ALI-ABA Topical Courses Look Before You Leap: DPAs NPAs & the Environmental Criminal Case April 14, 2010 Telephone Seminar/Audio Webcast

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1 21 ALI-ABA Topical Courses Look Before You Leap: DPAs NPAs & the Environmental Criminal Case April 14, 2010 Telephone Seminar/Audio Webcast 2009 Year-End Update on Corporate Deferred Prosecution And Non-Prosecution Agreements Submitted by F. Joseph Warin Gibson, Dunn & Crutcher LLP Washington, D.C. January 7, 2010

2 22 January 7, YEAR-END UPDATE ON CORPORATE DEFERRED PROSECUTION AND NON-PROSECUTION AGREEMENTS To Our Clients and Friends: Although Deferred Prosecution Agreements ("DPAs") and Non-Prosecution Agreements ("NPAs") were rarely used and hardly discussed a decade ago, in the last several years they have become a hot topic and common aspect of corporate prosecutions: Congress, legal academics, and practitioners from prosecutors to defense counsel have weighed in on the Department of Justice's ("DOJ's") use of the agreements. DPAs and NPAs are types of pre-trial agreements whereby the government agrees not to pursue charges against a corporation so long as the corporation abides by the terms of the agreement. Although often similar in content, the emerging difference between a DPA and an NPA is whether a criminal information is filed in a federal court. With a corporate DPA, the information, as well as the DPA itself, are filed with and must be approved by a federal district court. In contrast, NPAs are typically between the corporation and the government and nothing is filed or approved by a court. The purpose of DPAs and NPAs is to deter, punish, and reform corporate behavior while limiting the collateral consequences of corporate indictment or conviction, such as a loss of a broker-dealer license, banking license, charter, or deposit insurance; suspension from government contracting; or prohibition from participation in government healthcare programs. It should come as no surprise, then, that the use of DPAs and NPAs increased dramatically following the demise of Arthur Andersen, the accounting firm that imploded after being indicted and convicted of obstruction of justice in By the time the Supreme Court overturned Arthur Andersen's conviction, the firm was already out of business. But after five years of steady increase in the use of DPAs and NPAs, DOJ's use of these agreements the past two years has noticeably decreased. In fact, the eighteen corporate DPAs and NPAs reported during 2009 is the smallest number of agreements entered since 2005, and just under one half the number entered into during 2007, the high water mark to date for DPAs and NPAs. There are several possible explanations for the recent decrease in DPAs and NPAs as discussed further below. However, the most likely reason for the lower number of agreements is simply the normal ebb and flow of DOJ's investigation cycle. Gibson Dunn has represented numerous corporations in negotiating DPAs and NPAs; we also have written extensively regarding the policy considerations and implications of these agreements. Although 2009 witnessed a leveling off of DOJ's use of DPAs and NPAs compared with prior years, DPAs and NPAs are here to stay as an often-sought alternative resolution for criminal investigations. Accordingly, understanding the latest trends is essential. This client update provides an overview of the 2009 DPAs and NPAs and identifies key trends by analyzing the agreements entered over the previous four years. Non-Prosecution and Deferred Prosecution Agreements in 2009 DOJ entered into eighteen DPAs and NPAs with corporate entities during 2009 the lowest number of agreements entered into since Even though this represents a drop of almost fifty percent from

3 23 the number of agreements entered into during 2007, it is only one less agreement than 2008.[*] The chart below summarizes the number of DPAs and NPAs entered into by DOJ over the past decade. The second half of 2009 kept pace with the first half, with eight of the eighteen DPAs and NPAs occurring in the second half of the year. In our 2009 Mid-Year Update, we described the ten reported DPAs and NPAs that DOJ entered into during the first half of the year. The second half of 2009 brought five additional NPAs and three DPAs three for FCPA violations, one for internet gambling, one for violations of the International Emergency Economic Powers Act ("IEEPA"), one for healthcare fraud, and two for immigration violations. This is consistent with the types of DPAs and NPAs that were agreed to in the first half of the year. While there were two tax fraud DPAs or NPAs in the first half of the year, there were no additional agreements for that offense in the second half of The chart below summarizes all of 2009's federal corporate DPAs and NPAs Federal Corporate Deferred and Non Prosecution Agreements Corporation Violation 2 Total Monetary Penalty * Type Monitor Term AGCO Corp. FCPA $1.6 million DPA No 3 years Beazer USA, Inc. Columbia Inc. Credit Suisse Homes Farms, Fisher Sand & Gravel Co. Mortgage Fraud $10 to 50 million DPA No 5 years Immigration Violations $1.5 million DPA No 2 years International Emergency $268 million DPA No 2 years Economic Powers Act Tax Fraud $1,168,141 DPA No ** ~32 months

4 24 Halliburton Company Helmerich Payne, Inc. Lloyds TSB & FCPA None NPA No 2 years FCPA $1 million NPA No 2 years International Emergency Economic Powers Act 3 $175 million DPA No 2 years NeuroMetrix, Inc. Healthcare Fraud $1.2 million NPA No ** 3 years Novo Nordisk A/S FCPA $9 million DPA No 3 years Optimal Group, Inc. Internet Gambling $19,182,418 NPA No 3 years PartyGaming PLC Internet Gambling $105 million NPA No No set term Pilgrim's Pride, Inc. Immigration Violations $4.5 million NPA No 5 years Quest Diagnostics Health Care Fraud None NPA No ** 5 years Spectranetics Healthcare Fraud None NPA No** 2 years UBS AG Tax Fraud $780 million DPA No ** UTStarcom, Inc. FCPA $1.5 million NPA No 3 years WellCare Plans Health Healthcare Fraud $80 million DPA Yes 3 years At least 18 months * Only includes monetary penalties included in the agreement itself, not all monetary penalties arising out of the same facts that gave rise to the agreement. Information on all monetary penalties can be found in Appendix A. ** These DPAs do not provide for an independent "monitor," but they do provide for some form monitor-like supervision. More information on these provisions can be found in Appendix A. Trends in Deferred and Non-Prosecution Agreements Although eighteen agreements is a modest sample size, these agreements still provide a basis for some analysis of DOJ's use of DPAs and NPAs within the context of the last few years. The sections of DOJ that entered into DPAs and NPAs during 2009 are consistent with past years. In 2009, Main Justice and the various U.S. Attorney's Offices entered into approximately equal numbers of agreements, with seven solely by Main Justice and eight solely by U.S. Attorney's Offices. In 2008 half of the agreements were entered into by Main Justice and the other half were entered into by U.S. Attorney's Offices. During 2009 there were also three agreements entered into jointly by Main Justice and a U.S. Attorney's Office. While no agreements were entered jointly in 2008, the practice of joint agreements was not uncommon in prior years. As in past years, DOJ's Fraud Section was the leader in entering into DPAs and NPAs during 2009, with five agreements. The U.S. Attorney's Office for the Southern District of New York, historically a

5 25 leader in DPAs and NPAs, entered into two agreements in Nine other U.S. Attorney's Offices entered into one agreement each. In 2009, half (nine) of the agreements were DPAs while half (nine) were NPAs. This is in contrast to 2008 when thirteen of the nineteen agreements (sixty-eight percent) were DPAs and only six (thirtytwo percent) were NPAs. The rise in the number of NPAs could signal that more companies are selfreporting suspected violations, especially in the FCPA context. In recent years, senior DOJ officials have repeatedly encouraged companies to voluntarily disclose suspected FCPA violations through promises of more lenient treatment. In November 2009, Lanny A. Breuer, Assistant Attorney General, stated that "voluntary disclosure may result in no action being taken against a company, or the company may secure other preferred dispositions...." In fact, it appears at least initially that DOJ is more likely to grant an NPA to a company that self discloses. Of the FCPA cases since 2004 involving a company that did not self disclose, only thirty percent resulted in an NPA, whereas fifty nine percent of the cases in which a company self-disclosed resulted in that favorable resolution. For several years now, DOJ's most prevalent use of DPAs and NPAs has been to resolve allegations of FCPA violations and healthcare fraud; 2009 was no exception. This past year, FCPA violations and healthcare fraud accounted for fifty percent of the total agreements nine of eighteen. This percentage is slightly higher than in 2008, when only forty-two percent of the agreements resolved FCPA violations or healthcare fraud, largely due to a much smaller number of healthcare cases that year. In 2007 FCPA violations and healthcare fraud totaled fifty-three percent of the agreements. The charts below set forth the types of violations that resulted in DPAs and NPAs over the previous four years, which covers over ninety percent of the agreements entered into this decade. A careful review of these charts reveals some trends in the types of offenses for which DOJ enters DPAs and NPAs. In 2006, DOJ entered into DPAs and NPAs for a large number of varying types of offenses; no single offense constituted more than eighteen percent of the total. There were two DPAs or NPAs involving FCPA offenses, and only one agreement involving healthcare fraud. The most prevalent use of DPAs and NPAs in 2006 was for accounting fraud offenses, which is not surprising given the passage of Sarbanes-Oxley just four years earlier. There was also one agreement each related to tax fraud, immigration violations, and internet gambling, and two agreements related to money laundering. Each of these types of offenses appears frequently, though in low numbers, in the following years. 4