Introduction
The White House, the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and other federal regulators are focusing more than ever on (1) cryptocurrency, (2) corporate misconduct, (3) tax fraud, (4) global money laundering, (5) corruption, and (6) national security. Federal regulators have announced new enforcement initiatives focused on these areas, demonstrating a notable shift in regulators' priorities and strategies. Accordingly, government agencies are expected to launch an increasing number of such investigations and enforcement actions in 2023.
The current trend toward increased enforcement poses particular risks for businesses involved in global commerce and the digital asset sector. The United States' devotion of such significant resources to enforcement in these areas signals long-term commitment. Businesses would be wise to make sure that their compliance programs are working as efficiently and effectively as possible to seek to avoid or mitigate regulatory and enforcement issues. That is particularly so following the collapse of the $32 billion crypto exchange FTX. As the adage goes, an ounce of prevention is worth a pound of cure. That appears to be the messaging emanating from federal regulators today, and we expect it to continue through 2023.
Expected priority areas in the year ahead
While federal enforcers and regulators have long been interested in illicit uses of cryptocurrency, corporate misconduct, tax fraud, global money laundering, corruption, and national security enforcement efforts, the Biden administration has placed more emphasis on these areas than ever before.
Cryptocurrency
Regulators have increased their focus on crimes within the digital asset space. For example, in late 2022, the DOJ announced the formation of the nationwide Digital Asset Coordinator Network of federal prosecutors. At the same time, the White House issued a fact sheet addressing enforcement in the digital asset industry, which (among other things) encouraged the SEC and the Commodity Futures Trading Commission (CFTC) to aggressively pursue investigations and enforcement actions against alleged unlawful practices in the digital asset space.
In light of the collapse of FTX and criminal fraud charges against its former CEO and others, this regulatory focus is expected to intensify. And it is expected to intensify further still given the precipitous drop in the value of cryptocurrencies in 2022 – the so-called crypto winter – when we saw the crypto market lose more than $2.2 trillion in value after reaching an all-time high of $3 trillion. These desperate times, the saying goes, may lead some in the industry to take desperate measures; and that concern will likely drive DOJ, SEC, and other regulatory investigations and enforcement actions in this space through 2023.
Corporate misconduct
The Biden administration has signaled increased enforcement in the corporate crime space. For example, in 2022, the DOJ issued a new corporate crime enforcement policy to much fanfare, which emphasized the importance of compliance programs and self-disclosure, as well as the need for individual accountability. In 2023, the DOJ released a new voluntary self-disclosure policy for corporate misconduct, offering companies significant benefits, including non-prosecution or a considerable reduction in a fine recommendation. We have seen evidence of increased corporate crime enforcement in 2022, and we expect more to come in the year ahead.
We think at least three areas will be subject to increased DOJ and SEC scrutiny:
- First, large-scale investment fraud. Concerns with the direction of the economy, and the challenges and opportunities that the current climate generates, may serve as an impetus for the DOJ and the SEC to probe, for example, investment firms for sales practices.
- Second, pandemic relief fraud. Initially, at the start of the government's COVID-19 relief efforts, regulators were focused on lower-level frauds – for example, clear falsehoods on applications for pandemic relief. We expect regulators to focus not only on more sophisticated corporate-level pandemic fraud but also on banks and other financial institutions that allegedly aided and abetted these frauds.
- Third, we expect continued regulatory scrutiny of businesses' supervision and retention of employee messages on personal devices. Increasingly, employees have begun using personal devices to conduct company business. For example, an employee might use their personal cell phone to send a business-related text to a colleague's personal device. When that happens, it can be hard for companies to identify, much less maintain, those communications. But that is the challenge confronting companies. The SEC and the CFTC have collected $2 billion in fines from enforcement actions in this area. And the DOJ recently (1) announced that it would take companies' performance in this area into consideration when determining an appropriate resolution following corporate misconduct, and (2) issued factors for prosecutors to consider when assessing a company's business messaging policies and procedures. Thus, all signs point to continued scrutiny through 2023.
Tax fraud
In 2022, legislation was passed that included $45.6 billion for tax enforcement activities, such as hiring a fleet of new enforcement agents – reportedly 87,000 of them. This activity is consistent with statements from President Biden himself, who has indicated that combatting tax fraud is a White House priority. The IRS, for its part, has signaled that it will focus on investigations involving digital assets, high-net-worth individuals, and corporate taxpayers in the year ahead.
Given these focus areas, we expect to see more collaboration between the IRS and other federal agencies, such as the DOJ. There appears to be significant overlap between DOJ and IRS priority areas, making agency cooperation more likely. For example, the DOJ's focus on corporate crime dovetails well with the IRS's focus on corporate taxpayers. In sophisticated white-collar investigations, it is sometimes the case that tax charges are the simplest to prove, and it may be that the government will attempt to leverage that reality in its broader effort to police corporate misconduct.
Global money laundering
In late 2022, the DOJ and the Treasury Department released a report indicating that global money laundering was a substantial concern, particularlyin the digital asset space. As part of the report, the DOJ recommended revising the Sentencing Guidelines for certain money laundering offenses to better reflect "the gravity of [Bank Secrecy Act (BSA)] violations that facilitate money laundering and other illicit activity." Notably, the report also stated that the Sentencing Guidelines should recognize that "organizations with weak or non-existent BSA policies and programs in the digital assets industry facilitate the illicit use of digital assets and allow criminals to cash out or otherwise profit from their crimes." In other words, it appears that the DOJ is particularly focused on scrutinizing company anti-money laundering programs through the lens of digital assets.
The above-noted report reflects a reinvigorated, digital asset-focused effort to deter corrupt actors and their facilitators who often rely on financial systems to hide the proceeds of illicit activities. The report's emphasis on company "policies and programs" should be taken as a call to review anti-money laundering policies anew, addressing any regulatory gaps and strengthening detection mechanisms domestically and abroad, especially with respect to digital currency
Corruption
The DOJ appears poised for an increase in Foreign Corrupt Practices Act (FCPA) enforcement in 2023. In 2021 and 2022, it appears that the DOJ resolved only 11 corporate and individual FCPA enforcement actions, though this relatively low number may be attributed to the pandemic. With the pandemic now largely behind us, many signs point to an uptick. For one, as to those FCPA matters that were brought in the past two years, it appears that there has been appreciable international cooperation. If that is a feature of this administration's approach to FCPA enforcement, it could bear much fruit going forward, as such cooperation tends to facilitate and expedite investigations. Other signs pointing to increased enforcement include, as noted above, the DOJ's revamped corporate crime enforcement policy, emphasizing selfdisclosure and the benefits that attach thereto, and the DOJ's expected guidance on the retention of business messages on personal devices (which might suggest that the DOJ has found this area to be problematic in current investigations, including those in the FCPA context).
Here too the takeaway is compliance, compliance, compliance. While the FCPA is a well-worn law, it is still able to generate new compliance challenges. That may be the situation that companies find themselves in today. Given the potential for increased international cooperation, companies should review their compliance policies and mechanisms here and abroad. And based on the DOJ's increased focus on compliance in general and messaging applications in particular, companies would do well to ensure that their policies and procedures cover employee usage of personal devices.
National security
In early March 2023, the DOJ announced that it will increase its focus on investigating sanctions and export control violations – "the new FCPA," according to Deputy Attorney General Lisa Monaco, in terms of the DOJ priorities and compliance expectations. What does this area entail? Consider a simple example. The United States has imposed sanctions on Russia. A company that seeks to circumvent U.S. export laws and send controlled goods to Russia would find itself in the teeth of a sanctions and export control issue. Now consider the permutations that this simple example can take and increase by several orders of magnitude. That is the enterprise risk that many companies face in this context.
This leads to a similar refrain: Compliance is key. Given this invigorated DOJ priority, companies that conduct cross-border work would do well to assess their risk profile in this area. Companies should consider their compliance apparatus through the lens of sanctions and export controls, and identify those heightened risk areas where procedures can be implemented to help ensure that controlled goods do not illegally make their way to sanctioned countries.
Next steps
Enforcers and regulators have made clear that they will seek to increase their enforcement efforts in 2023 to combat criminal misuse of cryptocurrency, corporate misconduct, tax fraud, global money laundering, corruption, and sanctions and export control violations. Businesses involved in global commerce and the digital asset sector must be conscious of this trend. Companies should expect a greater number of investigations and, potentially, the imposition of more significant penalties. In order to effectively deter and identify criminal conduct in these areas, companies at risk for violations should evaluate and enhance their compliance programs. An ounce of prevention now may avoid a pound of scrutiny and enforcement later.
This article is presented for informational purposes only and is not intended to constitute legal advice.