Deferred Prosecution Agreements Explained
Deferred prosecution agreements (DPAs) are agreements between a prosecutor and a target, usually in a criminal investigation, in which the target agrees to fulfill certain obligations and the prosecutor defers or ultimately declines prosecution. DPAs date back at least as far as the 1970s, but have been increasingly popular with the U.S. Department of Justice in recent years. While consent decrees are common in civil matters, DPAs are rare on the civil side. Despite being a relatively new phenomenon in the civil realm, DPAs are frequently used in criminal investigations. In the criminal context, DPAs have always been negotiated between the target or suspect and federal prosecutors in various U.S. Attorney offices as an alternative to criminal prosecution. Increasingly, senior DOJ officials in Washington, DC, such as the Assistant Attorney General in charge of one of the key investigative sections, have been approving DPAs negotiated by U.S. Attorney offices. Under the current administration, however, DPAs in corporate criminal investigations are usually signed off on by the Deputy Attorney General, and not necessarily by the Assistant Attorney General in charge of the relevant criminal enforcement section of the DOJ. The merits of signed off on the DPA will require the authorization of the Deputy Attorney General, currently Rod Rosenstein. Generally, DPAs are negotiated after an investigation has commenced, or in the midst of an ongoing criminal prosecution. The process often begins when a target or suspect has received a letter from federal prosecutors of a business they work for advising them that they are a target or suspect of a criminal investigation. The letter usually outlines the scope of the investigation, the type of evidence believed to exist, and offers an opportunity to provide a voluntary statement of any relevant information. The letter will often state that a subpoena for the statement will be filed if it is not voluntarily provided and that any such subpoena must be complied with despite any assertion of the Fifth Amendment privilege against self-incrimination. A target or suspect typically hires a former federal prosecutor experienced in criminal investigations and prosecutions to represent them in the investigation or proceeding. Any such attorney will usually advise the client to carefully review the letter and express their willingness to cooperate. An attorney may recommend that the client waive their Fifth Amendment privilege and elect to provide a voluntary statement to the government. A cooperating target or suspect hopes that such cooperation will lead to their client not being charged criminally . Corporate clients will often insist that their employees are hired by the company’s attorney and make the payment for the attorney’s fees. Federal prosecutors are often amenable to waiving the Fifth Amendment because today’s corporate employees are so relevant to any investigation of its business. Generally, a target or suspect does not have an obligation to waive their Fifth Amendment privilege. Once a target or suspect has decided to cooperate with the federal government, they will typically provide a memorandum to the prosecutor outlining the cooperation. The memorandum usually contains information that the target believes is relevant to the investigation. In considering whether to enter into a plea or to decline prosecution, federal prosecutors will look at the scope of the client’s access and knowledge of the alleged conduct. The client’s goal is for the prosecutor to sign a DPA to decline prosecution in exchange for the client signing a statement of facts and cooperating in the future in the government’s further investigation and, sometimes, prosecution of other target subjects. A DPA is basically a contractual arrangement between the federal government and the target or suspect. Typically, the DPA will contain a detailed proffer of the alleged wrongdoing, list the charges that will be filed if the suspect does not comply with the terms and conditions of the DPA, and outline a number of terms and conditions, including: Under federal law, a grant of immunity must be approved and authorized by the Attorney General of the United States or his or her designee. 28 U.S.C. § 6004(a). Under federal law, DPAs do not need to be signed by the Attorney General for the term and conditions to be effective, although Attorney General approval is preferred. The DPAs must be signed by the Deputy Attorney General, currently Rod Rosenstein. The Attorney General shall promulgate regulations to carry out the authority contained in 28 U.S.C. section 6004. 28 U.S.C. § 6004(b). Under the law, the Attorney General of the United States shall ensure that "use or derivative use" immunity is provided. 28 U.S.C. § 6004(c). The immunity provisions in the DPAs are designed to be effective for the duration of the agreement, although they may, if necessary, be extended. There are no existing, pending or proposed regulations applicable to the authority under 28 U.S.C. section 6004. That section is applied in practice to criminal investigations, but not to civil investigations. It became effective as law on January 2, 1987.
Managing Legal Exposure with DPAs
An important characteristic of a DPA is its ability to mitigate legal risks for both corporations and individuals during the period of the DPA. The DPA roadmap states that "[t]he [DOJ] will not charge a corporation for related criminal conduct at the time of the announcement of the cooperation agreement." If the company does everything the DPA requires, the company will not be subject to criminal prosecution for activities committed prior to the DPA’s signing. As long as the company makes continuous progress in implementing its compliance measures, the DOJ will extend the term of the DPA beyond the initial two-year period. For example, in the Smith & Nephew DPA, the DPA was originally entered into for two years, but was extended, given the company’s ongoing cooperation and progress. The indefinite extension also included a waiver of the six month reporting requirement to allow Smith & Nephew to continue working on the identified compliance weaknesses.
The DPA roadmap encourages DPAs "targeted toward a narrower set of acts constituting the most serious and recent misconduct within a larger corporate family." When signing the DPA, to the extent practicable, the corporation can focus on pre-signing conduct and start fixing its compliance weaknesses and remediating past conduct. By agreeing to take responsibility for the misconduct reflected in the facts, the corporation is already contributing to meeting the goal of the DPA: a reduction in criminal activity.
DPAs also allow companies to show the DOJ their efforts to implement compliance measures in the near term, instead of waiting for a Deferred Prosecution. The benefits become real for the company when it can demonstrate to the government that it has implemented meaningful compliance steps under a DPA and is actively remediating past activity. In the Siemens DPA, Siemens provided an internal report to the government as part of their DPA responsibilities. The DPA was amended to reflect additional investigations, compliance measures, and deferred and to credit Siemens for its remedial efforts under the DPA. Early in a DPA, Siemens paid fees and partially reimbursed the government’s costs of its investigation. Though future reimbursement payments were not required, the DPA stated that Siemens could restate its compliance obligations in future years if the parties agreed.
Another benefit of the DPA is that it allows as many new revenues as possible to go to support the corporate culture. A DPA does not seek a fine, restitution, or sentencing enhancements that could ultimately lead to insolvency of the company. This results in business as usual during a DPA, with the company able to continue generating income and focusing on profit, while remaining under a DOJ agreement.
Protection of Ongoing Business
The ability to operate a business without the disruption of a criminal trial is tremendously valuable to a corporation at risk of prosecution. Deferred prosecution agreements allow corporations to maintain operations and generate revenue without the interference of potentially debilitating pre-trial discovery. Many companies under DPA scrutiny continue to conduct business and take in billions of dollars in revenue. Deferred prosecution agreements and corporate compliance enhance business profitability.
For example, BP America, Inc. settled several alleged criminal violations of the Clean Water Act with a deferred prosecution agreement. The DPA allowed for the continued operation of the Macondo dig site, where drilling costs were impoverishing other companies. Between 2009 and 2014, BP was able to spend almost $98 billion on capital projects, while other oil companies were cutting back. At the same time, BP saved almost $38 billion in costs. "As a result of a rigorous cost review process, BP has identified significant opportunities to reduce costs further, particularly in US Exploration and Production, and is now implementing plans to reduce costs by around $1 billion a year in those areas," the company reports. Because of its deferred prosecution agreement (DPA), Siemens went on to reportedly end 2012 with an increase of more than 15% in profit. Without the DPA, "the company would have cut jobs and slashed capital and research expenditures even more than it did. It made new investments despite the settlement, secretly acquiring Wind Power-generation company Eolian, for instance," while paying off $2.6 billion in U.S. criminal and civil fines.
Financial and Goodwill Savings
The financial and reputational benefits of a DPA are substantial. The negotiating of a DPA with the Decision Maker can mean substantial savings in legal costs associated with the investigation (ensuring that significant legal costs are not wasted on defending the prosecution case only to then enter into a DPA which admits guilt to obtain a DPA).
Additionally, a decision may also save a company from any potential fine of a conviction. It should be remembered that even with the possibility of the Aggravated Criminality Condition in a Part 3 case, the maximum fine that can be imposed under the Criminal Code is always less than that which could be imposed by the Tribunal if the DPA included the Serious Consequence Condition . As has already been discussed in this chapter, the Serious Consequence Condition affords the most flexibility to the Decision Maker to impose a fine in a Part 3 DPA, and is arguably the most onerous.
Further to these financial benefits, when considering the potential effect on the business, a DPA avoids the impairment of relationships caused by any potential trial. A DPA will avoid heavy publicity, particularly media coverage, that would inevitably test commercial relationships and may prompt boycotting of goods or services. Maintaining a positive business relationship, predicated on trust, is likely to be much easier if a trial is avoided and potential jurors are not considering the alleged behaviour of the company in the public eye.
Enhancing Corporate Compliance Management
One of the principal benefits of Deferred Prosecution Agreements is their ability to compel companies with serious civil and criminal misconduct to improve their corporate compliance programs or adopt structural reforms to prevent recurrences. The reasoning behind this is simple: the government realizes that companies generally have to feel the immediate impact of civil and criminal allegations and their consequences, otherwise it will have little incentive to change. Because a company under investigation has to spend the time and money to either investigate its conduct, respond to law enforcement requests, hire outside counsel, and/or respond to shareholders, it makes sense that these costs have a longer-lasting impact on the company over time. With the scrutiny of a corporate integrity agreement in mind, the company has no choice but to shore up their compliance and control programs.
Structural reforms, like the addition of independent monitors, can also help a company avoid future allegations and civil or criminal liability by ensuring the relevant person or persons is complying with a new set of regulations and rules. An independent monitor can detect potential misconduct and stop it before it leads to any further allegations or accusations. Similarly, a company that has been forced to add employees and departments to aid in compliance may stop attempting to look the other way and become more open to suggestions and tips. Soon, employees will be familiar with the new compliance structures such that they no longer need to be told to report misconduct.
A company that has been sanctioned or fined will have to pay for these changes, but in the long run, they will provide a benefit to both the government (by ensuring that no further misconduct is likely to happen) and the company (by reducing the chances of liability going forward). Further, once the system has adapted to the new changes, the burdens of reforming a compliance program will not be as great because it will already exist. The result is a one-time cost that can prevent repeated penalties.
Comparison to Alternative Legal Mechanisms
Deferred Prosecution Agreements (DPAs) should be placed in context with other legal tools such as non-prosecution agreements (NPAs) and plea bargains. NPA is a contract between the prosecutor and the defendant in which the defendant agrees to plead guilty to or plead no contest to a crime and receives an assurance from the prosecutor that no further prosecution will be undertaken. These agreements are generally used in crimes involving family and domestic violence, juvenile matters, regulatory and white collar violations, and sometimes as a component of a plea bargain.
Although some of the benefits of a DPA over an NPA or plea bargain are discussed herein, several analysts have outlined other advantages of a DPA. First, a DPA is not binding on the defendant’s co-conspirators. Second, an NPA also may involve a defendant pleading guilty to a crime, pleading no contest to a crime, or admitting to committing a crime while acknowledging the prosecutor has probable cause to prosecute. Thus, the defendant receiving a DPA maintains more favorable rights to appeal if convicted of a crime in a subsequent proceeding. Last , a DPA allows a defendant to keep evidence obtained through immunity from being used against him or her during a criminal proceeding.
Situations exist where a DPA is more beneficial than an NPA or a plea bargain. On the aggregate, DPAs are far less controversial than NPAs and plea bargains. DPAs would allow the DOJ and CFTC to avoid the criticism they face for using NPAs and plea bargains, respectively, and to continue to leverage these types of agreements when they are more efficient. Stated another way, DPAs would avoid any legitimate criticism that the DOJ and CFTC are showing favoritism to corporations, which are predominately the recipients of NPAs and plea bargains in these divisions. Also, DPAs offer a lower burden (a reasonable outcome is expected) and a higher standard of proof (preponderance of the evidence is adequate) for any agreement violations. An added benefit of this higher standard is that reputational risks may be diminished by requiring cooperating parties to both materially comply with the DPA and provide assistance that is truthful and complete.