Enforcement Issues and Trends Affecting the US Automotive and Mobility Industry

As the automotive and mobility industry continues to grow under the watch of a new US presidential administration, it is important for key players to better understand the government agencies charged with enforcing the rules governing the market’s potentially criminal activities and the administration’s existing enforcement priorities. Here we discuss how the Biden-Harris administration’s enforcement priorities are likely to impact the automotive and mobility industry, as well as focus on special purpose acquisition companies (SPACs), possibly the newest frontier for parallel criminal and civil enforcement.

The Enforcers

The US Department of Justice (DOJ) encompasses myriad divisions and offices. A survey of enforcement actions announced in recent years—including a series of cases involving emissions control manipulation and product safety concealment—indicates that automotive and mobility companies are most likely to interface with the following:

• The Criminal Division’s Fraud Section: The Fraud Section, often in parallel with the other Main Justice authorities and in partnership with Eastern District of Michigan, has been at the forefront of prosecuting both companies and individuals primarily in connection with emissions cheating and associated conduct.
• Civil Division: The Civil Division’s Commercial Litigation Branch played a major role in early emissions matters alongside its environmental colleagues at DOJ.
• Environment & Natural Resources Division: The ENRD Enforcement Section has played a leading role in emissions and other automotive-related matters over the past several years, working in conjunction with the Environmental Protection Agency (EPA)—and its injunctive powers—and the Civil Division.
• US Attorneys’ offices: Sometimes working on their own, and sometimes in partnership with Main Justice, these sophisticated districts have made repeat appearances in recent cases:
  • Eastern District of Michigan
  • Southern District of New York

• FBI: Along with criminal investigators from the EPA, the FBI has been involved in virtually all emissions and product safety cases bought over the last several years and can be expected to remain active.

New Administration Enforcement Priorities

Emphasis on Climate

The Biden-Harris administration has voiced its commitment to combating climate change, which will impact the auto industry, through these proposed actions:

• Potential plan to create an Environmental and Climate Justice Division within the DOJ
• Legislation requiring polluters to bear the full cost of their climate pollution and reinstating emission regulations
• Plan for a clean energy revolution and environmental justice
• Pledge to create new jobs in clean tech and increase the presence of electric vehicles

Pro-Enforcement Antitrust Policy

The Biden-Harris administration has signaled its pro-enforcement stance toward antitrust in several ways, including the following:

• Appointment of Big Tech critic Lina Khan as the chair of the Federal Trade Commission
• Executive Order announcing initiatives to increase antitrust enforcement and to promote competition
• Hiring Tim Wu as a special assistant to the president for technology and competition policy and nominating Jonathan Kanter to the DOJ Antitrust Division
• More aggressive merger enforcement by antitrust agencies across all sectors, including technology and transportation

Global Corruption Stance

The Biden-Harris administration has announced its offensive stance on anticorruption enforcement, with intentions to do the following:

• Establish anticorruption as a core US national security interest

• Increase proactive methods and rely less on self-policing within DOJ Foreign Corrupt Practices Act (FCPA) investigations
• Aggressively enforce anticorruption from the US Securities and Exchange Commission (SEC) under Chair Gary Gensler
• Collaborate with international partners and assist foreign countries to reduce corruption abroad

Existing Enforcement Programs

As enforcement actions against individuals and companies in the automotive and mobility space have persisted over the past several years, the importance of a company’s compliance program—both at the time of any alleged misconduct as well as at the time of any resolution—has increasingly been emphasized by the DOJ and can play a critical role in interactions with the government. 

On June 1, 2020, the DOJ Criminal Division updated its Evaluation of Corporate Compliance Program guidance, which had been issued roughly a year prior to set forth a framework for how prosecutors should evaluate corporate compliance programs, consistent with the Filip Factors. The 2019 guidance incorporated and expanded upon the sample question format from the earlier Fraud Section guidance, providing examples of how prosecutors would probe compliance program adequacy. In parallel with the guidance, the Criminal Division trained its prosecutors (rather than relying on a single compliance counsel role), bringing in outside experts to provide a range of perspectives and insights on difficult compliance topics.

The 2020 update to the Evaluation of Corporate Compliance Program guidance brings greater emphasis to the following:

• The need for compliance programs to be “adequately resourced and empowered to function effectively”
• The evolution of compliance programs based on lessons learned, measuring the effectiveness of training and the appreciation of risk
• The compliance function’s ability to access relevant sources of data to allow for timely and effective monitoring and/or testing of controls
• How effectively a company has integrated acquired operations into its compliance structures and controls
• The accessibility of policies and the tracking of hotline reporting

Lessons Learned

Recent resolutions involving the industry have largely focused on emissions and product safety, with investigations into the alleged misreporting of emission test results to the sale of defective airbag inflators. The increasing emphasis on DOJ’s evaluation of a company’s compliance program can be seen in many related statements of facts found in the resolutions. These resolutions provide helpful lessons for the industry, such as the following:

• A problematic corporate culture can undermine otherwise reliable compliance program structures, i.e., the knowledge plus inaction paradigm (the compliance department initially did what it was supposed to—identifying potentially suspicious orders by applying preset metrics—but the failures came later, when the corporation’s executives chose to ignore the suspicions and failed to conduct any investigation or due diligence).
• Unless a compliance program and its reinforcing controls are reassessed from time to time, they may be allowing problematic transactions to slip through undetected, despite an outward appearance of effectiveness.
• A corporation’s failure to sufficiently empower and support its compliance function; e.g., in one instance, despite the company having $1 billion in annual revenue, it did not hire a dedicated compliance officer, but instead added the compliance function to an existing employee who already had a number of other time-consuming tasks, such as managing the warehouse and tracking inventory.
• The biggest transactions deserve the same level of scrutiny and controls—if not more—than more routine transactions.
• Prompt remediation matters, especially when it comes to monitoring risks.

SPAC Movement in the Auto Industry

There has been an increase in electric vehicle startups and auto tech companies going public through SPACs. There are a number of benefits to going public through a SPAC, including that the marketing process provides an avenue to discuss projections and forward guidance. This is especially helpful in justifying future revenues because the market for electric vehicles has untapped potential. Despite their popularity, however, it is important to note that the fast-moving nature of SPACs may make them targets for investigations, as we recently have seen. The accelerated timeline to go public creates pressure for investors to move at a fast pace. This, coupled with the risk of having to return the seed money to investors if the company does not become public, may result in inadequate due diligence. There may also be potential securities fraud charges resulting from representations made to potential or actual investors about the health of the newly merged company.

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