Increased scrutiny for financial institutions

Plus ça change…

Talk of an increased focus on corporate criminal enforcement under the Biden administration may feel like nothing new for business and compliance leaders accustomed to ever-increasing emphasis on corporate compliance, anti-bribery compliance, and years of government scrutiny. Indeed, the Trump administration’s record of FCPA enforcement did not represent a marked departure from prior trends, notwithstanding occasional criticism of the law by Mr Trump and others.

FCPA enforcement continued apace during the past four years, and included several resolutions in 2020 involving the financial services sector. Among those was the October 2020 announcement that Goldman Sachs would pay more than US$2.9 billion to resolve criminal and civil investigations in the United States, the United Kingdom, Singapore, and elsewhere. During 2021 and beyond, financial services institutions should expect enforcement activity to grow for a variety of reasons, which we explore below.

Potential for continued DOJ focus on financial services

Recent enforcement activity, including by DOJ, indicates that the financial services sector will remain an area of heightened focus. DOJ investigations have at times followed an “industry sweep” pattern, under which one or more initial investigations in a particular sector are followed by additional investigations and enforcement action against other firms. This happens for reasons ranging from increased awareness of industry business practices, to refinement of investigative tools for identifying potential fraud in a sector, to the acquisition of direct evidence of potential misconduct by other firms in a given sector. If that pattern holds, additional investigations involving financial institutions may proceed or be initiated under Biden.

Desire to hold financial services firms accountable

Broadly speaking, a transition to a Democratic administration has the potential to produce greater enforcement activity involving corporate fraud, including among financial services institutions.

New enforcement personnel

Inevitably, new enforcement personnel – from top political appointees to line-level prosecutors and enforcement officials, including at DOJ and the SEC – will assume their roles with new perspective, energy, and a desire to bring meaningful cases. Assuming the confirmation of D.C. Circuit Judge Merrick Garland as Attorney General proceeds, companies should anticipate a focus on white-collar corporate crime, including in the financial services sector and beyond. Moreover, if confirmed as SEC Chair, Gary Gensler – a Goldman Sachs alumnus who later went on to pursue an assertive regulatory and enforcement agenda as chair of the Commodity Futures Trading Commission (CFTC) from 2009 to 2014 – can be expected to oversee robust enforcement by the SEC.

In short, several factors make it likely that anti-bribery enforcement in the financial services sector will grow during the next four years. But given the years-long lag between the initiation of an investigation and a public resolution, the full extent of the Biden administration’s early investigative activity will remain unknown for some time. For instance, a downturn or plateau in FCPA charges or resolutions in the immediate term may reflect a decline in newly initiated FCPA investigations during the Trump administration, or the impact of the COVID-19 pandemic in slowing global investigations.

Step up compliance

For all of these reasons, global financial institutions would be well-advised to ensure that compliance program enhancements are developed, implemented, and tested – both to identify and remediate compliance issues in the first instance, and to prepare for the possibility that an anti-bribery issue draws the attention of enforcement officials and requires the company to demonstrate existing compliance efforts.

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