In response to COVID-19, in May 2020 President Trump signed Executive Order 13924 titled “Regulatory Relief to Support Economic Recovery.”
Section 1 stated in pertinent part: “it is the policy of the United States to combat the economic consequences of COVID-19 with the same vigor and resourcefulness with which the fight against COVID-19 itself has been waged.” Among other things, Executive Departments and Agencies (such as the Securities and Exchange Commission) were directed to commit to “fairness in administrative enforcement and adjudication.”
The Executive Order authorized the Director of the Office of Management and Budget (OMB) to issue guidance implementing the order which the OMB recently did in this memo. The OMB’s list of “best practices” include the following that are relevant to the SEC’s enforcement of the FCPA.
(a) “The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.”
- “Agencies should consider applying the rule of lenity in administrative investigations, enforcement actions, and adjudication by reading genuine statutory or regulatory ambiguities related to administrative violations and penalties in favor of the targeted party in enforcement.”
(b) “Administrative enforcement should be prompt and fair.”
- “Agencies should seek approval of an Officer of the United States, or if necessitated by good cause, his or her designee, before entering into a tolling agreement that would have the effect of extending the statute of limitations for an infraction.”
- “Agency regulations should apply limiting principles to the duration of investigations; regulations should require investigating staff to either recommend or bring an enforcement action, or instead cease the investigation within a defined time period after its commencement absent a showing of unusual circumstances that is endorsed by an Officer of the United States, or if necessitated by good cause, by his or her designee.”
- “If a party has been informed by an agency that it is under investigation, the agency should inform the party when the investigation is closed and, when the agency has made no finding of violation, so state.”
- “Agencies should consider and appropriately adopt estoppel and res judicata principles to eliminate multiple enforcement actions for a single body of operative facts. Simply put, an agency should have only one bite at the apple to investigate and seek enforcement against a regulated entity for a static factual predicate that is not a continuing or expanding violation.”
- “Agency employees’ performance metrics and compensation structures should incentivize excellence, accuracy, integrity, efficiency, and fairness in the application and execution of the law. Performance metrics should not detract from the aim of reaching fact-based, unbiased decisions with respect to all aspects of enforcement; employees should not be rewarded on any basis that incentivizes them to bring cases or seek penalties or settlements that are meritless or unwarranted.”
(f) “Penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law.”
- “Agencies should establish policies of enforcement discretion that decline enforcement or the imposition of a penalty, as appropriate, in the course of enforcement when the agency determines that the regulated party attempted in good faith to comply with the law.”
- “Agencies should make the public aware of the conditions in which investigations and enforcement actions will be brought and provide the public with information on the penalties sought for common infractions.”
- Agencies should adopt expiration dates and/or termination criteria for consent orders, consent decrees, and settlements that are proportionate to the violation of the law that is being remedied. Decade( s )-long settlement terms that are disproportionate to the violation(s) oflaw should be strongly disfavored absent a clear and convincing need for time to implement a remedy such as, e.g., infrastructure improvements or longterm remedial actions.”
- “Consent orders, consent decrees, and settlements should not bar private parties from disseminating information about their cases.”
- “If they have not already done so, agencies should establish procedures to encourage voluntary self-reporting of regulatory violations by regulated parties in exchange for reductions or waivers of civil penalties, including grace periods to cure minor violations without fear of penalty …”.
(j) “Agencies must be accountable for their administrative enforcement decisions.”
“Agencies should identify, collect, and periodically make publicly available decisional quality and efficiency metrics regarding adjudications under bureaucratic, judicial, and split enforcement models ( of adjudication), to include, e.g., the number of matters that have been pending with the agency over relevant time periods, the number of matters disposed by the agency annually, and data on the types of matters before and disposed of by the agency.”
The impact of the recent memo is an open question. For starters, it is a memo of “best practices” for consideration. Moreover, the SEC will likely claim that it already engages in many of the practices. Finally, the long-term viability of the memo is an open question given the upcoming election.