is a pivotal role in corporate governance, demanding a clear understanding of legal and financial responsibilities. This article delves into the core functions of a board, the fiduciary duties of its members, and the distinctions between fiduciary and advisory boards.
Understanding the Board of Directors
A board of directors serves as a corporation’s governing body, representing shareholders and overseeing the organization’s management. Jonathan Friedland, a corporate partner with Much Shelist PC, notes that the board’s primary functions include providing strategic direction, ensuring legal compliance, and upholding ethical standards.
Boards are typically composed of:
Inside Directors: Individuals who are part of the company’s management, such as executives or major shareholders.
Outside Directors: Independent members who are not involved in daily operations, offering unbiased perspectives.
In public companies, boards are mandated by law and must adhere to stringent compliance and financial disclosure requirements. Private companies, while not always legally required to have a board, often establish one to benefit from external expertise and governance.
The Purpose and Responsibilities of the Board
Allan Grafman highlights that an effective board transcends mere oversight; it actively shapes the company’s trajectory.
Key responsibilities include:
Strategic Oversight: Guiding long-term planning and ensuring alignment with the company’s mission.
CEO Supervision: Appointing, evaluating, and, if necessary, replacing the Chief Executive Officer.
Succession Planning: Preparing for future leadership transitions to maintain organizational stability.
Legal and Ethical Compliance: Ensuring adherence to laws and ethical standards to mitigate risks.
For public companies, these duties are underscored by regulations such as the Sarbanes-Oxley Act, which mandates accurate financial reporting and internal controls. Private companies, though subject to fewer regulations, must still navigate complex governance landscapes, balancing the interests of various stakeholders.
Fiduciary Duties of Board Members
Board members are bound by fiduciary duties, which are legal obligations to act in the best interests of the corporation and its shareholders.
These duties encompass:
Duty of Care: Directors must make informed decisions with the diligence that a reasonably prudent person would exercise in similar circumstances. This involves staying informed about the company’s operations and relevant market conditions.
Duty of Loyalty: Directors are required to prioritize the corporation’s interests above personal gains, avoiding conflicts of interest. This means refraining from engaging in activities that could harm the company or benefit them at the company’s expense.
The Business Judgment Rule offers directors protection, presuming that decisions are made in good faith and with due care. However, this presumption can be challenged if there is evidence of gross negligence or self-dealing. In such cases, courts may apply the Entire Fairness Doctrine, requiring directors to prove that their actions were entirely fair to the corporation and its shareholders.
Fiduciary vs. Advisory Boards
David Spitulnik notes that fiduciary and advisory boards are distinct in role and authority.
Fiduciary and advisory boards differ in the following key ways:
Fiduciary Boards
Legal Obligation: Hold legal responsibilities and are accountable to shareholders.
Decision-Making Authority: Empowered to make binding decisions, including hiring and firing executives.
Regulatory Compliance: Must adhere to corporate governance laws and regulations.
Advisory Boards
Non-Binding Guidance: Offer strategic advice without the authority to make final decisions.
Flexibility: Provide insights on specific issues, such as market expansion or product development.
No Legal Liability: Generally not subject to the same legal obligations as fiduciary boards.
For private companies, advisory boards can be useful in providing expertise and mentorship without the formalities and liabilities associated with fiduciary boards.
Qualities of Effective Board Members
Alex Sharpe emphasizes that board members should have the requisite skills.
Exceptional board members will possess a combination of attributes:
Financial Acumen: A strong grasp of financial statements and the ability to assess the company’s fiscal health.
Strategic Vision: The capacity to think long-term and guide the company toward sustainable growth.
Integrity: Upholding ethical standards and fostering a culture of transparency.
Industry Expertise: Deep knowledge of the sector to provide relevant insights.
Effective Communication: The ability to articulate ideas clearly and listen actively to diverse perspectives.
Spitulnik adds that meticulous preparation, such as reviewing materials in advance and taking detailed notes during meetings, enhances a director’s effectiveness and demonstrates commitment.
Compensating Board Members
Compensation for board members varies based on the company’s size, industry, and resources. While some private companies may not offer monetary compensation, providing equity stakes or other incentives can attract and retain talented directors. Companies with revenues under $20 million often have informal advisory boards with minimal compensation, whereas larger companies may offer more substantial remuneration packages.
Common Challenges in Board Governance
Even well-structured boards can encounter pitfalls. Allan Grafman and Jonathan Friedland identify several common challenges:
Role Ambiguity: Unclear definitions of responsibilities can lead to overlaps or gaps in governance.
Inefficient Meetings: Poorly organized meetings can result in unproductive discussions and delays in decision-making. Ensuring a well-structured agenda and sticking to key priorities can improve efficiency.
Lack of Strategic Focus: Boards that concentrate solely on compliance and operational oversight may fail to provide long-term strategic guidance. A balanced approach is necessary to foster both accountability and growth.
Weak Team Dynamics: A dysfunctional board can hinder progress. Differences in opinion are natural, but a lack of mutual respect or collaboration can create gridlock. Establishing clear governance policies and encouraging open dialogue are essential.
Outdated Board Composition: The business environment is constantly evolving. Boards that fail to bring in fresh perspectives or adapt to industry shifts risk becoming ineffective. Periodic board evaluations and diversity initiatives can enhance governance.
Legal and Financial Risks Facing Boards
Board members must navigate various legal and financial risks. Failing to uphold fiduciary duties can lead to lawsuits, regulatory scrutiny, and financial losses. Understanding these risks is crucial to effective governance.
Director and Officer (D&O) Liability
Board members can be held personally liable for decisions that result in financial harm to the company or its shareholders, though the Business Judgment Rule is commonly a powerful shield. To further mitigate this risk, many companies purchase Directors and Officers (D&O) insurance, which protects individuals from personal financial losses due to lawsuits or claims against them in their capacity as board members. A director can also purchase a personal policy as additional protection.
However, D&O insurance policies do not cover fraud, criminal acts, or intentional misconduct. Board members must remain vigilant in their decision-making to avoid legal exposure.
Financial Oversight and Accountability
Strong financial governance is a cornerstone of board responsibilities. Directors must ensure accurate financial reporting, prevent fraudulent activities, and comply with regulatory requirements, though many that apply to public companies do not apply to privately owned companies.
Failing to meet these obligations can lead to SEC investigations, shareholder lawsuits, and reputational damage. Adopting internal controls, conducting regular financial audits, and requiring management accountability are essential practices for boards to prevent financial mismanagement.
Bankruptcy and Restructuring Considerations
If a company becomes financially distressed, board members must navigate complex restructuring decisions, including whether to file for Chapter 11 bankruptcy. This raises the oft-cited and equally oft-misunderstood ‘zone of insolvency.’ EDITORS’ NOTE: Read What To Do When Your Company May Be Insolvent for more information about this.
David Spitulnik explains that delaying restructuring efforts or failing to act prudently can expose board members to liability. Seeking expert legal and financial guidance is crucial when a company faces distress. Directors in financial distress must prioritize maximizing value for all stakeholders.
Best Practices for Effective Board Governance
Strong boards do more than fulfill legal requirements — they drive long-term value. Implementing best practices can significantly enhance a board’s effectiveness.
Regular Board Evaluations
Evaluating board performance through annual assessments helps identify areas for improvement.
Effective evaluations should consider:
Board composition and expertise
Meeting efficiency and decision-making processes
Director engagement and contributions
Clear Governance Policies
Establishing bylaws, conflict-of-interest policies, and codes of conduct ensures that board members adhere to best practices. Transparency in governance fosters trust among shareholders and stakeholders.
Ongoing Education and Development
Staying informed about changes in laws, financial regulations, and industry trends is essential for directors. Continuous education, such as attending governance training programs or legal briefings, ensures that board members remain effective in their roles.
Active Shareholder Engagement
For public companies, engaging with shareholders proactively helps build confidence and alignment between the board and investors. Boards that listen to shareholder concerns and maintain open communication reduce the risk of activist investor disruptions.
Conclusion
Serving on a board of directors carries significant legal, financial, and strategic responsibilities. Board members must navigate fiduciary duties, compliance requirements, financial oversight, and governance challenges while ensuring the company’s long-term success.
The best boards don’t just react to problems they anticipate them. Directors who stay informed, exercise sound judgment, and uphold ethical standards can make a lasting impact on their organizations.
Understanding these principles is essential for professionals considering board service or advising boards. A well-run board is not just a legal necessity — it is a strategic asset that drives corporate success.
To learn more about this topic view Board Of Directors Boot Camp / Roles & Responsibilities: a Primer. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about the roles, structures, and duties of a board of directors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
US Treasury Issues Interim Final Rule That Removes the Requirement for US Companies and US Persons To Report Beneficial Ownership Information to Fincen Under the Corporate Transparency Act
The Financial Crimes Enforcement Network (FinCEN) announced on March 21, 2025, that FinCEN had issued its Interim Final Rule that provides that FinCEN will not require US companies and US persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA).
In the Interim Final Rule, FinCEN revised 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 US 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, to be determined following receipt of comments from the public and publication in the Federal Register. These foreign entities, however, will not be required to report any US persons as beneficial owners, and US persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
The Interim Final Rule will be effective immediately. In accordance with the Congressional Review Act, FinCEN has determined that “FinCEN for good cause finds that providing public notice or allowing for public comment before this Interim Final Rule takes effect is impracticable, unnecessary, and contrary to the public interest.”
The Interim Final Rule may be reviewed here.
While the March 21st, 2025, Interim Final Rule eliminates the CTA’s reporting requirements for “domestic reporting companies” and US persons, FinCEN could conceivably reverse or further revise such modifications with limited or no prior notice or comment. While this is not anticipated at this time under the current administration, companies and practitioners should continue to monitor CTA developments. The CTA also remains subject to various legal challenges.
For more information, click here.
Alexander Lovrine contributed to this post.