How to Read Enforcement Tea Leaves

As my cousin always tells me, “Mike, you have a profound grasp of the obvious.” 

 When it comes to figuring out what enforcement priorities of the Justice Department and the SEC, it is not very hard.  In fact, Justice Department and SEC officials are usually very open about their priorities and where they are heading.  Aside from their statements, the second most important clue is to look at their resource allocations.  Two of the most important resource actions have been: (1) the increase in DOJ attorney staff in the FCPA unit of the Fraud Division; and (2) the SEC’s allocation of personnel slots to the Whistleblower Office. 

 With respect to public pronouncements, the Justice Department’s and the SEC’s track record is clear.  In 2008, they warned banks, and private equity and hedge fund managers to conduct greater due diligence of its foreign customers and partners.  The SEC followed these statements up with the issuance of inquiry letters in 2010 focusing on interactions with Sovereign Wealth funds, which sent shudders through the financial industry.  Recently, the SEC launched an inquiry into Goldman Sachs’ interactions with the Libyan Sovereign Wealth fund.

 In 2009 and 2010, DOJ’s Criminal Division Assistant Attorney General Lanny Breuer warned the pharmaceutical and medical device companies of the need for anti-corruption compliance.  In the last two years, DOJ and the SEC have settled a large number of enforcement actions against companies in these industries, and a number of companies have made public disclosures of ongoing DOJ/SEC  investigations. 

 Two other enforcement priorities should be of interest to businesses.  The first is the Justice Department’s announcement of the Kleptocracy Initiative, and the second is the international organized crime program.  For financial institutions, both of these initiatives mean they will be facing increased government scrutiny of the handling of suspected proceeds of bribery and international criminal activity.  

 Another important enforcement clue is to watch how the agencies allocate their resources.  When personnel are assigned to an office, they have to justify their existence and their salary.  They do so by bringing cases.

 The Justice Department’s expansion of the size of its FCPA staff meant that it had significant ongoing enforcement work and that it intended to increase the work.  That has definitely been true in the last few years.

 At the SEC, the allocation of slots to the Whistleblower Office (approximately 40 slots) means only one thing, they have a large number of whistleblower complaints and they expect to be dealing with whistleblowers for years to come.  Once created, government offices have a way of expanding and justifying their existence.  The SEC’s Whistleblower Office is here to stay.  In the absence of a major scandal, businesses should expect to be dealing with the Whistleblower Office.

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