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Trump’s “Draining the Swamp” Scorecard: One Year In

posted by Mitu Gulati

Donald Trump came into office promising, among other things, to “drain the swamp” and get rid of all that corruption.  One year in, how are things looking in terms of swamp draining? 

The following is based on work with my super co author, Stephen Choi, of NYU Law School.

To answer (at least partially) the question posed at the start, we have analyzed data on Securities and Exchange Commission (SEC) enforcement actions under the Foreign Corrupt Practices Act – the primary U.S. statute that gets at, among other things, bribes to influence foreign officials with payments or rewards. 

We report data that compares SEC enforcement actions against public companies and subsidiaries of public companies under the FCPA from both the final year of the Obama administration and the first year of the Trump administration. We focus on public companies and subsidiaries of public companies because these are the larger economic actors that affect the economy. The Department of Justice also has authority to bring actions, but there were 0 actions brought by the DOJ against public companies and subsidiaries of public companies during the period we examined (although the DOJ has brought several actions against non-U.S. reporting issuers including a number of prominent foreign companies).

Image1

Figure I, we think, speaks for itself. On the graph, actions brought during the Trump months (from January 20, 2017 to January 31, 2018—roughly Trump’s first year) are in red, those during the Obama months (January 1, 2016 to January 19, 2017) are in blue. As compared to SEC enforcement activity under the Obama administration, the SEC under the Trump administration, appears to have taken a pause from FCPA swamp cleaning activities. For those who saw our report on partial year information (up to the end of September 2017) here, some months ago – the story has only become clearer with the passage of more time).  

The data is from the Securities Enforcement Empirical Database (SEED),a collaboration between NYU and Cornerstone Research.  It tracks SEC FCPA actions from January 1, 2016 to January 31, 2018. SEED defines a public company as a company with stock that trades on the NYSE, NYSE MKT LLC, NASDAQ, or NYSE Arca stock exchanges at the start date of the SEC enforcement action (note that this includes both U.S. incorporated and foreign incorporated companies). 

There, of course, are caveats as to what else might be going on.

Image1

First, maybe the comparison of the final year of the Obama administration to the first year of Trump’s administration is not the right one. Maybe administrations take some time to get their ducks in order before they can begin swamp cleaning, and we should compare the first years of each.  Figure II, therefore, reports year 1 for Obama (January 20, 2009 to January 31, 2010) to compare with Trump’s first year (January 20, 2017 to January 31, 2018).  We obtain data on FCPA enforcement against public companies and subsidiaries of public companies from the SEC’s website. We find basically the same story. There were 10 SEC enforcement actions against public companies or subsidiaries of public companies in the first year of the Obama administration, five times the number in the first year of the Trump administration.

Second, maybe the sloth during the Trump years is really the fault of the Democrats, who have been slowing down the nominations of key Trump swamp cleaning officials. There certainly are indications that filling positions has been slow. The Commission at the SEC only achieved the full complement of five Commissioners on January 11, 2018. The question though is why. Is it because the Democrats have thrown up too many road blocks or because the Trump administration has different priorities? After all, the Trump administration seems to be getting nominations through at a remarkable pace where it wants them. In particular, check out the federal judiciary where Trump managed to appoint four times as many federal appeals court judges in his first year as Obama did in his first year; see here. Maybe FCPA swamp cleaning is just an area that the Trump administration is not as committed to? We will need more data to answer this, and we plan to be collecting and reporting it. We note that Charles Cain was appointed by the SEC as head of the FCPA Unit in November 2017 (after serving as Acting Chief of the FCPA unit since April 2017). So perhaps the SEC’s FCPA enforcement numbers will pick up over the first half of 2018. We will see.

Third, maybe the SEC is focused on different areas of the swamp (domestic rather than foreign perhaps?).  Best we can tell from other analysis of SEC enforcement activity though, the story of dramatically diminished enthusiasm for enforcement against public companies seems to be a general one (see here, here and here, for somewhat different perspectives).

Lastly, perhaps the SEC during the last year of the Obama administration was particularly zealous in its FCPA enforcement, clearing out many cases in the pipeline.  And it will take some time for the SEC to develop new cases.  One study found that the time from the initial disclosure of an informal SEC investigation to the conclusion of a SEC enforcement action can take 2 to 3 years.  We don’t know how many active SEC investigations the Trump administration inherited so it’s hard to judge the pipeline argument.  As time passes, however, into 2018, we think the pipeline argument becomes less plausible.

We plan to keep watching, and counting.

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