United States: Preparing For Democratic Oversight Investigations

For the past several years, Republican majorities in the House of Representatives and Senate have dictated the agenda of Congress. But Democrats will take control of the House in January 2019, thereby regaining the ability to control committee and subcommittee agendas, hold hearings and issue investigative subpoenas.

Companies can expect the new Democratic majority in the House to employ these tools to vigorously pursue vastly different legislative and investigative priorities than Republicans. Indeed, Democrats such as Reps. Elijah Cummings and Adam Schiff have been vocal about perceived Republican efforts to thwart certain oversight committees' pursuit of various lines of inquiry, including the issuance of subpoenas. The Trump administration and companies doing business with the president are likely to be embroiled in oversight investigations, as are industries that have been targeted by Democrats in the past (e.g., pharmaceutical manufacturers, financial institutions, for-profit educational institutions, and oil and gas companies). Companies should anticipate, however, that House Democrats will launch a number of investigations beyond these likely candidates and should be prepared with a game plan for responding to a subpoena or other inquiry in the event they are impacted by one of these investigations.

Democratic Priorities

Congress enjoys authority under the Constitution to broadly investigate any matter as to which it can propose and enact legislation. As a result of that sweeping power, few companies or industries are beyond the reach of a congressional subpoena. Companies would be wise to look to a number of predictive sources when gauging their risk, including:

  • letter requests issued to companies by Democratic members of Congress;
  • Government Accountability Office (GAO) reports requested by Democratic members of Congress;
  • investigations being conducted by Democratic state attorneys general;
  • press releases or other statements identifying priority issues of the individual members of Congress likely to take over leadership of key oversight committees and subcommittees;
  • press releases or other statements touting the accomplishments of the Trump administration or identifying its anticipated priorities over the next two years; and
  • oversight letters from Democratic members of Congress to the Trump administration.

1. Letter Requests. The rules of the Senate and House permit committees and subcommittees to issue subpoenas for witness testimony and document production. Each committee has its own rules governing authorization and issuance of subpoenas; these rules generally require a vote of the majority of members of the committee and/or authorization of the chairman. Under these rules, the minority party does not have subpoena power. However, members of the minority party frequently send letter requests to companies, seeking information to increase the visibility of an issue and potentially convince the chairman or majority members that a thorough investigation should be conducted. Because Democrats had no readily available legal mechanism to enforce these requests while they were in the minority, companies should assume that Democrats will likely issue legally enforceable subpoenas demanding similar information beginning in January 2019 — particularly where companies have not responded to or otherwise mishandled the earlier informal requests.

During the past two years, Democratic members of Congress have issued scores of letter requests. Among other things, they have:

  • asked companies to provide information relating to potential "pay-to-play" arrangements with the Trump administration;
  • sent letters to pharmaceutical companies regarding health care-related issues such as drug pricing;
  • inquired into the banking practices of a number of financial services companies; and
  • asked social media companies to conduct investigations of potential interference in U.S. elections by foreign states.

Many of these letter requests have been sent to multiple companies within an industry, particularly when the issue being raised is an industrywide one. Democrats also have called on the Department of Justice, the Securities and Exchange Commission (SEC) and other federal regulators to either investigate or provide information to Congress regarding a number of companies.

2. GAO Reports. GAO is an independent, nonpartisan legislative agency that provides audit and investigative services to Congress. GAO investigates federal spending and federal programs, and assists Congress in making effective policy and oversight decisions. Any member of Congress — not just committee chairs or those in the majority — may request a GAO report, which often serves to provide talking points aimed at spurring a more thorough investigation and/or hearing. Although GAO's focus is on the federal government itself, many GAO reports implicate regulated industries and companies that participate in federal programs.

A review of GAO reports issued over the past year identifies a number of important trends. Although the majority of reports are released to committees or bipartisan groups of requesters, GAO has issued dozens of reports since November 2017 solely at the request of Democratic members of Congress. ( Click here to see a list of GAO reports between November 2017 and November 2018 that were issued solely at the request of Democratic members of Congress.) A substantial number of these reports focused on the health care industry, including reports concerning:

  • the decision to declare a public health emergency for the opioid crisis;
  • access to Medicaid in states with and without expanded eligibility;
  • the number and characteristics of rural hospitals that have closed in recent years;
  • open enrollment outcomes in the Affordable Care Act health insurance exchanges;
  • the Department of Health and Human Services Office of Inspector General's use of corporate integrity agreements and integrity agreements;
  • Medicare's market share for high-expenditure Part B drugs;
  • profits, research-and-development spending, and merger and acquisition activity in the pharmaceutical industry; and
  • the number and types of private health insurance plans available to federal employees under the Federal Employees Health Benefits Program.

Other topics that appear to be the focus of GAO reports requested by Democratic members of Congress include:

  • Trump administration programs and priorities (e.g., family separations at the border, deregulation, implementation of recent tax cuts);
  • education and student lending (e.g., federal student aid, public service loan forgiveness, school accreditation);
  • the mining and oil and gas industries (e.g., oil and gas lease management, coal mine reclamation, natural gas storage);
  • the financial services industry (e.g., lending to low- and moderate-income communities, large bank supervision, workplace retirement accounts);
  • climate change (e.g., SEC requirements for disclosures of climate-related risks, Department of Defense climate change adaptation planning); and
  • anti-discrimination and diversity issues (e.g., minority-owned businesses, diversity in the financial services and technology industries).

3. Democratic State Attorney General Investigations. While congressional Democrats have been in the minority for the past several years, more than 20 Democratic state attorneys general have continued to advance the party's agenda through investigations and enforcement actions. New York has been particularly active, using the state's expansive anti-fraud law and other regulatory tools to pursue investigations and lawsuits into a number of public companies. Among other active matters during the past year, the state has:

  • sued an oil and gas company for its disclosures relating to climate change;
  • issued subpoenas to trade groups, lobbying firms and advocacy organizations over allegedly fraudulent net neutrality comments;
  • pursued consumer protection issues across various industries; and
  • announced a number of multimillion-dollar settlements with financial institutions over allegations of misconduct.

Although New York has grabbed many of the headlines, companies also should look to the actions of other Democratic state attorneys general in assessing the potential investigative interests of the new House majority. For example, North Carolina and Massachusetts have launched investigations into a manufacturer and online sellers of e-cigarettes. (Massachusetts, like New York, also is investigating climate change disclosures.) New Jersey reached settlements with a number of oil and gas companies for alleged environmental damage caused by a gasoline additive, while Maryland's similar lawsuit against these and other oil and gas companies remains pending. Further, a number of state attorneys general have opened investigations into cybersecurity data breaches.

4. Committee Leadership Changes. Over the past two years, a number of key Democrats have accused Republicans of thwarting Democratic efforts to issue subpoenas and launch investigations into issues of concern to Democrats. For these Democrats, many of whom will be taking over critical oversight committees, the time has come to pursue issues they deem to be of particular importance. For example, Rep. Cummings, who likely will serve as chairman of the House Oversight and Government Reform Committee, has relentlessly pursued a number of consumer-facing issues such as drug pricing, along with protection of the environment and alleged fraud and misconduct by the Trump administration. Rep. Frank Pallone, Jr., who is slated to serve as the chairman of the House Energy and Commerce Committee, likely will focus on drug pricing, environmental protection issues, practices regarding the collection of consumer data by social media companies as well as preserving the integrity of the Affordable Care Act. Rep. Maxine Waters, who is in line to serve as the chairwoman of the House Financial Services Committee, is apt to keep her focus on banking practices, particularly given her critical views of the enforcement of the Dodd-Frank Act and the conduct of the Consumer Financial Protection Bureau under the Trump administration. Rep. Schiff, who is set to take over as chairman of the House Intelligence Committee, has expressed a clear interest in resurrecting an investigation into the Trump campaign and its alleged ties to Russia.

5. Trump Administration Accomplishments and Priorities. Democrats are expected to use their control of oversight committees and subcommittees to scrutinize the policy initiatives of the Trump administration. For example, President Donald Trump has repeatedly touted the passage of the tax bill, which, among other things, lowered the corporate tax rate from 35 percent to 21 percent. President Trump also has stated his desire to further reduce the corporate tax rate in the future. Democrats will do their best to oppose such efforts by shining a spotlight on provisions of the tax code that they perceive as disproportionately benefiting large corporations. As part of their efforts, Democrats may turn to corporations for documents and information and set public hearings where CEOs are called to testify and disclose the amounts saved as a result of such tax cuts.

President Trump also has taken steps to cut regulations that he argues diminish the growth of the U.S. economy. By way of example, he has taken steps to expand drilling in the Gulf of Mexico and the Arctic. Democrats have strongly denounced the Trump administration's environmental records and contended that changes at the Environmental Protection Agency have not only harmed the environment but also damaged how the U.S. is viewed around the world. Deregulation will likely remain a priority of the Trump administration and Democrats likely will devote substantial oversight efforts to identifying and publicizing any regulatory changes with which they disagree. Companies such as those in the oil and gas industry, which have benefited from the expansion of drilling, as well as those in the chemical industry, which have benefited from the relaxation of environmental safety standards, could find themselves wrapped up in efforts by the Democrats to scrutinize the president's deregulatory agenda.

6. Oversight Letters From Democratic Members of Congress to the Trump Administration. Democrats have been vocal about their frustration that oversight letters issued to various federal agencies have been ignored by the Trump administration. In 2017, the media reported that federal agencies were told by a White House lawyer not to cooperate with letter requests from Democrats. The Trump administration disputes this and argues that the Obama administration was both slow to respond and sometimes ignored letter requests from Republicans. Senate Democrats have sent a number of oversight letters that appear to remain outstanding and could have implications on the private sector if pursued. Such letters include requests seeking information regarding or relating to:

  • loopholes in the Buy American laws;
  • alleged malfeasance of agency heads (e.g., stock market trading activities, and conflicts of interest with private sectors such as oil and gas companies, Russian investors, and higher education companies);
  • the approval and construction of oil pipelines;
  • a list of all members of the Trump Organization's Mar-a-Lago club;
  • the release of visitor logs covering Mar-a-Lago and other Trump properties such as Trump Tower;
  • the protection of consumers from alleged conflicts of interest in the financial industry;
  • alleged Russian interference in the 2016 election;
  • drug pricing issues;
  • Americans' access to health insurance coverage information and health care enrollment issues;
  • the withdrawal of federal funding from sanctuary cities; and
  • automobile fuel economy emissions standards.

While the Democrats will no doubt focus on President Trump himself — his tax returns, family businesses, alleged dealings with Russia, alleged payments to Stormy Daniels, and the firing of James Comey and certain U.S. attorneys, among other issues — they are expected to also follow up on outstanding letter requests that likely will have a wide reach beyond the Trump administration itself.

Responding to Congressional Inquiries

Companies that have received letter requests from Democrats in Congress, or whose industry has been the subject of a GAO report or state attorney general investigation, should take affirmative steps to begin preparing for potential congressional investigations. For example, if the potential investigation concerns industrywide conduct, a company might assess whether to proactively make changes to policies, procedures or business practices that might address Democratic concerns, as Congress frequently has used these investigations to force industrywide changes. Companies also might consider identifying and reviewing documents that might need to be produced in the event of a congressional subpoena. Additionally, companies involved in acquisitions should consider assessing the risk of a congressional oversight investigation — which could impact the value of the acquisition — as part of its due diligence.

A congressional investigation could lead to a multiyear legal process involving not only the unwanted attention of congressional committees and subcommittees but also intense follow-on scrutiny by federal and state regulators, private litigants and the news media. Companies should consider predictive sources such as the ones described above and explore proactive changes that will assist them in the event of an industrywide investigation — either before Congress or by regulators and private litigants down the road.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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