Deferred Prosecution Agreements with the Department of Justice (DPAs) have been a powerful tool of federal white-collar criminal enforcement for a number of years. At the same time, DPAs have been attacked from many sides – judges, elected officials and commentators – for being too lenient on companies and too frequently used in lieu of prosecutions of individuals, as I have discussed in recent posts (“Meet the Fokker: Continued Judicial Skepticism Toward Deferred Prosecution Agreements,” and “A Plant Grows in Brooklyn: EDNY Judge Scrutinizes Deferred Prosecution Deal”; see also “Courts Push Back Against Government Deals With Companies”).
In a series of recent speeches Assistant Attorney General Leslie Caldwell has given a thoughtful defense of DPAs, explaining the basic merits of DPAs (and Non-Prosecution Agreements, or NPAs), while also responding to critics of such agreements. In speeches at the ACAMS Anti-Money Laundering & Financial Crime Conference in March and at NYU on April 14 and 17, AAG Caldwell described DPAs and NPAs as “useful enforcement tools” that allow the Justice Department to “accomplish as much as, and sometimes even more than, [it] could from a criminal conviction.” She explained, “[w]e can require that the banks cooperate with our ongoing investigations, particularly in our investigations of individuals. We can require that such compliance programs and cooperation be implemented worldwide, rather than just in the United States. We can require periodic reporting to a court that oversees the agreements for its terms.”
In these speeches, AAG Caldwell has also emphasized the severe consequences of violating DPAs, in effect rejecting the claims of some people that the Justice Department has been too lenient on companies. AAG Caldwell warned that DPAs and NPA “have teeth.” “Let me be clear,” she said, “in the Criminal Division, we will hold banks and other entities that enter into DPAs and NPAs to the obligations imposed on them by those agreements. And where banks fail to live up to their commitments, we will hold them accountable.” Under the right circumstances, the government “will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.”
Recent experience suggests that the Justice Department is closely scrutinizing compliance with DPAs. Last year, the government extended the terms of agreements with Standard Chartered, Barclays Bank PLC and UBS Group AG, and more recently, extended a DPA with the medical device manufacturer Biomet , Inc. relating to Foreign Corrupt Practices Act violations. The 2012 Biomet DPA had a three-year term that could be extended at the government’s sole discretion for an additional year. While the DPA was pending, Biomet discovered, disclosed and remediated additional wrongdoing, but shortly before the DPA was scheduled to expire, the government extended the independent compliance monitor’s appointment for a year. In an 8-K filed last month, Biomet disclosed that it has been notified that the government “retains it rights under the DPA to bring further action against Biomet relating to the conduct . . . disclosed in 2014 or the violations set forth in the DPA.”
The government’s recent handling of two other DPAs and NPAs sheds more light on the government’s approach. In 2012, the Justice Department entered into an NPA with UBS relating to rigging inter-bank interest rates in London (LIBOR). Very recently, the Justice Department voided that NPA as a result of unlawful conduct by UBS subsequent to the NPA, which was discovered during an investigations of foreign exchange-rate manipulation. UBS was not required to plead guilty in connection with the foreign exchange rate investigation, but it will plead guilty to fraud in connection with LIBOR manipulation and pay over $200 million in a criminal fine, and over $300 million in civil penalties, to resolve the foreign exchange rate investigation.
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While this situation is somewhat unusual, in that the original NPA was pursuant to the Antitrust Division’s distinct amnesty program, the Justice Department’s voiding of the immunity agreement is consistent with AAG Caldwell’s observation that the Justice Department has many tools at its disposal if it suspects or finds non-compliance with the terms of DPAs and NPAs, including “impos[ing] an additional monetary penalty or additional compliance or remedial measures.” Recognizing that “not every breach of a DPA warrants the same penalty,” Caldwell expressed that the Justice Department is “committed to pursuing an appropriate remedy in each case, and  will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.”
The DPA with Commerzbank in March 2015 also illustrates the Justice Department’s interest in very stringent remediation and compliance requirements at the outset, which, in that case, included an obligation to submit reports concerning implementation every 90 days for the entire three-year term of the deferred prosecution. A criminal information filed in the District of Columbia charged Commerzbank AG with conspiring to violate the International Emergency Economic Powers Act and charged Commerzbank's[/entity] U.S. branch with multiple violations of the Bank Secrecy Act.
In short, DPAs and NPAs retain their appeal for companies facing the prospect of indictment and either litigation or a guilty plea, but more than ever companies and their counsel should understand that the going will not be easy – both during the life the agreement and, worse still, if the government finds a violation of its terms.
From The Insider Blog: White Collar Defense & Securities Enforcement.