Foreign Corrupt Practices Act (“FCPA”) enforcement under the Trump administration was both remarkable and perhaps unexpected. As a candidate and private citizen, former President Trump had been openly critical of the FCPA, which he had referred to as a “horrible law.” This led many to wonder whether the long run of FCPA enforcement was coming to an end. Instead, the DOJ and SEC obtained record FCPA penalties from 2017 to 2020. In 2020 alone, the DOJ and SEC secured 18 corporate FCPA resolutions, including the two largest penalties ever issued for FCPA violations (against Airbus and Goldman Sachs). Given the results in 2020, it may seem alarmist to suggest that we will see even more FCPA enforcement during the Biden administration. But, that is exactly what we expect.
First, the record-breaking numbers during the Trump administration only tell half of the story. The largest and most noteworthy penalties related to investigations that began years before. FCPA enforcement did not cease during the Trump administration as many speculated, but fewer FCPA-related investigations were initiated year over year from 2017 to 2020. We expect a reversal of that trend under the Biden administration.
Second, Biden and his team appear poised to tackle FCPA violations with renewed vigor. The Biden administration has framed the fight against corruption as a central part of its foreign policy strategy. During the campaign, candidate Biden vowed to “issue a presidential policy directive that establishes combating corruption as a core national security interest and demographic responsibility.”
President Biden’s appointees, ranging from National Security Advisor Jake Sullivan to Attorney General Merrick Garland and SEC Chairman Gary Gensler, have confirmed a commitment to focus on combating corruption around the world. This focus, bolstered by the hiring of seasoned lawyers to fill key roles within the DOJ’s and SEC’s foreign bribery units, as well as new enforcement tools authorized by the U.S. Congress, all but ensures that the FCPA will be a key enforcement priority for the Biden administration.
Finally, the freshly equipped and motivated DOJ and SEC should have no shortage of opportunities to prove their mettle. Since early 2020, companies have been dealing with financial stress caused by the pandemic, while compliance departments have been dealing with layoffs and limitations associated with remote monitoring. History shows that financial stress creates incentives for fraud as companies and employees face pressure to meet financial targets. In other words, the DOJ and SEC, eager to demonstrate a commitment to combating corruption, maybe meeting a wave of potential corruption cases.
There are three areas we suggest watching as the Biden administration’s anti-corruption approach takes shape:
Impact of new tools authorized by Congress – Biden’s FCPA enforcement agenda may be bolstered by new enforcement tools recently authorized by Congress. In particular, in January 2021, Congress enacted the Corporate Transparency Act (“CTA”) as part of the National Defense Authorization Act. The CTA requires companies that are registered in the United States to report their ultimate beneficial ownership to the Treasury Department’s Financial Crime Enforcement Network. The information, though not public, will be available to law enforcement and banks.
The CTA is designed to prevent individuals from hiding transactions behind shell companies to circumvent anti-corruption, anti-money laundering, and other laws. The impact of the CTA on FCPA investigations remains to be seen. Given the international nature of the activities involved, wrongdoers have historically utilized shell companies outside of the U.S., often in jurisdictions that allow for more opaque ownership arrangements. The CTA will have no effect on these companies. However, the CTA could limit corrupt funds from finding safety in the U.S. market and may make it easier for investigators to “follow the money” when U.S. companies are involved.
International Coordination in FCPA Investigations – The largest and most significant FCPA resolutions often demand coordination between the U.S. DOJ and SEC and foreign regulators. In 2020, the DOJ and SEC coordinated with foreign regulators in the resolution of the four largest enforcement actions: those with Goldman Sachs, Airbus, J&F Investmentos, and Vitol. The extent to which the Trump administration’s combativeness toward traditional allies may have affected these resolutions or active investigations is hard to quantify. Nevertheless, given the Biden administration’s pointed emphasis on working closely with allies on most of its foreign policy goals, we expect that coordination with foreign regulators in the FCPA context will only increase, with new partners brought into the fold.
This is a view apparently shared by Daniel Kahn, Acting Fraud Section Chief (DOJ), who indicated during a March 2021 International Bar Association webinar that he expected an increase in multi-jurisdiction investigations and resolutions, including with foreign authorities that U.S. enforcers have not previously coordinated with. In addition, improving relations and cooperation generally could lead to greater efficiency in the way that regulators share evidence and coordinate resolutions. This could potentially significantly reduce the time it takes to conclude these complex cross-border investigations.
Approach Toward Monitorships – In 2020, none of the 18 corporate FCPA resolutions involved the imposition of an independent compliance monitor. Whether this was a result of the changes made in 2018 to the DOJ’s guidance on corporate compliance monitors (in a document often referred to as the “Benczkowski Memo”) is unclear. However, it does appear that the leadership of the DOJ and SEC during the Trump administration took a more restrained approach toward the use of monitors. We expect that the DOJ and SEC under the Biden Administration will be more likely to rely on monitorships in connection with FCPA resolutions, consistent with the approach taken during the Obama administration.
With all signs pointing to an increased focus on anti-corruption enforcement, the question is less if than when. Both the decrease in new investigations under the Trump administration and the practical limits on investigations imposed by the pandemic will take time to reverse. But when the tide eventually comes in, we expect the waves will be large.
Written by Michael DeBernardis, Benjamin Britz, and Debbie Placid at Hughes Hubbard & Reed.
 Joseph R. Biden, Jr., Why America Must Lead Again, Rescuing U.S. Foreign Policy after Trump, Foreign Affairs (Jan. 23, 2020).