In recent years, the DOJ has increasingly turned to Deferred Prosecution Agreements (DPAs) or Non-Prosecution Agreements (NPAs) to affect corporate reform and compliance by companies facing criminal prosecution. The numbers prove this point. In 2002, the DOJ entered into just two such agreements, but the number has increased dramatically since then. Indeed, the DOJ effectuated 30 such agreements in 2015, 28 in 2013, 38 in 2012 and 34 in 2011. The fact that the DOJ has entered into so many DPAs and that courts have accepted them as resolution of a corporation’s potential criminal liability may reflect an understanding by the DOJ and courts that companies are operating in an ever more complex environment laden with legal obligations and the difficult task of policing their employees’ conduct worldwide. The growing number of DPAs and NPAs may also reflect the growing number of DOJ criminal investigations of companies and the difficulties that the DOJ faces in prosecuting companies found to have violated federal law. Whatever the reason, DPAs and NPAs are an important weapon in the DOJ’s arsenal to police corporate misconduct.
But recent actions by the DOJ and courts may suggest that the terms of DPAs and NPAs and the method of implementing those agreements are changing—all to the detriment of corporate defendants.
DPAs and NPAs only defer or avoid prosecution when companies adhere to the terms and conditions set forth in the agreements. Sometimes the DOJ requires expensive outside monitors. But more and more, the DOJ has refused to require outside confirmation of a company’s compliance. And, the DOJ has only rarely prosecuted companies after entering into DPAs and NPAs even if the companies do not fully comply with their agreements. As a result, companies and their executives may be inclined to view DPAs and NPAs as tantamount to a declination of prosecution and part of the cost of doing business. The DOJ, however, has recently placed the private sector on notice that it intends to step-up its monitoring of companies subject to DPAs and NPAs and to prosecute companies that do not fulfill their obligations under those agreements.
On March 16, 2015, Assistant Attorney General Leslie Caldwell stated in her opening remarks at the ACAMS Anti-Money Laundering & Financial Crimes Conference that corporations should
[m]ake no mistake: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach. DPA and NPAs are powerful tools. They can’t be ignored once they’re signed, and they can’t be followed partially but not completely.
Assistant Attorney General Caldwell was speaking specifically about bank compliance, but her warning was more broadly aimed at repeat offenders, those with a history of violations, and entities that fail to cooperate or to fulfill their obligations under DPAs. Moreover, last year the DOJ—for the first time—extended the terms of DPAs against two companies to ensure that a continuing investigation could be concluded while the agreements were still in place. This activity certainly indicates the DOJ’s intention to step up its monitoring of companies subject to DPAs and NPAs.
DPAs may also be under attack from the courts. Traditionally, courts accepted the DOJ’s judgment that the terms of a DPA or NPA adequately address the company’s criminal culpability, cooperation and corrective action. More recently, some courts have expressed reservations that a DPA is sufficient to punish prior criminal liability and prevent additional misconduct. In August 2010, for example, a federal court expressed reservations about a DPA negotiated by the DOJ and a financial institution to resolve alleged criminal conduct involving transactions with prohibited countries. The court called the DPA a “sweetheart deal” to the financial institution, particularly expressing concern that no individuals were prosecuted for the criminal activity and that the fines were essentially paid from shareholder profits, but the court ultimately accepted the deal. Indeed, the court later concluded that the financial institution had fulfilled the terms of the DPA and dismissed all criminal charges.
Just recently, another court surprised DOJ prosecutors and defense attorneys when it refused to accept a DPA. The DOJ and attorneys for Fokker Services B.V. (Fokker), a Dutch aerospace services provider, presented the District Court of the District of Columbia a DPA that resolved Fokker’s liability for violations of the economic and trade sanctions against Burma, Iran and Sudan. Under the terms of the deal, the DOJ agreed to dismiss criminal charges provided that Fokker paid a fine of $10.5 million (plus an additional $10.5 million in civil fines), cooperated with authorities, implemented a new compliance program and complied with US export laws for 18 months.
Importantly, the DOJ’s investigation arose from Fokker’s voluntary disclosure of its criminal liability. While the court acknowledged that fact, the court was unimpressed and found the terms of the DPA woefully inadequate for several reasons. First, the court found that the fine—amounting essentially to disgorgement of revenue from the illegal activity—did not reflect the seriousness of the criminal activity. Second, the court noted that no individuals had been prosecuted for their involvement in the criminal activity and several were even allowed to remain at the company. The court also found it unacceptable that the DPA did not require an independent monitor or periodic reports to the court or the government to assess the company’s on-going compliance. The court refused to rely upon self-reporting by Fokker, again despite the fact that the company began the case through submission of a voluntary disclosure. And, finally, the court noted that, – while the alleged misconduct lasted for more than 5 years, – the DPA lasted for only 18 months.
Many agree that companies defending against export and sanctions enforcement actions already face an uphill climb because of the extraordinary powers of the government and the difficulty of securing meaningful judicial review of complex export regulations and their extraterritorial application. Here the court refused to “rubber stamp” Fokker’s agreement with prosecutors and regulators, saying it would
undermine the public’s confidence in the administration of justice and promote disrespect for the law for [the public] to see a defendant prosecuted so anemically for engaging in such egregious conduct for such a sustained period of time and for the benefit of one of our country’s worst enemies.
The court concluded saying the DPA “does not constitute an appropriate exercise of prosecutorial discretion and I cannot approve it in its current form.” It offered the parties the opportunity to re-negotiate the terms of the agreement—no doubt to increase the sanctions against Fokker and its employees.
It is still too early to determine whether this decision and Assistant Attorney General Caldwell’s statements signal a true change in the availability and enforcement of DPAs and NPAs. The DOJ has appealed the Fokker decision. Nevertheless, companies negotiating DPAs and NPAs in order to avoid criminal prosecution must be aware that the DOJ may not be able to deliver the terms agreed upon. They need to do their part to document any mitigating facts, the process used to calculate agreed upon fines and whether employment action is necessary against responsible individuals. They should also document changes to their compliance program to prevent or detect future misconduct and consider outside oversight to monitor compliance. These last two steps may be essential not only to gaining a court’s acceptance of the DPA or NPA but also to avoid becoming the poster child for the DOJ’s recent warning that it will prosecute companies that do not fulfill the requirement of a DPA or NPA.