White Collar Enforcement: Here We Go Again
The Justice Department suffered a terrible blow to its reputation during the financial crash in 2008 to 2009 for failing to criminally prosecute those individuals responsible for the financial misconduct. It was one of the most devastating failures in DOJ history and stands as a stain against DOJ’s accomplishments in prosecuting white collar crime.
The failure to prosecute stemmed from both a lack of will and a disorganized and de-centralized approach to an important objective – investigating and prosecuting the key individuals who contributed to the devastating financial crash. Much has been written about this failure and hopefully DOJ will never repeat this series of mistakes.
A separate controversy involving DOJ surrounding its ability to maintain consistent professional standards when investigating and prosecuting high-profile cases involving members and associates of the last administration. The blurring of lines between White House influence and prosecutorial decisions caused real damage to established policies and practices designed to preserve DOJ independence. The Biden Administration has recommitted to these practices and principles to restore DOJ’s independence.
DOJ faces a major challenge, however, in focusing on white collar crime. DOJ has so many competing priorities – civil rights, voting rights, law enforcement conduct, rising violent crime rates, and the January 6, 2021, insurrection – that it may find it difficult to maintain or increase white collar crime prosecutions.
Early data on DOJ prosecutions shows a decline in white collar enforcement. It is early yet in the new DOJ but it could be the beginning of a troublesome trend. While I recognize the importance of competing priorities, DOJ cannot waiver from its critical mission. DOJ’s budget is likely to increase but most of those resources will be allocated to the high-priority initiatives.
A downturn in white collar crime is not the result of a reduction of white collar crime. The Internet has facilitated an expansion of white collar crime schemes involving fraud. The expansion of federal spending during the pandemic has resulted in a myriad of federal programs experiencing fraud. The opportunities for white collar crime have multiplied exponentially beyond those in the more “traditional” fraud. It would be tragic for DOJ to turn its back on white collar enforcement given DOJ’s unique capabilities to prosecute fraud schemes.
In some of the more traditional areas, such as criminal antitrust and health care fraud, DOJ appears to be on track to maintain or even increase the number of prosecutions. FCPA enforcement has been slow to restart under the Biden Administration but it is unlikely there will be any significant downturn. The delay in FCPA enforcement appears to reflect normal transition bumps in a new administration. The Biden Administration has prioritized anti-corruption enforcement as a key foreign policy objective.
The key areas to watch are criminal fraud prosecutions, especially those involving securities and other complex fraud schemes. These cases are the result of coordinated sharing of information by regulatory agencies such as the SEC and CFTC. Unfortunately, with the rise of cryptocurrency scams, the SEC and CFTC have been overwhelmed with fraud prosecutions, along with their own respective set of competing priorities. The SEC, for example, is dedicating resources to cyber-security disclosures, ESG reporting, and board gender and racial representation and reporting issues.
DOJ also faces daunting challenges on the ever-present issue of AML enforcement given the new set of AML laws and regulations. International pressure is growing for a global effort to tackle AML enforcement issues. Banking regulators have their own set of challenges and AML controls is one of several significant pressing issues.
DOJ and its regulatory partners have a full plate of objectives and competing claims on their respective resources. It is hard to imagine that DOJ will fall short again on important white collar crime issues but given the new realities and the challenges created by the prior administration, DOJ needs to devote adequate attention and resources to the white collar area.