Brace for Procurement Compliance!

The Justice Department is launching a new task force to crack down on procurement fraud, so corporate compliance officers should brace for a new wave of interest in how your employees chat with rivals and approach bidding on government contracts. 

The dog and pony show happened in Washington on Tuesday, complete with a press conference and speeches by deputy attorney general Jeffrey Rosen and antitrust chief Makan Delrahim. The Antitrust Division will take point, heading a new Procurement Collusion Strike Force that will coordinate with 13 U.S. attorneys offices around the country. 

Rosen and Delrahim even rolled out a dedicated website for the Procurement Collusion Strike Force (PCSF), where people can review federal antitrust laws and  — here’s where a compliance officer’s ears should perk up — “report suspected criminal activity affecting public procurement.”

Rosen was top dog at the show, so let’s start with the obligatory statement from him about the pernicious nature of procurement fraud. “When government contractors collude with each other to rig bids for government contracts at the federal, state, or local level, it leads to artificially higher prices for those goods or services,” he said. “When the government has to pay those artificially higher prices, all American taxpayers are paying for it.”

Taxpayers can cheer Rosen’s words. Compliance officers, however, might notice that his tone is quite similar to what we’ve heard from Justice Department officials have said before to explain their vigorous enforcement of the Foreign Corrupt Practices Act: that corruption harms the public by denying them the best products or services they are paying to receive, and so governments have a duty to hold wrongdoers accountable. 

Now, has FCPA enforcement also turned into a money-making vehicle for the Justice Department, and a way for underpaid prosecutors to advance their careers when they go into the private sector? Sure. That doesn’t mean vigorous FCPA enforcement is wrong. One can’t help but wonder if Rosen just laid the cornerstone for a new structure that will do the same for procurement fraud.

Anyway, that’s the boss with the flowery language. Let’s get to Delrahim and the guts of how this strike force will really work.

Resources and Coordination

Delrahim sketched out several objectives for the task force. First, trial attorneys in the Antitrust Division will be assigned as liaisons to the 13 U.S. attorneys offices that are participating in the program. Likewise, each U.S. attorney’s office will also designate an assistant U.S. attorney as lead prosecutor for procurement corruption. 

The FBI will also dedicate special agents in each of the 13 districts to work with those prosecutors; and the inspectors general from the Defense Department, the Government Services Administration, and the Postal Service will also be watching from the sidelines, ready to send reinforcements when a procurement investigation touches their turfs. (One agency notably not prancing around in Tuesday’s dog and pony show: the Securities and Exchange Commission.)

Delrahim said one early priority for the PCSF will be to “conduct outreach to government contractors, their trade associations, and public contract lawyers in order to educate them” about possible violations, so expect these folks to show up at a legal or compliance conference near you soon. 

Fair enough; I’m always up for a good speech at a compliance conference. But sooner or later these teams will move to enforcing actual cases. The coordinated approach of expertise from the Antitrust Division and manpower at the U.S. attorney level could wrap companies in quite the web of enforcement. 

Then Delrahim had this to say about how the PCSF will find procurement cases to investigate: 

The Strike Force will work on ways to improve our use of data analytics programs to identify potential red flags of collusion in government procurement data. Many investigative agencies individually have made great strides on this front, and the PCSF will serve to facilitate collaboration and the sharing of best practices between these agencies. To that end, the PCSF is planning an interagency roundtable for early 2020 to bring together data scientists from across the law enforcement and Inspector General community.

Oh boy. This is reminiscent of deputy assistant attorney general Matthew Miner’s comments about data analytics two months ago. He warned compliance officers that the Justice Department is ramping up its use of data analytics to find fraud in the securities and healthcare fields — and that if the Justice Department can do analytics, it expects companies to use data analytics in their compliance efforts, too.

Well, Delrahim just echoed the first part of Miner’s statement: that prosecutors are ramping up their use of data analytics to find fraud. He didn’t echo the second part, that companies should do the same; but one wonders what Delrahim might say about the subject in another year, once the PCSF has some experience under its belt and that interagency roundtable is done.

Normalizing Procurement Enforcement

One can’t help but wonder whether the PCSF is the logical conclusion of several other changes to antitrust enforcement we’ve seen lately. 

In July the Antitrust Division released new guidance about how it would evaluate corporate compliance programs in antitrust issues. For the first time, that guidance included cooperation credit for companies that had “effective” antitrust compliance programs. That was a huge shift from prior policy that only awarded cooperation credit to the first company that reported collusion or related procurement fraud. 

At the time, Delrahim said the new policy of cooperation credit was intended as an incentive for companies to invest more in compliance efforts — including in antitrust, where previously your compliance program wasn’t worth squat unless your company was the first to report. 

Well, that was the carrot part of the metaphor. Now Delrahim is showing more of the stick: greater enforcement risk if you don’t take compliance seriously.

We might also notice that the Senate just passed legislation to enhance whistleblower protections for employees and subcontractors who report antitrust misconduct to the government. (The bill still needs action in the House.) And the PCSF just launched a website to solicit tips about misconduct from the public. 

So, clearly, enforcement risk for procurement fraud is going up. Delrahim is trying to give companies an out, in the form of more reward for taking compliance seriously — but that does mean companies will need to take procurement fraud seriously in their compliance programs: training, internal reporting, voluntary disclosure, data analytics.

Compliance officers have been here before with anti-corruption. The Justice Department’s move this week might be an expansion of what good corporate conduct entails, but the muscle memory for compliance programs to meet those expectations — that, you should already have.