The Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Department of Justice (DOJ) have all issued 2020 guidance informing market participants about  evaluations and determinations by enforcement staff and prosecutors in conjunction with their respective enforcement actions. While the agencies differ in mission, an examination of the guidance finds common themes and approaches.

The steady stream of updated guidance this year represents a shift in federal regulators’ attention toward the adequacy of resources and funding that respondents devote to support compliance programs, as well as a respondent’s level of cooperation with enforcement staff. The broad nature of these new guidelines could potentially be used by agencies’ enforcement staff to punish firms for shortcomings outside the scope of the core violation.

This year, the CFTC’s Division of Enforcement (Division) has published three enforcement-related advisories that will be binding on Division staff and incorporated into the Division’s Enforcement Manual.

Updated CFTC Penalty Guidelines

In May, the CFTC updated[1] its 1994 penalty guidelines[2] by identifying three factors for enforcement staff to consider when recommending penalties to the Commission: (i) “the gravity of the violation”; (ii) “mitigating and aggravating circumstances”; and (iii) other considerations, which could include relief given in analogous cases and conservation of CFTC resources.  Furthermore, under the May guidance, enforcement staff may evaluate a firm’s compliance program as a part of the non-monetary terms of a resolution, including for remediation or other undertakings.

September CFTC Staff Guidance Regarding Compliance

Building upon the May update, in September, then-Director James McDonald issued staff guidance,[3] which outlined factors that should be considered when evaluating compliance programs in connection with non-monetary penalties. Specifically, the September guidance directed enforcement staff, when making those evaluations, to consider, among other things, whether the program was reasonably designed and implemented to detect, prevent, and remediate the misconduct at issue. The CFTC will also consider whether, once the respondent firm discovered any misconduct, the firm reviewed and modified the compliance program to address any deficiencies in the program.

CFTC Acting Director Letter Offers Clarity

Most recently, in late October, as part of a continuing effort by the CFTC to provide greater transparency regarding its approach to enforcement penalties, the CFTC published a letter[4] from the Division’s Acting Director to his staff.  The letter specifically notes that it does not represent a change in Division practice regarding how the Division will evaluate self-reporting cooperation or remediation, or how the Division will consider related reductions in penalties; rather, the letter offers clarity regarding particular levels of cooperation by respondents, aligned with language that will appear in CFTC enforcement orders depending on each respective respondent’s level of cooperation.

The four levels of cooperation noted are: (i) no self-reporting, cooperation, or remediation; (ii) no-self reporting but “cognizable” cooperation and/or remediation, which would be recognized, but without a reduction in penalty; (iii) no self-reporting but “substantial” cooperation and/or remediation, which would result in a reduced penalty; and (iv) self-reporting with substantial cooperation and remediation, which would result in a “substantially” reduced penalty.

DOJ Updates Compliance Program Guidance

The CFTC has not been alone in publishing enforcement related guidance.  The September CFTC guidance parallels the DOJ’s June update to its “Evaluation of Corporate Compliance Programs,” which was first published in February 2017.[5]  Notably, the June DOJ update reiterates prior statements of the DOJ that there are three key questions a prosecutor should ask when determining whether a compliance program is effective: (i) “Is the corporation’s compliance program well defined?”; (ii) “Is the Program being applied earnestly and in good faith?”; and (iii) “’Does the corporation’s compliance program work’ in practice?” The June guidance clarifies that in evaluating whether the program is being applied earnestly and in good faith, prosecutors should consider whether the program is “adequately resourced and empowered to function effectively.”

DOJ and SEC Update Guidance on Foreign Corrupt Practices Act

In July of this year the DOJ and the SEC published the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA Resource Guide).[6]  The FCPA Resource Guide is a consolidated manual setting forth the authorities’ guidance regarding the FCPA that has served as an essential resource for practitioners understanding the government enforcers’ views on the statute and approaches to enforcing it.  Among other topics, the FCPA Resource Guide outlines the “Hallmarks of Effective Compliance Programs.”  That discussion poses the same key questions that are contained in the June DOJ guidance.

Several similarities between the September CFTC guidance, the DOJ guidance, and the FCPA Resource Guide can be drawn. Each of the guides places an emphasis on compliance program elements such as well-defined policies and procedures, staff training and communications, internal reporting systems and investigations, adequate resources and independence for the compliance program, and appropriate remediation responses and disciplinary measures. Furthermore, each agency acknowledges that it will take firm-specific factors into consideration when assessing an organization’s compliance program. The CFTC will consider “factors such as the specific entity involved, the entity’s role in the market, and the potential market or customer impact of the underlying misconduct.”  The DOJ guidance takes into account “the company’s size, industry, geographic footprint, regulatory landscape, and other factors, both internal and external to the company’s operations, that might impact its compliance program.”  Finally, the DOJ and SEC’s FCPA Resource Guide recognizes that “there is no one-size-fits-all program.”

[1] U.S. Commodity Futures Trading Commission, “Civil Monetary Penalty Guidance” (May 20, 2020). https://www.cftc.gov/media/3896/EnfPenaltyGuidance052020/download

[2] See CFTC Policy Statement Relating to the Commission’s Authority to Impose Civil Money Penalties., [1994 Transfer Binder] Comm. Fut. L .Rep. (CCH) ¶26,265 (November 1, 1994).

[3] U.S. Commodity Futures Trading Commission, “Guidance on Evaluating Compliance Programs in Connection with Enforcement Matters” (September 10, 2020). https://www.cftc.gov/media/4626/EnfGuidanceEvaluatingCompliancePrograms091020/download

[4] U.S. Commodity Futures Trading Commission, “Cooperation Self-reporting and Remediation Recognition Guidance” (October 29, 2020). https://www.cftc.gov/media/5181/ENFSelfReportingRemediationGuidance102920/download

[5] U.S. Department of Justice, “Evaluation of Corporate Compliance Programs” (June 1, 2020). https://www.justice.gov/criminal-fraud/page/file/937501/download

[6] U.S. Department of Justice and U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act, Second Edition (July 3, 2020). https://www.justice.gov/criminal-fraud/file/1292051/download