Authored by Manny Schoenhuber
Happy New Year, and welcome back to the eighth edition of USA Business Digest – A Legal Newsletter for European Companies and Investors in the United States. I hope 2024 is off to a great start for you and your business. I want to thank you for your continued interest in this newsletter, and wish you and your business nothing but the best for the new year!
Looking Forward—the goal for the first issue of every new year is always to provide an outlook into the new year.
This month, we will take a closer look at (1) the reporting requirements under the Corporate Transparency Act, which went into effect on January 1, 2024; (2) the final rule on employee or independent contractor classification under the Fair Labor Standards Act; (3) the Committee on Foreign Investment in the United States’ broadened focus on threats and enforcement; and (4) the status of the Global Arrangement on Steel and Aluminum.
As always, this update is available in both English and German.
COMPLIANCE
The Corporate Transparency Act’s Reporting Rule Went into Effect on January 1, 2024
The Corporate Transparency Act (“CTA”) is a component of the Anti-Money Laundering Act of 2020 and is managed under the auspices of the US Treasury’s Financial Crimes Enforcement Act (FinCEN). It is a U.S. law (31 U.S. Code § 5336), enacted January 1, 2021, that aims to combat money laundering and other illicit activities.
The CTA’s reporting rule, which went into effect on January 1, 2024, requires reporting entities to disclose certain beneficial ownership information and other data to FinCEN.
As you evaluate any entity’s reporting requirements, you should ask the following questions:
- Which entities have reporting obligations, and which are exempt from reporting?
- Who must be reported as a so-called “beneficial owner”?
- Who could be considered a “company applicant”?
- What are the penalties for failure to properly report?
If you need to report your company or US subsidiary, there is always a case-by-case analysis, and your US lawyers should be able to assist with making these determinations. At Jackson Walker, we can certainly help European companies and their subsidiaries with their CTA reporting requirements. Please do not hesitate to reach out if you or anyone you know needs assistance with CTA reporting.
Generally speaking, you need to analyze each entity independently. But if the entity is registered to do business in a U.S. state, then it will likely be a Reporting Company. Reporting Companies include the following:
- Non-exempt domestic corporations, partnerships, and limited liability companies;
- Foreign entities that are registered to do business in any U.S. state; or
- Any other entity created by filing with a secretary of state or equivalent office.
There are reporting company exemptions, such as treasury and financial institutions, but determining whether your company falls under one of these exemptions is also a case-by-case analysis.
Reporting deadlines are as follows:
- Existing entities formed or registered before January 1, 2024, have until January 1, 2025 to file their initial report with FinCEN.
- Reporting Companies formed or registered on or after January 1, 2024, but before January 1, 2025, will have 90 days to file their initial report.
- Reporting Companies formed or registered on or after January 1, 2025, will have only 30 days to file their initial report.
Going forward, any corrections or updates to a previously filed report must be made within 30 days as well.
Of course, there are still some areas of ambiguity, and we will closely watch any additional developments.
WARNING: As with other government filings, bad actors use the CTA to reach out to uninformed entity owners, both to extract fees for worthless services and to improperly obtain personal data under the cover of a government program. Because of that, please always check with your lawyers about CTA compliance requirements. ♦
EMPLOYMENT
Final Rule on Employee or Independent Contractor Classification under the Fair Labor Standards Act
On January 9, 2024, the U.S. Department of Labor (“DOL”) issued the final rule for Employee or Independent Contractor Classification under the Fair Labor Standards Act (“FLSA”). This rule addresses when employers can classify workers as independent contractors under federal labor law.
The DOL will rely on the six-factor “economic realities test” to analyze employee or independent contractor status under the FLSA. The six factors, which are non-exhaustive, are the following:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the potential employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the potential employer’s business; and
- Skill and initiative.
We certainly expect the rule to face court challenges like other rules under this administration and previous ones have faced. But to avoid the legal risks and repercussions of misclassifying a worker’s status, employers should exercise caution and seek legal advice to ensure that all appropriate factors are considered.
The final rule becomes effective on March 11, 2024. ♦
FOREIGN INVESTMENT
Committee on Foreign Investment in the United States to Broaden Focus on Threats and Enforcement in 2024
The Committee on Foreign Investment in the United States (“CFIUS”) is an interagency committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States.
In 2024, CFIUS will most likely: (1) implement additional restrictions on sensitive technology investments; (2) increase enforcement, compliance, and monitoring activities; (3) focus on supply chain resiliency; and (4) continue to scrutinize cross-border transactions.
The increased focus on CFIUS enforcement will affect risk assessments for voluntary filings and the importance of confirming whether there are mandatory filing obligations. Companies need to catch issues early and get ahead of what could be costly investigations or enforcement actions.
There is now heightened scrutiny of supply chains involving the following:
- Semiconductor manufacturing and advanced packaging;
- Clean energy;
- Critical minerals and other identified strategic materials; and
- Pharmaceuticals.
As CFIUS expands its reach, national security due diligence to assess foreign investment risk is more important than ever. Companies should increase their supply chain due diligence in response to CFIUS’ focus on supply chain resiliency and should expect to provide capability assurances to get approval of their investments. ♦
TRADE
U.S.-EU Global Arrangement on Steel and Aluminum
The Global Arrangement on Steel and Aluminum is a joint project between the U.S. and EU to set mutually acceptable standards on carbon emissions and excess capacity that would allow for transatlantic free trade in the metals. The goal for both sides is to prevent any undercutting of their respective domestic producers or climate goals.
In mid-December, the EU announced that it would not re-impose the retaliatory duties it previously imposed on U.S. goods in response to U.S. national security tariffs on steel and aluminum imports. The U.S., in turn, will continue to allow European steel and aluminum, up to a certain quota, into the U.S. without charging levies.
This is still a developing story, as both sides continue to make demands. Right now, the EU wants to incorporate its new Carbon Border Adjustment Mechanism into the Global Arrangement. The U.S., on the other hand, insists on its right to impose national security tariffs.
The extended agreement to stop arguing (for now) is set to last until March 31, 2025. ♦
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These materials are made available by Jackson Walker for informational purposes only, do not constitute legal advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Jackson Walker. The facts and results of each case will vary, and no particular result can be guaranteed.
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