Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

IRS Releases Annual Increases to Qualified Retirement Plan Limits for 2024

On November 1st, the IRS released a number of inflation adjustments for 2024, including to certain limits for qualified retirement plans. As expected, this year’s adjustments are more modest than last year’s significant increases. The table below provides an overview of the key adjustments for qualified retirement plans.

Qualified Defined Benefit Plans
	2023	2024	Increase from 2023 to 2024
Annual Maximum Benefit	$265,000	$275,000	$10,000
Qualified Defined Contribution Plans
	2023	2024	Increase from 2023 to 2024
Aggregate Annual Contribution Limit	$66,000	$69,000	$3,000
Annual Pre-Tax/Roth Contribution Limit	$22,500	$23,000	$500
Catch-Up Contribution Limit for Individuals 50+	$7,500	$7,500	—
Other Adjustments for Qualified Plans
	2023	2024	Increase from 2023 to 2024
Annual Participant Compensation Limit	$330,000	$345,000	$15,000
Highly Compensated Employee Threshold	$150,000	$155,000	$5,000
Key Employee Compensation Threshold for Top Heavy Testing	$215,000	$220,000	$5,000

For more articles on the IRS, visit the NLR Tax section.

Sportswashing: The New Money Laundering and Sanctions Avoidance Mechanism

In the world of international finance and crime, criminals and terrorists have always sought innovative ways to launder money and avoid sanctions. One relatively recent method that has gained prominence is known as “sportswashing.” This term refers to the use of sports events and organizations to legitimize illicit wealth, evade sanctions, and make millions for those with nefarious intentions. While the practice of sportswashing isn’t exclusive to one sport or country, this article will focus on the intriguing case of MTN Irancell’s involvement with Spain’s La Liga Soccer League and provide a broader context of potential money laundering in the world of football.

The MTN Irancell and IRGC Connection

By way of background, according to recent federal court filings, when MTN Irancell (an Iranian mobile network operator) was formed, the Electronic Development Company (IEDC) owned 51% of MTN Irancell, and IEDC was in turn owned by two companies that allegedly were and are front companies for the Islamic Revolutionary Guard Corps (IRGC). Importantly, in 2019, the U.S. State Department designated the IRGC as an Foreign Terrorist Organization.

The MTN Irancell and La Liga Connection

Arguably, one of the most high-profile examples of sportswashing can be seen in the case of MTN Irancell and its association with Spain’s La Liga Soccer League. MTN Irancell reportedly invested a significant amount of money in a sponsorship deal with La Liga, which allowed them to gain access to a global audience through advertising and promotions. In a recent article published by the Organized Crime and Corruption Reporting Project (OCCRP), as part of that contractual arrangement, MTN Irancell “committed to pay La Liga 10 percent of any profit it earned from subscribers who watched Spanish soccer on its online channel…” But getting money out of a sanctioned regime can be difficult, apparently. According the OCCRP, yet another front company was formed (a Hong Kong-based shell company) to facilitate at least one payment to La Liga.

However, what might seem like a legitimate business arrangement can often serve as a cover for money laundering and sanctions avoidance. Criminal organizations and sanctioned individuals can funnel their illicit gains through these deals, effectively “cleaning” their money and making it appear legitimate. The global reach of popular football leagues like La Liga makes them an attractive channel for such activities.

Money Laundering in Football

The case of MTN Irancell is not an isolated incident when it comes to potential elicit financial flows. Football has long been associated with money laundering, with numerous instances of clubs, agents, and players being involved in financial misconduct. Criminals and corrupt officials exploit the complex financial structure of the sport, which involves multiple jurisdictions, hidden ownership structures, and massive sums of money changing hands.

In 2020, a BBC Panorama investigation revealed that some football agents and officials used secret bank accounts to move money across borders, raising concerns about the integrity of the sport. The combination of vast transfer fees, player salaries, and lucrative broadcasting deals provides ample opportunities for money launderers to exploit the system.

Adding to the challenges presented by sportswashing is its convergence with other money laundering typologies, such as human trafficking and the illegal drug trade.

Combating Sportswashing through KYC Mechanisms

To prevent their organizations from inadvertently engaging in sportwashing, companies and sports leagues must employ robust Know Your Customer (KYC) mechanisms. KYC is a vital component of financial regulations that requires businesses to verify the identity of their customers and assess their risk factors.

Here are some suggestions for companies seeking to avoid issues related to sportswashing through KYC mechanisms:

Due Diligence: Perform thorough due diligence on potential sponsors, investors, and partners. Investigate their financial backgrounds and the source of their funds to ensure they are not involved in illicit activities.

Transparency: Encourage transparency in financial transactions within the sports industry. Clearly define ownership structures and financial flows to minimize the potential for money laundering.

Compliance: Ensure compliance with international sanctions and financial regulations. Regularly update and enhance your compliance programs to adapt to evolving threats.

Third-Party Verification: Engage third-party firms that specialize in KYC and anti-money laundering (AML) services to vet and verify the legitimacy of business partners. Third-party firms that use advanced artificial intelligence and machine learning technologies, particularly those that support name reconciliation and network analysis, can be especially helpful in detecting front companies used to disguise illicit financial flows.

Reporting Suspicious Activity: Encourage whistleblowing and reporting mechanisms to allow individuals to report suspicious activity without fear of reprisal.

Education and Training: Train employees and stakeholders on the risks associated with sportswashing and the importance of complying with financial regulations.

Oversight and Governance: Implement strong governance structures that include oversight by independent bodies to ensure financial integrity and transparency.

Sportswashing is a growing concern in the world of sports, particularly football, and it requires vigilance and cooperation between governments, sports organizations, and the private sector to combat it effectively. By prioritizing KYC mechanisms and maintaining strict compliance standards, companies can help prevent criminals and terrorists from exploiting the global appeal of sports for their illicit activities, thereby preserving the integrity of the beautiful game.

For more articles on sports, visit the NLR Entertainment, Art & Sports section.

Biden Executive Order Calls for HHS to Establish Health Care-Specific Artificial Intelligence Programs and Policies

On October 30, 2023, the Biden Administration released and signed an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (Executive Order) that articulates White House priorities and policies related to the use and development of artificial intelligence (AI) across different sectors, including health care.

The Biden Administration acknowledged the various competing interests related to AI, including weighing significant technological innovation against unintended societal consequences. Our Mintz and ML Strategies colleagues broadly covered the Executive Order in this week’s issue of AI: The Washington Report. Some sections of the Executive Order are sector-agnostic but will be especially relevant in health care, such as the requirement that agencies use available policy and technical tools, including privacy-enhancing technologies (PETs) where appropriate, to protect privacy and to combat the improper collection and use of individuals’ data.

The Biden Administration only recently announced the Executive Order, but the discussion of regulating AI in health care is certainly not novel. For example, the U.S. Food and Drug Administration (FDA) has already incorporated artificial intelligence and machine learning-based medical device software into its medical device and software regulatory regime. The Office of the National Coordinator for Health Information Technology (ONC) also included AI and machine learning proposals under the HTI-1 Proposed Rule, including proposals to increase algorithmic transparency and allow users of clinical decision support (CDS) to determine if predictive Decision Support Interventions (DSIs) are fair, appropriate, valid, effective, and safe.

We will focus this post on the Executive Order health care-specific directives for the U.S. Department of Health and Human Services (HHS) and other relevant agencies.

HHS AI Task Force and Quality Assurance

To address how AI should be used safely and effectively in health care, the Executive Order requires HHS, in consultation with the Secretary of Defense and the Secretary of Veterans Affairs, to establish an “HHS AI Task Force” by January 28, 2024. Once created, the HHS AI Task Force has 365 days to develop a regulatory action plan for predictive and generative AI-enabled technologies in health care that includes:

use of AI in health care delivery and financing and the need for human oversight where necessary and appropriate;
long-term safety and real-world performance monitoring of AI-enabled technologies;
integration of equity principles in AI-enabled technologies, including monitoring for model discrimination and bias;
assurance that safety, privacy, and security standards are baked into the software development lifecycle;
prioritization of transparency and making model documentation available to users to ensure AI is used safely;
collaboration with state, local, Tribal, and territorial health and human services agencies to communicate successful AI use cases and best practices; and
use of AI to make workplaces more efficient and reduce administrative burdens where possible.

HHS also has until March 28, 2024 to take the following steps:

consult with other relevant agencies to determine whether AI-enabled technologies in health care “maintain appropriate levels of quality”;
develop (along with other agencies) AI assurance policies to evaluate the performance of AI-enabled health care tools and assess AI-enabled health care-technology algorithmic system performance against real-world data; and
consult with other relevant agencies to reconcile the uses of AI in health care against federal non-discrimination and privacy laws, including providing technical assistance to and communicating potential consequences of noncompliance to health care providers and payers.

AI Safety Program and Drug Development

The Executive Order also directs HHS, in consultation with the Secretary of Defense and the Secretary of Veterans Affairs, to organize and implement an AI Safety Program by September 30, 2024. In partnership with federally listed Patient Safety Organizations, the AI Safety Program will be tasked with creating a common framework that organizations can use to monitor and track clinical errors resulting from AI used in health care settings. The program will also create a central tracking repository to track complaints from patients and caregivers who report discrimination and bias related to the use of AI.

Additionally, by September 30, 2024, HHS must develop a strategy to regulate the use of AI or AI-enabled tools in the various phases of the drug development process, including determining opportunities for future regulation, rulemaking, guidance, and use of additional statutory authority.

HHS Grant and Award Programs and AI Tech Sprint

The Executive Order also directs HHS to use existing grant and award programs to support ethical AI development by health care technology developers by:

leveraging existing HHS programs to work with private sector actors to develop AI-enabled tools that can create personalized patient immune-response profiles safely and securely;
allocating 2024 Leading Edge Acceleration Projects (LEAP) in Health Information Technology funding for the development of AI tools for clinical care, real-world-evidence programs, population health, public health, and related research; and
accelerating grants awarded through the National Institutes of Health Artificial Intelligence/Machine Learning Consortium to Advance Health Equity and Researcher Diversity (AIM-AHEAD) program and demonstrating successful AIM-AHEAD activities in underserved communities.

The Secretary of Veterans Affairs must also host two 3-month nationwide AI Tech Sprint competitions by September 30, 2024, with the goal of further developing AI systems to improve the quality of health care for veterans.

Key Takeaways

The Executive Order will spark the cross-agency development of a variety of AI-focused working groups, programs, and policies, including possible rulemaking and regulation, across the health care sector in the coming months. While the law has not yet caught up with the technology, the Executive Order provides helpful insight into the areas that will be topics of new legislation and regulation, such as drug development, as well as what may be the new enforcement priorities under existing law such as non-discrimination and data privacy and security. Health care technology developers and users will want to review their current policies and practices in light of the Biden Administration’s priorities to determine possible areas of improvement in the short term in connection with developing, implementing, and using AI.

Additionally, the National Institute of Standards and Technology (NIST) released the voluntary AI Risk Management Framework in January 2023 that, among other things, organizations can use to analyze and manage risks, impacts, and harms while responsibly designing, developing, deploying, and using AI systems over time. The Executive Order calls for NIST to develop a companion resource to the AI Risk Management Framework for generative AI. In preparation for the new AI programs and possible associated rulemaking from HHS, organizations in health care will want to familiarize themselves with the NIST AI Risk Management Framework and its generative AI companion as well as the AI Bill of Rights published by the Biden Administration in October 2022 to better understand what the federal government sees as characteristics of trustworthy AI systems.

Madison Castle contributed to this article.

May A Joint Venturer Withdraw From A Joint Venture In Order To Pursue A Joint Venture Opportunity?

California’s Uniform Partnership Act of 1994 provides that a partner has a duty to refrain from competing with the partnership in the conduct of the partnership business “before the dissolution of the partnership”. Cal. Corp. Code § 16404(b)(3). California’s statute is based on Section 409(b)(3) of the Uniform Partnership Act. The comment to that act flatly declares: “This duty ends when the partnership dissolves.” Does this mean that a partner may withdraw from a partnership in order to pursue an opportunity of the partnership?

In Leff v. Gunter, 33 Cal.3d 508 (1983), the California Supreme Court held that the jury instructions correctly stated California law, under which “a partner’s duty not to compete with his partnership with respect to a partnership opportunity which is actively being pursued by the partnership survives his withdrawal therefrom.” This case is seemingly at odds with the later enactment of Section 16404(b)(3).

In Ecohub, LLC v. Recology, Inc., 2023 WL 6725632, the plaintiff alleged, among other things, that the defendant had breached its fiduciary duty by withdrawing from a joint venture formed to submit a bid on a project in order to submit its own bid. In ruling on the defendant’s motion to dismiss, U.S. Magistrate Judge Thomas S. Hixon acknowledged the possible tension between the Supreme Court’s holding in Leff and the statute but did not feel the need to resolve it because the plaintiff had alleged that the defendant withdrew from the joint venture in bad faith and misused information exchanged as part of the joint venture.

Major Changes Proposed to Non-Competes in the UK

Hot on the heels of the Federal Trade Commission (“FTC”) proposal for a complete ban on non-competes, the UK Government has announced its intention to limit the length of non-compete clauses to three months.

Impact of the reforms in the UK

Importantly, the three-month limit will apply only to non-compete clauses. Thus, it will not affect or limit the use of non-solicitation clauses (which prevent former employees from contacting customers or clients in an attempt to win their business) or non-dealing clauses (which prevent former employees from dealing with customers, even when a customer has approached the employee). The limit also will apply only in contracts of employment and what are classed as “worker” contracts. Common law principles on restrictions being drafted no wider than reasonably necessary to protect legitimate business interests will continue to apply.

The limit will not interfere with an employer’s ability to rely on paid notice periods, garden leave, as well as confidentiality obligations. The Government has ruled out introducing mandatory compensation for the period of non-compete clauses — a concept that is more commonplace in mainland Europe such as Germany, Italy and France. When it comes to enforcing a three month non-compete, the proposal also will likely increase the time pressure on an employer seeking injunctive relief and the interim stage will likely become determinative of the issue given the difficulties of getting a full trial within three months.

USA influencing a global trend

Whilst the UK’s proposal stops short of a total ban, the FTC’s similar, albeit more extensive, proposal in the United States shares very similar reasoning to that put forward by the UK Government and signals a move in the same direction. The FTC argues the freedom to change jobs is key to a competitive, thriving economy and that non-competes suppress wages and hinder innovation. It even suggests that eliminating non-competes would generate jobs for as many as one in five workers currently subject to non-competes, raising wages by $250-$296 billion dollars.

The UK’s subsequent proposal (in addition to the FTC’s) also is likely to encourage debate in other jurisdictions, including the European Union. The European Commissioner for Competition has indicated that the EU is not just looking to investigate traditional cartels but also anti-competitive conduct in labour markets such as wage-fixing or “no-poach” agreements.

What’s next?

The UK Government has stated that it intends to limit non-competes “when parliamentary time allows”. Since this has been a debate that has run for a number of years within Government (coupled with the prospect of a general election in 2024), it could be some time before we see any definite change on this issue.

For now, and until the Government brings forward legislation, non-competes of over three months remain enforceable in the UK, provided they are no wider than reasonably necessary. Employers can therefore continue to include longer non-competes in their employment contracts as a means for protecting their business interests, although we anticipate greater pushback from employees asked to sign on to long non-competes.

There are questions left unanswered and in particular around what will happen to existing non-competes that are longer than three months, or to non-competes that come into force between now and when any legislation is enacted. Will they automatically be treated as unenforceable, or amended to apply for three months only, or will there be a grandfathering provision such that existing provisions continue to apply for a specified period?

We will need to wait to see what the legislation looks like (and any guidance the Government publishes on non-compete clauses). In the meantime, employers can start to prepare by having employment contracts reviewed to ensure that other restrictive covenants (e.g., non-solicitation/non-dealing, confidentiality obligations) are well-drafted and provide the best possible protection, as well as considering other alternatives like longer notice periods, more active use of garden leave, and tighter enforcement around confidentiality undertakings.

NLRB Issues Final Rule on Joint-Employer Status, Answering a Major Question No One Asked

On October 26, 2023, the National Labor Relations Board (NLRB or “Board”) issued its Final Rule (the “Rule”) on Joint-Employer status under the National Labor Relations Act (NLRA). Slated to take effect on December 26, 2023, the Rule returns to and expands on the Obama era Browning-Ferris test, scrapping the NLRB’s 2020 Joint Employer test for the sole reason that the current Board disagrees with the 2020 test, and setting up a potential showdown with the Supreme Court over the “major questions” doctrine and the scope of the NLRB’s administrative authority.

The Final Rule Summarized

Under the new Rule, any entity that shares or codetermines one or more of a group of employees’ “essential terms and conditions of employment” will be considered a joint employer of the employees along with any other entity controlling that work, that is their “primary employer.” Those “essential terms and conditions of employment” as listed in a new NLRB Fact Sheet are:

wages, benefits, and other compensation;
hours of work and scheduling;
assignment of duties to be performed;
supervision of the performance of duties;
work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
tenure of employment, including hiring and discharge; and
working conditions related to the safety and health of employees.

The Rule is purported to be grounded in common law agency principles and will apply where control – or potential control – over any of the above terms and conditions is reserved to an entity, irrespective of whether or not such control is actually exercised and whether such control is direct or indirect. The Rule is expected to allow the Board to rely on standard contractual terms, such as those typically found in agreements between temporary agencies and other suppliers of labor and their clients, to make sweeping declarations of joint employer status, regardless of the factual circumstances. Such findings would obligate putative joint employers to engage in collective bargaining with employee representatives over any of those essential terms and conditions of employment over which they potentially exercise control, even if such control is indirect. While the NLRB’s press release about the Rule asserts that, to make a codetermination, the Board will conduct factual analyses on a case-by-case basis, it is clear that the Rule will effectively make it much easier for the Board to designate common business relationships as instances of joint employment.

Potential Concerns and Consequences

An expanded definition of joint employment is the latest indicator of the current NLRB’s efforts to cast a wider net across the nation’s workforce, organized or not. The effects remain to be fully realized but may place more businesses directly under the Board’s jurisdiction. For example, where a non-unionized business has a relationship with an organized shop that the NLRB deems to constitute a joint employment arrangement, that non-unionized business could find itself a responding party to an unfair labor practices charge brought by representatives of the shop workers.

Accordingly, employers and their vendors or other suppliers of services and/or labor must consider how their relationships may be viewed under the Rule. Agreements should be reviewed for any language that could be construed as establishing forms of worker control that would implicate an entity as a joint employer and might benefit from the addition of language explicitly providing that such arrangements do not create an employment relationship.

Legal challenges to the Rule are expected, and the NLRB’s position may be on shaky ground following the Supreme Court’s decision in West Virginia v. EPA, which called into question the validity of agency action that the Court determines to be a “transformative expansion” of administrative authority and an attempt to answer a “major question” that is better left to elected representatives in Congress rather than to the Executive Branch’s administrative agencies. To be sure, if allowed to stand, the NLRB’s efforts to establish a Joint Employer rule will have significant ripples throughout the U.S. economy. We will keep you informed as this issue winds its way through the courts.

CFTC Whistleblower Program’s FY23 Report to Congress Reveals Continued Success of the Program in Protecting Markets and Customers

CFTC Whistleblower Office Receives the Highest Number of Whistleblower Tips and Award Applications Since the Inception of the Program

Today the CFTC’s Whistleblower Program issued its annual report to Congress for FY23. The report reveals that the program continues to be a key enforcement tool for the CFTC. Since the inception of the program, the CFTC has awarded approximately $350 million to whistleblowers, and whistleblower disclosures have led to more than $3 billion in enforcement sanctions. In a statement accompanying the report, Commissioner Christy Goldsmith Romero underscored the vital role of whistleblowers in helping the CFTC to protect customers and markets:

Whistleblowers play a vital role in supporting CFTC investigations related to fraud and other illegality. The CFTC could not fully protect customers and markets without whistleblowers. Whistleblowers help identify fraud and other illegality, interpret key evidence, and save considerable Commission resources and time. The faster we can stop fraud, the more we can protect customers from harm.

Given the great benefit that whistleblowers provide to the CFTC’s enforcement efforts, it is critical for the CFTC to provide both incentives for whistleblowers to come forward, and protections for working with a federal whistleblower program. The CFTC’s Whistleblower Program recognizes that whistleblowers put themselves at considerable professional and reputational risk in order to help the government. The Program provides confidential protection to whistleblowers. The Program also recognizes that incentives in the forms of monetary awards increase the number of whistleblower tips. This Report confirms that fact, with 1,530 tips this year, the highest of any year.

Highlights of the report include:

During FY23, the CFTC granted seven applications for whistleblower awards, totaling approximately $16 million, to individuals who voluntarily provided original information that led to successful enforcement actions. Some of the whistleblowers provided information leading the CFTC to open the relevant investigations, while others provided substantial ongoing assistance and cooperation with the CFTC as the matter progressed.
The CFTC’s Whistleblower Office (“WBO”) received 1,530 whistleblower tips, which represents an increase of roughly 50 percent over the number of tips the WBO received in FY 2021 and FY 2020.
The WBO received tips regarding a wide range of alleged violations, including market manipulation, spoofing, insider trading, corruption, illegal swap dealer business conduct, recordkeeping or registration violations, and fraud or manipulation related to digital assets, precious metals, and forex trading.
The WBO received 301 whistleblower award applications, a new record for the CFTC Whistleblower Program – roughly doubling the previous record established in FY22.
The whistleblowers that received awards during FY23 conserved substantial CFTC resources and contributed in various ways, including: (1) providing a high degree of ongoing support to Enforcement Staff, including, among other things, interpreting key evidence, facilitating the appearance of another witness; (2) helping the CFTC expand its analysis of the misconduct and further analyze the harm suffered by customers as a result of the violations; and (3) providing information that was sufficiently specific, credible, and timely to cause Enforcement Staff to open an investigation leading to a successful covered action. In one of the orders granting an award, the CFTC noted that “[w]ithout the whistleblower’s information, DOE staff might not have learned of the violations at issue until much later and more customers could have been harmed.”

CFTC Whistleblower Reward Program

Under the CFTC Whistleblower Reward Program, the CFTC will issue rewards to whistleblowers who provide original information that leads to covered judicial or administrative actions with total civil penalties in excess of $1 million (see how the CFTC calculates monetary sanctions). A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

Original information “leads to” a successful enforcement action if either:

The original information caused the staff to open an investigation, reopen an investigation, or inquire into different conduct as part of a current investigation, and the Commission brought a successful action based in whole or in part on conduct that was the subject of the original information; or
The conduct was already under examination or investigation, and the original information significantly contributed to the success of the action.

A covered “judicial or administrative action” is “any judicial or administrative action brought by the Commission under [the CEA] that results in monetary sanctions exceeding $1,000,000.” 7 U.S.C. § 26(a)(1). In determining a reward percentage, the CFTC considers the particular facts and circumstances of each case. For example, positive factors may include the significance of the information, the level of assistance provided by the whistleblower and the whistleblower’s attorney, and the law enforcement interests at stake.

H-1B Proposal Modernizes H-1B Requirements and Oversight, Provides Limited Flexibility for F-1 Student Visa Program

The White House Office of Management and Budget (OMB) has reviewed and approved a Department of Homeland Security (DHS) proposal to bring oversight of the H-1B visa program to the modern era. This proposal also creates flexibility in the F-1 student visa program for students who are the beneficiaries of timely filed H-1B cap-subject petitions.

Based upon the information published by the Department of Homeland Security, the proposed rule will:

Revise the regulations relating to the “employer-employee relationship”
Provide flexibility for start-up entrepreneurs
Implement new requirements and guidelines for site visits, including those conducted in connection with petitions filed by H-1B dependent employers whose basic business information cannot be validated through commercially available data
Provide limited flexibility on the employment start date listed on the petition
Address “cap-gap” concerns
Bolster the H-1B registration process to reduce the possibility of misuse and fraud in the H-1B registration system
Clarify the requirement that an amended or new petition must be filed where there are material changes, including the streamlining notification requirements related to certain worksite changes

Written public comments must be submitted by Dec. 22, 2023, online at regulations.gov. The proposal, particularly the component aimed at reducing fraud and misuse in the H-1B registration system, is expected to be welcomed by H-1B petitioners and employee beneficiaries who have faced extreme challenges in the lottery in recent years.

Following DHS precedent, the proposed rule is expected to have a delayed effective date should it proceed.

With the fiscal year 2025 H-1B registration season fast approaching, employers and potential H-1B registrants should consider this new proposed rule when solidifying plans for the upcoming registration period.

This article was co-authored by Tieranny Cutler.

For more news on H-1B Oversight Proposal, visit the NLR Immigration section.

Businesses Beware: Penalties for Failure to Comply with Reporting Requirements of the Corporate Transparency Act

Businesses, especially small and privately-owned businesses, should be aware of federal reporting requirements becoming effective Jan. 1, 2024. Congress enacted the Corporate Transparency Act (“CTA”) in 2021 to combat money laundering, terrorism financing, securities fraud, and other illicit financial activities by requiring businesses to be transparent about their ownership. With significant exceptions, the CTA generally requires businesses to report certain information—known as Beneficial Ownership Information (“BOI”)—to the federal government. BOI must be reported to the Financial Crimes Enforcement Network (“FinCEN”)—a Bureau of the U.S. Department of Treasury—where the information will be stored in a secured database. Last year, FinCEN published final regulations implementing the CTA’s reporting requirements. These regulations become effective Jan. 1, 2024.

Businesses should begin preparing for compliance with the CTA, as initial reports for existing businesses must be submitted prior to Jan. 1, 2025, and the penalties for non-compliance are severe.

What is BOI?
The CTA generally requires most domestic and foreign business entities doing business in the United States to report BOI concerning:

persons who directly or indirectly hold a 25% or greater interest in the business;
persons who directly or indirectly “exercise substantial control over” the business; and
for businesses formed after Jan. 1, 2024, persons who assisted in the preparation of the business’s organic documents.
To Whom and When Must BOI be Reported?
For existing businesses, BOI must be reported prior to January 01, 2025.
Businesses formed after Jan. 1, 2024, will have 30 days from confirmation of their formation, incorporation, or registration to report BOI.
If a business’s beneficial ownership changes following the submission of a BOI report, the business must report updated BOI to FinCEN within 30 days after such change.
Penalties for Failure to Comply with the CTA
The penalties for willfully failing to comply with the CTA’s reporting requirements are quite severe. Any person who willfully fails to report BOI or reports it inaccurately may be subject to civil and criminal penalties, including fines up to a maximum of $10,000 and imprisonment up to 2 years. Businesses should be aware that, although they may have been required to supply information regarding the entity to the secretary of state or other similar office upon formation or registration, BOI reports concern the business’ owners or controllers and must be submitted to FinCEN in addition to any information supplied to a state during the entity’s formation or registration.

An Evolving Landscape: Interplay between State Law and the Impact of the CTA on Businesses
It is yet to be seen whether states will adopt similar or identical BOI reporting requirements. As of the date of this post, legislation is pending in New York that would require LLCs to submit BOI to the New York Department of State upon organization or registration with the state. This same legislation also requires existing LLCs to amend their organic documents to include BOI.

Pennsylvania amended its Business Corporation Law effective Jan. 1, 2023, and now requires businesses conducting business in the state to file annual reports containing information regarding the entity itself. Pennsylvania does not currently require reporting of BOI. However, it is likely that Pennsylvania and many other states will soon follow the lead of the federal government and New York in requiring businesses to report BOI on a state level.

Conclusion
The CTA’s adoption is a watershed moment in the regulation of business entities. For the first time, businesses will be required to internally track and monitor their BOI to ensure compliance with the CTA. Moreover, compliance with the CTA will require businesses to evaluate their control structures and contractual relationships. For example, while it may be simple to determine whether a person owns 25% or more of a business, the determination of whether someone “exercises substantial control over” the business may not be so straightforward.

It is strongly recommended that businesses consult an experienced and qualified attorney to determine whether they are subject to the CTA’s reporting requirements, as well as any similar requirements imposed by states in the future.

By Rocco L. Beltrami , John F. Lushis, Jr. of Norris McLaughlin P.A.

For more on the Corporate Transparency Act, visit the NLR Corporate & Business Organizations section.

IRS Offers Forgiveness for Erroneous Employee Retention Credit Claims

The Employee Retention Credit (“ERC”) is a popular COVID-19 tax break that was targeted by some unscrupulous and aggressive tax promoters. These promoters flooded the IRS with ERC claims for many taxpayers who did not qualify for the credit. Now, the IRS is showing mercy and allowing taxpayers to withdraw some ERC claims without penalty.

Many taxpayers were very excited about the ERC, which could refund qualified employers up to $5,000 or $7,000 per employee per quarter, depending on the year of the claim. But the requirements are complicated. Some tax promoters seized on this excitement, charged large contingent or up-front fees, and made promises of “risk-free” applications for the credit. Unfortunately, many employers ended up erroneously applying for credits and exposing themselves to penalties, interest, and criminal investigations—in addition to having to repay the credit. For example, the IRS reports repeated instances of taxpayers improperly citing supply chain issues as a basis for an ERC when a business with those issues rarely meets the eligibility criteria.

After months of increased focus, the IRS halted the processing of new ERC claims in September 2023. And now, the IRS has published a process for taxpayers to withdraw their claims without penalty. Some may even qualify for the withdrawal process if they have already received the refund check, as long as they haven’t deposited or cashed the check.

For those who have already received and cashed their refund checks, and believe they did not qualify, the IRS says it will soon provide more information to allow employers to repay their ERC refunds without additional penalties or criminal investigations.

Author: National Law Forum

IRS Releases Annual Increases to Qualified Retirement Plan Limits for 2024

Like this: