Dec 20, 2011 - America's amnesty application to the Department of Justice several years ago.3 Subsequently, in October 2
Antitrust Alert Another Antitrust Division Non-Prosecution Agreement—Anomaly or New Trend? December 20, 2011
On December 8, 2011, the Department of Justice (DOJ), Antitrust Division announced that it had entered into another non-prosecution agreement (NPA) in its investigation of criminal conduct in the municipal bond investments market. NPAs with corporations are rare events for the Division, particularly in matters in which there is a corporate amnesty applicant. Yet this agreement is the third one in the same investigation. We believe these agreements reflect the Division’s uneasiness with potential collateral consequences flowing from charging a bank with a felony. We suggest that corporations finding themselves in the unfortunate position of negotiating a criminal disposition with the DOJ consider whether these NPAs provide precedents for seeking a similar disposition.
The Municipal Bonds Investigation Wells Fargo Bank admitted in its NPA with the Division that, from 1998 through 2004, certain employees of Wachovia Bank’s1 municipal derivatives desk entered into agreements to manipulate the bidding process and rig bids on municipal investment and related contracts in violation of Section 1 of the Sherman Act and sections of Title 18 of the U.S. Code. As part of the NPA, Wachovia acknowledged responsibility for the unlawful agreements and agreed to pay $148 million in restitution, penalties and disgorgement.2 Wachovia will also cooperate fully in DOJ’s ongoing investigation into the municipal bond derivatives industry. In return, the Antitrust Division will not bring any action against Wachovia based upon these unlawful acts. The agreement, however, does not extend to individual employees of Wachovia. The investigation of possible anticompetitive conduct in the municipal derivatives industry began with Bank of America’s amnesty application to the Department of Justice several years ago.3 Subsequently, in October 2009, DOJ indicted Chambers, Dunhill, Rubin & Co. and three of its employees.4 Prior to the Wells Fargo NPA, DOJ entered
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Wachovia Bank is now part of Wells Fargo Bank. Letter from Sharis A. Pozen, acting assistant attorney general, Department of Justice Antitrust Division, to Karen Patton Seymour, Sullivan & Cromwell LLP (Dec. 8, 2011) (regarding Wachovia non-prosecution agreement in municipal bonds investigation), available at http://www.justice.gov/atr/public/press_releases/2011/278076a.pdf. 3 Press Release, Bank of America, Bank of America Cooperation in Municipal Bond Investigation Recognized by Justice Department Amnesty; Settles Certain Matters with IRS, available at http://phx.corporate-ir.net/phoenix.zhtml?c=234503&p=irolnewsArticle&ID=1389750&highlight; Press Release, Department of Justice, Bank of America Agrees to Pay $137.3 Million in Restitution to Federal and State Agencies as a Condition of the Justice Department’s Antitrust Corporate Leniency Program (Dec. 7, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-at-1400.html. 4 Indictment, United States v. Rubin/Chambers, Dunhill Ins. Services, Inc., No. 09-cr-1058 (VM) (S.D,N.Y. Oct. 29, 2009), available at http://www.justice.gov/atr/cases/f251600/251679.htm (see http://www.justice.gov/atr/cases/f268600/268655.htm for superseding indictment filed Dec. 7, 2010). 2
© 2011 Akin Gump Strauss Hauer & Feld LLP This document is distributed for informational use only; it does not constitute legal advice and should not be used as such.
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NPAs with two other banks in this investigation (UBS AG,5 and JP Morgan Chase & Co.6. However, DOJ has also obtained at least nine guilty pleas from various companies as part of the municipal bonds investigation.
Background on Non-Prosecution Agreements Under both NPAs and deferred prosecution agreements (DPAs), the government agrees not to prosecute a company for certain acts, pending compliance with specified conditions. Under a non-prosecution agreement, the company typically acknowledges wrongdoing, pays a fine, and agrees to comply with any other required conditions and to cooperate with the government’s ongoing investigation. A letter typically memorializes the agreement without a formal guilty plea or conviction. The government reserves the right to void the agreement if the company commits a similar violation or fails to fully cooperate within the designated “probationary” period of one or more years. Deferred prosecution agreements are similar, but generally include a formal filing of criminal charges. NPAs and DPAs are common in DOJ’s Criminal Division in connection with Foreign Corrupt Practices Act bribery violations, with 49 such agreements between 1993 and 2009.7 The use of NPAs and DPAs enables the government to sanction unlawful company behavior without a full criminal prosecution and the potentially devastating effects on the company.
Tension with the Leniency Program Historically, the Antitrust Division has used NPAs and deferred prosecution agreements (DPAs) in extremely rare circumstances. Between 1993 and 2009, the Division had entered either a NPA or DPA only three times.8 In 2011 alone, however, there have been three NPAs, all related to the municipal bonds investigation (UBS,9 JPMorgan10 and now Wachovia). The Division’s hesitation in using NPAs and DPAs is understandable given the ability of such agreements to undermine its corporate leniency program. Under the Antitrust Division’s Corporate Leniency Program, the first company to report an antitrust conspiracy and cooperate with the Division can avoid criminal conviction and fines, including convictions, prison terms and fines against its employees.11 The program provides a strong incentive for companies to come forward and disclose violations in exchange for criminal immunity for both the company and its employees. Additionally, a company accepted into the leniency program may qualify for de-trebling of damages in any civil suit and only face actual losses—a potentially significant financial incentive. To create incentives for companies to self-report at the first clear indication of cartel conduct, the Division has typically drawn a very bright line regarding corporate leniency. On one side of the line is the first company to report participation in a cartel—that company gets immunity from prosecution for itself and its employees if it adheres to the other requirements of the leniency program. On the other side of that bright line is every company that admits wrong-
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Letter from Christine A. Varney, assistant attorney general, Department of Justice Antitrust Division to Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison LLP (May 4, 2011) (regarding UBS non-prosecution agreement in municipal bonds investigation), available at http://www.justice.gov/atr/public/press_releases/2011/270720a.pdf. 6 Letter from Christine A. Varney, assistant attorney general, Department of Justice Antitrust Division to Thomas Mueller, Wilmer Cutler Pickering Hale and Dorr (Jul. 6, 2011) (regarding JPMorgan non-prosecution agreement in municipal bonds investigation), available at http://www.justice.gov/atr/public/press_releases/2011/272815a.pdf. 7 Government Accountability Office, "DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness" (Dec. 2009), available at http://www.gao.gov/new.items/d10110.pdf. 8 Id. 9 Supra note 4. 10 Supra note 5. 11 See, Scott D. Hammond, Frequently Asked Questions Regarding the Antitrust Division’s Leniency Program and Model Leniency Letters, (Nov. 19, 2008), available at http://www.justice.gov/atr/public/criminal/239583.htm © 2011 Akin Gump Strauss Hauer & Feld LLP This document is distributed for informational use only; it does not constitute legal advice and should not be used as such.
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doing after the amnesty applicant. Typically, the Division has insisted on a guilty plea or gone to trial against companies that lose the race for amnesty. The availability of NPAs and DPAs has the potential to blur the bright line the Antitrust Division has drawn around its leniency program. If being second or third or even fourth in the door to admit wrongdoing to the Division no longer means being charged with a crime, this has the potential to significantly slow the race to obtain amnesty.
Key Takeaways The Corporate Leniency Program has been a wildly successful enforcement mechanism for the Division. A significant percentage of the billions of dollars in corporate fines and many years worth of jail sentences obtained by the Division in recent years can be attributed, at least in part, to cooperation from a corporate leniency applicant. Thus, the Division is loath to do anything that could undermine the program in any way. Despite that, the Division has now entered the same number of NPAs in this one investigation as it entered in the preceding 16 years for which statistics are available (1993-2009). Thus, the Division must have felt there was a compelling reason to agree to NPAs rather than seek criminal charges against the corporations that admitted wrong-doing after the amnesty applicant. The common denominator in each of these NPAs is that the corporation receiving the NPA is a bank. It seems likely that the Division was concerned about potential collateral consequences flowing from charging a bank with a felony.12 When future corporations seeking a non-prosecution agreement point to the precedent set in the municipal bond investigation, the Division will likely work hard to distinguish its prior grant of NPAs. Yet the Division cannot undo what it has done. The message is clear: in the right circumstances, a corporation can obtain an NPA, even if the Division already has an amnesty applicant. Corporations faced with the prospect of a cartel investigation should keep the municipal bond NPAs in mind. Analogies comparable to the collateral consequences facing the banks in the municipal bonds matter may be infrequent. Nevertheless, corporations under criminal investigation by the Division, particularly in regulated industries, should marshal their arguments for why the collateral consequences that will issue from their regulators are no less significant than those that might issue from a bank regulator in the wake of criminal charges. The NPA precedent set by the Division in the municipal bonds investigation is liable to haunt the Division.
CONTACT INFORMATION
If you have any questions concerning this alert, please contact — J. Brady Dugan
[email protected] 202.887.4152 Washington, D.C.
Diana L. Gillis
[email protected] 202.887.4316 Washington, D.C.
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The Office of the Comptroller of the Currency is the regulator of nationally chartered banks. The OCC monitors nine categories of bank risk, including reputational risk. Reputational risk entails the risk to a company resulting from harm to the company’s reputation in the eyes of customers, investors, the media, government regulators, etc. For example, failure to comply with laws and regulations may result in a negative impact on the company’s reputation and lead to actual damage to the company’s operations. See, Gerald A. Badali, “Filthy Lucre: Confronting the Risks of Money Laundering,” Risk Management available at http://www.rmmagazine.com/MGTemplate.cfm?Section=RMMagazine&NavMenuID=128&template=/Magazine/DisplayMagazin es.cfm&IssueID=345&AID=4087&Volume=57&ShowArticle=1. Banks have ranked reputational risk as the number one overall biggest risk they face. Julie L. Williams, Acting Comptroller of the Currency, Remarks before the Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago (May 6, 2005), available at http://www.occ.gov/newsissuances/speeches/2005/pub-speech-2005-45.pdf. The concern with reputation may be even greater while the effects of a global financial crisis are still lingering.
© 2011 Akin Gump Strauss Hauer & Feld LLP This document is distributed for informational use only; it does not constitute legal advice and should not be used as such.
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