When judged against the collapse of a company like Enron’s accounting firm Arthur Andersen, a deferred prosecution agreement (DPA) can seem particularly appealing to a corporation facing criminal misconduct charges. Such agreements are instruments used by the government in which criminal charges against a corporation are dropped, so long as the corporation complies with the terms of the agreement, including admitting unlawful conduct, reforming its policies, allowing government monitoring for an allocated period of time and paying a fine. But before assuming that a DPA is the optimal solution for saving your corporation from destruction, you should first carefully consider the risks.

Although DPAs existed before the financial crisis, the Department of Justice (DOJ) did not make them an official alternative until 2008. Since then, DPAs have become increasingly popular. In 2010, the Securities and Exchange Commission (SEC) approved the use of DPAs and entered into its first DPA in May 2011 with Tenaris S.A.

By including DPAs as a tool in its cooperation initiative, the SEC hopes to encourage corporations to self-report any wrongdoing. According to SEC Enforcement Director Robert Khuzami, the SEC believes the initiative is a “potential game-changer.” While it remains to be seen if DPAs will indeed be “game-changers,” the DOJ and the SEC have utilized these agreements readily in white-collar matters.

Glass Half Full

So, what are the advantages of DPAs for corporations? Plainly stated, DPAs can help a company survive, and sometimes even thrive, during a federal criminal or regulatory investigation. One cannot overstate the importance of avoiding a criminal conviction and the imprisonment of individuals. Aside from the inherent advantage, avoiding convictions, imprisonment and enforcement trials help corporations escape the bad press that comes with a guilty plea or an enforcement order. Even the slightest suspicion of criminal prosecution can cause clients to bolt and stock prices to drop, so DPAs serve a powerful purpose in this respect.

Ultimately, a DPA can assist a corporation in circumventing collateral consequences, such as the 28,000 jobs lost—many by innocent employees—following the indictment and conviction of Arthur Andersen. The subsequent reversal of Arthur Andersen’s conviction was of no solace to the former employees who had lost their jobs and life savings. It is easy to see why DPAs are a viable and appealing option in many circumstances.

Glass Half Empty

While entering into a DPA might be the right decision in certain instances, a corporation must be fully aware of the risks involved. DPAs are often one-sided and call for more than just cooperation from the corporation. It is not unusual for corporations negotiating a deferred prosecution agreement to find themselves forced to waive the attorney-client privilege, restructure their business, turn over work attorney product, pay hefty fines and carry out an array of other stipulations required by the prosecutor or enforcement division of a regulating agency. The mere threat of an indictment is often enough to cause a company to give serious consideration to a DPA.

Because DPAs frequently require a corporation to admit fault and to toll the statute of limitations, the corporation is in a precarious position. Even the slightest breach of the agreement could lead to a serious risk of civil enforcement or criminal prosecution.

The notion that DPAs offer corporations a financial benefit is somewhat misconceived. Companies that have entered into DPAs with the DOJ and SEC have still paid fines of hundreds of millions of dollars.

Decision Time

A corporation’s decision to enter into a DPA should be made carefully. If a corporation is prepared to cooperate fully and remedy past wrongdoing, a DPA can serve as a get out of jail (albeit certainly not free) card. Notably, DPAs can save corporations from devastating collateral consequences. But with limited bargaining power, corporations should fully understand that the government’s conditions are likely to be heavy and invasive. In other words, a DPA allows a corporation to evade guilt but not punishment. Due to the marked burdens involved, a corporation is best-suited to agree to a DPA when it has concluded that actual misconduct has occurred and the probability of a criminal conviction is high.