So What Happens Next With DPAs?

Compliance officers could ponder any number of issues raised by the Justice Department last week, when it unveiled numerous policy changes to strengthen its enforcement of corporate misconduct. To my thinking, however, the most consequential question is this: What should the department do with repeat corporate offenders? 

Deputy attorney general Lisa Monaco asked exactly that last week when she announced her policy shifts. Among her many points, Monaco wondered aloud whether deferred- and non-prosecution agreements are suitable resolutions for repeat corporate offenders — or such corporate miscreants be subject to punishment sterner? 

Take note, compliance officers. If that idea comes to pass, it could have profound implications for corporate compliance programs. The debate also shows just how tricky it can be for prosecutors to find a punishment for corporate misconduct that works and makes sense.

Why? Because if the Justice Department takes DPAs and NPAs off the negotiating table, prosecutors’ most immediate alternative is a criminal indictment against the company, presumably followed by trial and potential conviction. That’s a dramatic escalation of consequences for most organizations, and they would fight it tooth and nail. 

After all, criminal indictment and conviction can bring dire consequences for a business: getting kicked off stock exchanges, losing eligibility to bid on government contracts or participate in government spending programs, and a raft of other headaches. They are consequences that constrain how the company can conduct future business, which is a much more unpleasant scenario than monetary penalties.

If that’s what is at risk, suddenly the argument that a company shouldn’t disclose misconduct to the feds becomes much more compelling, especially for repeat offenders. Why do the right thing and then spend a fortune defending yourself in court? Just keep quiet, remediate, and hope the Justice Department never finds out. 

To be clear, I personally believe this argument is misguided at best — but I can see its appeal to corporate boards and legal departments. 

On the other hand, pity the compliance officer at that organization. You spend your time preaching to employees about the importance of speaking up, and then the bosses keep quiet? Employees will see the dissonance in those messages pretty quickly, and your compliance message is relegated to the sidelines. So are you. 

Then Again, DPAs and NPAs Aren’t Ideal

At the same time, Monaco isn’t wrong to say that DPAs and NPAs can become an easy out for corporate misconduct. As she asked last week, “Does the opportunity to receive multiple NPAs and DPAs instill a sense among corporations that these resolutions and the attendant fines are just the cost of doing business?”

In a word, yes. DPAs and NPAs are a flawed vehicle for rehabilitating corporate misconduct. I know compliance professionals who were hired as part of a DPA or corporate integrity agreement, and then fired when the agreement ended. I’ve heard numerous stories, over a period of years, where CEOs told the chief compliance officer, “Now that the integrity agreement is done, we can dial back the effort here, right?”

And as for monetary penalties or disgorgement of ill-gotten profits — they are, literally, the cost of putting prior misconduct behind you. No company likes to pay those costs, but they are a fixed thing that lets senior management get on with whatever future business it wants to pursue. 

Well, flexibility for future pursuits is what senior management always wants. So if the price to maintain that flexibility is an outlay of cash for penalties and disgorgement; plus a few years of enhanced compliance practices during the DPA or NPA — plenty of executive teams will see that as a small price to pay. Which really is just another way of saying “the cost of doing business,” when you think about it.

So if Monaco wants to break that bad habit, but not provoke the all-out war that a criminal indictment and subsequent trial could cause, then the Justice Department needs to develop some other resolution for corporate misconduct. 

Remember What Will Happen Next

For the record, that’s where we are right now: Monaco wants to explore those alternative resolution ideas. She announced the formation of a Corporate Crime Advisory Group, which will bring together various voices within the Justice Department to consider how the department can drive better behavior and less misconduct from Corporate America. Specifically:

This group will have a broad mandate and will consult broadly. It will consider some of the issues I previewed today — like monitorship selection, recidivism and NPA/DPA non-compliance — as well as other issues, like what benchmarks we should use to measure a successful company’s cooperation. It will also make recommendations on what resources can assist more rigorous enforcement, and how we ensure that individual accountability is prioritized.

In that case, compliance officers should consider two final points. 

First, can compliance professionals be part of this advisory group too? I’ll give credit here to Todd Haugh, business law professor at Indiana University, who floated this idea on LinkedIn over the weekend:

The issue of corporate crime is not just about making cases (which the DOJ does well); it’s about changing individual and corporate behavior, something many former-DOJ, academic, and industry partners have been working on for decades. I’ll make a pitch for adding a behavioral ethics researcher, but this should be a “big tent” effort if we’re going to make real headway in the partnership that is (or should be) corporate crime and compliance monitoring and enforcement.

This is an excellent idea. The Justice Department would be wise to steal it from him.

Second, if the big question here is how to deal with repeat corporate offenders, then we should closely watch how the Justice Department handles Swedish telecom giant Ericsson. The department recently accused Ericsson of violating a DPA the company reached in 2019 (including $1.06 billion in penalties and disgorgement) to settle FCPA violations. 

John Carlin, one of Monaco’s top lieutenants at the Justice Department, recently said that companies violating DPAs “should expect to see serious repercussions.” 

Exactly what will those repercussions be? I don’t know, but they will probably be a good indicator of what punishments repeat corporate offenders could expect, even if they didn’t specifically violate a DPA. 

That’s all for this subject. Later in the week we’ll look at some of Monaco’s other policy shifts.