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“A Pending Federal Criminal Case Is Not Window Dressing; Nor Is The Court … A Potted Plant”

Non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) of course are not just used to resolve Foreign Corrupt Practices Act enforcement actions.  However, year-after-year, approximately 25-50% of the agreements are used to resolve FCPA enforcement actions.

Thus, this Order earlier this month by U.S. District Court Judge John Gleeson (E.D.N.Y.) approving the DPA in the HSBC enforcement action is noteworthy.

By way of background, in December 2012 the DOJ filed a criminal information charging HSBC Bank USA with violations of the Bank Secrecy Act for willfully failing to maintain an effective anti-money laundering program.  The information also charged HSBC Holdings with willfully facilitating financial transactions on behalf of sanctioned entities in violation of the International Emergency Economic Powers Act and the Trading with the Enemy Act.  As noted in the DOJ release, the charges were resolved via a DPA in which HSBC agreed to forfeit approximately $1.3 billion.  HSBC further agreed to pay $665 million in civil penalties.

Soon thereafter, at a status conference, Judge Gleeson indicated that the court had authority to accept or reject the DPA and requested that the parties respond to the question of whether the DPA would yield a result consistent with the goals of the federal sentencing scheme.  Both the DOJ and HSBC responded (see here and here).

In the Order, Judge Gleeson approved the DPA, but that is not what is notable from this case.

What is notable is that Judge Gleeson rejected the DOJ’s position (and HSBC’s position) that the court lacked authority to approve of the DPA.

Judge Gleeson wrote:

“This Court has authority to approve or reject the DPA pursuant to its supervisory power.  The supervisory power . . . permits federal courts to supervise ‘the administration of criminal justice’ among the parties before the bar.  […]  One of the primary purposes of the supervisory power is to protect the integrity of judicial proceedings.  […]  Both parties assert that the Court lacks any inherent authority over the approval or implementation of the DPA. They argue that the Court’s authority is limited to deciding, in the present, whether to invoke an exclusion of time under the Speedy Trial Act and, in the distant future, whether to dismiss the charges against HSBC.  I conclude that the Court’s authority in this setting is not nearly as cabined as the parties contend it is.”

“The government has absolute discretion to decide not to prosecute.  Even a formal, written agreement to that effect, which is often referred to as a ‘non-prosecution agreement,’ is not the business of the courts.  In addition, the government has near-absolute power under Fed. R. Crim. P. 48(a) to extinguish a case that it has brought.  In my view, if the government were now moving to dismiss this case, it would be an abuse of discretion to deny that motion.”

“The government has chosen neither of those paths. Rather, it has built into the DPA with HSBC a criminal prosecution that will remain pending (assuming all goes well) for at least five years.  Just as a non-prosecution agreement is perceived as a public relations benefit to a company, perhaps the filing and maintenance of criminal charges was intended to produce a public relations benefit for the government.  But for whatever reason or reasons, the contracting parties have chosen to implicate the Court in their resolution of this matter. There is nothing wrong with that, but a pending federal criminal case is not window dressing. Nor is the Court, to borrow a famous phrase, a potted plant.  By placing a criminal matter on the docket of a federal court, the parties have subjected their DPA to the legitimate exercise of that court’s authority.”

“The courts ‘are not concerned with law enforcement practices except in so far as courts themselves become instruments of law enforcement.’  The inherent supervisory power serves to ensure that the courts do not lend a judicial imprimatur to any aspect of a criminal proceeding that smacks of lawlessness or impropriety.  ‘The court protects itself.’  The parties have asked the Court to lend precisely such a judicial imprimatur to the DPA, by arranging for its implementation within the confines of a pending case. The Court will therefore exercise its supervisory authority over the DPA.”

“I recognize that the exercise of supervisory power in this context is novel. In the typical supervisory power case, the defendant raises a purported impropriety in the federal criminal proceeding and seeks the court’s redress of that impropriety.  In the deferred prosecution context, the defendant is presented with the opportunity for diversion from the criminal proceeding altogether. For obvious reasons, a defendant in these circumstances is less likely to raise a purported impropriety with the process, let alone seek the court’s aid in redressing it, given the risk of derailing the deferral of prosecution.”

“Nevertheless, it is easy to imagine circumstances in which a deferred prosecution agreement, or the implementation of such an agreement, so transgresses the bounds of lawfulness or propriety as to warrant judicial intervention to protect the integrity of the Court.”


“I do not intend to catalog all of the possible situations that might implicate the Court’s supervisory power in this case. I couldn’t even if I wanted to; the exercise would amount to looking through a glass, darkly, at five years of potential future developments in the case. What I can say with certainty is that by placing the DPA on the Court’s radar screen in the form of a pending criminal matter, the parties have submitted to far more judicial authority than they claim exists.”

Time will tell whether Judge Gleeson’s order will have an effect similar to Judge Jed Rakoff’s decisions in SEC v. Bank of America and SEC v. Citigroup regarding the SEC’s neither admit nor deny settlement policy.  Judge Rakoff’s decisions began a conversation on neither admit nor deny.  Let’s hope that Judge Gleeson’s order will start a conversation as to the judiciary’s role in the alternate reality that the DOJ has created and championed.

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