A hallmark of Chair Lina Khan’s tenure thus far at the FTC has been her effort to stoke fear to try to deter conduct that she does not like.  The FTC’s recent Penalty Offense Notices and the Enforcement Statement on Negative Option Marketing provide examples.  Last week, during the Commission’s open meeting on November 18 the Commission engaged in more sabre rattling by issuing a “Commission Statement Regarding Criminal Referral and Partnership Process.”  This statement outlines the FTC’s renewed commitment to continue to expand its criminal referral program.  At the open meeting, however, the Commissioners stressed that this is not a new policy and that the statement merely reflects what FTC Staff have already done for approximately the past 20 years.  Since 2003, the FTC’s Criminal Liaison Unit (CLU) has worked with federal, state, and local criminal law enforcement to refer those matters that implicate criminal activity.  On occasion, the FTC has even referred cases to international criminal law enforcement partners.

Chair Khan noted that the FTC is redoubling its efforts to deter corporate crime that most harms consumers because civil fines are not doing enough, and that major corporations are likely to be repeat offenders due to their resources and scale.  Also, Commissioner Slaughter mentioned that a lower stock price or a visit from the FTC are not the only things that these offenders should fear.  In other words, the Commission hopes that with the help of criminal law enforcement, a company will see the light of day that crime does not pay.

As the FTC refers cases of any size to criminal law enforcement and bolsters its criminal referral program, companies should become more cognizant of what may trigger a referral.  Based on some of the FTC’s more recent cases, the suspected criminal conduct may include:

  • Concealing information during an FTC investigation;
  • Committing consumer fraud;
  • Deceptively selling products by pretending to be affiliated with organizations (e.g., the government or identifiable corporations) in a telemarketing scheme;
  • Aiding and abetting wire fraud;
  • Not implementing an effective anti-money laundering program as a financial institution;
  • Engaging in activities that violate a pre-existing permanent injunction on both telemarketing and materially misrepresenting a service/product;
  • Falsely claiming an affiliation with the FTC and promising consumers that adverse information could be taken off their credit reports when it could not;
  • Billing entities (e.g., non-profits, for-profits, and municipal governments) for products not ordered; and
  • Coercing consumers to pay supposed debts with abusive or deceptive practices.

The diversity of cases shows that any FTC investigation with a hint of alleged criminal activity could be subject to a referral to criminal law enforcement.  A referral from the FTC does not guarantee that a busy prosecutor will pursue the case, but the policy serves as an important reminder of potential risks.  Only time will tell what cases get referred or prosecuted, and what if any impact this has in deterring corporate actors from crime.