Do DPAs and NPAs Promote Balanced Justice?


In the Bush Administration, the Justice Department turned deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs)into relevant terms for defense counsel.  Now, even the SEC has joined the club entering into the first DPA and NPA.

The distinction between a DPA and an NPA is critical — the DPA invokes the Court’s supervisory jurisdiction and requires the Justice Department to lodge a criminal information to charge the company but defer the prosecution; the NPA remains within the discretion and control of the Justice Department, the Executive Branch, and does not involve any filing with the courts.

The primary benefit of these two tools is to avoid the catastrophic consequences which can result to a public company which is indicted — the Arthur Andersen case in the early 2000s resulted in the collapse of the company, the loss of thousands of jobs and economic harm to communities around the country.

The Justice Department’s use of DPAs and NPAs has been criticized as a tool which rewards bigger companies with more effective defense counsel and lobbyists, to the detriment of mid-size and less influential corporate actors.  It is hard to find a consistent dividing line between a decision to charge a company and the decision to enter into a n NPA or a DPA.  The Justice Department has tried to articulate such standards, without much success.  However, at least the Justice Department is trying to use consistent forms of NPAs and DPAs, imposing similar burdens on actors who enter into these agreements. 

The use of corporate monitors, and when they are necessary, remains a troublesome area.  The Monfrot Memo which was adopted years ago in response to criticisms that corporate monitorships were being handed out to Justice Department cronies, has not done too much to life the opaque standards being employed for corporate monitors. 

Despite all of these concerns, the Justice Department and now the SEC continue to employ DPAs, NPAs and corporate monitors at a significant pace.  More and more component’s of the Justice Department, such as the Antitrust Division, are using DPAs and NPAs for the first time, and of course, the rate of voluntary disclosures continues to rise as corporations are being scared into confessing their sins. 

The Fraud Section is the largest user of DPAs and NPAs.  The SEC plans to use these tools in more cases.  The Antitrust Division recently entered into its two NPAs in the municipal bond investment investigations under which two companies acknowledged their participation in unlawful agreements to manipulate the bidding process and rig bids on municipal investment contracts.  The two companies paid civil penalties of $160 million and $228 million, respectively. 

DPAs and NPAs are frequently used when dealing with corporations which are highly regulated and where the collateral consequences of a conviction can be devastating to the corporation.  These concerns typically occur in the financial and health care industries,e specially with the impact that exclusion from Medicare and Medicaid could have on a corporation.

Enforcement agencies are developing new tools which give them greater flexibility to resolve cases.  But they have to be careful to use these new tools to avoid situations where uneven justice is dispensed.  The more consistent the standards for use of the tools, the terms and provisions of the tools, and the more transparent the process is, the more likely the government is to earn judicial support and avoid public and political criticism.

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1 Response

  1. Matthew Lynch says:

    It’s a fact of life that the discretionary authority to utilize DPAs and NPAs gives the Justice Department a major tool in dealing with questionable corporate practices. Very large entities are much more willing to pay civil fines and are acquiescent to admit to less than ethical behavior when it doesn’t involve potential jail time. The problem with DPAs and NPAs is that it does little to curtail an overall climate of bad behavior at some of the largest of corporations as they look at the civil penalties as a cost of doing business – As long as penalties are manageable and do not disrupt business too much. This is particularly true when dealing with large Medicare/Medicaid providers.

    As far as corporate monitorships are concerned they look and sound good, but the reality is they have been lacking in effectiveness. With their monitoring focused primarily on the areas of initial interest to Justice, and with questionable expertise on the part of the monitoring entity, companies are able to deflect attention from other areas. The government quickly learned after the TARP bailouts it does not want to be in the business of either owning or partnering with corporate America.

    As long as we allow corporations to get so big that their failure would have “collateral consequences” to the corporation and our economy (and I am certainly not arguing that we should limit a company’s growth) then it will remain imperative that Justice have a variety of tools to choose from in dealing with them. The goal needs to be finding a process and enforcement strategy that keeps the scales of Justice in balance regardless of the tool of choice.