2021 DOJ Enforcement Priorities Under U.S. Attorney General Merrick Garland

On March 10, 2021, former Chief Judge of the D.C. Circuit Merrick Garland was confirmed by the Senate as the new United States Attorney General. In this Ropes & Gray Capital Insights podcast, litigation & enforcement partners Brian Blais and Lisa Bebchick examine the DOJ enforcement priorities for 2021 and beyond.

Transcript:

Lisa Bebchick: Welcome to this edition of Ropes & Gray’s Capital Insights series. I’m Lisa Bebchick, a partner in Ropes & Gray’s litigation & enforcement practice group. I’m speaking today with my partner, Brian Blais. Brian recently returned to the firm after spending more than a decade as a prosecutor in the U.S. Attorney’s Office for the Southern District of New York. While there, Brian was a member of the Securities and Commodities Fraud Unit, which focused on white collar and securities fraud prosecutions, and also served as Co-Chief of the Office’s General Crimes Unit where he oversaw cases involving corporate criminal liability, wire, mail, and tax fraud, and other criminal offenses. So there’s no better person for me to sit down with today to talk to about DOJ enforcement priorities for 2021 and beyond. I’m very much looking forward to this discussion and to hearing Brian’s unique perspective on what we can all expect from the DOJ.

So let’s jump right into it. Brian, as you know, Judge Merrick Garland was recently confirmed by the Senate as Attorney General, in a fairly bipartisan fashion. Garland joins the DOJ after 24 years, most recently as Chief Judge of the D.C. Circuit Court of Appeals. What do you believe will be the key enforcement priorities for a Garland-led DOJ?   

Brian Blais: Thanks, Lisa. Let me just first say that I’m happy to be back at Ropes and I’m excited to speak with you today about the likely enforcement priorities of the new DOJ leadership. At his confirmation hearing, Attorney General Garland made clear that his first priority would be investigating and prosecuting those responsible for the January 6th attack on the Capitol. Now, that priority matches up pretty well with Attorney General Garland’s own background—as you might know, during his earlier time at the DOJ, Attorney General Garland was the lead DOJ prosecutor of those responsible for the Oklahoma City bombing in 1995, so he has a pretty deep well of experience with domestic terrorism. By all accounts, the investigation of the January 6 attack has been a massive law enforcement undertaking. I think something like half of the FBI agents in the Washington office have been devoted to this investigation, and the amount of evidence that’s been gathered in connection with this investigation—from search warrants, and from video surveillance camera footage, and from cell phone data—is just overwhelming. So it’s going to take a huge amount of prosecutorial and investigative time and effort to ultimately bring these cases to closure, and I think that’s worth noting because the law enforcement resources that are dedicated to this effort are necessarily shifted away from pursuing other priorities. So, it’s very possible that the sheer amount of time and effort devoted to the January 6th attack could delay or complicate the achievement of other DOJ enforcement priorities.

Lisa Bebchick: That’s a really interesting observation and not something I had really been focused on. Could you share with our listeners some of these other enforcement priorities you think are likely to be front and center?  

Brian Blais: Well Lisa, I think we can expect to see a sustained DOJ focus on combatting fraud related to COVID relief funds. Since the pandemic began, Congress has appropriated almost $5 trillion to COVID relief funding, and that includes nearly $1 trillion as part of the Paycheck Protection Program (or PPP), and COVID relief is one of the largest government spending programs ever. And obviously such substantial government outflows do create opportunities for fraud, and I expect that DOJ will continue to devote substantial effort to investigating and prosecuting fraud in these programs—and, you know, that is something that DOJ did do during the Trump administration. As an example, every U.S. Attorney’s Office was required to designate a COVID fraud coordinator and to provide regular reports up to main justice, and there were regular task force meetings about these topics—and there’s certainly no reason to think that a Garland-led DOJ is going to be any less aggressive in this area.

Lisa Bebchick: Could you talk about the type of COVID-related cases you expect the DOJ to be pursuing? 

Brian Blais: Sure. Prosecutions to date have mostly focused on low-hanging fruit, such as the blatant misuse of COVID relief funds. I think the prototypical example is somebody’s who is prosecuted for using PPP funds to buy a Lamborghini rather than to actually sustain his business, but I do think that the DOJ’s efforts will almost certainly not end with these kinds of low-hanging fruit-type cases. As an example, the DOJ just announced the first settlement of a False Claims Act case involving misstatements in an application for PPP funds. And I do expect that the DOJ will work closely with the Small Business Administration, which administers the PPP program, as well as the Special Inspector General for Pandemic Relief, to scrutinize the applications and the certifications that accompany these applications to obtain PPP and other COVID relief. And I do expect that the DOJ will be looking to prosecute not just the kind of outright misuse of COVID relief funds, but will also be looking for things like misstatements in loan applications; prohibited “double dipping,” which is when entities are improperly obtaining COVID relief funds from multiple government programs, which is actually explicitly prohibited; as well as looking for falsity in the necessity certifications, or entities that apply for COVID relief funding have to certify that the funds they’re obtaining are necessary for their businesses to survive, and I think there will be scrutiny as to whether those certifications are true. So I do expect we’ll see many more cases in this area, both on the criminal and civil side.

Lisa Bebchick: It certainly will be interesting to see how that all develops. But moving beyond COVID-related fraud given, I think, given our collective pandemic fatigue at this point, what are some other priorities you expect to see?   

Brian Blais: Well, Lisa, I hear you on the pandemic fatigue. I would expect that a Garland DOJ will substantially increase prosecution of financial and other white collar crime. It’s worth noting that white collar prosecutions dropped meaningfully during the Trump administration. There was a recent study that shows that the number of white collar defendants declined approximately 30% during the first three years of the Trump administration compared to where those levels were during the Obama administration. And in fact, in 2019—and this is before the pandemic—white collar prosecutions hit an all time low over the past 33 years. That sort of downward trend is almost certain to reverse in the coming years. 

Lisa Bebchick: Interesting. Why do you think that’s the case?

Brian Blais: Well, there’s a few observations as to why:

• First, periods of financial disruption often lead to an uptick in white collar crime prosecutions. Just as an example, there was a notable uptick in white collar prosecutions in 2010 and 2011 following the 2008-2009 financial crisis. And I would expect to see a similar uptick in white collar prosecutions in the coming months and years as the economy recovers from the volatility and disruption that was induced by the pandemic in the second and third quarters of 2020. In particular, I think we’ll see increased prosecutions really across all areas of traditional financial crimes prosecution—so, insider trading, accounting fraud, market manipulation, earnings management, and, in the asset management space, valuation and mismarking fraud.
• Second observation or thought is I expect we’ll see greater scrutiny of corporate wrongdoers and an increased focus on holding entities responsible for the criminal actions of their employees. So this raises an issue with respect to corporate fines, which is a general view that they ultimately penalize innocent shareholders who generally took no part in the misconduct. But interestingly, SEC Commissioner Crenshaw just recently gave a speech urging the SEC to reconsider its generally reluctant approach to imposing corporate criminal penalties, and it really will be interesting to see if the DOJ adopts Commissioner Crenshaw’s line of thinking and is more open to considering or pursuing corporate criminal fines.    
• Third observation is the SEC has always been a strong referral source to DOJ for potential criminal securities fraud matters. As you know, the SEC, during the Trump administration, had a pretty well-publicized enforcement focus on matters involving “Main Street, rather than Wall Street.” I think it appears that Gary Gensler’s nomination to be the SEC chair is progressing forward and there’s every reason to believe that the Wall Street focus will return to the SEC when it’s led by Gensler. He had a reputation as a fairly aggressive enforcer during his time as Chairman of the CFTC, and I think there’s every reason to believe that that aggressive enforcement posture will continue at the SEC, and as a result of all of this, I think the SEC will continue to be an important source of criminal referrals to the DOJ.

Lisa Bebchick: That brings to mind the Foreign Corrupt Practices Act. Perhaps to the surprise of many, under the Trump administration, the DOJ continued to levy and collect hefty fines for FCPA violations, including a record $3.9 billion penalty against European aerospace giant, Airbus. So what about the FCPA under this administration?

Brian Blais: Well, Lisa, you beat me to it. Yes, I do think that the FCPA will absolutely be an area of corporate-focused investigation that’s likely to remain a key DOJ enforcement priority in the coming years. During his presidential campaign, President Biden stated that combatting foreign corruption was a “core national security interest.” There is a dedicated FCPA Unit within DOJ’s Fraud Section and obviously it’s going to continue to investigate international corruption cases. So, picking up from your observation, it’s interesting that the five largest FCPA settlements of all time occurred within the last five years, despite some well-publicized statements by President Trump disparaging the FCPA. Nonetheless, given President Biden’s statements equating international corruption to a national security risk, I think it’s fair to say that we should anticipate an uptick in enforcement activity in this space, despite the fact that it was a relatively active area even over the last several years.

Lisa Bebchick: So what are some other likely priorities beyond increased prosecution of financial fraud and white collar crime? 

Brian Blais: Well, as has been the case over the course of the past several administrations, I think the DOJ is all but certain to maintain a sharp focus on combatting health care fraud. The government recovered over $2 billion from False Claims Act cases in fiscal year 2020, the large majority of which came from companies in the health care space or health care-adjacent spaces. And in fact, there were a record number of new False Claims Act filings in 2020, and those cases are poised to play out over the next several years. So there’s every reason to expect that enforcement activity in the health care and the life sciences space will remain as robust as it has been historically. Now, I would note that as in the past, many of the recent settlements in this space have focused on kickbacks or other inducements that health care companies have allegedly offered to practitioners to drive prescribing or other activity, whether through speaker programs, or copay assistance foundations, or other kinds of patient assistance programs. And I think there’s every reason to expect continued scrutiny in these areas, particularly as traditional face-to-face marketing activity ramps back up after the easing of pandemic restrictions—obviously there’s been a reduction in that kind of face-to-face marketing in light of pandemic-related shutdowns, but that will certainly ease as more and more of the population becomes vaccinated. Finally, I think health data privacy and security is also an area that’s ripe for increased investigative activity. Certainly during the pandemic there’s been an increased reliance on telehealth services and there’s been a proliferation of mobile health apps, and I think those together are ripe for increased scrutiny on the data privacy and data security side of things.

Lisa Bebchick: That makes a lot of sense and it seems like there’s quite a bit that the DOJ is going to be focused on. We are just about out of time—any final observations to share with our listeners about likely DOJ priorities? 

Brian Blais: Well, as I referenced earlier, I think one real challenge for the Garland DOJ will be the many competing demands on the resources available to DOJ leadership. In addition to the many corporate-related priorities I just discussed, there are a large number of Biden administration priorities that implicate the DOJ, many of which represent a sharp break from the priorities of the Trump Department of Justice—so those include things like environmental justice and the prosecution of environmental cases; civil rights and voting act cases; the ongoing fight against domestic terrorism, including as we talked about earlier, the January 6th Capitol attack; immigration reform and potential shifts in immigration prosecution priorities; potentially heightened antitrust enforcement; and criminal justice reform writ large, just to name a few. And putting aside even all these priorities, there’s a huge backlog of cases in the Department more broadly due to pandemic-related shutdowns, including a substantial trial backlog. So there will be a significant amount of prosecutorial time and effort in the near-term devoted to resolving these already charged matters, as well as moving along already opened investigations, so that leaves reduced prosecutorial bandwidth to advance any new enforcement priorities. So all of that’s to say, one big question for the Garland DOJ is: Can it do it all, or will these various competing demands lead to a natural prioritization of certain enforcement priorities over others? We’ll certainly have a better sense in the coming weeks and months as the remaining DOJ leadership is confirmed, as priorities get communicated, and as the first round of investigations under the new leadership start to launch.

Lisa Bebchick: And we will, of course, be following these developments closely and letting our listeners know about any material developments. Brian, thank you so much for joining me for this discussion—it really went by fast—and thank you to our listeners for joining us. For more information on the topics that we covered or additional perspectives on the new administration, please visit our Capital Insights website at ropesgray.com/capitalinsights. And of course, if we can help you navigate any of the topics we discussed, please don't hesitate to get in touch. You can also subscribe to this series wherever you regularly listen to podcasts, including on Apple and Spotify. Thanks again for listening.