Washington D.C.: An Era of Unprecedented Enforcement

by Michael Volkov

Once in a while it is important to take a step back and look at overall trends.  Too many lawyers in Washington D.C. suffer from myopia and fail to see important trends outside their particular area of expertise. 

The picture in Washington, D.C. is unmistakable.  We are in an era of unprecedented civil and criminal enforcement.  In my 30 years of practicing law, I have never seen government prosecutors and regulators so aggressively enforcing the law.  Government regulators are emboldened and launching initiatives which have been on the shelf because of practical or political concerns.

In criminal enforcement, prosecutors are using law enforcement tactics typically reserved for organized crime and drug trafficking organizations: search warrants, ambush interviews, undercover officers, informants, audio and video recordings.  Federal enforcement strategies have emboldened agencies, law enforcement and prosecutors, with minimal restraints. 

Criminal prosecutors now follow a two-pronged strategy of securing large corporate fines and prosecution of individual officers and employees.  Prosecutors have targeted gatekeepers: in-house counsel, compliance officers, and auditors, and increased reliance on whistleblowers (Sarbanes-Oxley and Dodd-Frank). 

The most aggressive – and successful criminal prosecution programs have been Foreign Corrupt Practices Act and healthcare fraud.   Over last 4 years, the government has collected $4.1 billion in fines for FCPA violations.  Last year, the government collected $2.5 billion in fines for health care fraud cases, including a record number of False Claims Act cases.

Antitrust enforcement has increased with a larger number of civil filings and over $1 billion last year collected for cartel conduct.  SEC and CFTC filings and disgorgement amounts are at record levels. Civil penalties increased to $168 million in FY 2011 from $110 million in FY 2010.

Environmental enforcement has increased in the last fiscal year – civil penalties rose to $168 million from $110 million, and while the number of criminal cases declined, punishment increased to 89.5 years from 72 years. 

As part of the more aggressive criminal enforcement strategies, prosecutors are relying on the responsible corporate officer doctrine to hold pharmaceutical and medical device executives criminally responsible for conduct where there is insufficient evidence to show the executive knew about the illegal activity.  A federal judge in Philadelphia recently sentenced several executives from a medical device company to prison terms ranging from 6 to 9 months, and ordered one executive to begin serving the sentence immediately at the sentencing hearing.

Even more controversial, the Administration has targeted gatekeepers for criminal and civil enforcement, focusing on in-house counsel, internal auditors and compliance personnel.  In the criminal prosecution of Laura Stevens, GSK’s in-house counsel, the government was rebuked by the district judge who dismissed the case at the close of the government’s case.   

The SEC has targeted enforcement cases against a general counsel (Theodore Urban); a $100,000 fine against a Chief Compliance Officer for compliance program deficiencies; a $10,000 fine against a Chief Compliance Officer for  failure to safeguard customer information on laptops.  FINRA fined a Chief Compliance Officer  $25,000 and suspended him for 15 days for failing to impose an adequate compliance program.

On the regulatory front, a variety of federal agencies have been pushing the envelope against precedent and established law.  Some examples include the NLRB and its prosecution of Boeing for opening a new plant in South Carolina as an unfair labor practice; the Department of Labor’s protection of Sarbanes-Oxley and SEC whistleblowers; the EPA’s record number of regulations addressing controversial issues, such as greenhouse gases, ozone regulations, cement regulations, storm water regulation, and sulphur requirements for gasoline.

It is little wonder that Washington is viewed as no friend to American business.  Regulations now cost our economy over $1 trillion every year, and the State of California, for example, costs our economy $175 billion a year.

Trends need to be examined.  Questions should be raised and trade offs – cost versus benefit have to be assessed.  In some cases, aggressive enforcement can be productive but in some it may stifle economic development and innovation.  Given the state of our country’s economy, and the emphasis on jobs, these are reasonable issues to examine.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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