In a year of unexpected headlines, one surprise in 2020 was the Trump Administration’s record volume of Foreign Corrupt Practices Act (FCPA) fines and settlements. Despite Trump’s strong criticisms of the FCPA, 2020 not only saw record-shattering fines and settlements, but multiple revisions to the Department of Justice’s (DOJ) FCPA guidance. 

This means that the DOJ which President Joe Biden inherited has in recent years conducted fewer investigations with fewer resources, but has nevertheless shown the ability to levy higher penalties. Looking forward, we expect President Biden and Vice President Kamala Harris – molded by their experience with the 2008-2009 financial crisis – to continue this trend, making oversight a priority by empowering the DOJ and SEC to increase investigations and enforcement actions under the FCPA.

The Biden Administration’s prior response to economic crisis suggests an increase in oversight

It is hard to ignore the similarities between the economic crisis President Biden inherited in 2021 and the crisis he inherited as Vice President 12 years earlier.  Just as the Biden Administration prioritized securing a major economic stimulus package early in his presidency, the Obama Administration strove to pass the 2009 Recovery Act shortly after taking office.  As Vice President, Biden was put in charge of overseeing the 2009 Recovery Act, taking a hands-on approach with a heightened focus on government oversight.

DOJ/SEC enforcement actions and investigations

 

Agency

2016

2017

2018

2019

2020

Enforcement actions

DOJ

29

32

28

35

27

SEC

29

8

18

17

9

FCPA enforcement actions

DOJ

12

11

5

7

2

SEC

8

5

3

0

2

New investigations

DOJ

26

17

13

6

3

SEC

24

18

12

6

5

Source:

Stanford Law School FCPA Statistics

Increases in government oversight are common in periods of economic downturns, and this is certainly so for the FCPA.  According to Stanford Law School data, both the DOJ and SEC saw a significant increase in enforcement actions in both 2002 and 2009. While some analysts suggest that the increase in enforcement actions may not directly correlate with misconduct occurring during the 2008-2009 economic downturn, that downturn was likely a contributing factor in the subsequent rise in enforcement actions. 

In our experience, economic downturns often incentivize disgruntled current and former employees to come forward as whistleblowers, particularly in response to adverse employment or compensation decisions. Companies should anticipate an increase in whistleblower complaints and government investigations during and after periods of economic distress.

In the coming years, we see the potential for an even greater increase in new investigations and enforcement actions than in prior economic downturns.  The economic crisis arising from the COVID-19 pandemic has created unique challenges, including immediate and unexpected shutdowns that crippled supply chains, forced employees to work remotely, and, in some industries (eg travel), immediately shuttered or shrank those markets.  The ground for new investigations and enforcement actions is perhaps even more fertile now than when President Obama took office.

President Biden has promised to restore faith in the US government, which includes restoring the authority of the investigation divisions of the DOJ and SEC.  We expect the Biden Administration to restock the DOJ’s and SEC’s investigation divisions, which experienced staffing cuts and high vacancy levels during the Trump Administration, drawing on the wealth of DC legal talent that served on the Biden transition team. Shortly after taking office, the Biden Administration reauthorized the SEC’s senior officers in the Division of Enforcement to approve the issuance of Formal Orders of Investigation.  Such assertive efforts to rebuild the DOJ and SEC signal a focus on restoring agency morale and empowering the DOJ and SEC with the resources and personnel necessary to resume their independent investigative roles.

FCPA sanctions and settlements

 

2016

2017

2018

2019

2020

Average FCPA settlements

$97.6 M

$152.3 M

$169.7 M

$207.4 M

$534.7 M

Total sanctions

$6.2 B

$2.0 B

$3.0 B

$2.9 B

$5.8 B

Average sanctions

$212.9 M

$181.5 M

$174.1 M

$207.7 M

$447.2 M

Sources:

FCPA Blog+Stanford Law School FCPA Statistics

President Biden has made clear that he intends to build upon many of the strategies he helped develop during his time in the Obama Administration, including an enhanced focus on corporate oversight.  Notably, in the wake of the 2008 financial crisis, the DOJ increased the use of compliance monitors as part of enforcement action resolution, with the SEC, the Federal Trade Commission, and the Commodities Future Trading Commission all following suit. Similarly, as California Attorney General, Vice President Harris left national settlement talks with the banks involved in the housing market collapse, ultimately securing for California a separate $18 billion settlement as well as an independent monitor to oversee debt relief. During the Trump Administration, compliance monitors were considered the exception rather than the rule, a decision which was memorialized in the 2018 Benczkowski Memorandum.  Based on the President’s and Vice President’s past reliance on compliance monitors, we anticipate the DOJ to reverse course on the Benczkowski Memorandum.

We do not expect President Biden to completely reverse course from the Trump Administration.  As noted above, despite a decrease in new investigations, the DOJ and SEC nonetheless achieved record high sanctions and settlement amounts during the Trump Administration, most notably in 2020 when the average FCPA settlement amount exceeded the average settlements of the previous three years combined. During the Trump Administration, the DOJ and SEC, building off investigations originated during the Obama Administration, shattered FCPA records, securing the top six and seven of the ten largest FCPA penalties and disgorgement awards ever.  We anticipate that the Biden Administration will continue this trend.

We also expect President Biden to build upon the recent updates to the DOJ’s FCPA and compliance guidance materials, including the 2020 revisions to the Evaluation of Corporate Compliance Programs Guidance and FCPA Resource Guide.[1] For example, the DOJ’s efforts to make FCPA compliance more practical – including a heightened emphasis on access to data, an increased focus on creating a risk-based compliance program, a continued emphasis on self-reporting, and an expansion of the DOJ’s investigation authority over books and records provisions – will likely continue. 

Both the US government and corporate America have a long way to go to recover from the economic fallout of the pandemic.  While addressing crises at hand, prudent companies are keeping compliance a priority, understanding that otherwise they may risk enforcement by a reinvigorated DOJ and SEC.