Earlier this month, the Department of Justice’s (DOJ) National Fraud Enforcement Division (the Division) issued a new directive entitled “Corporate Enforcement in the Fight Against Fraud” (the Directive) to guide corporate enforcement actions by emphasizing four new areas of enforcement activity: (1) healthcare; (2) procurement, government contracts, and other government functions; (3) tax evasion; and (4) tariff evasion, importation of goods or services, and forced labor. This memorandum, authored by Assistant Attorney General Colin M. McDonald, directs Division prosecutors to take an “aggressive, all-tools approach to investigating and prosecuting” these new fraud priorities.
Key Takeaways
- Targeted Enforcement. DOJ intends to prioritize serious corporate misconduct while avoiding enforcement that unnecessarily disrupts legitimate business operations.
- Priority Industries. Prosecutors will focus on fraud involving healthcare, government contracting, tax evasion, and tariff evasion.
- Charging Decisions. Prosecutors will weigh factors such as management involvement, concealment, national security risks, the scope of the conduct, and financial harm.
- Whistleblower Incentives. DOJ plans to expand programs that encourage individuals, including those involved in misconduct, to report corporate fraud.
To achieve this goal, Assistant Attorney General McDonald set forth new principles to guide corporate enforcement generally, established guidelines to help the Division’s prosecutors exercise prosecutorial discretion in specific cases, and ordered the implementation of enhanced whistleblower programs aimed at encouraging the exposure of corporate fraud. Together, these steps indicate that the Division intends to ramp up enforcement actions in a targeted manner that reflects the priorities of the current administration.
The Directive provides specific guidance to prosecutors making charging decisions and negotiating resolutions in corporate fraud matters by emphasizing certain critical factors, including the knowledge and involvement of corporate management; efforts to conceal fraud or obstruct government oversight; conduct that threatens national security; conduct that involves the transfer of US dollars to support foreign adversaries; and conduct that involves immigration offenses.
Businesses operating in the healthcare, government contracting, and import/export industries should take particular note of these new developments and prepare accordingly. The Government Investigations & White Collar Defense group at McCarter & English, LLP breaks down what businesses in these industries need to know about the Directive.
- Striking a Balance: The Directive reiterates that DOJ will “zealously prosecute corporate actors that defraud taxpayers and the United States of America,” while also “guard[ing] against overbroad corporate enforcement—rightly dividing between shades of corporate malfeasance—lest we interfere with legitimate business operations.” This policy, which is in keeping with DOJ’s recent focus on the self-reporting of corporate wrongdoing, foreshadows a more targeted approach from the Division with respect to investigative and prosecutorial priorities. It further illustrates DOJ’s recent drive to reward self-disclosure and signals that DOJ is wary of over-investigation that stifles corporate operations.
- Centralized Direction: Assistant Attorney General McDonald reaffirmed the importance of the Corporate Enforcement Section, which was created earlier this year, as a conduit between the Division’s line prosecutors and the senior ranks at DOJ. The Corporate Enforcement Section is specifically charged with “ensur[ing] the consistent, fair, and successful prosecution of corporate crime across the Division’s entire fraud portfolio.” Going forward, the Division’s prosecutors must keep the Corporate Enforcement Section apprised of all ongoing corporate investigations. Further, the Corporate Enforcement Section will now have primary responsibility for overseeing compliance with any corporate criminal resolutions reached between the Division and targeted corporations.
- Targeted Industry Enforcement: The Division’s prosecutors are now directed to prioritize prosecutions in four specific areas, reflecting in large part the stated policy priorities of the current administration. These areas include healthcare, government contracting and procurement, large-scale violations of the internal and external revenue laws, and tariff evasion. While the Division’s general framework is likely here to stay, businesses should expect the specific priorities of the Division to change with any new administration.
- Focusing Prosecutorial Discretion: To aid the Division’s prosecutors when deciding whether to bring charges or accept a plea agreement, the Directive sets forth ten factors that must be weighed: (1) knowledge of or involvement in a fraud scheme by corporate management; (2) efforts to conceal fraud from government agencies or auditors or otherwise impede or obstruct a government function or oversight; (3) conduct that furthers the scheme lasting three years or more; (4) actions that threaten the safety or security of Americans, including military readiness; (5) conduct that causes substantial financial hardship to a taxpayer-funded program or government function; (6) conduct that affects multiple taxpayer-funded programs or government function; (7) conduct that affects three or more federal districts; (8) conduct that results in financial harm to twenty-five or more victims or losses of $25 million or more; (9) conduct that involves the exfiltration of American dollars to support foreign adversaries; and (10) conduct that involves immigration offenses.
- Promoting Whistleblowers: In keeping with DOJ’s recent trend in favor of the self-reporting of corporate wrongdoing, the Directive orders the Division and law enforcement to develop policies and programs that incentivize whistleblowers, even those who may have played a role in corporate wrongdoing, to come forward.
McCarter & English’s Government Investigations & White Collar Defense group is closely monitoring DOJ’s enforcement priorities. For more information, please contact the authors of this alert or the McCarter attorney with whom you work.