In a strongly-worded decision issued on February 5, 2015, Judge Richard J. Leon of the United States District Court for the District of Columbia rejected a proposed Deferred Prosecution Agreement (“DPA”) reached between the U.S. Department of Justice (“DOJ”) and Fokker Services B.V. (“Fokker Services”), a Dutch aerospace services company, arising out of violations of U.S. sanctions laws. Judge Leon held that the DPA was “grossly disproportionate to the gravity of Fokker Services conduct in a post-9/11 world."1
Although arising in a non-FCPA context, the decision highlights a continued trend by certain federal judges to exercise heightened judicial scrutiny of DPAs and other settlement agreements, despite last year’s Second Circuit ruling cautioning
against judicial intervention pertaining to a civil SEC enforcement settlement.2 Judge Leon’s ruling could affect the way the government structures future settlements, particularly in criminal cases brought in the District of Columbia.
The government alleged that between 2005 and 2010, Fokker Services conspired to evade U.S. export laws by illegally shipping aircraft parts, components, and technology to Iran, Sudan, and Burma.3 The criminal information charged that Fokker Services engaged in more than 1,100 separate illegal shipments subject to export controls and then acted to evade detection, including by falsifying tail numbers, concealing product end-users, and directing business to companies that lacked strong compliance practices to avoid detection of the violations. The
information further alleged that senior corporate managers knew and approved of the misconduct. The gross revenues from the shipments in violation of U.S. export laws totaled approximately $21 million.
In June 2010, Fokker Services self-reported to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) and began cooperating with the government’s investigation. Fokker Services also hired outside counsel to conduct an internal investigation.
In June 2014, the DOJ filed the DPA with the court along with a joint consent motion for exclusion of time under the Speedy Trial Act.4 Under the terms of the DPA, Fokker Services accepted and acknowledged responsibility for its conduct in violation of U.S. export laws, and agreed to pay $10.5 million in fines,5 to continue its cooperation with the government’s investigation, to implement more robust compliance policies and procedures, and to comply with U.S. export laws going forward. The DPA provided that if Fokker Services successfully complied with the terms of the DPA for a period of eighteen months, the DOJ would agree to dismiss the charges against the company.
On February 5, 2015, after several briefs had been submitted on the motion and hearings held before Judge Leon in which he voiced his skepticism about the DPA’s terms, Judge Leon issued his opinion rejecting the DPA and denying the joint consent motion for exclusion of time under the Speedy Trial Act.
I. The District Court’s Opinion
Judge Leon based his authority to review and reject the proposed settlement on the plain language of the Speedy Trial Act, which provides for the court to approve periods of delay “during which prosecution is deferred . . . pursuant to a written
agreement with defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.”6 Judge Leon also cited Judge John Gleeson’s decision for the United States District Court for the Eastern District of New York in United States v. HSBC Bank USA, N.A.,7 for the proposition that the authority to approve or reject the DPA stems from the court’s inherent supervisory power to “supervise the administration of criminal justice among the parties before the bar” and to “protect the integrity of the judicial process.”8
Judge Leon was quick to note that the government has clear authority not to prosecute a case, including by means of a non-prosecution agreement. In such circumstances, the court would have no supervisory authority over the settlement and no role to play. But by charging Fokker Services with criminal activity and pursuing a DPA under which the case would remain on the court’s docket for the duration of the agreement, the parties were asking the court to “lend its judicial imprimatur to their DPA” and serve as “leverage over the head of the company.”9 As a result, the court had the duty to review the settlement in order not to provide its “stamp of approval to either overly-lenient prosecutorial action, or overly zealous prosecutorial conduct.”10
Noting that he did not “undertake th[e] review lightly” and that the court’s supervisory powers were to be “exercised ‘sparingly,’” Judge Leon proceeded to pick
apart the terms of the proposed DPA.
He first focused on what he perceived as
the egregiousness of the conduct, highlighting that Fokker Services engaged in a conspiracy to aid Iran when the United States was engaged in a “two-front War
against terror in the Middle East.”
In addition, the numerous stipulated violations
over a five-year period, coupled with the fact that the conduct was concededly
known to and orchestrated by executives at the highest levels of the company, added to the seriousness of the conduct described. Judge Leon also took issue with the penalty, noting that Fokker Services was not being required to pay “a penny more than the $21 million in revenue it collected from its illegal transactions.”13
Judge Leon also raised concerns that no individuals were being prosecuted for their conduct and that a number of employees involved in the conduct have been allowed to remain at the company. In addition, Judge Leon suggested that (1) the duration of the DPA (eighteen months) was too limited and (2) an independent monitor should have been appointed. The Judge observed that the court was being left to rely on Fokker Services – “a company with such a long track record of deceit and illegal behavior” – to self-report any issues in the future.14 Judge Leon expressed his surprise that the government would agree to such terms.15
In rejecting the DPA, the court concluded that it was “grossly disproportionate” in terms of its leniency in light of the conduct at issue.16 Judge Leon expressed his concern that approving the DPA would “undermine the public’s confidence in the administration of justice and promote disrespect for the law” in a case in which the defendant was “prosecuted so anemically” for conduct over an extended period of time that benefited one of the U.S.’s “worst enemies.”17 Judge Leon stated that by rejecting the proposed DPA, he was not “ordering or advising” the parties to
“undertake or refrain from undertaking any particular action” and that he remained open to a modified agreement.18 In so doing, the court articulated a rather specific roadmap of the revisions that might salvage a future proposed settlement that would receive judicial approval, including a larger fine, a probationary period longer
than eighteen months, and the imposition of an independent monitor who could be trusted to verify that the company was in compliance with the relevant laws.
On February 18, 2015, Fokker Services filed a notice of appeal of Judge Leon’s denial of the motion for exclusion of time under the Speedy Trial Act and the refusal to approval the DPA. Many will be watching how the D.C. Circuit decides the case and, if a conflict materializes with the Second Circuit’s decision in SEC v. Citigroup Global Mkts., Inc.,19 which overturned a District Court refusal to approve a settlement in an SEC matter, whether the Supreme Court will weigh in on the scope of a court’s role in scrutinizing and ultimately approving DPAs and other settlements of regulatory actions.
In the FCPA context and beyond, the Fokker Services decision is a reminder that increased judicial scrutiny of proposed settlement agreements with law enforcement agencies may be the “new normal.” Although the outcome of Fokker Services’ appeal remains to be seen, Judge Leon’s decision may entice prosecutors in future cases to seek harsher terms in DPAs out of concern for heightened judicial scrutiny of proposed DPAs, or instead shy away from DPAs entirely and attempt to achieve sufficient punishment and deterrence through Non-Prosecution Agreements (“NPAs”). In addition, Judge Leon’s concern that no individuals were charged
in Fokker Services may further embolden prosecutors to demand individual accountability as part of proposed settlements or in the lead-up to such settlements.
Finally, it is worth noting that the increasing tendency of some judges to take a more active role in connection with approving negotiated settlements has not gone completely unchecked. In its decision last year in Citigroup,20 the Second Circuit held that courts should approve settlements that are fair, reasonable, and do not actively disserve the public interest. The Second Circuit pointedly cautioned lower courts to respect the SEC’s “discretionary authority” to decide the terms of its settlements.21
Although there are differences between civil settlements involving the SEC and criminal settlements such as the the one at issue in the Fokker Services matter, the reality of judicial review of proposed settlement agreements is of potential concern for companies, as it only adds to the uncertainty surrounding the resolution of cases and the possibility that the government will feel compelled to take more aggressive positions in negotiating resolutions. These developments suggest that companies and their counsel should be well-prepared to demonstrate how the terms of a proposed settlement are appropriate and commensurate with the conduct at issue.