The United States reported its first coronavirus death on February 29, 2020. Two weeks later, on March 15, the CDC advised against gatherings of more than 50 people. That started the chain of events that led to widespread lockdowns and nearly universal work-from-home. In the 18 months since the start of the pandemic, what’s the impact here on anti-corruption compliance and enforcement?
Compliance is notoriously tricky to measure. But a couple of statistics might help us understand what’s been happening.
First, look at new FCPA-related investigations. According to FCPA Tracker, since March 2020, companies and agencies have disclosed 13 new investigations. Three were first disclosed in September 2020, suggesting that companies either withheld reporting during the previous two quarters or only discovered their potential compliance problems some months after the start of the pandemic.
That makes sense. Most big companies were in survival mode earlier in 2020. They weren’t worrying about compliance. It was all-hands-on-deck to save the business. U.S. GDP fell an astounding 31.4 percent during February and March 2020 before snapping back in April. One economist described the Covid-19 recession as “a short and deliberate turning-off of aggregate demand.”
Significantly, since the final quarter of 2020, there’s been a steady flow of investigation disclosures. That reflects a typical level of business activity and accompanying compliance issues.
What appears more distorted is FCPA-related enforcement activity so far in 2021. From March 2020 to the end of December 2020, there were ten corporate FCPA enforcement actions. That’s an average amount of enforcement.
But in 2021, there have been only two corporate FCPA cases — Deutsche Bank AG on January 8 and Amec Foster Wheeler on June 25.
How can we explain the gap in enforcement so far in 2021?
A new president took office on January 20. There’s typically some slowdown in FCPA enforcement during Executive Branch transitions. But what about Covid-19? Has it slowed FCPA enforcement?
On March 30, 2020, the mayor of DC and the governors of Maryland and Virginia issued formal “stay-at-home orders.” Those orders weren’t loosened or lifted until at least late May 2020. In DC in July 2020, the mayor issued a new order requiring travelers from “high-risk” areas to quarantine for 14 days.
In other words, everything in DC was disrupted for most of 2020, including operations at Main Justice and the SEC. Corporate FCPA enforcement typically involves 18 to 36 months of back-and-forth between the agencies and the target company and its lawyers. Did the back-and-forth temporarily stop because of lockdowns and quarantines? Are we now seeing the result of that initial Covid-19 disruption?
What about unmeasurable parts of compliance?
Corporate approval processes evidently slowed when the pandemic dispersed workforces and forced them to operate virtually. That’s probably a good thing for compliance. It allows more time for those in the approval chain to reflect before acting, whether on new arrangements with intermediaries, reviewing reimbursable corporate expenses, examining accounts payable orders, and so on.
On the other hand, some aspects of due diligence changed for the worse. Site visits and in-person interviews stopped happening. Before Covid-19, those were considered essential elements of due diligence and risk assessment. Now they’re missing from the equation.
A final point. At the end of 2020, the FBI cited a 300 percent increase in reported cyber crimes. Triggering the cyber crimewave was data vulnerability because of workforce dispersal and work-from-home. Did big companies respond by placing new restrictions on internal data flow? Have those restrictions reduced the number of staff involved in reviewing, analyzing, and discussing due diligence?
So, has the pandemic been good or bad for anti-corruption compliance? The jury’s still out. Let’s keep an eye on disclosed investigations and wait another year or so for the feds’ enforcement record to emerge. We should then have enough reliable evidence to reach a verdict.