Last week FCPA enforcement took a formal turn when the Justice Department released the Yates Memo, which formalized the department’s new focus on prosecuting individuals under the FCPA. In the same week, there was a much less reported event that could have equally large effect on FCPA enforcement going forward.
In a courtroom in Washington, D.C., the U.S. District Court of Appeals for the D.C. Circuit heard oral arguments in U.S. v. Fokker Services. Although this matter isn’t about the Foreign Corrupt Practices Act—it involves criminal charges for unlawfully exporting U.S.-origin goods and services to Iran, Sudan, and Burma—the case has the potential for a significant effect on how FCPA enforcement is handled going forward.
In the criminal matter, the defendant Fokker Services was accused of making more than 1,000 illegal shipments to the sanctioned countries from 2005 to 2010. The Justice Department and the company wanted to enter into a deferred-prosecution agreement with a term of 18 months, and the company agreeing to forfeit $10.5 million and to pay an additional $10.5 million in a parallel civil settlement. The trial court, Judge Richard Leon presiding, rejected the DPA as too lenient.
Leon criticized the amount of the fine and that no individuals were prosecuted, and in his order rejecting the DPA stated, “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.”
The case is on appeal as to whether a district court can reject an agreed-upon DPA. It is the first time such a question has been raised on appeal. Both the Justice Department and the defendant Fokker Services want to limit the trial court’s discretion to accept or reject an agreed-upon settlement such as a DPA. If the Court of Appeals rejects the government’s position, it could make settling cases for corporations much more difficult, as it would give trial court not only oversight into the entire settlement process, but visibility directly into the specifics of a company’s conduct which might lead to a reduced penalty like a DPA over a criminal plea.
If the Court of Appeals backs up the district court, that ruling, coupled with the new focus on investigating and prosecuting senior corporate officials as laid out in the Yates Memo, might prod companies to take a very different view on the benefits of cooperation with the government. It may mean that investigations are longer, more drawn out, and more adversarial. It may also mean court review of the entire investigation and facts prior to approving any settlement under a DPA or other agreement.