What to expect with pre-trial agreements

November 11, 2014

In the United States, there are two types of pre-trial agreements available: deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). The United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) frequently use these agreements to settle violations of the Foreign Corrupt Practices Act (FCPA). These agreements are an alternative to criminal prosecution whereby the defendant satisfies various terms (often including a financial penalty and compliance reforms) in return for amnesty.

Earlier this year, DPAs became available in the United Kingdom, allowing prosecutors to negotiate agreements for violations of the Bribery Act. DPAs will be available for fraud, bribery and other economic crimes. The United Kingdom Serious Fraud Office (SFO) is yet to negotiate and enter into a DPA, but United Kingdom DPAs are expected to operate in a similar manner to those in the United States. At this stage, only the United States and the United Kingdom offer these types of settlement for corruption charges.

Although the United States and the United Kingdom both offer pre-trial agreements, there are some major distinctions between the agreements in each country. These include:

  • DPAs can only be entered into with organisations in the United Kingdom, but can be entered into with organisations and individuals in the United States
  • in the United Kingdom, prosecutors must get judicial approval to initiate negotiations, declare and/or modify a DPA; in the United States, judicial approval is not required, leading to criticism for its lack of transparency
  • the availability of DPAs in the United Kingdom is limited to those set out in the Crimes and Courts Act; in the United States, however, the DOJ has broad discretion as to what offences may be settled with a pre-trial agreement
  • the United Kingdom has so far declined to introduce NPAs, though NPAs are used in the United States
  • in the United Kingdom, because DPAs are a new concept, all agreements will be overseen by designated prosecutors for the next few years; in contrast, individual prosecutors in the United States have considerable autonomy in how they approach and order pre-trial agreements.

Companies conducting business in the United States and the United Kingdom need to be aware of the different agreements available. This will be especially important if a company decides to self-disclose violations in either jurisdiction.

Recent statistics

The following table shows all FCPA pre-trial agreements over the last two years. The data illustrates the range of penalties and agreements imposed by the DOJ and SEC, the common countries where bribery violations occurred, and the industries that have had recurring corruption scandals.

Notable statistics include the very large penalties that Total SA and Weatherford International received: US$398 million and US$252 million respectively. Both settlements are among the top-ten largest FCPA enforcements (Total SA is currently fourth and Weatherford International is tenth). In contrast to these penalties is the Ralph Lauren settlement of only US$1.6 million. The range in fines indicates that each pre-trial agreement, and the settlement payment that accompanies an NPA or DPA, will largely be fact-specific.

The industry that has had the most NPA and DPA agreements in the last five years is the oil and gas industry. This is likely due to the fact that most oil and gas businesses operate in areas that are considered high-risk for corruption and bribery issues (such as Africa, the Middle East and China).

The second most common standalone industry for pre-trial agreements is the medical industry (this covers both pharmaceuticals and medical devices). This industry in particular presents unique FCPA corruption risks because it is highly regulated and almost all parts of the business require contact with or authorisation from the government.

Companies operating in industries such as oil and gas or medicine are often targeted by the DOJ and SEC because they have large revenues and will be able to pay any fine. They are also highly-competitive industries – often companies have to compete for contracts or tenders, increasing the risk of bribery and corruption. FCPA trends often occur when the DOJ and SEC perform industry sweeps after one case indicates that the problem may be systemic throughout the industry involved. Industry sweeps are common in areas where companies frequently interact with government officials, such as natural resource development, construction and medical industries. A sweep occurred recently within the pharmaceutical industry, with multiple companies such as Eli Lilly and Stryker entering into agreements; the most recent investigation is into GlaxoSmithKline’s business practices in China and other countries.

Companies operating in high-risk areas (where government interaction is common) or in industries that are highly regulated need to be more aware of compliance issues. Comprehensive due diligence into third parties and thorough compliance training for employees will be especially important for businesses in these areas as they are common targets for the DOJ and SEC when looking for FCPA violations.

Importance of a compliance programme

If a company that has been charged with misconduct had a compliance programme in place when the violation took place and when the misconduct came to light, the DOJ and SEC will examine that programme’s effectiveness. The guidelines to pre-trial agreements indicate that enforcement agencies will consider the adequacy of a compliance programme. The strength of a programme may influence whether a prosecution is resolved by way of a pre-trial agreement and, if so, the conditions of the agreement. The existence of a compliance programme will also affect the final fine and the requirement of monitoring or self-reporting.

No compliance programme will ever be perfect; a company will never be able to stop misconduct 100 percent of the time. The DOJ and SEC recognise this and will not hold an organisation to a standard of perfection; however, they do want to see that a programme is working – a company will not be let off just because it has a code of conduct.

In 2012, Morgan Stanley was investigated for FCPA violations after the company self-disclosed it had found issues with certain business transactions involving the state-owned Chinese company Yongye International. The DOJ and SEC decided they would not prosecute the company, but instead only charged Morgan Stanley’s head of real estate investments in China, Garth Peterson, who had funnelled millions of dollars disguised as finder’s fees to a Chinese government official. Both the SEC and the DOJ emphasised that the main reason they declined to lay charges against Morgan Stanley was because the company had such a strong compliance programme in place at the time of the offences.

Negative consequences of a pre-trial agreement

Although pre-trial agreements are preferable to criminal prosecutions, companies will face many detrimental consequences generated from bribery allegations. The first is the excessive cost of investigating an allegation. Companies are expected to provide enforcement agencies with all relevant information regarding the potential allegation. Conducting internal audits to gather that information is costly, as most require forensic accountants and legal counsel.

More concerning than the price of an investigation is the possibility that an agreement in one country may lead to an inquiry in another country. Multiple jurisdictions investigating the same misconduct is a common occurrence and many companies face prosecution in more than one country. As mentioned on page X, GlaxoSmithKline now faces investigations from the SFO and the DOJ and SEC after Chinese authorities uncovered potential bribery violations by company employees in China. This China investigation has led to an examination of GlaxoSmithKline’s practices worldwide. The company potentially faces penalties from at least three jurisdictions for this misconduct.

Occasionally, one jurisdiction will reduce a penalty to acknowledge that the penalised company is facing multiple prosecutions around the world. As part of a 2013 NPA with Archer Daniels Midland, the DOJ deducted the amount the company paid to German authorities from its final penalty. The DOJ and SEC have done this for organisations that have also been penalised in parallel investigations in Costa Rica, Norway, the Netherlands and the United Kingdom, among others.

Finally, announcing that a company is involved in a corruption investigation could lead to reputational and financial damage. The impression consumers have of a company affects sales and revenue; if a company is involved in a bribery scandal it potentially faces losing a large customer base. Corruption allegations also lead to financial consequences, such as a fall in share price. For example, since Avon announced it was being investigated for FCPA violations in 2008, the company’s shares have dropped 20 percent (just last year the stock price dropped by 12 percent).


Pre-trial enforcement actions have become a very common form of FCPA settlement in the United States, so much so that the United Kingdom has recently introduced DPAs as a form of settlement for fraud and bribery violations. DPA and NPAs are definitely a preferred option to criminal charges and full prosecution; however, companies need to be aware of other consequences that these settlements trigger.

The cost of a settlement for bribery violations will not be limited to the fine an enforcement agency imposes. There will be a wide-ranging list of financial issues that will affect an organisation’s commercial value and market prominence. Compliance officers need to be aware of the problems that bribery violations cause and use them as ammunition to initiate and enforce compliance procedures and procedures within a company.

The expense of a corruption or bribery allegation is far more than the cost of introducing a thorough and operational compliance programme. Compliance officers should bear this mind when negotiating budgets or discussing compliance policies with management.
A company can only benefit from having a compliance programme; it will minimise the chance of violations occurring and, if misconduct happens to arise, will be a factor considered by enforcement agencies when negotiating a pre-trial agreement.

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