Regulatory enforcement priorities are largely clear as we enter the fourth year of the Trump administration, and business and compliance leaders now have a good idea about what to expect going forward.
Much of the enforcement activity has been driven by the administration’s prioritization of national security, anti-terrorist financing, international corruption, the weaponization of foreign policy through sanctions, and deterring fraud against the government. Looking deeper into 2020, these clear priorities will inform the enforcement agenda.
AML and Sanctions Remain at Top
Enforcement of anti-money laundering (AML) and sanctions matters continues to be a top priority for regulators and law enforcement. The administration’s use of sanctions against individuals and entities has outstripped that of previous administrations, both in scale and scope.
Sanctions regulations remain a major tool in foreign policy and reaction to foreign conflicts. AML and sanctions programs are increasingly viewed in the larger context of financial crime, including corruption and misappropriation of assets by politically exposed persons.
The drive to make AML and sanctions compliance more efficient with technology will likely continue. In response, areas of potential enforcement activity have grown, with a push in a number of emerging areas such as virtual currency regulation, cyber, and beneficial ownership reform.
Of particular note is the Justice Department’s recent revision of its voluntary disclosure policy (effective December 2019) for export controls and sanctions violations, extending the policy to financial institutions only if companies report first to the DOJ. This could create dilemmas for financial institutions and other entities when discovered violations fall within the jurisdiction of other agencies at both the federal and state level.
FCPA Enforcement Continues Unabated
While many were skeptical concerning the Trump administration’s commitment to the enforcement of the Foreign Corrupt Practices Act, it’s clear this skepticism was misplaced.
This is marked by activity in 2019: 14 companies paid a record $2.9 billion to resolve FCPA enforcement actions brought by the DOJand the Securities and Exchange Commission. Two settlements were among the largest in FCPA history and accounted for nearly 70% of total settlements in 2019.
2020 is likely to be marked by a concentration in enforcement activity with a few major settlements, more likely with foreign companies, and a leveling off in aggregate number of settlements.
CFIUS Enforcement Rises
The Committee on Foreign Investment in the United States (CFIUS), comprising representatives from 16 U.S. departments and agencies, authorizes the president (through CFIUS) to review M&A and takeover activity “by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.”
CFIUS’s role is to evaluate if and to what extent such transactions could impact national security. If a transaction is found to pose a risk, it may be blocked or suspended, or conditions may be imposed on it.
In 2019, CFIUS enhanced its authority to unwind transactions and enforce mitigation orders more publicly and aggressively. Beginning in 2020, its jurisdiction was expanded to cover real estate transactions and low-level foreign investments in U.S. businesses that engage with critical technology or infrastructure, or with sensitive personal data of U.S. citizens.
National security concerns and increased concern over Chinese access to personally identifiable information of U.S. citizens strongly suggests that CFIUS enforcement will continue to increase.
FCA Enforcement a Powerful Deterrent, Particularly in Health Care
In 2019, the DOJ obtained more than $3 billion in settlements and judgments from civil cases involving fraud and false claims against the government. Following a decade-long trend, of the more than $3 billion, $2.6 billion related to matters involving the health care and life sciences industries.
With continuing concern over rising health-care and drug costs, the rich awards for qui tam actions, and the prevention of government fraud, False Claims Act enforcement will remain a high priority in 2020.
SEC Enforcement Will Stay Its Course
Enforcement activity by the SEC in fiscal 2019 resulted in 862 enforcement actions—the second-highest level ever—totaling $4.3 billion in fines and disgorgements. Much of the increase was attributable to a one-time mutual fund initiative.
SEC enforcement priorities included protecting retail investors and investigating cyber-related misconduct.
Of the SEC’s 526 standalone cases in 2019, 36% were investment advisory and investment company issues, 21% were securities offerings, and 17% involved issuer reporting/accounting and auditing matters.
A small percentage of cases—5%—accounted for the majority—70%—of all financial remedies the SEC obtained, demonstrating how a small number of cases can be the most cumbersome in enforcement action.
Corporate Compliance Programs to Receive Continued Scrutiny
Preventing misconduct and maintaining organizational integrity can feel like a challenge, but organizations must stay focused on ensuring the efficacy of their corporate compliance programs.
Certainly, the government clearly signaled it intends to closely scrutinize the adequacy and effectiveness of a company’s compliance program at the time of an offense, as well as at the time of a charging decision and in consideration of remedial efforts to improve a company’s program.
In the latest of a long line of policies and guidance, the DOJ updated its guidance in 2019 on the evaluation of corporate compliance programs, reiterating the questions that prosecutors will ask when evaluating a corporation’s compliance program.
Although the updated guidance does little more than repeat prior guidance, it is a reminder that the government continues to evaluate the effectiveness of corporate compliance efforts in charging and sentencing decisions.
In the new decade, there is little doubt that regulatory enforcement activity will remain at a steady high. Government scrutiny of compliance programs will continue to play a major role in charging and sentencing decisions. Organizations will be challenged to demonstrate the effectiveness of compliance programs. Technology can help control costs associated with compliance. However, creating and implementing a culture of integrity remains the best way to avoid enforcement actions.
We should not anticipate any change in enforcement action in 2020.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Richard Girgenti is the vice chairman of the board of K2 Intelligence, and is a leading authority and risk consultant to governments and businesses. With more than 40 years of national and global experience, he has helped organizations assess, design, and implement ethics and compliance programs, conduct investigations, and manage the risks of fraud and misconduct. He also serves as CEO and managing partner of IDPL Consulting LLC.