Category Archives: Corporate Civil Liability and Enforcement

EPA Announces New Enforcement Policy Requiring Civil-Criminal Coordination

by Steven P. Solow and Chloe Graham

From left to right: Steven P. Solow, and Chloe Graham (Photos courtesy of Baker Botts LLP)

The Assistant Administrator for EPA’s Office of Enforcement and Compliance Assurance (OECA) announced a new Strategic Civil-Criminal Enforcement Policy (Policy) that is perhaps the most significant change in environmental enforcement since the passage of the basic environmental laws decades ago. At bottom, the new Policy addresses the long-standing concern that the decision to enforce a matter civilly or criminally ultimately depended on whose “desk” it landed on.

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Supreme Court Holds That “Pure Omissions” Are Not Actionable Under Rule 10b-5(b)

by Elliot Greenfield, Matthew E. Kaplan, Maeve O’Connor, Benjamin R. Pedersen, Jonathan R. Tuttle, Anna Moody, Brandon Fetzer, and Mark D. Flinn

Top left to right: Elliot Greenfield, Matthew E. Kaplan, Maeve O’Connor, and Benjamin R. Pedersen.
Bottom left to right: Jonathan R. Tuttle, Anna Moody, Brandon Fetzer, and Mark D. Flinn. (Photos courtesy of Debevoise & Plimpton LLP).

On April 12, 2024, in a highly anticipated decision, the Supreme Court held in Macquarie Infrastructure Corp. v. Moab Partners, L.P.[1] that pure omissions are not actionable in private litigation under Rule 10b-5(b). Resolving a circuit split, the Court held that Rule 10b-5(b) does not support a “pure omissions” theory based on an alleged failure to disclose material information required by Item 303 of SEC Regulation S-K (Management’s discussion and analysis of financial condition and results of operations, or MD&A). Instead, a “failure to disclose information required by [MD&A] can support a Rule 10b-5(b) claim only if the omission renders affirmative statements made misleading.”[2] While the decision arose in the context of Item 303, which requires disclosure of “known trends and uncertainties” that have had or are “reasonably likely” to have a material impact on net sales, revenues or income from continuing operations,[3] the decision stands for the broader principle that Rule 10b-5(b) does not support pure omissions theories based on alleged violation of any disclosure requirement. Such claims remain viable, however, under Section 11 of the Securities Act of 1933. This ruling provides welcome clarity to issuers and eliminates the risk of pure-omission claims under Rule 10b-5(b) based on the judgment-based requirements of MD&A.

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Blockchain Analytics: A Reliable Use of Artificial Intelligence for Crime Detection and Legal Compliance

by Sujit Raman and Thomas Armstrong

photos of authors

From left to right: Sujit Raman and Thomas Armstrong. (Photos courtesy of authors).

Everyone these days is talking about artificial intelligence and how to use it responsibly. Among law enforcement and compliance professionals, discussions around the responsible use of AI are nothing new. Even so, recent advances in machine learning have turbocharged AI’s transformative potential in detecting, preventing, and—in a particular sense—even predicting illicit activity. These advances are especially notable in the field of blockchain analytics: the process of associating digital asset wallets to real-world entities.

In a recent, pathbreaking opinion and order, U.S. District Judge Randolph Moss rejected a criminal defendant’s challenge to the government’s evidentiary use of blockchain analytics to link him to illicit financial activity.[1] Many courts—including, just a few days ago, a U.S. district court in Massachusetts[2]—have relied on the validity of blockchain analytics when taking pre-trial actions like issuing seizure orders and authorizing arrest warrants; Judge Moss’s opinion is the first trial court examination of this powerful analytic capability. Taken together, this growing body of legal authority forcefully affirms the reliability—and therefore admissibility in court—of evidence derived from such analytics.

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Federal Court Declares the Corporate Transparency Act Unconstitutional

by Gina Parlovecchio, Brad Resnikoff, Matthew Bisanz, and Daisy Gray

From left to right: Gina Parlovecchio, Brad Resnikoff, Matthew Bisanz, and Daisy Gray (Photos courtesy of Mayer Brown LLP).

On March 1, 2024, the US District Court for the Northern District of Alabama declared the Corporate Transparency Act (“CTA”) unconstitutional, and suspended its enforcement against the plaintiffs in that case. While most companies remain subject to its requirements for now, this decision may presage more broadly applicable relief through subsequent judicial or administrative action.

The CTA requires many entities conducting business in the United States to disclose beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), a law enforcement arm of the US Department of Treasury. The court, in enjoining the CTA’s enforcement against the plaintiffs, found that the CTA exceeds constitutional limits on Congress’s power. In the wake of the decision, FinCEN announced that it intends to respect the court’s decision and will not enforce the CTA beneficial ownership requirements against the plaintiffs, but its silence as to other parties implies that everyone else must continue to comply.

In this Legal Update, we discuss the case, National Small Business Association, et al. v. Yellen, FinCEN’s response, and our predictions for what will come next.

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Amid Storm of Controversy, SEC Adopts Final Climate Disclosure Rules

by Stephen A. Byeff, Ning Chiu, Joseph A. Hall, Margaret E. Tahyar, Ida Araya-Brumskine, Loyti Cheng, Michael Comstock, and David A. Zilberberg

photos of authors

Top from left to right: Stephen A. Byeff, Ning Chiu, Joseph A. Hall, Margaret E. Tahyar.
Bottom left to right: Ida Araya-Brumskine, Loyti Cheng, Michael Comstock, and David A. Zilberberg. (Photos courtesy of Davis Polk & Wardwell LLP).

Changes from the proposal include elimination of Scope 3 disclosures, scaled back attestation requirements, additional materiality qualifiers and narrower financial statement triggers. Given the lack of explicit congressional authorization for this new sweeping disclosure regime, its political sensitivity, complexity, cost and the substantial challenges already underway in federal courts, we anticipate rapid developments and possibly confusing stops and starts to unfold over the coming weeks.

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Recent Regulatory Announcements Confirm Increased Scrutiny of “AI-Washing”

by Tami Stark, Courtney Hague Andrews, Maria Beguiristain, Joel M. Cohen, Daniel Levin, Darryl Lew, and Marietou Diouf

Photos of authors

Top (left to right): Tami Stark, Courtney Hague Andrews, Maria Beguiristain, and Joel M. Cohen
Bottom (left to right): Daniel Levin, Darryl Lew, and Marietou Diouf (Photos courtesy of White & Case LLP)

In December 2023, we published an alert concerning US Securities and Exchange Commission (“SEC”) Chair Gary Gensler’s warning to public companies against “AI washing” – that is, making unfounded claims regarding artificial intelligence (“AI”) capabilities.[1] It is no surprise that since then regulators and the US Department of Justice (“DOJ”) have repeated this threat and the SEC publicized an AI related enforcement action that typically would not get such emphasis.

In January 2024, the SEC’s Office of Investor Education and Advocacy issued a joint alert with the North American Securities Administrators Association and the Financial Industry Regulatory Authority warning investors of an increase in investment frauds involving the purported use of AI and other emerging technologies.[2] Similarly, the Commodity Futures Trading Commission Office of Customer Education and Outreach issued a customer advisory warning the public against investing in schemes touting “AI-created algorithms” that promise guaranteed or unreasonably high returns.[3]

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Supply Chain Due Diligence Obligations in Germany, France and the EU: An Overview

by Amélie Champsaur, Mirko von Bieberstein, Guillaume de Rancourt, Sebastian Kummler, Camille Kernevès, Andreas Wildner, and Marc Christopher Baldauf

Photos of authors

Top from left to right: Amélie Champsaur, Mirko von Bieberstein, Guillaume de Rancourt, Sebastian Kummler.
Bottom left to right: Camille Kernevès, Andreas Wildner, and Marc Christopher Baldauf. (Photos courtesy of Cleary Gottlieb Steen & Hamilton LLP).

Germany and France, the two largest economies in the EU, have adopted laws to hold companies accountable for violations concerning human rights and environmental protection along their supply chain. With the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, “LkSG”) and the French Duty of Vigilance Law (Loi de vigilance, “Vigilance Law”) both countries have already implemented a respective regulatory framework that would be refined by a future European Corporate Sustainability Due Diligence Directive (“CS3D”), which would mandate all other Member States to implement similar laws.

The following provides an overview of the key aspects of the LkSG and the Vigilance Law, draws comparisons between the LkSG and the Vigilance Law and gives an outlook on the envisaged CS3D for supply chain due diligence in the EU in the future, based on the latest proposal.

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SEC Issues Long-Awaited Climate-Related Disclosure Rule

by Eric T. Juergens, Benjamin R. Pedersen, Paul M. Rodel, Kristin A. Snyder, Caroline N. Swett, Ulysses Smith, Michael Keene, Mie Morikubo, Michael Pan, Amy Pereira, and Maayan G. Stein

photos of authors

Top left to right: Eric T. Juergens, Benjamin R. Pedersen, Paul M. Rodel, Kristin A. Snyder, Caroline N. Swett, and Ulysses Smith. Bottom left to right: Michael Keene, Mie Morikubo, Michael Pan, Amy Pereira, and Maayan G. Stein. (Photos courtesy of Debevoise & Plimpton LLP).

On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted a long-awaited final rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which will require registrants, including foreign private issuers (“FPIs”),[1] to disclose extensive climate-related information in their registration statements and periodic reports (the “Final Rule”). The Final Rule is intended to facilitate the disclosure of “complete and decision-useful information about the impacts of climate-related risks on registrants” and to improve “the consistency, comparability, and reliability of climate-related information for investors.” The Final Rule constitutes one of the most significant changes ever to SEC disclosure requirements, and is expected to face legal challenges. The Final Rule is available here and the accompanying fact sheet is available here.

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WilmerHale Global Anti-Bribery Year-in-Review: 2023 Developments and Predictions for 2024

by Kimberly Parker, Jay Holtmeier, Erin Sloane, Christopher Cestaro, Sandra Redivo, Matthew Girgenti, Elliot Shackelford, and Keun Young Bae

Top left to right: Kimberly Parker, Jay Holtmeier, Erin Sloane, and Christopher Cestaro.
Bottom left to right: Sandra Redivo, Matthew Girgenti, Elliot Shackelford, and Keun Young Bae. (Photos courtesy of Wilmer Cutler Pickering Hale and Dorr LLP).

Although publicly announced Foreign Corrupt Practices Act (FCPA) enforcement activity remains lower than the levels reached a few years ago, 2023 saw a modest increase in the overall number of FCPA enforcement actions (26 in 2022 vs. 27 in 2023).  This was seen especially in the number of corporate resolutions (12 in 2022 vs. 15 in 2023).  The combined total of monetary penalties decreased, from $1.56 billion in 2022 to $776 million in 2023.  Nonetheless, senior officials at the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) again signaled, through policy changes and public announcements, that anti-corruption enforcement is a priority and that there will be significant and growing enforcement efforts going forward.  Below are the key takeaways regarding FCPA enforcement in 2023 and trends to keep in mind as we look ahead to 2024.

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“Expect Some Illumination”: A Fresh Look at U.S. Congressional Hearings in the Era of Sanctions and Export Controls as the New FCPA

by Brent Carlson and Michael Huneke

Photos of the authors.

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

The 118th U.S. Congress has taken an active and bipartisan interest in U.S. sanctions and export controls. With reports that U.S. executives have been asked to testify before the U.S. House Select Committee on the Chinese Communist Party[1] and recent hearings before a U.S. Senate subcommittee previewing further questions for both companies and regulators,[2] U.S. companies whose products might require a license for export to China or that might be found in Russian or Iranian weapons should prepare for congressional scrutiny—and congressional pressure on the U.S. Executive Branch departments to deliver enforcement results. Continue reading →