By KBK Partner Robert Edward Dugdale
The transition of power happens quickly at the White House. Within just a few hours on January 20, 2021, the White House staff will move out the Trump family’s belongings and move in the Biden family’s possessions.
The changeover in the rest of government – and especially at the Department of Justice (“DOJ”), Securities and Exchange Commission (“SEC”), and the other federal agencies that investigate and prosecute white collar crimes – will not be as instantaneous but will certainly have a significant impact on the practice of law in our country and the clients we serve, based on what I saw during the 19 years I served in the U.S. Attorney’s Office in Los Angeles.
The changes one can expect to see on this front in the Biden Administration will start with the new people the President appoints to carry out his agenda. President-elect Biden has named his proposed replacement for Acting Attorney General Jeffrey Rosen, U.S. District Judge Merrick Garland. He was former President Barack Obama’s Supreme Court nominee for whom the U.S. Senate refused to hold a confirmation hearing. The remaining top DOJ jobs will be filled in short order.
Replacing U.S. Attorneys will take some time. Indeed, in some federal districts, including the Central District of California, it took well over a year for President Obama to name U.S. Attorneys to replace Acting U.S. Attorneys who assumed the job of top federal cop in their districts after their Bush-appointed predecessors exited their positions. It has become a practice for a new presidential administration, upon assuming office, to request the across-the-board resignation of all the U.S. Attorneys appointed by the President’s predecessor. And while some current U.S. Attorneys may keep their jobs, it is likely that most, if not all, of the nation’s 93 U.S. Attorneys who currently hold that position will be replaced upon President-elect Biden’s inauguration.
We expect that some law enforcement priorities pursued by the Trump administration will remain priorities during the Biden administration. For instance, President-elect Biden has made it clear that his administration’s efforts to tackle the opioid crisis will include the investigation and prosecution of pharmaceutical companies, executives, and others who may have played a role in this public health epidemic, which would be a continuation of work done in this area during the Trump Administration. In addition, under any administration one would expect that curbing violent crime, and specifically gang violence, will be a priority.
At the same time, one certainly should expect that the DOJ under the Biden Administration will shift its priorities in several significant ways away from President Trump’s priorities. President-elect Biden has forecast some starkly different ways in which he will utilize the powers of the DOJ once he takes office. In this regard, we see the following five areas where prosecution priorities are likely to shift when the incoming administration assumes control of the DOJ:
- Environmental Law Enforcement to Expand
President-elect Biden has made his displeasure well known with the fact that, under the Trump Administration, the Environmental Production Agency (“EPA”) referred the fewest number of criminal anti-pollution cases to the DOJ in 30 years. The new President has vowed to reverse that trend by directing the EPA and DOJ to pursue environmental law violations to the “fullest extent permitted by law and, when needed, seek additional legislation to hold corporate executives personally accountable – including jail time where merited.”
Consistent with President-elect Biden’s pledge to combat climate change aggressively, he has promised to establish a new Environmental and Climate Justice Division within the DOJ to complement the work of DOJ’s existing Environmental and Natural Resources Division. Upon assuming office, President-elect Biden has pledged that he will instruct the DOJ to (1.) implement, to the extent possible by executive action, Senator Cory Booker’s Environmental Justice Act of 2019; (2.) increase enforcement of existing environmental laws in line with the commitments already detailed in the Biden Plan; (3.) strategically support ongoing plaintiff-driven climate litigation against polluters; (4.) address legacy pollution that includes real remedies to make communities safe, healthy, and whole; and (5.) work hand-in-hand with EPA’s Office of Civil Rights. His promise to fight for environmental justice is expected to spur more investigations of polluters, including industrial plants, particularly those that operate in poor, urban areas.
- Public Corruption Prosecutions and Ethics Reform on the Horizon
Seemingly every candidate promises to “drain the swamp,” including President Trump. President-elect Biden is no different and has promised a crackdown on government corruption and the elimination of the perceived partisan influence over the DOJ that President Trump allegedly fomented during his term in office. Leaving aside whether his administration will pursue investigations of Trump and his family – investigations which could be stymied on the federal level by pardons issued by Trump – corporations that do business with the government and government employees can expect additional scrutiny because President-elect Biden has promised to strengthen Inspector General laws. While President Trump found little use for agency watchdogs and famously dismissed several Inspectors General from different federal agencies whose work as watchdogs reportedly displeased him, President-elect Biden has promised that he will give Inspectors General the “full subpoena power and independence they need to investigate and publicize any official’s actual or attempted improper conduct.” He has also said he would give Inspectors General the express authority to prevent, investigate, and disclose all violations of federal law.
In addition to placing a new importance on the work of these government watchdogs, under the Biden Administration the country is likely to see an increase in whistleblower-driven prosecutions, as President-elect Biden has asserted that he intends to strengthen whistleblower laws to protect government employees and employees who work for companies that receive government funds when they report government misconduct. This could have a notable impact on companies that receive federal grants or who contract with federal agencies, as they may now face an increase in claims of waste, fraud, or other forms of wrongdoing by whistleblowers and accompanying claims of whistleblower retaliation. Lobbyists, government employees, and others who seek to influence government agencies and federally elected officials, as well as their targets for influence, can also expect more inquiries into their activities as President-elect Biden fulfills campaign promises to increase the enforcement of federal ethics laws. In this vein, President-elect Biden has promised to create a Commission on Federal Ethics that would have broad investigative and civil enforcement authority, expanding on powers now held by the FEC, OGE, and the Office of Special Counsel; and he has said this Commission can refer matters to the DOJ for criminal investigation and will have an obligation to report to the public when DOJ has chosen not to proceed with that referral.
Lastly, President-elect Biden has promised to take aggressive steps to address what he and some others have perceived to be the politicization of the DOJ during the Trump presidency. For instance, President-elect Biden has proposed (1) an executive order directing that no member of his administration may obstruct or unduly influence a DOJ investigation for any reason; (2) revisions to DOJ policies to require the DOJ to report and explain any change in position it has on any “significant legal issues” to Congress and to the public; and (3) legislation that would grant the DOJ Inspector General the power to investigate allegations of improper partisan influence over DOJ investigations and prosecutions – all measures not only designed to root out government corruption but also to address perceptions that the integrity and independence of the DOJ has been damaged during the Trump presidency.
- FCPA Investigations Expected to Grow
While some expected a downturn in penalties stemming from U.S. Foreign Corrupt Practices Act (“FCPA”) prosecutions under President Trump, Stanford University’s survey of these actions shows that settlements didn’t slow from 2017-2020 in these cases, even though fewer FCPA investigations were initiated during the Trump administration. In fact, 2020 just hit a milestone by becoming the largest year ever for FCPA settlements, with resolutions worth $2.94 billion.
The Biden administration can be expected to increase both settlements and investigations in this area. For multinational companies, the prospect of running afoul of the FCPA in business dealings abroad will pose a significant threat. Ensuring that a company’s leaders and employees understand the potential changes in FCPA enforcement under the Biden Administration’s DOJ will be critical to guarding against this threat.
- Additional Scrutiny of Securities and Financial Fraud
SEC Chairman Jay Clayton has already announced that he will be resigning at the end of 2020, and President-elect Biden is expected to name a new chairperson soon. While Clayton focused on expanding access and removing barriers to capital markets, with an emphasis on protecting retail investors, the new chairperson is likely to take a stronger stance on violations of the securities laws with a goal of sending a message that such violations, which historically tick up in times of economic distress such as those present today, won’t be tolerated.
Corporations and traders need to be aware that insider trading will be more closely examined, and companies are more likely to be targeted for violations of regulations and financial fraud. Expect the SEC and DOJ to put a priority on investigations of larger financial services firms and public companies for accounting and other financial fraud, as such activity almost always draws the increased attention of investigators during a difficult economic environment when it is more prone to occur.
In other areas where the prospects of financial fraud loom, the Biden administration will find itself in a similar situation as the Obama administration did at the onset of President Obama’s first term, in that the Biden administration will be inheriting an economy that has recently collapsed and has done so in a way that invites scam artists who are likely to seek to take criminal advantage of the misfortune of others. In the aftermath the Great Recession of 2008 and collapse of the housing and financial markets, the DOJ placed a heavy focus on prosecuting individuals and entities who defrauded distressed homeowners with scams centered on their fears they would lose their homes to foreclosure. In the same manner, one should expect that the country’s recent pandemic-driven economic collapse will yield prosecutions against scam artists who engage in pandemic-related misconduct, such as touting fake treatments and “cures” for the coronavirus, engaging in price-gouging during the pandemic, and, of course, any fraud related to the trillions of dollars in COVID-19 relief stimulus funds that have been disseminated by the government to date.
On the subject of taking steps to protect consumers from fraud and other wrongdoing, one can expect that the Biden administration will breathe new life into the Consumer Financial Protection Bureau (“CFPB”) – a regulator created under the Dodd-Frank Act in the wake of the financial crises that was envisioned as a strong and independent consumer watchdog, which President Trump worked hard during his term as President to neuter. Given the high priority that President-elect Biden will certainly place on addressing the financial pressures facing tens of millions of Americans due to the pandemic, it is likely the CFPB will play an active role in making sure that CARES Act protections provided to Americans, such as loan forgiveness or forbearance rules, are followed and that entities like unscrupulous payday loan providers are not allowed to take advantage of individuals in economic distress. In general, one would expect that a Biden administration, in contrast to the Trump administration, will push for pro-consumer policies and enforcement actions and that the CFPB is a prime candidate to take a lead role in these efforts.
Lastly, one can generally expect that all government agencies with regulatory powers are likely to impose more regulations, creating more opportunities for companies and individuals to run afoul of those regulations and face fines or jail time. Accordingly, the Biden administration’s priorities are expected to trigger more white collar investigations and prosecutions, making it incumbent on companies and their leadership teams to seek legal counsel early and establish robust compliance programs to avoid becoming a target of federal prosecutors.
- Reprioritization of the Work of the DOJ’s Civil Rights Division
Given how central the issues of racial and social justice became during the Presidential campaign after yet another year featuring a number of high-profile killings of minorities by law enforcement officers, another certainty is that the Biden administration will place a heavy emphasis on reviving the work of DOJ’s Civil Rights Division, which is a segment of the DOJ that was pushed to irrelevancy during the Trump administration. Under President Obama, the DOJ obtained at least two dozen consent decrees against law enforcement agencies in large cities based on evidence such agencies had engaged in a pattern-and-practice of civil rights violations through their methods of policing. Soon after taking office, President Trump, promising to be a police-friendly “law and order” President, encouraged the DOJ to withdraw from all of these consent decrees. Over the four years that followed, the DOJ not only entered into zero new consent decrees during a time when issues concerning alleged unlawful uses of force by the police were most prevalently part of the nation’s consciousness, but former Attorney General Jeff Sessions, on his last day in office, issued a memorandum directing that the DOJ should “exercise special caution before entering into a consent decree with state or local government entities” and should only do so “in limited circumstances” after obtaining approval of many of the DOJ’s most senior officials.
Virtually all of the candidates that President-elect Biden reportedly considered for the position of Attorney General have a background in prosecuting civil rights offenses, confirming that civil rights enforcement will be a top priority at the DOJ during his administration. As a result, one should expect that the DOJ’s use of pattern-and-practice investigations to target police departments that are alleged to engage in unconstitutional police practices will almost certainly make a strong comeback and that the DOJ will not express any of the reluctance it has in recent years when it comes to “policing the police” through the enforcement of the nation’s civil rights laws.