Congressional Oversight Powers Are Significant
Congressional investigations can be especially challenging because, in short, Congress has power to serve as investigator, judge and jury. This can be especially damaging given the possibility of “trial by Twitter.”
Congressional investigators have broad, plenary power to conduct investigations and may issue subpoenas for documents and testimony, as long as (1) the subject of the investigation is within a committee’s authority; (2) the inquiries are reasonably related to the committee’s broad subject matter area; and (3) the investigation is “pursuing a valid legislative purpose.” Wilkinson v. U.S., 365 U.S. 399, 408-409 (1961).
Congressional committees also exercise significant control over the scope of document and information requests. Many targets of investigations are surprised to learn that Congress is not obligated to recognize attorney-client privilege in the context of congressional oversight investigations. This is because attorney-client privilege and work-product protection are not constitutionally-based privileges, but rather are judicially created common law privileges. Each Congressional Chairman can decide on claims of privilege as a “matter of congressional discretion.”
Given the unique risks presented by Congressional investigations, an effective response to the government requires a strategic combination of litigation, negotiation, and advocacy, especially when an inquiry may involve multiple branches of government.
CARES Act Oversight Will Drive New and Expanded Fraud and Abuse Investigations
To combat fraud and abuse of its historic $2.6 trillion appropriation, the Coronavirus Aid, Relief, and Economic Security (CARES) Act established the House Select Subcommittee on Coronavirus Crisis, the Pandemic Response Accountability Committee (PRAC) and the Special Inspector General for Pandemic Recovery. In tandem with the Government Accountability Office (GAO), these congressional committees and agency investigators are empowered to scrutinize use of relief funds for legal permissibility and potential conflicts of interest.
Lessons can be learned from the 2008 Great Recession when Congress established the Troubled Asset Relief Program (TARP) to administer billions in aid to the financial services sector and granted oversight power to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). To date, SIGTARP investigations have led to 380 criminal convictions and civil penalties and 24 enforcement actions against prominent institutions led by the Justice Department (DOJ), the Securities and Exchange Commission (SEC) and other regulators. According to the Financial Institution Crimes & Fines Database, 300 defendants—including 76 bankers and 92 bank borrowers—have been sentenced to prison and more than $11 billion has been recovered.
Congress also established a congressional oversight panel for TARP—led by then Harvard law professor and current Senator Elizabeth Warren—which publicly scrutinized the actions of both federal funding recipients, regulators and agency officials. A Congressional Oversight Commission, co-chaired by a protégé of Sen. Warren who will be entering the Biden-Harris Administration soon, is undertaking a similar role.
Vulnerable Industries: Top Targets Under the Biden-Harris Administration and a Democratic-Controlled Congress
Democratic leaders in the Biden-Harris Administration have signaled plans to initiate and intensify government oversight on a number of industries, including:
- Stimulus Fraud and Abuse: Expect new fraud and abuse investigations, including oversight of recipients of $2 million or more in stimulus funds and companies with perceived ties to President Trump;
- Environmental Justice: The Biden-Harris Administration and Congressional leaders are both interested in targeting energy producers, extractors and others seen to be on the wrong side of environmental justice. These companies are at risk for new investigations and new enforcement actions. Foreign-based energy companies operating in the U.S. may be especially vulnerable;
- Pharmaceutical Companies: Drug companies face enhanced oversight related to COVID-19, pricing, antitrust, consumer privacy and other issues;
- Technology Companies: Investigations of technology companies will continue, including on issues related to platform liability, protections, antitrust and national security;
- Financial Service Industry: Concerns about consumers will drive robust agency regulations and Congressional investigations into banks, insurance companies and other industry players.
- Diversity and Inclusion (D&I): Companies doing business with the and those in regulated industries should prepare for increased scrutiny of their records on D&I, including from the House Financial Services Committee under the leadership of Chairwoman Maxine Waters (D-CA); and
- Chinese Investment in the U.S.: Prepare for intensified bipartisan oversight of companies owned or influenced by the Chinese regime in 2021. Congressional committees will be look at national security, technology, consumer data protections, human rights and other issues. Oversight by the Committee on Foreign Investment in the United States (CFIUS) will continue to be at play.
Exponential Dangers: The Interplay Between Congressional Investigations and Regulatory and Criminal Inquiries
Congressional investigations may drive additional regulatory and criminal oversight. Members of Congress may request that law enforcement agencies investigate potential misconduct. As a recent high-profile example, a senator called on the SEC to review suspicious trading by individuals and entities in advance of Eastman Kodak’s July 2020 announcement that the company received a $765 million loan from the U.S. government.
Congress may investigate alongside other criminal and civil enforcement authorities. These investigations—which cross multiple branches of government—often create significant risks for companies because of their high-profile nature and because agencies feel pressure to take aggressive postures when Congress has expressed interest in misconduct that falls within an agency’s purview.
Looking ahead, we expect a sharp increase in the number of new government investigations that concurrently involve Congressional, criminal and regulatory components. For example, public companies that received CARES Act loans or other relief may be subject to Congressional scrutiny (as discussed above), but are also likely to be targets of SEC investigations if they fail to adequately disclose the facts and circumstances surrounding their acceptance and use of government money.
Companies that improperly accepted CARES Act funds or knowingly made false or misleading disclosures to their investors in relation to government relief may also face criminal liability. We also expect campaign finance and potential violations of political law to be areas that are ripe for additional oversight and criminal enforcement.
In light of these substantial risks, individuals and entities which become the subjects of Congressional investigations must not only respond to Congressional investigative requests, but also must promptly assess and mitigate any related criminal and regulatory risks. When those risks exist, companies must assume that enforcement authorities will launch parallel investigations.
Companies must also walk a careful line by satisfying their obligations in the ongoing Congressional investigation while simultaneously ensuring they are protected from serious regulatory and criminal consequences.
Mitigating Risks: Three Steps Companies Can Take to Reduce the Risk of Congressional and Government Oversight
Companies concerned about potential legislative, criminal or regulatory investigations need not wait until they receive a subpoena or request for information to actively prepare for the possibility of an inquiry.
The following best practices—tailored to the risks of individual companies—can help companies mitigate the risks of a Congressional inquiry, parallel criminal and regulatory investigations:
- Conduct an Internal Risk Assessment: Companies should conduct an internal risk assessment with extra attention paid to the priorities of current and incoming investigators: risk for waste, fraud, or abuse of federal dollars, poor performance on diversity and inclusion (D&I) initiatives, and other vulnerabilities, including on compliance with political law.
- Update Compliance Policies and Procedures: Target companies should document their efforts to put compliance first, including implementing policies and procedures to meet legal and regulatory requirements. Updating compliance policies and procedures helps prevent incidents that attract Congressional attention and demonstrates a meaningful commitment to corporate social responsibility and a culture of compliance. Companies should also regularly assess whether their policies and procedures are being implemented as intended and document the results of that review.
- Prepare a Plan of Response with Legal Counsel: Now is the right time to prepare a privileged crisis management plan that identifies and documents responsible parties and the appropriate protocol for activating key legal, communications/PR and policy advisors. Investing in government affairs and good press relations before a problem arises is a sound risk management tool for helping prevent investigations and mitigating new ones.
Pillsbury’s public policy, white collar, and corporate investigations teams have deep experience successfully representing public companies, foreign investors, non-profits, and individuals in Congressional, criminal and regulatory investigations conducted by various federal and state enforcement authorities.