More Details on Regulators’ Proposed Staff Cuts

The Justice Department has proposed trimming the number of Criminal Division prosecutors by 6 percent next year and overall division staff by 11.4 percent, according to the detailed budget the Trump Administration released earlier this week.

The SEC, meanwhile, wants to keep spending level at $1.6 billion but trim staff in almost all of its offices and divisions. Spending on IT improvements would take a hit because the fund allocated for that purpose would be eliminated.

What would those cuts mean for prosecution of corporate crimes and engaging with compliance officers? Right now, we don’t know. Congress has final authority to set the 2018 budget, and plenty of lawmakers on both sides of the aisle have already declared the Trump Administration’s plans dead on arrival. (Congress always says that of every administration’s budget proposal, every year.) Actual 2018 spending levels could be quite different from what was proposed this week.

Still, the Trump budget does lay down the first marker in what’s likely to be a long debate about spending priorities for fiscal 2018, which begins on Oct. 1. And that first marker is decidedly in the “less personnel” column.

Let’s start with the Criminal Division, which enforces everything from the Foreign Corrupt Practices Act to insider trading, money laundering, and other economic crimes dear to corporate compliance officers’ hearts. Spending actually would increase $819,000, or roughly 0.5 percent, to a total of $182.2 million. Headcount is a different story: total personnel would go from 768 staff to 680, total attorneys from 448 to 421.

The budget blueprint for Criminal Division does include a strategy statement that outlines its priorities. The top two are (1) disrupting and dismantling criminal organizations that act across borders and threated the public with violence, drug trafficking, and computer crime; and (2) supporting crime-fighting efforts across federal, state, and local governments.

No surprise there, given Attorney General Jeff Sessions’ insistence that violent crime is sweeping the country (except for a few specific types of violent crime in a few specific cities, it isn’t); and Sessions’ interest in rounding up and deporting every undocumented immigrant we can find.

The good news, however: economic crime is still in the mix, “by reducing fraud, money laundering, and other economic crimes, by both corporations and individuals.” The budget plan also says the Criminal Division plans no significant program changes—and if we were going to see something really radical, like disbanding the Fraud Section to let local U.S. attorneys prosecute all cases, we’d see it there. (If any ex-Justice Department people believe I’m wrong, please let me know.)

So at least for now, the standard-issue speeches that Sessions and his minions have been giving, promising to maintain enforcement of the FCPA and to cooperate with overseas law enforcement as well—they all remain in place. (Trevor McFadden, acting deputy assistant attorney general and the person in charge of FCPA enforcement, gave another such speech just yesterday in Brazil. More on that another time.)

Other Agencies of Interest

The Securities and Exchange Commission, meanwhile, has proposed staff cuts to virtually every part of its operations—not sweeping cuts, but nips and tucks across the whole agency. Proposed spending would remain essentially flat at $1.6 billion.

Staff in the Enforcement Division, for example, would fall from 1,362 this year to 1,329 next year. Staff in the Office of Compliance Inspections & Examinations would go from 1,083 to 1,055; and in the Corporation Finance Division, from 465 to 453.

The Advocate for Small Business Capital Formation, which didn’t even exist two years ago, would go from one person this year to six in 2018. It’s one of the only SEC offices slated for a personnel increase next year, and it’s also a telling indicator of new chairman Jay Clayton’s priority to help more small companies go public. (Never mind that many small companies don’t go public because they don’t want to, not because they can’t.)

The Public Company Accounting Oversight Board works on a Jan. 1 fiscal year, and given its independence from the federal government, we won’t see a proposed 2018 budget for that agency until later this fall. The 2017 budget is $268.5 million, and the PCAOB didn’t adopt it until mid-November 2016.

Personnel cuts are also the order of the day in other parts of the Justice Department that intersect with corporate compliance as well. The Antitrust Division will see cuts of 16.2 percent in total personnel and 11.8 percent in staff attorneys, along with a flat budget of $164.7 million. The National Security Division will see cuts of 7.8 percent in total personnel and 4.3 percent in staff attorneys, even as its budget increases by 6.6 percent to $101 million.

And the Office of Financial Research, tucked away in the Treasury Department to analyze systemic risks to the financial systems, is slated for spending of $75 million, down 25 percent from 2017 levels.

The bigger story at OFR are the painful personnel cuts: total headcount whacked 37.6 percent, from 223 to 139 people. Within the Research & Analysis Center, which does all the in-depth analysis to anticipate and forestall future financial crises, staffing is slated for 31 percent cut. Anyone in the banking industry who is looking to hire a few data analytics gurus, you might want to start there. Your risks won’t go away just because the Trump Administration wants to stop studying them.