The US Department of Justice’s Criminal Division Fraud Section released its annual Year in Review report on February 15, covering 2021. Despite ongoing aftershocks associated with the global pandemic, this year’s report highlights the Department’s sustained aggressive enforcement efforts against individuals and, to cap off the calendar year, two corporate resolutions—both guilty pleas imposing independent monitors—likely serving as a harbinger for what’s to come in 2022.
2021 brought a greater number of individual convictions than in years past (including 30 trial convictions), significant numbers of COVID-19-related fraud prosecutions and, of course, corporate resolutions.
Although the last year saw fewer corporate resolutions and total global settlement amounts paid, returning to 2019 levels after 2020’s two billion-dollar-plus FCPA settlements, the efforts and variety of matters are noteworthy.
According to the Year in Review report, in 2021, corporations paid total global settlement amounts of more than $3.3 billion across eight resolutions—three Foreign Corrupt Practices Act (FCPA) resolutions and six Market Integrity and Major Frauds (MIMF) resolutions. By contrast, corporations in 2020 paid more than $8.9 billion in global settlements across 13 resolutions—eight FCPA and five MIMF resolutions. The substantial 2020 dollar figure was driven by two significant 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 in 2020 was only $2 billion across the remaining 11 corporate resolutions—a figure that looks much more in line with the 2019 and 2021 numbers.
Despite the continued challenges presented by the global pandemic, 2021 saw a stark increase in individual convictions by guilty plea and at trial—329 individuals were convicted in 2021 versus 213 individuals convicted in 2020, a 54% increase. This increase was not just due to adjustment to the “new normal” of the ongoing pandemic and resumption of some court-based activities. Even when compared to pre-pandemic 2019 levels, during which 256 individuals were convicted, convictions in 2021 exceeded 2019 levels by 28%.
As in previous years, the driver of individual convictions is Health Care Fraud (HCF) enforcement efforts. In 2021, there were roughly twice as many HCF convictions as there were MIMF convictions. Nonetheless, it is noteworthy that the number of individual MIMF convictions doubled in 2021 relative to 2020 due, in part, to a continued focus on fraud connected to COVID-19 relief programs.
Another significant number found in this year’s report: the addition of no less than 34 attorneys to the Fraud Section—roughly the same number of attorneys making up the entire FCPA Unit. The recent addition and/or solidification of supporting units such as the Special Matters Unit (focusing on issues related to privilege and legal ethics), the Litigation Unit (providing training, support and supervisory assistance for complex trials and appeals), and the Corporate Enforcement, Compliance, and Policy Unit (formerly the Strategy, Policy, and Training Unit) no doubt accounts for a decent portion of that figure; nonetheless, the addition of new personnel across all units sends a strong signal that the Fraud Section is well-positioned from a resource perspective moving into 2022. Given the strong pronouncements made by the Biden-Harris administration—announcing anti-corruption as a core national security interest—and Deputy Attorney General (DAG) Lisa Monaco—who was emphatic about the Department’s focus on corporate wrongdoing—the Section should continue to enjoy stability in funding and increased personnel well into 2023.
Over the last three years, MIMF settlement amounts have substantially increased—from $384 million in 2019, to $1.06 billion in 2020, to $2.82 billion in 2021—and, as noted above, the number of individual MIMF convictions doubled in 2021 relative to 2020. The MIMF Unit has continued to focus on varied cases, ranging from Paycheck Protection Program (PPP)–related fraud to securities fraud, with a particular emphasis in recent times on commodities-related matters and procurement fraud.
In that vein, in December 2021, the MIMF Unit reached two notable settlements. Although involving very different conduct, both cases—the first to be resolved following DAG Monaco’s October 2021 speech rescinding prior guidance as to monitors and compelling examination of a company’s rap sheet whatever the past forum—required guilty pleas and the imposition of compliance monitors.
NatWest Markets (NatWest) pleaded guilty to fraud charges related to the manipulation of US Treasury securities and futures (also called “spoofing”). NatWest’s status as a repeat offender contributed to the imposition of a criminal penalty and an independent compliance monitor. The Department of Justice cited NatWest’s recidivism among its rationale for imposing a criminal resolution, in addition to the fact that the current fraud scheme constituted a material breach of NatWest’s 2017 Non-Prosecution Agreement.
In the same month, Balfour Beatty Communities (BBC) pleaded guilty to one count of major fraud against the United States in relation to a multiyear scheme to defraud the US military in connection with servicemember housing contracts. Two managers were also charged and pleaded guilty. As part of the resolution, BBC was required to engage an independent compliance monitor for a period of three years.
Only two months prior to both of these guilty pleas, DAG Monaco announced her policy change with regard to the use of corporate monitors, clarifying that the department is free to require the imposition of independent monitors whenever it is appropriate to do so, and that imposition of a monitor should not be viewed as the exception to the rule. It seems the Section has heeded her guidance, and further 2022 resolutions will shed more light on whether this is a continued trend.
In contrast, settlements reached earlier in 2021, some significantly larger in size, did not require the imposition of an independent compliance monitor. In all resolutions, the Fraud Section continued to place significant emphasis on corporate compliance programs—or the lack thereof—as a key factor driving the form of resolution and monitor imposition, as well as to provide detailed explications of its rationale in accompanying papers.
As with many regulators, the Fraud Section is no stranger to the use of data analytics. In 2018, the HCF Unit formed its own in-house Data Analytics Team. Using advanced data analytics, the team identifies aberrant billing levels and targets suspicious billing patterns, as well as emerging schemes and schemes that are multi-jurisdictional. For the first time since the creation of the Data Analytics Team, the 2021 edition of the Year in Review provided statistics on the team’s work. The team of seven analysts completed 5,327 data requests and gave 385 proactive investigative referrals.
In recent years, the MIMF Unit has follow suit, leveraging data in its pursuit of commodities and securities related frauds and other instances of market manipulation. The number of parallel actions and level of collaboration among the Section and regulators like the CFTC and SEC continues to grow.
Continued greater use of data analytics is expected, which the Section will seek to leverage in whatever way possible to give it a jump start in building chargeable cases.
The world continues to adapt to the “new normal” of a hybrid virtual and in-person environment. Prosecutors are no exception. Coupled with the resumption of travel—including international travel for prosecutors and agents—and courthouse functions, an increase in prosecution activity by the Department of Justice (while expanding foreign coordination efforts) is expected during 2022 and beyond.
Compliance program effectiveness is likely to continue to play a key role in the form of resolutions and the severity of penalties levied—including imposition of an independent compliance monitor. The recent corporate plea agreements secured by the MIMF Unit demonstrate the fundamental importance of an effective, risk-based compliance program and the presence of strong internal controls to detect and prevent misconduct.
Of note, the conduct in the BBC case is one that we would traditionally expect to see handled in the False Claims Act context, not criminally (to note, BBC separately entered into a False Claims Act settlement to resolve its civil liability). The imposition of criminal penalties suggests the Department is doubling down when it observes, as DAG Monaco stated in the BBC press release, “pervasive fraud” and “broken corporate culture.”
Both the BBC and NatWest plea agreements attach detailed expectations for improvements to their respective company’s corporate compliance program. The requirements outlined track the guidance articulated in the Fraud Section’s updated Evaluation of Corporate Compliance Programs Guidance. These requirements include promotion of a culture of compliance, development of policies and procedures, execution of period risk-based review, provision of compliance training, implementation of enforcement and disciplinary measures, and institution of compliance monitoring and testing. Companies should ensure they have closely reviewed this guidance and assess their compliance program’s adequacy and effectiveness against the framework of questions in that guidance. Importantly, as noted in the plea agreement attachments, these elements are “at a minimum” what should be included as part of the company’s compliance program.
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Sheila A. Armstrong