Each annual Legal and Regulatory Risk Outlook edition focuses on themes relevant to the current compliance landscape and explores the intersectional nature of compliance-related risks. Now that the first year of U.S. President Donald Trump's administration is behind us, we have a clearer sense of how his return to office is impacting the compliance landscape. In the 2026 edition, we focus on how President Trump's priorities in his second term have exacerbated legal and regulatory divergence at the federal and state levels, as well as on the international stage, and how the resultant recalibration and uncertainty have exposed organizations to new risks. A through line of these risks is that the dynamic political and geopolitical landscape has caused significant uncertainty and organizations are unsure how or whether to implement compliance frameworks because they are apprehensive about whether and how existing requirements are going to change. This initial overview outlines the major thematic risks and impact on compliance positioning. The three subsequent quarterly installments will feature deep dives into the following topics:
National Security
Reliance on Trade Barriers, Remedies to Strengthen Economic Competitiveness
On Dec. 5, 2025, the Trump administration released its National Security Strategy, which explicitly prioritized economic security, calling it fundamental to national security. The strategy emphasizes balanced trade, access to critical material supply chains and the revitalization of the U.S. industrial base. Accordingly, the Trump administration will continue to use trade barriers and remedies to forward its goals of reshoring, nearshoring and reindustrialization, as well as pressure other countries to align with Trump's geopolitical agenda. Trump will continue to use retaliatory tariffs to advance his economic agenda and leverage tariffs as a deterrence mechanism. He is likely to announce more "secondary" tariffs to penalize third-party countries for trade activity deemed antithetical to U.S. interests.
However, the avenues for Trump to impose tariffs could soon face limitations. The U.S. Supreme Court is expected to determine whether the president exceeded his authority in using the International Emergency Economic Powers Act (IEEPA) to impose tariffs. Should the Supreme Court rule that Trump's use of the IEEPA is illegal, those tariffs would be struck down. However, Trump could still impose tariffs via Section 232 of the Trade Expansion Act of 1962, Section 301 or 122 of the Trade Act of 1974 or Section 338 of the Trade Act of 1930.
While this administration has so far leaned heavily on trade barriers like reciprocal tariffs to advance objectives related to economic competitiveness, in the background, the U.S. Department of Commerce has increased its enforcement of trade remedy laws like antidumping and countervailing duties to address unfair trade practices alleged to hurt domestic businesses. Trump may more assertively encourage domestic producers to submit trade remedy petitions alleging unfair foreign competition and we may also see the Department of Commerce "self-initiate" more investigations, an authority it used for the first time in 2017 after Trump called for U.S. agencies to increase efforts to enforce antidumping and countervailing duty orders during his first term. The Department of Commerce may also attempt novel applications of antidumping laws based on its expanded discretion to determine the existence of cost-based particular market situations.
Devotion of Resources to Trade Fraud Enforcement
Apart from the Department of Commerce, other regulators will also ramp up trade enforcement initiatives. In 2025, the Department of Justice (DOJ) Criminal Division identified trade enforcement as a key priority and launched the interagency Trade Fraud Task Force to coordinate efforts to bring enforcement actions against parties that seek to evade tariffs and other customs duties, explicitly leveraging the FCA to redress fraud related to trade. The Task Force will continue to lean heavily on FCA allegations from industry whistleblowers. In 2026, we can expect the DOJ and Customs and Border Protection (CBP) to continue to prioritize evasion of antidumping and countervailing duties, Section 301 tariff circumvention and misclassification and undervaluation schemes.
Uptick in Economic Coercion Related to Sanctions, Export and Investment Controls
Although Trump has relied primarily on tariffs to enforce trade objectives, we may see the increased use of sanctions and export controls to further the administration's national security priorities. Most of these sanctions and export controls will likely expand in 2026 and will likely be related to critical materials supply chains, as well as emerging technology like advanced manufacturing, AI, quantum computing, semiconductors and unmanned systems, with a prioritization of safeguarding goods, technology, software or services with a defense or dual-use application.
Many of the controls will involve China, continuing a trend exhibited in 2025, especially targeting entities that contribute to Beijing's technological capabilities. The United States will leverage tools like outbound investment restrictions to limit the military, intelligence, surveillance and cyber capabilities of China and other countries of concern. Following a year in which Chinese citizens received more designations under the Treasury Department's Specially Designated Nationals and Blocked Persons (SDN) List and the Commerce Department's Bureau of Industry and Security (BIS) "Entity List" than any other nationality, largely due to technology competition and Chinese involvement in Iranian sanctions evasion, China is expected to continue to be one of the primary targets of U.S. economic coercion.
This complex and fast-moving interplay between geopolitics, national security and compliance was also illustrated by China's weaponization of its rare earths in response to Trump's imposition of tariffs, which should serve as a wake-up call to organizations that rely on these materials for their manufacturing processes and products. While China agreed to pause implementation of its rare earth export regime, China's dominance of critical raw materials is its primary point of leverage in trade disputes. These types of curbs will remain China's most likely form of retaliation in the event that Trump raises tariffs, expands tech restrictions on China or the two fail to make progress in trade negotiations.
AI
Organizations Face Prolonged Regulatory Uncertainty as State and Federal Laws Clash
On Dec. 11, 2025, Trump signed the "Ensuring a National Policy Framework for Artificial Intelligence" executive order. The order aims "to remove barriers to United States AI leadership." It directs the attorney general to create an "AI Litigation Task Force" within the DOJ to identify and legally challenge state AI laws that the administration deems "onerous and excessive," conflict with federal policy, unconstitutionally burden interstate commerce, are preempted by existing federal law or are otherwise unlawful within 90 days.
The order follows early administrative efforts to gut state AI laws but is Trump's most aggressive attempt yet to deregulate the AI sector and signals a broader White House strategy to assert federal dominance over AI governance through executive action rather than legislation. Though the order purportedly intends to remove what the administration views as fragmented and innovation-stifling state regulations, its immediate effect is likely to be increased regulatory uncertainty as its legality is tested in court.
While major technology firms have welcomed the White House's deregulatory posture and its emphasis on national AI competitiveness, the absence of clear rules will increase compliance risk. Organizations operating across multiple states may now face a prolonged period of legal limbo during which state laws remain in effect on paper but are potentially subject to federal challenge, making long-term investment and governance planning more difficult. In 2026, companies will still need to conduct state-by-state analysis, particularly for AI systems that are used in employment, consumer protection, healthcare and financial services.
Legal Exposure Related to AI Use in the Workplace Will Increase
Employers are increasingly using AI throughout the recruitment process, including drafting job listings, screening resumes, testing candidates, conducting video interviews and deploying HR chatbots. However, AI-assisted screening and evaluation in employment decisions raise significant concerns about bias, disparate impact and accuracy, particularly when these tools influence hiring, promotion, discipline or termination decisions without clear standards, transparency, independent human review and accountability.
The legal framework governing workplace AI in the United States has grown uncertain following the Trump administration's 2025 executive order reversing federal AI guidance and the U.S. Equal Employment Opportunity Commission's (EEOC) removal of technical assistance materials on AI bias and discrimination. In response, states have stepped in to fill the regulatory void, with California, Colorado, Georgia and Illinois introducing bills in 2025 to regulate AI-driven compensation decisions, followed by New York and Maryland in January 2026. This combination of withdrawn federal guidance and divergent state requirements has created significant challenges for employers.
Lawmakers warn that unregulated AI use in hiring or setting employee pay may produce discriminatory outcomes potentially actionable under federal laws such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act and the Equal Pay Act, as well as state and local statutes. One case to watch is Mobley v. Workday, Inc., an ongoing class action that alleges hiring platform Workday's AI screening tools discriminated against applicants over 40, violating the Age Discrimination in Employment Act. The outcome may determine the legal limits of AI use in hiring.
Beyond the risk of employer use of AI, employees who use AI without approval or training create a governance gap. Unauthorized "shadow AI" creates substantial liability risks for organizations. Key concerns include data privacy breaches when employees input confidential information into public AI platforms, intellectual property infringement from AI-generated content and misinformation in communications as a result of AI hallucinations or a rogue chatbot. Shadow AI creates blind spots for employers, making it challenging to monitor compliance or secure data, and employers could also face vicarious liability for damages caused by flawed AI-driven decisions. Organizations risk regulatory penalties, lawsuits and reputational harm from these vulnerabilities.
Litigation Over AI Training Data and Copyright Will Address Fair Use, Data Provenance
The coming year will bring critical court rulings that could determine how copyright law applies to generative AI. In the United States, tech companies are relying on the fair-use doctrine to avoid liability, but copyright holders are pushing back aggressively. While there have been some significant settlements, including authors securing a historic $1.5 billion class action settlement with Anthropic, the largest copyright payout in U.S. history, early decisions have been inconsistent. The ongoing cases are expected to provide some legislative clarity.
One important case to follow is the Disney, Universal and Warner Bros Discovery joint lawsuit against Chinese AI company MiniMax for copyright infringement, the first known case of non-Chinese companies suing a Chinese AI company in a U.S. court over the matter. The lawsuit's outcome could set an international precedent, potentially leading to stricter AI regulation, higher costs, closer scrutiny of data sourcing and potential retaliation from China, though ambiguous international enforcement efforts could limit the impact of the ruling.
International lawsuits have had a mixed bag of outcomes. On Nov. 4, 2025, Seattle-based Getty Images largely lost its London lawsuit against U.K.-domiciled Stability AI, in the United Kingdom's first "Copyright vs. AI" decision. The case was initially touted as potentially precedent-setting. However, because Getty had to withdraw part of its case due to insufficient evidence about where the AI was actually trained, it ultimately left unresolved the issue of whether training AI models on copyrighted materials constitutes infringement in the United Kingdom. In contrast, other jurisdictions have come to different conclusions, highlighting the ongoing debate over whether data scraping for AI training is legal. On Nov. 11, 2025, a German court found that OpenAI violated German copyright laws by reproducing lyrics from German songs in order to train its GPT series of models. The case could set a precedent in Europe over how AI companies use copyrighted materials. The fragmented legal landscape will also likely lead to strategic forum shopping as more cases are settled.
ESG
Deregulation and Shifting Priorities at the Federal Level Complicate State Compliance
Trump's return to office resulted in a dramatic shift in environmental and social policy. The Trump administration is actively reversing DEI and climate initiatives, with a number of Republican-leaning states following. Bills in Florida, Utah and New Hampshire are targeting workplace bias and harassment protections for transgender and non-binary employees. Iowa's 2025 precedent-setting repeal of gender identity as a protected trait in civil rights law marked a significant shift in the legal landscape for workplace protections. Following Iowa's repeal, 22 states and the District of Columbia explicitly prohibited workplace discrimination based on gender identity in their civil rights laws. However, the inconsistencies among states and ongoing rollbacks of bias protections create widespread confusion about what is actually protected.
This patchwork of regulations, which leaves employers uncertain about what they are legally permitted to do or enforce, making compliance challenging across different jurisdictions, is not expected to become clearer in 2026. On Jan. 22, the EEOC voted to remove specific protections for LGBTQ+ workers regarding pronoun usage, bathroom access and broader definitions of sex-based harassment. These measures place the burden on employers to navigate the competing pressures of potential discrimination lawsuits related to gender identity and policies recognizing only two sexes.
Social issues are not the only point of divergence. States like California and New York are implementing their own greenhouse gas emissions mandates in the absence of federal requirements. However, challenges to these mandates or changes at the federal level leave companies confused about expectations and requirements.
DEI and "Reverse Discrimination" Litigation and Enforcement Will Increase in the U.S.
On Jan. 21, 2025, President Trump issued an executive order emphasizing that organizations receiving federal funding could face liability under the FCA if their DEI initiatives violate federal antidiscrimination laws. EO 14173 also requires contractors to certify they do not operate DEI programs, a portent of the FCA enforcement investigations to come. And indeed, in December 2025, companies like Google and Verizon reported that the DOJ took the unusual step of launching FCA investigations related to corporate DEI practices.
Continuing the expansion of traditional white collar crime laws to cover ESG issues, in January 2026, the U.S. Federal Trade Commission (FTC) sent letters to 42 major law firms warning that their participation in the Mansfield Certification program, a framework designed to increase diversity in law firm leadership by ensuring at least 30% of candidates considered for promotions, senior lateral hiring, and governance roles are from underrepresented groups, could violate federal antitrust law. While most legal scholars believe that participation in the certification program is highly unlikely to be an antitrust violation, the FTC's letter emphasizes that agencies are looking for alternative ways to pressure employers about hiring decisions related to DEI.
Relatedly, the number of so-called "reverse discrimination" claims brought by the EEOC has been on the rise. In November 2025, the EEOC filed a subpoena against Northwestern Mutual Life Insurance over an employee's claims that he had been discriminated against as a result of the company's DEI policies and programs, which allegedly favor women and people of color, and that he was retaliated against for complaining about the DEI policies and programs.
EEOC Chair Andrea Lucus's initiation of reverse discrimination investigations is not a new development. However, she is escalating them now that she leads the committee and Brittany Bull Panuccio's confirmation as commissioner in October 2025 brought the EEOC to a quorum, allowing the Republican majority to enact significant policy changes. Her efforts also follow a June 2025 Supreme Court decision in Ames v. Ohio Department of Youth Services that employees in majority groups do not need to meet a heightened standard of proof to show reverse discrimination under Title VII. In light of the EEOC quorum and the Ames ruling, employers should be prepared for a heightened exposure to reverse discrimination claims and investigations.
Claimants Will Attempt To Hold Corporations Accountable for Climate-Related Harm
While DEI will be the focus of ESG litigation and enforcement efforts in the United States, with U.S. enforcement of environmental violations being mostly abandoned at the federal level, globally, legal efforts to hold corporate polluters responsible will increase. Although greenwashing litigation will remain the more widely used strategy to hold corporations responsible for climate harm, which will be bolstered as new sustainability reporting requirements take effect worldwide, claimants will also pursue novel legal strategies and cross-border climate litigation, emboldened by a handful of cases and decisions in the past year, including a High Court of Justice ruling that found a U.K.-domiciled parent company liable for the actions of an overseas subsidiary or joint venture, establishing precedent for corporate accountability for serious environmental damage and human rights violations. A similar case is currently active in the United Kingdom, in which the Filipino claimants allege that Shell's historic greenhouse gas emissions and knowledge of climate risks contributed to the intensification of a 2021 typhoon, which caused widespread damage in the Philippines.
