The trends to watch in white collar enforcement this year and beyond
Federal white collar prosecutions fell considerably during the last decade, and likely decreased further last year after courts and government offices closed. But now given the coming end of the pandemic, another surge of federal relief funds, and early priority signals with the new administration, companies can expect the trends to reverse this year and beyond.
President Biden has begun filling out the leadership ranks with the Justice Department, and all indications are that prosecuting fraud will be a major emphasis. For his confirmation hearing, Attorney General Merrick Garland committed to “vigorous enforcement of the Foreign Corrupt Practices Act and other federal anticorruption laws.” Deputy Attorney General nominee Lisa Monaco also pledged that prosecutors will focus on everything from “consumer protection to combating environmental degradation.”
From the 1990s to 2010s, the number of federal white collar defendants charged each year stayed with the range of 8,000 defendants to 10,000 defendants. But that number decreased in the second term of President Obama to less than 7,000 defendants in 2016. While originally hovering about 6,500 defendants during the first three years of President Trump, preliminary statistics have shown a substantial decline in 2020.
Many of the white collar cases are handled by the United States attorney offices, but the criminal division fraud section for the Justice Department in Washington often takes the lead on complex or higher priority matters. According to the recent annual report of the fraud section, the individual white collar prosecutions fell to less than 330 in 2020, marking a decline of about a third from the nearly 480 prosecutions in 2019. Moreover, trial convictions of individuals fell precipitously to less than 20 last year from over three dozen in 2019. But now that investigators, lawyers, and judges are more accustomed to working virtually and the pandemic has started to wane, these prosecutions should return to the previous levels.
Despite the reduction in individual prosecutions, the fraud section set a new record in corporate resolutions in 2020, closing more than a dozen matters with a total of nearly $3 billion in penalties to the United States. That was slightly fewer than the 15 cases resolved in 2019 but the cases generated $1 billion higher in penalties paid to the federal government. The blockbuster was a record Foreign Corrupt Practices Act settlement with Goldman Sachs that the fraud section concluded with five foreign law enforcement partners plus other federal enforcement agencies. As borders open up to international travel, the Justice Department and its foreign partners will continue this close work in corporate fraud.
There are reasons for the sustained increase on white collar enforcement. For starters, Biden will likely focus on filling senior leadership positions at the Justice Department. Though Republicans controlled the Senate in the entire term under President Trump, the administration had remained slow to appoint positions with confirmation. Two critical jobs, the heads of the criminal division and the civil division, had remained vacant for well more than 18 months, and only a third of vital positions were filled when Trump left office. We expect confirmation and retention of political nominees to be a higher priority with Biden. In any event, and in light of the many new federal prosecutor roles, which have been authorized and filled in recent years, productivity should grow markedly this year and beyond.
Moreover, as the government distributes almost $2 trillion with additional relief funds, the volume for fraud cases related to the pandemic will likely grow and stay elevated for years to come. Relatively few such cases have been prosecuted to date, and the early cases have often involved blatant criminal violations with the “low hanging fruit” matters which drive flashy headlines but do not need sophisticated investigations. But many federal fraud investigations are complex, so the return to initial levels before the coronavirus will not happen overnight. But with the increases for Justice Department staff and focus on fraud, the next few years may be busy for federal white collar prosecutors so government contractors, health care companies, and federal relief recipients must watch for scrutiny.
While the volume for cases is likely to rise, companies will see a degree of continuity in how the Justice Department handles corporate prosecutions. It has tried to bolster transparency around charging decisions, publishing documents such as the Foreign Corrupt Practices Act resource guide, the evaluation for corporate compliance programs guide, plus the corporate enforcement policy. These enjoy bipartisan support and should continue under Biden. The administration also should continue publishing policies concisely in the justice manual instead of in lengthy remarks and memos. Clear policy incentivizes compliance, facilitates prompt case resolutions, and fosters the important reality and appearance of consistency.
Meanwhile, companies can get ready for a more aggressive enforcement environment. Now is a critical time to work with compliance experts and counsel to pressure test internal controls, reassess corporate risk profiles, evaluate how federal funds were used during the chaotic early months of the coronavirus, and update internal policies and procedures to conform with these latest policies announced by the Justice Department.
Rod Rosenstein served as the United States attorney for Maryland and was the deputy United States attorney general at the Justice Department. He is now a partner with international law firm King and Spalding. Scott Hiers is an associate in the government investigations group at King and Spalding.