To align with the new U.S. stance on decriminalizing white-collar crime, the U.S. Securities and Exchange Commission (SEC) issued a policy statement outlining its approach to referring potential regulatory violations to the U.S. Department of Justice (DoJ) for criminal enforcement.
Last month, a presidential executive order aimed at combating alleged “overcriminalization” directed federal agencies to publish new guidance on factors considered when deciding whether to refer regulatory breaches to the DoJ.
The order, which challenges the long-standing principle that “ignorance of the law is no excuse,” declared that the U.S. is “drastically overregulated,” meaning no one could reasonably be expected to know what constitutes a violation.
“The purpose of this order is to ease the regulatory burden on everyday Americans and ensure no American is transformed into a criminal for violating a regulation they have no reason to know exists,” the order said, citing concerns that extensive regulation “can lend itself to abuse and weaponization by providing government officials tools to target unwitting individuals.”
The SEC published the guidance required by the order, detailing factors such as the harm caused; the potential gain by the alleged offender; whether the offender is a repeat offender, was registered or had specialized industry expertise; and whether they knew their conduct would cause harm. These are key considerations in deciding whether to refer a case to the DoJ.
These factors reflect the order’s mandate that “criminal enforcement of criminal regulatory offences is disfavoured” and that prosecutions should be reserved for defendants aware of the rules.
“Prosecutions of criminal regulatory offences should focus on matters where a putative defendant is alleged to have known his conduct was unlawful,” the order said.
Another factor in the SEC’s guidance is whether involving the DoJ “will provide additional meaningful protection to investors.”