Archive for the ‘Deferred Prosecution Agreements’ Category

Friday Roundup

Friday, April 17th, 2015

Roundup2In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article - ”local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[...]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[...]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[...]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[...]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil's  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

*****

Miller & Chevalier’s FCPA Spring Review 2015 is here.

*****

A good weekend to all.

“Without Law or Limits: The Continued Growth Of The Shadow Regulatory State”

Thursday, April 16th, 2015

ShadowJames Copeland and others at the Manhattan Institute have written some good pieces about the DOJ’s use of non-prosecution and deferred prosecution agreements.

See here for the 2012 post discussing “The Shadow Regulatory State:  The Rise of Deferred Prosecution Agreements.”

See here for the 2014 post discussing “The Shadow Lengthens:  The Continuing Threat of Regulation by Prosecution.”

If you are interested in NPAs and DPAs (and you should be if you follow the FCPA given that since 2010 approximately 85% of corporate DOJ enforcement actions have involved either an NPA or DPA), you should check out Copeland’s latest titled “Without Law or Limits: The Continued Growth of the Shadow Regulatory State.

The introduction states:

This report focuses on DPAs and NPAs reached between the U.S. government and businesses or individuals in 2014. [...]

Through specific case studies, this report explores three key issues that arise under the shadow regulatory state:

  1. Enforcement efforts can undermine compliance. As shown through a plea agreement, a DPA, an NPA, and a cease-and-desist settlement entered into between the U.S. government and Hewlett-Packard [see prior posts here and here] and its foreign subsidiaries, federal prosecutors often punish companies notwithstanding extensive compliance programs, even when the companies self-report offenses and even when “rogue” employees go to extraordinary lengths to hide misconduct from their employers. Such a “strict liability” enforcement strategy may deter companies from developing effective compliance regimes.
  2. The DPA-NPA process lacks definite terms and judicial oversight. As shown through the federal government’s decision to extend a two-year DPA with Standard Chartered Bank for an additional three-year term, without any proffered evidence of additional wrongdoing, federal prosecutors’ authority in the DPA-NPA process is supreme. These agreements typically grant prosecutors the sole authority to determine whether an agreement has been breached. Indeed, the Department of Justice argues that federal judges have no authority over DPAs, beyond ensuring that such agreements comply with the terms of the Speedy Trial Act. [For prior posts examining this issue, see here and here].
  3. The DPA-NPA process is ill-suited for application to individuals. One concern about the increased use of DPAs and NPAs by the federal government is that they give prosecutors broad powers over businesses, notwithstanding that, more often than not, no individual is ever prosecuted for any underlying offense alleged in the agreement. [For prior post containing FCPA-specifics on this issue, see here and here]. The recent decision of the Securities and Exchange Commission to apply DPAs and NPAs to individuals—acquiring significant authority over people’s lives and retaining the ability to prosecute, essentially at prosecutors’ discretion—is a troubling new application of this power. The NPA reached with an unnamed individual in a 2014 insider-trading investigation exemplifies these concerns, as the alleged misconduct itself most likely does not constitute insider trading under current law.

Notwithstanding the lack of judicial oversight in the shadow regulatory state, two judges asserted new authority over this process in 2014—continuing a trend observed in 2013. Ultimately, however, reforming the shadow regulatory state requires legislative action. Part IV of this report discusses one proposed solution, the Accountability in Deferred Prosecution Act, sponsored by U.S. Representative Bill Pascrell, Jr. (D-N.J.). Although this proposed legislation does not go far enough to address some of the serious problems with DPAs and NPAs, the legislation would add substantial clarity, transparency, and oversight, as compared with current practice, and is a great starting point for much-needed reform.”

Numerous posts have highlighted the problems of NPAs and DPAs in the FCPA context. (See here for example.  For a more comprehensive analysis see “The Facade of FCPA Enforcement“).

My long-standing, two-fold FCPA reform proposal is to amend the FCPA to include compliance defense and couple this with abolishing NPA and DPAs.  (Among other prior posts, see here).

Should this occur, the resulting enforcement landscape would look as follows.

If a payment is made in violation of the FCPA’s anti-bribery provisions within a business organization, two issues will be relevant.

First, if the payment was made, authorized or condoned by a director or executive officer, the business organization will not be able to avail itself of an FCPA compliance defense.  Second, if the payment was made by any employee or agent in the absence of pre-existing FCPA compliance policies consistent with the best practices, the business organization will not be able to avail itself of an FCPA compliance defense.  In these scenarios involving corrupt directors or executive officers or business organizations without a commitment to FCPA compliance, the enforcement agencies will have two choices:  do not prosecute or prosecute the business organization for violating the FCPA.  This is a just and reasonable result and the third option of an NPA or DPA is not needed in such a scenario. As even the DOJ has acknowledged and empirical research has demonstrated, it is extremely unlikely that actual criminal prosecution of such a business organization will result in its demise.

Conversely, if the payment at issue is made by a non-executive employee or agent contrary to the business organization’s pre-existing FCPA compliance policies, the organization will be able to avail itself of an FCPA compliance defense.  Thus, as a matter of law, no FCPA prosecution of the organization will be able to proceed.  This too is a just and reasonable result and aligns FCPA enforcement with enforcement regimes in several other peer countries.

The above FCPA reforms will take courage, both by Congress in amending the FCPA and by the enforcement agencies in abolishing the resolution vehicles they created.  The reform proposals may indeed result in less hard FCPA enforcement actions as certain business organizations will be able to avail itself of the compliance defense and as enforcement agencies are once again mindful of their burdens of proof in prosecuting alleged FCPA violations.

However, more FCPA enforcement is not necessarily an inherent good and ought not be the singular goal of the FCPA.  The goal ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, best advances the FCPA’s objective of reducing bribery, increases transparency and better aligns FCPA enforcement with rule of law principles.

The above two-fold FCPA reform proposal will accomplish these goals as well as increase public confidence in FCPA enforcement.  The proposals will also allow the enforcement agencies to better allocate limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engage in the improper conduct. (See here for the prior post).

Two Thoughts Regarding The Extension Of Biomet’s DPA

Thursday, March 19th, 2015

TwoOne reason to read FCPA Professor is it allows you to stay ahead of the curve and gain insight into the issues others will be talking about months or years later.

For instance, this July 2014 post highlighted how Biomet’s 2013 deferred prosecution agreement (concerned alleged conduct in Brazil, Argentina, and China) was at risk of being extended based on the company’s additional FCPA scrutiny in Brazil and Mexico.

Sure enough, recently Biomet disclosed:

“On March 13, 2015, the DOJ informed Biomet that the DPA and the independent compliance monitor’s appointment have been extended for an additional year.

Pursuant to the DPA, the DOJ has sole discretion to determine whether conduct by Biomet constitutes a violation or breach of the DPA. The DOJ has informed Biomet that it retains its rights under the DPA to bring further action against Biomet relating to the conduct in Brazil and Mexico disclosed in 2014 or the violations set forth in the DPA. The DOJ could, among other things, revoke the DPA or prosecute Biomet and/or the involved employees and executives. Biomet continues to cooperate with the SEC and DOJ and expects that discussions with the SEC and the DOJ will continue.”

Two thoughts regarding the extension of Biomet’s DPA.

First, the extension makes the DOJ look foolish.

Why?

Well, for many years the DOJ advanced the policy position that DPAs (and NPAs) “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe.” (See here for the prior post). Specifically in the FCPA context, the DOJ stated that “the companies against which DPAs and NPAs have been brought have often undergone dramatic changes.”  (See here for the prior post).

Yet, Biomet’s post FCPA enforcement action FCPA scrutiny puts it in a category of several other companies (such as Orthofix International, Willbros Group, Marubeni, Diebold, IBM, Tyco, Aibel Group, and Ingersoll-Rand) that have become the subject of additional scrutiny or enforcement after resolving FCPA enforcement actions through a DPA or agreeing to an SEC permanent injunction.

Second, and completely distinct from the first point, is the extension of the Biomet DPA shows how difficult FCPA compliance can be.

Why?

Because Biomet’s post FCPA enforcement action FCPA scrutiny demonstrates that not even companies with the greatest incentive to comply with the FCPA because they are:

(i) subject to post-enforcement action compliance obligations; and

(ii) subject to “double prosecution” for failure to do so

are able to ensure FCPA compliance across its business organization or eliminate FCPA scrutiny.  In short, FCPA compliance can not be guaranteed in a business organization, rather steps can be taken that only minimize the risk of non-compliance occurring.

Friday Roundup

Friday, February 27th, 2015

Roundup2Save the date, scrutiny updates, coming attraction, job alert, and for the reading stack. It’s all here in the Friday roundup.

Save the Date

An event notice for East Coast readers.

On Friday, March 6th, the Fordham Law Review is hosting a free symposium opened to the public titled “Fighting Corruption in American and Abroad.”

To learn more about the event click here.

Preet Bharara (U.S. Attorney for the Southern District of New York) will be delivering a keynote address and symposium panels will explore the following topics.

(i) What is Corruption?—How Should We Define It, and Why Is It Bad?

(ii) Landmark Domestic Bribery Prosecutions

(iii) Corruption Regulation in Practice via the Foreign Corrupt Practices Act; and

(iv) The Political Economy of Global Corruption Regulation

I will be appearing on the third panel along with: Lanny Breuer (Partner, Covington & Burling LLP);  Jay Holtmeier (Partner, Wilmer Cutler Pickering Hale and Dorr LLP); and Lucinda Low (Partner, Steptoe & Johnson LLP).

I have previously written about FCPA enforcement during Mr. Breuer’s tenure as Assistant Chief of the DOJ Criminal Division, but my panel presentation will concern a different topic – my forthcoming article:  ”The Uncomfortable Truths and Double Standards of Bribery Enforcement.”  The article explores how the U.S. crusade against bribery suffers from several uncomfortable truths, including a double standard regarding corporate interaction with “foreign officials” under the Foreign Corrupt Practices Act and corporate interaction with U.S. officials under the U.S. laws.

Scrutiny Updates

General Cable Corp.

The company initially disclosed FCPA scrutiny in September 2014 and recently disclosed:

“As we previously reported, we have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected in our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made or directed payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the Foreign Corrupt Practices Act and possibly under the laws of other jurisdictions.

On February 20, 2015, based on the analysis completed at that time with the assistance of our external counsel and forensic accountants, we concluded that we were able to reasonably estimate the amount of profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above, which we believe are likely to ultimately be disgorged. As a result, we have recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. The accrued amount reflects only an estimate of the Angola-related profits reasonably likely to be disgorged, and does not include provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.”

Cobalt

As highlighted in this prior post, the company recently prevailed over the SEC regarding the company’s FCPA scrutiny.  Set forth below is what Cobalt’s CEO (Joe Bryant) said during a recent investor conference call.

ANALYST: [J]ust one additional question for you. Back in January, you mentioned or had a press release that the SEC terminated its investigation; but the Department of Justice was still going forward with its parallel investigation into activities in Angola. Where does that stand now, Joe?

JOE BRYANT: Darn it [...]. I was hoping to get through this conference without anybody bringing up any FCPA questions.

ANALYST: Sorry about that.

JOE BRYANT: No, I would — it’s pretty simple, really. Our focus in the past several years has obviously been with the SEC; and we brought the DOJ into the investigation early on to make sure that they could run a parallel investigation, if that was what they wanted. By the way, I will say that throughout this entire period, I can’t say enough about the working relationship we developed with the SEC and trying to make sure they understood what we did and they had everything we had in terms of the issue at question.

So we got the SEC out of the way. The DOJ is an independent agency, and it will run its process according to its measures. But I do think that we consider this issue largely behind us.”

Juniper Networks

The company disclosed FCPA scrutiny in August 2013 (albeit in short fashion – see here) and recently disclosed as follows.

“The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act (FCPA). The Company is cooperating with these agencies regarding these matters. The Company’s Audit Committee, with the assistance of independent advisors, has been investigating and conducting a thorough review of possible violations of the FCPA, and has made recommendations for remedial measures, including employee disciplinary actions in foreign jurisdictions, which the Company has implemented and continues to implement. The Company is unable to predict the duration, scope or outcome of the SEC and DOJ investigations, but believes that an adverse outcome is reasonably possible. However, the Company is not able to estimate a reasonable range of possible loss. The SEC and/or DOJ could take action against us or we could agree to settle. In such event, we could be required to pay substantial fines and sanctions and/or implement additional remedial measures; in addition, it may be determined that we violated the FCPA.”

Mondelez International

Kraft Foods long ago disclosed FCPA scrutiny resulting from its acquisition of Cadbury (see here).  Kraft, currently known as Mondelēz International, Inc., recently disclosed as follows.

“[A]fter we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation.”

Coming Attraction

This recent post highlighted judicial rejection of a deferred prosecution between the DOJ and Fokker Services.

Fokker recently announced:

“After careful review of the Court’s decision, Fokker Services decided to file a Notice of Appeal. Fokker Services has noticed recent press articles which contain highly speculative assumptions and amounts, not based on facts. Fokker cannot run ahead of the outcome of its appeal and will make further announcement only if and when applicable.”

While the case is outside the FCPA context, this appeal will certainly be one to follow as DPAs (as well as NPAs) are a prominent feature of FCPA enforcement.

Job Alert

Avon Calling!  Avon Colombia S.A.S., a subsidiary of Avon Products, Inc., based in Medellin, Colombia, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the Andean Cluster (Colombia, Ecuador, Peru, and Venezuela).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website.

Reading Stack

Third parties are not just a corruption risk in the global marketplace, but the domestic marketplace as well.  See here for the New York Daily News article about so-called “expediters” who assist developers navigate bureaucracy “to speed their projects to approval — getting permits faster, addressing violations and filling out key paperwork. It’s an arrangement critics have long slammed as corrupt.”

The most recent edition of the always information Debevoise & Plimpton FCPA Update is here.  Regarding the recent rejection of a DPA in the Fokker Services action (see here) the Update states:

“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.”

Some are still drinking the Kool-Aid regarding Morgan Stanley’s so-called declination.  (See here – “A robust compliance program spared Morgan Stanley from prosecution under the FCPA”).  Just goes to show that once a narrative is cast, nothing else seems to matter.

A recent Q&A in the Wall Street Journal’s Risk & Compliance Journal with Pascale Hélène Dubois (the World Bank’s chief suspension and debarment officer).

*****

A good weekend to all.

In Rejecting A DPA, Judge Leon Refuses To Be A Rubber Stamp

Tuesday, February 10th, 2015

Rubber StampNon-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) are the predominate way in which the DOJ resolves Foreign Corrupt Practices Act enforcement actions against business organizations.  Indeed, as highlighted in this prior post, since 2010 86% of corporate DOJ enforcement actions have involved either an NPA or DPA.

NPAs and DPAs of course are used in other areas as well – which makes this recent opinion by U.S. District Court Judge Richard Leon (D.D.C.) of interest.  The action, U.S. v. Fokker Services, involved criminal charges against Fokker to unlawfully export U.S. origin goods and Services to Iran, Sudan, and Burma.  In resolving the case, the DOJ and Fokker agreed to an 18 month DPA in which the company agreed to forfeit $10.5 million and to pay an additional $10.5 million in a parallel civil settlement.

No so fast, Judge Leon said in rejecting the DPA. The analysis section of Judge Leon’s opinion states, in pertinent part, as follows (internal citations omitted).

“Both of the parties argue, not surprisingly, that the Court’s role is extremely limited in these circumstances.  They essentially request the Court to serve as a rubber stamp [...].  Unfortunately for the parties, the Court’s role is not quite so restricted.

[...]

“One of the purposes of the Court’s supervisory powers, of course, is to protect the integrity of the judicial process.”

[...]

[T]he government has charged Fokker Services with criminal activity.  And it does not propose to dismiss the case at this point; rather, under the proposed resolution, this criminal case would remain on this Court’s docket for the duration of the agreement’s term.

The parties are, in essence, requesting the Court to lend its judicial imprimatur to their DPA.  In effect, the Court itself would ‘become an instrument of law enforcement.  The parties also seek to retain the possibility of using the full range of the Court’s power in the future should Fokker Services fail to comply with the agreed upon terms.  To put it bluntly, the Court is thus being asked to serve as the leverage over the head of the company.

When, as here, the mechanism chosen by the parties to resolve charged criminal activity requires Court approval, it is the Court’s duty to consider carefully whether that approval should be given.

[...]

I do not undertake this review lightly.  I am well aware, and agree completely, that our supervisory powers are to exercised ‘sparingly, and I fully recognize that this is not a typical case for the use of such powers.  The defendant has signed onto the DPA and is not seeking redress for an impropriety it has identified.  But the Court must consider the public as well as the defendant.  After all, the integrity of judicial proceedings would be compromised by giving the Court’s stamp of approval to either overly-lenient prosecutorial action, or overly-zealous prosecutorial conduct.”

After reviewing various specifics of the Fokker action and resolution (including by noting that “under the DPA no individuals are being prosecuted for their conduct at issue here”), Judge Leon stated:

“While I do not discount Fokker Services’ cooperation and voluntary disclosure or, for that matter, its precarious financial situation, after looking at the DPA in its totality, I cannot help but conclude that the DPA presented here is grossly disproportionate to the gravity of Fokker Services’ conduct …  In my judgment, it would undermine the public’s confidence in the administration of justice and promote disrespect for the law for it 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.  [...]  As such, the Court concludes that this agreement does not constitute an appropriate exercise of prosecutorial discretion and I cannot approve it in its current form.”

As referenced in Judge Leon’s opinion, his analysis was very similar to that of Judge John Gleeson (E.D.N.Y) who faced as similar issue in U.S. v. HSBC Bank (see here for the July 2013 post in which Judge Gleeson ultimately approved the DPA in that case).

However, Judge Leon’s opinion contains the following concerning statement similar to Judge Gleeson’s prior ruling.

“The Government, of course, has the clear authority not to prosecute a case.  Indeed, this Court would have no role here if the Government has chosen not to charge Fokker Services with any criminal conduct – even if such a decision was the result of a non-prosecution agreement.”

Such an observation elevates form over substance and gives the DOJ a green light – indeed a further incentive – to use NPAs to resolve alleged instances of corporate criminal liability and thereby bypass the judicial system altogether and insulate its enforcement theories from judicial scrutiny.

At the very least, Judge Leon’s recent order, along with Judge Gleeson’s 2013 order, has started an important legal and policy conversation as to the judiciary’s role in the alternate reality that the DOJ has created and championed through its use of alternative resolution vehicles.

Use of alternative resolution vehicles to resolve alleged corporate criminal liability in the FCPA context presents two distinct, yet equally problematic, legal and public policy issues.

The first is that such vehicles, because they do not result in any actual charges filed against a company – and thus do not require the company to plead guilty to any charges – allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence.

The second is that such vehicles, because of the same factors discussed above, nudge companies to agree to the vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the FCPA.

While the two instances of judicial scrutiny of DPAs have focused on the first dynamic rather than the second, Judge Leon did nevertheless state:

“[I]he integrity of judicial proceedings would be compromised by giving the Court’s stamp of approval to either overly-lenient prosecutorial action, or overly-zealous prosecutorial conduct.”