Corporate fraud and corruption collectively costs businesses and economies hundreds of billions a year. It has the potential to damage reputation and brand, severely weaken business development, compromise efficiencies, and ultimately leave an irremovable stain on the corporate landscape. Seemingly ubiquitous, corporate fraud and corruption can wear many faces – be it insider trading, money laundering, embezzlement, fraudulent financial reporting, or misappropriation of corporate assets, among others – permeating every sector and industry, and in virtually every country across the globe. In an interview with Financier Worldwide Magazine, Navigant's Anne Marie Minogue shares her insights on corporate fraud and corruption for the Corporate Fraud & Corruption Annual Review 2019.
Q. To what extent have you seen a notable rise in the level of corporate fraud, bribery and corruption uncovered in your region in recent years?
One proxy for measuring corporate fraud and corruption in the U.S. is the dollar amount of fines imposed by federal authorities in recent years. Although monetary fines are increasingly common in the prosecution of fraud and corruption, statistics show a 20-year downward trend in the volume of federal white-collar crime cases prosecuted by the Department of Justice (DOJ). Moreover, the DOJ is annually prosecuting less than half the amount of corporate fraud cases that it prosecuted a decade ago. Despite decreasing prosecutions for federal white-collar crime and corporate fraud, in our opinion the decreases are not reflective of a downward turn in actual crime but rather a manifestation of competing enforcement priorities and diminished resources. Nonetheless, Foreign Corrupt Practices Act (FCPA) prosecution yielded more than $2.2 billion in penalties imposed across more than 40 total civil and criminal enforcement actions in 2018 by the Securities and Exchange Commission (SEC) and the DOJ, respectively. Statistics suggest an increasing focus on FCPA and False Claims Act (FCA) actions and a decreasing focus on criminal corporate fraud prosecutions. The information indicates that the DOJ focuses on the most severe cases of fraud and may opt out of prosecuting less egregious fraudulent behavior.
Q. Have there been any legal and regulatory changes implemented in your region designed to combat fraud and corruption? What penalties do companies face for failure to comply?
The most noteworthy regulatory change in the U.S. is the DOJ’s implementation of the FCPA Corporate Enforcement Policy (CEP). Essentially, the CEP is an extension of the previous FCPA Pilot Program’s incentives for voluntary self-disclosure of FCPA violations. The CEP creates a presumption of no prosecution where companies self-disclose violations, fully cooperate with government authorities, and appropriately remediate. Although not all are required to obtain the presumption, there is one conditional element of the CEP that must be met to secure a "CEP declination" – the corporation must disgorge its ill-gotten proceeds either in agreement with the DOJ or with the SEC. There are already several landmark instances of the CEP in action, showing the various avenues to obtaining the presumption of non-prosecution. For instance, the DOJ declined to prosecute Dun & Bradstreet because of its full cooperation with the DOJ, even though Dun & Bradstreet did not self-disclose the underlying FCPA violations. Nonetheless, all corporations that receive CEP-specific declinations from the DOJ, are still subject to disgorgement of all ill-gotten profits as a condition of the "declination."
Q. In your opinion, do regulators in your region have sufficient resources to enforce the law in this area? Are they making inroads in this area?
The U.S. has a robust framework of regulatory, administrative and enforcement agencies responsible for combating fraud and corruption. The SEC holds the power to investigate violations of securities laws, including fraud. If an investigation warrants it, the SEC’s Enforcement Division can recommend pursuit of a civil action in federal court or an administrative action. The Internal Revenue Service (IRS) Criminal Investigation (CI) investigates corporate fraud and will refer qualified cases for criminal prosecution to the DOJ. The DOJ’s Fraud Division and its investigative agency, the Federal Bureau of Investigation (FBI), investigate and prosecute corporate corruption and fraud in the US. While FBI resources have remained fairly constant, IRS CI resources have declined over the past several years. With the exception of the District Attorney of New York, local and state law enforcement investigations of these cases are few and far between. Nonetheless, it appears that several agencies are addressing reductions in resources for white-collar prosecutions by increasing their collaboration with both domestic and foreign law enforcement and implementing new technologies to detect and prevent corruption and fraud.
Q. What advice can you offer to companies on conducting an internal investigation to follow up on suspicions of fraud or corruption?
When conducting an internal investigation, a company should carefully plan the investigation before jumping in to examine the allegations. Proper planning can enable companies to protect confidentiality, guard against loss of evidence and prepare for potential problems. There are a number of important things a company should consider in investigative planning. First, to determine who should conduct an investigation, a company should consider independence, privilege, and expertise. Second, at the outset of the investigation, the investigative team should define and document the allegations and the scope of the investigation. Third, planning for potential problems that may arise can enable the company to better manage its outcomes. Finally, once an investigation is concluded, the company should determine the root cause of the violations, including identifying weakness in controls that allowed the activity to occur.
The U.S. Department of Justice is annually prosecuting less than half the amount of corporate fraud cases that it prosecuted a decade ago. Despite decreasing prosecutions for federal white-collar crime and corporate fraud, in our opinion the decreases are not reflective of a downward turn in actual crime but rather a manifestation of competing enforcement priorities and diminished resources.