Oh Lord: Trump’s Latest Enforcement Idea

The Trump Administration is creating a new Justice Department division to fight fraud in government funding. All you government contractors out there, tread carefully; this idea raises thorny legal and political questions and further undermines the Justice Department’s reputation for integrity.

Vice president J.D. Vance announced the news on Thursday, and said the new division will be led by a presidentially appointed, Senate confirmed assistant attorney general, equal in rank to the AAGs who already run the Civil and Criminal Divisions of the Justice Department. A White House fact sheet released later in the day said the division “will be responsible for leading the department’s efforts to investigate, prosecute, and remedy fraud affecting the federal government, federally funded programs, and private citizens.”  

The new AAG for fraud will also “help develop and set national enforcement priorities, and propose legislative and regulatory reforms as necessary to close systematic vulnerabilities and prevent future abuses,” and will advise the attorney general and deputy attorney general “on issues involving significant, high-impact fraud investigations.” 

Now comes the kicker. This new AAG, Vance said, will report directly to President Trump and Vance themselves — not the Justice Department. 

Translation: Vance and Trump are installing a political crony to weaponize the Justice Department’s fraud prosecution powers. Any person, business, or local government that received federal funds could then become a target if they draw the Administration’s ire.

Given that a huge number of businesses already do receive federal funds in one form or another, and face enforcement risk under the False Claims Act, compliance officers should watch this carefully. 

Wait; Can They Do This?

As a matter of policy and legal authority, yes they can. Vance said the Administration already has someone in mind for the AAG role, although he didn’t disclose who that person is. He also said Senate Majority Leader John Thune has promised a speedy confirmation process, although I’ll believe that when I see it.

Plus, even if this person’s confirmation drags on forever like a “Stranger Things” episode, Trump could always name some already-confirmed Justice Department official to the role in an acting capacity — say, a U.S. attorney bucking for promotion. Attorney general Pam Bondi could then agree to assign that person to the White House in some sort of secondment arrangement. 

By federal statute, the president is required to appoint 11 assistant attorneys general. Only one of those AAG roles (to oversee national security issues) is defined by statute; the president can structure the other 10 roles as he or she sees fit. Since Trump abolished the AAG for tax role last year, that’s the vacancy he could use to establish a new AAG for fraud. Then the deed is done.

Why Is the Administration Doing This?

That’s a lot less clear. Fraud happens, and of course it should be prosecuted; but fraud is either a civil or a criminal matter, and we already have civil and criminal divisions to handle those cases, as well as 93 U.S. attorneys across the country. If the Administration wanted to set some national standard for all jurisdictions, that can be handled by policy teams at the AG or deputy AG level. If it wanted to prioritize enforcement, it could establish a department-wide task force like it did in the 2000s to crack down on corporate accounting fraud after the Enron scandal.

In other words, there’s no need for an assistant attorney general just for fraud. It’s not some new type of misconduct prosecutors have never encountered before and doesn’t fit within existing enforcement structures.

Which leads us to the conclusion that this new role is more about political showboating and vindictive prosecution against Trump’s perceived enemies than anything else. 

Exhibit A for that theory is Vance, who said that this new AAG’s first job will be to prosecute the welfare fraud schemes making headlines in Minnesota. Those welfare schemes are certainly huge and long-running; prosecutors first started probing them under the Biden Administration and have convicted 62 people so far. Estimates of the total amount of money stolen range from $1 billion-plus to $9 billion or more, depending on which online conspiracy theorists you follow. 

Trump and Vance, however, keep emphasizing the Somali immigrant community and its role in the frauds. Why? Because targeting immigrants, and especially dark-skinned ones, is an easy lay-up for Trump and his political base. 

Obviously the fraudsters involved should continue to be prosecuted. But if the U.S. attorney really is short-handed on fraud prosecutors, the Justice Department can air-lift prosecutors from other states into Minnesota. From an enforcement standpoint, there’s no need to re-invent a whole new enforcement wheel here. 

From a political standpoint, however, for an unpopular president whose party may well lose control of Congress later this year, there is great incentive to re-invent a whole new enforcement wheel. Trump gets to look busy and target political opponents. From his perspective, why wouldn’t he do this?

So Why Should Compliance Officers Care?

Because there’s no guarantee that Trump and his new AAG henchman will stop at targeting welfare cheaters in immigrant communities in Democratic strongholds; that’s why.

As I mentioned earlier, if the legal basis for enforcement is going to be the False Claims Act — well, that law can apply to lots of businesses in lots of ways. Trump could then use that threat of enforcement to extract other changes in corporate behavior that he wants to see.

For example, if your organization provides social services to immigrants and relies on federal grants, you could be a target for investigation. If you’re a hospital system providing abortion or transgender care, you could be a target for investigation. Remember, according to Vance, this new AAG answers to him and Trump. We could come up with an endless list of possible targets, because Trump has said and demonstrated that he is happy to use the federal government’s vast powers to target his enemies.

I’d go even further. Another nutty idea the president declared this week was that defense contractors will no longer be allowed to use corporate money to pay dividends or buy back shares; and that CEO compensation can’t exceed $5 million.

Does Trump have the legal power to dictate corporate spending like that? Probably not. Could defense contractors challenge this order in court? Probably yes. 

But would you want to risk doing so, if you receive federal funding and are subject to the False Claims Act? When Trump is now appointing a Justice Department henchman who could use the False Claims Act as a pretext for, well, just about anything? 

That’s how this new AAG role could start to warp corporate governance decisions, tying your board and management team into knots we’d never allow in a more law-abiding era. 

What if you’re aware of a False Claims Act violation already; do you voluntarily self-disclose that now, with this new AAG for fraud waiting in the wings? Will he or she abide by the Justice Department’s Corporate Enforcement Policy, where you’re pretty much promised a declination if you do the right thing? Or might Trump order this henchman to screw your company over, when that suits his political purposes or soothes some narcissistic insecurity he has?  

Because, honestly, do we really think Trump won’t?