In December 2012 and February 2013, UBS AG and Royal Bank of Scotland plc (RBS), respectively, entered into agreements to resolve government inquiries into their alleged manipulation of the London Interbank Offered Rate (LIBOR) and similar benchmark interest rates. The agreements required the payment of substantial monetary penalties—$1.5 billion in the case of UBS and $612 million in the case of RBS—but perhaps more significantly, the agreements also obliged Japanese subsidiaries of UBS and RBS to plead guilty to one felony count each of wire fraud.
A number of reports have suggested that these subsidiary-company guilty pleas heralded the arrival of a new model of corporate prosecution, charting a middle path between the Department of Justice’s (DOJ) historical reluctance (especially post-Arthur Andersen) to indict large corporations for the misdeeds of a small number of employees versus a more aggressive approach that would involve bringing formal criminal charges against the parent entity.
Although the precedential import of the UBS and RBS settlements remains uncertain, there have been calls for more aggressive corporate prosecutions, and there is recent precedent for the formal indictment of large corporations, especially in cases involving the Foreign Corrupt Practices Act (FCPA). Therefore, companies should prepare for the possibility that in ongoing and future investigations, the DOJ will insist on one or more subsidiaries entering a guilty plea, in addition to (or perhaps instead of) a settlement based on a deferred-prosecution agreement (DPA) or non-prosecution agreement (NPA).