On May 17, 2011, the SEC announced that it has entered into its first-ever Deferred Prosecution Agreement (“DPA”). The agreement brings to light a significant resolution option that may be on the table for companies that discover potential violations of federal securities laws during internal investigations or are already the subject of an SEC investigation or enforcement action.
Last year, the Securities and Exchange Commission announced its plan to use Non-Prosecution Agreements (“NPA”) and DPAs as part of an initiative to encourage companies and individuals to cooperate in ongoing investigations and enforcement actions. In December 2010, as reported here on McGuireWoods’ Subject to Inquiry blog, the Commission entered into its first NPA. The agreement with Tenaris S.A. marks the first time the Commission has made use of a DPA to “facilitate and reward cooperation in SEC investigations.”
During a “thorough, worldwide internal review of its operations and controls,” Tenaris discovered potential violations of the Foreign Corrupt Practices (“FCPA”) involving the bribery of Uzbekistani government officials. Tenaris informed the SEC of the violations and “took noteworthy steps [internally] to address the violations and significantly enhance its anti-corruption policies and practices to remediate weaknesses in its internal controls.” Tenaris also agreed to cooperate with the SEC, Justice Department, and other law enforcement agencies during any related investigations.
Under the terms of the DPA, the Commission will refrain from prosecuting Tenaris if the company undertakes to further enhance certain policies and procedures, strengthen its FCPA and anti-corruption controls, continue to cooperate with the SEC in its investigation, and report any future violations of anti-bribery or securities laws. In addition, Tenaris must pay $5.4 million in disgorgement and prejudgment interest.
The DPA is significant to companies for several reasons. First, it shows that the Commission will, in fact, make good on its promise to consider the use of DPAs in appropriate cases. Second, it makes plain the importance of periodically conducting comprehensive internal investigations to identify weaknesses in corporate controls and compliance measures. And, finally, it underscores the potential value of self-reporting in the unfortunate event that a company discovers a violation of the FCPA or securities laws during an internal investigation.
The McGuireWoods Guest Bloggers are Robert Plotkin, a partner based in McGuireWoods LLP’s Washington and New York offices and head of the firm’s SEC Enforcement Defense group, and Kurt E. Wolfe, an associate based in McGuireWoods LLP’s Washington office and a member of the firm’s Government, Regulatory and Criminal Investigations department.