D.C. Circuit to Decide Scope of Judges’ Authority in Approval Process for Deferred Prosecution Agreements

D.C. Circuit to Decide Scope of Judges’ Authority in Approval Process for Deferred Prosecution Agreements

A federal judge exceeded his authority when he rejected a deferred prosecution agreement (DPA), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], entered into earlier this year by the U.S. Department of Justice (DOJ) and a Dutch aerospace company, the DOJ and company collectively argued before the U.S. Court of Appeals for the District of Columbia.

The appeal comes at a time when several other courts, including those in the Southern District of New York, Eastern District of New York, Eastern District of North Carolina, and another in the District of Columbia, have rejected or raised issues about the terms of certain DPAs presented to them for approval. The D.C. Circuit’s ruling will help to guide whether companies and the DOJ will need to revisit the use of DPAs or if they can treat DPAs as contractual in nature and largely immune from judicial scrutiny.

The prosecution of Fokker Services B.V. (Fokker) stems from its decision to self-disclose to DOJ certain alleged criminal conduct it uncovered during the course of an internal investigation. The investigation revealed that from 2005 to 2010, Fokker’s executives approved what appeared to be more than 1,100 illegal shipments of aircraft parts and components to Iran, Sudan, and Myanmar, which were subject to export control laws for national security and/or anti-terrorism reasons.

Moreover, certain Fokker employees allegedly falsified documents to conceal customer locations and they hid evidence of certain transactions from inspectors. DOJ charged Fokker with conspiracy to unlawfully export goods and services, but agreed to drop the charge after 18 months (the term of the DPA) if Fokker paid a $21 million penalty, admitted wrongdoing, cooperated with authorities, and enhanced its compliance program.

In rejecting Fokker’s DPA, U.S. District Court Judge Richard J. Leon opined, “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 [i.e., Iran].” Breaking down the specific terms of the DPA, Judge Leon took issue with the following aspects:

The monetary penalty was too weak, because it amounted merely to a disgorgement of revenues from Fokker’s illegal conduct;

There was no evidence that any individual was prosecuted and many culpable employees were not even fired for egregious criminal conduct, despite recurring knowing and willful violations orchestrated at the highest levels of Fokker; and

The DPA lacked oversight, with its terms expiring after 18 months and no corporate monitoring requirement.

Critics of Judge Leon’s decision argue that he overstepped the role historically accorded to the Executive Branch to determine whether to file charges against an entity or an individual and whether to reach a settlement short of a full-scale prosecution. If the decision is upheld, negotiated DPA resolutions, which have become a staple of how DOJ resolves criminal investigations involving corporations, may be much rarer, and we may see more non-prosecution agreements, which do not require judicial approval. As Fokker has argued, such an outcome also could make companies think twice about self-disclosing potential criminal conduct to the DOJ.

The stage is now set for a circuit court to provide some clarity regarding the role of federal judges in the DPA approval process. We will continue to monitor any developments in U.S. v. Fokker and will issue another alert once the D.C. Circuit renders its opinion.

Ballard Spahr’s White Collar Defense/Internal Investigations Group regularly counsels and represents individuals, companies, and organizations facing actual or threatened government enforcement, including grand juries; conducts internal investigations; and designs preventive compliance programs. For more information, please contact Henry E. Hockeimer, Jr., at hockeimerh@ballardspahr.com, Marjorie J. Peerce at peercem@ballardspahr.com,  or Jonathan S. Satinsky at satinskyj@ballardspahr.com.


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