S&C Critical Insights

Major Developments in National Security Enforcement

Ten years ago, international companies typically needed to monitor national security developments only if they were doing business with a U.S. government agency or operating in higher risk jurisdictions or sectors such as military or dual-use goods. Over the past decade, however, Western governments—led by the United States—have expanded the use of sanctions, export controls, import restrictions and investment laws to more jurisdictions and more sectors, requiring nearly every multinational company to be attuned to and anticipate developments in these laws and regulations, including those seeking to prevent espionage, theft of trade secrets, cyber attacks and other similar threats.

In addition, the governments of nations such as Russia and China have enacted an array of sanctions, export and other control measures, which can subject multinational companies to highly challenging situations with conflicting sanctions regimes. In this environment, companies and financial institutions must address a range of national security risks and considerations when establishing or executing their business operations, legal decision-making and compliance programs.

In this podcast, former federal prosecutors Sharon Cohen Levin, Nicky Friedlander, Tony Lewis and Amanda Houle discuss major developments in national security enforcement, including the Department of Justice’s increased focus on this area. Sharon led the Money Laundering and Asset Forfeiture Unit in the U.S. Attorney’s Office for the Southern District of New York for two decades; Nicky is a former Chief of the Complex Frauds and Cybercrime Unit in the U.S. Attorney’s Office for the Southern District of New York; Tony was the Deputy Chief of the Terrorism and Export Crimes Section in the U.S. Attorney’s Office for the Central District of California; and Amanda was Co-Chief of the National Security & International Narcotics Unit in the U.S. Attorney’s Office for the Southern District of New York.

ESG Considerations for Financial Institutions in 2024

In this episode of S&C’s Critical Insights, Michelle Chen, a partner in S&C’s Financial Services Group, and June Hu, special counsel in the Firm’s General Practice Group, provide key takeaways for financial institutions as they navigate environmental, social and governance considerations in 2024.

Michelle and June review key ESG developments in 2023, noting a trend of growing divergence in ESG requirements and expectations at the international, federal and state level. This trend creates uncertainty and challenges for financial institutions.

In light of the uncertainty and rapid developments in the ESG space, Michelle and June offer practical guidance for financial institutions, including the need to continue to closely monitor the changing ESG landscape and to adopt a coordinated approach to compliance in order to mitigate the risks of fragmented and reactive responses.

2023 Headwinds in M&A and Outlook for 2024

In this episode of S&C’s Critical Insights, Senior M&A Partner Frank Aquila and Global Head of M&A Melissa Sawyer discuss major takeaways from M&A in 2023 and potential developments for 2024.

While we avoided a recession in 2023, ongoing economic uncertainty, rising interest rates, regulatory headwinds and geopolitical tensions contributed to a second year of falling activity levels in global M&A following 2021’s record-breaking year.

M&A deals continued to face scrutiny from antitrust and foreign investment regulators in the United States and globally. In 2023, the EU adopted its new Foreign Subsidies Regulation, and in the United States, the FTC and DOJ proposed changes to the HSR rules and issued Draft Merger Guidelines.

Cross-border M&A activity remained significant at $707 billion during the first nine months of 2023, but was down 21 percent compared to a year ago. Geopolitics, sanctions and foreign investment and competition regulation explain some of the trends in cross-border M&A, as investment pivots to align with countries’ political affiliations.

Frank and Melissa expect to see more blends of traditional acquisition financing mixed with private credit solutions in 2024. They anticipate a significant uptick in activity this year with an increase in strategic buyers executing on deals, private equity buyers and a rebound in the cross-border deals.

Corporate Governance: What to Expect in 2024

In this episode of S&C’s Critical Insights, Marc Treviño and Melissa Sawyer, Co-Heads of S&C’s Corporate Governance Practice, discuss corporate governance developments and what to expect in 2024.

Marc and Melissa explore the ongoing trend of increased shareholder proposals focused on environmental, social and political topics and touch on ESG as it relates to the broader legislative and political climate. ESP-focused shareholder proposals and ESG issues are at the center of a growing web of legislation and government actions at multiple levels.

They also note that companies may be looking to implement an officer exculpation provision in 2024.

Employment and Contracting Litigation After the Supreme Court’s Affirmative Action Decision

In this episode of S&C’s Critical Insights, Julie Jordan, Tracy Richelle High and Annie Ostrager, Co-Heads of S&C’s Labor and Employment Group, discuss the Supreme Court’s decision in two consolidated cases against Harvard and the University of North Carolina. The Court held that the schools’ admissions programs—both of which used race as an explicit factor in admissions decisions—violated the Fourteenth Amendment’s Equal Protection Clause and Title VI of the Civil Rights Act of 1964, which prohibits discrimination in education.

Julie, Tracy and Annie examine pending employment and contracting cases that may be affected by the Court’s decision, cover related shareholder proposals and offer guidance for employers, including reviewing hiring and promotion processes and procedures to examine whether any decisions are expressly based on race, gender or other protected classes. 

The Australian-American Partnership to Address Climate Change

In this episode of S&C’s Critical Insights, Connor Schillerstrom from our Sydney office, John Anselmi from our Melbourne office and Sam Saunders from our New York office discuss how Australia and the United States are working together to address climate change.

Connor, John and Sam provide insight on how Australia might benefit from the Australia-United States Climate, Critical Minerals and Clean Energy Transformation Compact, which was formed this year to provide a framework for the countries to work together to reduce the cost of clean energy technologies and lay the foundation for the global clean energy economy.

They also discuss the possible designation of Australia as a “domestic source” for purposes of the U.S. Defense Production Act, which would provide benefits to Australian companies operating under certain contracts with the U.S. government. Finally, they provide an overview of loans and tax credits under the U.S. Inflation Reduction Act that are available for Australian companies with critical minerals and clean energy projects in the United States.

How the DOJ’s and FTC’s Draft Merger Guidelines May Affect M&A

In this episode of S&C’s Critical Insights, Melissa Sawyer, Global Head of S&C’s M&A Group, and Joe Matelis, a partner in S&C’s Antitrust Group, discuss how the draft merger guidelines issued by the Department of Justice and Federal Trade Commission may affect M&A deals.

Joe, who helped develop the 2010 horizontal merger guidelines that would be replaced by the new guidelines, notes that the new guidelines would create more uncertainty about what kinds of mergers the government is going to choose to challenge. Joe expects that the government is most likely to focus on merger activity by so-called dominant firms that have more than a 30 percent market share, even though a much broader set of concerns is raised in the new guidelines. He also expects that going forward courts may not give as much credence to the new guidelines given their break from prevailing tradition, and thus paradoxically the new guidelines may make it harder for the government to prevail in court.

Melissa points out some of the practical ways the draft guidelines might impact M&A deals. Parties would need more advance planning around potential antitrust issues, with hostile and topping bidders in particular needing to create clear plans to obtain timely clearances. She also would expect to see a shift in antitrust risk allocation provisions, including changes in reverse break fees, operating restrictions that apply between signing and closing, and “hell or highwater” clauses.

Supreme Court’s Recent Polansky Decision on the False Claims Act

In this episode of S&C’s Critical Insights, Annie Ostrager and Tracy Richelle High, Co-Heads of S&C’s Labor & Employment Group, discuss the Supreme Court’s June 16 decision in United States ex. rel. Polansky v. Executive Health Resources and implications for qui tam whistleblowers.  

The False Claims Act (FCA) authorizes qui tam actions by private parties, called “relators,” who sue on behalf of the United States. The government may intervene and take over litigating the case during the “seal period”—the window at the outset of the action during which the case is sealed. If the government chooses not to intervene, the relator litigates the action. But the government has a right to intervene later for “good cause.”

In Polansky, the government chose not to intervene during the seal period, but years later, moved to dismiss the case. The relator argued that the government could not do so because it had not intervened during the seal period. The government responded that it could move to dismiss without intervening at all.

The Supreme Court adopted neither position. Instead, it held that the government may move to dismiss over a relator’s objection an FCA action so long as it moved to intervene at some point.

Annie and Tracy note that the qui tam provision of the FCA remains a powerful tool for prosecutors to encourage whistleblowers to come forward.  But a relator’s path to success may seem more uncertain after the Court’s decision.

Recent Developments with SEC’s Whistleblowing Program

In this episode of S&C’s Critical Insights, Annie Ostrager and Tracy Richelle High, Co-Heads of S&C’s Labor & Employment Group, discuss recent developments in the Securities and Exchange Commission’s whistleblowing program. 

The Sarbanes-Oxley Act, as modified by the Dodd-Frank Act, provides protections and incentives for whistleblowers who report potential violations of the securities laws. Dodd-Frank also incentivizes potential informants to come forward by authorizing the SEC to grant awards to whistleblowers.

Annie and Tracy discuss two recent amendments by the SEC to its whistleblower program that appear to reflect the agency’s readiness to grant more and larger awards. One authorizes the SEC to make awards for related, non-SEC actions, even if they may be more directly connected to other agencies. The second gives the SEC discretion to grant a larger award in appropriate circumstances.

They also discuss two cases recently brought by whistleblowers against the SEC in the Third and Fifth Circuits involving the agency’s denials of whistleblower awards. 

Carve-Out Transactions in Europe: Key Considerations and Recent Experiences

In this episode of S&C’s Critical Insights, associates from our London, Paris and Frankfurt offices—Costanza Posarelli, Matt Triggs, Alexis Madec and Stephan Rauch— discuss  key considerations for carve-out transactions for EU and U.K. businesses, and their recent experience assisting S&C clients with these complex transactions. 

In the current economic climate,  many companies are evaluating whether they are deploying their assets in a way that maximizes value, and financial sponsors are open to more complex opportunities. Carve-out transactions, in either an M&A or a spin-off context, can be a particularly attractive option.

In either context, there are several considerations to keep in mind, including tax aspects and impacts on financing arrangements for the parent company; the need for third-party consents; the relationship between the carved-out business and parent company going forward; and, if the company opts for a spin-off, the choice of listing venue and potential flowback risks.