Deferred arrangements can relieve companies of painful convictions
The use of deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) have become increasingly common. As such, every corporate secretary and board member should be aware of the current trends and the common features of these agreements. A new research paper entitled ‘Betting the corporation: Compliance or defiance? Compliance programs in the context of deferred and non-prosecution agreements’ examines these pre-trial agreements by looking at 112 DPAs and NPAs entered into between 1993 and 2008.
The paper was written by Lawrence Finder, partner at Haynes and Boone in Houston and former US Attorney; Ryan McConnell, assistant US Attorney; and Scott Mitchell, CEO of the non-profit Open Compliance and Ethics Group (OCEG). This new work builds on Finder and McConnell’s ground-breaking 2006 paper, ‘Devolution of authority: The Department of Justice’s (DoJ) corporate charging policies’, in which they reviewed pre-trial agreements from 1992 to 2006. The updated paper extends the analysis to include 2007 and 2008, and pays particular attention to the business reform and the compliance program requirements that have been specified in detail by the agreements.
In this article, the authors sum up their research for Corporate Secretary and pin down what they consider to be the key findings.
Can you describe deferred and non-prosecution agreements? In a nutshell, what are they?
Finder: Both DPAs and NPAs are agreements between a particular DoJ component and a corporate entity to conclude a corporate criminal investigation. The label affixed depends on whether a charging instrument is filed. In a DPA, the DoJ files a criminal case, yet defers prosecution of the case provided that the corporate entity adheres to the DPA. With an NPA, no charging document is filed, but the investigation remains pending until the entity fulfills the terms of the NPA. The substantive result of both is the same: no criminal conviction for the company.
Mitchell: NPAs and DPAs look fairly similar, although the DPAs (for the most part) resemble documents that are filed with a court (paragraph numbers, case style and so on). An NPA usually takes the form of a letter from the particular DoJ component investigating the entity. Both agreements are signed by both the government and the entity.
Why should boards be aware of these agreements?
Mitchell: In short, these agreements tell us what the government will impose on an organization after misconduct is detected and pursued. Implementing these structures proactively can reduce the risk of misconduct in the first place; and in the event that future misconduct is detected and pursued by the government, they can improve the dialog when working with the government to resolve the issue.
Have these agreements become more common?
Finder: In 2008, we found that the US DoJ entered into 16 of these agreements. This was a 60 percent decline from the 40 agreements we saw in 2007. However, I do not think that we can make comparisons from year to year. What is clear is that these agreements are clearly more common than they were 10 years ago.
The last iteration of the Holder/Thompson/McNulty/Filip memo for the first time mentioned deferred and non-prosecution agreements by name. I don’t know if that suggests that there will be more or less of them. But it certainly institutionalizes the concept of deferred and non-prosecution agreements.
What are the most common types of violations that result in pre-trial agreements?
Finder: Last year violations of the Foreign Corrupt Practices Act (FCPA) remained the predominant subject matter addressed by these agreements, with seven of the 16, or 44 percent, resolving FCPA violations. In 2007 roughly a third of the agreements involved FCPA violations.
Was there anything new this year?
Finder: In 2008 we saw the first corporate pre-trial agreements resolving immigration work-site enforcement investigations into corporate targets.
Are there any common features to these agreements?
Finder: In 2008 every agreement contained some sort of corporate compliance reform provision. This was unsurprising because three-fourths of the 75 DPAs and NPAs entered into over the past three years have contained remedial compliance measures: 13 in 2006; 29 in 2007; and all 16 agreements in 2008. Similarly in the last three years, over 40 percent of the agreements have had compliance monitors: 10 of the 2006 agreements; 16 of the 2007 agreements; and 6 of the 2008 agreements.
Mitchell: Compliance programs are nothing new. A January 22, 2009 OCEG survey of 1,183 professionals indicated that over 89 percent of publicly traded companies have a compliance program. This year’s ‘Betting the corporation’ article looks at these compliance programs and business reforms through the lens of DPAs and NPAs as a result of a company’s criminal conduct.
Our results were interesting. Irrespective of the conduct involved in the investigation, we generally found compliance programs in DPAs and NPAs had the following features: a corporate compliance individual with dedicated resources who reports to the board or the CEO, not the general counsel; a code of conduct (ethics) and training program designed to teach employees about the code, including certification by the employees that they have received training; a system of internal controls and procedures monitored by the corporate compliance individual, and designed to ensure wrongdoing is discovered; and a hotline or email system, monitored by the corporate compliance individual, that ensures accurate and timely reporting of compliance issues without retribution by the employers.
What about monitors?
Finder: The research looks at the new DoJ policies pertaining to corporate charging, monitor selection, and extraordinary restitution, and the impact those policies have on DPAs and NPAs. For monitors, we generally found that, regardless of the criminal conduct involved in the case, monitors ordinarily had the following responsibilities: review documents and interview company employees and officers; monitor implementation of revised business reforms and internal controls and make appropriate suggestions; undertake internal investigations as necessary; make periodic reports which are certified by the monitor on company’s efforts under the DPA or NPA to the DoJ; and report additional company wrongdoing to the DoJ.
Finder and Mitchell’s article in its entirety complete with detailed charts and statistics may be downloaded at www.oceg.org/details/pre-trial-agreements-dpa-npa. In addition, an extended version of this research is forthcoming in Corporate Counsel Review, Volume XXVIII, No 1, published by South Texas College Of Law in May 2009.
This article represents the views of the authors only, not their respective employers.
