At the recent Dow Jones Global Compliance Symposium,
there was a debate royal between Mark Mendelsohn and the FCPA Professor, Mike
Koehler, regarding enforcement of the Foreign Corrupt Practices Act (FCPA). One
of the points the Professor raised was regarding the proliferation of Deferred
Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) during the
tenure of Mendelsohn at the Department of Justice (DOJ). The Professor argued
that DPAs and NPAs, which did not come into wide spread use until the last
decade, were tools which should not be employed for FCPA enforcement. One of
the reasons he articulated this was that by use of these agreements the DOJ is
not required to put proof in front of a judge or jury, hence the DOJ can expand
its interpretation of the FCPA without appropriate judicial oversight.
Mendelsohn countered that such agreements are within prosecutorial discretion
and given a finite amount of personnel and monetary resources within the DOJ,
an appropriate mechanism to assist the overall goal of compliance with the
However, I would like to review the use of DPAs and NPAs
from another angle and the perspective from another player in FCPA enforcement.
That is the perspective of the corporation ensnared in an enforcement action. I
will leave aside a discussion of the alleged expansive DOJ interpretation of
the FCPA for another day and simply focus on why it is in the interest of a
corporate defendant to enter into a DPA or NPA as opposed to being indicted and
defending itself at trial.
For those of you who do not recall, Arthur Andersen was
the auditor for Enron and was caught up in the Enron scandal. In 2002, the firm
voluntarily surrendered its licenses to practice as Certified Public
Accountants (CPAs) in the United States after being found guilty of criminal
charges relating to the firm's handling of the auditing of Enron. The other
national accounting and consulting firms bought most of the practices of Arthur
Andersen. The verdict was subsequently overturned by the US Supreme Court.
However, the damage to its reputation has prevented it from returning as a
viable business. In other words, after fighting the criminal charges brought
against it and losing at trial, Arthur Andersen imploded.
No US Company wants to face this prospect. By being
indicted they will probably find their access to credit greatly reduced and
their ability to move forward as an ongoing concern compromised. Juries still
do not have a high opinion of corporations and what may appear to be 'sharp but
legal' business practices may look like bribery and corruption to a jury. The
DOJ's recent set-backs on the individuals it has indicted and/or taken to trial
should not affect a jury's perception of corporate corruption. No publicly
traded company can take the risk. For private companies, the resulting
violations of loan covenants and other denials to capital would probably have
the same effect.
In my legal career if I have learned one thing about
representing corporations it is that they do not like surprises and one of the
things they most desire is certainty. The one thing I learned in almost 20
years of trying cases (civil side only) is that nothing is certain when you
leave the final decision to an ultimate trier of fact who is not yourself,
whether that trier of fact be a jury, judge or arbitrator. The most important
thing for a company is certainty and that is even more paramount when a
potential criminal conviction looms over its corporate head. A DPA or NPA
provides this certainty. Corporations not only know what their financial
penalty is but they also know their ongoing obligations, in the form of the
compliance program they should implement or enhance and ongoing reporting requirements.
Just as it benefits the DOJ to drive corporate behavior
to comply with the FCPA, through its enforcement of the FCPA; it benefits
corporations to understand what is expected from them. Both goals are achieved
by the use of DPAs and NPAs. This is because one of the other benefits to DPAs
and NPAs is that it provides information and guidance to other companies and
compliance practitioners as to the DOJ's thinking regarding a best practices
compliance program. Any improvements or new aspects to a minimum best
practices compliance program, which are announced in a DPA or NPA, will
inform other companies and will expansively compound the effect from a DPA or
NPA. The size of the company involved in the enforcement action does not matter
as all DPAs and NPAs are publicly announced.
So as the "Enhanced Compliance Obligations" in the
Johnson & Johnson (J&J) DPA gave companies additional guidance on how
to deal with acquisitions; the recent Biomet DPA provided specific information
to Internal Audit on its role in a minimum best practices compliance
program. A review of any recent DPA or NPA also shows the clear benefits of
self-disclosure and cooperation, which can lead to a significant reduction in
the overall monetary penalty.
From my perspective, as someone who has represented
corporations, as both an outside counsel in private practice and in-house
counsel, I believe that DPAs and NPAs not only further the goals of the FCPA
but bring tangible benefits to corporations. I do not believe that they should
be removed from the DOJ's arsenal for enforcement.
Visit the FCPA Compliance and Ethics Blog, hosted by Thomas Fox, for more commentary on FCPA
compliance, indemnities and other forms of risk management for a worldwide
energy practice, tax issues faced by multi-national US companies, insurance
coverage issues and protection of trade secrets.
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© Thomas R. Fox, 2012
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