A federal district judge recently declared that he would no longer serve as a mere “potted plant” with respect to deferred prosecution agreements (“DPAs”) between the government and criminal defendants. Before Judge John Gleeson of the Eastern District of New York’s admittedly “novel” ruling in United States v. HSBC Bank USA, such agreements were generally considered the business of the parties making them (the government and the defendant). But on July 1, 2013, Judge Gleeson made a DPA between HSBC and the government very much the court’s business as well. His ruling carries significant implications and, potentially, complications, for what has been an increasingly popular means of settling federal cases.
I. The Opinion
On December 11, 2012, HSBC was charged with failing to maintain a sufficient anti-money laundering program and for facilitating transactions by sanctioned entities. A DPA, filed the same day, required HSBC to forfeit $1.256 billion and subjected it to a five-year compliance period under an appointed monitor, after which charges would be dropped if the company complied.
Though courts usually allow such agreements as a matter of course, Judge Gleeson responded by questioning the extent of his supervisory authority over the DPA. Both parties took the position that the court “lack[ed] any inherent authority over the approval or implementation of the DPA.” Judge Gleeson disagreed, citing federal courts’ inherent authority over “the administration of justice among the parties before the bar.”1 He cited the principle, articulated by Justice Louis Brandeis, that courts can and should ensure the integrity of the proceedings they host.2
Thus, Judge Gleeson held that, while the government had absolute authority over its discretion not to prosecute or to drop criminal charges, it surrenders some of that authority to the court when it seeks the court’s imprimatur over its plea arrangements. “[A] pending federal criminal case is not window dressing,” he wrote, “[n]or is the Court, to borrow a famous phrase, a potted plant.”3 From there, he proceeded to evaluate the HSBC’s DPA for himself, ultimately accepting it “without hesitation.”4 Still, he required that the parties file quarterly reports with the court as to the DPA’s implementation.
II. Who was the Court Looking Out for?
The HSBC opinion seems to have been driven by highly divergent concerns. On the one hand, Judge Gleeson justified his supervisory authority by invoking the government’s potential to misuse a DPA to violate criminal defendants’ rights. On the other hand, he exercised that authority solely to evaluate whether the DPA at issue punished HSBC harshly enough.
On the potential for abuse, Judge Gleeson found it “easy to imagine circumstances in which” a DPA or its implementation might “warrant judicial intervention to protect the integrity of the Court,”5 citing instances where the government pursued privileged documents or violated corporate employees’ constitutional rights. He even imagined that, as possible “remediation” under the DPA, HSBC could be coerced to fund an endowed chair at the United States Attorney’s alma mater, or that a prosecutor might seek to replace HSBC’s corporate monitor with a close friend.6
Yet, Judge Gleeson did not exercise that authority in his opinion to consider HSBC’s rights. Rather, his concern was whether the DPA adequately punished HSBC. He began by citing popular commentaries decrying the use of the DPA as a means of escaping prosecution for corporate malfeasance, noting that the court had apparently received “unsolicited input from members of the public urging [it] to reject the DPA.”7
What followed seemed very much a response to that public “input.” Judge Gleeson explained that the court was powerless to require a prosecution where the executive branch did not want one. So, instead, he analyzed whether the DPA adequately punished the conduct at issue, approving it only after finding that it appeared to encompass “much of what might have been accomplished by a criminal conviction.”8
III. Implications for Criminal Settlements
Judge Gleeson’s opinion carries significant potential implications for both sides of a DPA. On the plus side for criminal defendants, the HSBC opinion may encourage the government to settle more cases via non-prosecution agreements, or “NPAs,” so as to avoid judicial scrutiny of its agreements and judicial interference in their execution.
But there is also a big potential minus. As Judge Gleeson noted, when the government chooses DPAs over NPAs, it does so for a reason. That is, “[j]ust as a non-prosecution agreement is perceived as a public relations benefit to a company, perhaps the filing and maintenance of criminal charges was intended to produce a public relations benefit for the government.”9 Thus, where the government cannot “justify” an NPA, it may now feel compelled to pursue harsher DPAs (e.g., DPAs that include compliance monitors) to ensure that they will withstand possible judicial scrutiny of the sort featured in HSBC.
Judge Gleeson’s opinion thus presents corporate defendants with both an opportunity and a risk. Facing potential prosecution, they may more readily achieve an NPA through substantial cooperation. But, where their cooperation cannot justify an NPA, more severe penalties may follow.