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NPAs and DPAs: A New Global Norm?

Avoiding the so-called ‘corporate death penalty’ that comes with the prosecution of Foreign Corrupt Practices Act (FCPA) violations by agreeing to settle charges outside the courts has increasingly become the preferred path to take for both companies and prosecuting authorities. Such agreements — known as Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) – represent the lion’s share of FCPA resolutions in the US, yet interestingly, are also on the rise in Europe to the extent that Ben Morgan, the former Joint Head of Bribery and Corruption for the U.K.’s Serious Fraud Office, called DPAs the “new normal” in a speech he gave earlier this year. The overarching requirements of such agreements would generally impose hefty fines on companies as well as the latter’s commitment to change business practices by improving – or establishing – a robust compliance program.

This prosecutorial approach focusing on prevention rather than punishment, emphasizes the central concern of improving compliance programs and ultimately, corporate behavior. Such agreements have empowered government attorneys with tools to control, modify or oversee the corporate behavior of these entities in ways they couldn’t if they simply took companies to court.

This article looks at how companies can settle FCPA charges through agreements, as well as the challenges these agreements present to compliance professionals.

Settlement Agreements

Non-Prosecution Agreements (NPAs) are contractual arrangements in which the agency — the Department of Justice (DOJ) or the Securities Exchange Commission (SEC) — refrains from filing charges to allow a company to demonstrate its good conduct. With Deferred Prosecution Agreements (DPAs), by contrast, the agency files a charging document with the court, but simultaneously requests the prosecution’s postponement to allow the company to demonstrate its good conduct.

A third, related type of agreement is declination with disgorgement. In this arrangement, companies under investigation will not be prosecuted for FCPA violations, but must disgorge (give up) their unlawful gains. Since the DOJ launched its pilot program in April 2016, encouraging companies to self-report FCPA violations and cooperate with investigations, the DOJ has published seven declination letters addressed to companies under investigation. To fulfil the requirements of receiving a declination letter from the DOJ a company would have to:

  • Self-disclose violations in a timely and in a voluntary manner
  • Fully cooperate with investigating authorities, including providing all known relevant facts about the misconduct
  • Agree to continued cooperation in any ongoing investigation of individuals
  • Disgorge all profits made through corrupt means
  • Enhance compliance programs
  • Implement remediation procedures

Settling alleged FCPA violations through agreements would, in any given case, require that companies demonstrate good conduct. This would include some or all of the above mentioned requirements; cooperating with the agency on the investigation, conducting internal investigations, admitting relevant facts, entering into compliance and remediation commitments – potentially including a corporate monitor – getting rid of the employees who actively contributed to the breach, etc. Demonstrating good conduct may also include waiving the statute of limitations and waiving attorney-client privilege.

A New Global Norm?

Settlement through agreement go back to the late 90’s in the U.S.; In 2015, 102 NPAs and DPAs were issued, while 35 were issued in 2016. As of mid-July, 10 have been issued in 2017. The U.K. has issued far fewer agreements thus far, yet an uptick can be detected. The Serious Fraud Office (SFO) established a DPA program in February 2014, yet reached only two DPAs by the end of 2016. Thus far in 2017, the SFO has already secured two DPAs with Rolls-Royce and Tesco Stores Limited.

In France, meanwhile, the new law (Sapin II) has introduced the DPA concept as the “Judicial Agreement in the Public Interest” or, in French, “Convention Judiciaire d’Intérêt Public” (CJIP). An interesting aspect of this law is that companies can be held liable for failing to implement an efficient anti-corruption program, even when no corrupt activity has taken place.

In any case, these types of settlement agreements have a strong focus on improving preventive measures within a company. In fact, according to a study conducted by authors Wulf A. Kaal and Timothy Lacine, 97% of all NPAs and DPAs issued between 1993 and 2013 ‘mandated substantive governance improvements’.

3 Challenges to NPAs and DPAs

Despite the numerous advantages of settlement agreements companies and authorities can count, including ramping up government’s efforts in curbing corruption abroad: In the case of France, for instance, research conducted in 2015 shows that the French government only prosecuted four foreign bribery cases – three of which were minor with fines of less than EUR 10,000 – since signing the OECD convention in 2000, hence the new Sapin II legislation. That said, some critics also believe that more NPAs and DPAs in Europe is yet another indicator of molding anti-corruption laws according to an American model and not a homegrown one. This would probably lead governments in Europe to face the same challenges – if not a few more – raised in the US today. These include:

  1. Limited judicial oversight of remedies. In the U.S., the details of specific NPAs and DPAs are generally not subject to disclosure. The agreements, reached behind closed doors, do not turn up in judicial rulings. This lack of transparency is frustrating for other compliance professionals: It’s difficult to learn from other companies’ experiences without knowing how they improved their compliance programs and reached these agreements.
  2. Companies rarely push back against enforcement agencies. They enter DPAs and NPAs rather than face the consequences of going to court: the costs of litigation, fines and reputational damage. As the findings of Wulf A. Kaal and Timothy Lacine suggest, NPAs and DPAs “[are] the result of significantly unequal bargaining power between the prosecutor and the corporation”. This is particularly concerning where FCPA violations are “non-provable” offenses, and the agreements reflect risk-averse business decisions.
  3. No individual prosecution of offenders. The Anaemic numbers of individual prosecutions have often been criticised as a collateral effect of the increasing non-litigation of cases. Settling FCPA violations with companies, while not holding the individuals responsible for the corrupt acts accountable has been viewed by some as countering the deterrent impact of anti-corruption legislation.

The path towards more settlement agreements can certainly be seen in Europe. Yet, and on a more optimistic note, European models of NPAs and DPAs could probably look at the lessons learnt from challenges encountered by the DOJ and SEC and adjust their approach accordingly. Whatever the path taken, renewed efforts to hold companies to account and promote ethical business is always a good place to start.

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