As all signs point to Joe Biden becoming the 46th President of the United States, AGG’s Government Investigations Team has begun considering the likely shifts in white collar enforcement from the Trump Administration to a Biden Administration. Every administration brings its own priorities to enforcement, with the Trump Administration focusing more on immigration and corporate espionage cases, while conventional wisdom holds that Democratic administrations emphasize white collar enforcement and a more active regulatory environment. Indeed, continuing a ten-year trend, white collar prosecutions declined significantly from the Obama Administration to the Trump Administration. As of mid-2020, the number of white collar prosecutions was down 25% from 2015, while civil enforcement actions by the Securities and Exchange Commission, particularly insider trading cases, also declined.
We anticipate that a Biden Administration will actively renew and initiate criminal and enforcement investigations in a number of areas where the Trump Administration was not as active.
President-elect Biden has already stated that one of his first actions as President will be to re-commit the United States to the Paris Climate Agreement, and the Biden Transition website has identified climate change as a key priority. Biden’s environmental policy platform included the following statement: “The Biden Administration will take action against fossil fuel companies and other polluters who put profit over people and knowingly harm our environment and poison our communities’ air, land, and water, or conceal information regarding potential environmental and health risks.” During the presidential campaign, Biden pledged that he would “direct his EPA and DOJ to pursue [corporate polluters] to the fullest extent permitted by law and, when needed, seek additional legislation to hold corporate executives personally accountable – including jail time where merited.”
As part of this effort, the President-elect also announced plans to establish an Environmental and Climate Justice Division within the Department of Justice, and to instruct the Attorney General to: (i) implement, to the extent possible by executive action, Senator Booker’s Environmental Justice Act of 2019; (ii) increase enforcement, in line with the commitments already detailed in the Biden Plan; (iii) strategically support ongoing plaintiff-driven climate litigation against polluters; (iv) address legacy pollution that includes real remedies to make communities safe, healthy, and whole; and (v) work hand-in-hand with EPA’s Office of Civil Rights.
Accordingly, it is certain that both DOJ and EPA enforcement activity, including conventional pollution cases, will significantly increase as part of the Biden Administration’s strategy to address climate change. These enforcement actions will likely focus on industrial plants, developers, and other industries and the emphasis on environmental justice will likely direct focus on pollution sources in urban areas. Furthermore, we expect to see heightened scrutiny of disinfectants and other anti-viral products as long as COVID remains a threat. Such products, regulated by EPA as “pesticides,” have already been subject to stop sale orders, penalties and blockades at the border by Immigration and Customs Enforcement. Biden’s attention to COVID issues will likely serve to increase and expand the scope of such enforcement efforts.
The Biden Administration should also produce a significant uptick in antitrust enforcement. While much will depend on who will be the new head of the Department of Justice’s Antitrust Division as well as whether there will be a new FTC Chairperson appointed, Democratic enforcement of the antitrust laws has traditionally been more aggressive and widespread than in Republican administrations. Furthermore, if the Democrats take control of the Senate, there could be new legislation broadening antitrust laws.
The focus at DOJ/FTC will likely be on big tech, a trend that has already started with the DOJ’s recently announced lawsuit against Google. However, while antitrust enforcement actions under the Trump Administration may have been more likely to result in fines, we are more likely to see the Biden DOJ pursue disaggregating, or requiring a company to divest certain divisions, in order to resolve these actions. We also expect increased resources for a rise in criminal antitrust enforcement, which has been relatively quiet over the past four years, particularly because of shrinking staff in the division. The FTC, which has remained aggressive in pursuing mergers and consumer protection issues, e.g., privacy, will likely continue these pursuits. In addition, state attorneys general, who have become more aggressive in pursuing these types of cases over the last four years as federal enforcement declined, will likely continue to investigate and initiate these cases.
We generally expect an across-the-board increase in securities and financial fraud investigations. With respect to the Securities and Exchange Commission, the future of enforcement also depends significantly upon who will be appointed the new SEC Chairman. This will likely be determined shortly, as, although Chairman Jay Clayton’s term does not end until June 2021, he announced on November 16 that he will resign at the end of 2020. Chairman Clayton’s enforcement priorities were substantially directed at investment advisers and actions that affected or targeted retail investors. While guessing the nominees in a new administration is a long-standing Washington, D.C. parlor game, we believe that a Biden-appointed Chairman will shift from a focus on protecting the “Main Street” investor to prioritizing investigations of larger financial services firms, and public companies engaging in, for example, accounting fraud. This is certainly not to say that protecting small individual retail investors will cease, but that the priorities will shift to larger institutions. We also think, in conjunction with this likely shift, that the DOJ will ramp up investigations of public companies and larger firms.
The Consumer Financial Protection Bureau will almost certainly see a significant resurgence in activity in a Biden Administration. In 2017, President Trump appointed then-Director of the Office of Management and Budget Mick Mulvaney, who, as a congressman, had called the CFPB a “sad, sick joke” and co-sponsored legislation calling for its elimination, as the Acting Director of the CFPB. Not surprisingly, under his tenure, enforcement has not been as aggressive as it was previously. In a Biden Administration, however, we expect to see more actions brought by the CFPB, which was, after all, enacted during the Obama-Biden Administration.
The Foreign Corrupt Practices Act prohibits companies from bribing foreign officials to obtain or retain business. President Trump, prior to his election, had criticized the FCPA. In 2012, speaking of the FCPA investigation of Wal-Mart related to alleged payments for licenses and permits in Mexico, Trump said that the U.S. “is absolutely crazy” to prosecute alleged FCPA violations in places like Mexico and China. He also said that the FCPA is a “horrible law and it should be changed” because it puts American businesses at a “huge disadvantage.” In January 2020, the White House economic adviser Larry Kudlow was reported to have said that the Trump Administration was looking at making changes to the law. Nonetheless, DOJ did not appear to have reduced FCPA enforcement during the Trump Administration.
While the number of announced FCPA enforcement actions in 2020 is less than in 2019, the drop off in enforcement is likely attributable to COVID-19, especially in Brazil and the rest of Latin America, which have been hard hit by the pandemic. At a recent FCPA conference, Chris Cestaro, Chief of DOJ’s FCPA Unit, said that the Department is continuing without interruption to investigate and prosecute FCPA violations. However, he also acknowledged that DOJ and the FBI are working remotely for the most part and are unable to travel internationally to be able to work with their foreign government counterparts. Given that, we expect to see a substantial uptick in anti-corruption enforcement during the Biden Administration. With concerns about the pandemic easing in the spring, U.S. authorities will be better able to coordinate their enforcement activities and return to the priorities and measures that have made this such a high priority practice area in the past.
False Claims Act cases, including those brought by whistleblowers or relators on behalf of the United States, have steadily increased for many years. These cases have predominantly involved government-funded healthcare (e.g., Medicare) and defense contracting. While we do not anticipate a dramatic increase in the already-high number of FCA cases, we do think that there will be a greater government focus on waste, fraud, and abuse in non-healthcare-related government contacts, as well. We anticipate that the Inspectors General of certain federal departments and agencies, (e.g., HUD, Transportation, Education, etc.) will be looking more intensely into these issues and referring for investigation and prosecution more cases involving their programs to the Department of Justice and U.S. Attorney’s Offices.
For many years, both prior and during the Trump Administration, combatting healthcare fraud has been a priority of the Justice Department. We do not see that changing in the next administration. Additionally, we see a focus on potential False Claims Act cases related to stimulus measures passed to combat the coronavirus pandemic. In particular, the Provider Relief Funds issued by CMS during the height of the pandemic provide a potential source of FCA cases in the health care space as providers must certify that they used the Provider Relief Funds for COVID-19 related expenses. Similarly, there are potential claims relating to whether hospital admissions were improperly upcoded to take advantage of the higher reimbursement associated with the treatment of COVID-19 cases.
Whether there are any significant changes to the Food and Drug Administration’s current enforcement priorities will depend, to some extent, on who is appointed as the new Commissioner by the Biden Administration. While most of the agency personnel are career, non-appointed individuals, the FDA Commissioner (a political appointee) often sets the tone for the agency’s policy initiatives and priorities. While the Trump Administration focused on de-regulation, we might expect a Democratic-led White House to become more active in the issuance of regulations. For example, under the Trump Administration, there was a 2-for-1 attrition required for any new regulations, – i.e., for every new regulation, FDA had to identify two current regulations to eliminate – which resulted in the agency taking longer to initiate rulemaking proceedings. In addition, FDA, under the Trump Administration, was very deliberate to avoid any appearance of “regulation by guidance documents.” It could be argued that, in some cases, the guidance documents issued by FDA under the Trump Administration were aimed to disproportionately favor the industry perspective. While FDA cannot make law through the issuance of guidance documents, we might expect to see more proposed rules and guidance documents issued for public comment that are intended to re-establish greater regulation and oversight. One example might be in the area of over-the-counter drugs, where we expect FDA will move to fully implement the CARES Act provisions that modernized the OTC Monograph Drug Review Process, and went into effect earlier this year. Another area might be in the area of food ingredients and New Dietary Ingredient Notifications.
In the area of enforcement, we observed what may have been a reluctance for the Justice Department, acting on FDA’s behalf, to take action unless the government could prove actual, physical harm. Therefore, for example, while a company might have had repetitive quality-related violations and deficiencies, if no one was actually harmed, the government was less inclined to take action, such as to seek injunctive relief. This could change in a Biden Administration-led FDA. A violation of law, alone, might spark enhanced enforcement. We could also see more inspections (once the pandemic is over) and more import alerts and detentions for products or ingredients coming into the United States from certain countries that have quality-related concerns, particularly to protect the drug and food supply. The focus on enforcement will likely be dictated by how far along we are in addressing the pandemic, as enforcement takes resources, which are now primarily devoted to fighting the pandemic and protecting consumers from unlawfully marketed and fraudulent COVID-19 “cures.” Related to this, if the Biden Administration rolls out a national plan to control the virus, FDA will most definitely be in the middle of that rollout.
Other Areas of Focus
Whenever the federal government implements a new grant or stimulus program, it creates the opportunity for fraud, and the Payroll Protection Program (PPP) is no exception. Established under the CARES Act as part of two trillion dollars in relief packages to help combat the devastating economic effects of the coronavirus pandemic, PPP loans, which were designed to pump money into the economy rapidly, are particularly susceptible to fraud. There have already been a number of well-publicized prosecutions related to fraudulent applications for funding and improper use of funds. As borrowers apply for loan forgiveness, and their loans, particularly those for more than $2 million, are audited, the number of PPP and CARES Act fraud investigations will inevitably increase in the near future. (See also our accompanying article in this newsletter: “SBA’s New PPPLoan Necessity Questionnaires Target PPP Recipients with Loans of $2M.”)
We also anticipate a renewed focus on enforcement in other areas that have not been priorities in the Trump Administration. These include an increased focus on civil rights cases, public integrity, and anti-corruption matters, especially including those related to government programs, and, in particular, increased scrutiny of lending related to fair housing programs.
Some Trump Administration priorities are likely to be less emphasized in a Biden Administration. Chief among these are certain types of immigration cases, such as individual illegal re-entry immigration cases. This not to say that DOJ will no longer focus on immigration cases, but that the focus will more likely be on employer-related investigations such as investigations of systemic undocumented workers at, e.g., food processing plants, pallet plants, food services, and the hospitality industry.
Yates Memo Redux?
Finally, it is possible that the new Administration will reinstate some version of the so-called Yates Memo. That Department of Justice memo, written by then-Deputy Attorney General Sally Yates in 2015, provided guidance to federal prosecutors on combating corporate criminal conduct. In particular, it directed that corporations would not receive any credit for cooperating unless they provided all relevant facts about individuals involved in the misconduct. Additionally, it emphasized the need to pursue individual prosecutions as a way to combat corporate wrongdoing. It was pulled back somewhat by the Trump Administration in 2018, as the “all or nothing” approach to credit for cooperation was ended, and prosecutors were afforded greater flexibility in cooperation and charging decisions. This back and forth on issues related to corporate prosecutions has a longer history with differing directives also having been issued in the Clinton and Bush Administrations. In the new Biden Administration, it is possible that the pendulum will swing back towards the themes in the Yates Memo of individual accountability and “full” cooperation.
We believe that the Biden Administration will be prioritizing white collar investigations and prosecutions, particularly in the areas listed above, more significantly than they were prioritized in the Trump Administration. As such, it becomes more important than ever for companies to focus (or re-focus) resources to ensure that they have strong, vibrant, and robust compliance programs.