“There has been a slowdown during the COVID era,” Ephraim “Fry” Wernick, a V&E partner in the Government Investigations & White Collar Defense Practice Group, said during a Practitioning Law Institute forum on April 18, 2022. “FBI Agents couldn’t knock on doors, couldn’t execute search warrants in the 2020 timeframe, and people were less likely to meet in person to conduct interviews. All signs now point to more consistent enforcement.”
Wernick, a former federal prosecutor and deputy chief of the Criminal Fraud Division at the US Department of Justice (“DOJ”), attended the event, titled “White Collar Crime in a Post-Covid World: What to Expect and How to Cope.” prepared.”
Monitor changes in the FCPA and monitorships
The Foreign Corrupt Practices Act (“FCAP”), passed in 1977, is the oldest foreign bribery law in the United States, Wernick said. While former President Donald Trump’s previous criticism of the law prompted significant speculation that his administration would refuse to enforce it, the opposite turned out to be true, Wernick said. For example, since 2016, the United States and cooperating countries have collected over $20 billion in FCPA-related fines and penalties as a result of the dramatic increase in enforcement. In contrast, in the first 30 years of the law, the highest fine until 2007 was only $21 million.
“Year after year, more companies have been charged, more individuals have been charged, and there have been record penalties,” says Wernick. The DOJ unit tasked with handling such cases has grown significantly over the past eight years — from just 19 prosecutors when he joined in 2014 to 34 when he left in 2019 — and it’s still growing. Today it has more than 40 prosecutors.
“There are still a lot of new hires,” said Wernick. “President Biden and Attorney General Garland have both made fighting corruption a priority and viewed it as a national security interest. They’re really investing in the resources to bring these types of cases.”
Now, if the administration wins such a case, it’s far more likely to use a corporate monitor to prevent repeat offenders than it was under the Trump administration. During the Trump years, the policy was to seek observers only when the likely benefits clearly outweighed the projected costs and burdens. Senior DOJ officials have clarified that their standard guess in such cases is no longer to resolve them without a monitor, the panel noted.
In December, for example, Balfour Beatty Communities – one of the largest providers of privatized military housing to the US military – was ordered to hire an independent observer for three years after pleading guilty to aggravated fraud against the US over its lack of knowledge about the completion of the Lying in residence – requested repairs to win performance bonuses.
From a government perspective, monitors are appropriate when a company’s compliance program is insufficient to ensure compliance with the law, Wernick said. Although companies often find them intrusive and costly. Executives can most effectively avoid audits by investing in strong front-end compliance programs and regularly amplifying their investments in compliance through effective monitoring and improvements to the function.
Listening to Assistant Attorney General Lisa Monaco
In addition to bribing foreign officials, government priorities in the coming year and beyond are likely to include fraud, cybercrime and misuse of cryptocurrencies, particularly ransomware attacks, where hackers take control of a computer network and demand payment to unblock it, he said the V&E team said, citing statements from the administration.
“We need to keep up with threat actors who are embracing innovation as fast as the market is generating it,” Assistant Attorney General Lisa Monaco said during a cybersecurity conference on February 17, 2022 in Munich, Germany. “It’s a challenge that no country can tackle alone.”
Last year, the DOJ not only created the Ransomware and Digital Extortion Task Force, but also recovered $2.3 million of money paid to hackers after the Colonial Pipeline attack. This attack disrupted gasoline distribution, resulting in long lines at US gas pumps and a temporary comparative fuel shortage. “Ransomware and digital extortion – like many other crimes fueled by cryptocurrency – only work if the bad guys get paid, which means we have to blast their business models,” Monaco said.
Also in February, the DOJ announced the seizure of $3.6 billion stolen during the 2016 hack of cryptocurrency exchange Bitfinex. Two people have been arrested on conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the US
Focus on crypto and cybercrime
“Gone may be the days of exchanging paper bags for cash in the underground car park,” Fava told forum attendees. “Instead, crypto is demanded and exchanged.”
Fava, who leads internal and government investigations worldwide, says the Biden administration’s prioritization of the use of cryptocurrencies in cyberattacks acknowledges a reality that has already caught the attention of C-suites and corporate boards.
“Five years ago, the most critical issue for directors and officers was the FCPA and similar anti-corruption laws around the world enforced by foreign regulators. Now, anti-corruption remains in the top 3 for multinational companies, but cybersecurity takes the top spot for almost all companies. Similarly, boards are vigilant about regulations related to cryptocurrency and the relevance of cryptos to their business,” explained Fava.
Like the DOJ, the Securities and Exchange Commission (“SEC”), the top US regulator of publicly traded companies, is setting new priorities.
“The agency has proposed new expanded cybersecurity disclosure requirements that would require public companies to disclose a material cyber incident within four days of its occurrence,” Fava said. “As a result, organizations must implement processes that promptly detect cyber incidents and develop a game plan to alert the legal teams responsible for determining the need for disclosure, investigating the scope of the attack, and mitigating the exposure to the organization and its business stakeholders,” explained Fava.
At the same time, the SEC is working to tighten standards for Special Purpose Acquisition Companies (“SPACs”), publicly traded shell companies formed to raise capital through an IPO with the goal of acquiring or with another company to merge after both companies increased popularity and review of their use.
Pay close attention to SPACs
“A lot of people have asked how much these new rules are really changing the situation with SPACs and their impact on the market,” says Fike, who recently returned to V&E after serving as senior counsel in the enforcement department for almost 10 years the SEC has worked. Fike believes much will depend on the final versions of the proposed rules, which the SEC released on March 20, 2022.
“In general, our understanding is that many of the SPAC rules codify existing practices and we do not foresee any major changes there. There is some expanded liability for insurers, but I think the appetite for SPACs is still there,” says Fike. SPACs remain a hugely lucrative space, she said, and a way for emerging companies, particularly in the technology industry, to gain access to capital markets even amid the increased SEC focus.
In October 2022, the agency announced a $38.8 million settlement with Akazoo SA, which the SEC said it presented as a lucrative music streaming business but actually had no paying customers and negligible revenue when it turned 55 million dollars for sale to a SPAC.
Reading the government tea leaves
Terdlinger, who gained experience in a decade-long public service career that saw him rise to the position of President-appointed and Senate-appointed Attorney in the prestigious Eastern District of Virginia, opened his part of the discussion by summarizing the current status from the field offices of US prosecutors and discussing the implications.
He pointed out that there are currently only 32 Senate-approved attorneys in the 94 US attorney’s offices and that a lack of leadership can have implications for pushing an agenda. Reviewing various budget requests can tell a lot about the DOJ’s future intentions, said Terdlinger, who pointed out that the most recent DOJ bill includes a request for 101 criminal prosecutors and trial attorneys to be stationed in Main Justice and off the field.
The DOJ has also requested 900 additional FBI agents to assist in the employees’ efforts, and according to Terdlinger, that’s significant. “Let’s see what happens with the budget and with post-COVID, and then we’ll see what happens when those priorities come together,” he said.
Terdlinger believes there will be a greater focus on individuals and individual accountability in corporate crime, as well as efforts to prevent recidivism. Both procurement fraud and COVID aid fraud will have priorities, he predicts. “We will probably see the number of business indictees increase over the next year,” says Terdlinger.
While corporate crime enforcement may have slowed during the pandemic, the team said, with additional government resources, controls and penalties, the horizon could look very different.