In a July 1, 2013 decision of apparent first impression, Eastern District Judge John Gleeson held that district courts have authority to review substantively, and to determine whether to approve or reject, deferred prosecution agreements. In United States v. HSBC Bank USA, N.A. and HSBC Holdings PLC, 12 Cr. 763 (E.D.N.Y. July 1, 2013), he considered such an agreement (the “DPA”) resolving criminal charges against HSBC Bank USA, N.A. (“HSBC”). Concluding that the DPA “accomplishe[d] a great deal” in remedying HSBC’s breaches of federal anti-money laundering and related statutes, Judge Gleeson approved the agreement. Although it is not possible to know whether other district judges will employ the same hands-on approach, the opinion should be consulted by any company considering entering into a deferred prosecution agreement.
HSBC was charged with violations of the Bank Secrecy Act, including failing to maintain an effective anti-money laundering program, and with willfully facilitating financial transactions on behalf of sanctioned entities in violation of the International Emergency Economic Powers Act. The DPA requires HSBC to undertake (or to continue) numerous remedial measures to correct systemic failures, to forfeit $1.26 billion and to admit criminal wrongdoing. The parties presented the DPA as part of their joint request that the Court hold the case in abeyance for the five-year term of the DPA and exclude that time from the otherwise applicable 70-day statutory speedy trial period of 18 U.S.C. § 3161(c). Pursuant to section 3161(h)(2), the period of delay occasioned by a deferred prosecution agreement “for the purpose of allowing the defendant to demonstrate his good conduct” “shall be excluded . . . in computing the time within which the trial of any offense must commence.” Subsection (h)(2) does not, however, state a standard for exclusion of time. HSBC argued that the “catch-all” provision, subsection (h)(7), which directs exclusion of time if the “interests of justice served by the exclusion outweigh the interests of the defendant and the public in a speedy trial,” should apply.
Judge Gleeson disagreed, concluding that subsection (h)(7) applies only to “one specfic type of exclusion – i.e., when the ends of justice served by the exclusion outweigh the best interests of the public.” Subsection (h)(2), relating specfically to deferred prosecution agreements, provides for exclusion of delay resulting from such an agreement, but only upon approval of the agreement by the court. Judge Gleeson found that this requirement of judicial approval applies, first, to ensuring that the purpose of the deferred prosecution is “truly about diversion and not simply a vehicle for fending off a looming trial date.”
Judge Gleeson then went further, rejecting the joint argument of the government and HSBC that the Court “lack[ed] any inherent authority over the approval or implementation of the DPA” itself. The parties argued that the Court’s power was limited to deciding whether to exclude time under the Speedy Trial Act and, at the end of the term of the DPA, whether to dismiss the charges against HSBC. Because the parties had elected to “plac[e] a criminal matter on the docket of a federal court” – that is, by initiating a criminal case subject to the DPA and ultimate dismissal, rather than the government declining to proceed at all, pursuant to a non-prosecution agreement – Judge Gleeson held that they had subjected the DPA to the legitimate exercise of the court’s inherent supervisory power, to ensure the DPA does not “so transgress[ ] the bounds of lawfulness or propriety as to warrant judicial intervention to protect the integrity of the Court.” Recognizing that courts should extend “significant deference . . . to the Executive Branch in matters pertaining to prosecutorial discretion,” and in light of the “significant, and in some respect extraordinary, measures” imposed upon HSBC, Judge Gleeson had no difficulty approving the DPA.1
Significantly, Judge Gleeson retained supervisory power over the implementation of the DPA. He ordered the parties to file quarterly reports describing “all significant developments,” resolving any “[d]oubts about whether a development is significant . . . in favor of inclusion,” and indicated he would notify the parties should there be a need for hearings or other court appearances.
As noted, it is impossible to know whether Judge Gleeson’s approach will be adopted by other district judges presented with deferred prosecution agreements. In any event, and particularly in light of the recent judicial decisions scrutinizing settlements between the SEC and corporate defendants, a company contemplating a deferred prosecution agreement would do well to consider whether it will pass muster if scrutinized as in the HSBC decision.