Judge Leon rejects DPA in Iran sanctions case

On February 5, 2015, D.C. District Judge Richard Leon of the District of the District of Columbia rejected a proposed settlement between the Department of Justice (DOJ) and Dutch aerospace firm Fokker Services (Fokker). The settlement sought to resolve allegations that Fokker had violated U.S. sanctions when it made over 1000 illegal shipments of aircraft parts and technology to Iran, Sudan, and Myanmar between 2005 and 2010. The shipments were estimated have generated $21 million in gross revenue for Fokker.

The proposed settlement

Under the proposed agreement, Fokker would have been subject to an 18-month deferred prosecution agreement (DPA) (with no corporate monitor) and a $21 million monetary penalty (half as disgorgement and half as a civil penalty). During the 18-month period, Fokker would have continued to cooperate with U.S. authorities in the sanctions investigation, implement a new compliance program, and comply with U.S. export laws. The parties argued that the agreement was reasonable in light of Fokker's voluntary disclosure to the U.S. Office of Foreign Assets Control (OFAC), remediation efforts it had undertaken, and its unstable financial position.

Judge Leon's Authority

The Court rejected the argument on speedy trial grounds. Specifically, Judge Leon denied the parties' Joint Consent Motion for Exclusion of Time Under the Speedy Trial Act.  Judicial approval of the motion is necessary to proceed under a DPA because, absent an approved exclusion, the Act requires trial to begin within 70 days of the government's filing an information or indictment. Judge Leon observed that the Act plainly requires judicial approval of a deferred prosecution.

Judge Leon explained that his supervisory power over the DPA was triggered by the charging document, and that he would have no power to review an exercise of prosecutorial discretion which resulted in a non-prosecution agreement or a declination. The key difference between these latter and a DPA is that parties to a DPA ask the court to facilitate the agreement and intervene in the event that the defendant fails to comply with its terms. Judge Leon reasoned that he had authority to review the agreement because the parties were asking the court “to serve as the leverage over the head of the company,” and that his review was essential to preserve the integrity of the judicial process. Judge Leon cited U.S. District Judge John Gleeson's assertion of judicial authority to review the DPA between the DOJ and HSBC Holdings in 2013 as support for his decision.

Judge Leon's rejection

Judge Leon determined that the proposed settlement was not “an appropriate exercise of prosecutorial discretion” and was so “grossly disproportionate” to the alleged conduct that it would "undermine the public's confidence in the administration of justice and promote disrespect for the law,” if allowed to proceed. Judge Leon wrote that he could not allow Fokker to be “prosecuted so anemically” when it had continually violated U.S. law to the benefit of “one of our country's worst enemies,” Iran. He was also critical of the deal because Fokker employees who had engaged in the misconduct had been allowed to remain with the company.

Finally, Judge Leon said that he would consider a modified DPA and suggested it be for a period longer than 18 months and include a court appointed monitor and “a fine that exceeded the amount of revenue generated.”

Context

Judge Leon is not alone in expressing concern from the bench with the government's use of DPAs and other settlement instruments. Judge Jed Rakoff of the Southern District of New York rejected a 2011 agreement between the Securities and Exchange Commission and Citigroup that allowed the bank to obtain a consent judgment without affirming or denying the underlying factual allegations. On appeal, the Second Circuit overruled Judge Rakoff, finding that he had applied the incorrect legal standard of review. In this latest case, if appealed by either party, Judge Leon's Fokker decision would be subject to an entirely different legal standard because Fokker was the subject of a criminal prosecution to which all the constraints of the Speedy Trial Act would apply.

Judge Rakoff recently detailed his concerns with the use of DPAs in an article he published in the New York Review of Books on Brandon L. Garret's Too Big to Jail: How Prosecutors Compromise with Corporations.

The DOJ might have avoided this outcome by structuring the resolution as a non-prosecution agreement (NPA) instead of a DPA. Arguably, an NPA could have achieved the same remedial objectives as the deal that Judge Leon rejected. With an NPA, the DOJ could have retained leverage over Fokker through its ability to obtain a criminal conviction based on the same factual admissions the company made in the rejected deal. In general, the DOJ insists on using a DPA instead of an NPA because it signals a more severe penalty for more aggravated misconduct. In the wake of Judge Leon's rejection, the Department may reconsider that approach.