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Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531
University of Minnesota
Law School
Legal Studies Research Paper Series
Research Paper No. 09-10
The Decline of the DPA: What has
happened and why
Ralph F. Hall
Timothy W. Schmidt
This paper can be downloaded without charge from the Social Sciences
Research Network Electronic Paper Collection
Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531
Title: The Decline of the DPA: What has happened and why
Ralph F. Hall
†
Timothy W. Schmidt
††
For the past several years, commentators have predicted (or warned) that federal
prosecutors were increasingly using deferred prosecution agreements (DPAs) and non-
prosecution agreements (NPAs) when settling with companies accused of corporate
wrongdoing. From 2002 (the year after Enron) through 2007, this prediction was
accurate—DPAs increased by from 2 in 2001 to 20 in 2007 and NPAs increased from 1
to 18 in the same time period. Something then happened in 2008. New research
demonstrates that the use of these mechanisms has markedly decreased over the past
year, and may continue to do so. This article is the first to describe this phenomenon,
suggests some possible reasons and poses questions for future research and analysis.
Overview of DPAs and NPAs
DPAs and NPAs are often viewed as a better way to resolve enforcement actions,
promote improved compliance practices and serve as a way for corporations and the
attorneys who prosecute them to save time, money, and face. Actual criminal convictions
can serve as a death sentence for companies, even when the monetary penalties are not
severe—the collapse of Arthur Andersen is the classic example of this phenomenon.
1
In
the health care arena, certain convictions can lead to exclusion from federal or state
funded programs. Few companies can survive such a result. The government also faces
substantial risks when prosecuting companies. Complex factual and legal situations may
lose juries, and a high profile loss may encourage other corporations to engage in similar
unethical or dangerous behavior. Even if the government wins the case, the collapse of
the prosecuted company could result in substantial job losses and reduced competition, as
was the case with Arthur Anderson.
2
These concerns regularly drive parties to settlement. However, unlike most methods of
settlement, DPAs and NPAs allow the government to use forward-looking remedies to
improve company practices, often under the supervision of the government or a
government-appointed monitor. DPAs and NPAs usually include some admission of
wrongdoing, an obligation to cooperate with the government, monetary penalties or
restitution, and a promise to implement procedures to prevent reoccurrence of the
wrongdoing.
3
The agreements usually have a set term during which the companies must
comply or risk prosecution from the government. If the company violates the agreement,
the government may then use admissions within the agreements against the company, all
but assuring a conviction.
NPAs and DPAs both involve the company agreeing to reform its policies, practices and
often its culture. They differ in what happens to the charges against the company after it
enters into an agreement with the government. With an NPA the charges are dropped or
never filed, though the government can retain the option of prosecuting if the company
violates the agreement.
4
The government files charges with DPAs, but then suspends
prosecution during the term of the agreement. If the company abides by the agreement
Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531
the government drops its prosecution with prejudice, and the company exits without a
conviction on its record nor any criminal liability for the actions included in the
indictment.
5
Methods
We have attempted to locate all federal DPAs and NPAs, as well as those entered into
with states, where possible. Covering the period ending in December 2008, we have
identified 72 DPAs and 67 NPAs, for a total of 139 agreements. (Our research includes
both health care companies and non-health care companies. Approximately 16% of the
agreements we located involve health care or life science companies.) While this may
represent the largest collection of agreements that exists, it no doubt does not include
them all. To identify them, we searched court records, government and industry press
releases, congressional reports, and corporate filings. We also checked our work against
other lists compiled in articles written by authors such as Brandon Garrett,
6
Lawrence
Finder & Ryan McConnell,
7
and Peter Spivack & Sujit Raman.
8
The data for DPAs may be more complete than that for NPAs. DPAs are easier to find
than NPAs, due to their more public nature and higher profile. Prosecutors usually file
DPAs with the court, making DPAs part of the public record. NPAs, on the other hand,
can be called many things, sometimes remain hidden and can be very informal.
Corporate Leniency Agreements, for example, are types of non-prosecution agreements
in antitrust litigation that generally remain secret.
9
While the exact numbers of
agreements may be undercounted, the trends observed probably are accurate. The same
methodology was used and our trends track those reported by others.
Trends and History
As discussed in more detail below, our data demonstrates a substantial increase in the use
of DPAs and NPAs from 2002 to 2007 but then a surprising and substantial decline in
2008.
The use of DPAs and NPAs, even at their height, never was the norm for white-collar
criminal investigations. In 2008, the Justice Department’s Corporate Fraud Task Force
Report stated there were about 1300 corporate fraud convictions from July 2002 to early
2008, with over 2000 filed informations and indictments from 2003 to 2007.
10
But our
research shows the federal government entered into less than 100 DPAs and NPAs during
this same period.
While there were a scattering of DPAs and NPAs in the past, the use of DPAs and NPAs
did not really increase substantially until 2003, after Enron and Arthur Anderson. The
total number of agreements we found steadily grew from three in both 2001 and 2002 to
seven in 2003, eleven in 2004, and fifteen in 2005. In both 2006 and 2007, the number of
agreements jumped. Prosecutors entered into twenty-five agreements with companies in
2006 and thirty-eight in 2007.
Electronic copy available at: http://ssrn.com/abstract=1335531Electronic copy available at: http://ssrn.com/abstract=1335531
Averages over three periods also demonstrate the general increase. Between 1992
(generally considered to be the dawn of the modern corporate DPA and NPA) to 2002,
the government entered into about two agreements per year. That rose to eleven per year
between 2003 and 2005, and twenty-eight per year between 2006 and 2008. Rates for
DPAs and NPAs rose similarly over the periods.
The number of DPAs and NPAs dropped significantly, however, between 2007 and 2008,
from thirty-eight to twenty-one. The numbers of DPAs also decreased proportionally
from twenty in 2007 to twelve in 2008. The following table graphically portrays this
decline.
This decrease is both unexpected and unexplained. We offer some possible explanations
that, together, may account for the decrease. While our data includes all industry sectors,
the decline is also apparent if one looks just at life science companies. Here, the use of
these agreements declined from five DPAs and four NPAs in 2007 to one each in 2008.
11
(With a smaller data set such figures are more susceptible to statistical variation and
clusters such as the orthopedic settlements in 2007. However, the overall decline
supports the view that the decline in life science DPAs and NPAs is not just an anomaly.)
As discussed below, possible causes for this decline vary. First, DPAs and NPAs may
have become controversial and thus less likely to be used. The government may be using
more severe remedies or there may a decrease in the frequency or severity of non-
compliance. The answer is not clear but merits further research.
Monitor Selection Controversy
Articles in the New York Times and other papers in January 2008 criticized a number of
corporate monitor agreements in which U.S. attorneys appointed former government
officials as monitors.
12
The most notable example of this was the appointment of John
Ashcroft as the monitor for Zimmer Holdings, Inc., an orthopedic device company. The
same month, Rep. Frank Pallone introduced a bill, H.R. 5086, that would have required
judges, not prosecutors to appoint monitors.
13
The House Judiciary Committee held
hearings in the matter in March 2008.
14
This prompted the Justice Department to issue
new guidelines regarding the use of monitors in a memorandum known as the Morford
Memo. The memo sets for objective criteria for appointing monitors, encouraging
competition in selection and discouraging personal or political factors.
15
Attorney-Client and Work Product Waiver Controversy
Congress and other commentators also criticized DPA and NPA provisions that required
companies to waive attorney-client and work product privileges. Senator Arlen Specter
introduced bills in 2006, 2007, and 2008 to prohibit prosecutors from requesting that
corporations waive their privilege as a condition to avoid prosecution.
16
The DOJ policy
in effect from December 2006 to August 2008, contained in what is known as the
McNulty Memo, allows U.S. attorneys to consider a corporation’s “acquiescence to the
government’s waiver request” when determining whether a company has cooperated with
the government.
17
In August 2008, Deputy Attorney General Mark Filip announced a new set of DOJ
guidelines that prohibited U.S. attorneys from requesting a corporation waive its
privileges. The door on waivers did not completely shut, though; the guidelines do allow
prosecutors to request “relevant factual information—including relevant factual
information acquired through [lawyers’] interviews” And corporations remain “free” to
waiver the privileges.
18
Both the controversy over monitor selection and waiver of privilege may have lead
prosecutors to be more guarded about their use of prosecution agreements until the
political climate calmed down.
Harsher Punishments May Be Being Employed
U.S. attorneys may also have shifted their methods when pursuing corporations. An
April 2008 New York Times article suggests that the Department of Justice had gotten too
soft on corporations.
19
Justice officials may have decided to prosecute corporations that
otherwise may have received a DPA in order to avoid the perception of being soft on
corporate crime – an accusation no prosecutor wants to face. We note that the recent
major settlement with Eli Lilly involved an actual plea and not a DPA or NPA.
20
Corporate misconduct is also a hot media and political issue that can influence
prosecution decisions. If any of these are the case, one would expect an increase in the
number of actual prosecutions and guilty pleas in 2009 as the cases that otherwise would
have been settled in 2008 work their way through the criminal justice system.
Statistical anomaly
In the alternative, the over forty percent drop in the number of DPAs and NPAs may
merely be a statistical anomaly. While the number of DPAs dropped from twenty in
2007 to twelve in 2008, this is not far off from the fourteen entered into in 2006.
Investigations may have coincidentally been timed in such a way that many more ended
in 2007 than normal.
Increased Compliance
Since Enron, American corporations have invested substantial time and resources into
compliance programs.
21
It is at least possible that these programs have actually reduced
the frequency or severity of corporate non-compliance. If that is the case, one would
expect to see a decrease in DPAs and NPAs, actual prosecutions and investigations.
Preliminary data from the Department of Justice Corporate Fraud Task Force does not
support this conclusion but clearly additional information is needed.
22
Future
The future of DPAs and NPAs are uncertain. The new attorney general designee, Eric
Holder, has in the past argued for leniency for corporations that cooperate with the
government. As a deputy attorney general, he penned in 1999 the eponymous Holder
Memo which, for the first time, laid out for government prosecutors the factors to
consider when deciding to prosecute a corporation.
23
After leaving for private practice,
Holder wrote an editorial in the Wall Street Journal entitled “Don’t Indict WorldCom,”
arguing that prosecuting the corporation made less sense after pursuing the individuals
within the corporation who committed the wrongful acts.
24
In an interview in 2002
published in the Corporate Crime Reporter, Holder stated that there was limited use for
deferred prosecution agreements. “It may be that there are compelling reasons as to why
you want to defer prosecution. But generally, the better way to go is to make the
decision—yes or no.”
25
Having said this, the basic reasons for DPAs and NPAs – namely to force changes in
corporate practices while avoiding the potentially deadly “collateral damage” of a
conviction remain.
A large span of time has passed between Holder’s last term of service in the Justice
Department. The new attorney general, whomever that might be, will have to decide
anew whether to allow U.S. attorneys to keep DPAs and NPAs in their arsenal or to use
more traditional methods of prosecution or settlement.
In the meantime, our research raises a number of questions for ongoing review. Will this
decline continue? What has caused this drop? Have administrative agreements such as
Corporate Integrity Agreements taken the place of DPAs and NPAs. Are there other,
new and better tools to resolve corporate non-compliance? 2009 may well answer at least
some of these questions.
† Ralph F. Hall is Counsel to Baker & Daniels LLP and Distinguished Visiting Professor, University of
Minnesota Law School, Visiting Professor of Law, Indiana University School of Law Indianapolis
†† Timothy W. Schmidt is a 2009 J.D. Candidate at the University of Minnesota Law School.
1
See United States v. Arthur Andersen, LLP 374 F.3d 281 (5th Cir. 2004), rev’d by 544 U.S. 696 (2005).
2
See, e.g., Elizabeth K. Ainslie, Indicting Corporations Revisited: Lessons of the Arthur Andersen
Prosecution, 43 AM. CRIMINAL L.REV. 107, 109 (2006).
3
See, e.g., the DPA the Department of Justice reached with AGA Medical Corporation in June 2008, which
includes admission of responsibility, statement of cooperation, $2 million monetary penalty, institution of a
corporate compliance program, and agreement to engage a corporate monitor.
4
See, e.g., the NPA reached between Purdue Pharma, L.P. and the U.S. Attorney for the Western District of
Virginia in May 2007, which was never filed in court.
5
See, e.g., the DPA reached between Bristol-Myers Squibb and the U.S. Attorney for the District of New
Jersey. The U.S. attorney filed charges on June 15, 2005. Complaint, United States v. Bristol-Myers Squibb
Co., No. 2:05-MJ-06076 (D. N.J. June 15, 2005). The charges were dismissed after the expiration of the
agreement two years later. See Press Release, U.S. Department of Justice, Statement from U.S. Attorney
Christopher J. Christie on Expiration of Deferred Prosecution Agreement with Bristol-Myers Squibb (June
14, 2007), at http://www.usdoj.gov/usao/nj/press/files/pdffiles/dpaexpires0614rel.pdf.
6
Brandon L. Garrett, Structural Reform Prosecution, 93 Va. L. Rev . 853 (2007).
7
E.g. Lawrence D. Finder & Ryan D. McConnell, Devolution Of Authority: The Department Of Justice's
Corporate Charging Policies, 51 St. Louis U. L.J. 1 (2006).
8
Peter Spivack & Sujit Raman, Regulating the ‘New Regulators’: Current Trends in Deferred Prosecution
Agreements, 45 Am. Crim. L. Rev. 159 (2008).
9
The Stolt-Nielsen saga is one notable exception. See Stolt Nielsen S.A. v. United States, 442 F.3d 177 (3d
Cir. 2006).
10
Department of Justice, Corporate Fraud Task Force Report at iii (2008), available at
http://www.usdoj.gov/dag/cftf/corporate-fraud2008.pdf.
11
The life science DPAs were Pfizer Pharmacia & Upjohn, Biomet, DePuy Orthopaedics, Smith &
Nephew, and Zimmer in 2007 and AGA Medical Corp. in 2007. The life science NPAs were with Blue
Cross & Blue Shield of Rhode Island, Jazz Pharmaceuticals, Purdue Pharma, and Stryker Orthopaedics in
2007 and Biovail Corp. in 2008.
12
See, e.g., Philip Shenon, Ashcroft Deal Brings Scrutiny in Justice Department, N.Y. Times. Jan. 10,
2008, at A1.
13
H.R 5086, 110th Cong. (2008).
14
Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?: Hearing
Before the Subcomm, on Commercial and Administrative Law, 110th Cong. (2008), available at
http://judiciary.house.gov/hearings/hear_031108_2.html.
15
See Memorandum from Craig S. Morford, Acting Deputy Attorney General, to Heads of Department
Components and United States Attorneys (Mar. 7, 2008), available at
http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/crm00163.htm.
16
See Attorney-Client Privilege Protection Act of 2006, S. 30, 109th Cong. (2006); Attorney-Client
Privilege Protection Act of 2007, S. 186, 110th Cong.; Attorney-Client Privilege Protection Act of 2008,
S. 3217, 110th Cong. (2008).
17
Memorandum from Paul J. McNulty, Deputy Att’y Gen., to Heads of Dep’t Components and U.S. Att’ys
(Dec. 12, 2006), available at http:// www.usdoj.gov/dag/speeches/2006/mcnulty_memo.pdf.
18
Memorandum from Mark R. Filip, Deputy Att’y Gen., to Heads of Dep’t Components and U.S. Att’ys
Deputy Attorney General, (Aug. 28, 2008), available at http://www.usdoj.gov/opa/documents/corp-
charging-guidelines.pdf.
19
Eric Lichtblau, In Justice Shift, Corporate Deals Replace Trials, N.Y. T
IMES
, Apr. 9, 2008, at 1.
20
Eli Lilly Agrees to Settle Zyprexa Marketing Cases, Wall St. J., at B4.
21
See, e.g., Foley & Lardner, The High Cost of Compliance, (2005),
http://www.foley.com/publications/pub_detail.aspx?pubid=2849 (finding corporate compliance costs rose
by double-digits for companies each year between 2002 and 2004).
22
Corporate Fraud Task Force, Report to the President at iii (2008) Department of Justice Corporate Fraud
Task Force Report, http://www.usdoj.gov/dag/cftf/corporate-fraud2008.pdf.
23
Memorandum from Eric Holder, Deputy Att’y Gen., to Component Heads and U.S. Attorneys (June
16,1999), available at http://www.usdoj.gov/criminal/fraud/docs/reports/1999/chargingcorps.html.
24
Eric H. Holder, Jr., Op-Ed., Don’t Indict WorldCom, Wall St. J., Jul. 30, 2002, at A14.
25
See Eric Holder on Corporate Crime, 22 Corp. Crime Rep. 47 (2008), available at
http://www.corporatecrimereporter.com/holder120408.htm.
