Since March 2020, as a result of the COVID-19 pandemic, many businesses have been forced, by local, state, and federal orders, and/or economic circumstances, to alter, reduce, or cease operations. As the business landscape changed nearly overnight, companies were forced to make hard choices about the allocation of expenditures on every aspect of their business including personnel, rent, and utilities — and the expenditure of compliance-related expenses was no exception. Corporate compliance departments in business sectors hardest hit by the COVID-19 pandemic were forced to trim compliance-related expenses, consider budget cuts, forgo filling open positions and delay planned investments in forensic technology, all of which raise concerns about the potential for fraud, waste, and abuse. The cutbacks to compliance departments in combination with increased government enforcement actions may be a “perfect storm” for companies that have not maintained a strong level of oversight in the past year. As a result, as companies come out of the pandemic, they may be particularly vulnerable to government fines, penalties, and sanctions – particularly in the antitrust area.
Shortly before the pandemic, in November 2019, the U.S. Department of Justice created the Procurement Collusion Strike Force (“PCSF”) – a coordinated national response to combat antitrust crimes and related schemes in government procurement, grant, and program funding. The stated mission of the Strike Force is to detect, deter, investigate and prosecute antitrust crimes that undermine competition in government procurement. While the Strike Force is focused on investigating traditional criminal violations of antitrust law, including bid-rigging, price-fixing, and market customer allocation, it is also tasked with investigating procurement fraud in general, including false certifications of eligibility for set-aside contracts and other fraudulent conduct.
The PCSF will lead a national effort to investigate antitrust violations at the federal, state, and local level, starting with a focus on 13 districts throughout the country. Prosecutors from the Antitrust Division and the participating U.S. Attorneys’ Offices, along with agents from the FBI and partner Offices of Inspector General, will work together to conduct outreach and training for procurement officials and government contractors on antitrust risks in the procurement process.
Since its formation, the PCSF has facilitated the opening of more than two dozen active grand jury investigations, covering a wide array of procurement collusion and fraud matters, from defense and national security to public works projects.
The Antitrust Division’s Evaluation of Corporate Compliance Programs (“ECCP”), in Criminal Antitrust Investigations, provides a good roadmap detailing what the Antitrust Division considers when deciding whether, and to what extent, it will bring criminal charges against a company.
Significantly, and in tandem with the Department of Justice’s increasing tendency to look at compliance programs in determining whether to bring charges and the scope of possible penalties, prosecutors are required to consider whether the company’s antitrust compliance program addressed and prohibited criminal antitrust violations; if the compliance program detected and facilitated prompt reporting of the violation; and the extent to which the company’s senior management participated in the violation.
Specifically, prosecutors must evaluate the effectiveness of the antitrust compliance program based on nine key factors: the company’s culture of antitrust compliance; program design and comprehensiveness; responsibility for and resources devoted to antitrust compliance; antitrust risk assessment techniques; compliance training and communication to employees; monitoring and auditing techniques; reporting mechanisms; compliance incentives and discipline; and remediation methods.
The following recommended policies and procedures may help to mitigate the risks of antitrust violations:
- Ensure that proper separation of duties is in place, especially with respect to procurement related duties.
- Put proper authorization controls in place to prevent acts of collusion.
- Perform proper due diligence on all significant vendors and other important third parties.
- Conduct data analytics to search for red flags of collusion and conflicts of interest.
- Include a “right to audit” clause in all third-party contracts.
- Clearly communicate procedures for utilizing a company whistleblower hotline.
- Mandate proactive transaction testing looking for unexplained price differences and unusual bidding patterns.
- Require employees and vendors to sign annual disclosure forms and confirmations.
The PCSF has focused on expanding the of use data analytics to detect suspicious bid patterns and evidence of collusion and is offering training in these areas to improve the procurement process. In light of the stated mission of the Strike Force, it is critically important that companies implement proper policies, procedures, and controls to ensure that they meet the PCSF compliance expectations as the post-pandemic business environment unfolds.