FCC Enforcement Bureau Methods Under Intense Scrutiny
The FCC Enforcement Bureau’s recent run of forceful and unrelenting enforcement actions — largely attributed to the influence of Bureau Chief Travis LeBlanc — has led to a heavy dose of Congressional scrutiny over the past several months. While the Bureau has touted significant fines that have captured headlines, critics question whether the Bureau’s approach will successfully further its purpose of promoting a healthy, vibrant and competitive communications marketplace.
But the takeaway message for telecommunications companies is not as clear. Two different criticisms lodged against the FCC could have vastly different consequences for businesses.
First, leaders in the House and Senate from both parties are demanding answers regarding how the Enforcement Bureau both picks its targets and calculates its infamous multi-million dollar fines. They allege that the Enforcement Bureau has arbitrarily taken a tough stand and is painting with a broad brush, but leaving the industry with no margin of error. Which is all good and well when the “rules of the road” are clear. However, when the regulations are uncertain or, worse yet, “moving targets,” the rigid approach taken by the Bureau sends mixed and inconsistent signals to the marketplace — ‘we want you to dot every ‘i’ and cross every ‘t’ to avoid regulatory scrutiny and potential fines, but we won’t tell you where the words are, you just have to guess!’
Meanwhile, as a recent news report suggests, the FCC has failed to collect millions of dollars assessed in outstanding investigations, even as the regulator has raised the stakes for businesses found to be non-compliant with the agency rules. If this is indeed the case, it raises the specter that the FCC’s “headline grabbing” enforcement efforts lacks teeth.
The reality likely lands somewhere in between the extremes. Not all Enforcement Bureau actions are arbitrary, excessive or without merit. And not all fines go uncollected. Yet even this scenario creates a degree of arbitrariness that can negatively impact the market — when big fines against entities that can afford to pay the fines are enforced and collected, but the big fines against smaller entities are lodged simply to put them out of business (only to pop back up months later as a new corporation), it becomes easier to criticize the Bureau’s current policies. Indeed, that is precisely what Commissioner O’Reilly recently asserted in his partial dissent of a half million dollar fine against phone card provider, PTT: “Driving a business to the point of bankruptcy does, in fact, decrease the likelihood of collecting the forfeiture.”
Companies should be aware of the on-going debate about the efficacy of the FCC’s enforcement policies; you may even choose to weigh in through lobbying or regulatory filings. Until we see a material change in the current enforcement policies and practices, however, we urge all clients to focus attention on their compliance profile, because despite the intense criticism, we do not anticipate much to change until the leadership at the FCC and/or Enforcement Bureau changes. For the time being, Enforcement Bureau officials are not apologizing, Congress shows no interest in changing the law, and no enforcement action outcome is certain. So being forewarned is being forearmed — tread carefully!
On October 23, House Energy and Commerce Committee Chairman Fred Upton and members Greg Walden and Bob Latta sent a letter to the Government Accountability Office (“GAO”) calling for an investigation of the methodology of the FCC’s Enforcement Bureau. The Congressmen criticized the Bureau for performance metrics that appeared to be based on the number and monetary value of enforcement actions, rather than an overarching enforcement strategy based on established performance measures.
As the congressmen explained in the letter, they want to see greater transparency in the process of identifying targets of enforcement actions: “while the FCC has represented that it engages in an analysis of [consumer] complaints to identify and hold accountable the most egregious violators of the rules, the specifics of this analysis are opaque and its effectiveness unknown.”
The concerns featured prominently in an oversight hearing of the House Subcommittee on Communications and Technology held on November 17, when Chairman Walden opened the hearing with the suggestion that the “FCC is adopting and applying its rules in an arbitrary fashion.” Commissioner Pai agreed. “To be blunt,” Pai said in opening remarks, “the FCC’s enforcement process has gone off the rails. The FCC routinely asserts that companies have violated never-adopted rules, ignores facts that get in the way of good press, and plucks forfeiture amounts out of thin air.”
Two days after the hearing, a bipartisan group of Senators on the Senate Commerce Committee sent FCC Chairman Wheeler a letter requesting clarification on the role of the Enforcement Bureau. The line was similar. “[I]t appears that the [Enforcement Bureau] is more concerned with issuing fines and grabbing headlines than it is with ensuring compliant behavior with existing FCC rules,” the Senators wrote. Days after the deadline, Chairman Wheeler has not yet responded to the Senators.
Millions in Uncollected Fines Under Scrutiny
Adding to the pressure, Politico published a story on November 23 highlighting three cases where the FCC announced multi-million dollar fines against companies but never collected the money.
The article cited fines announced in three different Notices of Apparent Liability (“NAL”), official documents sent to companies serving as notice that the FCC has proposed to fine the company. A company can elect to pay the proposed forfeiture, which generally ends the case, or instead, the company may file a formal written response that denies liability and/or presents reasons why the forfeiture should be reduced. In the three cited cases, the NALs added up to $235 million, none of which the FCC has yet collected.
Enforcement Bureau Chief Travis LeBlanc defended the FCC’s tactics in a response to the Politico story published one day before the Thanksgiving holiday. LeBlanc explained that NALs establish the “maximum penalty” but that subsequent negotiations between the FCC and the NAL recipient can result in adjustments to the penalty amount.
In particular, LeBlanc noted that the Enforcement Bureau has collected 86 percent of the actual fines it has imposed over the last two years. He also reported that in 2015, the U.S. Treasury collected $100 million in fines.
LeBlanc also reported that the Enforcement Bureau has sped up by 60 percent the time taken between the issuance of a NAL and the resolution of the issue in a forfeiture order of the Commission.
For Now, Uncertainty Reigns
Telecommunications companies should continue to take Enforcement Bureau oversight seriously when they develop their compliance programs. Despite recent friction, there is no evidence that the Enforcement Bureau intends to change course in 2016. Congress, meanwhile, has not signaled that it will take specific action to curb Enforcement Bureau authority.
The cost of non-compliance can be significant. Businesses facing Enforcement Bureau scrutiny may not ultimately pay the amount printed on the initial NAL, but they can face fines that are nonetheless significant.
Ultimately, the future of FCC enforcement will depend on the policies of the next administration. Already, the November 17 hearing revealed the partisan nature of the debate over the role of FCC enforcement. At the hearing, the Democratic Commissioners – Chairman Wheeler and Commissioners Clyburn and Rosenworcel – each gave the Enforcement Bureau an ‘A’ grade for its work. In stark contrast, Commissioners Pai and O’Rielly, the Republicans on the Commission, were less enamored with the Bureau’s approach. Pai gave the Bureau a grade of ‘Not Passing,’ while O’Rielly offered a grade of ‘D-minus.”
To learn more about what to do when faced with an FCC investigation or enforcement action, click here, or contact Jonathan Marashlian at firstname.lastname@example.org.