The Present and Future of White-Collar Prosecutions in a Post-COVID-19 World

It’s a well-established pattern. When Washington infuses the American economy with massive amounts of financial assistance to weather a crisis, as it did with the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, its investigative apparatus ramps up to combat fraud and misuse of those funds. A 21st century example was the creation of the Special Inspector General for the Troubled Asset Relief Program, which was a special investigative entity that investigated and ferreted out fraud within one of the government’s program used to help the economy recover from the 2008 subprime mortgage debacle. Here, shortly after Attorney General Merrick Garland took office in 2021, the Justice Department warned that anyone using the global pandemic to “scam and steal from hardworking Americans” would be found and prosecuted.

In the first few months of 2022 alone, the agency announced developments in more than 50 COVID-19 fraud cases, from sentencings to guilty pleas and settlements. A dozen of them were in the first week of February, including the guilty plea of a former St. Paul, Minnesota, business owner who pleaded guilty to fraud charges in a scheme that netted $841,000 from the Small Business Administration’s Paycheck Protection Program.

So far, however, many of the pandemic-related fraud cases have involved smaller amounts of money and simpler fact patterns, such as making up a fake list of employees and fabricated payroll of those phantom employees out of whole cloth. These less-complex cases are less time-consuming to prosecute and represent relatively low-hanging fruit in terms of white-collar investigations and the prosecution statistics that come with them. As we get further from the original CARES Act disbursement dates, it is likely that we will start to see more complex and higher-dollar investigations into COVID-19 fraud offenses.

Other Priorities

Even if the enforcement landscape doesn’t change overnight, senior corporate leadership shouldn’t be lulled into unwarranted complacency. To date, the Biden administration has filled only 32 of the 90 U.S. attorney slots vacated at the end of the Trump administration (there are 93 U.S. attorneys spread across 94 districts, and the Biden administration has only filled 32 with its own Senate-confirmed presidential appointees).

These field-general positions are crucial to implementing the administration’s agenda. With only one-third of these selections confirmed and running their respective prosecutorial offices, it makes it more difficult for the Biden administration and the Garland DOJ to implement their stated priorities of increased white-collar and corporate investigation and prosecution. Further, the Justice Department continues to grapple with COVID-19’s chokehold on the criminal justice system. Not only were courtrooms shuttered for months during the pandemic’s initial onslaught in 2020, some that reopened as vaccinations became widely available in 2021 recently again had to delay proceedings, including trials, because of the highly infectious omicron variant several months ago.

At the same time, federal criminal justice officials have had to reprioritize combating violent crime and set aside investigative, analytical and prosecutorial resources to help localities—particularly cities—fight spikes in violent crime. The Justice Department has set up five gun-trafficking strike forces, one of them in New York City, to shut down the illegal transfer of firearms between states. Tragically, we just witnessed how a trafficked firearm in the hands of a criminal can have devastating consequences, in the January 2022 shooting deaths of New York Police Department officers Jason Rivera and Wilbert Mora.

Violent crime and personal safety resonate viscerally—and immediately—with voters in a way that corporate malfeasance might not, especially when the economy continues to grow. Thus, a prioritization of violent crime and firearms offenses can certainly result in a drop in white-collar enforcement, as the government, law enforcement and the court have finite resources.

Enforcement Beyond COVID-19

White-collar enforcement will not focus only on COVID-19. In late 2021, Deputy Attorney General Lisa Monaco announced she was rescinding Trump-era guidance to federal prosecutors that had once been more transparent and less aggressive toward certain resolution measures related to corporate enforcement. And that’s just one piece of President Joe Biden’s broader pledge to fight corruption, which his administration has declared a U.S. national security interest. “The abuse of power for private gain, the misappropriation of public assets, bribery and other forms of corruption impact every country and community,” Biden wrote in a June executive order calling on an array of federal agencies, including the Justice and Treasury departments, to combat corruption more aggressively. “Anonymous shell companies, opaque financial systems, and professional service providers enable the movement and laundering of illicit wealth.”

Against that backdrop, the snarling of global supply chains—which has left grocery and department store shelves considerably bare compared to pre-pandemic days—has also created a perfect storm for potential antitrust and Foreign Corrupt Practices Act violations.

Companies trying to access a limited number of routes, and port slips, to move goods from Point A to Point B might deem this an ideal time to strike cooperative agreements on allocation of certain routes, goods and subcontractors. Prosecutors, however, might view such an arrangement as an illegal agreement or conspiracy. Similarly, a U.S. company with global operations that is desperate to maintain or increase certain goods from foreign state-owned business, or that needs particular government documents to move those goods, could quickly run afoul of the Foreign Corrupt Practices Act by providing payments to foreign officials in order to maintain or increase their business.

Compliance, Now More Than Ever

What do companies need to do to protect themselves in this environment? The advice we give our clients is compliance, compliance, compliance.

While compliance programs have always been important, both in prophylactically guarding against potentially unlawful conduct and in mitigating the damage, should a violation occur, the stakes are higher now than at any point in the past five years. The current administration and its Justice Department leadership are intentionally and publicly returning to more-aggressive corporate enforcement.

First, the agency is reinstating prior guidance that companies hoping to obtain cooperation credit, which can mitigate penalties, must identify for prosecutors all individuals involved in any misconduct, regardless of position, status or seniority. In the past, the approach had been to limit disclosures to those individuals who were “substantially involved,” the deputy attorney general said.

Additionally, the department will amend its “Principles of Federal Prosecution of Business Organizations” to require consideration of all of a company’s previous misconduct, rather than only reviewing somewhat related prior violations. That record, the deputy attorney general said, “speaks directly to compliance programs and the appropriate culture to disincentivize criminal activity.”

The third shift is allowing the government more latitude on when the imposition of an independent corporate monitor is appropriate and warranted. This new pronouncement rescinded prior guidance that had previously suggested that the imposition of a monitor would be more the exception than the rule. The simplest way for companies to avoid that kind of scrutiny in the first place, as well as the accompanying consequences if a violation occurred, is to act now to make sure their houses are in order. Companies need to ensure that their organizations have a robust compliance plan in place, along with the staffing and policies to enforce it. An essential part of those programs should involve a company tracking and analyzing its own data to flag potential violations for follow-up.

A compliance plan cannot be a mere paper tiger, a point underscored by recent DOJ guidance and the fact that it will be scrutinized heavily by government regulators during any corporate investigation or resolution. A lull in enforcement activity doesn’t signal amnesty. COVID-19 complications aside, history shows there’s almost always a lag in corporate cases, because their investigations are lengthy due to their document—and analysis-intensive nature, as well as the need to often prove intent. Many potential violations do not come to light for months or years after the alleged unlawful conduct, and then it can take years to obtain, review and analyze all pertinent records in an attempt to establish the elements of the offense.

These typically lengthy investigations are only exacerbated by the pandemic, both the practical limitations it creates and the recent and numerous cases stemming from the defrauding of pandemic recovery programs. The way to insulate yourself is by instituting compliance controls geared to your organization’s particular risks and ensuring those controls are nimble enough to apply to today’s changing world. The same measures that worked before the pandemic aren’t sufficient now that half your workforce, or more, is working at home. The bottom line is that there is now a tougher, less corporate-friendly enforcement regime. Ideally, companies that take the time to thoughtfully craft and execute a robust compliance structure will help those same corporations avoid scrutiny by law enforcement agencies altogether. If problems do arise, however, regulators have made very clear how large a role compliance will play in the governments’ ultimate resolution of a particular matter.

Reprinted with permission from the “May 2, 2021” edition of the “The National Law Journal”© 2022 ALM Media Properties, LLC. All rights reserved.

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