In last month’s feature from the Center for Compliance and Ethics, Alexander Dmitrenko analyzed the impact of COVID on compliance and ethics programs in Asia. Our view now turns to the U.S. As in Asia, U.S. compliance and ethics programs face challenges in conducting traditional risk mitigation activities in a post-COVID world. It remains to be seen whether pandemic driven changes will result in long term innovation or increased efficiencies for U.S. programs. Concerns also exist that program modifications in the face of the pandemic may fail to sufficiently address existing or emerging risks. U.S. enforcement trends coupled with uncertainty about changes to the U.S. regulatory requirements due to the pandemic have raised concerns that programs will be viewed as insufficient in hindsight. In addition, the U.S. government’s economic response to the pandemic – in particular, the infusion of significant government funds into the economy – has necessitated the rapid implementation of interim controls with little regulatory guidance raising concerns about enforcement activities in the wake of COVID.
Implications for Ongoing Risk Mitigation Activities
As a first step, U.S. compliance and ethics programs have revisited prior risk assessments based on the economic and societal disruption resulting from COVID. Compliance controls that were previously in place may now be inapplicable or overly restrictive in light of the pandemic. As an example, the challenge and importance of maintaining supply chains has resulted in urgent and legitimate needs to rapidly hire third party suppliers. Any changes to due diligence controls must be clearly documented and supported by robust rationales that will survive post COVID regulatory or enforcement scrutiny. The pandemic has also increased the importance of maintaining a strong tone from the top and integrating compliance and ethics teams into crisis management and ongoing business planning. Revisions to sales targets during a time of increased financial pressures also makes the participation of compliance and ethics teams in such decisions and clear management support more critical.
U.S. compliance and ethics teams have also been re-examining existing policies and procedures to determine whether policy changes or interim guidance are needed to address operational changes resulting from COVID. Compliance and ethics teams have also had to address increased requests for policy exceptions due to pandemic related disruptions. The importance of documenting robust rationales for any exceptions has been critically important. Without the benefit of in-person training, compliance and ethics teams have had to re-imagine training often relying on video formats or enhanced interactivity through existing training technology platforms. The pandemic has also impacted monitoring and internal investigations. Based on revised risk assessments, monitoring plans have been adjusted to reflect changes arising from the pandemic. Business activities that have been suspended or limited have resulted in shifting monitoring resources to other areas. In other instances, the nature of monitoring has changed. Live monitoring of business activities has been re-designing to address new and virtual business practices.
COVID has also had practical implications on conducting internal investigations. The challenges of conducting in-person interviews have put more emphasis on the upfront forensic analysis of data to prioritize and inform necessary interviews. Virtual and remote interviews present new challenges to the efforts of investigative teams to maintain confidentiality and efficiently conduct investigations. Sharing documents during an interview raises new technological and investigative issues. The collection of data and documents not only takes more time but likely involves accessing new systems and technology platforms. As a general matter, investigative teams have had to reassess investigative protocols, prioritize open investigations, and be flexible to ensure that investigations continue to progress.
Shifting Regulatory Requirements and Enforcement Priorities
The pandemic has also resulted in significant uncertainty related to regulatory expectations and enforcement. A complete analysis of these issues is well beyond the scope of this article. As an example, the Center for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) recognized the need for flexibility for the healthcare community to respond to COVID. As a result, CMS issued “blanket” waivers of the Stark Law, also known as the Physician Self-Referral Law. Similarly, HHS-OIG announced that it would exercise enforcement discretion related to the Federal Anti-Kickback Statute for remuneration related to COVID. As expected, these regulatory pronouncements failed to provide definitive guidance to the healthcare community. In response, CMS and HHS-OIG issued subsequent guidance and OIG established a process for “informal inquiries” to supplement its existing advisory opinion process. The U.S. Federal Trade Commission and the Department of Justice Antitrust Division provided new antitrust guidance and announced an expedited seven-day advisory opinion process for business collaborations responding to the COVID crisis. Collaborations in areas such as technology solutions to contract tracing are likely to be critical to addressing the pandemic. Despite these efforts, antitrust compliance programs are still faced with the challenge of helping competitors distinguish between procompetitive collaboration and illegal coordination..
In light of these regulatory and enforcement pronouncements, U.S. compliance and ethics teams are faced with managing the uncertainties created by such regulatory ambiguity and flexibility. This has required undertaking modifications to policies or other compliance controls as well as managing organizational expectations about the nature and duration of pandemic related regulatory changes. In other instances, the government’s response to COVID has resulted in new risks that require the development of new compliance controls. A significant example is the CARES Act and related COVID legislation providing trillions of dollars in emergency loans and government spending. Numerous regulators and enforcement authorities including the Department of Justice and the Special Inspector General for Pandemic Relief (“SIGPR”) have made clear that they will pursue actions to address fraud, waste, and abuse related to COVID relief funds. From a compliance and ethics standpoint, this has necessitated new controls including policies, procedures, and training to address how CARES Act and other relief funds are obtained and used. There is little doubt in the U.S. compliance and ethics community that these efforts will come under intense scrutiny in the post-COVID era.
Similar to many parts of society and the economy, U.S. compliance and ethics teams have adapted to COVID by shifting their priorities and adjusting their day-to-day activities. Although the short-term implications of the pandemic have emerged, the long-term implications are far from clear. Over the long term, U.S. compliance and ethics teams will examine these changes to identify opportunities to enhance the effectiveness of their programs. Similarly, business practice and operational changes that become part of the post-COVID “new normal” will result in ongoing changes to U.S. compliance and ethics programs. The impact of pandemic driven regulatory and enforcements approaches is far more difficult to predict. In light of historic enforcement trends in the U.S., the concern remains that risk mitigation strategies adopted during COVID will be viewed skeptically with the passage of time.
Professor Jon Smollen is a Practice Professor of Law and the Executive Director of the Center for Compliance and Ethics at Temple Law School. Prior to coming to Temple, Professor Smollen served as Executive Vice President and Chief Compliance Officer for Endo International, a global pharmaceutical company. He has also worked as an Attorney Advisor to Federal Trade Commissioner Thomas B. Leary.
Matthew J. Siembieda is a Partner at Holland & Knight, an Adjunct Professor at Temple Law School, and serves on the Advisory Board of Temple Law School’s Center for Compliance and Ethics. Mr. Siembieda focuses his practice on patent and trade secret matters, environmental issues, Office of the Comptroller of the Currency issues, commercial and securities fraud, insurance coverage, qui tam matters, taking claims, creditors’ and debtors’ rights, contract disputes, antitrust matters, cartel matters, and merger litigation.