Throwing Away the Toaster: Where AI Controls Are Now and May be Heading
Years ago, when I was a baby lawyer living in a group house in DC, we had a toaster—my toaster. I had owned the toaster since college and it was showing its age. Eventually, you had to hold down the thing[1] to keep the bread lowered in the slots and toasting. But the appliance still heated bread and produced toast. One morning, I became so frustrated with that toaster and the thing-holding-down effort that I threw the toaster out, fully intending to get a new toaster.
The following day, my housemate, we’ll call him Mike,[2] raised an important series of questions:
Mike: Did you throw away the toaster?
Me: Yes. I was frustrated that it did not work right.
Mike: Did you get a new toaster?
Me: No, but I will soon.
Mike: Did our old toaster make toast?
Me: [pause] Ah . . . well, I mean, umm, yes. I see your point.
Anyhow, on a possibly related note, on May 14, 2025, BIS announced that it will rescind the AI Diffusion Rule and that, until the time of the official recission, would not enforce the Biden-era regulation.
Stop-Gap Stopped
Reading the BIS announcements, it appears that, once the AI Diffusion Rule is officially rescinded, there will not be any U.S. export control that restricts the provision of cloud computing through Infrastructure as a Service (IaaS). While the export of the certain ICs will still be controlled, ICs already owned or lawfully obtained could be put to any purpose, such as providing IaaS services for the development of AI in China.
If we return to October 2023, we see a comment made regarding the 2022 semiconductor regulations, highlighting that those rules, as then written, “may give China computational access to their equivalent ‘supercomputers’ via an IaaS arrangement.” (88 Fed. Reg. 73467). BIS acknowledged that the semiconductor regulations did not then cover IaaS, when it recognized that it was “concerned regarding the potential for China to use IaaS solutions to undermine the effectiveness of the October 7 IFR controls and [BIS] continues to evaluate how it may approach this through a regulatory response.” A plain reading of that statement indicates that the semiconductor regulations were not meant to (or could not be read to) cover IaaS.
However, the 2025 AI Diffusion Rule attempted to cover to that regulatory loophole and prohibit IaaS access for Chinese AI development. The Rule created ECCN 4E091 to cover certain AI models and then created a presumption that certain IaaS services would result in an unauthorized export of those 4E091 AI models. Effectively, that presumption created a restriction on cloud service providers to be able to provide certain IaaS services to entities in the PRC. With the recission of the AI Diffusion Rule, it appears that the loophole has been reopened.
Guidance Through and Inter-Rule Interim
In tandem with the rescission of the AI Diffusion Rule, BIS also issued three guidance documents that (1) put companies on notice that the Huawei Ascend 910 series chips are presumptively subject to General Prohibition 10[3], (2) provides guidance on due diligence that companies can conduct to prevent diversion of controlled ICs, and (3) reiterates existing controls that put restrictions on certain end-users and end-uses.
Those three guidance documents give the impression of a certain tension in the rulemaking process and they provide some hints as to be in store for the replacement AI rule:
On one hand, the new administration rescinded the AI Diffusion Rule in line with, if not in response to, calls from U.S. AI-related industry. The administration also recognized that there may have been flaws with the AI Diffusion Rule. For instance, the tiered approach to limiting and restricting exports of controlled ICs exclude many countries that are friendly to the U.S.—such as Iceland, Israel, and much of the EU and Eastern Europe. The AI Diffusion Rule did not put those U.S.-aligned countries on a tier in which they could freely acquire U.S. AI-supporting chips and, additionally, did not present a clear path for how those countries could move into the more favored tier.
As an alternative to the tiered approach researchers have suggested the idea of a country-by-country approach. That approach appears to be consistent with the administration’s recent trip to the Middle East, where it is reported that agreements with Saudi Arabia and the UAE have been negotiated to purchase U.S. producers’ GPUs (notwithstanding the fact that, under current regulations, those countries face restrictions on the purchase of certain advance semiconductors because of diversion risk).
While major semiconductor manufacturers have been the face of the recission effort, other major AI infrastructure players have been lobbying the administration to have the rule rescinded. Those companies had established or were working on data center projects in countries like Malaysia, Brazil, or India that were affected by the AI Diffusion Rule, particularly in how it limited compute capacity in those countries and restricted the use of the data centers.
On the other hand, with the AI Diffusion Rule scrapped, and no replacement ready, we suspect that officials at Commerce could be concerned about the re-opening of the IaaS loophole. The guidance documents appear to attempt to try to cover the gap left by the recission of the AI Diffusion Rule. In those guidance documents, BIS explains a policy whereby sellers of controlled ICs would need to conduct additional due diligence of IaaS providers when red flags are present. That approach stands in contrast to the AI Diffusion Rule, which put some diligence requirement on the service providers. In that we see a significant clue that a new replacement rule will likely find some way to restrict IaaS providers, but balance the interests of U.S. chip manufacturers and AI hyperscalers.
The guidance also announced the Huawei Ascend 910-series chips were presumptively a foreign direct product and subject to the EAR, presumptively violative of the EAR, and ultimately subject to General Prohibit 10. Ostensibly, that guidance could have a chilling effect on the purchase of Huawei chips, particularly in countries that wish to align with U.S. policy, and would help U.S. semiconductor manufacturers regain any ground lost to Huawei in those markets.
Striking a Balance in the New AI Rule
Looking to the future, the yet-to-be-seen replacement rule is going to have to balance the competing interests of a U.S. semiconductor and AI industry that want to expand freely and globally, and the national security concerns of those in government who would want restrict access to advanced semiconductors and AI technology by countries of concern.
For example, U.S. chipmakers will want to continue selling their leading edge GPUs to data centers in Malaysia and India. At the same time, U.S. export policy hawks would want to mitigate the risk of putting immense compute power proximate to, and potentially at the disposal of, PRC AI developers. Additionally, cloud service providers in Southeast Asia will want to be able to sell their services to the largest customer in the region, and would consider using Huawei chips over U.S. alternatives if it meant they could do so. That may mean that BIS cannot put too many restrictions on the region before the chipmakers and hyperscalers begin to voice objections and press to reduce the regulation.
Now that we have thrown away the toaster, selecting a new one—writing a new AI diffusion regulation—will require regulators to walk a narrow line to satisfy the interests of both industry and national security. Those interests are not necessarily opposed to one another, but their interests may be divergent, and it will be up to drafters to find a potentially very narrow common ground.
FOOTNOTES
[1] You know. The thing. It’s a technical term in the appliance repair world.
[2] Because that was his name. In fact, it still is.
[3] General Prohibit 10—or GP10 as it is affectionately known around the Sheppard Mullin offices—is a comprehensive prohibition on essentially doing anything with an item, including destroying or moving the item, if has caused a violation or will cause a violation of the EAR.
Workplace Strategies Watercooler 2025: The AI-Powered Workplace of Today and Tomorrow [Podcast]
In this installment of our Workplace Strategies Watercooler 2025 podcast series, Jenn Betts (shareholder, Pittsburgh), Simon McMenemy (partner, London), and Danielle Ochs (shareholder, San Francisco) discuss the evolving landscape of artificial intelligence (AI) in the workplace and provide an update on the global regulatory frameworks governing AI use. Simon, who is co-chair of Ogletree’s Cybersecurity and Privacy Practice Group, breaks down the four levels of risk and their associated regulations specified in the EU AI Act, which will take effect in August 2026, and the need for employers to prepare now for the Act’s stringent regulations and steep penalties for noncompliance. Jenn and Danielle, who are co-chairs of the Technology Practice Group, discuss the Trump administration’s focus on innovation with limited regulation, as well as the likelihood of state-level regulation.
Section 899: Proposed Legislation Would Increase US Tax Rates on Many Foreign Individuals, Companies, and Governments
Under the proposed Defending American Jobs and Investment Act, introduced in the House of Representatives and approved by the House Ways and Means Committee on May 14, 2025, as part of the Trump administration’s tax package known as “The One, Big, Beautiful Bill,” a new Section 899 would be added to the Internal Revenue Code. This proposed provision—titled “Enforcement of Remedies Against Unfair Foreign Taxes”—represents a significant new international tax enforcement measure.
According to the administration, the proposed Section 899 is intended to serve as a strong legislative response to the growing use of foreign tax regimes that, in its view, unfairly target and burden U.S. businesses and individuals operating abroad. The provision would authorize countermeasures against persons and companies located in jurisdictions that impose what the legislation defines as an “unfair foreign tax.”
The bill is expected to be considered by the full House next week as part of the reconciliation measure. Presuming it passes the House, this portion of the reconciliation measure will then be considered by the Senate Finance Committee, where provisions of the House measure could be changed, and then the full Senate.
Go-To Guide
Proposed Section 899 would significantly increase U.S. federal income tax rates—by 5% to 20%—on certain types of income earned by non-U.S. individuals and entities that are tax residents of, or are established or effectively managed in, “discriminatory foreign countries.” These jurisdictions are defined as those that impose an “unfair foreign tax” under the proposed legislation.
These elevated rates would apply to passive U.S. source income (such as dividends, interest, royalties, and rents), as well as income effectively connected with a U.S. trade or business (ECI).
The legislation defines “unfair foreign taxes” broadly, encompassing digital services taxes and other measures that have been widely adopted by foreign jurisdictions. As a result, a large number of non-U.S. individuals and entities could fall within the scope of the increased tax rates.
These higher rates would apply across a broad spectrum of existing tax provisions and would affect nonresident individuals, foreign corporations, and even sovereign entities.
If enacted, Section 899 would introduce substantial economic and compliance challenges, particularly for foreign governments, multinational enterprises, and investors with connections to jurisdictions that impose taxes perceived to disproportionately impact U.S. interests—such as digital services taxes or global minimum tax regimes.
Taxpayers potentially impacted by this proposal should carefully assess how their U.S. tax exposure could change under the new rules and evaluate possible strategies to mitigate adverse effects.
Click here to continue reading the full GT Alert.
Brussels Regulatory Brief: April 2025
Antitrust and Competition
European and UK Antitrust Enforcers Impose Fines Over End-of-Life Vehicles Recycling Cartel
On 1 April 2024, both the European Commission (the Commission) and the UK Competition and Markets Authority (CMA) fined major car manufacturers and trade associations for participating in a 15-year long cartel concerning end-of-life vehicle recycling. The Commission’s and CMA’s decisions highlight the authorities’ interest in pursuing novel theories of harm that may have an adverse impact on the green transition.
Financial Affairs
EU Institutions Finalize Omnibus I; EFRAG adopts Work Plan to Simplify ESRS
The European Parliament and the Council of the European Union finalized the legislative procedure for Omnibus I, while the European Financial Reporting Advisory Group (EFRAG) adopted the work plan detailing next steps for European Sustainability Reporting Standards (ESRS) simplification.
Commission Presents Savings and Investments Union
The Commission presented its Savings and Investment Union, outlining future legislative and nonlegislative initiatives to strengthen EU capital markets.
Sanctions
European Court of Justice Confirmed that the Ban on the Export of EU Banknotes to Russia Also Applies when the Money Is Intended to Finance Medical Treatments
The European Court of Justice ruled that only amounts strictly necessary for travel and basic living expenses may be brought into Russia.
Antitrust and Competition
European and UK Antitrust Enforcers Impose Fines Over End-of-Life Vehicles Recycling Cartel
On 15 March 2022, the European Commission (Commission) and the UK Competition and Markets Authority (CMA) conducted parallel unannounced inspections (dawn raids) at the premises of companies and trade associations active in the automotive sector in several EU member states and in the United Kingdom. On 1 April 2025, the Commission fined 15 major car manufacturers and a trade association a total of approximately €458 million for participating in a 15-year-long cartel concerning the recycling of end-of-life vehicles (ELVs), i.e., cars that are no longer fit for use, either due to age, wear and tear, or damage. On the same day, the CMA imposed fines against 10 car manufacturers and two trade associations of approximately £77.7 million for breaching UK competition law for a similar conduct affecting the UK market.
Both the Commission and the CMA found that the parties infringed EU and UK competition law by colluding on two aspects:
Car manufacturers agreed not to pay car dismantlers for processing ELVs and shared commercially sensitive information on their individual agreements with car dismantlers. The car dismantlers were therefore unable to negotiate a price with the car manufacturers.
The parties also agreed not to advertise how ELVs could be recycled, recovered, and reused, and how much recycled materials are used in new cars. The Commission stated that the car companies’ objective was to prevent consumers from considering recycling information when choosing a car, which could lower the pressure on companies to improve their environmental efforts and go beyond legal requirements on recyclability.
The Commission’s and CMA’s investigations involved trade associations that were found to act as a facilitator of the cartel by arranging meetings and contacts between car manufacturers.
Both investigations were triggered by a leniency application submitted by one of the cartel participants. As this participant has revealed the cartel, it was not fined and received full immunity from penalties. In addition, all companies admitted their involvement in the cartel and agreed to settle the case, which reduced the fine by 10% in the Commission’s investigation and 20% in the CMA’s investigation.
Teresa Ribera, executive vice president for Clean, Just and Competitive Transition, commented:
We will not tolerate cartels of any kind, and that includes those that suppress customer awareness and demand for more environmental-friendly products. High quality recycling in key sectors such as automotive will be central to meeting our circular economy objectives, not only to cut waste and emissions, but also to reduce dependencies, lower production costs and create a more sustainable and competitive industrial model in Europe.
The Commission also stated that this investigation was the largest settlement case it has concluded so far. This shows that the Commission can use the settlement procedure in exceptionally large settlement cases. Also, this parallel investigation illustrates the Commission’s and the CMA’s close coordination in investigating novel theories of harm that may have an adverse impact on the green transition.
Financial Affairs
EU Institutions Finalize Omnibus I; EFRAG Adopts Work Plan to Simplify ESRS
On 3 April, the European Parliament approved the text of the first part of the Omnibus package (Omnibus I). Omnibus I postpones the application date of the reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) by two years for certain groups of companies, and it also postpones the transposition deadline as the first wave of application of the Corporate Sustainability Due Diligence Directive by one year. Members of the European Parliament (MEPs) largely supported the proposal: 531 voted in favor, 69 against, and 17 abstained. The pro-European political groups (the European People’s Party, the Socialists and Democrats, and Renew Europe) were able to reach an agreement to approve the content of the proposal a few hours before the votes. Further, the final text of Omnibus I was published in the Official Journal of the European Union on 17 April and is now in force at the EU level. The directive mandates member states to transpose it into national law by 31 December 2025.
In a related development, the European Financial Advisory Reporting Group (EFRAG) adopted its work plan on the simplification of European Sustainability Reporting Standards (ESRS) under CSRD. This review is part of EFRAG’s broader mandate to assess the entire ESRS framework, as set out in a mandate letter from Commissioner Maria Luís Albuquerque. EFRAG is expected to submit its technical advice to the Commission by 31 October 2025.
Now that the first part of the package is completed, MEPs and member states at the Council of the European Union are discussing internally their approach to the second part (Omnibus II), which introduces substantial simplification amendments to the obligations and requirements notably comprised in these two frameworks. Check this article for a summary of the proposed amendments by Omnibus II.
Commission Presents Savings and Investments Union
On 19 March, the Commission issued a Communication on the Savings and Investments Union, seeking to offer EU citizens broader access to capital markets and better financing opportunities for businesses. The strategy focuses on four key pillars: (i) citizens and savings, (ii) investments and financing, (iii) integration and scale, and (iv) efficient supervision in the single market. For each pillar, the Commission underlined both legislative and nonlegislative actions to be adopted throughout 2025 and 2026.
For citizens and savings, the Commission underlined that it would facilitate negotiations between the European Parliament and member states on the Retail Investment Strategy, but it will not hesitate to withdraw the proposal if the negotiations do not meet the objectives of the strategy. Key initiatives include a review of pension frameworks to bolster retail investor participation, a financial literacy strategy by Q3 2025, and a EU-wide framework for savings and investment accounts. For the investment and financing pillar, the Commission aims to facilitate equity investments by institutional investors, revise Solvency II criteria for long-term equity investments, and streamline securitization requirements by mid-2025, with additional reforms targeting private market liquidity due in 2026.
On integration and supervision, the Commission plans to reduce capital market fragmentation and enhance cross-border activity through emerging technologies such as artificial intelligence, simplifying rules for asset managers and potentially reviewing the Shareholders Rights Directive. In the context of capital markets integration, the Commission launched a public consultation to gather views on obstacles to financial markets integration across the European Union. On oversight, reforms to the European Supervisory Authorities could delegate supervisory powers to EU-level bodies, particularly for crypto services and large cross-border managers.
The Commission will conduct a midterm review of the strategy by mid-2027 to assess progress and refine initiatives.
Sanctions
European Court of Justice Confirmed that the Ban on the Export of EU Banknotes to Russia Also Applies when the Money Is Intended to Finance Medical Treatments
Under EU sanctions imposed on Russia, it is prohibited to sell, supply, transfer, or export banknotes denominated in any official currency of an EU member state to Russia or to any natural or legal person, entity, or body in Russia, including the Russian government and the Central Bank of the Russian Federation, or for use in Russia. Only three limited exemptions to this general ban exist: (i) export of banknotes for the personal use of natural persons traveling to Russia or members of their immediate families traveling with them, (ii) export of banknotes for the official purposes of diplomatic missions, or (iii) export necessary for civil society and media activities that directly promote democracy, human rights, or the rule of law in Russia.
In case C-246/24, Generalstaatsanwaltschaft Frankfurt am Main, delivered on 20 April 2025, the European Court of Justice addressed the situation where German customs officers discovered a passenger heading to Russia carrying nearly €15,000 in banknotes. The passenger stated the money was intended not only for travel costs but also for medical procedures in Russia, including dental work, hormone therapy for fertility, and follow-up care after breast surgery. Authorities confiscated most of the money, permitting the passenger to retain around €1,000 for travel-related needs.
The court ruled that carrying banknotes to Russia for medical treatment does not qualify as personal use under the exemption. The court reiterated that exceptions are to be interpreted strictly so that general rules are not negated. A broad interpretation of the exemption would result in a situation where it would be possible to transfer to Russia, without restriction, large sums of banknotes to make personal purchases of any kind there, and, moreover, it would be difficult to verify that such purchases are carried out.
The exemption in question is limited to covering costs directly related to the journey and stay—medical treatments do not fall within that scope, as the EU sanctions are ultimately intended to prevent the Russian economic system from gaining access to cash denominated in any currency of a EU member state to support Russia’s activities in the war in Ukraine.
Additional Authors: Petr Bartoš, Vittoriana Todisco, Kathleen Keating, Sara Rayon Gonzalez, Covadonga Corell Perez de Rada, Simas Gerdvila, Edoardo Crosetto, and Martina Pesci.
Europe: Ireland Agrees Mutual Recognition of Funds Framework With Hong Kong
The Central Bank of Ireland (CBI) and the Securities and Futures Commission of Hong Kong (SFC) entered into a Memorandum of Understanding on 14 May 2025 establishing a framework for the mutual recognition of funds (MRF) between the two jurisdictions.
SFC developed the MRF programme to streamline the distribution of partner country funds to the public in Hong Kong and of Hong Kong funds in partner countries. Ireland is the sixth European partner country to participate in the framework following Switzerland, France, the UK, Luxembourg and the Netherlands. As part of the programme, the SFC has launched a new Fund Authorisation Simple Track scheme, known as FASTrack, which allows for authorisation in Hong Kong of MRF eligible funds within 15 business days.
As part of its agreement with the CBI, the SFC has announced that the following Irish UCITS funds will meet its MRF eligibility requirements:
(a) General equity funds, bond funds, mixed funds and funds that invest in other schemes;(b) Feeder funds where the underlying funds fall within (a), (c), (d) or (e).(c) Unlisted index funds;(d) Passively managed index tracking ETFs; and(e) Listed active ETFs.
In addition, the UCITS must have a CBI authorised management company meeting certain capital requirements, appoint a Hong Kong based representative and comply with applicable Irish domestic laws and regulations relating to the sale, distribution and ongoing compliance of funds.
The inclusion of ETFs is notable and will amplify focus on accessing the ETF Connect programme between Hong Kong and Mainland China and further discussions as to whether there may be a future entry point for Irish ETFs.
Overall, this is a very welcome development for Irish UCITS funds and should increase Hong Kong’s attractiveness as a target country for distribution.
Global Trade in 2025: Outbound Investment Restrictions
Motivated by a rapidly evolving geopolitical climate, governments around the globe have increasingly scrutinized and intervened in transactions under foreign direct investment (FDI) screening regimes in recent years. Rising protectionism, concerns over cybersecurity threats, Covid-19 and the desire to protect critical domestic industries have driven the expansion of FDI regimes beyond purely national security or defense specific industries.
More than 100 jurisdictions now apply FDI screening in some form. The notification triggers and review processes vary significantly between these regimes, and their proliferation has significantly increased complexity for investors planning cross-border investments.
The New Frontier: Outbound Investment Screening
Having spent the last few years building and/or refining inward investment screening, governments are now turning to outbound investment screening, amidst concerns about economic dependence and technology leakage. Governments are increasingly concerned about offshoring of critical capabilities, which can facilitate the development of sensitive technologies in potentially hostile states and lead to over reliance on third countries, creating economic dependencies that can be exploited for geopolitical purposes.
The People’s Republic of China (PRC), Japan, South Korea and Taiwan already have outbound investment screening for domestic entities, primarily in sectors considered critical to national security and technological competitiveness. The US and Europe are now catching up, with US screening for outbound investments into certain sectors in “Countries of Concern” applicable from January 2025, and the EU launching an outbound investment monitoring exercise in similar categories of critical technology. While the EU and UK have not implemented formal outbound investment screening, each has signaled its concerns.
US: Outbound Investment Program (Executive Order 14105)
Regulatory expansions to maintain US technological leadership have included rules to monitor and restrict outbound investment – so-called “reverse CFIUS.” On August 9, 2023, President Biden issued Executive Order 14105 – “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” On October 28, 2024, the US Department of the Treasury issued final regulations implementing Executive Order 14105, which address investments by US persons in certain identified technologies in “Countries of Concern”, including PRC and the Special Administrative Regions of Hong Kong and Macau.
The regulations, which became effective January 2, 2025, prohibit certain transactions by US persons implicating highly strategic technologies, and create a post-closing notification requirement for certain other transactions. Under the regulations, the obligations on US persons will apply if such person has actual or constructive knowledge of relevant facts or circumstances relating to a transaction. A US person has such knowledge under the regulations if it possesses actual knowledge that a fact or circumstance exists or is substantially certain to occur; an awareness of a high probability of the existence or future occurrence of a fact or circumstance, or could have possessed such awareness through a reasonable and diligent inquiry.
The categories of covered transactions include the acquisition of an equity interest or a contingent equity interest, certain debt financing that grants certain rights to the lender, the conversion of a contingent equity interest, certain “greenfield” investments (building a new facility) or other corporate expansions, the entry into a joint venture, and certain investments as a limited partner or equivalent (LP) in a non-US person pooled investment fund. Excepted transactions include investments in publicly traded securities, certain LP investments with a threshold of $2,000,000, derivatives, buyouts of country of concern ownership, intracompany transactions, certain pre-final rule binding commitments, certain syndicated debt financings, and equity-based compensation.
The regulations apply to the conduct of US persons only and defines a US person as “any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States, including any foreign branch of any such entity, or any person in the United States.” Under the America First Investment Policy issued in February 2025, the US administration is considering new or expanded restrictions on US outbound investment in the PRC in sectors such as semiconductors, artificial intelligence, quantum, biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by the PRC’s national Military-Civil Fusion strategy.
EU: Market Monitoring to Inform Future Policy on Outbound Investment Screening
On January 15, 2025, the European Commission published a Recommendation on reviewing outbound investments in technology areas critical for the economic security of the Union. The Recommendation asks EU Member States to review investments made between January 2021 and June 2026 by EU-based investors into third countries in three critical technologies for economic security: semiconductors, artificial intelligence and quantum technologies.
The EU Recommendation applies to acquisitions, mergers, “greenfield” investments, joint ventures, venture capital investments and the transfer of certain tangible and intangible assets, including IP or know-how. Non-controlling investments limited to seeking a return on invested capital are excluded. Member States are requested to gather information through mandatory or voluntary notification processes, and to perform a risk assessment of covered transactions with the European Commission.
The EU Recommendation covers the same three technologies as the US outbound regulations, although some of the definitions are narrower. The US outbound regulations also apply to non-controlling investments, although in other respects the EU Recommendation is wider because it covers all third countries as well as IP licensing.
This will be a significant information gathering exercise for transaction parties, Member States and the European Commission, with Member State progress reports due in July 2025 and final reports in July 2026. The review will inform a decision on whether further action is needed to regulate outbound investment at EU and/or national level.
In the meantime, Member States are continuing to expand FDI screening regimes for inward investment, with Ireland’s the latest to come into force in January, and Greece publishing its proposed screening framework in April. On May 8, 2025, the European Parliament endorsed revised rules for screening foreign investments into and within the EU. Under the proposed new rules, certain sectors such as critical raw materials and transport infrastructure will be subject to mandatory FDI screening by Member States. National procedures will be harmonized, and the Commission will have the power to intervene. Member States are now negotiating the text of the legislation, currently aiming to reach agreement in June.
UK: Position on Outbound Investment
In May 2024, the UK government published updated guidance on the National Security and Investment Act (NSIA), emphasizing that it can apply to “outward direct investment” from the UK. The NSIA may apply to the acquisition of an entity or asset outside the UK if the entity carries on activities in the UK or supplies goods or services to the UK, or the asset is used for these purposes.
This is not a change. It has been the position since the NSIA came into force in January 2022. However, it is noteworthy that the UK government chose to underline these powers and provide examples of when the NSIA would apply to acquisitions of a non-UK entity or asset.
The UK government has indicated that it is considering more substantive rules on outward investment screening, to complement the existing tools of export controls and inbound investment screening.
Strategies For Asset Managers to Mitigate Risks to Deal Certainty, Timelines and Costs
Conduct outbound investment reviews early in the deal process to assess exposure to “countries of concern” (e.g., China, Hong Kong, Macau).
Screen for sector sensitivity — artificial intelligence, quantum technology and semiconductors.
Include side-letter language addressing outbound investment screening compliance.
Diligence efforts should conform to the knowledge standard in the US outbound regulations and include:
inquiries to the relevant counterparty (e.g. the prospective portfolio company, fund manager or seller).
contractual representations or warranties that the target portfolio company does not engage in the in-scope technologies; or that the target fund is not a covered foreign person.
consideration of relevant public and non-public information, including the use of available public and commercial databases to verify information provided by the counterparty.
Monitor the evolving regulatory landscape and be prepared to adjust investment strategies and structures accordingly. Understanding the underlying policy drivers will enable investors to navigate regimes more effectively and reduce execution risk.
And finally…reconsider your government relations strategy: governments are trying to strike a balance between protecting national interests and encouraging investment, so they are continually seeking feedback and there are many opportunities to shape the policy debate.
Todd J. Ohlms, Robert Pommer, Seetha Ramachandran, Nathan Schuur, Jonathan M. Weiss, Mary Wilks, William D. Dalsen, Adam L. Deming, Adam Farbiarz, and Hena M. Vora contributed to this article
What’s That? WhatsApp Creates Legally Binding Contract (UK)
As insolvency practitioners (IPs) it is not unusual to have to consider the terms of a particular contract, whether that is enforcing the terms of that for the insolvent entity or considering the rights of the third party as against the company, and in some cases, it is necessary for IPs to enter into a contract themsleves.
This blog from our colleagues in IP & Technology highlights how easy it can be to (inadvertently) create a legally binding contract – in this case by WhatsApp – standing as a reminder to IPs that exchanges of messages could be relevant when considering a third party contract, but also that care should be taken when exchanging messages so as not to create a binding contract when not intended.
Private Equity in Australia: Upcoming Mandatory Merger Laws and Foreign Investment Changes
WHAT’S ON THE AUSTRALIAN REGULATORY HORIZON?
In this publication, we provide an overview of certain upcoming changes for private equity funds and their investors (both Australian and foreign) investing in Australia.
The key takeaways are set out below.
New Mandatory Merger Control Regime
A new mandatory merger control notification regime will be introduced effective from 1 January 2026, with transitional provisions starting from 1 July 2025.
Draft Guidelines by the Australian Competition and Consumer Commission (ACCC) and draft Determinations by the Australian Government have been released for consultation. However, there remains uncertainty about several matters, including how a “change of control” and calculation of monetary thresholds are intended to operate in a private equity context. Future government Determinations may clarify these issues. We are working with industry to make submissions to the government to clarify these issues in a manner that does not “chill” investment.
The government has also published draft notification forms under the draft Determination which require merger parties to specify whether their Sale and Purchase Agreement (SPA) contains any goodwill protection provisions (including noncompetes and restraints of trade). The ACCC will now have the power to declare that the existing “goodwill exemption” to the cartel conduct provisions under the Competition and Consumer Act 2010 (Cth) (CCA) does not apply if it considers that a particular noncompete, restraint of trade or other goodwill protection provision was not necessary for the protection of the purchaser in respect of the goodwill of the target business.
Foreign Investment Framework–Updates for Foreign Private Equity Funds and Foreign Investors
It is currently unclear how the new merger regime (and the ACCC) will interact with the foreign investment framework (and Foreign Investment Review Board (FIRB) processes), including the interaction between the FIRB and ACCC waiver regimes–detailed guidance is yet to be released.
The final stage of Treasury’s new Foreign Investment Portal (the Portal) is expected to launch by the end of May 2025, after which the entire FIRB application process (including communications with Treasury) will be facilitated electronically through the Portal.
Treasury recently released updated the Guidance Note 12–Tax Conditions, which interestingly removed the “standard tax conditions” but included more examples of tax conditions that may be imposed by the Australian Taxation Office (ATO) and Treasury on a case-by-case basis. In addition, it includes an updated tax checklist which the ATO now expects to be answered at the same time as lodging the FIRB application (rather than the current practice of seeking to defer this to after lodgement). Treasury has also updated Guidance Note 10–Fees to introduce a refund/credit scheme for filing fees in an unsuccessful competitive bid.
Next Steps
We will continue to update you on further developments in relation to the new merger control and foreign investment regime, including release of the subordinated merger legislation, which will, amongst other things, determine the final monetary thresholds by which merger notification will be required.
UPCOMING MANDATORY MERGER NOTIFICATION LAWS
In Australia, the merger control regime is underpinned by section 50 of the CCA, which prohibits mergers or acquisitions that would substantially lessen competition (SLC Rule) in any market in Australia.
While at present it is not compulsory for acquisitions to be notified to the ACCC, the Australian Government has passed the Treasury Laws Amendment (Mergers and Acquisitions Reform) Act 2024 (Cth) (the Act) such that as of 1 January 2026, a new mandatory and suspensory merger control regime will be introduced.
Under the new regime:
Any acquisitions of shares, assets, units and other defined interests involving a “change of control” that meet certain monetary thresholds (outlined further below) will be required to be notified to the ACCC and approved (i.e. determined that they do not breach the SLC Rule) prior to completing.
The SLC Rule has been broadened to encompass scenarios where a merger or acquisition results in the “creation, strengthening, or entrenchment of a substantial degree of market power”, not just a lessening.
Businesses can use the Clearance Procedure voluntarily from 1 July 2025, and it will be mandatory from 1 January 2026.
Thresholds–When Notification is Required
Set out on the next page is a flowchart which illustrates which transactions must be notified to the ACCC under the new regime:
Source: James Gray, K&L Gates LLP
As set out above, whether a transaction must be notified to the ACCC essentially depends on whether it results in a “change of control”, and if so, whether it meets certain monetary thresholds. Set out below is some additional detail on the change of control requirements and the monetary thresholds, noting that there remains uncertainty about how these are intended to operate in a private equity scenario.
Future government Determinations may clarify these issues. We are working with industry to make submissions to the government to clarify this issue in a manner that does not “chill” investment.
Control Threshold
A “change of control” is enlivened in respect of acquisitions of full or partial interests in shares, unit trusts and managed investment schemes. Acquisitions that do not result in a change in control are not required to be notified.
“Control” will be defined having regard to section 50AA of the Corporations Act 2001 (Cth) (Corporations Act)–i.e. as being the capacity to determine the outcome of decisions about an entity’s financial and operating policies.
We note that there is a degree of certainty regarding “control” issues. While the Act provides a “safe harbour” from the notification requirements for acquisitions of interests of less than 20%, the government has also foreshadowed that it intends to use its designation powers to require transaction parties to notify the ACCC of acquisitions of less than 20% of the voting rights in private/unlisted companies, where one of the parties to the transaction has an Australian turnover of more than AU$200 million.
This issue was not addressed in the Consultation Draft of the Determination published by the government on 28 March 2025, which otherwise provided considerable detail about the Mandatory Regime, including the information and documentary requirements that will be required to be provided to the ACCC. For more detail about the Determination, click here. Future government Determinations may clarify this issue.
Acquirer Turnover Thresholds
More generally, there is uncertainty as to how the acquirer “turnover thresholds” will be assessed for the economy-wide, large acquirer and serial acquirer thresholds for private equity investments, particularly in relation to:
Taking into account the turnover of “connected entities” (being associated entities for the purposes of section 50AAA of the Corporations Act and entities controlled by a principal party for the purposes of section 50AA of the Corporations Act) to calculate acquirer turnover in a private equity fund context given these Corporations Act concepts do not necessarily fit neatly with private equity fund structures, which may also include cross-shareholdings and cross-directorships.
The creation of a “new” fund for the purposes of industry or deal-specific investments.
Certain changes to the limited partners of a private equity fund (including secondaries) after a primary portfolio acquisition.
Where the fund is seeking to acquire interests/minority interests in entities.
Again, future government Determinations may clarify this issue (e.g. to have regard to the turnover of the specific portfolio company or specific fund only).
For exits which meet the notification thresholds, private equity funds and investors should anticipate longer approval timelines and increased regulatory oversight and cost, potentially influencing deal structuring and exit strategies.
Private equity funds and their portfolio companies must also consider the cumulative competitive impact of their acquisitions in the immediately preceding three-year period, as the ACCC can now assess these transactions together, even if they were not individually reported. This will be particularly relevant to private equity funds and their portfolio companies engaged in “bolt-on” and “roll-up” acquisitions to existing portfolio companies to enhance value. To stay compliant, portfolio entities should track target sales generated at the time of acquisition and in the following years to determine if future deals fall within the relevant monetary thresholds and therefore require notification.
Process Changes–Clearance Timelines and Notification Fees
The new merger regime imposes statutory timelines for the ACCC’s consideration of transactions. We will provide further detail on these timelines in a forthcoming Insight on the ACCC’s draft Merger Process Guidelines.
Treasury has also indicated that it expects notification fees to be around AU$50,000 to AU$100,000 for most notifiable transactions. However, an exemption from fees will be available for some small businesses so that the fees are not a disproportionate burden.
These ACCC fees are in addition to any FIRB notification fees that may apply to foreign private equity funds and investors.
Transitional Arrangements
To assist businesses during this transition, the ACCC has released guidance detailing how to navigate the period leading up to the mandatory implementation. Key points include:
Current informal review and merger authorisation processes: Businesses can continue to use the existing voluntary notification regime throughout 2025. Early engagement with the ACCC is advised to ensure sufficient time for assessment before the new regime takes effect.
Voluntary Notification (1 July 2025–31 December 2025): From 1 July 2025, businesses have the option to voluntarily notify the ACCC under the new regime. This provides greater certainty regarding timeframes and ensures that transactions are aligned with the forthcoming mandatory requirements.
Noncompetes, Restraints and Goodwill Protection
Under current laws, noncompetes and restraints of trade included in an SPA are generally exempt from the per se cartel prohibitions to the extent its purpose is solely to protect the goodwill acquired by the purchaser (Goodwill Exemption).
The government has published a draft Determination which provides detail about the forthcoming mandatory merger regime. The draft Determination includes draft notification forms which merger parties will be required to adopt when notifying the ACCC. Notably, merger parties will be required to specify whether their SPA contains any goodwill protection provisions and to specify why they are necessary for the protection of the purchaser in respect of the goodwill of the business.
The ACCC will have the power to declare that the Goodwill Exemption does not apply to any goodwill protection provisions which it considers are “not necessary” for the protection of the purchaser in respect of the goodwill of the target business. A goodwill protection provision (e.g. a noncompete clause) is likely to be deemed as such if the ACCC considers that the duration or geographic scope of the provision is unnecessarily broad. Merger parties should therefore carefully consider the scope of any goodwill protection provisions that they propose to include in any SPA–and ensure that they do not go beyond what is necessary for the sole purpose of protecting the goodwill of the business.
Unnecessarily broad goodwill protection provisions which fall outside the scope of the Goodwill Exemption will expose merger parties to potential liability for engaging in cartel conduct–which is both a criminal and civil offence under the CCA. Merger parties should be aware that even if the ACCC does not object to the goodwill protection provision upon being notified of the transaction, this does not preclude the ACCC from commencing action under the anti-competitive conduct provisions of the CCA in relation to this provision at a later stage.
Interaction with FIRB Regime
FIRB and the Treasury have traditionally consulted with the ACCC about transactions notified to FIRB because competition is a factor relevant to the national interest test in Australia’s foreign investment framework under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and related Foreign Investment Policy and guidance notes.
It is currently unclear how the new merger regime and the ACCC will interact with the foreign investment framework and FIRB processes, including:
How the FIRB waiver regime will operate with the ACCC waiver regime.
How existing FIRB waivers granted by FIRB (after consulting with the ACCC) will operate under the new merger regime.
Whether Treasury may refer to a foreign acquisition to the ACCC for review even if that acquisition does not meet the merger thresholds.
The ACCC has noted in the ACCC’s draft Merger Process Guidelines that it is currently working with the Treasury on the interaction between the foreign investment framework and ACCC’s merger regime and that they will provide further guidance on how the two regimes operate together in due course.
It is expected that an applicant will be able to decide whether to submit a FIRB or an ACCC application first (i.e. there will not be a legal requirement to notify simultaneously, though it may still make sense to do so).
FOREIGN INVESTMENT CHANGES
Recap on Australia’s Foreign Investment Framework and FIRB
Background
Under Australia’s foreign investment framework, foreign persons may be required or encouraged to apply for foreign investment approval prior to taking certain actions. The approval is provided by the Australian Treasurer and confirms that the Commonwealth of Australia does not object to a particular action. It is commonly referred to as “FIRB Approval”, as the Treasurer receives advice from FIRB when deciding whether to approve an action.
Broadly, the framework is comprised of the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulations 2015 (Cth). Additionally, Australia’s Foreign Investment Policy and guidance notes provide further commentary and guidance.
Get Legal Advice Early
Australia’s foreign investment framework is complex, factually specific and continually changes. For foreign private equity investors (including sponsors, funds and their portfolio companies), Australia’s foreign investment framework and rules present a threshold issue that needs to be considered across all stages of the private equity investment life cycle against Australia’s foreign investment policy settings. Foreign private equity investors should seek legal advice for each and every investment into Australia to avoid breaching the foreign investment rules.
Other FIRB Updates for Foreign Private Equity Funds and Foreign Investors–Timelines, Lodgement, Tax Conditions and Fees
FIRB has made welcome headway in shortening its response times for straightforward decisions over the last year. Treasury’s new Portal is now live for compliance reporting. The final stage of the Portal is expected to launch by the end of May 2025, after which the entire FIRB application process (including communications with Treasury) will be facilitated electronically through the Portal.
On 14 March 2025, Treasury released updated Guidance Note 12–Tax Conditions. These changes reflect the tax risks and tax conditions that the ATO has been focused on and has imposed when reviewing recent foreign investment applications. Of note:
Interestingly, the guidance note no longer sets out “standard tax conditions” but does include more examples of tax conditions that may be imposed by the ATO and Treasury on a case-by-case basis.
Also included is an updated tax checklist which applicants are usually requested to answer post-lodgement of a FIRB application. However, the ATO now expects that information to be included in the FIRB application itself (rather than submitted during the FIRB review process or, sometimes, within three months of completion if relevant tax information is not available). If that tax information is not included in the initial application, the applicant must disclose why and when the information will be submitted. As noted above, these recent updates to FIRB’s tax guidance and the new Portal are likely to require front-loading of the provision of tax information by applicants.
Treasury has also updated Guidance Note 10–Feesto introduce a refund/credit scheme for filing fees in an unsuccessful competitive bid. This is a positive development; however, care needs to be taken to ensure that relevant eligibility criteria are met by unsuccessful bidders and credits or refunds can be applied in practice. Unsuccessful bidders can elect to take a refund equal to the lesser of 75% of the fee paid or the amount of the fee minus the minimum fee amount, currently AU$4,300 (which must be requested within six months of the unsuccessful bid) or a 100% credit for a subsequent FIRB application made within 24 months of the failed bid. Decisions regarding fee refunds or credits will still be made on a case-by-case basis following application and justification of the refund/credit request by applicants. It will be interesting to see if the new merger regime takes a similar approach to fees for unsuccessful competitive bids.
Overall, these changes are welcome and should assist to further support a shortening of average FIRB approval times but will require more upfront planning and disclosure by foreign applicants.
Walking the Talk, Ofcom’s Online Safety Act Enforcement
Back in March 2025, we published an article highlighting that Ofcom will be turning up the heat to ramp up pressure on platforms in relation to their duties to the UK’s Online Safety Act (OSA). There has been a flurry of activity from Ofcom on OSA compliance and it appears that the heat has indeed been turned up.
The First Wave
On 9 May 2025, Ofcom published that it has opened investigation into two services regulated under Part 5 of the OSA, namely Itai Tech Ltd and Score Internet Group LLC. This investigation was initiated as part of Ofcom’s January 2025 Enforcement Programme into age assurance. It appears that some services failed to respond to Ofcom’s request in January 2025 and do not appear to have taken steps to implement measures in line with their duties under the OSA. The duty being Part 5 service providers under the OSA must have highly effective age assurance in place from January 2025.
Less than a week later, on 12 May 2025, Ofcom further published that it is launching additional investigations into Kick Online Entertainment S.A for failing to keep a suitable and sufficient illegal content risk assessment and for failing to respond to a statutory information request.
As outlined in our March 2025 article, platforms were expected to have completed their illegal harms risk assessment by 16 March 2025 and their children’s access assessment by 16 April 2025. The investigation into Kick Online Entertainment S.A is a clear indication that Ofcom will have a direct and serious approach in relation to its OSA enforcement.
It’s Not Over
Ofcom has additionally written to a number of services under Part 3 of the OSA (i.e. user-to-user services and search services) noting the deadline for mandatory age assurance on services that allows pornography or adult content and reminding platforms of their duties under the OSA.
This shows that the initial round of enforcement programmes and investigations are just the beginning for Ofcom and further requests are likely to come, especially as the protection of children requirements come into force, details of which are outlined in our previous article available here.
Ofcom has further opened an enforcement programme into child sexual abuse imagery on file-sharing services so it would be expected that a number of platforms are already in the process of communicating with Ofcom in relation to comply with their OSA duties.
What to do when Ofcom (or anyone else) is knocking at your door
It is clear that Ofcom will not be ignored, if Ofcom writes to you, it is important you respond within the given timeframe. A failure to respond to requests has triggered three published investigations, platforms should be careful and take Ofcom seriously when they write to you, otherwise you may risk being named publicly by Ofcom.
Engagement with Ofcom shows that a platform is taking Ofcom seriously and fosters a cooperative culture. Ofcom has suggested in recent communications that it is willing to work with platforms so as to achieve the wider goal of improving online safety.
Whilst Ofcom is likely to take a pragmatic approach with enforcement, the duties under the OSA and its deadlines are very clear. Ofcom’s approach towards enforcement of this demonstrates a direct and serious approach that platforms should not take lightly. Otherwise, platforms are at risk of paying fines of up to £18m or 10% of global turnover, whichever is higher.
This should also apply to other regulators, such as the Information Commissioner’s Office (ICO), the UK’s regulator for personal data. The ICO have written to a large number of sites seeking a response on cookie banner compliance. Platforms should not ignore these communications or risk similar penalties to the OSA.
Larry Wong also contributed to this article.
China’s National People’s Congress Passes Promoting the Private Economy With IP Provisions
China’s National People’s Congress recently passed the Law of the People’s Republic of China on Promoting the Private Economy (中华人民共和国民营经济促进法) with several intellectual property provisions. The Law goes into effect on May 20, 2025 and aims to “help create a stable, fair, transparent and predictable environment for the development of the private economy,” e.g., to restrict government overreach that hurts private companies such as the 2021 crackdown on the private tutoring industry.
A translation of the relevant IP provisions follow. The full text is available here (Chinese only).
Article 21 Banking financial institutions and others shall, in accordance with laws and regulations, accept guarantee methods that meet the requirements of loan business, and provide loans secured by accounts receivable, warehouse receipts, equity, intellectual property rights, and other rights pledges to private economic organizations.
People’s governments at all levels and their relevant departments shall provide support and convenience for the registration, valuation, trading circulation, and information sharing of movable property and rights pledges.
Article 30 The State shall ensure that private economic organizations participate in standard-setting work in accordance with the law, and strengthen information disclosure and social supervision in standard-setting.
The State shall provide private economic organizations with services and convenience in terms of scientific research infrastructure, technology verification, standards and norms, quality certification, inspection and testing, intellectual property rights, demonstration applications, and other aspects.
Article 33 The State shall strengthen the protection of original innovations by private economic organizations and their operators. The protection of intellectual property rights for innovation achievements shall be strengthened, a punitive damages system for intellectual property infringement shall be implemented, and illegal acts such as infringement of trademark rights, patent rights, copyrights, trade secrets, and counterfeit confusion shall be investigated and dealt with in accordance with the law.
Regional and departmental collaboration for intellectual property protection shall be strengthened to provide private economic organizations with rapid collaborative protection of intellectual property rights, diverse dispute resolution, rights protection assistance, guidance on responding to overseas intellectual property disputes, and risk early warning services.
Article 36 Private economic organizations shall, in their production and business activities, comply with laws and regulations concerning labor employment, work safety, occupational health, social security, ecological environment, quality standards, intellectual property rights, network and data security, fiscal and taxation, finance, and other aspects; they shall not seek illegitimate interests through bribery, fraud, or other means, nor shall they disrupt market and financial order, damage the ecological environment, harm the legitimate rights and interests of workers, or compromise social public interests.
State organs shall supervise and manage the production and business activities of private economic organizations in accordance with the law.
The BR International Trade Report: May 2025
Recent Developments
Various trade deals in the air.
U.S.-China trade deal: Washington and Beijing take steps to ease trade war. On May 12, the United States and China announced a deal to deescalate the trade tensions between the two countries. The centerpiece of the deal is a 90-day pause to the 100+ percent tariffs each country had imposed on the other. As of May 14, the United States lowered its general tariff on Chinese goods to 30 percent, while China lowered its tariffs on American goods to 10 percent. During the 90-day pause, the countries will endeavor to negotiate a more lasting resolution to ongoing trade tensions.
Trump administration announces UK trade deal. On May 8, President Trump announced his administration’s first major trade deal since his “Liberation Day” unveiling of broad reciprocal tariffs on April 2. Leaders in Washington and London agreed to terms that would (i) establish a “new trading union” for aluminum and steel products, (ii) lower the tariff on UK-origin automobiles to 10 percent for the first 100,000 vehicles imported into the United States each year, and (iii) streamline customs procedures for products exported from the United States. Notably, under the terms of the deal, the United States’ 10 percent base reciprocal tariff on UK-origin goods remains in effect. Shortly after the agreement was announced, International Consolidated Airlines, the owner of British Airways, purchased $13 billion of Boeing planes.
White House announces trade deals with Saudi Arabia and Qatar. Over May 13-14, during President Trump’s visit to the Middle East, the White House announced a $600 billion investment commitment from Saudi Arabia and a $142 billion U.S.-Saudi arms deal, as well as “an economic exchange worth at least $1.2 trillion” with Qatar.
United States and Ukraine sign long-awaited critical minerals deal. On April 30, the United States and Ukraine signed a natural resources deal which establishes the U.S.-Ukraine Reconstruction Investment Fund (the “Investment Fund”). The Investment Fund grants the United States certain priority access to Ukrainian critical minerals, oil, and natural gas in exchange for military assistance. Unlike previous iterations of the deal, the April 30 agreement did not require Ukraine to reimburse the United States for past military aid. Treasury Secretary Scott Bessent emphasized that the deal embodies America’s efforts to encourage peace between Russia and Ukraine, stating “[t]his agreement signals clearly to Russia that the Trump Administration is committed to a peace process centered on a free, sovereign, and prosperous Ukraine over the long term.”
United Kingdom and India agree to trade deal. On May 6, after more than three years of negotiations, the United Kingdom and India announced a free trade deal, described by the UK government as “the biggest and most economically significant bilateral trade deal the UK has done since leaving the EU.” Meanwhile, the United States is seeking to enter into a significant trade agreement with India. In late April, Vice President JD Vance and Indian Prime Minister Narendra Modi met in India to “finalize[ ] the terms of reference for . . . trade negotiation[s].”
Semiconductor export controls. On May 13, Commerce announced a range of long-awaited actions regarding export controls (see our alert) applicable to advanced integrated circuits and computing items, including:
rescission of the Biden Administration’s “AI Diffusion Rule,” which was scheduled to significantly broaden preexisting controls over such items effective May 15;
informing the public that export licensing requirements may apply (a) to the export, re-export, and transfer of such items (such as to cloud providers) for use in training large AI models for persons in China and certain other restricted countries, where there is knowledge that such models are for use in WMD or military-intelligence applications, or (b) U.S. person “support” for such activity;
issuance of guidance regarding red flags that may present a risk of diversion of controlled items to prohibited end-users or end-uses; and
imposition of export licensing requirements applicable to most transactions worldwide involving certain Huawei “Ascend” chips, on the ground that such chips were produced in violation of U.S. export controls.
Section 232 investigations update.
Critical Minerals: On April 15, President Trump ordered the initiation of a Section 232 investigation into imports of processed critical minerals, which the U.S. Department of Commerce (“Commerce”) launched on April 22. Subsequently, he issued an April 24 executive order to spur the exploration and extraction of critical mineral deposits located on the seabed.
Trucks: On April 22, Commerce launched a Section 232 investigation into imports of certain medium- and heavy- duty trucks, their parts, and their derivatives. The probe aims to assess whether such imports compromise the country’s ability to meet domestic demand and pose risks to national security.
Aircraft, jet engines, and related parts: On May 1, Commerce Secretary Howard Lutnick initiated a national security investigation into imports of aircraft, jet engines, and related parts, which could lead to additional tariffs, among other measures. Among other factors, Commerce will investigate the concentration of U.S. imports of such items from a small number of suppliers, along with what Commerce described as “foreign government subsidies and predatory trade practices.”
President Trump orders rescission of Syria sanctions. During a speech in Saudi Arabia, the president announced his intent to remove all U.S. sanctions on Syria—in place for decades—explaining that his decision followed discussions with Saudi Crown Prince Mohammed bin Salman and Turkish President Recep Tayyip Erdoğan and aims to give Syria “a chance at greatness.” The next day, the president met with Syrian President Ahmad al-Sharaa, formerly associated with al-Qaeda, who led the rebel group that toppled the Assad regime in December 2024. This marked the first meeting between an American president and a Syrian leader since 2000.
U.S. Department of the Treasury (“Treasury”) announces intent to launch a “fast track” process for CFIUS review of foreign investments. Treasury’s May 8 announcement, issued under the auspices of President Trump’s February “America First Investment Policy” memorandum (see our prior alert), sets the stage for eventual implementation of streamlined review for preferred investors by the Committee on Foreign Investment in the United States (“CFIUS”). Treasury noted that it will design a pilot program featuring a “Known Investor Portal” through which CFIUS can collect information from foreign investors in advance of a CFIUS filing.
U.S. Trade Representative issues final rule on Chinese ships. On April 17, the Office of the United States Trade Representative (“USTR”) issued a final rule concerning the imposition of port fees on Chinese vessel operators, owners, and Chinese-built vessels. The rule seeks to implement steep tonnage-based port fees for both Chinese-built ships and Chinese-owned ships, with the intent of resurrecting the U.S. commercial shipbuilding industry. Following a 180-day implementation period, annually increasing tonnage-based fees will be levied at U.S. ports on Chinese-owned and operated ships, while Chinese-built ships face increasing fees based on net tonnage or containers. In addition, fees of $150 per car will be levied on all foreign-built car carriers, not just those with ties to China. After three years, incrementally increasing restrictions will be placed on the transportation of liquified natural gas (“LNG”) via foreign-built vessels. Check out our coverage of the final rule here.
Amidst U.S. trade tensions, incumbent governments retain power in Canadian and Australian elections.
Down in the polls by double digits only a few months ago, Canada’s Liberals surged in response to trade tensions with the United States and the resignation of longtime Prime Minister Justin Trudeau, who was replaced as party leader by Mark Carney. Conservative leader Pierre Poilievre, once considered the strongest contender to become prime minister, lost his parliamentary seat in the elections. The new government will look to reshape relations with the United States, which Prime Minister Carney initiated with a White House visit on May 6.
A similar story played out in Australia, where incumbent Labour Party Prime Minister Anthony Albanese fended off a challenge by Peter Dutton’s Liberal-National coalition. Similar to Canada, U.S. trade tensions loomed large in the election.
European Union announces retaliatory tariff plan against the United States. The retaliatory measures would target a list of almost 5,000 goods which total approximately $107 billion in European imports. Reports suggest that U.S.-origin aircraft and automobiles would be hit hardest by the tariff package.
UK Government takes control of last remaining “virgin steel” plant in country from Chinese company. Following the announcement by British Steel’s Chinese parent company, Jingye, that it would stop purchasing materials to keep the blast furnace running at the Scunthorpe plant, the UK government took action to prevent the closure of the plant. Although neither the plant nor British Steel have been nationalized for the time being, emergency legislation passed by the UK Parliament allows Business Secretary Jonathan Reynolds the ability to direct the British Steel board and staff, allowing for the purchase of necessary materials.
April 2025 ESG Policy Update—Australia
Australian Update
ASIC Publishes Regulatory Guidance for New Sustainability Reporting Requirements
On 31 March 2025, the Australian Securities and Investments Commission (ASIC) published its Regulatory Guide 280 Sustainability Reporting (RG280) following the introduction of Australia’s first climate-related financial disclosure regime and comprehensive public consultation with various stakeholders.
The new disclosure regime requires the preparation of a sustainability report containing climate-related financial information under Chapter 2M of the Corporations Act 2001 (Cth) (Corporations Act). RG280 provides practical guidance for companies, registered schemes, registrable superannuation entities, and retail corporate collective investment vehicles who are required to prepare these new sustainability reports.
RG280 includes guidance in relation to:
Determining who must prepare a sustainability report under the Corporations Act;
The content required in a sustainability report;
Disclosing sustainability-related financial information outside the sustainability report (e.g. product disclosure statements); and
ASIC’s administration of the sustainability reporting requirements.
In addition, ASIC has also been given additional powers to grant sustainability reporting and audit relief, and to issue directions to reporting entities where it considers a statement in a sustainability report is incorrect, incomplete or misleading.
ASIC Commissioner Kate O’Rourke has said “the publication of RG280 is a critical piece that supports the implementation of these sustainability reporting requirements passed by the Australian Parliament. We will continue to expand our broader suite of publications related to sustainability reporting over time as market practices evolve”.
S&P Platts to Launch Daily Benchmark for Australian Safeguard Mechanism Credits
S&P Platts is set to launch a daily market assessment for Australian Safeguard Mechanism Credits (SMCs) on 5 May 2025.
The Safeguard Mechanism reforms commenced on 1 July 2023 under the Safeguard Mechanism (Crediting) Amendment Act 2023 (Cth), allowing the Clean Energy Regulator (CER) to issue SMCs from January 2025 to certain designated large facilities (Safeguard Facilities) whose net emissions are below their legislated baseline targets. The regime has been designed to incentivise Safeguard Facilities to reduce their emissions beyond these baseline targets.
Safeguard Facilities that earn SMCs can sell them to other Safeguard Facilities, surrender them to stay within their baseline or retain them for future use until 2030. One SMC represents one tonne of carbon dioxide-equivalent emissions below a facility’s baseline. For more information on SMCs and Australia’s carbon credit regulatory framework, see our previous alert here.
S&P Platts’ new benchmark will reflect SMCs in the spot market following issuances from the CER. Its introduction is intended to improve price transparency and boost the confidence of carbon market participants in trading, compliance and investment decision-making. The launch comes as a welcome step in the evolution of Australia’s emissions reduction framework, allowing participants in the carbon credit market to better navigate compliance and employ investment strategies towards the country’s net-zero targets.
ASFI Launches Sustainable Finance Action Plan for 2025-2027
The Australian Sustainable Finance Institute (ASFI) has launched its Sustainable Finance Action Plan for 2025-2027 (Action Plan), aiming to align Australia’s financial system with sustainable and inclusive growth. The plan builds on the Australian Sustainable Finance Roadmap, which was introduced in 2020 to provide recommendations for improving Australia’s financial system to support sustainable development.
ASFI’s members, comprising 41 leading financial institutions with over AU$37 trillion in assets, are committed to integrating sustainability into their practices. The Action Plan emphasises embedding sustainability into leadership, integrating sustainability into practice, enabling resilience and building sustainable finance markets including by financing emissions reductions, increasing capital flows for climate adaptation, expanding financial innovation and promoting international collaboration to support sustainable finance objectives.
Some examples of the priorities that ASFI recommend include:
The expansion of Australia’s mandatory climate disclosure regime;
A clearer articulation of the requirements for sustainable financial product labelling;
Changes to competition law to provide a more permissive scheme for sustainability collaborations and to streamline exemption processes for sustainability activities; and
The explicit inclusion of sustainability-related considerations within directors’ duties under the Corporations Act to act with reasonable care, skill and diligence, and in good faith in the best interests of the company.
State of Net Zero Investment 2025 Report Highlights Australian Commitment to Climate Progress
On 2 April 2025, the State of Net Zero Investment 2025 Report (Report) was published by the Investor Group on Climate Change (IGCC). The Report revealed a strong commitment from Australian institutional investors towards climate progress, despite some current global anti-ESG sentiment. This comprehensive Report, covering data from 65 major superannuation and retail funds, represents AU$4.2 trillion in assets managed for 15 million Australian beneficiaries.
The Report highlights advancements in five of six key climate indicators, though notes there has been a decline in the number of investors with climate action plans, likely due to new minimum regulatory standards for transition plans. Interest in climate solutions, particularly renewable energy and green infrastructure, is on the rise. However, challenges such as policy uncertainty and a lack of suitable investment opportunities have emerged, reversing previous positive trends.
The CEO of IGCC emphasised the fiduciary duty of investors to protect financial interests by setting emissions targets and exploring climate solutions. Despite a mixed short-term outlook, increased policy certainty could enhance investor confidence in Australian growth industries.
The Report underscores the critical role of investors in transitioning to a low-carbon economy. The survey data, collected in late 2024, reflects ongoing industry discussions and trends expected to continue into the new year.
VIEW FROM ABROAD
Net Zero Banking Alliance Eases Climate Commitment Target
On 15 April 2025, the Net Zero Banking Alliance (NZBA), a coalition of over 120 global banks, announced a shift in its climate commitment from the 1.5°C target to a broader “well-below 2°C” goal, in alignment with the Paris Agreement. This decision reflects the challenges banks face in coordinating efforts and the slow progress in decarbonising key sectors like housing and aviation.
The NZBA’s adjustment is influenced by the slower-than-expected advancements in technology and policymaking. The NZBA Chair highlighted that the expectations from 2021 have not aligned with current realities. Economic and political headwinds, particularly from markets like the United States and United Kingdom, have also contributed to this shift, with major banks delaying or scaling back net zero targets.
Critics argue that this pivot undermines the credibility of voluntary climate commitments, especially since only 30% of major emitters have 1.5°C-aligned transition plans. Despite the controversy, NZBA leadership emphasises a shift from “target-setting to implementation”, offering practical tools and exploring alternate methods like carbon markets and avoided emissions accounting.
This decision marks a significant moment in the credibility and durability of private sector climate leadership, with potential implications for green finance and the pace of decarbonisation efforts.
EU Commission Eases Corporate Obligations Under New Deforestation Law
On 16 April 2025, the European Commission introduced revisions to the EU Deforestation Regulation (EUDR) to simplify compliance while maintaining environmental goals. The EUDR prohibits products linked to deforestation from entering the EU market, requiring companies to conduct due diligence on commodities such as palm oil, beef, timber, coffee, cocoa, rubber and soy, including derived goods like leather and chocolate. Companies must trace products to their origin and ensure no deforestation occurred post-2020.
The regulation, effective since June 2023, initially required large companies to comply by the end of 2024 and small businesses by June 2025.
In response to readiness concerns, the European Union delayed the compliance deadline by one year in October 2024, aligning with the EU’s Competitiveness Compass strategy to enhance productivity and reduce red tape. Key revisions include allowing annual submission of due diligence statements, reusing existing documentation and group-level reporting. These changes aim to reduce administrative costs by 30% and ease the compliance burden on companies.
The Commissioner for Environment emphasised the commitment to reducing administrative burdens while achieving the regulation’s goals of reducing global deforestation. The revisions reflect a collaborative approach with stakeholders to ensure effective implementation.
Nathan Bodlovich, Cathy Ma, Daniel Nastasi, Bernard Sia, Natalia Tan, Aibelle Espino, and Isaac Gilmore contributed to this article