If feds find fraud using analytics, corporations better have found it first

To that end, the Justice Department strives to encourage companies to invest in compliance by developing clear guidance on how it handles various elements of white-collar crime enforcement, Miner told the audience of in-house counsel. At the same time, federal prosecutors are maximizing their own efficiencies by using data analytics to identify white-collar crimes, Miner said.

From healthcare fraud to the corporate sort

Miner mentioned success healthcare fraud prosecutors have had leveraging data analytics to identify fraud indicators in data on Medicare claims. “This use of data analytics has allowed for greater efficiency in identifying investigation targets, which expedites case development, saves resources, [and] makes the overall program of enforcement more targeted and effective,” he said.

The federal government is by no means limiting its increasing data savvy to the healthcare field. “We are now approaching enforcement, particularly in the commodities arena, around a data-driven approach,” Miner said. As with the Justice Department’s healthcare enforcement activity, Miner anticipates this broader use of data analytics to allow prosecutors to develop cases more efficiently and effectively.

“The reality is that the business community is different from many of the other organizations that get targeted for criminal investigation. Drug cartels don’t have chief compliance officers. Child pornography rings don’t have audit committees. The mafia doesn’t issue 8-Ks.”

Deputy Assistant Attorney General Matthew Miner

Miner puts corporate compliance on notice

“Trading data—whether in the commodities or securities arena—can identify similar indicators or anomalies that are suggestive of market manipulation and other fraudulent activity,” Miner maintained. And his motive for raising all of this is to put the corporate universe on notice, he acknowledged.

“The reason I mention our focus on data analytics in identifying cases is both to tout what we are doing, but also to let compliance-oriented companies in the securities and commodities trading space know that this is an area of focus,” Miner said. That the ones who tend to get this kind of data in real time tend to be the regulated community itself is a point that has not been lost on federal prosecutors.

“Whereas we are able to identify indicators and anomalies from market-wide data, companies have better and more immediate access to their own data,” Miner said. If the government has been able to find inappropriate behavior by looking at data, the companies generating that data better have found it, too.

“If misconduct does occur, our prosecutors are going to inquire about what the company has done to analyze or track its own data resources—both at the time of the misconduct, as well as at the time we are considering a potential resolution,” Miner said.

Understanding corporate thought processes

Miner, who oversees roughly 180 prosecutors in the DOJ’s Criminal Division, acknowledged the pushback that even well-intentioned executives promoting compliance initiatives are likely to receive from their corporate boards or other members of the C-suite. “One can imagine a general counsel, chief compliance officer, or even a consultant being questioned about the concrete value of such investments, especially if the perspective is that [the] Department will second-guess the adequacy of any program that allowed misconduct to occur,” Miner acknowledged in his remarks.

Ultimately, the federal government wants “companies to invest in robust and effective compliance programs in advance of misconduct, as well as in a prompt remedial response to any misconduct that is discovered,” Miner said.

At the same time, the opposition in-house counsel are likely to face when advocating greater compliance efforts might seem all too familiar to some. “One can imagine questions akin to, ‘Aren’t we going to have make these investments again, so why do them now?’ ‘Doesn’t this just increase our chances of finding a problem—what’s the point of doing more than the minimum?’ Or, ‘Isn’t the government just going to require a monitor, regardless of what we do in response to this mess?’ ” Miner said.

To that end, he said, the Justice Department has “sought to be transparent about our approach to compliance programs, developing guidance for Criminal Division attorneys to use that not only sets forth questions that can be used to probe a program’s adequacy, but also the underlying rationale for such questions—explaining what we’re seeking to get at and how compliance program adequacy factors into our decision-making,” Miner said.

What’s to come

On the DOJ’s plate right now, in addition to using data analytics to detect fraud, is the development of better guidance for prosecutors to assess corporations’ claims they are unable to pay a fine, Miner reported. Although the U.S. Sentencing Guidelines and the sentencing provisions of Title 18 “speak to this issue a bit, they don’t provide much in the way of concrete guidance or factors to consider,” Miner said. As such, the Justice Department is “considering whether there are ways we can provide our prosecutors with better guidance and tools to assess such inability to pay claims,” he continued.

For those who may be thinking what the world does not need right now is more government-issued guidance, think again. “Some may question why such guidance is necessary, asserting that we should expect the corporate community to want to do the right thing without prompts or incentives,” Miner acknowledged. “Although I understand that sentiment,” he continued, “the reality is that the business community is different from many of the other organizations that get targeted for criminal investigation. Drug cartels don’t have chief compliance officers. Child pornography rings don’t have audit committees. The mafia doesn’t issue 8-Ks.”

Lori Tripoli is a writer based in the greater New York City area who focuses on legal and regulatory issues.