The government increasingly resolves corporate criminal investigations by entering into deferred prosecution agreements (DPAs) or nonprosecution agreements (NPAs). These agreements essentially amount to contractually imposed terms of probation. Assuming the corporation under investigation successfully completes the probation, the government either drops the charges (in the case of DPAs) or refrains from filing charges (in the case of NPAs). If the corporation breaches the terms of probation, then the government proceeds with criminal charges.

In theory, these agreements seem reasonable. In practice, however, they raise numerous questions, such as: What standards should the government apply in deciding when to file charges, when to enter into DPAs or NPAs, or when to decline action altogether? What terms of probation should the DPA or NPA impose? If those terms include a monitor to oversee the company, how should the monitor be chosen and how much authority should the monitor be given? This article describes the recent rise of DPAs and NPAs and discusses recent criticisms of these agreements.

Why DPAs and NPAs?

The Arthur Andersen debacle – where a corporate conviction that was subsequently reversed nevertheless killed a corporation and put 80,000 people out of work – spawned the torrent of DPAs and NPAs. The Andersen case is notable for the speed in which it was investigated, charged and tried (only 90 days passed from indictment to verdict). After it was over, both sides had reason to second guess their actions. The problem largely resulted from the binary nature of the decision facing both sides. The government could either seek criminal charges against Andersen, or walk away entirely. Andersen, conversely, could either convince the government to walk away or negotiate a plea to ruinous charges. DPAs and NPAs add a third option: Under these agreements, the government can file (in the case of a DPA) or describe (in the case of an NPA) the charges that it believes to be warranted, while the company can avoid the most severe collateral consequences of those charges.

How DPAs and NPAs Work

Under an NPA, the corporation agrees to a set of sanctions (e.g., fines, cooperation, changes to business practices, etc.) in exchange for an agreement by the government not to file criminal charges. Under a DPA, the government files criminal charges but agrees to hold them in abeyance for a period of time (usually three years) and to drop the charges if the company, during the period of abeyance, fulfills certain conditions. DPAs typically require the company to agree to a set of stipulated facts; not to contradict those facts in any subsequent criminal or civil matters; to cooperate with the government in the current investigation or in other investigations; to disclose related or unrelated misconduct; to perform enhanced compliance obligations; and to pay a fine or penalty. In some cases, the company also agrees to an outside monitor, whose responsibilities range from mere oversight to day-to-day management of the company. According to government statistics, the Department of Justice entered into 18 DPAs and nine NPAs in 2006. That number continues to rise.

Criticisms of DPAs and NPAs

Criticisms of DPAs and NPAs focus on three areas. First, many critics argue the government uses DPAs and NPAs to force criminal resolution of investigations that simply should not be resolved through criminal charges. In other words, the government leverages companies into entering into DPAs or NPAs because “playing chicken” with a prosecutor is simply too risky. Indeed, if charges mean being put out of business, it is easy to understand why a rational company would agree to a DPA or NPA, rather than pushing the government not to charge or fighting charges after they are filed. No one is served, however, if DPAs and NPAs subvert the adversary process that underpins our criminal justice system.

Second, critics point out the Justice Department has not provided any guidance to its U.S. attorneys on the proper use of DPAs and NPAs. Thus, these powerful agreements are being used differently in different jurisdictions. For example, two 2005 cases from neighboring jurisdictions � the Southern District of New York and the District of New Jersey � demonstrate the wildly variant way U.S. attorney’s offices deal with allegations of similar corporate misconduct. In New York, Shell Oil allegedly overstated its oil and gas reserves by nearly 25 percent. The U.S. attorney for the Southern District of New York decided not to prosecute these allegations. By contrast, Bristol-Myers Squibb allegedly provided unordered products to its wholesalers in order to inflate its sales revenues. The U.S. attorney for New Jersey required Bristol-Myers Squibb to enter into a DPA, pay a $300 million fine and subject itself to an independent monitor with sufficient authority to order the termination of the company’s chief executive officer and general counsel. With no departmentwide standards, such disparate treatment is inevitable. More recently, the District of New Jersey entered into DPAs with the nation’s five largest manufacturers of hip and knee surgical implants to resolve allegations of illegal marketing practices. The same office resolved similar allegations against a sixth manufacturer using an NPA. Critics questioned why the sixth entity obtained a more lenient result. Indeed, in the absence of clear standards, it is hard to determine whether the different treatment was appropriate.

Third, critics have attacked how federal monitors are chosen and how much authority they are given. The loudest criticism erupted when the U.S. attorney for New Jersey awarded former Attorney General John D. Ashcroft a no-bid contract that could be worth as much as $52 million to monitor Zimmer Inc.’s compliance with a DPA. Following this appointment, the Justice Department has begun investigating how monitors are chosen, with a view toward systematizing and regularizing the process. Sensing political gain, House and Senate Democrats have asked the Justice Department to share the details of its investigation and called for a related congressional investigation.

Critics have also attacked the lack of uniformity in defining a monitor’s scope of review and authority. Some monitors are empowered merely to ensure compliance with a DPA or NPA. Other monitors are given broad power, including the power to micromanage decisions taken by the company. As with the decision to require a DPA in the first place, and whether to impose a monitor at all, critics point out there are no guidelines to control the decision of how much authority to give a monitor. These critics demand clear guidance from the Justice Department.

Conclusion

Like it or not, DPAs and NPAs are here to stay. The Justice Department, therefore, must provide clear guidance to instruct assistant U.S. attorneys when DPAs or NPAs are appropriate, what conditions the DPA or NPA should impose, whether a monitor is needed and, if so, how to choose the monitor and define his or her authority. Conversely, counsel for corporate America must vigorously resist being forced by the government into accepting a DPA or NPA where charges against a corporation are inappropriate. Counsel must also fight to restrict the terms imposed by a DPA or NPA. Only clear guidance from the Justice Department coupled with aggressive defense advocacy will counteract the potential for abuse created by the proliferation of DPAs and NPAs.

DAVID M. LAIGAIE , a partner at Dilworth Paxson, heads the corporate investigations and white-collar group. His areas of practice include health care fraud, securities fraud, tax fraud, export violations, pharmaceuticalmarketing fraud, municipal corruption, defense procurement fraud and public finance fraud. He regularly conducts internal corporate investigations.