NPAs, DPAs, and the FCPA

Too many acronyms? For the uninitiated, this post is about non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) in the context of the Foreign Corrupt Practices Act (FCPA).

The Government Accountability Office (GAO) recently released a report (here) regarding DOJ's use of NPAs/DPAs. The report follows a prior GAO report on the use of corporate monitors in NPAs/DPAs (see here for the prior post).

The recent GAO report is not FCPA specific, although it does mention the FCPA as being one area where NPAs and DPAs are frequently utilized, and as readers well know, most FCPA enforcement actions against companies are resolved through DPAs or NPAs (see here for the UTStarcom, Inc. NPA, here for the Helmerich & Payne NPA etc.).

Thus, the GAO report is very much "on-point."

While the report talks about other issues, this post will focus on judicial review of NPAs / DPAs - or more accurately the lack of judicial review.

GAO identified 152 NPAs/DPAs that DOJ prosecutors negotiated between 1993 (when the first two were signed) and September 2009.

Because NPAs are not filed with a court, there is absolutely no judicial review of NPAs. Thus, there is no independent review of whether factual evidence actually exists to support the essential elements of the crime "alleged" or whether valid and legitimate defenses exist. Thus, GAO had nothing to analyze in terms of judicial review of NPAs.

DPAs though are filed with a court, and as stated in the report, "the Speedy Trial Act grants a court the authority to approve the deferral of a prosecution pursuant to a written agreement between the government and the defendant." (See 18 USC 3161(h)(2)).

"To assess what role the courts have played in the DPA process," GAO "obtained written responses to structured interview questions from 12 of the 14 judges who had overseen DPAs in federal courts."

The judicial responses were anonymous and safeguards were put in place to protect the confidentiality of the judges' answers.

What did the responses reveal?

According to the GAO, "judges reported they were generally not involved" in the DPA process.

Specifcally, the GAO found that:

"Nine of the 12 judges stated that they did not hold a hearing to review the DPA or its terms, while the 3 remaining judges held hearings. One of these judges did so in the context of a plea hearing. Another judge held a hearing to arraign the company; at which time, the company and DOJ informed the judge to enter into a DPA. The judge then had a second hearing to approve the DPA. The third judge conducted a hearing to arraign the company and verify that the company's decision to enter into the DPA was informed and voluntary. Ten of the 12 judges reported that they relayed their decision approving the DPA through a written order. One judge relayed the decisions orally at a hearing, and one judge did both."

The GAO also interviewed DOJ officials about the role courts should play in the DPA process. Not one DOJ prosecutor who spoke to the GAO on this issue described any advantage to having a greater court role in reviewing DPAs. The report notes that "[a]ccording to DOJ officials, DOJ does not have a position on whether greater judicial involvement in the DPA process creates separation of powers issues; however, DOJ believes that judicial involvement in the NPA process would create concerns related to the separation of powers because no judicial review is involved for NPAs, as they typically do not involve court filings."

It is clear from the above judicial responses (however limited they may be) that judges are routinely rubber-stamping DPAs without inquiring whether factual evidence actually exists to support the essential elements of the crime "alleged" or whether valid and legitimate defenses exist.

Why would a company agree to enter into an NPA/DPA if factual evidence did not exist to support the essential elements of the crime "alleged" or if valid and legitimate defenses did exist?

Quite simply, negotiating an NPA/DPA with the DOJ behind closed doors is easier, more cost effective, and provides more certainty to a company than mounting a defense based on the facts and the law.

Moreover, when a company agrees to resolve a potential criminal matter through a privately-negotiated NPA/DPA, it is a sign of cooperation and an acknowledgment of wrongdoing - both key factors the DOJ will consider when deciding how to resolve the matter and on what terms. See here for the DOJ's Princplies of Federal Prosecution of Business Entities, here for the U.S. Sentencing Guidelines.

Why does this all matter, particularly in the FCPA context?

For the simple reason that law should not develop through privately negotiated agreements that are subject to little or no judicial review.

Yet that is exactly what is occuring in the FCPA context.

It is common knowledge within the FCPA bar and compliance community that FCPA NPAs/DPAs (and I will throw in settled SEC civil complaints as well) represent de facto case law and fill a void that exists because of the general lack of substantive FCPA case law, including case law to support many current enforcement theories.

Even worse, DOJ urges lawyers and companies to look to NPAs/DPAs as evidence of improper conduct and to act accordingly.

For instance, the GAO report includes a DOJ letter which explains, in DOJ's view, why NPAs/DPAs "are beneficial." Included in the DOJ's response is this:

"DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct."

Wait a minute.

Is DOJ seriously suggesting that NPAs/DPAs evidence improper conduct?

While that may be true in some situations, the fact of the matter is that many NPAs/DPAs are agreed to by companies only after private negotiations with the DOJ. These negotiations covers a wide range of topics - from the facts which will be alleged in the NPA/DPA, to the actual charges alleged, to the form of the resolution.

Rather than evidence improper conduct, these NPAs/DPAs (and settled SEC civil complaints) in the FCPA context represent nothing more, in most instances, than a prviately negotiated agreement subject to no judicial review executed under circumstances in which one of the signatories wields a massive and sharp stick.

What would happen if an FCPA NPA/DPA (or settled SEC civil complaint) were actually subjected to judicial review?

How would a judge react to the uninformative, bare-bones nature of these privately negotiated agreements?

What legal authority would the enforcement agencies cite to support the assertion that employees of state-owned or state-controlled entities are "foreign officials" under the FCPA?

What would the enforcement agencies' arguments be as to why the numerous post-Kay enforcement actions concerning foreign licenses, permits, applications etc. fit within the equivocal ruling in that case, but not the facilitating payment exception to the FCPA (an exception debated and passed by Congress)?

These are just some of the many unanswered FCPA questions which currently exist and these questions are the direct result of an area of law largely developing through privately negotiated agreements subject to little or no judicial scrutiny.

If the above is disconcerting to you, just wait, it is about to get worse as the SEC has announced (see here) plans to also utilize NPAs/DPAs in its enforcement of the securities laws - including the FCPA.