2010 Federal Agency Enforcement Budgets Suggest Coming Increase in Regulatory Enforcement
On December 17, 2009, President Obama signed the FY 2010 Consolidated Appropriations Act, which includes the coming year's budget for the Department of Justice, the FBI, the SEC and other enforcement agencies. The new appropriations follow the EPA's budget, which the President signed in October.
The agencies' budget justifications and appropriation levels provide insight into their enforcement priorities and increased capabilities. The information strongly suggests that companies prepare for significantly increased federal government enforcement efforts.
Department of Justice
Preventing white-collar crime is one of the Justice Department's strategic goals. In its FY 2010 Budget Justification, the Department's Criminal Division sought an increase of 14 attorneys and $4,308,000 to combat public corruption, economic crime and procurement fraud. The Division noted that approximately 350 procurement fraud cases had been brought since 2006, and that the Fraud Section's pending caseload more than doubled between FY 2005 and FY 2008. In their FY 2010 Budget Justification, U.S. Attorneys similarly sought an additional 43 positions and $7.5 million to enhance fraud and public corruption enforcement efforts. In its FY 2010 Budget Justification, the FBI reported that mortgage fraud investigations against financial institutions more than tripled between FY 2003 and FY 2008, and stated its intention to maintain those efforts, as well as those related to corporate fraud, public corruption, health care fraud, insurance fraud and money laundering. The FBI sought an additional 143 positions and $25,491,000 for mortgage fraud and white-collar crime enforcement.
The new conference agreement reconciling House and Senate passed appropriations provides a total of $176,861,000 for the Justice Department's Criminal Division and $1,934,003,000 for U.S. Attorneys' Offices. The Managers' Statement accompanying the final appropriation explains that the U.S. Attorneys' funding "includes the programmatic request of $7,500,000 and 43 positions to enhance efforts in the areas of mortgage fraud, bankruptcy, affirmative civil enforcement, and white collar crime." The portion of the statement pertaining to the FBI explains that "[t]he conference agreement provides $75,158,000, including an increase of $25,491,000 and 50 new agents, for mortgage fraud and other economic recovery investigations."
Also of note is Criminal Division Assistant Attorney General Lanny Breuer's November 17, 2009 speech explaining that the Division planned to focus its Foreign Corrupt Practices Act (FCPA) enforcement efforts on the pharmaceutical industry's overseas business practices.
Companies can expect the Department's Civil Division to continue its vigorous enforcement of the False Claims Act (FCA). The Department announced in mid-November that it recovered $2.4 billion in FCA settlements and judgments in 2009 – not including criminal fines or the recent record health care-related FCA settlement with Pfizer for $2.3 billion. The Department claims to have recovered $24 billion since the FCA was enacted in 1986. Also in mid-November, Civil Division Assistant Attorney General Tony West announced expected new policies to implement new investigative and information-sharing provisions of the Fraud and Recovery Act of 2009 (FERA)1 that facilitate the issuance of Civil Discovery Demands and the sharing of information with whistleblowers and other government agencies.
The FY 2010 Consolidated Appropriations Act also includes budgets for financial services agencies, including the Treasury Department, Special Inspector General for TARP, the Treasury Department, FDIC and SEC. The Bill Summary includes an additional $151 million for the SEC in a list of "major increases." The Summary and the Managers' Statement accompanying the appropriation explain that the bill provides the following funding:
- $1.111 billion ($151 million above 2009 and $85 million above the request) to the SEC to strengthen and enforce rules that govern investments and financial markets and to detect and prosecute fraudulent schemes; funds will allow the hiring of another 420 investigators, lawyers and analysts, and enhance information technology investments to support SEC's mission
- $292 million ($33 million above 2009 and $4.5 million above the request) to the FTC to protect consumers and combat anti-competitive behavior
- $118 million ($13 million above 2009 and $11 million above the request) to the CPSC to implement consumer protection legislation enacted in 2008 in response to massive product recalls, including children's toys from China
- $23 million to support continued efforts by the Special Inspector General for TARP
- $30 million ($4 million above 2009 and $3 million above the request) to the Treasury Inspector General to help with mandated reviews in cases where bank failures or other circumstances caused losses to the deposit insurance fund
- $38 million ($10 million above 2009 and matching the request) to the FDIC Inspector General mainly for investigations related to bank failures.
- $4 million to the SEC Inspector General – a first-time independent appropriation to safeguard against unwarranted interference
Criminal Enforcement of Environmental Laws
In its FY 2010 Budget Justification, the Justice Department's Environment and Natural Resources Division sought a budget increase of $4.2 million, which includes funding for 10 new attorneys – two for civil enforcement and one for criminal enforcement. The document includes the following description of its criminal enforcement efforts:
Criminal litigating activities focus on identifying and prosecuting violators of laws protecting wildlife, the environment, and public health. These cases involve issues such as fraud in the environmental testing industry, smuggling of protected species, exploitation and abuse of marine resources through illegal commercial fishing, and related criminal activity. ENRD enforces criminal statutes designed to punish those who pollute the nation’s air and water; illegally store, transport and dispose of hazardous wastes; illegally transport hazardous materials; unlawfully deal in ozone-depleting substances; and lie to officials to cover up illegal conduct.
The document also explains that in FY 2008, ENRD's Environmental Crimes Section "successfully prosecuted 109 defendants, achieving a 95% success rate, and imposing criminal fines and penalties over $68 million."
The Managers' Statement from the conference version of the DOJ appropriation bill indicates that ENRD's request for a total budget of $109,785,000 was matched.
EPA's Budget Summary sought a criminal enforcement budget of $57.7 million "to complete its three-year hiring strategy of raising its special agent workforce to 200 criminal investigators."
EPA's FY 2010 Budget Justification (at p. 548 of 944) states that the six priority areas of the criminal enforcement program are as follows:
- National compliance and enforcement priorities
- Regional enforcement priorities
- Stationary source air cases
- High impact cases based upon specific criteria
- Repeat or chronic civil noncompliance
- Import/export violations2
It also states EPA's intention to coordinate its criminal and civil enforcement programs through a regional case screening process to determine whether to pursue civil or criminal enforcement options.
The EPA appropriation's conference summary indicates that the agency's $10.3 billion budget is $2.7 billion above its 2009 level. A summary of the House-passed version of the bill mirrors the agency's enforcement language and includes $601 million (equal to the President's request and $34 million above 2009) "for effective criminal and civil enforcement, and to fund additional staff to allow EPA to meet its statutory requirement to have 200 criminal investigators."
It is now evident that federal law enforcement agencies will have significantly increased resources to investigate and prosecute perceived fraud, public corruption, environmental crimes and other "white-collar" offenses. Companies can expect to see increased criminal and civil fraud enforcement efforts. As a result, firms should review their compliance and ethics programs to ensure that they are effective, properly implemented and sufficiently resourced. As more federal (and many state) agencies are moving to mandate compliance and ethics programs, including mandatory disclosure of wrongdoing, these now required programs provide the most effective way to protect against the rising tide of regulatory enforcement risks.
1 For additional information about FERA, please see the following items prepared by Holland & Knight: “The ‘New’ Civil Investigative Demand: Congress Pushes for More Aggressive False Claims Act Investigations,” December 2, 2009; "False Claims Act: Wave of the Future," October 2009; "President Obama Signs Landmark Anti-Fraud Bill Into Law," May 26, 2009; and "The Expansion of the Civil False Claims Act Under S. 386," March 16, 2009.
2 EPA's website explains the agency’s role in enforcing a variety of laws and regulations that govern import and export of materials that may pose a risk to human health and the environment, including vehicle equipment, fuels, ozone depleting substances, hazardous chemicals regulated under the Toxic Substance Control Act, pesticides, hazardous waste, lead plumbing products and radioactive scrap metal.