This is part 2 of the five-part series “Business and Financial Fraud: Yesterday, Today, and Tomorrow” with Tom Fox and the FCPA Compliance Report. During the series, Tom was joined by K2 Integrity experts Joanne Taylor and Ray Dookhie for a discussion of how organizations can identify and mitigate fraud risk.
What will the regulatory landscape look like for fraud in 2021? The change in administration should also bring a change in focus around areas of fraud risk. While the Trump administration was pro–Wall Street, the Biden administration is more pro-Main Street and pro-consumers. Corporate compliance officers in particular should be watchful, as the new administration is laying out ambitious plans for the next four years that will have certain implications for regulatory compliance. Many of the new agency heads have significant government experience and a history focused on enforcement, which point to an uptick in regulatory enforcement activities.
An earlier K2 integrity podcast explored the new National Defense Authorization Act (NDAA), specifically around the amendments to the Bank Secrecy Act (BSA). The Wall Street Journal reports that banks and financial institutions are looking for regulatory guidance around that law. Experts believe that the NDAA will be a bellwether around increased regulatory guidance in the Biden administration, and will also result in more regulation and guidance against terrorist financing, more protections for consumers, and increased regulation around cyber fraud and other potential frauds. It is also expected that the law will lead to an uptick in enforcement in a wide variety of areas—from the Foreign Corrupt Practices Act (FCPA) to environmental laws under the Environmental Protection Agency (EPA). Of course, the original Paycheck Protection Program (PPP) loans will likely be extended in some form and that could also lead to more fraud enforcement actions.
Looking at the Biden administration from a fraud risk and compliance perspective, conversations President Biden has had about racial equality, criminal justice reform, and certainly immigration laws may manifest in the strengthening of the Consumer Finance Protection Bureau (CFPB) and other government agencies, most particularly in the context of regulating corporations to prevent the under serving of certain communities.
Many of these trends can be tied to the nomination of Merrick Garland for Attorney General. Although the fight against domestic terrorism will be the top priority of the Biden Justice Department, Garland also talked about racial justice and equality as key initiatives going forward. Chief compliance officers (CCOs) should take note: Garland is a very seasoned veteran of law enforcement. This means conducting a thorough, buttoned-up investigation internally before presenting a case to the DOJ.
What actions should CCOs and fraud risk professionals take right now in response to these changes? Now would be a good time for companies to step back with a macro view of their fraud risk management program in the form of conducting a fraud risk assessment, testing controls, performing a gap analysis, and seeing if there are gaps that need to be remediated to be more in line with this new regulatory framework. Moreover, organizations need to refresh their thinking around what’s happening in the current environment and regulatory landscape. They need to understand the risk and exposures for their organization and the implications for their compliance program. And, as such, they need to do a detailed assessment and gap analysis of where their programs may be at risk and how to remediate those risks in a timely manner.