The End of the Deferred Prosecution Agreement?

From the Wall Street Journal comes news of an intriguing case that would give judges much more leeway in overruling a hapless Justice Department and their light-touch deals with corporations.

A federal appeals court is set to decide whether judges can tear up corporate prosecution agreements they deem too lenient, in a case that Justice Department officials fear will disrupt the agency’s deals with companies under criminal investigation […]

In February, a federal district judge in Washington, D.C., rejected a DPA he considered weak in a case involving Fokker Services BV, a Dutch aerospace firm accused of making more than 1,000 illegal shipments of parts and components to Iran and other sanctioned countries from 2005 to 2010.

The U.S. Court of Appeals for the D.C. Circuit is now reviewing the judge’s decision, with arguments scheduled for this week and a ruling expected in coming months. While the case has attracted little public attention, Justice Department officials privately worry that it could give judges more incentive to second-guess the agency’s decision-making in some of its highest-profile cases, according to people familiar with the matter.

At stake are deferred prosecution agreements, where DoJ sets a deal to not take on a corporate criminal in exchange for cash, maybe an independent monitor or some standards of conduct, and occasionally an admission of wrongdoing. DPAs were originally used for juveniles, to give them a shot at rehabilitating themselves. We actually have Mary Jo White, in her role as U.S. Attorney for the Southern District of New York, to thank for bringing them into the corporate sphere. As I wrote in a piece for The Guardian last November, of the 283 DPAs since 2000, over half have come since 2010.

DPAs usually arise out of the company disclosing misconduct and convening an internal investigation with some Assistant AG, promising full cooperation. The company gets credit for remedial conduct prior to the settlement, essentially setting their own punishment. And typically, DPAs are not paired with prosecutions for individuals committing the crimes.

So let’s look at the DPA that could bring this cozy situation crashing down. DoJ headlined back in June 2014 that Fokker Services BV would forfeit $10.5 million for selling aircraft parts and services to customers in Iran, Burma and Sudan. There was a parallel civil settlement with the Treasury Department’s Office of Foreign Assets Control (OFAC) to pay an additional $10.5 million. If you go down the press release, you find that Fokker received $21 million in gross revenue for these 1,153 illegal transactions, so the penalty was simply to give back what they received. Now they’re out a bunch of aircraft parts, one assumes, and I don’t really know the markup here. But that doesn’t seem too taxing.

In fact, in the DPA itself, we learn that “at least $21 million” was involved in the transactions. So it’s not possible to know what, if any, financial penalty was imposed. And FWIW, the civil penalty for the crime FSBV committed could have been as high as $51 million, per corporate law firm Akin Gump.

FSBV had to “accept responsibility” for its actions and really do little else. They agreed to cooperate with any matters relating to this investigation, making documents and individual employees available. For what purpose I have no idea, since nobody at FSBV has been indicted for this, 4 years after the company disclosed everything. FSBV must also continue to apply what it has already implemented voluntarily, namely compliance programs to prevent it from continuing to break the law. And… that’s about it. Plus, “in consideration of FSBV’s remedial actions to date,” this “punishment” all goes away within 18 months.

So I can see why Judge Richard Leon rejected this deal back in February, calling it “grossly disproportionate” and that “it would undermine the public’s confidence in the administration of justice and promote disrespect for the law… to see a defendant prosecuted so anemically for engaging in such egregious conduct.”

Just as a sidebar, I have a problem with a Dutch company being prosecuted by the United States for trading with other countries. There are a series of “trading with the enemy” type of laws that put the U.S. in the position of world trading policeman, sometimes for inscrutable reasons. But as long as that law is on the books, sentencing an offender to give back (some? all?) of their profits and promise not to do it again does seem a bit thin.

Judge Leon Thursday also questioned why the deferred prosecution agreement had a term of only 18 months.

“As such, the court is being left to rely solely on the self-reporting of Fokker Services,” he said. “One can only imagine how a company with such a long track record of deceit and illegal behavior ever convinced the Department of Justice to agree to that!”

Judge Leon also pointed out that no employees of FSBV went to jail for their actions, and in fact were all still employed at the company.

DoJ and FSBV jointly appealed Judge Leon’s order, saying he exceeded his authority. When the law enforcement agency and the offending entity end up on the same side of a lawsuit, well, it certainly doesn’t look great.

So this week we’ll have arguments in the 1st Circuit Court of Appeals D.C. Circuit Court of Appeals (h/t Abigail Field). And I don’t really know what DoJ will have to say for themselves. These are the kind of craptastic agreements they’ve been making with corporate offenders for the entire Holder era (Holder, last seen just hanging out at his awesome new office at Covington & Burling, was AG when this DPA was made). Presumably they’ll avoid the specifics and just claim that judges can’t have the temerity to reject contractual agreements made by two sides, and how this would damage the separation of powers, prosecutorial discretion, &c.

But judges have held up DPAs in the past, though they were eventually approved. And considering that DoJ can also file a non-prosecution agreement, which don’t require court approval, there’s obviously some role for judges to play here. If you want to get judicial approval, you can’t expect that approval to come automatically. And if the goal is to extract the proper consequences out of a corporate offender, a judge resisting settlements that are overly lenient can only enhance DoJ’s efforts.

Of course, that isn’t what DoJ is after. They would rather settle these matters quietly, write a press release, and then get a judge to bless it to get buy-in from another branch of government, so if anyone questions the slap on the wrist they can say “well a judge approved it.”

Legally this is a jump ball; DoJ could easily wriggle off the hook here. But if the 1st Circuit D.C. Circuit blows up this little charade, they will have to make their terrible deals without a patina of outside approval. Or maybe, horror of horrors, they’ll have to do their job properly.

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone
This entry was posted in Corporate governance, Regulations and regulators, Ridiculously obvious scams on by .

About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.

13 comments

  1. steelhead23

    I have long thought that the greatest chance for salvation of the republic lies in the independent judiciary. The Roberts Court generally put the lie to that perspective, but this case renews it. Way to go Judge Leon.

  2. crittermom

    I also want to say, Way to go Judge Leon!
    We obviously need many, many more like him.
    I especially like this he said, “it would undermine the public’s confidence in the administration of justice and promote disrespect for the law… to see a defendant prosecuted so anemically for engaging in such egregious conduct.”
    Can we find more judges, or anyone in govt (who has yet to be bought off), who understands there’s MANY of us who feel this way about the big banks, too, & is willing to stand up for justice?
    I love my country & want it back!

  3. flora

    Justice Department officials privately worry that it could give judges more incentive to second-guess the agency’s decision-making in some of its highest-profile cases, according to people familiar with the matter.”

    Hmmm…. maybe if the DoJ made better decisions re: deferred prosecution the judiciary wouldn’t need to take them in hand.

    Yves’ and NC’s reporting on these corporate and PE abuses provides wider and much needed context for the judiciary. Kudos to Judge Leon.

    1. downunderer

      “So the penalty for breaking the law is an agreement to obey the law plus a cost-of-doing business fine”

      No, that is the penalty for breaking the law, *and* getting caught, *and* being unable to bribe or bully or obfuscate your way out of the process before ending up in court.

      Then consider also how many offenders don’t get caught in the first place, and you have a better picture of the cost/benefit picture faced by corporations in the American “justice” system.

    2. The Infamous Oregon Lawhobbit

      Fortunately there’s one right here where you live and work. IF you had the sense to own a large corporation or three before you need the special treatment…. :-)

      You did have that sense, right?

  4. The Infamous Oregon Lawhobbit

    It just seems odd to me that municipal courts (in Oregon, at least) would have MORE power in this regard than federal judges.

  5. Oregoncharles

    ” Or maybe, horror of horrors, they’ll have to do their job properly.”

    And why would they do that? Isn’t that the big question?

  6. Synoia

    Ah, I understand. The are a bunch of Fokkers in the NoJustice Department.

    Surely if you desire Judicial Approval, then you can expect some Judicial Disapproval?

  7. JCC

    As for your sidebar above, it’s interesting to note that the potential stifling of DPAs involves a foreign country trading with other foreign counties. If this is upheld, we’ll see how often DPAs are thrown out when it comes to US Corporations, particularly the Wall St. types.

    I suspect, right now, that it will be a very rare occurrence.

  8. brian

    The fact that the “DoJ” has made justice equivalent to big fines, and not only that but fines which are not actually “big enough” has given me a terribly unhealthy tendency to grind my teeth uncontrollably.

    I’ll take this tidbit of news as the tiny bit of good news that it is, just because I’m so desperate to see some progress on this front.

  9. McKillop

    I imagine Holder, et al, singing in the shower
    “My object all sublime
    I shall achieve in time—
    To let the punishment fit the crime—
    The punishment fit the crime;
    And make each prisoner pent
    Unwillingly represent
    A source of innocent merriment,
    Of innocent merriment!” -The Mikado

    My own children have been told that merely saying “i’m sorry” must be accompanied with suitable atonement in order to be meaningful. ’round here we proclaim “Don’t say ‘sorry’. Stop doing it.”
    I also note that individuals -average folk- often pay for their crimes with a criminal record that prohibits them from engaging in normal social activities for a lifetime. One can’t even deliver pizza without being bondable!

  10. Malcolm MacLeod

    There is actually no such thing as “deferred prosecution”. That was a financially orchestrated
    scam worked out between the DOJ and the perps. It seems to work so well for the perps, but
    not for us. Why don’t we remove this preposterous escape clause from “the books”,and proceed
    with simple justice?

Comments are closed.