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United States

U.S. enforcement activity was down overall in 2020, with some notable exceptions. The overall scale of white collar criminal prosecutions in 2020 reached a record low. However, FCPA enforcement remained active, there was a burst of enforcement activity in the crypto space, and the size of financial penalties remained substantial. We also saw an increase in activity in antitrust enforcement and sanctions activity.

In terms of policy, the DOJ and the SEC have become more transparent about the requirements of cooperation credit and have increased transparency and guidance for FCPA investigations. Enforcement focus was particularly evident with respect to healthcare and biotech industries, social media companies, the financial services industry, and cryptocurrency.

The U.S. continues to increase its cooperation and coordination with other authorities as part of the investigation process. While President Trump’s administration winds down, we expect that President‑elect Joe Biden’s Justice Department will ramp up white collar crime enforcement, returning to a practice of increased scrutiny of corporate wrongdoing.

 

Investigations trends/developments

Enforcement agencies have signalled an intention to focus on pandemic-related misconduct. This shift in focus, coupled with practical limitations arising out of the pandemic, temporarily slowed traditional white collar crime enforcement. Trends later in 2020 showed that enforcement agencies are resuming their focus on other areas of white collar crime.

Enforcement agencies continued to focus on spoofing cases, principally in markets for precious metals futures, like gold and silver.

In 2020, white collar criminal prosecutions reached their lowest numbers in around 35 years. The vast majority of the DOJ’s white collar cases involved individual prosecutions, rather than institutional or corporate prosecutions, a focus that the DOJ has emphasised throughout the last few years. The latest available data shows that criminal white collar crime prosecutions dropped by nearly 50% in 2020, however, that decline may be short-lived.

The U.S. Securities and Exchange Commission (SEC), the U.S. Commodities Future Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Consumer Finance Protection Bureau (CFPB) remain active in enforcement and investigations, as do state regulators:

  • The SEC brought suits arising from alleged insider trading, violations of the Foreign Corrupt Practices Act (FCPA), market manipulation, and various violations of securities offerings. The SEC initiated 715 enforcement actions in Fiscal Year 2020, down from 862 such actions in Fiscal Year 2019.
  • Most CFTC enforcement cases filed involved retail fraud. Sixteen of the actions involved manipulative conduct cases alleging efforts to manipulate the price of a swap or commodity. Nine actions involved failure to register cases and/or illegal “off‑exchange” contracts cases.
  • FCPA enforcement has remained a clear and consistent priority of the SEC and DOJ. Although the number of FCPA enforcement actions are down, the breadth of enforcement in terms of countries and industries and the severity of penalties indicate that the enforcement agencies are still active. Settled corporate actions by enforcement agencies resulted in more than USD7.6 billion in fines, penalties, and disgorgement. The DOJ and the SEC published an updated version of the FCPA resource guide, which emphasises cooperation and coordination among additional law enforcement partners in the United States and abroad.

Sanctions activity by OFAC continues to be a hotspot in U.S. enforcement activity, with a key focus on activity in Cuba, Venezuela, Iran, and North Korea. OFAC announced over ten settlements this year, primarily for compliance failures and failures to have adequate controls and screening procedures – at least, in part, some of these violations were due to automated screening system failures or deficiencies. Non-U.S. persons who process financial transactions to, through or involving U.S. financial institutions that relate to commercial activity with an OFAC-sanctioned country, region or person, may be – and have been –penalised by OFAC for violating U.S. sanctions. Companies operating in higher-risk jurisdictions should be sensitive to sanctions compliance by tracking developments with sanctions regulations, ensuring they understand the full scope of sanctions prohibitions, and dedicating sufficient resources to U.S. sanctions compliance.

AML

U.S. authorities continued to focus on holding financial institutions to account for AML deficiencies and have also begun to flex the jurisdictional boundaries of their affirmative money laundering rules. Those that require financial institutions to implement and maintain effective anti-money laundering programmes have limited extraterritorial jurisdictional reach and in most cases apply solely to domestic financial institutions. In contrast, those that prohibit the affirmative use of the U.S. financial system as a conduit for criminal proceeds have broad extraterritorial reach. The DOJ’s FIFA-related money laundering action against a major non-U.S. financial institution is an example of a money laundering investigation against a foreign financial institution (within its jurisdictional reach); the DOJ then imposed, through its settlement with the foreign institution, obligations to adhere to U.S. anti-money laundering requirements, which the institution would not otherwise be automatically subject. We expect heightened AML enforcement to continue in 2021. 

Compliance programmes

U.S. authorities have continued to emphasise the maintenance of effective compliance programmes, with evolving expectations and greater transparency offered by the enforcement agencies. These updates reflect an emphasis on a continuous, rather than snapshot, assessment of compliance efforts, the increased importance of a process to track and incorporate lessons learned into the risk assessment and management, and an expectation that companies will take advantage of data analytics in developing robust compliance programmes.

The DOJ updated its guidance on the Evaluation of Corporate Compliance Programmes. While the updates are not extensive, they reflect the DOJ’s continued emphasis on the practical approach to evaluating the effectiveness of a company’s compliance programme. It is not enough to make sure that a programme is in place, but companies should continually seek to ensure that the programme is working. For example, the compliance update no longer asks whether a compliance programme is implemented effectively, but instead questions whether a company’s programme is “adequately resourced and empowered to function effectively”. Corporates should consider whether there are adequate resources and empowerment within the company to ensure effective implementation of a compliance programme by looking at data points, including the number and experience level of compliance functions within an organisation, their reporting lines, and the resources available to the compliance function. Companies are expected to implement and test a corporate compliance programme that evaluates and revises the risks that companies face on an ongoing basis, rather than focus on risks from a single point in time.

Significant law reforms impacting corporate criminal liability

The U.S. Congress is considering significant changes to the U.S. anti-money laundering programmatic requirements. 

Late in 2020, the U.S. Congress passed the “National Defense Authorization Act for Fiscal Year 2021” (H.R.6395). The bill contains a beneficial ownership provision (Section 6403) that, if signed into law by the President, would require corporations to identify and disclose who owns and controls them to FinCEN. The bill also includes a provision (Section 6314) that would create a new Bank Secrecy Act (BSA) whistleblower programme at the Treasury. As of this writing, it is unclear whether or not the President will veto the bill, and, if so, how Congress will respond.

Internal investigations – key developments

As highlighted in the 2020 FCPA Resource Guide, the DOJ continues to provide strong incentives for companies to timely and appropriately disclose and remediate misconduct and limits for credit offered if a company fails to meet its requirements. Companies should closely consider such incentives for voluntary disclosure. The DOJ has stated that these principles are meant to guide companies of “all shapes and sizes – from small businesses transacting abroad for the first time to multinational corporations with subsidiaries around the world”. 

The DOJ and the SEC expect company investigations to be more robust than in the past, and to address previous wrongdoing in the growth of compliance programmes. The Guide further emphasises acquirer compliance measures in M&A transactions and includes a formal incentive structure to encourage acquirers to voluntarily disclose wrongdoing uncovered at subsidiaries in return for presumed declinations. Timely and comprehensive risk-based due diligence remains crucial to prevent the continuation of any misconduct, to mitigate liability for past conduct, and to ensure proper training and integration.

Data privacy laws impact how data can be treated during an internal investigation. 2020 saw increased regulation. California and New York are the first states to enact broad legislation, but many other U.S. states are also considering data privacy laws. Members of the U.S. Senate have proposed sweeping federal privacy legislation, the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (SAFE DATA) Act. SAFE DATA seeks to provide individuals with additional protection and control, directs businesses to increase transparency and accountability, and to strengthen the Federal Trade Commission’s enforcement power.

Sectors targeted by law reforms or enforcement action

Prior to the start of the Covid-19 pandemic, there was a heightened focus by enforcement agencies and lawmakers on social media companies, technology companies, financial institutions and financial services, and financial-tech hybrid companies – with an emphasis on cryptocurrency. The Covid-19 pandemic appears to have diverted some attention of both lawmakers and enforcement agencies. We expect to see a particular focus, at least temporarily, on Covid-19-related areas, including healthcare, pharmaceuticals, false claims, advertising by companies operating in the healthcare field, and companies operating in the healthcare and biotech space.

However, the focus on financial institutions and financial services has not abated, and this may well be a focus of the new administration. In a landmark settlement, JPMorgan Chase entered into a resolution with the DOJ and the CFTC in return for a record fine of USD920 million for spoofing and manipulation violations. This action is an example of enforcement authorities’ continued focus on trading activity such as spoofing and insider trading.

Enforcement agencies are also focusing on cybercrime and cryptocurrency, particularly by the SEC and the DOJ. Telegram, a messaging service, entered into a settlement with the SEC and agreed to pay a USD18.5 million penalty to the SEC, and to return USD1.2 billion to its investors over the unregistered offering of digital tokens. Kik Interactive, a Canada-based messaging platform, paid a USD5 million penalty for launching an illegal Initial Coin Offering and breaking securities laws. There have also been a number of criminal actions –the DOJ announced a criminal indictment against executives of a cryptocurrency platform, alleging money laundering charges and Bank Secrecy Act violations. The CFTC has filed a civil enforcement action against the same cryptocurrency trading platform for the alleged operation of an unregistered trading platform and for alleged violations of CFTC regulations, including failure to implement required anti-money laundering procedures. Corporates operating in this space should be cautious of their perceived status as exchanges or as money services businesses, and the regulatory requirements that follow.

Considerable resources have been directed toward Covid-19-related fraud, microcap fraud, insider trading, market manipulation, and false or misleading issuer disclosures, which intersect with many of the existing enforcement priorities.

Cross-border coordinated enforcement activity

United States authorities have worked increasingly with international authorities in parallel investigations. In 2020 coordination was formalised in the announcement of several new cross-border coordination initiatives.

First, in mid-2020, the bilateral agreement between the United States and the United Kingdom on Access to Electronic Data for the Purpose of Countering Serious Crime entered into force. The agreement permits criminal authorities in the United States and the United Kingdom to obtain electronic data directly from a range of telecommunications companies (called Covered Providers) from each country without any need to go through the domestic authorities in each respective country, a mutual legal assistance treaty (MLAT) or any other cumbersome and time-consuming routes currently used. This development could have a significant impact on any United States company whose business satisfies the definition of Covered Provider including, for example, social media platforms, data hosting, storage and processing, cloud storage, or potentially any other company to the extent it provides clients with an ability to communicate, process, or store data. Read more here.

Second, the DOJ signed a Memorandum of Understanding (MOU) with the Korean Prosecution Service, formalising cooperation and coordination on international cartel investigations. This agreement comes amidst an increased focus on cooperation with foreign law enforcement agencies in criminal cartel matters by the DOJ’s Antitrust Division.

A recent example of coordinated cross-border enforcement activity is the coordinated settlements between a large aerospace company, the DOJ, the UK Serious Fraud Office, and France’s Parquet National Financier on 31 January 2020. All three enforcement agencies agreed to suspend formal criminal proceedings against the company in return for a commitment to implement commonly agreed sanctions, which included the payment of fines of up to USD4 billion, the appointment of external compliance monitors, and serious corporate governance reforms.

Companies should remain aware of the potential for multiple settlements and penalties, and prepare a comprehensive strategy to navigate these challenges as the start of any investigation

Financial crime issue predictions for 2021

Our predictions for 2021 are:

  • An increase in criminal and civil investigations during the Biden Administration, starting in 2021.
  • Antitrust will continue to be a key enforcement area. In 2020, we saw major antitrust filings by the DOJ against Google, and by the DOJ and 48 states against Facebook, seeking divestiture of the social media platform, Instagram, and the messaging platform, WhatsApp.
  • An increased focus by enforcement agencies in the healthcare field.
  • An increase in regulatory and enforcement action and investigations not just related to the stimulus programmes and other coronavirus relief efforts, but also as a result of conduct related to turbulent market conditions. There will likely be an increase in investigations of alleged fraud schemes, such as mismarking fraud, and into accounting and financial disclosure issues.
  • We expect that enforcement agencies will continue to target traditional market abuses like insider trading, spoofing and other trading conduct.
  • Particular scrutiny by the SEC of company disclosures (or purported omissions) made during the pandemic. The SEC has warned that insiders are “regularly learning” new material non-public information that may “hold an even greater value than under normal circumstances”. Public companies should verify that there are robust policies and procedures in place designed to prevent the misuse of material non-public information and ensure that disclosures adequately address risks created by Covid‑19.

This article is part of the Allen & Overy Cross-border White collar Crime and Investigations Review. Please visit the review homepage for our overviews and insights in other jurisdictions. 

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