The Biden Administration is ramping up white collar enforcement in 2022. Whereas fines and prosecutions of white collar offenses declined under the previous administration, we are seeing increased white collar enforcement under the Biden Administration as it implements new strategies on countering corruption, and new leadership is installed at the U.S. Department of Justice and other agencies tasked with federal criminal and civil enforcement.
Companies committed to proactive compliance should use the government’s new enforcement policies as an opportunity to re-evaluate and buttress their ethics and compliance programs.
The Biden Administration Announces Sweeping Strategy on Countering Corruption
If implemented, President Biden’s Strategy on Countering Corruption will transform and broaden regulation and enforcement of anti-corruption initiatives. The administration’s global strategy for tackling corruption imagines a twofold approach that eradicates corruption through global collaboration and increased domestic integration and regulation. On June 3, 2021, President Biden gave a speech in which he established corruption as a core United States national security interest, announcing his focus on eliminating the “deleterious effects of corruption” that grow like “a cancer within the body of societies.” On December 6, 2021, the administration announced its strategy, a plan to implement Biden’s Anti-Corruption Initiative through global efforts at enhancing enforcement and further regulating areas vulnerable to corrupt practices.
The strategy has five “pillars,” or primary objectives:
- Modernizing, Coordinating, and Resourcing U.S. Government Efforts to Better Fight Corruption: Pillar one amplifies anti-corruption efforts by increasing intelligence prioritization and strengthening communication, coordination, and engagement amongst government agencies, the intelligence community, law enforcement, and Congress. Pillar one also imagines integrating anti-corruption “programming and safeguards” into economic and COVID-19 recovery efforts, among others.
- Curbing Illicit Finance: Pillar two takes a global approach to eradicating corruption. The strategy seeks to increase the power of U.S. and foreign anti-money laundering regimes through the creation of beneficial ownership regulations, stricter reporting standards, and “aggressive enforcement action,” including tax enforcement, expanded investigative tools, and whistleblower programs.
- Holding Corrupt Actors Accountable: Pillar three aims to enhance enforcement efforts by working with Congress to further criminalize corrupt activity, create anti-corruption regimes that complement those of our foreign allies and partners, and empower “civil society, media, and private sector actors to prevent corruption and push for accountability.”
- Preserving and Strengthening the Multilateral Anti-Corruption Architecture: Pillar four bolsters anti-corruption efforts by enforcing existing anti-corruption agreements with foreign countries. The strategy will strengthen the “international architecture of multilateral initiatives” to legitimize global anti-corruption efforts by holding foreign governments accountable for fulfilling their obligation to advocate for strong corruption controls.
- Improving Diplomatic Engagement and Leveraging Foreign Assistance Resources to Advance Policy Goals: Pillar five focuses on expansion of “diplomatic engagement” and foreign assistance. The strategy envisions foreign governments partnering with U.S. law enforcement to fight corruption, protect anti-corruption actors, leverage innovation in the anti-corruption space, improve security assistance, and enhance consistency in foreign aid.
While aspirational, the strategy suggests enhanced scrutiny and elevated enforcement of corrupt practices. It also takes a more cooperative approach to anti-corruption, whereby the United States and foreign partners work together to eradicate corruption on a global scale.
FinCEN’s Anti-Money Laundering Regulations for Real Estate Transactions
Those in real estate should expect new regulation of cash-based purchases. On December 8, 2021, the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury published an advance notice of proposed rulemaking (ANPRM) seeking comments on potential new collection and reporting requirements under the Bank Security Act (BSA) for cash-based real estate transactions. FinCEN published the ANPRM in response to “systemic money laundering vulnerabilities presented by the U.S. real estate sector,” which threaten national security and the financial system’s integrity.
The ANPRM seeks comment on how FinCEN should implement such a system. In particular, FinCEN seeks input regarding: the geographic scope of additional regulations; who should be subject to the regulations; the types of real estate transactions that should be subject to the regulations; what information should be reported and retained; and what is an appropriate dollar-value to trigger reporting requirements.
Comments are due by February 7, 2022 and may be submitted by mail to the FinCEN Global Investigation Division at P.O. Box 39, Vienna, VA 22183 or via the Federal E-rulemaking Portal.
FinCEN Announces New Proposed Beneficial Ownership Regulations
The National Defense Authorization Act (NDAA) became law on January 1, 2021. This iteration of the annual defense spending bill included significant anti-money laundering measures. One of these measures implemented new disclosure requirements for companies in the form of a nonpublic registry of “beneficial owners.”
What could be viewed as a crack-down on shell companies used for money laundering, the registry will require all reporting companies to submit a report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) disclosing each of their beneficial owners. While the new law defines beneficial owner as either one who directly or indirectly “exercises substantial control” over an entity, or one who “owns or controls not less than 25 percent of the ownership interests” of an entity, significant questions arose regarding this definition – including what it means to exercise substantial control and what an “ownership interest” actually is.
On December 7, 2021, FinCEN announced new proposed regulations aimed at, in part, resolving the gray areas of beneficial ownership for reporting companies. Proposed 31 CFR 1010.380(d) includes clarifying detail as to both substantial control and ownership interest.
FinCEN identified three specific indicators of substantial control: service as a senior officer of the reporting company; authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body); and direction, determination, or decision of, or substantial influence over, important matters affecting the reporting company.
FinCEN has also set forth a number of specific examples comprising this third indicator, including control over: the nature, scope, and attributes of the business; the reorganization, dissolution, or merger of the company; major expenditures; the selection or termination of business lines, ventures, or geographic focus; compensation schemes for senior officers; entry into or termination of significant contracts; and amendments of substantial governance documents. Additionally, the proposed regulation will also include a catch-all provision, which includes any other form of substantial control over the reporting company.
FinCEN also seeks to minimize the distinction between direct and indirect exercise of substantial control, proposing that individuals may also indirectly exercise substantial control (and therefore be considered a beneficial owner) through board representation, ownership or control of a majority or minority interest, rights gleaned from financing arrangements, control over an intermediary entity that itself exercises substantial control over a reporting company, or through any other form of formal or informal financial or business relationship.
Lastly, FinCEN has further explained what the 25 percent ownership interest would look like. The regulation would include any equity, capital or profit interest, a proprietorship interest, and any instruments convertible into, or options to purchase or sell, these interests. Similarly, FinCEN seeks to avoid distinctions between direct and indirect ownership interests, emphasizing that an ownership interest could be found where there is: joint ownership of an undivided ownership interest; control of another’s ownership interest; or a trust that holds an ownership interest (as a trustee with authority to dispose of trust assets, as a grantor of a revocable trust, or as a beneficiary of a trust).
New Leadership at Justice Department
The Senate has confirmed many of President Biden’s Department of Justice (DOJ) nominees, who have been tasked with shaping and implementing his law enforcement initiatives.
Christopher Schroeder was confirmed as Assistant Attorney General for the Office of Legal Counsel (OLC), a familiar face who led the DOJ transition team that the President has decided to keep close.
Kenneth Polite Jr. was confirmed as Assistant Attorney General for the DOJ Criminal Division, but President Biden has not yet appointed the Assistant Attorney General for the Civil Division.
Gurbir Grewal will lead the President’s enforcement efforts at the Securities and Exchange Commission (SEC) as the new Director of the Division of Enforcement.
U.S. Attorney appointments have lagged, as two-thirds of the slots remain vacant. These vacancies may hamper the Administration’s capacity to implement new DOJ priorities and it seems likely the process will continue to be slow moving. For example, Senators recently broke with confirmation tradition and required a cloture vote for appointee Rachael Rollins, who was eventually confirmed as the U.S. Attorney for the District of Massachusetts on December 8, 2021. Acting and interim U.S. Attorneys generally follow the direction of the Attorney General, however confirmation delays could mean that new enforcement initiatives may not be pursued as vigorously as the President desires.
DOJ Announces New Policies Targeting Corporate White Collar Crime
Deputy Attorney General Lisa Monaco recently announced new policies targeting corporate white collar crime and reversing Trump-era guidelines deemed too lenient by current DOJ leadership. In an address to the American Bar Association’s National Institute on White Collar Crime, Monaco announced that companies considering cooperating in DOJ investigations must be prepared to identify all individuals involved in suspected misconduct and produce all non-privileged information about their involvement. Monaco also announced tough new standards relating to companies’ prior misconduct and the use of corporate monitors. For more information, please read JMBM’s recent article on Monaco’s announcement.
Continued Enforcement of CARES Act
Although the economic relief provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has largely been distributed, DOJ enforcement of CARES Act fraud has continued, and we expect additional prosecutions in 2022. As of December 2021, more than 400 actions have been brought by the DOJ related to CARES Act funds.
While DOJ CARES Act enforcement has been prolific, the government continues to develop its law enforcement infrastructure. In May of 2021, the DOJ announced the COVID-19 Fraud Enforcement Task Force, created to coordinate law enforcement against COVID-19 related fraud. In July 2021, the DOJ’s Fraud Section listed a job posting for a lead trial attorney to manage CARES Act and financial institution fraud prosecutions. And in December 2021, the U.S. Secret Service named a National Pandemic Fraud Recovery Coordinator to coordinate ongoing Secret Service Investigations into COVID-19 fraud.
In the past, the DOJ has generally pursued obvious cases of lying, cheating, and stealing. For example, in December 2021 two Florida men pleaded guilty for leading a national scheme to fraudulently obtain tens of millions in Paycheck Protection Program (PPP) loans, having submitted or facilitated at least 79 fraudulent loan applications. Going forward, we expect the DOJ will leverage its new enforcement infrastructure to prosecute a range of complex and subtle cases of CARES Act fraud.
Implications for Companies
Companies should familiarize themselves with the government’s new white collar enforcement priorities and be on the lookout for new policies emerging from the DOJ’s Corporate Crime Advisory Group. Companies should use the new policies as an opportunity to re-evaluate and buttress their ethics and compliance programs. As compliance guidelines evolve, companies should review and revise their programs and implement contemporary compliance training. In the words of Lisa Monaco, “companies need to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct – or else it’s going to cost them down the line.”
JMBM’s White Collar Defense & Investigations Group is keenly focused on our clients’ business objectives and is committed to minimizing the disruption, anxiety, and public scrutiny that can arise from criminal and civil investigations and litigation. We are leaders in the representation of companies, boards of directors, management, and individuals in connection with a broad range of government investigations, enforcement actions, remediation and compliance, administrative proceedings, internal investigations and white collar criminal investigations and prosecutions.