2009 Mid-Year Update on Corporate Deferred Prosecution and Non-Prosecution Agreements

July 8, 2009

DPAs and NPAs, Too Much of A Good Thing?

Although virtually unheard of a decade ago, Deferred Prosecution Agreements ("DPAs") and Non-Prosecution Agreements ("NPAs") are a growing phenomenon in corporate prosecutions.  Essentially, DPAs and NPAs are agreements whereby the government agrees not to prosecute a corporation so long as the corporation abides by the terms of the agreement.  The key distinction between a DPA and an NPA is whether or not charges are filed against the corporation:  with a DPA the government files criminal charges with the court, while with an NPA nothing is filed with the court so long as the corporation completes the terms of the agreement–the agreement is strictly between the government and the corporation.

Following the collapse of Arthur Andersen upon its indictment in 2003, the Department of Justice ("DOJ") began using DPAs and NPAs more frequently.  The idea behind DPAs and NPAs is to reform corporate behavior, while limiting the collateral consequences to innocent third parties–such as loss of jobs and shareholder value–that can result from the indictment or conviction of a corporation.  Despite the potential benefits of DPAs and NPAs, their increased use has led to some unintended consequences and complications for corporations.

Gibson Dunn participated in some of the earliest DPAs with the government and has represented numerous corporations in negotiating and obtaining these agreements.  We have also written extensively regarding policy considerations related to DPAs and NPAs.  This client update provides an overview of the corporate DPAs and NPAs entered into by the DOJ during the first six months of 2009, identifies key trends in these agreements, and discusses unintended consequences resulting from the increased use of DPAs and NPAs.[1]

Deferred Prosecution Agreements in 2009

There have been ten reported DPAs in the first half of 2009.  This number is in line with the eighteen total agreements entered into during 2008, but it represents a decrease from the record thirty-seven agreements reported in 2007.[2]  If the second half of 2009 is consistent with the first half, there will be only slightly more DPAs in 2009 than there were in 2008.  Although 2007 may have been the high water mark for DPAs, the ten agreements entered into during the first six months of 2009 is almost as many as the eleven total DPAs entered into during 2000-2003 combined.  The chart below summarizes the modern history of DPAs entered into by the DOJ.

The ten DPAs entered into so far this year comprise a small sample set.  This limited data cautions against drawing many conclusions.  However, when comparing the DPAs to-date in 2009 to the trends observed in prior years, there is some basis for preliminary analysis.

The DPAs entered into so far this year involve a variety of criminal offenses and violations.  The most obvious change from recent years is a drop in DPAs for violations of the Foreign Corrupt Practices Act ("FCPA").  In 2008 seven of the eighteen total DPAs–almost forty percent of the total–involved FCPA violations.  By contrast, thus far in 2009 only two of the ten DPAs–twenty percent of the total–have involved FCPA violations.  Of course, with over 120 active FCPA investigations by the DOJ, we expect to see more FCPA-related DPAs in the near future.  This year has seen a resurgence in DPAs for tax fraud, with two DPAs already on the books in 2009.  Although there were no DPAs for tax fraud in 2008, there were two tax fraud DPAs in 2007.  Similarly, there have been three DPAs this year involving health care-related crimes–one for illegal kickbacks, one for violations of the False Claims Act, and one for Medicare fraud.  The DOJ entered into only one health care-related DPA in 2008 but entered into multiple DPAs for health care fraud in 2007.  In 2008, there were multiple DPAs involving money laundering violations, securities violations, and immigration fraud.  None of those offenses, however, has led to DPAs thus far in 2009.  There was also one DPA for internet gambling in 2008.  This issue apparently remains on the DOJ’s radar as there has been one DPA for the same violation so far this year.  The first six months of 2009 also brought the first DPA related to mortgage fraud, which we expect will see increased criminal investigations and perhaps DPAs throughout the remainder of the year.  Overall, the data from the first half of 2009 reinforces the conclusion in our 2008 update that the DOJ’s use of DPAs is not tied to specific criminal violations, but rather, is in line with current prosecution trends.

Thus far in 2009, the proportion of DPAs entered into by U.S. Attorney’s Offices and Main Justice appears to be in line with 2008.  In 2008, approximately half of DPAs were entered into by a U.S. Attorney’s Office, and half by a division of Main Justice.  The first six months of 2009 have followed a similar pattern:  three DPAs were entered into solely by a U.S. Attorney’s Offices, four were entered into solely by Main Justice, and three were entered into by both a U.S. Attorney’s office and Main Justice.  Although the U.S. Attorney’s Offices and Main Justice did not enter into any joint DPAs in 2008, in previous years these joint DPAs were not uncommon.  For instance, in 2007 the DOJ entered into five DPAs in this manner.

Within Main Justice, the Fraud Section has long been the leader in DPAs.  Although it entered into six DPAs in 2008, so far in 2009 it has only entered into two agreements.  In contrast, the Tax Division, which accounted for no DPAs in 2008, has entered into two agreements already in 2009.  The limited number of DPAs entered into by U.S. Attorney’s Offices does not lend itself to identifying trends.  It should be noted, however, that the historical leader in DPAs–the U.S. Attorney’s Office for the Southern District of New York–has only entered into one DPA thus far this year, while the U.S. Attorney’s Office for the Middle District of Florida–which has never previously entered into a DPA–entered into its first DPA this year. 

Interestingly, one DPA, the WellCare Health Plans DPA, was entered into by both the U.S. Attorney’s Office for the Middle District of Florida and the Florida Attorney General’s Office.  Although State Attorneys General can, and often do, enter into DPAs, this is the first known instance in which both the DOJ and a State Attorney General entered into the same DPA.

Thus far in 2009, NPAs appear to be on the rise as compared to DPAs.  In previous years reported DPAs have been much more prominent than NPAs, though the data may be skewed as a result of the fact that NPAs are not filed with a court, and therefore are not always publicly reported.  In 2008 only four NPAs were reported during the entire year, while there were fourteen DPAs.  In contrast, the DOJ has entered into four NPAs in just the first half of 2009:  one each by the Fraud Section, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the District of Massachusetts, and the U.S. Attorney’s Office for the Eastern District of New York and the DOJ Civil Division.  At first blush, the increase in NPAs may seem a significant victory for corporations, as they are able to successfully avoid prosecution.  However, as discussed further below, because the terms and conditions in NPAs increasingly mirror the terms and conditions in DPAs, the advantages in securing an NPA instead of a DPA are diminishing.

The chart below summarizes the reported DPAs and NPAs thus far in 2009.  A further explanation of these DPAs and NPAs is found in Appendix A.

GAO Report on DPAs

In June 2009 the Government Accountability Office ("GAO") published a report entitled Preliminary Observations on DOJ’s Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements.  This Report examined the factors the DOJ considers when deciding whether to enter into a DPA or NPA and the how the DOJ determines what terms and conditions to include in these agreements.  The Report also examined the DOJ’s methods of monitoring compliance with DPAs, including the use of corporate monitors.

Consistent with what Gibson Dunn reported in its 2008 update and prior publications, the GAO Report concluded that the DOJ is not consistent in its use of DPAs.  The Report noted that different U.S. Attorney’s Offices and sections within Main Justice vary dramatically in their willingness to use DPAs and NPAs, and in the terms and conditions that are included in the agreements.  In fact, some U.S. Attorney’s Offices do not enter DPAs at all:  Linda Dale Hoffa, the chief of the Criminal Division at the U.S. Attorney’s office in Philadelphia, has stated that her office does not enter DPAs or NPAs because they "think it’s better to make a clear bright line decision that we are prosecuting or not prosecuting."

Although it addressed many issues, the main focus of the GAO Report was the appointment of corporate monitors.  The GAO Report noted that there are significant disparities within the DOJ regarding the reasons for including a corporate monitor in a DPA, and the process used to select the monitor.  The Report recommended that the DOJ adopt internal procedures requiring prosecutors to document the reasons for requiring a monitor and the justification for the selection of a specific monitor.

Corporate Monitors

The debate surrounding corporate monitors in DPAs–discussed in detail in Gibson Dunn’s 2008 year-end update–has continued in 2009.  In June of this year, Congress held hearings on the role of monitors in DPAs and the need for additional legislation regulating monitors’ conduct.  Despite the continuing debate over corporate monitors, the DOJ continues to use them in conjunction with DPAs, though their use appears to be on the decline. 

In 2008, six of the eighteen DPAs entered into required the appointment of a corporate monitor.  Thus far in 2009, only one of the ten DPAs, the agreement with WellCare Health Plans, has explicitly provided for a monitor.  The monitor for WellCare is tasked with reviewing and making recommendations regarding the efficacy of WellCare’s policies and procedures for reporting and accounting for health care expenditures that are reimbursed by the federal or state government.  Notably, the terms of the DPA state that the monitor is to have access to all non-privileged documents, and the monitor "will undertake to avoid the disruption of WellCare’s ordinary operations or the imposition of unnecessary costs or expenses to WellCare."  These terms may be a reaction to earlier scrutiny about the scope and expense of DOJ required monitorships.

Although only one DPA in 2009 has explicitly provided for a monitor, four other DPAs have established terms that closely resemble the requirements of a monitorship.  As a part of its DPA, UBS agreed to exit, with some exceptions, the United States cross-border financial services business.  UBS also agreed to hire an "independent accounting or other appropriate firm" to conduct testing and issue reports on UBS’s exit from the cross-border business, and to implement internal controls related to cross-border business.  Much like the process involving a corporate monitor, the reports of the independent firm are to be submitted to the DOJ and the Audit Committee of USB.

As a part of its DPA with the DOJ Tax Division and the U.S. Attorney’s Office for the District of North Dakota, Fisher Sand & Gravel agreed to designate a specific individual within the corporation as the Compliance Officer.  This individual will function much like a Compliance Officer in any corporation, evaluating and improving the effectiveness of the corporation’s compliance and ethics program, save for the fact that the Compliance Officer is to report to the DOJ in addition to corporate management.

As in previous years, monitor-like terms were also established for health care violations.  Rather than appoint an independent monitor that reports to the DOJ, however, NeuroMetrix’s NPA requires the corporation to enter into a five-year Corporate Integrity Agreement with the Inspector General’s Office of the Department of Health and Human Services ("HHS-IGO").  The agreement with the HHS-IGO will require NeuroMetrix to undertake various compliance obligations, and the HHS-IGO will monitor compliance with the agreement and take action in response to any breaches.  Quest Diagnostics also entered into a similar agreement with the HHS-IGO as a part of its NPA with the U.S. Attorney’s Office for the Southern District of New York (and as a result of the guilty plea entered by its subsidiary, Nichols Institute Diagnostics).  Corporate Integrity Agreements with the HHS-IGO are common in False Claims Act cases in the health care industry.  However, a violation of the Corporate Integrity Agreements will not necessarily lead to a violation of the NPA–as is often the case with a violation in a traditional monitorship program.

Standardization in the Terms and Conditions of DPAs

As the GAO Report concluded, DOJ should demonstrate greater consistency in determining when a DPA or NPA is appropriate.  However, the trend toward uniformity in the terms and conditions of DPAs–as first noted in our 2008 year-end update–has continued in many respects.  Similar to 2008, almost every agreement in 2009 has included language specifying that: (1) the corporation must cooperate with ongoing government investigations; (2) the corporation must bind any successor in the event of a sale or merger; (3) the corporation must refrain from making any statements that contradict the facts set forth in the agreement; and (4) the DOJ has sole discretion to determine whether a breach of the agreement has occurred.

It is no surprise that, as the use of DPAs increases, the terms and conditions used by the DOJ become more standardized.  Standardization of DPAs has occurred not only because of the DOJ’s increased familiarity with DPAs, but also in reaction to internal DOJ guidelines and proposed legislation.  Last year, the DOJ introduced guidance regarding the factors prosecutors should consider when entering into DPAs; the use of monitors; and prohibited specific practices such as extraordinary restitution (payments to parties not directly affected by the crime).  This year, Congressman Frank Pallone (D-NJ), a vocal critic of the DOJ’s use of DPAs, and three other Congressmen, re-introduced the Accountability in Deferred Prosecution Act, which was also introduced in 2008.  The Act would require the Attorney General to issue guidelines that describe when a DPA or NPA is appropriate; when the appointment of a corporate monitor is appropriate; what terms and conditions are appropriate to include in DPAs and NPAs; and the process that the DOJ must follow to determine whether a corporation has fully satisfied an agreement.  The proposed legislation also specifies terms and conditions for monitors, creates a list of pre-approved corporate monitors, and requires judicial oversight of DPAs and NPAs.  Although no legislative action has been taken, given this background, the DOJ’s self-regulation and standardization of DPA terms and conditions is unsurprising.

Trends Toward Including DPA Terms and Conditions in NPAs

What is surprising, however, is the fact that the standard terms and conditions used in DPAs are increasingly appearing in NPAs.  This trend has not gone unnoticed.  James B. Comey, former DOJ Deputy Attorney General, recently stated at a conference that "the lines [between NPAs and DPAs] blur.  Talking about DPAs separate from NPAs, . . . I’m not sure there is that meaningful [] a distinction." 

In the past, the terms and conditions of an NPA–where the government agrees not to file charges against a corporation–have been much less demanding and cumbersome than the terms and conditions in a DPA.  With increasing frequency, NPAs have appeared that contain terms and conditions that are as comprehensive and restrictive as terms typically reserved for DPAs.  For example, both the PartyGaming and the NeuroMetrix NPAs contain terms (1) requiring continued cooperation on the part of the corporation; (2) regarding successor protection under the agreement; (3) waiving the statute of limitations for the stated violations; (4) waiving challenges to the admission of evidence related to the investigation and NPA; and (5) requiring the corporation to accept as true the statement of facts in the NPA.  These are standard terms used in the DPAs of past years, as well as those entered into in 2009.

Given the increasing similarities between the terms and conditions of DPAs and NPAs, it is less surprising that even the DOJ occasionally fails to recognize the difference between DPAs and NPAs.  For example, the recent agreement between NeuroMetrix and the U.S. Attorney’s Office for the District of Massachusetts explicitly states that if NeuroMetrix violates the agreement, "the [U.S. Attorney’s Office] may file the attached criminal information in the United States District Court for the District of Massachusetts charging NeuroMetrix with a  violation of 42 U.S.C. § 1320-a-7b(b)(2)."  (emphasis added).  Because no criminal charges were filed, this agreement is clearly an NPA.  The DOJ press release describes the NeuroMetrix agreement as a DPA, however.  Additionally, the terms and conditions of the agreement are as detailed and restrictive as those typically found in a DPA.  In fact, the recent GAO Report on DPAs and NPAs notes that since March 2008, DOJ has improperly classified at least three DPAs and NPAs.

Notable Terms and Conditions

Even though there may be a trend toward standardizing the terms and conditions of DPAs and NPAs, there are some notable variations in the DPAs that have been entered into in 2009.  For instance, as a part of its DPA, WellCare Health Plans agreed to "prominently post on its website the Information, this DPA, and the Statement of Facts" for the duration of the agreement.  The company also agreed not to sell or transfer the corporation prior to full payment of the $80 million fine.  The DPA between Lloyds TSB Bank and the DOJ Money Laundering Section contains a term that deems a violation of a separate DPA that Lloyds entered into with the New York District Attorney to be a violation of the DOJ DPA, at the discretion of the DOJ.  A term in UBS’s DPA with the DOJ Tax Division and the U.S. Attorney’s Office for the Southern District of Florida explicitly allows UBS to challenge a "John Doe" subpoena issued by the U.S. District Court for the Southern District of Florida seeking records disclosing U.S. persons who maintain accounts with UBS in Switzerland.  The DPA allows UBS to use any defense, objection, or argument to resist enforcement of the subpoena, and to exhaust its appellate remedies should the corporation lose in the lower courts.  This is unusual as most DPAs require that the company not make any statement that contradicts the statement of facts in the DPA.  UBS has since resisted enforcement of the subpoena on the grounds it would force the corporation to violate Swiss privacy law.  The lawsuit between the DOJ and UBS is still pending. There is a similar, but more restrictive, provision in the Beazer Homes DPA that allows the corporation to dispute that the factual allegations in the criminal information or the DPA apply to a specific private civil litigant or class of litigants, but does not allow the company to dispute the factual allegations themselves.  This is a fine line, and it remains to be seen how this provision will be construed in practice.  Finally, there are terms in both the UBS and Beazer Homes DPAs that prohibit the corporation, with some exceptions, from re-entering the specific line of business that gave rise to the alleged violations.

Attorney-Client Privilege

A corporation’s waiver of attorney-client privilege and privileged attorney work product has long been an area of concern with regard to DPAs and NPAs.  In 2008, Deputy Attorney General Mark Filip issued guidance to DOJ prosecutors stating that "[e]ligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection," and prosecutors "should not ask for such waivers and are directed not to do so."  This was a departure from prior practice, wherein many DPAs and NPAs explicitly allowed the DOJ to extend cooperation credit to a corporation based on a company’s decision to produce attorney-client or attorney work-product information.  Consistent with this new DOJ guidance, not one of the DPAs entered into thus far this year contains provisions conditioning credit on waiver of privileged information.  In fact, three of the DPAs entered into–Fisher Sand & Gravel, Lloyds TSB Bank, and NeuroMetrix–contain provisions that explicitly state that nothing in the agreement shall require the corporation to waive attorney-client privilege or work product protection.  The DPAs with WellCare and Beazer Homes state that the corporations are required to turn over all non-privileged information the government requests.  The other DPAs and NPAs entered into in 2009 do not mention the attorney-client privilege or the work product doctrine.

Even though the DOJ can no longer require a corporation to waive privilege in order to obtain cooperation credit, a corporation may still voluntarily decide to provide privileged information to the DOJ in particular situations.  Any corporation that considers providing information to the DOJ should carefully consider the collateral consequences it might face before it produces privileged material.  One potential consequence of producing privileged documents to the government pursuant to a DPA is that this information might be available to third-parties at a later date.  This is true even when the corporation has entered into a non-waiver, or selective waiver, agreement with the government, wherein the government agrees that production of the documents does not constitute waiver of the privilege or protection as to third-parties.

DPAs and NPAs as Corporate Victories

DPAs and NPAs have generally been viewed as significant victories for corporations, allowing a company to avoid prosecution and leave the allegations behind.  Given the harsh corporate consequences that result from an indictment, even when a company is later acquitted, companies are often predisposed to enter into these agreements.  Although a DPA or NPA is almost certainly preferable to criminal prosecution, the increasing costs, obligations, and continuing oversight associated with DPAs and NPAs can significantly impact a company’s bottom line.  One concern related to the growth and expansion of DPAs and NPAs is that their use may cause the DOJ to seek agreements in matters that it previously chose not to prosecute.  In the past, the DOJ often declined to prosecute cases in which the allegations involved low-level misconduct or there was a lack of sufficient evidence.  However, the increased use of DPAs and NPAs raises a question of whether this new prosecutorial tool may be encouraging the government to seek agreements with corporations in instances that previously resulted in declinations.  It is too soon to tell if there is any validity to this concern.  However, if the DOJ begins to use DPAs and NPAs in order to impose costly and cumbersome terms and conditions on companies for conduct that previously went unpunished, companies’ appetites for DPAs and NPAs may decrease.  This is particularly true as NPAs increase in complexity and require companies to comply with many terms previously reserved for DPAs or even corporate guilty pleas.

Conclusion

Although the number of DPAs and NPAs entered into in 2009 is off the record pace set in 2007, the number of agreements entered into this year remains very high.  The trend toward uniformity in the terms and conditions in DPAs is a welcome development, but the increasing cost and complexity of NPAs is troubling.  It remains to be seen what, if anything, the Obama administration under Attorney General Holder will do to modify the DPA process.  Assuredly, the DOJ will continue to use DPAs in some manner, which will require corporations to work closely with counsel to make appropriate decisions.

 [1] Throughout the article, the term DPA will be used to refer to both DPAs and NPAs generally, unless specifically noted.

The White Collar Defense and Investigations Practice Group of Gibson, Dunn & Crutcher LLP successfully defends corporations, senior corporate executives, and public officials in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies in almost every business sector.  The Group has members in every domestic office of the Firm and draws on more than 75 attorneys with deep government experience, including numerous former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Joe Warin, a former federal prosecutor, currently serves as a monitor pursuant to a DOJ and SEC enforcement action, and currently serves as the U.S. counsel for the compliance monitor for Siemens.  Debra Wong Yang is the former United States Attorney for the Central District of California, and recently completed her role as a monitor pursuant to a DOJ enforcement action.

Washington, D.C.
F. Joseph Warin (202-887-3609, [email protected])
John H. Sturc (202-955-8243, [email protected])
Barry Goldsmith (202-955-8580, [email protected]) 
David P. Burns (202-887-3786, [email protected])
David Debold (202-955-8551, [email protected])
Brian C. Baldrate (202-887-3717, [email protected])

New York
Jim Walden (212-351-2300, [email protected])
Lee G. Dunst (212-351-3824, [email protected])
Mark A. Kirsch (212-351-2662, [email protected])
Joel M. Cohen (212-351-2664, [email protected])
Christopher M. Joralemon (212-351-2668, [email protected])
Randy M. Mastro (213-351-3825, [email protected])
Marc K. Schonfeld (212-351-2433, [email protected])
Orin Snyder (212-351-2400, [email protected])
Lawrence J. Zweifach (212-351-2625, [email protected])
Alexander H. Southwell (212-351-3981, [email protected])

Denver
Robert C. Blume (303-298-5758, [email protected])

Orange County
Nicola T. Hanna (949-451-4270, [email protected])

Los Angeles
Debra Wong Yang (213-229-7472, [email protected])
Marcellus McRae (213-229-7675, [email protected])
Michael M. Farhang (213-229-7005, [email protected])
Douglas Fuchs (213-229-7605, [email protected])

__________________________________________________ 

Appendix A:  DPAs and NPAs Entered Into During the
First Six Months of 2009

Beazer Homes USA, Inc. – July 1, 2009

DOJ Office

• United States Attorney’s Office for the Western District of North Carolina

Allegations

• Beazer conspired to commit mortgage fraud by using fraudulent practices to originate loans insured by the Federal Housing Administration.
• These fraudulent practices included charging illegal fees, making improper gifts to purchasers to cover down payments, secretly raising home prices to offset expenses, conspiring to hide its default rates from the Department of Housing and Urban Development, and deliberately making loans to unqualified buyers.
• Beazer also conspired to commit accounting fraud by practicing "cookie jar accounting."

Length of DPA

• 5 years or earlier if all of the following conditions are met: at least 3 years have passed (or a change of control of the company), payment of $50 million has been made to the restitution fund, and with the consent of the DOJ (which will "not be unreasonably withheld").

Penalties

• Restitution — $10 million to $50 million (creation of a restitution fund with an immediate contribution of $10 million, and contingent payments into the fund based on a specific formula, but with a cap of $50 million).

Revised Compliance Program

• Beazer had previously exited the mortgage origination business, but agreed not to attempt to reenter the business.
• There is a "Claims Administer" who will administer the restitution fund. The administrator will be selected by Beazer in consultation with the DOJ, be subject to approval by the DOJ, and be subject to the approval of the court where the DPA is being filed.

Additional

• A simultaneous settlement agreement was reached with the DOJ Criminal Division on False Claims Act allegations, for which Beazer paid the United States $5 million and agreed to contingent restitution payments of up to $48 million.
• A settlement agreement was reached with the SEC in September of 2008.  The settlement did not include any monetary penalties.
• The DPA is binding on all 93 U.S. Attorney’s Offices and the Criminal Division of Main Justice.  This provision most likely received the approval of the Criminal Division (since an individual U.S. Attorney’s Office is otherwise not permitted to bind those other entities), although the DPA does not state such explicitly.
  

Fisher Sand & Gravel Co. – May 1, 2009

DOJ Office

• United States Attorney’s Office for the District of North Dakota
• Department of Justice, Tax Division

Allegations

• FSG allowed the personal expenses of its owner (and his family members) to be paid by FSG as business expenses.  This caused FSG’s income to be artificially understated on its income tax returns.
• FSG also falsified payment entries in their business records, concealed these payments from their outside accountants, and filed false tax forms with the IRS.

Length of DPA

• Approximately 32 months (until December 31, 2011)

Penalties

• Restitution — $668,141 to the IRS (including interest)
• Criminal Fine  –  $500,000

Revised Compliance Program

• Implement a Code of Business Ethics and Conduct that prohibits the payment of personal expenses by FSG for any employee and prohibits false, misleading, and artificial entries on the books and records of FSG.
• The Code of Business Ethics and Conduct should be designed to monitor, detect, and prevent the payment of personal expenses and the deduction of those expenses from FSG’s federal income tax returns.
• Use reasonable efforts not to include within the substantial authority of the personnel of FSG anyone who FSG knows, or should know, has engaged in illegal activities or conduct that is inconsistent with an effective ethics and compliance program.
• No "monitor," but there is a "Compliance Officer" with similar responsibilities who reports to the DOJ.

Compliance Officer

• Within thirty (30) days, the Company will choose a Compliance Officer and provide the officer’s name to the government.
• The Compliance Officer will be responsible for implementing the provisions of the Code of Business Ethics and Conduct.
• The Compliance Officer will take steps to detect any criminal conduct related to any aspect of the accounting function of FSG; to periodically evaluate the effectiveness of the ethics and compliance program; and to establish a system by which individuals can report possible criminal conduct without fear of retaliation.
• In order to carry out these responsibilities, the Compliance Officer will have adequate resources, appropriate authority, and direct access to high level personnel and the FSG Board of Directors.
• The Compliance Officer will report quarterly to high-level personnel and the FSG Board of Directors on the effectiveness of the compliance and ethics program.  During the term of the DPA, the Compliance Officer will also provide a quarterly report to the government that details the same.

Additional

• The owner of FSG and two other officers of FSG pleaded guilty to individual charges of conspiracy to defraud the United States.
  

Halliburton Company – February 10, 2009

DOJ Office

• Department of Justice, Criminal Division, Fraud Section

Allegations

• Halliburton, through a former subsidiary, allegedly violated the FCPA by making improper and corrupt payments to Nigerian government officials in order to obtain contracts in connection with a natural gas liquefaction project in Nigeria.

Length of NPA

• Two years

Penalties

• None specifically in the NPA, but Halliburton will pay $382 million in criminal fines and $177 million in disgorgement of profits as part of the former subsidiary’s guilty plea.

Revised Compliance Program

• None reported in the NPA
• No monitor

Lloyds TSB – January 9, 2009

DOJ Office

• Department of Justice, Criminal Division, Asset Forfeiture and Money Laundering Section

Allegations

• Lloyds violated the International Emergency Economic Powers Act and United States economic sanctions by stripping information from outgoing U.S. dollar wire transfer payment messages that would have revealed that the transactions involved countries, banks, or persons that were considered sanctioned parties under Iranian, Sudanese, and Libyan sanctions (the exportation of such services from the United States to those nations was prohibited by the sanctions).
• These actions also caused New York financial institutions to falsify records.

Length of DPA

• Two years

Penalties

• Civil Forfeiture — $175 million

Revised Compliance Program

• The Company will demonstrate future good conduct and compliance with international Anti-Money Laundering and Combating Financing of Terrorism best practices and the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking.
• Within 270 days and with the assistance of an outside consultant of Lloyd’s selection, the Company will conduct a historical transaction review of all available incoming and outgoing SWIFT MT 100 and MT 200 series USD payment messages from April 2002 through December 2007 that were processed through its UK processing centers and Dubai branch.  (Although this is part of the "cooperation" section of the DPA, some may consider it a penalty given the substantial costs involved with the review.)
• No monitor.

Additional

• Lloyds also entered into a contemporaneous DPA with the Manhattan District Attorney’s Office, which included forfeiture of $175 million.  The DOJ DPA also requires adherence with the DPA of the Manhattan District Attorney’s Office.

NeuroMetrix, Inc. – February 9, 2009

DOJ Office

• United States Attorney’s Office for the District of Massachusetts

Allegations

• NeuroMetrix paid illegal remunerations to physicians in order to induce them to recommend to their colleagues the purchase of a NeuroMetrix medical system.
• These illegal remunerations were reimbursed in whole or in part by Medicare, in violation of the Medicare Anti-Kickback Act.

Length of DPA

• Three years

Penalties

• Criminal Fine — $1.2 million

Revised Compliance Program

• NeuroMetrix will sign a five-year Corporate Integrity Agreement with the Inspector General’s Office of the Department of Health and Human Services.
• The Corporate Integrity Agreement will include various compliance obligations, as well as information regarding a de factor monitorship arrangement with the Inspector General’s Office that is meant to ensure NeuroMetrix’s adherence to those compliance obligations.
• A violation of the Corporate Integrity Agreement will not lead to a breach of the DPA.

Additional

• NeuroMetrix also entered into a settlement agreement with the Inspector General’s Office of the Department of Health and Human Services, which included a payment of $2,498,337 and adherence to a Corporate Integrity Agreement.
• The Corporate Integrity Agreement contains many compliance-related requirements, including training obligations that require all NeuroMetrix employees to receive annual training on the proper methods of selling, marketing, and promoting medical devices, including information on relevant anti-kickback laws and regulations.
• Enforcement of the Corporate Integrity Agreement is the responsibility of the Inspector General’s Office, who will serve as de facto monitor of NeuroMetrix’s compliance with the Corporate Integrity Agreement.  The Inspector General’s Office also will have the authority to penalize NeuroMetrix for violations of the Corporate Integrity Agreement (despite the fact that the violations of provisions in the Corporate Integrity Agreement may not lead to a breach of either the DPA or the Settlement Agreement).

Novo Nordisk A/S – May 6, 2009

DOJ Office

• Department of Justice, Criminal Division, Fraud Section

Allegations

• Through the Oil For Food Program, the Company conspired to violate the FCPA by paying approximately $1.4 million in kickbacks to the Iraqi government in order to obtain contracts to provide them with insulin and other medicines.  Novo also inaccurately recorded the kickback payments as "commissions" in its books and records in violation of FCPA provisions.
• The Company conspired to commit wire fraud by inflating the price of the contracts by ten percent (10%) prior to submitting them for United Nations approval, concealing the fact that the price contained a kickback to the Iraqi government and drawing on a U.N. line of credit, issued via international wire, in order to fulfill payment.

Length of DPA

• Three years

Penalties

• Criminal Fine — $9 million

Revised Compliance Program

• Implement a compliance and ethics program designed to detect and prevent violations of the FCPA and other applicable anti-corruption laws throughout its operations.
• Conduct a review and periodic testing of policies and procedures regarding compliance with the FCPA and other applicable anti-corruption laws.
• Maintain a system of internal accounting controls designed to ensure fair and accurate books, records, and accounts.
• Institute an anti-corruption compliance code that is applicable to all directors, officers, employees, and, when appropriate, outside parties acting on the company’s behalf.
• Assign a senior official to oversee compliance with the FCPA and anti-corruption laws.
• Institute periodic training and annual certification on compliance for all directors, officers, employees, and, where appropriate, agents and business partners.
• Institute a system for reporting criminal conduct and appropriately disciplining non-compliant employees.
• Insert standard provisions into contracts and agreements that are reasonably calculated in order to ensure that business partners and agents are complying with the FCPA and other anti-corruption laws.
• No monitor.
   

Additional

• Novo also reached a settlement with the SEC in connection with these facts, for which Novo paid $3,025,066 in civil penalties and $6,000,079 (including interest) in disgorgement of profits.

PartyGaming PLC – April 6, 2009

DOJ Office

• United States Attorney’s Office for the Southern District of New York

Allegations

• Conducted an illegal gambling business (for-money online games).
• Committed wire fraud and bank fraud by misrepresenting illegal gambling transactions on credit card statements.

Length of NPA

• No set term

Penalties

• Civil Forfeiture — $105 million

Revised Compliance Program

• None reported
• No monitor

Additional

• A founder and former officer of PartyGaming pleaded guilty to using wire transfers to transmit bets and wagering information in interstate commerce.  He also admitted to forfeiture allegations, which required him to forfeit $300 million to the United States.

Quest Diagnostics – April 15, 2009

DOJ Office

• Department of Justice, Civil Division
• United States Attorney’s Office for the Eastern District of New York

Allegations

• Violated the False Claims Act by allowing a subsidiary to fraudulently sell inaccurate and unreliable test kits.

Length of NPA

• Not confirmed, but appears to be no set term
   

Penalties

• None in the NPA but as a part of a civil settlement Quest and its subsidiary will pay $262 million.  The subsidiary will also pay a criminal fine of $40 million.

Revised Compliance Program

• Quest entered into a Corporate Integrity Agreement with the Inspector General’s Office of the Department of Health and Human Services (see below for more information on this agreement).
• No monitor.

Additional

• Quest entered into a Corporate Integrity Agreement with the Office of the Inspector General for the Department of Health and Human Services.
• The Corporate Integrity Agreement contains many compliance-related requirements, including the establishment of a compliance program run by a Compliance Officer.
• Enforcement of the Corporate Integrity Agreement is the responsibility of the Inspector General’s Office, who will serve as de facto monitor of Quest’s compliance with the Corporate Integrity Agreement.  The Inspector General’s Office also will have the authority to penalize Quest for violations of the Corporate Integrity Agreement (despite the fact that the violations of provisions in the Corporate Integrity Agreement may not lead to a breach of either the DPA or the Settlement Agreement).

UBS AG

February 18, 2009

DOJ Office

• Department of Justice, Tax Division
• United States Attorney’s Office for the Southern District of Florida

Allegations

• UBS participated in a scheme to defraud the United States by assisting a number of United States taxpayers to establish accounts with UBS in a manner designed to conceal the taxpayers’ interest in the accounts, which allowed the taxpayers to evade IRS reporting requirements, conceal assets from the IRS, and engage in financial transactions in which UBS did not withhold U.S. income taxes as required by law.
• False or misleading IRS forms were accepted and filed by UBS in order to conceal the identity of the owners of the above-referenced accounts.  These forms were required by law as a result of a Qualified Intermediary Agreement UBS voluntarily signed with the IRS.
• UBS bankers, managers and executives continued this cross-border business, despite the fact that they knew or should have known that their clients were evading U.S. taxes.
   

Length of DPA

• The longer of 18 months, the completion of UBS’s Exit Program (as described below), or the resolution of a "John Doe" summons enforcement action (which is an attempt to gain Swiss records of United States persons who maintained accounts with UBS).

Penalties

• Civil Disgorgement — $380 million ($200 million of which is directly to the SEC)
• Restitution — $400 million (including restitution, interest, penalties and federal back-up withholding taxes that should have been withheld)

Revised Compliance Program

• Engage in an "Exit Program," under which UBS will cease to operate in the United States cross-border business and provide banking or securities services only to United States private citizens residing in the United States through subsidiaries or affiliates registered to do business in the United States with the SEC.
• Provide the government with periodic reports on the progress of the Exit Program.
• Implement a revised governance structure under which Group General Counsel will have functional management responsibility and authority over the legal and compliance functions of all business divisions, as well as final authority over compensation and the promotion of division-level legal and compliance personnel.
• Appoint personnel with direct oversight authority of UBS’s performance under the Qualified Intermediary Agreement.
• Develop policies and procedures that are in compliance with the Qualified Intermediary Agreement (including the training of employees and an investigation into allegations of failure to comply).
• No "monitor," but there is an "external auditor" designated to monitor UBS’s Exit Program and particular internal controls.

External Auditor

• Hire an external auditor, subject to the consent of the government, who will report on the Company’s progress within the Exit Program and implementation of internal controls with respect to the Qualified Intermediary Agreement.
• UBS will adopt any reasonable recommendations of the external auditor that will further comply with the Qualified Intermediary Agreement.

Additional

• In addition to general cooperation, UBS shall disclose the identities and account information of certain United States clients and shall comply with the John Doe summons enforcement action if all objections to the action are denied (i.e., UBS would still retain all rights to defend itself against the summons; this provision only applies if those defenses are denied).

WellCare Health Plans, Inc. – May 5, 2009

DOJ Office

• United States Attorney’s Office for the Middle District of Florida

Allegations

• Two wholly-owned subsidiaries conspired to commit health fraud by fraudulently inflating medical expenditure information, all in an effort to reduce the amount of money they would be contractually obligated to pay back to two Florida health care benefit programs.

Length of DPA

• Three years

Penalties

• Restitution — $40 million plus interest
• Civil Forfeiture — $40 million plus interest

Revised Compliance Program

• Within sixty (60) days of the agreement, the Company will implement updated policies and procedures that are designed to ensure complete and accurate reporting of all federal and state health care program information.
• Develop and operate adequate internal controls to prevent any of the improper and/or illegal activities that gave rise to the DPA.
• Evaluate and revise internal bid procedures in order to ensure fair and accurate submission of all data and information in response to any government bids and/or any government requests for proposals.

Monitor

• A Monitor will be selected by the U.S. Attorney’s Office in accordance with DOJ guidelines and after consultation with WellCare.
• The monitorship will last for 18 months.
• Monitor will have access to all non-privileged documents, information, officers, employees, and agents of WellCare that he/she reasonably believes are necessary in the execution of his/her duties.
• The Monitor will immediately report to the DOJ any misconduct that: (a) poses a significant risk to public health and safety; (b) involves senior management of WellCare; (c) involves obstruction of justice; (d) involves a violation of any federal or state criminal statute, or otherwise involves criminal activity; and (e) otherwise poses a significant risk of harm to any person, state or federal entity, or government program.  The DOJ may choose to divulge this information to WellCare.
• The Monitor will review, evaluate, and make recommendations regarding policies which relate to: (a) the accounting and reporting of all revenues, expenditures, and costs incurred in providing any services to health care program beneficiaries; (b) the documentation of medical records pertinent to any health care services provided to health care program beneficiaries; (c) the submission of claims for payment to health care programs; (d) the preparation, certification, and submission of bids to health care programs; and (e) the training of WellCare employees in order to ensure that any information provided to health care programs is true, accurate, complete, and transparent.
• WellCare will adopt all recommendations submitted by the Monitor.  If WellCare objects to a recommendation made by the Monitor, the DOJ will issue a non-appealable decision resolving the dispute.
• The Monitor will review WellCare’s compliance with the DPA and all applicable federal and state health care laws, regulations, and programs.
• The Monitor will submit three written reports to the DOJ, WellCare senior management, and WellCare’s Board of Directors.  The reports will address: (a) WellCare’s compliance with the DPA and all applicable federal and state health care laws, regulations, and programs; (b) a summary of the Monitor’s recommendations to WellCare and WellCare’s responses to those recommendations; and (c) any other relevant information.
• WellCare will not employ or be affiliated with the Monitor for at least one year after the monitorship is terminated.

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