Judicial Scrutiny of DPAs, NPAs and Monitorships
The increased use of deferred prosecution agreements (DPAs) to resolve criminal investigations into allegations of corporate misconduct has raised questions about the role of the court. Unlike non-prosecution agreements, which resolve investigations in what is essentially a private contract between the company and the government, ensuring no role for the judiciary, DPAs result in the filing of a criminal charge. Though the DPA contemplates the dismissal of that charge at the end of the term of the agreement, its filing nonetheless commences a federal criminal case. What is the role, if any, of the court in that case? Does it include any responsibility to approve or disapprove the terms of the DPA? What is the court’s role, if any, with respect to the conduct of the years-long monitorships those agreements typically impose on the company?
The Supreme Court of the United States has yet to weigh in on these issues. However, the nature and boundaries of the authority of courts to scrutinise DPAs and the monitorships they create have been the focus of two significant decisions from United States courts of appeals, one from the Second Circuit and the other from the DC Circuit. There is likely to be more guidance in future cases, but this much is clear already: the authority of the executive branch in this context is expansive, and indeed when it comes to a decision whether to charge a crime, that authority is plenary. Judicial authority, by contrast, is correspondingly narrow. The circumstances giving rise to that narrow authority will require further refinement by the courts, but they will almost certainly require clear evidence of government misconduct. In the absence of any evidence, the judicial scrutiny of DPAs and monitorships in the United States is essentially non-existent.
Development of the narrow judicial role
The two most significant opinions addressing the role of judges with respect to DPAs and monitorships are the Second Circuit’s 2017 decision in United States v. HSBC Bank USA, NA and the DC Circuit’s decision a year earlier in United States v. Fokker Services, BV. As discussed below, both courts adopted an extremely narrow view of the role and authority of the judge after a DPA is filed. Those decisions have shaped the legal landscape in this area thus far, and though their placement of federal judges on the sidelines has been the subject of substantial criticism and scholarly debate, that landscape is unlikely to undergo significant change in the years ahead.
The Second Circuit’s decision in HSBC
In December 2012, the US government and HSBC entered into a DPA to resolve an investigation into allegations of money laundering and sanctions violations by the bank. Pursuant to the agreement, the US government filed an information charging HSBC with, among other things, violating the Bank Secrecy Act and the International Emergency Economic Powers Act. The DPA was accompanied by a corporate compliance monitor agreement.
At the first appearance before the district court, the parties jointly moved for an order holding the case in abeyance for five years – the duration of the monitorship – and an order excluding those five years from the 70-day period within which trials must otherwise commence under the Speedy Trial Act. They further contended that the authority of the court was limited to determining whether to order such an exclusion (i.e., the court had no authority to approve or disapprove the DPA itself).
The district court disagreed. Acknowledging the government’s ‘absolute discretion to decide not to prosecute’ and its ‘near-absolute power’ to dismiss a criminal charge after it has been brought, the court observed that the government had chosen neither path; rather, it had built into the DPA a criminal prosecution that would remain on the court’s docket for five years. ‘There is nothing wrong with that,’ the court reasoned, ‘but a pending criminal case is not window dressing . . . 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.’
In light of the ‘[s]ignificant deference’ owed to an executive branch determination of the appropriate terms on which to resolve an investigation, and the institutional limitations on a judge’s ability to second guess those determinations, the district court concluded that the decision to approve the DPA itself was ‘easy, for it accomplishes a great deal’. But it further held that it had the authority pursuant to the supervisory power of federal courts to oversee the future implementation of the DPA over its five-year term. The point of the supervision, the court reasoned, was to protect the integrity of the judiciary by ensuring that the court did not lend its imprimatur to conduct ‘that smacks of lawlessness or impropriety’. As examples of impropriety, the court posited four situations:
- the government requires the company to waive privileges, in violation of ethical rules and US Department of Justice (US DOJ) policy;
- the government requires a company to violate the Fifth and Sixth Amendment rights of its employees;
- the government selects a patently unqualified person, who is an intimate friend of the prosecutor, to serve as the monitor; and
- the government directs a company to remediate a breach of a DPA by endowing a chair at the prosecutor’s alma mater.
To facilitate its oversight of the implementation of the DPA, the court directed the parties to file quarterly reports with the court ‘to keep it apprised of all significant developments in the implementation of the DPA’. The parties did not seek appellate review of the district court’s order.
Two and a half years later, the district court filed a second decision in the case. In response to one of the government’s quarterly submissions, which purported to summarise a report by the monitor, the court had directed the parties to file the report itself under seal. After that, a member of the public sought an order unsealing the monitor’s report pursuant to the First Amendment right of access to judicial documents, and the court granted that application subject to an order permitting certain redactions necessary to ensure that the monitor could effectively perform the monitorship role. Both sides appealed the unsealing and redaction orders.
The Second Circuit reversed. At the heart of its decision was the holding that the district court’s assertion of the supervisory power of the courts over the DPA ran ‘headlong into the presumption of regularity that federal courts are obliged to ascribe to prosecutorial conduct and decisionmaking’. A district court ‘has no roving commission’ to monitor out-of-court conduct ‘just in case prosecutors might be engaging in misconduct’. Since government misconduct had not actually been brought to the court’s attention, any authority the court might have pursuant to the supervisory power had not been triggered. The court thus held that ‘[b]ecause the Monitor’s Report is not now relevant to the performance of the judicial function, it is not a “judicial document” and the district court erred in ordering it unsealed’.
While rejecting the district court’s holding that the supervisory power of federal courts permitted the district court to monitor the implementation of the DPA ‘based on the theoretical possibility’ of government misconduct, the Second Circuit explicitly acknowledged that such authority ‘might very well be justified’ if clear evidence of government misconduct comes ‘to a district court’s attention (for example, through a whistleblower filing a letter with the court)’. However, only allegations of misconduct that ‘smack of impropriety’ can authorise a court to act; criticisms of the pace of the remediation efforts required by the DPA or of the corporate culture of the company subject to the DPA do not suffice.
In summary, the Second Circuit articulated a narrow role indeed for judges when DPAs are brought before them: ‘Absent unusual circumstances not present here, a district court’s role vis à vis a DPA is limited to arraigning the defendant, granting a speedy trial waiver if the DPA does not represent an improper attempt to circumvent the speedy trial clock, and adjudicating motions or disputes as they arise.’ The ‘unusual circumstances’ that broaden that authority occur only when a third party comes forward with clear evidence of impropriety.
The DC Circuit’s decision in Fokker
The defendant in Fokker was an aerospace company that violated the International Emergency Economic Powers Act by selling aircraft parts to customers in sanctioned countries, principally Iran. Pursuant to a DPA, the government filed an information charging a scheme to evade the sanctions. Among other things, the DPA required the defendant to pay US$10.5 million, to continue to cooperate with the government and to implement a new compliance programme. Provided those and other conditions were met, the charge would be dismissed after 18 months.
When the criminal charge was filed, the parties argued that the district court had minimal authority to review the DPA. Inspired by the district court’s decision in HSBC (which had not yet been reversed), the court invoked the supervisory power and concluded that the integrity of the judicial process would be compromised by approving an overly lenient prosecution. Citing the government’s failure to bring criminal charges against individuals, its failure to insist on a monitor and the short duration of the DPA, the court held that ‘it would undermine the public’s confidence in the administration of justice and promote disrespect for the law’ if the court allowed the defendant to be ‘prosecuted so anemically for engaging in such egregious conduct’. The court rejected the DPA as an ‘[in]appropriate exercise of prosecutorial discretion’. Both sides joined in an appeal to the DC Circuit, which emphatically reversed the decision.
‘The Executive’s primacy in criminal charging decisions is long settled’, the DC Circuit held, citing Article II of the Constitution and, correspondingly, that is an area where ‘judicial authority is . . . at its most limited’. Accordingly, judges lack the authority to second guess executive branch determinations about whether to initiate charges, whom to prosecute, which charges to bring and whether to dismiss pending charges. The DC Circuit noted, as had the Second Circuit, that executive branch decisions of this sort are entitled to a presumption of regularity, absent clear evidence to the contrary. Nowhere, the court reasoned, is judicial authority to review executive branch decisions more limited than in the precise setting of dismissing charges – and, by analogy, deferring prosecution. Withholding approval of the government’s decision to defer criminal charges would be ‘a substantial and unwarranted intrusion on the Executive Branch’s fundamental prerogatives’. As for the implementation of the DPA, ‘the court plays no role . . . Rather, the prosecution – and the prosecution alone – monitors a defendant’s compliance with the agreement’s conditions and determines whether the defendant’s conduct warrants dismissal of the pending charges’.
Prospects for change
The tension addressed by HSBC and Fokker arose from the fact that the US DOJ, by choosing to resolve investigations of companies through DPAs, deliberately implicated the federal courts by filing criminal charges. When agreed resolutions of criminal investigations contemplate a plea of guilty, judges not only have the power to approve or disapprove the agreement but the duty to ensure that there is a factual basis for the guilty plea before accepting it. The judicial reflexes grounded in that power and duty no doubt informed the various examples of district judges stepping in to ensure that the terms of DPAs adequately served the public interest. What the Second Circuit and the DC Circuit made clear, however, is that DPAs, notwithstanding the filing of a criminal charge, are but one manifestation of the power not to prosecute, a power vested exclusively in the executive branch. In short, judges have neither the power nor the duty to vet the truthfulness, reasonableness or accuracy of the government’s factual allegations, or the charges called for (or foregone) by the DPA.
Though the Second Circuit and the DC Circuit are only two of the 12 regional courts of appeals in the United States, they are widely regarded as among the most influential. And their expansive view of executive branch power in this context, which is grounded in both the US Constitution and Supreme Court case law, is not likely to be disturbed by the Supreme Court. As a result, their narrow view of the judicial role with respect to DPAs and monitors has been followed by lower courts within and without those circuits and is essentially now the law of the land.
The fact that the law seems settled, however, does not mean that it is not controversial. On the contrary, there has been criticism from all quarters. One of the circuit judges in the HSBC case wrote a concurring opinion calling on Congress to enact legislation requiring greater transparency of DPAs and calling for judicial review to ensure they serve the public interest. US Senator Elizabeth Warren introduced a bill entitled ‘Ending Too Big to Jail Act’, which would implement these changes. The title of the bill derives from the seminal book Too Big To Jail, in which Professor Brandon L Garrett criticised the US DOJ’s ‘sweetheart deals’ with US companies in the wake of the financial crisis and called for greater judicial involvement in monitoring both the terms of DPAs and the monitorships they create. Recently adopted DPA programmes in other countries uniformly reject the US approach, providing for meaningful judicial review of the terms of such agreements.
Despite the controversy, change appears unlikely. First, the US DOJ twice amended its internal guidelines regarding DPAs and monitors in response to the criticism. Second, there has been no sign of a consensus in either house of Congress that legislative change is afoot or even necessary. Finally, because the executive branch powers at issue are grounded in Article II of the US Constitution, any legislation seeking to curtail those powers would be subject to constitutional challenge on the ground of separation of powers.
US DOJ policy with respect to monitorships continues to ebb and flow but not in ways that alter the landscape regarding judicial supervision. In October 2021, Deputy Attorney General Lisa O Monaco released a memorandum to all federal prosecutors revising the US DOJ’s corporate criminal enforcement policies. The Monaco Memorandum rescinded prior US DOJ policy to the extent that it suggested that monitorships are disfavoured and stated that the US DOJ will seek monitors ‘whenever it is appropriate to do so in order to satisfy our prosecutors that a company is living up to its compliance and disclosure obligations’ under DPAs and NPAs. Monaco explained that this is especially necessary when a corporation’s past behaviour casts doubt on its commitment to ‘change its corporate culture’ and to ‘self-police its activities’.
In short, the Monaco Memorandum reflects a shift in executive branch policy regarding the deployment of monitors. The Biden administration has promised to seek them more than the Trump administration did. The narrow role of the judiciary in approving and policing these arrangements remains unchanged.
Although the Supreme Court has yet to rule on how much supervision, if any, judges can exercise over DPAs and monitorships, the Second Circuit and the DC Circuit have severely limited courts’ authority to exercise their supervisory power over DPAs. The terms of a DPA, like the government’s changing decisions, are not subject to judicial scrutiny. As for the monitorships those agreements establish, absent clear evidence of government impropriety, there is simply no role for the court.
1 John Gleeson is a partner at Debevoise & Plimpton LLP. The author would like to thank Nora Niazian for her extremely valuable contributions to this chapter.
2 United States v. HSBC Bank USA, N.A., 863 F.3d 125 (2d Cir. 2017) (HSBC).
3 United States v. Fokker Servs. B.V., 818 F.3d 733 (DC Cir. 2016).
4 United States v. HSBC Bank USA, N.A., No. 1:12-CR-763, 2013 WL 3306161 (EDNY 2013), at *1. Full disclosure: the author was the district judge in HSBC.
5 ibid., at *1–2.
6 ibid., at *5.
8 ibid., at *7–8.
9 ibid., at *4–6.
10 ibid., at *6.
11 ibid., at *11.
12 United States v. HSBC Bank USA, N.A., No. 1:12-CR-763, 2016 WL 347670 (EDNY 2016).
13 ibid., at *5–7.
14 HSBC, 863 F.3d at 131.
15 ibid., at 137.
16 ibid., at 129.
17 ibid., at 136–37.
18 ibid., at 137 n. 4.
19 ibid., at 129.
20 United States v. Fokker Servs. B.V., 79 F. Supp. 3d 160, 162 (2015).
21 ibid., at 164.
22 ibid., at 164–66.
23 ibid., at 167.
25 ibid., at 741 (internal citations and quotation marks omitted).
26 ibid., at 741–72.
27 ibid., at 744.
29 See Fed. R. Crim. P. 11(c)(3)–(5); US Sentencing Guidelines, Section 6B1.2.
30 Fed. R. Crim. P. 11(b)(3).
31 In addition to HSBC and Fokker, see, e.g., United States v. WakeMed, No. 5:12-CR-398, 2013 WL 501784 (EDNC 2013) (approving a DPA after twice rejecting the adequacy of the agreement and equating the settlement to a ‘slap in [sic] the hand’ for a ‘corporate giant’ defendant that was ‘too big to jail’). (Transcript of Docket Call, WakeMed, No. 5:12-CR-398 (EDNC 17 Jan. 2013)).
32 See, e.g., United States v. U.S. Bancorp, No. 1:18-CR-150 (SDNY 2018); United States v. Transp. Logistics Int’l, Inc, No. 8:18-CR-11 (D. Md. 2018).
33 HSBC, 863 F.3d at 142 (Pooler, J, concurring).
34 Among recent legislative efforts was a proposal to increase the judicial scrutiny of DPAs, which Senator Elizabeth Warren introduced on 14 March 2018 under the title, ‘Ending Too Big to Jail Act’. Of note, the bill aimed to ‘create accountability in deferred prosecution agreements’ by requiring a judicial determination that the agreements are in the ‘public interest’ according to various factors. See S. 2544, 115th Cong. § 4 (2018).
35 Brandon L Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations, 283 (2016); see also Peter R Reilly, ‘Sweetheart Deals, Deferred Prosecution, and Making a Mockery of the Criminal Justice System: U.S. Corporate DPAs Rejected on Many Fronts’, 50 Ariz. St. L. J., 1113 (2019).
36 See Reilly (op. cit. note 35, above), at 1140–59 (discussing DPA programmes in Australia, Canada, France, Ireland, Singapore and the United Kingdom and noting the ‘common denominator’ in all programmes is ‘meaningful judicial review of the terms of each agreement’).
37 See Memorandum from Craig S Morford, Acting Deputy Attorney General, US Dep’t of Justice (US DOJ), to Heads of Department Components and US Attorneys, ‘Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations’ (7 Mar. 2008); Memorandum from Brian A Benczkowski, Assistant Attorney General, US DOJ, to All Criminal Division Personnel, ‘Selection of Monitors in Criminal Division Matters’ (11 Oct. 2018).
38 Memorandum from Deputy Attorney General Lisa O Monaco, US DOJ, ‘Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies’ (28 Oct. 2021), available at https://www.justice.gov/dag/page/file/1445106/download (last accessed 22 Mar. 2022).
39 Lisa O Monaco, Deputy Attorney General, US DOJ, Keynote Address at ABA’s 36th National Institute on White Collar Crime (28 Oct. 2021), available at https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute (last accessed 22 Mar. 2022).