This article is brought to you by BNA Tax & Accounting and the Accounting Policy & Practice Report. For more information or a free trial to the BNA Tax and Accounting Center, please visit www.bnatax.com.
Deferred prosecutions create uncertainty, Gibson Dunn & Crutcher lawyer says
By Rachel McTague, BNA Legal Editor
A pronounced lack of uniformity in the deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) that the Justice Department reaches with some companies subject to criminal investigation creates unnecessary uncertainty, Lee G. Dunst, a partner at Gibson Dunn & Crutcher LLP in New York, contended in a recent Web cast on corporate fraud prosecutions.
"Similar wrongdoing should result in similar punishment, but here there is a randomness depending on which U.S. Attorney's Office is involved and which prosecutor is involved," Dunst said in the Webcast sponsored by the Practising Law Institute. He suggested that the variability in such agreements is especially noticeable with respect to the condition that a company hire an independent monitor.
In the last five years, Dunst noted, prosecutors have been increasingly unwilling to prosecute corporations, seeking to "avoid the potentially catastrophic results of an indictment." An example of such a result occurred in the case of Arthur Andersen, which was forced to close its doors after DOJ prosecuted it and a jury found it guilty based on wholesale document destruction in connection with the Enron debacle. The conviction was overturned almost three years later by the U.S. Supreme Court on the basis of faulty jury instructions.
Conditions Imposed.
To avoid threatening the existence of the company, Dunst said, prosecutors often negotiate an NPA or DPA, rather than proceeding with criminal charges. In an NPA, the company agrees to sanctions such as a fine and/or some type of cooperation in return for DOJ's agreement not to prosecute it. With a DPA, DOJ files criminal charges but agrees to drop them after a number of years if the company satisfies certain conditions, Dunst explained.
In 2006, he said, DOJ reached a total of 27 DPAs and NPAs with corporations, and the number was up to 20 by October of 2007. "What has created some issues and concerns for the white collar bar in this area … is the lack of guidance from main Justice in Washington … as to when prosecutions should be resolved by a guilty plea, DPA or NPA," Dunst urged. Moreover, if a DPA or NPA is used, there are no standards for how it should be implemented, he contended.
When an agreement provides for an independent monitor, Dunst continued, there are a number of variables. For example, how the monitor is chosen can differ greatly from district to district, he said. In some situations the company has no say and DOJ decides. In other situations, such as a recent Bank of New York case, the government sought input before deciding who would be the monitor. Another option is for the company to provide the government a list of possible monitors from which the government decides. Sometimes, the company makes a selection and "gets DOJ's blessing afterwards," Dunst explained.
Extent of Authority.
A second variable in the operation of monitorships, he continued, is the extent of the monitor's authority. In the early 2000s, independent monitors often had "limitless authority" and "a lot had few if any limits on the scope of the work or the potential cost of the work," Dunst suggested. In recent years, this model has started to change," he added, "and the agreements coming from main Justice seem to be imposing more order and limitations on the power of the independent monitor."
In the case of Norway-headquartered Stat Oil ASA—which last year had "a Foreign Corrupt Practices Act problem" that was resolved by an NPA—the agreement required that the monitor's work plan be approved in advance after being vetted by the company, and by outside counsel, the Securities and Exchange Commission, and DOJ, Dunst offered. The agreement includes sufficient caveats to let the monitor expand the work plan within the scope of the agreement. In addition, there is a strict time table for certain events to occur. Nonetheless, Dunst said, "there is no mandate from main Justice as to how the Assistant U.S. Attorneys in the field have to act."
In the FCPA area, Dunst said, DOJ currently has as many as 100 open cases. Last year DOJ and the SEC brought 15 FCPA cases, and 15 have been filed so far this year with fines reaching a record high in one instance. For example, last year Statoil paid a $21 million fine over alleged improper payments in Iran; Vetco subsidiaries paid a total of $26 million in February to resolve their case; and Baker Hughes paid a record $44 million fine in April. In the past several weeks, Dunst recounted, several companies settled FCPA cases, including York International, which paid a $10 million fine for alleged kickbacks in the United Nations oil-for-food program.
Pointing to the example of Statoil, in which Norwegian regulators levied a significant fine against the company, Dunst complained of a sort of double jeopardy. "The SEC and DOJ are still jumping in notwithstanding the fact that foreign regulators are doing their job," he said. Dunst noted that the payments at issue in the Statoil case were made "almost exclusively outside the United States."
As defense counsel to such a company, one has a great deal of uncertainty about the possible consequences for one's client, Dunst said. "You just don't know what you're going to end up with."
This article is brought to you by BNA Tax & Accounting and the Accounting Policy & Practice Report. For more information or a free trial to the BNA Tax and Accounting Center, please visit www.bnatax.com. |
