Though the COVID-19 pandemic has caused considerable upheaval to many businesses, regulators continue to press forward with investigations. In fact, the pandemic and the related CARES Act have ushered in additional oversight. Bass, Berry & Sims’ John Kelly and Allison Wiseman Acker explore these initiatives.
Companies are being required to consistently innovate and develop new approaches to their business models in the rapidly changing world resulting from the COVID-19 pandemic. Within this unprecedented landscape, government investigations have continued apace. Indeed, we anticipate enforcement will pick up through increased focus on pandemic-related conduct and the creation of new enforcement entities to scrutinize the way companies react to the crisis or manage receipt of COVID-19-related funds. This article provides a high-level overview of the growing enforcement landscape and investigation best practices required to navigate our new normal.
New Enforcement Authorities
The COVID-19 pandemic has ushered in several new authorities with directives to investigate pandemic-related compliance issues.
Section 15010 of the CARES Act created the interagency Pandemic Response Accountability Committee (PRAC). The PRAC operates within the Council of the Inspectors General on Integrity and Efficiency and is charged with conducting oversight of any COVID-19-related funds to “prevent and detect fraud, waste, abuse and mismanagement” and “mitigate major risks that cut across program and agency boundaries.” It may conduct audits of COVID-19-related spending, including randomized audits to identify fraud and ensure competition requirements for contracts and grants. The PRAC has the authority to conduct its own investigations, issue subpoenas for documents and testimony (including to private individuals) and hold public hearings. PRAC members include inspectors general from the Departments of Defense, Education, Health and Human Services, Homeland Security, Justice, Labor and Treasury; the Inspector General of the Small Business Administration; the Treasury Inspector General for Tax Administration; and any other inspector general selected by PRAC members. The PRAC will sunset in 2025.
Section 4018 of the CARES act created the Special Inspector General for Pandemic Recovery (SIGPR). The SIGPR is directed to conduct audits and investigations of the making, purchase, management and sale of loans, guarantees and other investments made pursuant to the CARES Act. It has subpoena power and $25 million in funding to carry out these responsibilities. The SIGPR will terminate in 2025.
The CARES Act also created the COVID-19 Congressional Oversight Commission (the Commission). This is a five-member bicameral congressional committee comprised of members chosen by the Speaker of the House, House Minority Leader, Senate Majority Leader and Senate Minority Leader, with the fifth member selected jointly by the Speaker of the House and Senate Majority Leader in consultation with the minority. Current members are Sen. Pat Toomey (R-Penn.), Bharat Ramamurti (former advisor to Sen. Elizabeth Warren (D-Mass.)), Rep. Donna Shalala (D-Fla.), and Rep. French Hill (R-Ark.). To date, no chairperson has been selected. The Commission, which terminates in 2025, is tasked with reviewing how the U.S. Department of the Treasury and the Federal Reserve Board manage the $500 billion in relief funds, including the economic impact of disbursements, transparency over how the money is disbursed and the long-term costs and benefits to taxpayers. It will report its findings to Congress.
To enforce Section 102 of the Defense Production Act, the Department of Justice created the COVID-19 Hoarding and Price Gouging Task Force (the Task Force). The Task Force will target market manipulation, hoarding and price gouging of health care items and other equipment that are designated by the Secretary of Health and Human Services as subject to hoarding. Once an item is designated, it is a crime to accumulate that item in amounts greater than one’s reasonable need or for the purpose of selling it in excess of prevailing market prices (see 50 U.S.C. §§ 4512, 4513). The Task Force is led by Craig Carpenito, the U.S. Attorney in the District of New Jersey, with the assistance of the Antitrust Division’s Criminal Program.
In addition to the foregoing new authorities, several existing authorities have committed additional focus, funding and personnel to COVID-19-related investigations.
The CARES Act directed the U.S. Government Accountability Office (GAO) to conduct a study on the loans, loan guarantees and other investments under the CARES Act Section 4003, and the Act provided the GAO with an additional $20 million in funding to do so. The GAO has already initiated inquiries related to nursing home COVID-19 infections and the payment of CARES Act tax rebates.
The Internal Revenue Service’s Criminal Investigation Division announced increased probes into suspected fraudulent claims for CARES Act economic relief payments.
The U.S. House of Representatives has several committees that have indicated an interest in COVID-19-related investigations or have already initiated inquiries, including the Committees on Oversight and Government Reform, Energy and Commerce, and Financial Services. The Oversight Committee, for example, has already initiated inquiries into respirator manufacturers, the pharmaceutical industry and travel insurance companies.
The U.S. Senate also has indicated it will conduct thorough oversight of CARES Act programs, led by Senate Banking Committee Chairman Mike Crapo (R-Idaho). The office of Senator Elizabeth Warren has taken a lead role in issuing information requests related to CARES Act spending and is likely to continue to do so, focusing on consumer finance issues.
The Federal Bureau of Investigation has indicated that it will prioritize investigations of COVID-19-related fraud, including investigations into fake COVID-19 treatments, consumer fraud and fraud related to CARES Act lending programs.
With states in various stages of closure and many companies limiting in-office work and prohibiting work-related travel, certain elements of internal investigations and responding to government investigations have become significantly more challenging, including:
Document Collection. Document collection is perhaps the element of an investigation most clearly impacted by the pandemic. While remote collection of electronic documents remains readily accessible, imaging personally held electronic devices – including cell phones – has become more difficult absent many attorneys’ and custodians’ ability to travel. Collection of hard copy documents is also noticeably more difficult with many employees working remotely and without access to their offices.
Custodian Interviews. While custodian interviews can move to an electronic format fairly easily, many companies are at risk of losing key institutional knowledge or access to custodians where they have been forced to lay off large numbers of employees.
Reporting Findings. At the conclusion of internal investigations or those initiated by government entities, companies may be required to report their findings to their board or the investigating body. This reporting will most likely need to occur by telephone or video conference. Companies will need to take extra steps to ensure the security of these connections, that no participant records the meeting and that no notes taken or documents shown to participants are disseminated.
Companies should employ the following best practices to mitigate the foregoing challenges and minimize risk:
- Conduct custodial interviews as soon as an investigation commences to determine where relevant documents are stored. If the company may be looking at personnel cuts, conduct a more thorough custodian interview as soon as possible to avoid losing access to individuals with key knowledge.
- At the outset of every video or telephone conference, remind participants of confidentiality and privilege. Be aware of and educate all attendees regarding the dangers associated with recording such conversations, including applicable wiretapping laws.
- Confirm with the company’s IT department all passwords, encryption and firewall protections to ensure hackers cannot infiltrate confidential video or telephone conferences.
- Consider screen-sharing key documents or findings during a video conference rather than sending electronic copies to minimize the likelihood that such documents could be disseminated. If sending findings via email, consider installing security measures on electronic communications that prevent them from being forwarded or screen-grabbed. Be sure to label all such documents with conspicuous “privileged and confidential” stamps.
- When responding to a government-initiated investigation, proactively communicate with investigators regarding document collection and review challenges and how those challenges might affect the ability to meet response deadlines. Engage in up-front discussions about how to narrow the scope of the inquiry in light of the logistical and timing difficulties posed by the pandemic.
- Relatedly, in advance of explicit settlement discussions, proactively communicate to investigators any changes in company financial status that may make paying a financial settlement more difficult or unlikely.
- Schedule regular updates with the board of directors or other company leadership to apprise them of the status of the investigation and to stay abreast of the way COVID-19 is impacting the company, particularly related to financial health and maintaining employees with potentially relevant knowledge.
- Consider engaging outside counsel to conduct investigations, particularly where the company expects the frequent need to engage with regulators.
As the way companies do business shifts to accommodate new realities around COVID-19, internal and government investigations are undergoing a parallel shift. In this rapidly changing time and with new and pre-existing enforcement agencies paying particularly close attention to business activities, companies facing current or future investigations must be particularly attentive to compliance best practices and ensuring the integrity of any investigation.