Corporate America take note: Use of deferred prosecution agreements and non-prosecution agreements, now mainstays of the government's effort to combat corporate crime, climbed to their second highest level of the decade in 2010.

The U.S. Department of Justice entered into 32 such agreements in 2010, up from 21 agreements in 2009, according to a tally by Gibson Dunn & Crutcher. The only year with more agreements was 2007, when the DOJ resolved a large number of FCPA investigations related to the Iraq Oil-for-Food program, along with healthcare fraud investigations in the orthopedic manufacturing industry. By comparison, GDC cites only one publicly reported corporate DPA in 2000. The 32 agreements resulted in a total of more than $2.314 billion in monetary penalties.

 

2010 also marked the Securities and Exchange Commission's first foray into the DPA-NPA arena under its Cooperation Initiative. In December, the SEC announced a non-prosecution agreement with Carter's Inc. to resolve allegations that the company's former executive vice president engaged in financial fraud and insider trading.

During the first five years of the decade, the average number of DPAs was just over four per year. That increased more than six-fold during the second half of the decade to an average of more than 26 agreements per year, says GDC. The alert attributes the increase in 2010 to several factors, including increased resources and a more aggressive stance on corporate crime by the DoJ; increased emphasis on Foreign Corrupt Practices Act enforcement; the frequency of voluntary disclosure by corporations; and the expansion of the ability to use DPAs and NPAs to the SEC.

Not surprisingly, as DOJ has increased its FCPA enforcement efforts, the number of DPAs to resolve potential FCPA prosecutions has also risen. FCPA violations accounted for 14 of the 32 agreements entered in 2010, or about 44 percent. By comparison, GDC says such violations accounted for roughly 24 percent of the agreements in 2009, 37 percent in 2008, 26 percent in 2007, and only 9 percent in 2006. Agreements to resolve allegations of Medicare fraud were second most prevalent in 2010.

Thirteen of the agreements cited the company's voluntarily self-disclosure of its conduct as part of the reason for the agreement. Self-disclosure may play a role in whether a company receives a DPA versus an NPA, according to GDC. Roughly half of the NPAs entered into in 2010 involved self-disclosure, versus 35 percent of DPAs.  

While the use of corporate monitors in DPAs and NPAs has drawn criticism and scrutiny, the 2010 statistics show monitors are still fairly prevalent. Ten of the agreements—almost a third—included a monitor in 2010. By contrast, in 2009, following criticism of the monitor selection process, just one of the 21 agreements required a monitor. Monitors were far more likely in DPAs than in NPAs.

 

Notably, in several cases, including the settlements entered into by freight forwarding company Panalpina and several of its customers, no monitors were required. Instead, federal prosecutors imposed a "Corporate Compliance Reporting" requirement under which the companies must provide an initial report and annual written follow-up reports to DOJ about their remediation and implementation of the revised corporate compliance program for the duration of their agreements.