Why it matters: On February 5, 2015, Judge Richard J. Leon of the D.C. District Court rejected a proposed DPA that had been submitted for his approval in the government’s sanctions violations case against Fokker Services B.V., deeming it to be “anemic.” Was this “second-guessing” an appropriate use of the Court’s supervisory power? Judge Leon says yes, and now the D.C. Circuit will decide.
Detailed discussion: On June 5, 2014, the DOJ charged Dutch aerospace services provider Fokker Services B.V. (Fokker) with sanctions violations for facilitating, over the course of a five-year period commencing in 2005, more than 1100 shipments of aircraft and naval vehicle parts to embargoed countries Iran, Sudan and Burma. Some of those aircraft parts were manufactured in the U.S., making Fokker subject to the U.S. sanctions laws. The DOJ negotiated an 18-month DPA with Fokker under which Fokker agreed to pay a fine of $10.5 million, implement new compliance procedures and comply with the U.S. sanctions laws. The DPA was then filed with the D.C. District Court for approval, as required by the Speedy Trial Act, since the DPA contemplates filing and deferral of criminal charges.
On February 5, 2015, Judge Leon rejected the DPA and sent the parties back to the drawing board. Before getting to the specific facts of the case, the Judge established that approval or rejection of the DPA was within the valid exercise of his supervisory powers. Both the government and Fokker had argued that the court was required to approve the DPA except in limited circumstances where it determines that the defendant didn’t enter into the agreement “willingly or knowingly” or that it was entered into solely to circumvent the Speedy Trial Act. The Judge disagreed, saying “[u]nfortunately for the parties, the Court’s role is not quite so restricted.” The Judge added that his role was not just to serve as a “rubber stamp” (as he believed the parties wanted), but that “[w]hen, as here, the mechanism chosen by the parties to resolve charged criminal activity requires Court approval, it is this Court’s duty to consider carefully whether that approval should be given.”
The Judge cited as precedent the case of United States v. HSBC Bank USA, N.A. and HSBC Holdings PLC (12-CR-763) (E.D.N.Y. 2013), saying that “[m]y fellow District Judge in the Eastern District of New York, Judge John Gleeson, addressed this very issue last year, and I agree with his well-reasoned conclusion” that it is within the supervisory powers of the district court to approve or reject a DPA. In the HSBC case, that court was asked to approve a “heavily publicly criticized” DPA that had been filed by the government in connection with money laundering and sanctions violations charges against two HSBC entities. The government there had argued that the Judge’s sole duty with respect to the DPA was to determine whether it was being entered into to circumvent the Speedy Trial Act, and, if not, then deference to the government should be given and the DPA should be approved without the Judge ever looking at the substance of the agreement. Judge Gleeson disagreed with this argument, finding that “[t]his Court has authority to approve or reject the DPA pursuant to its supervisory power.” The Judge acknowledged that the Speedy Trial Act “is silent as to the standard the court should employ” when evaluating whether to grant its approval of a DPA, and that “[c]ase law on this point is barren both in the Second Circuit and in other Circuits.” He therefore relied on case law involving the courts’ supervisory powers generally as the basis for his decision that such powers applied in the context of DPA approval or rejection, and used this admittedly “novel” exercise of his supervisory powers to, in that case, approve the DPA.
Back to the Fokker case. After determining that it was within his supervisory powers to approve or reject the DPA, and acknowledging that “I do not undertake this review lightly. I am well aware, and agree completely, that our supervisory powers are to be exercised ‘sparingly,’” the Judge analyzed the facts of the Fokker case in the context of the proposed DPA. The Judge found “egregious conduct over a sustained period of time” on the part of Fokker that was “knowing and willful…orchestrated at the highest levels of the company” largely for the benefit of “Iran and its military during the post-9/11 world.” He found the DPA term of “only eighteen months” to be too short, and took issue with the relatively low monetary fine of $10.5 million given Fokker’s earned revenues of approximately $21 million during the relevant time period. He also took issue with the fact that no individuals were being prosecuted and that many employees directly involved in the illegal activity were still employed by the company. Lastly, the Judge was concerned about the lack of an independent monitor or the requirement of periodic reports to verify the company’s compliance with U.S. laws during this “very brief 18-month period,” stating that “the Court is being left to rely solely on the self-reporting of Fokker Services. One can only imagine how a company with such a long track record of deceit and illegal behavior ever convinced the Department of Justice to agree to that!”
For all of these reasons, the Judge rejected the DPA as not constituting “an appropriate exercise of prosecutorial discretion.” The Judge felt it to be “grossly disproportionate to the gravity of Fokker Services’ conduct in a post-9/11 world” and that it would undermine the public’s confidence in the judicial system “to see a defendant prosecuted so anemically for engaging in such egregious conduct for such a sustained period of time and for the benefit of one of our country’s worst enemies.” The Judge stated, however, that while he was rejecting the DPA in its “current form,” he would be open to considering a modified version, but he would expect it to contain, at the very minimum, “a fine that exceeded the amount of revenue generated, a probationary period longer than 18 months, and a monitor trusted by the Court to verify for it and the Government both that this rogue company truly is on the path to complete compliance.”
The government appealed the Fokker case to the D.C. Circuit on March 9, 2015, and it will be interesting to see how the D.C. Circuit rules on this new issue before it. The D.C. Circuit may look for guidance to the Second Circuit’s decision in SEC v. Citigroup Global Markets, Inc., 752 F.3d 285 (2nd Cir. 2014), where that Court addressed the issue on appeal of the proper standard a district court should use when evaluating an SEC consent decree. The Court vacated District Court Judge Jed S. Rakoff’s decision rejecting the SEC consent decree that had been submitted for his approval, finding that he had abused his discretion by applying an incorrect legal standard to the decree that included, in part, assessing the decree’s “adequacy” and requiring that the SEC establish the “truth” of its allegations against Citigroup as a condition of approval of the settlement. The Second Circuit ruled that the “proper standard for reviewing a proposed consent judgment involving an enforcement agency requires that the district court determine whether the proposed consent decree is fair and reasonable, with the additional requirement that the ‘public interest would not be disserved’…in the event that the consent decree includes injunctive relief. Absent a substantial basis in the record for concluding that the proposed consent decree does not meet these requirements, the district court is required to enter the order.” Query whether Judge Leon’s rejection of the Fokker DPA would stand if this standard were to be applied.
Speaking on April 28, 2015 at a PLI panel entitled “Financial Services Cases and Their Implications,” Principal Deputy Attorney General Marshall Miller referred specifically to the Fokker case when he said that “there’s some uncertainty, when one enters into a DPA, of what you’re getting when you file it with the court.” The D.C. Circuit’s decision on the Fokker appeal will hopefully help clear up this uncertainty.
See here to read the decision in U.S. v. Fokker Services B.V. (14-cr-121) (D.D.C. 2015).
See here to read the decision in U.S. v. HSBC Bank U.S.A., N.A. and HSBC Holdings PLC (12-cr-763), (2013 WL 3306161) (E.D.N.Y. 2013).
See here to read the decision in SEC v. Citigroup Global Markets Inc., 752 F.3d 285 (2nd Cir. 2014).
For more on this matter, refer to PLI Panel Discussion “Financial Services Cases and Their Implications” (4/28/15)