Issue link: https://digital.shearman.com/i/1389983
15 THE RISKS OF CUTTING COMPLIANCE COSTS IN DIFFICULT ECONOMIC TIMES In statements at the end of March 2021, Daniel Kahn, former acting chief of the Department of Justice's Fraud Section and current deputy assistant attorney general, acknowledged that budget cuts and remote working protocols resulting from the pandemic pose challenges to companies' ongoing implementation of their compliance programs. Compliance programs may be seen as a significant source of corporate costs and thus a potential area for budget reduction as companies tighten their belts in the face of the economic pressures of the COVID-19 pandemic. Kahn emphasized, however, that companies should be wary of cutting compliance programs and that companies "need to assess whether their risks have changed before they try to cut compliance." Kahn stressed that budgeting decisions with respect to compliance programs should be risk-based, explaining "[s]imply because you're cutting ten percent of your sales force, that doesn't necessarily mean that your risk is ten percent less and therefore you should be cutting ten percent of your compliance program." As Kahn noted, financial difficulties are not an excuse for blanket cuts to compliance teams, and thus pandemic-related cuts to compliance must be grounded in sound risk management practices. He noted further that "[p]articularly in a pandemic, there are increased pressures on businesses. We expect the companies to be looking hard at that, determining where the risks are and addressing that." In assessing compliance violations, Kahn was clear that the DOJ will not be lenient on companies that engage in wrongdoing because of pandemic-related problems, stating there is no "COVID pass for misconduct." ARTIFICIAL INTELLIGENCE, COMPLIANCE PROGRAM REFORMS & DATA ANALYTICS AS AN INVESTIGATION TOOL Daniel Kahn's March 2021 remarks also touched on the impact of artificial intelligence data analytics on compliance programs, a topic we previously discussed in the July 2020 issue of Trends & Patterns. 6 In that issue, we focused on how the increased adoption of AI-based compliance technologies could set a higher bar for international compliance monitoring. AI data analytics technologies will likely continue to enjoy widespread adoption across the compliance industry, particularly in light of the DOJ's 2020 Compliance Guidance which emphasized that the agency would evaluate compliance programs in terms of their ability to adapt to changing risk landscapes. 6 See the July 2020 Trends and Patterns. Kahn noted that while such technology has been used to aid crime, it is also increasingly being utilized to detect and investigate crimes. Accordingly, there will likely be an increased focus on data analytics as a means of investigating and identifying wrongdoing, including, as promoted by the DOJ's Compliance Guidance, within an organization. The use of data analytics in a company's compliance program will allow officers to improve their ability to prevent and detect improper conduct. For example, platforms with improved data analytics will allow compliance personnel to better track employee training across time and regions, allowing them to tactically implement new training and training reviews as needs arise. In terms of detection, compliance officers can use data analytics to access, aggregate, and monitor internal data and thereby more easily flag improper conduct for remediation. Compliance officers should stay abreast of this technology as these tools will be equally available to government investigators—as Kahn explained: "[u]sing new technology, using data to identify and detect crimes, using data to help investigate crimes and using data from the compliance perspective I think is a trend that you should expect to continue to see." Kahn did not indicate what specific kinds of data the DOJ has been using or anticipates using in its compliance reviews. Ultimately, the increasing adoption of AI data analytics technologies across the compliance space is likely to raise the expectations of investigating authorities tasked with reviewing the adequacy of compliance programs and even empower their investigatory reach. FINCEN BENEFICIAL OWNERSHIP REGISTRY COMPLIANCE CONCERNS FOR FINANCIAL INSTITUTIONS The changing regulatory landscape and increasing concerns over individual liability attached to alleged corporate wrongdoing have driven the business community, and especially the financial sector, to seek clarity from FinCEN on how firms and their officers can meet their compliance burdens. The past few months have seen stakeholders request further guidance from the agency regarding the requirements of the upcoming beneficial ownership registry. In April 2021, FinCEN requested comments related to its upcoming beneficial ownership registry, a reporting mechanism promulgated under the auspices of the Corporate Transparency Act and the Anti-Money Laundering Act of 2020 (AML Act). Firms have generally welcomed this new resource, expecting that in addition to assisting law enforcement in its pursuit of criminal activities, the registry will also assist firms in meeting their know-your-customer requirements. Firms have asked that FinCEN, however, be mindful in implementing the