Changes in administrations often bring changes in law enforcement priorities. Whereas fines and prosecutions of white collar offenses declined under the previous administration, we can expect increased white collar enforcement under the Biden administration as new federal anti-money laundering laws take effect and new leadership is installed at the U.S. Department of Justice and other agencies tasked with federal criminal and civil enforcement.
National Defense Authorization Act Includes Sweeping New Anti-Money Laundering Measures
The National Defense Authorization Act (NDAA) became law on January 1, 2021. The annual defense bill passed over President Trump's veto, marking the first veto override of his presidency.
- NDAA - New Disclosure Requirements for Small
One of the most significant new tools afforded prosecutors under the NDAA is found in Section 6403 of the separately-named Corporate Transparency Act (CTA), which establishes new disclosure requirements for small businesses in the form of a nonpublic registry of beneficial owners. What could be viewed as a "crack down" on shell companies used for money laundering, the registry requires all "reporting companies" to submit a report to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) disclosing each of their "beneficial owners." The CTA defines a "reporting company" broadly to include a "corporation, limited liability company, or other similar entity" registered under state law, or, formed under the laws of a foreign country and registered to do business in the United States. Entities which employ more than 20 people, have a physical presence in the U.S., and maintain more than $5 million in gross receipts or sales are exempt. A "beneficial owner" is one who directly or indirectly "exercises substantial control" over, or who "owns or controls not less than 25 percent" of the entity.
- NDAA - Enhanced Whistleblower Incentives
Central to the NDAA is the Anti-Money Laundering Act of 2020 (AMLA), which equips prosecutors with a variety of new tools to curtail money laundering. Section 6314 bolsters the whistleblower incentives currently available under the Bank Secrecy Act (BSA). Previously, the BSA set a reward ceiling of $150,000. The Secretary of the Treasury now has the discretion to award whistleblowers up to 30% of the money obtained in actions where monetary sanctions exceed $1 million.
- NDAA - Increased Regulation of Virtual
Businesses involved in the transfer of funds must register with the FinCEN, however, businesses utilizing digital currencies have somewhat flown under FinCEN's radar. Not anymore. Section 6102(d) of the AMLA casts a wider net to reflect the proliferation of these currencies. For example, while the BSA already required money transmitting businesses and services to register with the Secretary of the Treasury, the AMLA alters the definition of these entities to include those that deal with "value that substitutes for currency."
New Priorities and Leadership at Justice Department
President Biden has promised a number of new enforcement priorities at U.S. Department of Justice (DOJ). First, expect increased DOJ Civil Rights Division activity. Additionally, expect the Biden administration to focus DOJ efforts more on environmental concerns; specifically look for the DOJ's Energy and Natural Resources Division and the proposed Environmental and Climate Justice Division to take a more active role in the DOJ. Further, it has been reported that the President may utilize executive action to mirror Senator Cory Booker's Environmental Justice Act of 2019. Look also to how the President's proposed Commission on Federal Ethics will operate as an independent agency. Not only may this Commission seek to increase transparency in the legislative and executive branches, but also expect the Commission to lead a more stringent review of lobbying activity. Also expect the new administration to continue efforts to diminish the effects of the opioid crisis. And of course, look for the DOJ to employ the National Defense Authorization Act (NDAA) provisions discussed above.
It has been said that "personnel is policy." The Biden DOJ transition team was led by Christopher Schroeder of Duke University. The President has nominated D.C. Circuit Judge Merrick Garland as Attorney General and will nominate former Obama Homeland Security Advisor Lisa Monaco as Deputy Attorney General. As Judge Garland awaits Senate confirmation, the President named a career official, Monty Wilkinson, to temporarily lead DOJ as acting attorney general. In addition, Nicholas McQuaid is expected to be named the acting head of DOJ's Criminal Division, which oversees federal white collar enforcement. President Biden has also named Dana Remus as White House Counsel. The full slate of nominees can be found here. FBI Director Christopher Wray will remain in his post in the new administration. Local changes are here as well. On January 4, 2021, United States Attorney Nick Hanna resigned as head of the U.S. Attorney's Office for the Central District of California and Tracy Wilkison will serve as the acting United States Attorney. Read the press release detailing the major accomplishments of Mr. Hanna's tenure.
Continued Enforcement of Paycheck Protection Program
The Paycheck Protection Program (PPP) will continue to be the subject of robust DOJ enforcement in 2021. As millions of small businesses applied for and received PPP relief, the DOJ created a team tasked with rooting out PPP fraud, and as of December 2020, over 90 individuals had been criminal charged, involving alleged losses of over $250 million. A number of factors will influence fraud enforcement: second-draw loans are now available; the recently enacted Economic Aid Act has altered lending terms for first-draw and second-draw loans; and the vast majority of small businesses have yet to apply to the Small Business Administration (SBA) for loan forgiveness. Because lenders were permitted to rely on borrowers' representations regarding their eligibility for loans, the SBA will retroactively determine eligibility during its loan forgiveness review. Expect far more referrals from the SBA to the DOJ's dedicated team and the SBA's Office of the Inspector General. Additionally, expect much of the DOJ enforcement to occur via False Claims Act (FCA) actions filed by relators. Enforcement under the FCA already has begun. For example, on January 12, 2021, the Eastern District of California U.S. Attorney's Office announced the first civil settlement involving alleged PPP fraud. Expect many more of these actions after borrowers obtain approval for loan forgiveness - thereby incurring taxpayer loss - in the coming year.
Justice Department Extends Ability to Pay Analysis to Civil Cases
In October 2019, the DOJ Criminal Division issued an internal memorandum detailing a legal framework for evaluating a business organization's assertion of inability to pay a criminal fine or criminal monetary penalty. As a result of the ongoing COVID-19 pandemic, in September 2020, the DOJ's Civil Division circulated an internal memorandum extending a similar framework to civil cases. The 2020 memorandum clarifies DOJ attorneys' authorization to compromise claims for money, and how to consider an entity's assertion of inability to pay. Entities bear the burden of persuading the DOJ that they cannot pay an otherwise appropriate amount to resolve an alleged claim or legal violation. The following factors are considered: (1) the entity's current financial condition; (2) the entity's access to alternative sources of capital; (3) the timing of payments; (4) the tax deductibility of any payments; (5) contingency agreements; (6) collateral consequences; and (7) third party liability.
California Department of Financial Protection and Innovation is Now Active
The new year also brings new state-level enforcement in the State of California. Assembly Bill 1864, which enacted the California Consumer Financial Protection Law (CFPL) and created the Department of Financial Protection and Innovation (DFPI), took effect on January 1, 2021. According to a January 4, 2021 press release, the DFPI is in the process of opening the Office of Financial Technology and the Division of Consumer Financial Protection, and it aims to hire 90 new employees over the next three years.
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