The Regulators Strike Back: How Does Compliance Respond?

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The Department of Justice (DOJ) recently overturned the prior administration’s limitations on the use of regulatory guidance in False Claims Act (FCA) litigation. Now, DOJ attorneys may rely on guidance documents “in any appropriate and lawful circumstances.” How should compliance programs respond to the resurgence of the regulators in the ongoing FCA wars?

Background
Former Attorney General Jeff Sessions initiated the limitation on the use of regulatory guidance in the prior administration with his Memo dated November 16, 2017. His mandate prohibited “Improper Guidance Documents” from creating “rights or obligations binding on persons or entities outside the Executive Branch.”

Although a series of executive actions furthered this approach, they are described here only briefly because this approach now has been largely rescinded. Early in 2018, then-Associate Attorney General Rachel Brand issued the Memo “Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases.” Among enforcement cases, of course, are complaints alleging violations of the FCA. In 2019, then-President Donald Trump issued Executive Order 13891 entitled “Promoting the Rule of Law Through Improved Agency Guidance Documents,” which compelled agencies to eliminate outdated guidance; post existing guidance in a searchable, online database; and follow standards before issuing new guidance. In 2020, DOJ issued two interim final rules that created 28 CFR (Code of Federal Regulations) Sections 50.26 and 50.27 regarding the use and creation of guidance documents. In addition, DOJ revised the Justice Manual at Sections 1-19.000 and 1-20.000 regarding the issuance and use of agency guidance.

New AG – New Actions
The Biden Administration began reversing these executive actions on its first day by issuing Executive Order 13992 on January 20, 2021. That Order revoked Executive Order 13891, discussed above, to ensure executive departments and agencies are “equipped with the flexibility to use robust regulatory action to address national priorities.”

On July 1, 2021, Attorney General Merrick Garland relied on that new Executive Order when he issued an Interim Final Order and a companion Memo. His actions rescinded the prior DOJ Memos, revoked changes to the CFR, and promised future revision to the Justice Manual. AG Garland acted, in part, because he found that the prior administrative action “hampered Department attorneys when litigating cases where there is relevant agency guidance.”

Nevertheless, DOJ’s new executive actions acknowledge limitations on the use of regulatory guidance. AG Garland’s Memo quotes from the plurality opinion in Kisor v. Wilkie that teaches that “an agency guidance document by itself ‘never forms “the basis for an enforcement action”’ because such documents cannot ‘impose any “legally binding requirements” on private parties.’” 139 S.Ct. 2400, 2420 (2019). Similarly, the Interim Final Rule announces that DOJ “is not departing from the principle that guidance documents cannot impose legal requirements beyond those found in relevant constitutional provisions, statutes, and legislative rules.”

A Compliant Way Forward
Although court battles inevitably lie ahead and DOJ’s position may shift again in the future, compliance programs must operate in the here and now. So how does a compliance program adapt in light of these policy changes? Prudent steps are available.

  • Continue to monitor evolving guidance for your industry. Building a compliance program on outdated guidance is never good, and new regulatory guidance may be instructive and helpful.
  • Do not ignore guidance that appears unclear or unduly burdensome. Instead, create a record of the company’s evaluation of and good faith attempts to implement the guidance. In the event of a government investigation, such efforts indicate a lack of willfulness because the company attempted to do the right thing rather than bury its head in the sand.
  • Consider consulting outside counsel if the company appears unable to accommodate regulatory guidance. Obtaining independent legal advice can provide additional proof regarding lack of willfulness when interpreting case law on the limitations of regulatory guidance, in structuring compliance programs that will withstand scrutiny, and in utilizing available defenses in the event of an investigation.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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