After a hotly contested election in the midst of a once-in-a-century pandemic, Joe Biden was announced as the US president-elect on November 7, 2020. Biden’s transition is finally underway. The question for many businesses and financial institutions is what enforcement priorities they can expect from a Biden administration. Drawing on clues from President-elect Biden’s long career as a senator and chairman of the Judiciary Committee, two terms as vice president under President Barack Obama and statements from his campaign, a Biden presidency is likely to bring increased enforcement of regulations and generally a more active enforcement environment than businesses and financial institutions experienced during the Trump era.
A Return to Normalcy and an Anti-Corruption Focus
What will a Biden Department of Justice (DOJ) look like? First and foremost, it will reflect Biden’s campaign theme of restoring norms to the executive branch and will reflect the DOJ with which the American public is most familiar. Biden, as a former chairman of the Senate Judiciary Committee, is well acquainted with the traditional role of the DOJ and attorney general and the principles of independence that had been a hallmark of the DOJ. He has explicitly pledged to restore the DOJ’s independent role and to rebuild confidence in the rule of law. Consequently, a Biden DOJ will focus on pursuing investigations and prosecutions independent of the president’s influence, in a nonpartisan manner. Indeed, Biden has pledged to issue an executive order forbidding White House staff from influencing DOJ investigations or prosecutions.
Biden’s campaign theme of restoring public trust in the government is likely to inform DOJ priorities in the area of government programs and public integrity prosecutions. In that vein, the DOJ will prioritize the integrity of federal agencies by investigating, prosecuting and preventing government-related misconduct. Biden has also pledged to combat government misconduct by creating a new government agency that will oversee and enforce federal anti-corruption and ethics laws, through both criminal and civil actions. This proposed agency would have not only subpoena power but also the power to refer matters to the DOJ for criminal investigation. In the corporate context, this means greater scrutiny of businesses that work with federal agencies, whether as contractors or grantees, for fraud and abuse. It may also translate to increased guidance and compliance demands for companies contracting or receiving grants from the federal government.
This anti-corruption focus will also likely be further implemented by the DOJ pursuing fraud investigations and prosecutions related to the misuse of COVID-19 aid-related programs such as unemployment aid fraud and fraudulently obtained loans from the Paycheck Protection Program. Under the current administration, the DOJ is already pursuing prosecutions relating to CARES Act-related fraud, but an expansion of these efforts is anticipated under a Biden DOJ. While most CARES Act prosecutions brought under the current administration have focused on individual actors, it is widely anticipated that the focus of fraud investigations related to the CARES Act will turn to corporate actors and financial institutions under a Biden DOJ.
Consistent with this anti-corruption focus, investigations and prosecutions into violations of the Foreign Corrupt Practices Act (FCPA) are anticipated to increase during the course of the Biden administration. Given the disruption that COVID-19 has imposed on the world’s economy and trade flows, instances of bribery and fraud are expected to rise. Wrongdoing in this context is expected to receive attention through FCPA investigations and prosecutions, thereby further contributing to the Biden DOJ’s anti-corruption focus.
Strengthening Whistleblower Laws
To support the DOJ’s anti-corruption focus, Biden has also pledged to strengthen whistleblower laws to further protect employees who report misconduct. This will likely have a significant impact on employers who receive federal grants or contract with federal agencies, possibly subjecting them to increased claims involving whistleblower retaliation. Increased whistleblower protections will also likely result in an increase in Securities and Exchange Commission (SEC) investigations and, by extension, related DOJ securities fraud prosecutions. Additional protections for whistleblowers may also fuel an increase in corporate investigations into Paycheck Protection Program fraud.
Environmental and Climate Justice
Reflecting his administration’s sweeping climate change agenda, Biden has pledged to establish an Environmental and Climate Justice Division as part of the DOJ. This pledge was driven, in part, by the fact that the Environmental Protection Agency (EPA) has referred fewer criminal anti-pollution cases to the DOJ in the past four years than it has referred at any point over the past 30 years. The impetus for establishing this new unit is Biden’s belief that criminal anti-pollution cases serve an important role in deterring corporations from engaging in egregious polluting. The new unit within the DOJ would (i) implement aspects of Senator Booker’s Environmental Justice Act of 2019, (ii) increase enforcement, (iii) strategically support ongoing plaintiff-driven climate litigation against polluters and (v) work hand-in-hand with the EPA’s Office of Civil Rights. In a departure from the past handling of environmental criminal cases by other administrations, Biden’s approach would likely result in much stiffer penalties and corporate resolutions than the DOJ has pursued in these cases in the past.
Scrutiny of Financial Institutions
A Biden DOJ is anticipated to increase scrutiny of large financial institutions. Biden, as a member of the Obama administration, was in office during the enactment of the Dodd-Frank Act financial regulation and the establishment of the Consumer Financial Protection Bureau (CFPB). Taking these things together, a Biden DOJ is likely to take a more confrontational role with respect to alleged wrongdoing by large financial institutions. Consequently, the DOJ is likely to take on more investigations and prosecutions of banks for Bank Secrecy Act violations and money laundering lapses, FCPA violations and fraud or lapses relating to the CARES Act. With respect to money laundering investigations, it is anticipated that a Biden DOJ will escalate money laundering investigations into activities involving China and Chinese entities, which have emerged as areas of anti-money laundering concern in the past several years.
In keeping with this renewed scrutiny of financial institutions and lending, Biden has also pledged to return to the Obama-era practice of pursuing financial institutions for alleged discriminatory lending practices. Fair lending and fair housing policy played a central role in the Biden campaign pledge. This portends more investigations into financial institutions by the DOJ Civil Rights Division related to housing and fair lending issues, as well as more attention from financial regulators. CFPB is also expected to take a more active role in a Biden administration, which may result in greater scrutiny of financial institutions for consumer fraud.
Big Pharma and Big Tech
The two enforcement areas of focus that are not anticipated to change drastically in a Biden administration concern Big Pharma and Big Tech. Concerning the pharmaceutical industry, it is anticipated that a Biden DOJ will continue the current trend by state attorneys general and some DOJ components of investigating Big Pharma for its role in allegedly contributing to the opioid crisis. The expectation is that a Biden DOJ will continue those investigations and move forward in reaching more settlements with Big Pharma in this area. Similarly, given the apparent bipartisan support for scrutiny of large tech companies prior to the election, Big Tech will likely continue to be an area of enforcement focus by a Biden DOJ.
Corporate Liability and Cooperation
Enforcement priorities for a Biden DOJ will likely carry a renewed focus on corporate liability in addition to continued scrutiny of individuals in the white collar criminal context. A Biden DOJ may roll back the revisions to the guidelines governing prosecutors’ approach to corporate cooperation instituted during the Trump administration. Specifically, a Biden DOJ may return to the approach adopted by the Yates Memo, a 2015 set of guidelines issued by Sally Yates, the former deputy attorney general during the Obama administration and briefly the acting attorney general during the Trump administration, that directed federal prosecutors to take more of an “all or nothing” approach to granting corporations credit for cooperating with the government. With the recent speculation that Ms. Yates may be Biden’s next attorney general, that reversion is possible. Similarly, irrespective of Biden’s choice for attorney general, a Biden DOJ may abandon the “piling on policy,” instituted by Deputy Attorney General Rod Rosenstein, which directed federal prosecutors to engage in greater coordination between DOJ components and regulators in an effort to avoid duplication of penalties. In fact, recent DOJ corporate settlements have reflected penalties corporate defendants paid to foreign regulators. This approach may be abandoned by a Biden DOJ.
Enforcement under a Biden administration will also be affected by the regulatory landscape under his administration, which will be largely influenced by which party controls Congress. While Biden has been named the president-elect, and the Democrats held the House of Representatives, the question of which party will take the Senate will not be decided until January 5, 2021, due to a run-off for the two Senate seats in Georgia. It is widely anticipated, however, that the Republicans will control the Senate by a sliver of a margin. If that comes to pass, it is unlikely that a Biden administration will be able to enact sweeping legislation affecting regulatory reform. Biden can affect regulation through the rulemaking process, which will be more time-intensive, delaying major changes. It has been reported, however, that Biden intends to reverse numerous Trump-era executive orders, largely in the area of climate change and immigration. Biden is also likely to enforce regulations that are already on the books but largely went unenforced for the past four years.
After four years of reduced enforcement and regulatory activity, businesses and financial institutions can anticipate a more active enforcement environment from a Biden administration, with a focus on anti-corruption and environmental crimes and less tolerance for corporate liability. In view of this increased scrutiny, organizations should review their compliance and training programs to determine if action is required.