The year 2011 is likely to be remembered as a time of sea change for how law enforcement deals with corporations. And nowhere was the change more noticeable than in the use of deferred and non-prosecution agreements.
No longer reserved for big financial institutions, the agreements became vehicles to resolve a wide range of corporate liability questions in 2011, according to F. Joseph Warin, chair of Gibson, Dunn & Crutcher’s litigation department in Washington, D.C. Warin, a former U.S. attorney in Washington, also co-chairs the firm’s white collar defense and investigations practice group.
He cited the first use of the agreements by both the Department of Justice’s antitrust division and the Securities and Exchange Commission to resolve civil allegations. By adding these agreements to the civil-enforcement toolbox, along with the DOJ’s history of using them in criminal cases, “They have become one of the cornerstones of how corporate disputes with government entities are being resolved,” he said.
Warin said the deals are more attractive to corporations than some of the harsher alternatives, such as criminal charges from the antitrust division or consent decrees from the SEC “that impose an injunction for life on the corporation.”
DPAs and NPAs offer other advantages to both sides. They enable prosecutors to obtain substantial fines and impose remediation and compliance conditions on companies, while allowing the companies to continue operating. In many cases, a criminal trial could cripple a company, or even put it out of business.
In its year-end review of DPAs and NPAs, Gibson Dunn noted that the DOJ and the SEC together entered into 29 agreements with corporations. That’s a decrease from the record 32 set in 2010, but is still higher than other previous years.
The law firm’s report noted another trend that corporations appreciate—the agreements imposed fewer compliance monitors. In the past, a compliance monitor was almost a given when a corporation signed a DPA. And it still is in some jurisdictions, such as New Jersey.
“In 2011, we saw a fundamental shift to self-certifications,” said Warin, who himself has been a monitor three times. He explained that under self-certification, corporations attest to their current compliance and describe what improvements are planned for their programs.
When a compliance monitor is ordered, Warin said it’s “much more calibrated to individual circumstance—if the bad behavior is systemic, involves senior management, or occurs across the board in the corporation.”
The other major trend noted in the report involves the continued use of large fines and penalties “Cases are settling for big, big numbers,” Warin said, especially in the pharmaceutical industry. He cited Google, Inc.’s $500 million settlement with DOJ. Prosecutors had accused the Internet search giant of knowingly showing illegal ads for fraudulent Canadian pharmacies in the United States. The pharmacies allegedly were selling addictive drugs like Oxycontin to online buyers without prescriptions.
“That $500 million is a lot of money. It’s real money, even for Google,” Warin said.
The report’s bottom line: Spending time and resources on compliance and training is vital. “First, because it’s the right thing to do,” Warin said, “and because you never want to be in this briar patch of a heavy-duty investigation.”
Federal probes are time consuming for corporate management and they distract from conducting core business, he explained. They can take an average of two—and up to three—years to resolve.
And they are expensive, including the costs of conducting an in-house investigation and any resolution. There’s also the very substantial harm to a company’s reputation, Warin added. “You want to avoid these problems on the front end,” he said. “Once you’re in the briar patch, it is hard to find the road out.”
So where will the trends lead in 2012? Warin sees the international arena continuing “to explode.” He expects DOJ to sharpen its focus on companies that do business in countries where businesses are state-owned and “the prime ministers are dictators who are diverting payments to their personal use.”
Federal investigations will take a harder look, he said, at the role of the board of directors, of the in-house law department, and of the compliance department. “It is almost always discussed now in every investigation,” he said. “We are frequently asked how did the board oversee compliance issues, what did they know about how it was being handled.”
Warin also noted that enforcement subpoenas are now seeking the identity of the chief compliance officer and asking, “What did she do for training on the issues under investigation.”
Looking forward, Warin sees the interrelationship between regulators, both domestic and abroad, increasing this year. “Today you have to assume that government enforcement is holistic and it operates as one,” he said.
See also: “Is the SEC’s Recent Run of High-Profile Prosecutions a Flash in the Pan?”, CorpCounsel, July 2011.
