Investigations to watch in a second term

Written by New York Times | Updated: Nov 9 2012, 07:05am hrs

In any election, new politics and policies are often debated in much detail. The impact of the presidential election on law enforcement will be more subtle, however, especially after there was little discussion about policing the markets during the campaign. The re-election of President Obama will result in less drastic changes than if Mitt Romney had won, but there will be turnover at several agencies. In addition, there is an inevitable reshuffling of positions as some senior law enforcement officials switch to lucrative posts in the private sector. This comes as law firms will happily pay top dollar for the access and credibility that a former official can bring.

A change in leadership at any given agency often has little effect, at least in the short term, on the day-to-day work in investigations and prosecutions. For example, the wide-ranging investigation of hedge funds that led to the conviction of Raj Rajaratnam, Rajat Gupta and a host of others for insider trading began under the Bush administration and came to fruition in October 2009. The change in the Justice Department leadership had no appreciable impact on the investigation.

I doubt there will be any new, sweeping investigations or legislation involving white-collar crime in the Presidents second term, barring another economic cataclysm or a hidden corporate fraud. Nevertheless, there are three topics I expect that the administration may address, or be forced to address, in the coming four years:

Foreign bribery

In a speech the day before the election, Lanny A Breuer, the head of the Justice Departments criminal division, said that the vigorous enforcement of the Foreign Corrupt Practices Act has been a signature achievement of the Obama administration. The government has aggressively pursued a number of cases, particularly against foreign companies, over paying bribes to government officials to obtain business in their countries.

Much like the insider trading investigations, the push against overseas bribery began under President George W Bush, but the Justice Department has made this a featured player in its corporate law enforcement efforts. More investigations are being pursued in industries that traditionally were not involved in corruption investigations, like pharmaceutical companies.

That aggressive approach seems to have ensnared a global bank. Barclays recently disclosed that the Justice Department and the Securities and Exchange Commission are looking at payments made in connection with securing a large capital infusion from Qatars investment fund in 2008. A number of government funds made investments during the financial crisis, so other companies and Wall Street banks may be in the cross hairs on this issue.

The question is whether there will be any pushback by multinational businesses swept up in inquiries. The United States Chamber of Commerce recruited in 2011 a former attorney general, Michael B Mukasey, to advocate for changes to the Foreign Corrupt Practices Act to make it more business friendly. But the recent case disclosed by the NYT related to bribe payments in Mexico by a Walmart unit seems to have derailed that effort.

The Justice Department has been promising new guidance on how it will apply the law, but nothing has been seen yet and any statement is unlikely to restrict its authority to pursue cases. The new Congress may be willing to consider potential changes to the law if a push from the Justice Department into new sectors causes companies to start lobbying for greater protection. A likely theme for any proposed changes would be that it would help create jobs by giving businesses more certainty, a claim that can be difficult to oppose.

Closing out the financial crisis

There have not been many prosecutions of institutions or individuals from Wall Street related to the financial crisis, and the prospect for any new criminal cases is dim. The latest tactic appears to be to repeatedly sue the banks involved in making questionable mortgage loans that were sold to Fannie Mae and Freddie Mac or guaranteed by the government.

There is a good chance the banks will start to push back against the onslaught of lawsuits. The Justice Department sued Wells Fargo for fraud related to loans it made that were insured by the Federal Housing Administration, and the bank responded by arguing that the $25 billion mortgage settlement reached earlier this year precludes further claims against it for the loans. A recent lawsuit seeking $1 billion in penalties from Bank of America over violations of the False Claims Act for loans sold to Fannie and Freddie may face problems because the two mortgage giants were not, at the time, agencies of the federal government.

Despite all the civil suits and the publicity about redressing fraud during the financial crisis, no individuals have been named in the recent cases. There is a reasonable likelihood that the cases will be settled with a payment and promise not to act improperly again. It would have been difficult for a Romney administration to turn the page on pursuing cases from the financial crisis because of his ties to Wall Street that generated suspicion about whether he would go soft on bankers. Mr Obama, on the other hand, does not have to worry about another election, and could just stop suing the banks over and over again if no individuals are going to be held responsible. There will always be a sense of frustration about the lack of prosecutions from the financial crisis, but at some point the government may decide its ready to move on.

Potential for scandal

The second term of a President seems to lead to some type of scandal involving possible criminal violations by administration officials. We have seen investigations and Congressional hearings over Watergate, the selling arms to Iran to fund the Nicaraguan contra rebels, a relationship with a White House intern and the disclosure of the identity of a Central Intelligence Agency operative. Will Mr Obama be embroiled in an issue of his own during the next four years We have already seen controversy over Operation Fast and Furious that led the House of Representatives to hold Attorney General Eric H Holder Jr in contempt, but that has not caught the publics imagination like other scandals have.

Unlike in previous investigations, the law authorising the appointment of a special prosecutor who can act independently of the Justice Department is no longer in force. But that did not stop Patrick J Fitzgerald, the former United States attorney in Chicago, from aggressively pursuing perjury charges against I Lewis Libby, the former chief of staff to Vice President Dick Cheney.

There is no way to know whether a scandal will erupt, or where it will come from. But if history is any guide, there is a good chance that white-collar defense lawyers will be called upon to represent government officials at some point in the next four years.

The author is a professor at Wayne State University Law School, and has published The Prosecution and Defense of Public Corruption: The Law & Legal Strategies