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Infrastructure Money Boost Could Entice Fraud, DOJ Scrutiny

Dec. 14, 2021, 9:00 AM

President Joe Biden celebrated the passage of the $1.2 trillion Infrastructure Investment and Jobs Act, proclaiming the package will be a “blue-collar blueprint to rebuild America.” As with other federal funding programs, this bill will increase white-collar enforcement affecting numerous sectors and industries.

Whenever significant federal funding enters the economy, fraud follows. The numerous sectors and enforcement areas implicated by the new law means that companies should revisit and, if necessary, revamp their corporate compliance policies consistent with this and other existing Department of Justice guidance.

Companies and individuals must be mindful of increased scrutiny in the below areas of procurement, bid rigging, energy pricing, tax and financing, and more.

Procurement

The Department of Justice announced a Procurement Collusion Strike Force, an interagency partnership to investigate and prosecute antitrust crimes and related schemes that target government procurement, grants, and program funding at all levels of government.

The Fraud Section of the DOJ’s Criminal Division, the Antitrust Division, and U.S. attorney’s offices in strategic locations will partner to investigate procurement waste, fraud, and abuse as infrastructure dollars flow into the system.

Bid Rigging and Anti-Competitive Conduct

The new infrastructure law inevitably will result in bids for construction and service contracts across various industries. The government will take increased enforcement measures to ensure the competitive process is fairly administered. Activities related to collusion, bid rigging, and market allocation will remain a top DOJ priority.

The new law invests $21 billion to clean up Superfund and Brownfield sites, reclaim abandoned mine land, and cap orphaned oil and gas wells. The DOJ’s Environmental Crimes Section has 43 dedicated prosecutors who bring criminal cases against individuals and organizations to enforce environmental crimes and will be safeguarding the proper use of increased funds.

Energy Pricing and Market Manipulation

Improvement of the nation’s energy infrastructure is a centerpiece of the new act. Energy pricing and market manipulation will also be significant enforcement areas. According to recent reports, the DOJ is investigating energy pricing benchmarks published by S&P Global Platts, targeting suspected manipulation of deal prices provided by individual traders.

Federal investigators are focused on alleged wrongdoing by traders in submitting deal prices to calculate oil and energy benchmarks. By supplying fraudulent information to Platts, the traders attempted to influence the S&P Global’s daily market price for energy industry commodities and profit on subsequent trading. Similar investigations may be expected as infrastructure funds flow into the energy sector.

Tax Crimes and Misapplication of Federal Funds

Funding of the new law will include tax exemptions and credits, and other incentive mechanisms. Also, as with other recent programs, there will be accounting and reporting requirements.

The DOJ’s Criminal Tax Division (with the assistance of the IRS Criminal Investigation Division and the Treasury Inspector General for Tax Administration) handles or supervises most federal criminal tax investigations and prosecutions involving individuals and corporations that attempt to evade taxes, willfully fail to file returns, submit false tax forms, or otherwise attempt to defraud taxpayers. The division will likely be a key partner in the DOJ’s efforts to enforce the integrity of infrastructure funds and related reporting.

Financial Fraud and Integrity of Federal Funds

Following the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) relief implementation, the DOJ has aggressively investigated and prosecuted malfeasance concerning the Paycheck Protection Program and Economic Injury Disaster Loans in coordination with the Special Inspector General for Pandemic Relief.

Inspector Generals for the Departments of Commerce, Energy, Interior, Homeland Security, Treasury, and others will take increased roles in ensuring Act is administered with integrity and efficiency.

Public Corruption

Many of the infrastructure act’s provisions will require companies to interface with local, state, and federal public officials on myriad issues. Companies should proceed cautiously and educate themselves about how campaign finance and contribution laws may be implicated. Mere appearances of impropriety can give rise to costly investigations.

Cybersecurity and Resilience

The act will provide direct funding, grants, incentives, and technical assistance to promote cyber resilience within various critical infrastructure industries. The DOJ recently announced plans to use the False Claims Act to pursue cybersecurity-related fraud by government contractors, subcontractors, and grant recipients.

Deputy Attorney General Lisa Monaco said the DOJ will seek to “extract very hefty fines” against companies that fail to report security breaches and use the False Claims Act to counter “cybersecurity-related fraud” committed by government contractors.

Given the act’s lofty cybersecurity improvement goals, federal contractors, subcontractors, and grant recipients should be attentive to cybersecurity requirements in their contracts, the Federal Acquisition Regulations, the Defense Federal Acquisition Regulations Supplement, and any required certifications. As always, they should seek counsel in the event of potential cyber incidents such as data breaches or ransomware attacks.

DOJ Priorities: Compliance

On Oct. 28, at the American Bar Association’s 36th National Institute on White Collar Crime, Monaco announced several priorities and DOJ policies for corporate criminal enforcement, summarized as follows:

  • Companies need to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct.
  • For clients facing investigations, the department will review their whole criminal, civil and regulatory record—not just a sliver of that record.
  • Clients cooperating with the government need to identify all individuals involved in the misconduct—not just those substantially involved—and produce all non-privileged information about their involvement.
  • For clients negotiating resolutions, there is no default presumption against corporate monitors; it is a case-by-case determination.

Monaco stated, “Looking to the future, this is a start—and not the end—of this administration’s actions to better combat corporate crime.”

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Luke Cass, a partner at Womble Bond Dickinson in Washington, D.C., defends corporations and individuals in connection with federal criminal allegations, including health-care fraud, conspiracy, mail and wire fraud, embezzlement, bank fraud, and money laundering. He previously was a senior trial attorney with the Public Integrity Section of DOJ’s Criminal Division .

Joe D. Whitley, a partner at Womble Bond in Atlanta, represents clients in white-collar matters, including corporate internal investigations, regulatory enforcement, Foreign Corrupt Practices Act and FDA-related matters. He has served in several high-level positions within DOJ and the Department of Homeland Security.

Brett Switzer, an associate at Womble Bond in Atlanta, focuses on complex civil and criminal defense work in federal government enforcement and investigation contexts.