U.S. Fraud and Enforcement Actions
By Stephanie Marchand, Director, Advisory Services
The past year has brought about changes to how companies do business, as well as how regulators handle enforcement action. Despite the economic slowdown that occurred in 2020 due to the coronavirus pandemic, we saw the first and second largest Foreign Corrupt Practices Act (“FCPA”) penalties of all time and a record number of whistleblower complaints and awards. This article reflects on the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) actions in 2020, as well as new guidance that companies should consider as they set their priorities and objectives for the coming years.
U.S. DEPARTMENT OF JUSTICE1
The DOJ Fraud Section investigates and prosecutes white-collar crime and has three litigating units: FCPA Unit, Health Care Fraud Unit, and Market Integrity and Major Frauds Unit.
The FCPA Unit charged 28 individuals and convicted 15 individuals in 2020. The FCPA Unit had eight corporate resolutions involving the imposition of $7.84 billion in global penalties and $3.33 billion in U.S. penalties. Notable cases included the following:
- Airbus SE agreed to pay combined penalties of $3.9 billion to resolve charges with the U.S., France, and UK authorities related to the payment of bribes to foreign officials, including Chinese officials, to obtain and retain business.
- The Goldman Sachs Group, Inc. entered into a deferred prosecution agreement and agreed to pay a penalty and disgorgement of more than $2.9 billion to resolve charges relates to FCPA violations in Malaysia.
The Health Care Fraud Unit charged 167 individuals and convicted 144 in 2020. Significant initiatives included the following:
- The National Health Care Fraud and Opioid Takedown in September 2020, executed in collaboration with other federal and state agencies, involved $6 billion in alleged losses and over $30 million in prescribed opioid doses.
- A COVID-19 fraud working group was established with other law enforcement and public health agencies to combat health care fraud that emerged during the COVID-19 crisis.
The Market Integrity and Major Frauds unit charged 131 individuals and obtained 54 convictions. There were five corporate resolutions involving the imposition of $1.06 billion in U.S. monetary penalties. Significant actions included the following:
- The investigation and prosecution of Paycheck Protection Program fraud, including over $260 million of attempted loss, over $130 million of actual loss, and over $64 million of seized / frozen funds.
- JPMorgan Chase & Co. entered into a deferred prosecution agreement to resolve criminal charges related to unlawful trading of precious metals and U.S. Treasury futures, including a $920 million payment covering the penalty, disgorgement, and victim compensation.
U.S. SECURITIES AND EXCHANGE COMMISSION2
Despite the challenges of performing its work remotely, the SEC Division of Enforcement (“the Division”) reported an increase in tips and actions during 2020. From mid-March through the end of its fiscal year, the Division triaged 16,000 tips, complaints, and referrals (a 71% increase from the same period in 2019) and opened more than 150 COVID-related inquiries and investigations.
Throughout the full 2020 fiscal year, the Division of Enforcement brought 715 enforcement actions, 72% of which included charges against one or more individuals. The Division also obtained more than 475 bars or suspensions against market participants and suspended the trading of securities for 196 issuers. It triaged 23,650 tips, complaints, and referrals, opening approximately 1,200 inquiries and investigations.
The SEC’s mission includes distributing monies to harmed investors. In fiscal year 2020, the SEC created a new office to oversee the collection of monetary judgments and return to investors, and more than $600 million was distributed to harmed investors.
In addition, fiscal 2020 was a record year for the SEC’s whistleblower program. The SEC issued $175 million in whistleblower awards to 39 individuals, including its largest-ever award to one individual, on October 22, 2020, for $114 million.
GUIDANCE FOR COMPANIES
In June 2020, the DOJ issued refined Evaluation of Corporate Compliance Programs Guidance. Click here for more information about effective compliance programs, and the fines and penalties for violations of FCPA.
In July 2020, the DOJ and SEC jointly released the Second Edition of their Resource Guide to the U.S. FCPA. The Second Edition includes references to new cases and case law developments. It also speaks to mergers and acquisitions and acknowledges the limitations of pre-acquisition due diligence, while also stating that the DOJ and SEC will assess acquirers’ post-acquisition due diligence procedures when it comes to the determination of successor liability. In addition, the updated guide includes a new focus on how companies handle investigations, adding a section entitled “Investigation, Analysis, and Remediation of Misconduct as a Hallmark of an Effective Compliance Program,” which explains, “The truest measure of an effective compliance program is how it responds to misconduct.”
Marcum’s forensic practice can assist organizations understand risks, respond to inquiries and investigations by regulators, and conduct internal investigations of alleged misconduct. Contact your Marcum advisory professional for assistance.
- United States Department of Justice Criminal Division: Fraud Section 2020 Year in Review via https://www.justice.gov/criminal-fraud/file/1370171/download
- United States Securities and Exchange Commission Division of Enforcement: 2020 Annual Report via https://www.sec.gov/files/enforcement-annual-report-2020.pdf