Tariff Dispute and SEC Reforms

Washington was active on multiple fronts this month. New tariffs on dozens of countries, including Canada and Brazil, are reshaping cost and supply chain narratives, while the SEC advanced changes to disclosure delivery, activist transparency and quarterly reporting. DOJ also moved to speed up merger review. Here’s what boards and management teams need to know.

Tariffs & Trade

U.S.-Canadian Tariff Conflict Escalates – The U.S. and Canada continued to escalate their tariff dispute in the wake of collapsed trade talks. Canada announced plans to impose tariffs of up to 50% on roughly 700 American products including steel, aluminum, furniture, golf clubs, milk and apparel. The Canadian tariffs are set to take effect September 8 and were in retaliation to new U.S. levies announced right after talks fell apart. Those U.S. duties will affect about $20 billion of goods, or roughly 7% of total U.S. imports, targeting hockey sticks, cement, paper, chemicals and a host of other products.

SEC

SEC to Permanently Stop Judging Whether Companies Can Exclude Shareholder Resolutions – The Securities and Exchange Commission (SEC) has permanently stopped responding to no-action requests regarding shareholder proposals, ending its historical role as an informal referee in corporate proxy disputes. In practice, the change announced by the U.S. Securities and ‌Exchange Commission extends a freeze put in place last November on deciding whether to approve corporate requests to skip votes on shareholder proposals. The Commission said it took this action, “in order to focus [its] resources on the review of Securities Act and Exchange Act filings, including those reviews that are statutorily required, for the protection of investors and facilitation of capital formation.”

New Financial Reporting and Accounting Unit Formed – The SEC established a new specialized unit in the Enforcement Division to pursue accounting and financial reporting fraud cases as well as general misconduct in the accounting and auditing areas. The Financial Reporting and Accounting Unit will work in close collaboration across all relevant SEC divisions and offices. The Unit will be staffed by attorneys and accountants with specialized skills related to financial reporting, accounting, and auditing in securities regulation.

Expanded Accredited Investor Qualifications Move Ahead – SEC Chairman Paul Atkins asked Commission staff to work with the Financial Industry Regulatory Authority (FINRA) to develop a new exam for retail investors to demonstrate whether they have the financial sophistication to invest in private market securities.

Justice Department

Shareholder Proxy Advisory Guidance Rescinded – The Justice Department rescinded its decades-old guidance to a shareholder proxy advisory business, citing significant antitrust concerns over consolidation in the industry. Specifically, the Department withdrew a 1987 letter that told Institutional Shareholder Services (ISS) that its business model of advising investors on corporate governance and shareholder votes did not raise antitrust concerns at the time. This withdrawal may have reverberations for proxy advisory services firms that provide uniform voting recommendations on corporate operations to institutional advisors as well as institutional investors that vote based on those recommendations. At least 13 states have proposed or enacted legislation imposing disclosure requirements or other obligations on proxy advisory firms, and others are advancing similar bills.

DOJ Maps Fraud Investigation Priorities – Assistant Attorney General for the Criminal Division, Colin McDonald, detailed the Department of Justice’s National Fraud Enforcement Division’s enforcement priorities:
- Procurement/Public Benefits – Procurement fraud, including defective pricing, bid rigging, self-dealing, bribery, product substitution, billing fraud, and fraud on benefit and grant programs from student loans to disaster relief to small business programs.
- Healthcare – Telemedicine schemes, Medicare and Medicaid fraud, controlled substance diversion, home health and hospice schemes, and deceptive marketing of unsafe products.
- Tax – Unethical return preparers, concealed income, abusive scheme promoters, and tax offenses layered onto program fraud.
- Trade-Related – Criminal trade enforcement through the Trade Fraud Task Force targeting illicit transshipment, country-of-origin fraud, undervaluation of imports, sanctions evasion, and forced labor schemes. The Department noted its plan to leverage enhanced data analytics and AI tools to root out fraud.
- Separately, the DOJ also launched the National Fraud Detection Center (NFDC) to investigate fraud against the federal government, including illicit actors overseas. This cross-agency team also include a range of inspectors general.