The new Department of Justice (DOJ) Data Security Program (DSP) took effect on April 8. For an overview of the DSP, see our earlier advisory and recent update.
On April 11, DOJ’s National Security Division (NSD), which administers the DSP, issued an array of detailed guidance about how the DSP will work, including a Compliance Guide, Frequently Asked Questions (FAQs), and an Implementation and Enforcement Policy that provides a 90-day leniency period for civil enforcement through July 8. DOJ has signaled its intent to issue more extensive enforcement guidance and to populate the Covered Persons List soon.
While the full DSP compliance and enforcement structure remains a work in progress, the DOJ’s most recent guidance provides invaluable insight for organizations monitoring their compliance obligations. We highlight the key takeaways below.
The 90-day leniency period is an opportunity to establish full compliance with the DSP
To dispel any misconceptions around the leniency period, it is clear from Deputy Attorney General Todd Blanche’s statement accompanying the DOJ’s recent guidance that the Trump administration has embraced the DSP as an integral part of carrying out its policy priorities. The DSP will continue to evolve, but there is no indication that it is going away or will be watered down. The DOJ appears to be fully committed to pushing the program forward and has called it “urgent,” explaining that this leniency period is about giving time both for industry and government to get it right.
Since the DSP’s April 8 effective date, compliance with the DSP has been required, except for specific due diligence, audit, and reporting requirements for restricted transactions, and reporting on rejected prohibited transactions. These additional obligations take effect on October 6 and are unaffected by the leniency period.
So what’s the leniency period all about? In essence, it is a limited non-enforcement policy for civil violations until July 8 that is heavily caveated, as follows:
NSD will target its enforcement efforts during the first 90 days to allow U.S. persons (e.g., individuals and companies) additional time to continue implementing the necessary changes to comply with the DSP and provide additional opportunities for the public to engage with NSD on DSP-related inquiries. Specifically, NSD will not prioritize civil enforcement actions against any person for violations of the DSP that occur from April 8 through July 8, 2025 so long as the person is engaging in good faith efforts to comply with or come into compliance with the DSP during that time…
At the same time, during this 90-day period, NSD will pursue penalties and other enforcement actions as appropriate for egregious, willful violations. This policy does not limit NSD’s authority and discretion to pursue civil enforcement if such persons did not engage in good-faith efforts to comply with, or come into compliance with, the DSP…
At the end of this 90-day period, individuals and entities should be in full compliance with the DSP and should expect NSD to pursue appropriate enforcement with respect to any violations.
The key caveats here are: 1) the leniency only applies to those that are engaged in good faith efforts to comply, 2) accordingly, criminal enforcement will continue, and even civil enforcement is a possibility for those not moving toward full compliance in good faith, and 3) by July 8, full compliance is expected (subject to the delayed October 6 effective date for certain elements, as noted above).
Standard contractual language
In the Compliance Guide, DOJ has provided suggested language that can be used in situations of data brokerage with non-covered foreign persons (i.e., counterparties in third countries without the types of links to China or other “countries of concern” that trigger most of the DSP’s restrictions and prohibitions). The suggested language is:
[U.S. person] provides [foreign person] with a non-transferable, revocable license to access the [data subject to the brokerage contract]. [Foreign person] is prohibited from engaging or attempting to engage in, or permitting others to engage or attempt to engage in the following:
(a) selling, licensing of access to, or other similar commercial transactions, [such as reselling, sub-licensing, leasing, or transferring in return for valuable consideration,] the [data subject to the brokerage contract] or any part thereof, to countries of concern or covered persons, as defined in 28 CFR part 202;
Where [foreign person] knows or suspects that a country of concern or covered person has gained access to [data subject to the brokerage contract] through a data brokerage transaction, [foreign person] will immediately inform [U.S. person]. Failure to comply with the above will constitute a breach of [data brokerage contract] and may constitute a violation of 28 CFR part 202.
DOJ has also indicated that additional language may be warranted in some cases, including the following certification:
[Foreign person] confirms that for [the brokerage contract], [foreign person] is in compliance with 28 CFR part 202 and any other prohibitions, restrictions or provisions applicable to the [data subject to the brokerage contract]. [Foreign person] agrees to [periodically] certify to [U.S. person], in writing [foreign person’s] compliance with 28 CFR part 202. [Foreign person] agrees to not evade or avoid, cause a violation of, or attempt to violate any of the prohibitions set forth in Executive Order 14117 or 28 CFR part 202.
DOJ has made it clear that using this particular language is not necessarily required, and that it can be modified. Indeed, we expect that some organizations will want to adjust this language to fit their particular circumstances. One question that will come up with respect to the proposed certification is what exactly the foreign person is agreeing to when it comes to “complying” with the DSP regulations, which generally apply only to U.S. person activities — DOJ’s intentions there are less than clear, in particular when it comes to vendor, employment and investment agreements (i.e., covered transactions that are not “data brokerage”).
Where particular elevated risks are present, tailored language around those risks may be prudent. But this template language offers a useful starting point that has been endorsed by DOJ.
General compliance expectations
Contractual language alone is generally not a sufficient compliance approach under the DSP. DOJ points to this in the Compliance Guide when it notes that the compliance steps organizations may need to take during this 90-day leniency period include “changing vendors or suppliers,” “adjusting employee work locations, roles or responsibilities,” and “renegotiating investment agreements.” The requirements for restricted transactions in particular are extensive and go far beyond just adding standard contractual clauses.
Even in situations of data brokerage with non-covered foreign persons, when the contractual language above is to be used, DOJ has emphasized that merely using this contractual language is not sufficient:
Notwithstanding the use of any such clauses, U.S. persons subject to the DSP must still maintain appropriate systems and controls, including reasonable and proportionate due diligence, to mitigate the risk they breach the DSP. U.S. persons engaged in these kinds of data brokerage transactions with non-covered foreign persons and third countries should not simply shift responsibility to or entirely rely on the contractual provisions or on their foreign counterparties to comply with these contractual provisions.
A risk-based compliance program is what DOJ will look for, informed by the traditional expectations that apply under other regulatory regimes based on the International Emergency Economic Powers Act (IEEPA), such as U.S. economic sanctions. As an illustration, DOJ indicated that in some cases inadequate risk-based controls such as due diligence may itself constitute prohibited “evasion” of these regulations.
The takeaway is that the DSP is generally not a mere “paper compliance” regime, where simple steps like obtaining consents or putting in place contractual provisions will satisfy the requirements. Rather, for many organizations impacted by these new rules, substantial changes in business practices (including with respect to employees, systems, etc.) and vendor and investor relationships may be needed.
Notably, the DOJ’s Compliance Guide suggests that organizations that deal with covered data under the DSP should implement a risk-based compliance program, even if they believe that ultimately they may not engage in any covered data transactions, or that all such transactions will fall under one or more of the DSP’s exemptions. With that said, when the DSP has limited applicability to a particular organization, the compliance approach may be narrowly tailored accordingly. For example, DOJ’s Compliance Guide indicates that in some cases organizations should convey the requirements of their compliance program to third parties and even offer training to third parties. With such high expectations on the part of the government in certain instances, it will be important to have a solid understanding of how to appropriately tailor a compliance program based on an organization’s risk exposure, so the government can be satisfied without undue cost or operational disruption.
Gray areas and ambiguities – how to navigate the DSP
DOJ has issued reams of information about the DSP during the notice and comment rulemaking process, in public remarks and private engagements, and with this new guidance. But the agency has not yet clarified some of the toughest issues that organizations will face under the DSP. Moreover, several statements the DOJ has issued in recent months may appear confusing or even contradictory.
It will be critical for organizations with exposure to these regulations to chart a clear path through these murky areas based on a comprehensive understanding of the DSP and how DOJ will enforce it. We provide a few illustrations below.
Audits
The Compliance Guide includes the potentially misleading statement that, “[t]o detect compliance gaps, U.S. persons must audit their Data Compliance Program.” However, audits are not required in all circumstances. Further compounding the confusion, the Compliance Guide states that those conducting required audits under the DSP “should not be involved in the transaction or associated with, owned, or controlled by any person who is party to or otherwise involved in the transaction they are auditing.” That could easily be misinterpreted to mean that internal audit personnel cannot be used for this purpose. However, the rulemaking that established the DSP and the recent FAQs both say the opposite (although with some heavy words of caution about relying on internal auditors), and the regulations were modified explicitly for the purpose of allowing internal audits. These is just an example of how easy it can be to become misled and confused about what the real obligations and expectations are under the DSP.
Recordkeeping
Additionally, the DSP has a broad 10-year recordkeeping requirement that will be highly burdensome for many organizations, and DOJ has made somewhat unclear statements about its applicability. For example, DOJ has said that, “[e]xcept as otherwise provided, U.S. persons engaging in any transaction subject to the DSP must keep a full and accurate record of each such transaction …”. However, the DSP’s broad recordkeeping requirements actually only apply in limited cases; for example, they are not applicable when operating pursuant to most of the exemptions.
Still, organizations impacted by these rules should consider keeping affirmative compliance records as a protective measure, even when not required, because DOJ has broad subpoena authority under the DSP — the FAQs that were just issued state that DOJ has the authority “to request and subpoena information to the fullest extent permitted by law, including, as appropriate, regarding transactions that may ultimately be exempt under the DSP.” So, even though broad recordkeeping is not strictly required under most of the exemptions, some recordkeeping would be prudent.
Domestic activity
Another tricky area is to what extent organizations can focus their compliance efforts on data flows outside the U.S., as opposed to purely domestic activity. In general, the DSP does not apply to activity that takes place entirely within the U.S. But DOJ has set out a few limitations to that general rule.
The clearest exception is when an individual or entity is specifically designated by DOJ on the DSP’s Covered Persons List (which again is not yet populated but will be soon) – those parties are “covered persons” even when located in the U.S. DOJ has even stated in the Compliance Guide that a “U.S. person [which DOJ has defined to include any person in the U.S.] is never a covered person unless designated as such by” DOJ on the Covered Persons List (emphasis added). But other DOJ statements could be viewed as possibly contradicting that — for instance, one of the examples under the definition of U.S. person in the DSP regulations states that a U.S. branch of an entity based in a country of concern such as China is a foreign person and therefore a covered person, even though a U.S. branch is by definition in the U.S.
This could cause some organizations to consider conducting due diligence for any covered transactions involving U.S. branches of entities based in China or other countries of concern, although other organizations may determine on a risk basis that this is not necessary.
Enhanced due diligence
DOJ has indicated that organizations may need to conduct due diligence on the individual representatives (e.g., executives) of organizations with which they conduct covered transactions, in order to assess if the individuals are covered persons even when their organizations are not covered persons. This is a familiar concept to those accustomed to U.S. economic sanctions compliance expectations, but can be challenging in practice when screening and due diligence procedures are focused on the entity counterparty. Accordingly, this type of due diligence and screening can be conducted as a function of risk and does not necessarily have to be done in all cases.
DOJ has emphasized repeatedly that the general rule in this context is that U.S. persons are not expected to conduct such “second-level” due diligence on the employment practices of foreign persons that are counterparties in covered data transactions to determine whether the foreign person’s employees qualify as covered persons.
Similarly, when entities that are not covered persons are controlled by, or minority-owned by, covered persons, DOJ has laid out an expectation that tracks with compliance principles under U.S. economic sanctions. While such control or minority ownership on its own does not cause these entities to be covered persons, DOJ has issued the following cautionary words:
A covered person holding a controlling interest may present risks of access, which is why control is one of the criteria for NSD to consider when designating an entity as a covered person under § 202.211(a)(5) [i.e., the Covered Persons List] if such an entity is determined to meet the relevant criteria. U.S. persons should exercise caution when considering engaging in covered data transactions with an entity that is not a covered person but in which one or more covered persons have significant ownership that is less than 50%, or which one or more covered persons may control by means other than a majority ownership interest. Ownership percentages can fluctuate such that an entity could become a covered person, and such entities may be designated by NSD based on the significant controlling interest. Additionally, persons should be cautious in dealing with such an entity to ensure that they are not engaging in evasion or avoidance of the DSP.
This warning indicates that there are circumstances when due diligence should go beyond the counterparty and its 50% or majority owners, to include minority owners, control parties, and any individual whose involvement may provide access to covered data (along with the representatives of an organization who are directly involved in the transaction, as discussed above). When such enhanced due diligence is warranted is, again, a risk-based judgment call that can be informed by trends seen in analogous regulatory programs under IEEPA.
Takeaways
The points above are meant to illustrate just a few of the nuances and complexities that organizations will confront under the DSP and to emphasize the value of seeking out qualified guidance to help navigate this highly complex, and still new and evolving, regulatory program. It is critical to craft a compliance approach under the DSP that is based on a thorough understanding of the rules, and, perhaps equally important, how DOJ is likely to enforce the rules in light of its policy objectives, resources and priorities, and the lessons that can be drawn from the enforcement trends we have seen in recent years under similar regulatory regimes such as economic sanctions.
When/how to engage with DOJ
Many organizations will have questions about the DSP during this 90-day leniency and compliance period, such as how they should grapple with specific gray areas, how the regulations apply in niche cases, and whether they can obtain authorization to engage in activity that may not be feasible to shift into full compliance with the DSP by July 8.
In terms of formal advisory opinion and license requests, DOJ has indicated those will generally need to wait:
NSD discourages the submission of any formal requests for specific licenses or advisory opinions during this 90-day period: Although requests for specific licenses or advisory opinions during this 90-day period can be submitted, NSD will not review or adjudicate those submissions during the 90-day period (absent an emergency or imminent threat to public safety or national security) …
Furthermore, license requests will be subject to a “presumption of denial” standard, which is a high hurdle to overcome. DOJ has stated that obtaining a license will require the applicant “to affirmatively identify compelling countervailing considerations to support the issuance of a specific license (such as an emergency or imminent threat to public safety or national security).” Mere commercial interests may not suffice, unless a strong showing can be made that there are broader implications relating to the public interest.
While DOJ is open to informal questions, they have issued several warnings that these communications may not be treated as confidential (and could even potentially be used for enforcement purposes), so caution is warranted.
When violations are identified, organizations should consider submitting voluntary self-disclosures (VSDs). At this stage, DOJ has only issued preliminary guidance about VSDs under the DSP, including stating that “NSD may consider a qualifying voluntary self-disclosure as a mitigating factor in any enforcement action, which may result in a reduction in the base amount of any proposed civil penalty.” DOJ has stated that they will take an approach to the VSD process under the DSP that aligns in certain ways with the process under the U.S. Export Administration Regulations (EAR), with an initial notification followed by a full report within 180 days. DOJ has indicated they may issue more robust VSD guidance in the future, but in the meantime one can look to other analogous DOJ VSD policies for principles that may apply under the DSP, in particular where there may be criminal exposure (which notably the guidance referenced above did not mention). Organizations that believe they may have engaged in violations of the DSP should take lessons from other IEEPA-based regulatory regimes to engage in a careful evaluation of the pros and cons of submitting a VSD.
Importantly, DOJ has confirmed that the FinCEN whistleblower program covers the DSP, which presents opportunities for individuals who are aware of violations in which they were not significantly involved, but poses significant risks for organizations.
Conclusion
While there are answers to some of the key questions under the DSP, the reality is that many of the gray areas we see today will persist for some time. Counsel with deep experience in risk-based compliance under similar regulatory regimes based on IEEPA can assist with shaping a compliance approach that is neither overinclusive nor underinclusive, and that balances feasibility with satisfying DOJ’s expectations.
State attorneys general increasingly impact businesses in all industries. Our nationally recognized state AG team has been trusted by clients for more than 20 years to navigate their most complicated state AG investigations and enforcement actions.
State Attorneys General Monitor analyzes regulatory actions by state AGs and other state administrative agencies throughout the nation. Contributors to this newsletter and related blog include attorneys experienced in regulatory enforcement, litigation, and compliance. Also visit our State Attorneys General Monitor microsite.
Contact our State AG Team at StateAG@troutman.com.
Troutman Pepper Locke Spotlight
Inside Maine’s AG Office: AG Aaron Frey on Public Service
By
In this episode of Regulatory Oversight, Stephanie Kozol and Chuck Slemp welcome Maine Attorney General (AG) Aaron Frey to discuss the unique aspects of the Maine Office of the AG. The conversation begins with Frey sharing his personal background and motivations for entering public service, before delving into the distinctive process of electing the AG in Maine.
Multistate AG Updates
FDA’s New Lead Guidelines: A Milestone for Safer Baby Foods
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In recent years, the safety of baby food has become a top priority for state attorneys general (AG) and federal agencies. In April 2021, the U.S. Food and Drug Administration (FDA) announced its “Closer to Zero” plan to “reduce dietary exposure to contaminants to as low as possible, while maintaining access to nutritious foods.” However, multiple coalitions of state AGs have been vocal in advocating for more stringent and urgent measures. Over the last four years, these coalitions have urged the FDA to take decisive action to ensure the safety of baby food products, particularly as it relates to the presence of toxic metals. In January 2025, the FDA issued final guidance setting action levels for lead in processed foods intended for babies and young children under the age of two.
Single State AG Updates
California AG Announces Investigative Sweep Targeting Geolocation Data
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On March 10, California Attorney General (AG) Rob Bonta announced an investigative sweep of the location data industry for potential noncompliance with the California Consumer Privacy Act (CCPA).
AG of the Week
Alan Wilson, South Carolina
Alan Wilson was elected South Carolina’s 51st attorney general (AG) on November 2, 2010, and has been re-elected to subsequent terms on November 4, 2014, November 6, 2018, and on November 8, 2022.
This marks his fourth term in the office. Previously, he served as a prosecution division intern under Charlie Condon and as an assistant AG under Henry McMaster.
As AG, Wilson is the state’s chief prosecutor, chief securities officer, and the state’s chief legal counsel. The office comprises nearly 300 employees, including approximately 90 attorneys who manage nearly 8,000 active case files.
As AG, Wilson has protected South Carolina’s right-to-work laws; helped lead the 26-state challenge to the federal health care mandate; successfully safeguarded South Carolina’s voter identification law; and fought to protect its immigration laws in court. He has collaborated with other AGs nationwide on issues such as Obamacare, Dodd-Frank, EPA overreach, Yucca Mountain, MOX Facility, Religious Freedom, and more. He is currently fighting to protect the South Carolina coast from seismic testing and possible oil and gas exploration.
In 2012, he collaborated with local legislators to strengthen South Carolina’s human trafficking laws, leading to the establishment of a Human Trafficking Task Force chaired by the AG’s office.
Wilson was elected as chairman of the Republican Attorneys General Association (RAGA) in November 2013 and again in May 2021.
Prior to his election, Wilson served as an assistant solicitor and as an assistant AG before entering private practice with the Columbia firm of Willoughby & Hoefer, P.A. He began his legal career working for the late Judge Marc H. Westbrook.
Wilson joined the National Guard immediately after graduating from college and served in Iraq, where he earned the Combat Action Badge. Today, he continues his military service as a colonel in the South Carolina National Guard.
He holds a degree from Francis Marion University and the University of South Carolina School of Law.
South Carolina AG in the News:
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On April 14, Wilson led a 22-state coalition in writing a letter of support for U.S. Senator Tim Scott’s newly introduced legislation aimed at fighting against de-banking.
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On April 11, Wilson led a coalition of 14 other AGs, urging asbestos trusts to halt destruction of crucial documents and data related to past claims and compensation payments.
Upcoming AG Events
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April: AGA | International Delegation | Rome, Italy
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May: RAGA | ERC Retreat | Oahu, HI
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May: DAGA | Williamsburg Policy Conference | Williamsburg, VA
For more on upcoming AG Events, click here.
In the Spotlight
Troutman Pepper Locke’s Securities Investigations + Enforcement Practice
Our Securities Investigations + Enforcement practice has expanded significantly due to our recent merger, enhancing our capabilities nationwide, including in our San Francisco, Dallas, and New York offices. We counsel and defend clients throughout all stages of securities enforcement proceedings, representing a diverse range of clients, including major financial institutions, senior corporate executives, boards of directors, and various entities in the financial services industry. Our team handles investigations by regulatory bodies such as the SEC, FINRA, and the Department of Justice. Leveraging decades of experience and including former key government officials, we develop informed and effective strategies tailored to each client’s unique needs. To read more about our capabilities, please click here.
Team Member Spotlight:
Liz Frohlich, a partner in Troutman Pepper Locke’s San Francisco office, has extensive experience representing banks and securities broker-dealers in complex civil and criminal actions in federal and state courts, as well as in arbitration. She focuses on litigation involving asset-backed securities, including RMBS trustees in class, derivative, and individual actions. Additionally, Liz manages investor cases, trust instruction proceedings, National Fair Housing Act cases, and actions by municipalities and county recorder/mortgage electronic registration systems.
Liz provides strategic advice before and after litigation, ensuring a comprehensive approach to legal challenges. She excels in developing and executing legal strategies, establishing legal precedents, and coordinating defense strategies across multiple cases for consistency.
In the News:
Our team frequently comments on emerging trends and developments in the legal industry. Below are recent media quotes from our team members, offering insights and perspectives on current issues.
Jay Dubow was recently quoted in:
- “Senate Confirms Trump Pick Atkins to Lead a Leaner SEC,” Law360, April 9, 2025.
- “Uyeda Pledges to Bring ‘Normalcy’ to SEC,” FundFire, February 25, 2025.
Mike Lowe was recently quoted in:
- “SEC Revamps Cyber and Crypto Enforcement Unit Under Trump Administration,” Cybersecurity Dive and Yahoo Finance, February 21, 2025
Webinars
- Jay Dubow will be co-chairing an upcoming webinar with PBI focusing on the newest developments in the world of securities litigation.Title: Federal Securities Law Forum: SEC Enforcement & Private Litigation Developments 2025
Date: Thursday, April 17 2025, 1:00 – 4:15 pm
Register here
- Jay Dubow, Sheri Adler, and Mary Weeks recently participated in a webinar titled Understanding the SEC’s Whistleblower Program: Protections, Enforcement, and Drafting Compliant Agreements hosted by MyLawCLE. The webinar focused on the SEC’s Whistleblower program and how it works. They discussed protections in place for whistleblowers and enforcement actions that the SEC had brought to discipline parties who impeded whistleblowers. The program also discussed best practices in drafting severance and employment agreements that protected employers while also safeguarding employees’ rights and not running afoul of SEC rules.
Podcast Updates
Navigating 2025: The SEC’s Evolving Role in Cryptocurrency Enforcement
By Ethan Ostroff, Alex Barrage, Joanna Cline, and Jay Dubow
In this episode of Crypto Exchange, Ethan Ostroff and Alexandra Barrage are joined by partners Joanna Cline and Jay Dubow to discuss the evolving landscape of the SEC’s enforcement actions involving cryptocurrencies.
SEC Updates
First Circuit Questions Materiality in SEC’s Case Against Commonwealth Equity Services
By Jay Dubow and Ghillaine Reid
On April 1, the U.S. Court of Appeals for the First Circuit vacated a summary judgment ruling in favor of the Securities and Exchange Commission (SEC) against Commonwealth Equity Services, LLC, also known as Commonwealth Financial Network (Commonwealth). The case, which involved allegations of inadequate disclosure of potential conflicts of interest, was remanded for further proceedings.
SEC Broadens Guidance on Accredited Investor Verification
By Robert Friedel, Thomas Rose, and Theodore Edwards
The Securities and Exchange Commission (SEC) has issued a no-action letter providing new interpretive guidance on the verification of accredited investor status in offerings conducted under Rule 506(c) of Regulation D, which may involve general solicitation or general advertising. In a significant liberalization of the SEC’s position since 2012, this new guidance allows issuers to rely on high minimum investment amounts, coupled with written representations from purchasers, as a reasonable step to verify accredited investor status. The no-action letter concurred that an issuer could reasonably conclude that it has taken reasonable steps to verify that a purchaser of securities sold in an offering under Rule 506(c) of Regulation D is an accredited investor if the investment involves minimum investment amounts of at least $200,000 for natural persons and at least $1 million for legal entities.
4 Actions for Cos. as SEC Rebrands Cyber Enforcement Units
By Sadia Mirza, Casselle Smith, Charlene Goldfield, Jay Dubow, David Meyers, and Ghillaine Reid
On Feb. 20, the U.S. Securities and Exchange Commission announced the creation of the Cyber and Emerging Technologies Unit, which will replace the Enforcement Division’s previous Crypto Assets and Cyber Unit.
SEC Expands Confidential Filing Options for Companies Submitting Draft Registration Statements
By Nicole Edmonds, Rakesh Gopalan, Joseph Cataldo, and Alexander Yarbrough
On March 3, 2025, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance announced that it has expanded its confidential filing process for certain draft registration statements submitted for nonpublic review. Since 2012, many issuers have been able to confidentially submit draft filings to initially register a class of securities using certain registration statements under the Securities Exchange Act of 1934 (Exchange Act). Companies will now also be permitted to confidentially submit drafts of registration statements under the Securities Act of 1933 (Securities Act) for follow-on offerings, regardless of how much time has passed since their initial public offering (IPO). The SEC hopes this expansion will further promote capital formation, while maintaining important investor protections.
SEC Reportedly Plans to Cut Regional Directors as Cost-Saving Measure
By Jay Dubow, Ghillaine Reid, and Nicole Giffin
According to news sources, including Reuters, on Friday, February 21, the U.S. Securities and Exchange Commission (SEC) reportedly informed regional directors at its 10 regional offices that it plans to eliminate their roles as part of cost-saving measures required by the new administration. The plan to remove the regional directors has not been made public at this time, but at least two anonymous sources reportedly spoke to Reuters about the announcement made on Friday.
Data Brokerage Updates
New DOJ National Security Division Data Security Rules Take Effect on April 8: Is Your Organization Exposed?
By Peter Jeydel, James Koenig, David Navetta, and Laura Hamady
Under the Department of Justice’s (DOJ) “Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons” rules (the Rules), allowing access outside the United States to certain types of sensitive personal data involving “countries of concern” may be restricted or prohibited beginning on April 8. See our previous advisory for more detail.
On April 1, the U.S. Court of Appeals for the First Circuit vacated a summary judgment ruling in favor of the Securities and Exchange Commission (SEC) against Commonwealth Equity Services, LLC, also known as Commonwealth Financial Network (Commonwealth). The case, which involved allegations of inadequate disclosure of potential conflicts of interest, was remanded for further proceedings.
Background
Commonwealth, an SEC-registered broker-dealer and investment advisor, offers advisory services through a network of approximately 2,300 investment advisor representatives. These representatives operate independent advisory businesses but are affiliated with Commonwealth. They are responsible for identifying prospective clients, managing clients’ accounts, and offering only those products approved by Commonwealth.
From 2014 to 2018, Commonwealth had a revenue-sharing arrangement with National Financial Services, LLC (NFS), a clearing broker. Under this arrangement, NFS paid Commonwealth a portion of the fees it received from mutual fund companies participating in its No Transaction Fee (NTF) and Transaction Fee (TF) programs. The SEC alleged that Commonwealth failed to adequately disclose this arrangement, which created a conflict of interest by incentivizing Commonwealth to direct clients’ investments to mutual fund share classes that produced revenue-sharing income for Commonwealth. During that period, NFS paid Commonwealth approximately $189.1 million, which included both revenue-sharing payments and payments for other expenses. As a result, the parties disagree as to what portion of total payments were paid pursuant to the revenue-sharing agreement.
District Court Proceedings
The SEC initiated a civil enforcement action against Commonwealth, alleging violations of Sections 206(2) and (4) of the Investment Advisers Act of 1940 and SEC Rule 206(4)-7. The district court granted the SEC’s motion for summary judgment on liability and awarded approximately $93 million in disgorgement, prejudgment interest, and civil penalties.
The district court held that Commonwealth’s disclosures were inadequate as a matter of law, reasoning that the revenue-sharing arrangement was a material fact that should have been disclosed. The court also found that Commonwealth’s failure to disclose the arrangement constituted a negligent breach of its fiduciary duty.
Appeal and First Circuit Decision
Commonwealth appealed the district court’s decision, arguing that the issue of materiality should have been decided by a jury. The First Circuit agreed, vacating the summary judgment and the disgorgement order, and remanding the case for further proceedings.
The First Circuit emphasized that materiality is typically a question for the jury. The court noted that determining whether an omitted fact is material requires delicate assessments of the inferences a reasonable investor would draw from a given set of facts. The court found that a reasonable jury could conclude that additional disclosures with more precise descriptions would not have significantly altered the “total mix” of information available to investors. The court described some of the relevant evidence:
But clients made their investment decisions through their representatives rather than Commonwealth’s recommendations or pre-constructed portfolios. These representatives were themselves sophisticated and independent members of the financial industry who recommended to their clients the funds and share classes to be purchased. Four of the six representatives conducted independent research to determine what share class was best for a particular client. One representative testified that he never used Commonwealth’s preconstructed portfolios or Mutual Fund Resource Guide. There is no evidence that Commonwealth limited or otherwise affected representatives’ ability to research and assess the comparative cost of funds. Further, representatives looking to purchase a fund could use that fund’s publicly available prospectus to compare the various share classes and find one that best suited their clients’ investment strategy.
The court also addressed the district court’s error in applying a per se rule that all potential conflicts of interest are material. The First Circuit clarified that the correct test for materiality requires a fact-specific inquiry, and the district court’s generalized conclusion was insufficient.
Disgorgement Award
The First Circuit also vacated the disgorgement award, finding that the SEC had not adequately shown a reasonable approximation of Commonwealth’s unjust enrichment. The court noted that the district court’s reasoning was incompatible with the requirement that disgorgement represent a reasonable approximation of the defendant’s unjust enrichment. The court instructed the district court to consider whether the SEC had established causal relationships between Commonwealth’s profits and its alleged violations and whether Commonwealth was entitled to deduct its expenses from any disgorgement awarded.
Conclusion
The First Circuit’s decision in Commonwealth Equity Services, LLC v. SEC underscores the importance of jury determinations in assessing materiality and the need for a fact-specific inquiry in securities enforcement actions. The decision also is important for determinations of appropriate disgorgement amounts. The case has been remanded for further proceedings, and it remains to be seen how the district court will address the issues identified by the First Circuit.
On April 11, the White House released a Presidential Memorandum, “Clarification of Exceptions Under Executive Order 14257 of April 2, 2025, as Amended,” which exempts a list of semiconductors and electronics from reciprocal tariffs issued under Executive Order 14257, “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits,” as amended by Executive Order 14259, “Amendment to Reciprocal Tariffs and Updated Duties as Applied to Low-Value Imports from the People’s Republic of China,” and as further amended by the April 9 Executive Order, “Modifying Reciprocal Tariff Rates to Reflect Trading Partner Retaliation and Alignment” (collectively, Reciprocal Tariffs).
All products that entered for consumption, or were withdrawn from warehouses for consumption, on or after 12:01 AM EDT on April 5, 2025, and are properly classified in following headings and subheadings of the Harmonized Tariff Schedule of the United States (HTSUS) are excluded from the Reciprocal Tariffs (collectively, Excluded Products):
The HTSUS numbers encompass a range of products, including semiconductors and electronic integrated circuits, along with other items such as smartphones, solid-state non-volatile storage devices, flat panel display modules, and various types of monitors. Refunds are available for Excluded Products that were unnecessarily or improperly subjected to Reciprocal Tariffs after the April 5 effective date. U.S. Customs and Border Protection guidance states that importers may request a refund by filing a post summary correction for unliquidated entries, or by filing a protest for entries that have liquidated but where the liquidation is not final because the protest period has not expired.
Importers should report the secondary classification under HTSUS heading 9903.01.32 to declare the exception from the Reciprocal Tariff provided in heading 9903.01.25, or in headings 9903.01.43 – 9903.01.62 or 9903.01.64 – 9903.01.76 on April 9, or in heading 9903.01.63 since April 9.
While the memorandum has not specifically identified an end date for these exclusions, U.S. Commerce Secretary Howard Lutnick stated that the exemptions for semiconductors and related electronics from Reciprocal Tariffs are temporary. He announced that these products, including smartphones, computers, and flat panel displays, would face separate “semiconductor tariffs” within a “month or two.” Secretary Lutnick emphasized that these tariffs aim to encourage reshoring of semiconductor and electronics production to the U.S., citing national security and the need to reduce reliance on foreign supply chains, particularly in Southeast Asia and China. While these clarified exclusions are a big relief, the impending changes have created uncertainty within the tech industry, with companies facing potential cost increases and supply chain disruptions if their now-excluded products become subject to additional tariffs in the future.
Conclusion
This alert is intended as a guide only and is not a substitute for specific legal or tax advice. Things are rapidly changing by the day and hour, and our Tariff Task Force will do its best to provide timely and relevant updates as things progress. Please don’t hesitate to reach out to us with questions.
This article was originally published on April 11, 2025 on Law360 and is republished here with permission.
On Jan. 14, Patriot Bank, based in Stamford, Connecticut, entered into an agreement[1] with the Office of the Comptroller of the Currency to address and rectify several alleged unsafe or unsound practices and violations of law. This agreement followed the bank’s reported loss of nearly $27 million for the quarter ending Sept. 30, 2024.
This agreement is comprehensive and particularly noteworthy due to its specific focus on program managers and payment activities, highlighting the critical role they play in risk management and compliance.
The detailed requirements for monitoring and managing risks associated with automated clearing house, or ACH, and wire transfers, and the emphasis on prepaid card activities, underscores the importance of thorough oversight in these areas.
Despite the regulatory changes occurring since the administration change in January, we do not anticipate regulators to back down on enforcement related to Bank Secrecy Act/anti-money laundering — known as BSA/AML — findings.
Many of the items are similar to previous OCC agreements with other banks. However, this agreement’s specificity on program managers and payment activities stands out. Patriot had onboarded prepaid card managers that had BSA/AML deficiencies, and the bank must ensure that it is monitoring these program managers for compliance.
The OCC identified several areas of concern at Patriot, including strategic planning, capital planning, BSA/AML risk management, payment activities oversight, credit administration and concentrations risk management.
To address these issues, Patriot and the OCC agreed on a comprehensive plan that includes specific corrective actions and oversight mechanisms that the bank must implement within specified timelines.
The OCC required Patriot to create a strategic plan, covering at least three years, that establishes objectives for the bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital and liquidity adequacy, product line development, and market segments that the bank intends to promote or develop. The board must review and update the strategic plan annually and as needed.
The agreement includes several BSA/AML requirements.
First, within 30 days of the agreement, the bank had to submit a written plan detailing the remedial actions necessary to achieve and sustain compliance with the BSA. The agreement said the plan should include corrective actions, timelines and responsible parties, and must be reviewed for effectiveness at least annually.
Patriot is required to enhance its customer identification program. This includes ensuring that the bank gathers the appropriate information for opening reloadable prepaid cards, in addition to transaction testing of reloadable prepaid card customer identification program records. The customer identification program must ensure the bank operates in accordance with applicable law and regulations, and is consistent with the bank’s BSA/AML risk assessment.
The bank must conduct a BSA/AML risk assessment. This assessment needs to include an analysis of data for each specific risk category that includes volumes, trends, and types of transactions and services by country or geographic location, as well as the numbers of customers that typically pose higher BSA/AML risk, both by type of risk and by geographic location, according to the agreement.
The agreement says Patriot is required to maintain a qualified BSA officer, and the board must ensure the bank has sufficient staff with appropriate skills and expertise needed to support the BSA officer and the bank’s BSA/AML program governing prepaid cards. The staff must be vested with sufficient authority to fulfill their respective duties and responsibilities. An AML training program must be tailored to each individual’s job-specific duties and responsibilities.
Training for BSA staff must specifically cover prepaid card activities and risks, the agreement says, and training for the board and senior management must also include an overview of money laundering risks inherent in the prepaid card business and be sufficient to enable the board to provide adequate oversight of the BSA/AML program governing prepaid cards.
The bank must ensure that BSA/AML risks associated with providing prepaid card products through third-party program managers are identified, managed and controlled, per the agreement. This includes procedures to ensure that program managers are registered with the Financial Crimes Enforcement Unit, if applicable, and comply with state and local licensing requirements.
Patriot must conduct and document ongoing monitoring and testing of program managers to ensure comprehensive review of new and existing cardholder accounts, BSA and fraud alerts, sanctions, and other relevant areas.
Bank management must obtain and report granular metrics related to prepaid card activities to the board, including alert closures, cases, new cardholder accounts and sanctions activities.
The bank must perform appropriate risk-based due diligence for program managers, including periodic on-site visits, annual reviews of the program manager’s BSA/AML program, and assessment of their independent BSA/AML audit reports, according to the OCC agreement.
The bank must have policies and procedures to review and determine whether to close any program manager account exhibiting significant risks for money laundering or terrorist financing, such as excessive suspicious activity reports, lack of transparency or failure to provide requested information.
The agreement also requires the bank to have a suspicious activity review program to ensure that all suspicious activity and fraud alerts are reviewed, investigated and reported, as applicable. Complete and accurate reporting must be made to senior management and the board regarding suspected fraud in the prepaid card business and any related SAR filing.
Patriot is also required to conduct a SAR lookback to ensure that any previously unreported suspicious activity is reviewed to ensure that all findings that require SAR filings have been made.
Patriot is required to implement a comprehensive payment activities oversight program to manage risks involved in processing ACH and wire transfers, including the risks presented by the originators, beneficiaries and counterparties. The program must outline parameters for monitoring ACH and wire transfers, and for identifying and documenting high-risk, suspicious, unreasonable, or abnormal activity.
Reports must be made to the board about trends in ACH and wire volume, transactions by client type, number of originators, return rates for the bank, level of risk of originators, any high-risk originators, and any Nacha rule violations.
The program must also include an enterprise risk management framework with elevated monitoring of payment activity risks and the establishment of key performance and risk indicators for monitoring operational risks from ACH and wire transactions. Internal audits must sufficiently review and test the risks and related controls of the prepaid card business, including BSA/AML, compliance and operational risks.
This agreement with Patriot reflects the OCC’s continued commitment to BSA/AML compliance.
While many of the identified items in the agreement are consistent with previous agreements the OCC has made with other banks, the distinct focus on payments and prepaid card program managers stands out. We anticipate that enforcement actions related to BSA/AML compliance will continue to remain a priority for the OCC.
Keith Barnett is a partner, Caleb Rosenberg is counsel and Carlin McCrory is an associate at Troutman Pepper Locke LLP.
Troutman associate Sydney Goldberg contributed to this article.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.occ.gov/static/enforcement-actions/eaAA-NE-2025-05.pdf.
I. Overview
On April 9 at 12:01am, reciprocal tariffs on more than 60 countries ranging from 17-50% were scheduled to go into effect, only to be pulled back on April 9 as President Trump announced a 90-day pause — possibly to July 8. The new announcement keeps the previously established 10% additional baseline tariffs in place and raises the additional tariffs on China to 125% effective midnight April 10, in response to retaliatory tariffs announced by the country. Trump has stated that he does not expect he will have to raise tariffs higher than this level. The EU initially announced retaliatory tariffs as well, but due to the pause, it has also suspended its countermeasures for 90 days.
The administration’s trade actions are raising bipartisan interest among members of Congress to reassert their authority — or to limit the president’s authority — over trade policy. On April 3, Senators Maria Cantwell (D-WA) and Chuck Grassley (R-IA) introduced legislation aimed at curbing executive trade powers — prompted not just by the recent actions by the president but also the past use of Section 301 and Section 232 tariffs and congressionally delegated authority. The proposal arrived just before U.S. Trade Representative Jamieson Greer was to testify before both the Senate Finance and House Ways & Means Committees, on April 8 and 9, respectively.
II. Push for the Trade Review Act
A. Cantwell-Grassley Tariff Reform Bill (S. 1272)
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Includes a notification requirement, where the president must notify Congress within 48 hours of any new tariff action.
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Requires congressional approval for new tariffs within 60 days of enactment, otherwise, all new tariffs on imports expire after that deadline.
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Allows for Congress to vote to terminate any tariff at any time by passing a resolution of disapproval but excludes anti-dumping and countervailing duties.
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Six other GOP Senators support the bill: Sens. Mitch McConnell (R-KY), Jerry Moran (R-KS), Lisa Murkowski (R-AK), Thom Tillis (R-NC), Todd Young (R-IN), and Susan Collins (R-ME).
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Rep. Don Bacon (R-NE) has introduced a House version of the Trade Review Act.
B. Legislative Dynamics and Political Headwinds
Grassley’s backing reflects a long-standing view among some Republicans that Congress has abdicated too much control in trade matters to the president and the executive branch.
However, at the moment the bill has little chance of advancing, as the Senate will have a hard time reaching 60 votes, and the measure is unlikely to gain traction in the House given Speaker Mike Johnson’s alignment with President Trump’s tariff-first trade strategy.
The White House issued a statement on April 7 that the administration opposes the bill and would veto it.
On April 8, Ranking Member of the Senate Committee on Finance Sen. Ron Wyden (D-OR) released a bipartisan privileged resolution (meaning it must receive a floor vote) to end the tariffs Trump announced on April 2. Wyden introduced the resolution alongside Sen. Rand Paul (R-KY) and five other Democratic colleagues. The new legislation may force senators to take a position. Previously, four Republicans supported Senator Tim Kaine’s (D-VA) resolution that would have ended Trump’s emergency declaration on fentanyl trafficking and immigration that underpins tariffs on Canada.
Also this week, the House Rules Committee passed a measure that allows Johnson to keep a Democratic resolution of disapproval off the floor until at least September. The Democratic resolution seeks to cancel the national emergency under the International Emergency Economic Powers Act that the President has declared — the basis for most of his new and threatened tariffs. In March, the committee used a similar procedure to block a resolution to overturn the tariffs targeting Canada.
III. Hearings and USTR Engagement This Week
A. Senate Committee on Finance Hearing With USTR Jaimeson Greer (4/8/2025)
The Senate hearing with Greer took place a day before the sudden about-face by Trump on reciprocal tariffs, but revealed a level of consternation by much of the committee on both sides of the aisle. Several Republican senators expressed concerns over the inflationary threat of tariffs and the potential impact on consumers and questioned the administration’s timeline and capability to negotiate with dozens of countries on new trade agreements. Five senators (Johnson (R-WI), Warnock (D-GA), Lankford (R-OK), Tillis (R-NC), and Welch (D-VT)) questioned Greer about whether the administration will consider implementing a product exclusion process, especially for products that will impact ordinary Americans and families’ cost of living. Greer stated several times that Trump does not intend to implement an exclusion process but will instead make deals with countries on a case-by-case basis.
Democrats questioned Greer’s justification for the proposed reciprocal tariffs, pointing out it took him and the U.S. trade representative (USTR) in the first Trump administration two years to carefully construct the U.S.-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). They questioned how thoughtful deals could be constructed with so many countries at once in such a short time.
Overwhelmingly, though, most senators spoke out on behalf of industries that have a strong presence in their state that they did not believe were accounted for — ranging from tourism to seafood and other agricultural exports. Many senators also questioned whether the White House accounted appropriately for non-tariff trade barriers in calculating the reciprocal tariff levels. A number of Republicans and Democrats maintained criticism of any blanket tariffs, insisting on a higher degree of analysis by the USTR and the White House, questioning the actual positive impact on the trade deficit that reciprocal tariffs might have.
Sen. Ron Johnson (R-WI), a Trump loyalist, questioned whether trade deficits were implicitly bad for the U.S. economy and suggested that workforce issues need to be addressed as part of a more fulsome plan to reinvigorate the domestic economy and bring back jobs from overseas.
B. House Committee on Ways and Means Hearing With USTR Greer (4/9/2025)
Greer was testifying before the House Ways and Means Committee when Trump announced the reciprocal tariff pause. Greer, caught in the crossfire, indicated he could not speak on discussions he had had with the president about the pause. Rep. Horsford (D-NV), the first Democrat whose time to speak coincided with the announcement just made, asked if the USTR knew of the decision, questioning whether there was a lack of strategy or coordination. However, the hearing was already in hour three with most members already having been present and unable to address further questions.
Chairman Jason Smith (R-MO) opened the hearing with praise for Trump’s aggressive actions to leverage tariffs to achieve fair trade relationships for the U.S., while also criticizing President Biden for not enforcing the Phase One agreement with China and failing to counter perceived Chinese maneuvering around our tariffs. The chairman and House Republicans maintained a much more positive message in line with the president than senators the previous day. Some House Republicans did make the unusual step of expressing trepidation about the path the administration was taking and a need for a greater role from Congress, as well as a desire to address non-tariff barriers more fully.
Ranking Member Neal sharply criticized the president for starting the “dumbest trade war in history,” pushing for Congress to reassert its authority over trade policy. While Greer defended the tariffs, as expected, he did express the need for incentives for domestic production and the onshoring of manufacturing sought by the president.
Both House Republicans and Democrats throughout the hearing made clear their frustration with the blanket approach being pursued by the administration and suggested that Congress should be more engaged in trade deals, while also supporting domestic manufacturing. Members on both sides of the aisle questioned Greer and expressed concerns about the impact on agriculture, especially regarding the threat of escalating retaliatory tariffs.
IV. Outlook and Implications
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Legislation: While the Cantwell-Grassley bill faces long odds, especially in the House of Representatives, it represents a notable bipartisan signal that congressional frustration with broad, unilateral tariff actions is growing. Even assuming it is not passed, the bill creates a potential framework for future reforms — especially if executive trade policy becomes a campaign issue. It’s the strongest pushback from the Hill in seeking to reassert congressional authority over trade since Trump first instituted additional tariffs in 2018.
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Reciprocal Tariffs: The president’s U-turn on most of the reciprocal tariffs, and the course of future negotiations, will continue to make it difficult to predict how these tariff actions may develop. However, Trump’s decision not to remove the additional 10% tariffs in his recent announcement indicates a possible floor that, at least for now, the president is not willing to go below. The 90-day pause will allow for negotiations for key countries regarding the additional reciprocal tariffs, and provides some short-term ability for deals to be struck.
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China: Trump continues to state that he wants a deal with China, despite the recent escalation to 125% additional tariffs. Trump insists he respects Chinese President XI Jinping and would like a meeting between the two of them to hash out a deal, but China would like negotiations to start at the staff level.
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Industry Specific Tariffs: The White House is still considering additional tariffs outside of the reciprocal tariff framework. One point emerging from the hearings with Greer this week was an imminent investigation into the pharmaceutical industry that may lead to additional tariffs. Semiconductors remain one of the other industries in the crosshairs, but again it appears that an investigation would take place before any tariffs are imposed. Section 232 investigations on copper and lumber are underway. The auto tariffs on Canada also remain in effect.
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Exclusions: While Greer said during the Senate Finance hearing that the president had no plans to implement a product exclusion process, Trump stated yesterday in response to a question about specific exemptions that there must be “flexibility” and “we’ll take a look at it” — opening up the possibility that there could be an effort to alleviate the burden of tariffs for certain sectors or companies. This may give companies and industry groups a path to argue for sector carve-outs in future deals, or a future process for appeal through USTR.
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Decision-makers: Within the White House, there are a number of competing factions at the president’s ear regarding trade, promoting different approaches. Notably, it appears that Secretary Bessent’s role has grown in the past weeks, given his understanding of markets and promotion of negotiations around the reciprocal tariffs. Much of the president’s about-face reportedly is attributed to his (and advisors’) uneasiness about what they were observing in the bond markets. Secretary of Commerce Howard Lutnick and National Economic Council Director Kevin Hassett also remain trusted advisors on the broader market implications surrounding trade actions. Peter Navarro remains a top advisor and hardliner on pushing for tariffs, but Elon Musk’s public criticism of Navarro does pose a risk of potential fracture inside the White House and opens more questions about the influences on the administration’s future policy direction.
On April 9, the President signed an executive order titled “Restoring America’s Maritime Dominance” (the Order), a comprehensive initiative aimed at reversing decades of decline in the U.S. maritime industry. Citing national security concerns and economic imperatives, the Order outlines a bold strategy to rebuild the nation’s commercial shipbuilding capacity, strengthen its maritime workforce, and reduce dependence on foreign competitors, particularly China, which currently dominates global ship production. The Order follows the U.S. Trade Representative’s (USTR) February 21 Notice of Proposed Action to impose substantial fees on vessels operated by Chinese companies built in China that call on U.S. ports, alongside cargo preference measures aimed at countering China’s dominance in global maritime trade.
Addressing a Critical Decline
The decline of the U.S. maritime industry over the past several decades has been stark and measurable. In 1951, the U.S. boasted more than 1,200 large, privately owned merchant vessels flying the U.S. flag; today, that number has dwindled to fewer than 180 — a reduction of more than 85%. Similarly, U.S. shipbuilding has suffered a sharp downturn: as of 2023, American shipyards built only eight large commercial ships, while China produced more than 1,000 at a fraction of U.S. costs. In terms of global market share, the U.S. now accounts for less than 1% of the world’s commercial ships, compared to China’s dominance at nearly 50%. The concern is that such erosion has not only weakened the nation’s industrial base but has also created vulnerabilities in national security, supply chain resilience, and economic independence — areas the Order now seeks to reclaim.
A Comprehensive Maritime Action Plan
At the heart of the Order is the creation of a Maritime Action Plan (MAP), to be developed within 210 days by the Assistant to the President for National Security Affairs, in coordination with key agencies, including the Departments of Defense, Commerce, Transportation, and Homeland Security. The MAP will serve as a blueprint to achieve the policy goal of revitalizing U.S. maritime industries for national security and economic prosperity. The Office of Management and Budget will oversee legislative, regulatory, and fiscal assessments to ensure the plan’s feasibility.
Key Provisions of the Executive Order
The Order outlines a multifaceted approach to strengthen the maritime sector, with specific actions assigned to various federal agencies:
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Securing the Maritime Industrial Base: Within 180 days, the Department of Defense, in collaboration with other agencies, will assess options to bolster the Maritime Industrial Base. This includes leveraging authorities like the Defense Production Act and encouraging private capital investment in shipbuilding, supply chains, port infrastructure, and workforce development. The Office of Strategic Capital loan program will be utilized to support these efforts, with a focus on prioritizing critical components and ensuring a strong return on investment for taxpayers.
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Countering China’s Dominance: The USTR is tasked with advancing a Section 301 investigation into China’s unfair practices in maritime, logistics, and shipbuilding sectors. Potential actions include tariffs on China-origin ship-to-shore cranes and other cargo-handling equipment to level the playing field for U.S. manufacturers. The USTR will also engage allies to align trade policies, encouraging them to adopt similar measures.
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Strengthening Revenue Collection: To prevent circumvention of the Harbor Maintenance Fee, the Department of Homeland Security will propose measures ensuring that foreign-origin cargo arriving by vessel clears U.S. ports for security and fee collection. Cargo entering via Canada or Mexico will face additional fees unless substantially transformed, which is intended to capture revenue lost from imports that enter the U.S. by land following ocean transport from abroad.
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Incentivizing Investment: The Order introduces innovative financial mechanisms, including a Maritime Security Trust Fund to provide consistent funding for maritime programs and a Shipbuilding Financial Incentives Program to support private investment in vessel construction and shipyard upgrades. Additionally, Maritime Prosperity Zones, modeled after opportunity zones, are intended to incentivize investment in maritime communities, including non-coastal regions like the Great Lakes and river systems.
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Workforce Development: The Order mandates a report within 90 days to address training and education challenges within the existing U.S. maritime workforce. Recommendations will include expanding support for merchant marine academies, reforming credentialing requirements, and offering scholarships for maritime studies, both domestically and internationally. The U.S. Merchant Marine Academy will undergo modernization, addressing needed maintenance and a long-term capital improvement plan.
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Streamlining Procurement and Deregulation: To enhance efficiency, agencies will propose reforms to vessel acquisition processes, reducing bureaucratic delays and adopting commercial standards. The Department of Government Efficiency will conduct a separate review to optimize procurement. Additionally, a deregulation review will identify and eliminate regulations deemed to hinder innovation and cost-effectiveness.
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Expanding the U.S.-Flagged Fleet: The Order seeks to increase the number of U.S.-built, crewed, and flagged vessels in international trade. A legislative proposal will incentivize the growth of this fleet, ensuring it can support national security needs during crises while enhancing commercial competitiveness.
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Securing Arctic Waterways: A strategy to secure Arctic waterways will be developed within 90 days, addressing emerging security challenges and promoting American prosperity in the region.
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Shipbuilding and Reserve Fleet Reviews: A 45-day review will recommend ways to increase competition in government shipbuilding, reducing costs and delays. Separately, the Department of Defense will issue guidance on maintaining a robust inactive reserve fleet to ensure readiness.
Impact on the Industry
The Order is intended to reshape the U.S. economic and trade landscape by revitalizing the domestic maritime industry and altering import dynamics. The scale of the proposed overhaul is significant, however, and it remains to be seen how comprehensively the targeted reforms and incentives will be deployed. For businesses, if properly funded and implemented, it could create new opportunities in shipbuilding, logistics, and infrastructure, supported by federal investment and financial incentives, particularly if the result is a more streamlined, efficient federal financing process. By contrast, the Order would likely have a compounding effect in light of recent tariffs on foreign-flagged maritime operators, and could lead to higher costs for importers due to stricter enforcement of harbor fees and reduced reliance on foreign shipping routes, prompting supply chain adjustments. While the Order’s aims to restore global competitiveness by expanding the U.S.-flagged fleet, modernize shipyards, and invest in workforce development to position the industry for long-term growth and strategic advantage are undoubtedly welcome news for the U.S. Flag maritime industry, the tasks ahead are not insignificant and will require comprehensive reforms, significant federal financial investment, market certainty for private investors, and bipartisan legislative support to effect the transformation that the Order seeks.
This alert is intended as a guide only and is not a substitute for specific legal or tax advice. Please don’t hesitate to reach out to the authors with questions.
Challenging a slew of state climate-related laws and programs, President Trump’s April 8, 2025 executive order (EO) set the stage for more legal fights between the federal government and states. In the new EO, “Protecting American Energy from State Overreach,” Trump took aim at state laws and programs that address greenhouse gas emissions (GHGs), climate change, environmental justice, and environmental, social, and governance (ESG). Some states have already indicated they will oppose the Trump administration’s efforts.
The EO specifically calls out laws in California, New York, and Vermont that put prices on carbon emissions through cap-and-trade programs or compensatory payment requirements for past GHG emissions. The EO asserts that such laws exceed the states’ constitutional authority, increase domestic energy prices, target or discriminate against out-of-state energy producers, and threaten American energy dominance.
In order to “unleash American energy,” the president instructed the U.S. attorney general (AG) to identify state and local laws, regulations, policies, and practices that might impede siting, developing, producing, or using domestic energy resources. Specifically, the AG must identify any programs “purporting to address ‘climate change’ or involving ‘environmental, social, and governance’ initiatives, ‘environmental justice,’ carbon or ‘greenhouse gas’ emissions, and funds to collect carbon penalties or carbon taxes” and begin actions to stop states from implementing and enforcing their laws. The AG must report back to Trump by early June on progress and further recommendations.
The AG’s likely actions under the EO have yet to be determined. State laws regarding project siting, resource development, and energy production span the gamut of everything from water quality, air quality, and species protection to fire safety and local zoning. It is also not clear if the AG will target laws that require companies to report their GHG emissions or disclose climate-related risks, like California’s SB-253 and SB-261, or possibly intervene in ongoing litigation.
California Governor Gavin Newsom quickly fired back, stating that a “glorified press release masquerading as an executive order” will not derail state efforts to cut air pollution. Notably, the California legislature has already made $25 million available to fight the Trump administration’s efforts to roll back environmental and other laws. New England and Mid-Atlantic states may also come under fire for laws and regulations implementing the Regional Greenhouse Gas Initiative, a cooperative effort involving every northeastern state to cap and trade power sector emissions. These states have already sued the Trump administration and, like California, will likely fight any efforts by the administration to derail their climate initiatives.
President Trump signed a new executive order, “Modifying Reciprocal Tariff Rates to Reflect Trading Partner Retaliation and Alignment” (the Order) on April 9, marking yet another significant shift in U.S. trade policy. The Order, effective as of 12:01 a.m. EDT on April 10, 2025, amends Executive Order 14257, “Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits,” and the Executive Order 14259, “Amendment to Reciprocal Tariffs and Updated Duties As Applied to Low-Value Imports from the People’s Republic of China.” The latest order intensifies tariff pressure on China while offering a temporary reprieve to other trading partners from the most severe recent tariffs that had been announced.
Background and Evolution of US Tariff Policy
Executive Order 14257, issued on April 2, established reciprocal tariffs under the International Emergency Economic Powers Act of 1977 on imported goods from key trading partners to address trade imbalances and foreign trade practices. It introduced a 10% baseline tariff on most goods from most trading partners and higher reciprocal tariff rates for 57 trading partners listed in Annex I of Executive Order 14257 (together, Reciprocal Tariffs).
On April 8, an amendment to Executive Order 14257 specifically targeted China and Hong Kong, raising duties on goods from China, including Hong Kong, in response to China’s retaliatory 34% tariff on U.S. goods announced on April 4. It raised the Reciprocal Tariff rate on Chinese goods from 34% to 84%, the de minimis ad valorem duty rate imposed pursuant to Executive Order 14256 on imports valued at less than $800 from China and Hong Kong to 90%, and increased the per postal item duty imposed pursuant to Executive Order 14256 to $75 starting May 2 (and then to $150 starting June 1).
Key Changes in the Order
Escalation of Tariffs on China
The Order increases the Reciprocal Tariff rate on goods from China from 84% to 125%. This applies to goods entered for consumption or withdrawn from warehouse after 12:01 a.m. EDT on April 10, excluding those already in transit before that time.
This 125% Reciprocal Tariff on Chinese imports, which are not Exempt Goods (defined below), is in addition to the 20% across-the board tariff imposed on all Chinese imports under Executive Order 14195, as amended by Executive Order 14228, as well as other additional tariffs imposed against China, such as antidumping and/or countervailing duties and tariffs imposed pursuant to Section 301 of the Trade Act of 1974 and Section 201 of the Trade Act of 1974.
Temporary Pause for Other Trading Partners
For trading partners listed in Annex I of Executive Order 14257, country-specific ad valorem Reciprocal Tariffs are suspended for 90 days, from April 10 to July 9. During this period, these imports will face a uniform 10% additional ad valorem duty, a significant reduction from the country-specific Reciprocal Tariff rates.
De Minimis Tariff Adjustments
To prevent circumvention of tariffs via low-value imports from China, the Order modifies the de minimis ad valorem duty rate on imports valued at less than $800 from China previously set forth in Executive Order 14259, increasing it to 120%, effective April 10. Additionally, per-item postal duties will increase to $100 starting May 2, and then to $150 starting June 1.
Continuity With Prior Executive Orders
Despite these changes, the other elements of Executive Order 14257, as amended by Executive Order 14259, remain intact, including:
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All trading parties not identified in Annex I of Executive Order 14257 remain subject to the 10% baseline Reciprocal Tariff.
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Goods exempt under Executive Order 14257 remain exempt from the Reciprocal Tariffs (Exempt Goods), including but not limited to articles subject to 50 U.S.C. § 1702(b), such as donations for humanitarian relief; steel and aluminum articles subject to duties imposed pursuant to Section 232 of the Trade Expansion Act of 1962 (Section 232) and Proclamations 9704, 9705, 9980, 10895, and 10896; automobiles and automobile parts subject to duties under Section 232 and Proclamation 10908; bullion; copper, pharmaceuticals, semiconductors, and lumber; certain energy products; certain minerals not available in the U.S.; all articles potentially subject to future tariffs imposed pursuant to Section 232; goods from Cuba, Belarus, Russia, and North Korea; and any other articles identified in Annex II of Executive Order 14257.
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Imports with at least 20% U.S. content continue to qualify for partial exemptions, paying Reciprocal Tariffs only on the non-U.S. value, as outlined in Executive Order 14257.
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Mexico and Canada remain excluded from the Reciprocal Tariffs.
Duty Drawback
CBP has reaffirmed that duty drawback is available for all duties imposed pursuant to the Order.
China’s Response
In the latest escalation of the U.S.-China trade war, China announced it will raise tariffs on American goods from 84% to 125%, effective April 12. This move mirrors the U.S. recent increase on tariffs on Chinese imports. China’s Ministry of Commerce stated that it would disregard any further tariff increases by the U.S., labeling the ongoing tariff escalations as a “numbers game.” However, the ministry warned that if the U.S. continues to substantially infringe on China’s interest, China will “resolutely counterattack and fight to the end.”
Conclusion
The Order marks a dual-track approach: punishing retaliation from China with unprecedented tariff hikes while providing other partners with a temporary tariff reduction. As the U.S. navigates this evolving trade landscape, companies must adapt to heightened costs from China and unpredictability in U.S. tariff policy, and continue to monitor potential shifts, in particular after July 9, when the suspension for most countries expires. A big question to watch is whether the administration seeks to condition its upcoming deals with major trading partners other than China on alignment in a new trade policy coalition against China.
This alert is intended as a guide only and is not a substitute for specific legal or tax advice. Things are rapidly changing by the day and hour, and our Tariff Task Force will do its best to provide timely and relevant updates as things progress. Please don’t hesitate to reach out to us with questions.