The following comes to us from Peter Reilly, Associate Professor of Law, Texas A&M School of Law. 

Wal-Mart is one of the wealthiest and most powerful companies in the world.  And billionaire gambling magnate Sheldon Adelson is one of the wealthiest and most powerful individuals in the world.  So what do these two have in common besides wealth and power?  They are both being investigated for possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), a federal law prohibiting the payment of bribes to foreign government officials to obtain (or retain) business.[1]  If either party is ultimately indicted, the case might not be addressed through a traditional courtroom trial.  Instead, the matter could be resolved through an Alternative Dispute Resolution vehicle currently being employed by the U.S. Department of Justice:  The Deferred Prosecution Agreement (“DPA”) or the Non-Prosecution Agreement (“NPA”).

However, in the context of FCPA matters, the use of DPAs and NPAs is not guaranteed.  Rather, they are awarded to defendants through elaborate negotiations with the Department of Justice. These negotiations present an opportunity for accused parties to agree to clean up their respective acts, usually by (1) adopting or enhancing internal anti-corruption programs; (2) carrying out self-policing audits and investigations; and (3) voluntarily disclosing compliance issues and information to federal authorities.  In addition to agreeing to implement various rules, policies, and procedures to prevent bribery from taking place, the accused parties oftentimes agree to pay hefty monetary fines.  In exchange, the Justice Department agrees to hold off (perhaps forever) on prosecution.  Ultimately, if all aspects of the negotiated agreement are successfully carried out, the initially-accused party can move forward without fear of further legal consequences on the matter.

But here is the problem:  This negotiation between prosecutor and accused can sometimes be unfair to the point where any “bargaining” taking place is merely illusory.  This is because in many instances, the government has too much power, too much leverage, and too much discretion in presenting, negotiating, and implementing DPAs and NPAs.  Given its enormous leverage in the negotiation, DOJ can oftentimes negotiate quite favorable prosecution agreements, whose terms can include large financial penalties, significant internal business reforms, and cooperation in pursuing the company’s individually culpable directors, executives, managers, and/or employees.  This cooperation might include the company admitting liability, identifying wrongdoers within the organization, and sometimes even waiving work-product protection and attorney-client privilege pursuant to internal documents and internal investigations.

Moreover, while DOJ has complete discretion on whether or not to offer accused parties an NPA or a DPA, the consequences of not being offered one or the other can be devastating to a company.  Due to negative collateral consequences surrounding corporate prosecutions, accused companies tend to yield to whatever demands are made by DOJ during the negotiation.  This helps explain why, in the last twenty years, only a handful of companies have decided to go to trial in an FCPA case.  And while federal prosecutors enjoy wide, largely non-reviewable discretion regarding which corporate entities to target and what crimes to allege, the most effective way to test such prosecutorial discretion and to rein in overly-aggressive prosecutors—namely, the trial by jury[2]—is, for the most part, not being utilized to resolve FCPA cases.  Given that corporations cannot run the risk of going to trial, they essentially do not have a Best Alternative To a Negotiated Agreement (or “BATNA”)[3] in their negotiations with DOJ; in other words, they have little choice but to accept whatever terms are offered through the form of a DPA or NPA.

Professors Robert Mnookin and Lewis Kornhauser taught us in their seminal article, Bargaining in the Shadow of the Law: The Case of Divorce,[4] that parties do not bargain “in a vacuum” and that two essential ingredients of power within the context of legal negotiations include:  (1) the option of going to trial should the negotiation fail to achieve agreement; and (2) knowledge of what the likely outcome would be, in accordance with legal precedent, should a party ultimately choose to go to trial.  And yet, corporations facing FCPA charges lack both of these essential ingredients of power:  First, as pointed out previously, going to trial would be so damaging to the company that it has little choice but to accept whatever terms are offered through the form of a DPA or NPA.  And second, because so few FCPA cases have gone to trial, it is very difficult for companies to accurately predict what the outcome at trial would likely be if they decide to pursue that avenue.  The end result is that the balance of power in the context of FCPA pre-trial negotiations is weighted significantly in favor of the government.

My article explores in depth the various factors that contribute to less-than-optimal transparency, consistency, and fairness in pre-trial bargaining under the Foreign Corrupt Practices Act, and it concludes with recommendations to strengthen the current system and make it more fair, including:

(1)   DOJ should release to the public carefully redacted information regarding all FCPA declination decisions.

(2)   FCPA Opinion Procedure Releases should have greater precedential value.

(3)   The U.S. Congress should thoroughly investigate, in as non-partisan a manner as possible, the advantages and disadvantages of passing an FCPA compliance defense.

(4)   Judicial supervision of the NPA and DPA negotiation processes should be mandated.

(5)   Judicial review of NPAs and DPAs after they are drafted but before they are signed should be mandated.

(6)   Judicial review regarding the issue of NPA and DPA breaches should be mandated.

Even if one disagrees with my recommendations or sees legislative, judicial, or political roadblocks to their adoption or implementation, my hope is that the article points out to readers that real and significant power imbalances exist when DOJ employs DPAs and NPAs to address FCPA enforcement matters.  This is not fair or just to the party sitting on the “accused” side of the negotiation table, and something should be done to address that unfairness.

The full article is available here.

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