The US Department of Justice’s Criminal Division Fraud Section (DOJ) released its annual Year in Review report on February 24, covering 2020. This year’s report highlights DOJ’s sustained aggressive enforcement efforts despite the global pandemic. In 2020 we saw record-setting dollar figures, the ongoing trend of cooperation with foreign authorities, DOJ’s quick ramp-up in prosecuting Paycheck Protection Program fraud, and emphasis on corporate compliance programs—or the lack thereof—as a key factor driving some of the largest resolutions in Fraud Section history.
BY THE NUMBERS
From 2019 to 2020, the quantity of corporate resolutions largely stayed the same, with only a small dip, but the dollar figures by paid corporations to resolve these matters more than doubled. In 2019, corporations paid total global settlement amounts of more than $3.2 billion across 15 resolutions—seven Foreign Corrupt Practices Act (FCPA) resolutions and eight Market Integrity and Major Frauds (MIMF) resolutions. By steep contrast, corporations in 2020 paid more than $8.9 billion in global settlements across 13 resolutions—eight FCPA and five MIMF resolutions.
The driver for this 178% increase in total global payments comes from two FCPA resolutions with Airbus and Goldman Sachs, for $3.97 billion and $2.92 billion, respectively. Removing these two resolutions from the equation, the remaining total global payments is only $2 billion across the remaining 11 resolutions—a figure that looks much more in line with the 2019 numbers.
Unsurprisingly, given court closures and temporary suspensions of grand jury activities, the number of individuals charged decreased 32% from a then-record 478 individual charged in 2019 to 326 last year. However, individuals actually convicted by guilty plea and at trial only decreased at about half that rate—there were 256 convictions in 2019 versus 213 convictions in 2020, a 17% decrease. Given the reality of COVID-19 and its attendant constraints, the numbers are noteworthy and illustrate a continued focus on individual accountability.
Each year, the driver of individual convictions is, by far, Health Care Fraud (HCF) enforcement efforts. In 2020, there were nearly three times the HCF convictions as there were MIMF convictions. Nonetheless, it is noteworthy that the number of individual MIMF prosecutions and convictions increased in 2020 relative to 2019 due to a focus on fraud connected to COVID-19 relief programs.
NEW PROSECUTION AREA: COVID-19 RELIEF FRAUD
As in 2019, the 2020 Report covers activities by the FCPA Unit, HCF Unit, and MIMF Unit. This year’s report highlights a new significant initiative related to the global pandemic: prosecution of COVID-19 Relief Fraud. The MIMF Unit—now under the leadership of veteran Fraud Section prosecutor Lisa Miller—has spearheaded the department-wide effort to combat fraud in connection with the Paycheck Protection Program (PPP). The PPP was put into place in late March 2020 as part of Congress’s Coronavirus Aid, Relief, and Economic Security (CARES) Act.
In the ensuing nine months since the PPP’s establishment, the Fraud Section operated at a rapid pace, bringing 67 cases across 20 federal districts for PPP fraud and prosecuting 97 defendants involving a projected intended loss of $260 million. When adding in totals from January and February 2021 (through the date of DOJ’s publication), the numbers jump to 109 defendants charged in 74 cases. There is no indication that this pace will slow any time soon, although it is foreseeable that the Fraud Section’s focus may expand into scrutiny leveled at lenders, organizational borrowers, and systematic flaws and abuse of the PPP.
Given the challenges of 2020, it is not surprising to see a decrease in overall prosecution numbers, though the decreases are not as stark as one may expect given all the complicating factors brought on by the global pandemic of court closures, remote work, and limited access to witnesses and evidence.
We continue to see a trend towards large corporate FCPA settlement amounts. In 2019, total FCPA global settlements were $2.8 billion, which pales in comparison to 2020’s whopping FCPA global settlement total of $7.84 billion. This significant payment increase is not, however, exclusively going into the US coffers. When looking only at the US portions of those FCPA settlements, the trend line is far less steep. In 2019, total US FCPA settlements were $2.5 billion, while total US criminal FCPA settlements were $1.6 billion. The year 2020 saw growth, but not exponentially. In 2020, total US FCPA settlements were $3.33 billion, while total US criminal FCPA settlements were $2.33 billion.
We expect to continue to see increased cross-agency coordination and cooperation with foreign authorities. Global anticorruption laws have become more seasoned, global whistleblowers are on the rise, and countries are becoming more serious and more adept at prosecuting corruption within their own borders.
Compliance program effectiveness will continue to play a key role in resolutions and severity of penalties levied. Lessons from the Airbus and Goldman Sachs settlement agreements demonstrate the fundamental importance of an effective, risk-based compliance program and presence of strong internal controls. Companies should ensure they have reviewed the Fraud Section’s updated Evaluation of Corporate Compliance Programs Guidance and assessed their compliance program’s adequacy and effectiveness against the framework of questions in that guidance. Importantly, the updated guidance changes the inquiry on one of the three fundamental prosecutorial questions (“Is the program being applied earnestly and in good faith?”), now requiring prosecutors to inquire into whether the program is being “adequately resourced and empowered to function effectively?” The updated guidance also reinforces principles of continuous program improvement, as well as stressing the importance of compliance program access to relevant sources of data. See a redline comparison of the Guidance for further changes.
With the long-anticipated return to normalcy in terms of travel, office, and courthouse functions, we should expect an increase in prosecution activity in 2021 and beyond, returning to or exceeding the levels seen in 2019. It is likely that there are many cases that have not been able to be developed over the last year, but that should move forward once prosecutors can travel and meet with their enforcement counterparts and develop evidence, including interviewing witnesses and taking advantage of greater availability of grand juries.