D.C. Circuit Reins In District Court for Second-Guessing Government’s Deferred Prosecution Agreement

This guest post was authored by our colleague Jeremy A. Gunn, an associate in the firm’s Litigation Department.

In an unusual win for both the U.S. Department of Justice and corporate defendants, the D.C. Circuit last week reversed a district court’s refusal to pause the speedy-trial clock pursuant to a deferred prosecution agreement.  United States v. Fokker Servs. B.V., — F.3d —, No. 15-3016, slip op. at 1 (D.C. Cir. Apr. 5, 2016).  The district court’s action was the first time that any federal court had denied a motion to exclude time under the Speedy Trial Act based on a deferred prosecution agreement being too lenient on corporate defendants.  On appeal, the D.C. Circuit held that the Speedy Trial Act does not confer authority on a district court to withhold exclusion of time based upon a disagreement with the Department of Justice’s charging decisions.

In 2010, Fokker Services – a Dutch aerospace company that provides aircraft manufacturers with technical support and equipment – voluntarily notified the Government that it had potentially violated federal sanctions by engaging in illicit transactions with Iran, Sudan, and Burma.  United States v. Fokker Servs. B.V., 79 F. Supp. 3d 160, 161 (D.D.C. 2015), vacated and remanded, No. 15-3016 (D.C. Cir. Apr. 5, 2016).

Fokker fully cooperated with the Government’s investigation for more than four years. As a result of that investigation, the Government negotiated a global settlement with Fokker that provided an 18-month deferred prosecution agreement (“DPA”).  As part of the DPA, Fokker was required to pay $21 million in fines and accept responsibility for violating U.S. sanctions and export laws.  In return, the Government agreed to dismiss its charges upon Fokker’s compliance. Continue reading

Former Speaker Hastert Pleads Guilty in Hush-Money Case

This morning, former U.S. House Speaker Dennis Hastert appeared in district court in Chicago and pled guilty to one count of violating bank reporting laws. Hastert’s defense counsel had “indicated two weeks ago that he was planning to plead guilty, though the details of the deal weren’t known at the time and the politician maintained the right to withdraw from the agreement until he entered his formal plea [this] morning.” Jessica Corso, Ex-Speaker Hastert Pleads Guilty to Hush Money Charge, Law 360 (Oct. 28, 2015). Today the deal was revealed: in exchange for his plea, one of the charges against Hastert – making false statements – has been dropped and federal prosecutors have apparently recommended that he serve no more than six months in prison.

As White Collar Alert previously reported, in May Hastert was indicted in connection with his alleged agreement to pay an unknown individual $3.5 million “to compensate for and conceal his prior misconduct” against that unknown person. The indictment does not say what the former representative did that led him to pay the bribe, but it alleges that Hastert first withdrew cash in amounts of $50,000 and then, following questioning by bank representatives, structured his withdraws – reducing his payments to under $10,000 each – to evade the banks’ reporting requirements. He did this at least 106 times over a two-year period. Then, when questioned by the FBI about his conduct, Hastert allegedly lied, informing agents that he had withdrawn the cash and kept it “because he did not feel safe with the banking system.” For this conduct, he was charged with two counts: structuring and making false statements to the FBI.

Hastert pleaded not guilty to both charges but over the last few months his attorneys have been negotiating a plea deal, apparently seeking to avoid a trial that would disclose embarrassing secrets dating back to Hastert’s days as a high-school wrestling coach in Illinois. While the plea deal certainly has its up-sides for Hastert, his future remains uncertain:

  • Possible Disclosure of the Underlying Misconduct: Though the plea deal avoids a trail, some detail regarding Hastert’s misconduct may still come to light. As part of the sentencing process the government and defense counsel will provide the court with relevant information about Hastert’s background and the charged offenses. Furthermore, both parties have the ability to call witnesses at the sentencing hearing, including the individual whom Hastert was bribing. Thus, there is still a possibility that some details regarding the alleged misconduct will be revealed.
  • A Potential Period of Incarceration: While one of the charges against Hastert has been dropped and the government has recommended a sentence of no more than 6 months imprisonment, Hastert faces up to five years’ incarceration and a $250,000 fine. Hastert, however, has numerous arguments in favor of a non-incarceration sentence under the factors set forth in 18 U.S.C. § 3553 (discussed here), including the following:
  • The Collateral Consequences: Regardless of the sentence he serves, like most white collar offenders, the “collateral consequences” of Hastert’s conviction will be harsh and will last the duration of his lifetime. Once powerful and well-liked, Hastert’s name – like many a politician before him – has been completely sullied. Likewise, Hastert’s lucrative lobbying career is almost certainly over: as a convicted felon, Congressmen and Congresswomen will almost certainly refuse to meet with him. United States v. Vigil, 476 F. Supp.2d 1231, 1235 (D.N.M. 2007) (finding variance appropriate where defendant in public corruption case was already collaterally punished by loss of his position, loss of his reputation, and media coverage of his case).

Hastert is set to be sentenced on February 29th. White Collar Alert will be sure to report on the conclusion of Hastert’s case.

Elonis v. United States: The Supreme Court Weighs In On Rap Lyrics, True Threats, and Criminal Intent

Shortly after his wife decided to leave him, 28-year-old Anthony Elonis, under the pseudonym “Tone Dougie,” began posting “self-styled ‘rap’ lyrics” on Facebook that contained “graphically violent language and imagery” concerning, among others, his estranged wife, a kindergarten class, and state and federal law enforcement. Elonis v. United States, 575 U.S. __, slip op. at 2 (2015). Elonis’ posts were often interspersed with disclaimers that the “lyrics” were “fictitious,” not intended to depict real people, an exercise of his First Amendment rights, and/or “therapeutic.” Id. However, many who knew him saw his posts as threatening, and a sampling of Elonis’ “rap” will demonstrate why:

*****
If I only knew then what I know now, I would have smothered [you] with a pillow, dumped your body in the back seat, dropped you off in Toad Creek, and made it look like a rape and murder

*****
That’s it, I’ve had about enough
I’m checking out and making a name for myself
Enough elementary schools in a ten mile radius to initiate the most heinous school shooting ever imagined
And hell hath no fury like a crazy man in a kindergarten class
The only question is … which one?

*****
Little Agent Lady stood so close
Took all the strength I had not to turn th[is] [F.B.I. agent] ghost
Pull my knife, flick my wrist, and slit her throat
Leave her bleedin’ from her jugular in the arms of her partner

***

United States v. Elonis, No. 12-3798, slip op. at 4, 8-9 (3d Cir. 2013).

Shortly after these and similar posts were made, Elonis was charged with five counts of violating 18 U.S.C. § 875(c), which makes it a federal crime to transmit in interstate commerce “any communication containing any threat … to injure the person of another.” On its face, this statute requires that a communication be transmitted and that the communication contain a threat. However, “[i]t does not specify that the defendant must have any mental state with respect to these elements.” Supreme Court slip op., at 8.

At trial, Elonis’ counsel requested a jury instruction that the government needed to prove beyond a reasonable doubt that Elonis intended to communicate a true threat. However, the District Court found that negligence with respect to the communication of a threat was sufficient, instructing the jury that Elonis could be found guilty if “a reasonable person [in Elonis’ shoes] would foresee that his statements would be interpreted by [others] as a serious expression of an intention to inflict bodily injury ….” Third Circuit slip op., at 12. In light of this, in its closing argument the government “emphasizeed that it was irrelevant whether Elonis intended the postings to be threats – [saying] ‘it doesn’t matter what he thinks.’” Supreme Court slip op., at 7. Elonis was convicted on four of the five counts.

Elonis renewed his jury instruction challenge on appeal, but the Third Circuit affirmed and, consistent with the case law in the majority of federal circuits, held that Section 875(c) requires only the intent to communicate words that a reasonable person would view as a threat. Third Circuit slip op., at 18-22. Elonis appealed to the Supreme Court and on Monday the Court reversed, finding that the District Court’s instruction was not sufficient to support a conviction under Section 875(c).

Chief Justice Roberts, writing for the Court, observed that “[t]he fact that the statute does not specify any required mental state … does not mean that none exists.” Supreme Court slip op., at 9 (citing Morisette v. United States, 342 U.S. 246, 250 (1952)). Rather:

[t]he “general rule” is that a guilty mind is “a necessary element in the indictment and proof of every crime.” We therefore generally “interpret[] criminal statutes to include broadly applicable scienter requirements, even where the statute by its terms does not contain them.”

… [Indeed, while] “ignorance of the law is no excuse” … a defendant generally must “know the facts that make his conduct fit the definition of the offense, even if he does not know that those facts give rise to a crime.”

… [The Court will therefore] read into the statute “… that mens rea which is necessary to separate wrongful conduct from ‘otherwise innocent conduct.’”

Id. at 10, 12 (internal citations omitted). Here, the “crucial element separating legal innocence from wrongful conduct” is the threatening nature of the communication; therefore, the mental state requirement must apply to the fact that the communication contains a threat. Id. at 13. Because Elonis’ conviction was premised not on his mental state but on how his posts would be understood by a reasonable person, the majority found that his conviction could not stand.

This holding is certainly sound – “culpability on the all-important element of the crime” should not be reduced to negligence absent Congress’s clear intent to make that the standard. Id. However, as both Justice Alito (concurring in part, dissenting in part) and Justice Thomas (dissenting) point out, the Court’s decision is disappointing in that it does not address what level of intent is required to support a conviction. Instead, we are left to guess whether the jury needed to find that Elonis had the purpose of conveying a true threat, that he knew his words conveyed such a threat, or simply that he was reckless. White Collar Alert will keep you posted as attorneys and judges tackle this issue moving forward.

Former Speaker Hastert Indicted: Structuring a Costly Cover-Up

Yesterday, the Department of Justice charged former House Speaker Dennis Hastert in an indictment stemming from his alleged agreement to pay an unknown individual $3.5 million “to compensate for and conceal his prior misconduct” against that unknown person. According to the indictment, Mr. Hastert, a former high school teacher and wrestling coach before entering politics, first withdrew cash in amounts of $50,000, but then, following questioning by bank representatives, structured his withdraws – reducing his payments to under $10,000 each – to evade the banks’ reporting requirements. And he did so at least 106 times. So far, Mr. Hastert has paid $1.7 million to this person, who claims to have known the former Speaker for most of his or her life. When questioned by the FBI about his conduct, Mr. Hastert allegedly lied about it. When the FBI asked him if he had taken out large sums of cash on several occasions, “because he did not feel safe with the banking system, as he previously indicated,” he replied, “Yeah . . . I kept the cash. That’s what I’m doing.” For this, he was charged with two counts: making false statements to the FBI and structuring.

The first lesson, of course, is “don’t lie to the FBI.” Ever. It’s not a good idea. Ask Martha Stewart.

But back to structuring. In 1970, Congress passed the Bank Secrecy Act, an anti-money laundering statute that, among other things, requires banks to file Currency Transaction Reports for any deposit or withdrawal of more than $10,000. It is a crime for a person “for the purpose of evading the reporting requirements” to cause a bank to fail to file a report required under the Bank Secrecy Act. 31 U.S.C. § 5324(a). Indeed, the reporting requirements led ultimately to the downfall (but not prosecution) of the infamous Client 9, who, in addition to being a client of a high-priced prostitution ring, also served as the Governor of the State of New York.

The law’s purpose is designed to track down illegal activity. The rationale goes that those who structure their deposits or withdrawals so as to avoid the $10,000 reporting trigger are more likely to be those whose transactions are connected to illegal activity. But that’s certainly not always the case. Maybe, rather than trying to hide currency that is the result of illegal conduct, the goal was to hide the funds from an ex-spouse? Yet the government will have to prove that the former Speaker knew he was trying to avoid the $10,000 reporting trigger. See United States v. MacPherson, 424 F.3d 183, 189 (2d Cir. 2005) (conviction for structuring currency transactions requires that defendant have done so with knowledge that the financial institutions involved were legally obligated to report currency transactions in excess of $10,000).

I suspect that we will eventually find out what “misconduct” Speaker Hastert was trying to hide (if the government’s indictment is to be believed). But the prosecution itself highlights the very real consequences of trying to evade bank reporting requirements . . . and lying about it.

General Petraeus Avoids Jail for Leaking Classified Information to Girlfriend

David PetraeusYesterday, former CIA head and retired General David H. Petraeus was sentenced for leaking classified information about the war in Afghanistan to his biographer/mistress, Paula Broadwell. Broadwell published a biography about him in 2012, “All In: The Education of David Petraeus,” before the affair was exposed. The Charlotte Observer wrote that “[w]ithout the weight and gravitas of his military uniform, the former military icon seemed every bit the white-collar criminal suspect as he passed through a media gauntlet on his way into the courthouse.” Judge David Kessler sentenced him to two years of probation and a $100,000 fine—more than double to the $40,000 he agreed to— as part of his plea deal for one federal misdemeanor count of unauthorized removal and retention of classified material. He faced up to one year in prison for this charge, and Judge Kessler said he increased the fine to “reflect seriousness of the offense.” Before sentencing, General Petraeus apologized for the pain his actions have caused and afterwards proclaimed that “[t]oday marks the end of a two-and-a-half-year ordeal” and that he looks “forward to moving on with the next phase of my life.” General Petreaus, who is now 62, resigned from the CIA after the affair became public.

According to the government, General Petreaus gave Broadwell eight binders of classified material he kept from his time as top military commander in Afghanistan. Some of the information contained in these binders included names of covert operatives, the coalition war strategy, and notes about General Petraeus’ discussions with President Barack Obama. Later, the FBI seized the binders from General Petraeus’ home in Arlington, Virginia, home. General Petraeus resigned from the CIA in November 2012, and signed a form that stated he had no classified material. This and the statements he told FBI agents denying that he gave Broadwell information were documented in court documents. Court documents also reference an email where General Petraeus promises to give the books to Broadwell.

Judge Kessler saw this as a just sentence for what appeared to be an aberration in an otherwise remarkable life. Judge Kessler noted that General Petreaus’ criminal conduct was “in stark contrast to 37 years of achievement.” The sentencing yesterday was the culmination of what the New York Times deemed “a spectacular fall” from grace for General Petreaus, a man once considered as a possible presidential candidate.

What To Do At Your Federal Sentencing: Lessons Learned from Ex-Virginia Governor McDonnell

Yesterday, former Virginia Governor Bob McDonnell was sentenced to two years in prison following his public corruption conviction for using the governor’s office to help a dietary supplement executive in exchange for loans, gifts, and, as we’ve noted before, a Rolex and a joy ride in a Ferrari. The sentence was significant because it marked a large reduction from the 10 to 12 year sentence recommended by the U.S. Probation Office and the 6 to 8 year sentence that the Court calculated using the Sentencing Guidelines.

So why did the Court grant such a large variance from the Guidelines sentence? Thanks to the Washington Post’s live blog of the sentencing proceedings, we’ve been able to draw some of the following conclusions:

First, character letters count. The defense did a spectacular job presenting the former governor as a decent, faithful, charitable man who has shown great remorse and who has already suffered significantly for his crimes. The defense filed over 440 character letters on McDonnell’s behalf. But it wasn’t the quantity of the support – which was overwhelming – but the content of most of the letters that had an effect on Judge Spencer.

Character letters are critically important to show the human side of a defendant, and to convince the Court that the criminal conduct was an aberration and that the likelihood of recidivism is low. Character letters can also be instrumental in demonstrating the collateral consequences of the conviction. Here, for instance, McDonnell’s supporters were able to tell Judge Spencer that had McDonnell not gotten into this mess, he would have been a front-runner candidate for President of the United States.

However, it’s important to make sure character letters don’t break the cardinal rule of good sentencing advocacy: denying responsibility and blaming others. This is a sure-fire way to irritate the judge. According to reports, Judge Spencer specifically said that, although many of the letters were moving, some “continued to cast blame on others or to see conspirators behind every tree.”

Second, character witnesses may help, too. The answer to the question of whether to call a character witness to testify on a defendant’s behalf is often, “it depends.” Character witnesses may backfire if not properly prepared, particularly if they don’t know the full extent of the underlying criminal conduct or the harm that the defendant may have caused. But McDonnell’s defense team called 11 witnesses to the stand to help further paint the picture of McDonnell as a good human being. It appears, at least in the eyes of defense counsel, that the character testimony mattered, particularly that of former Democratic Governor Doug Wilder, who counsel described as “one of the best defense witnesses I have ever seen.” While we all can’t have former governors testify as character witnesses (not to mention the first African-American governor of any state since Reconstruction), the stature of the witness is far less important than the content of the testimony.

Third, remorse, remorse, remorse. Although the prosecutor today concluded his remarks by stating that the former governor had “shown no true remorse in this case for these crimes,” the former Governor convinced the Court otherwise. McDonnell stood up and asked for mercy for his wife (facing sentencing February 20) and then accepted responsibility for his actions and said he would dedicate the rest of his life to help others.

Fourth, the Sentencing Guidelines are sometimes out of whack. Judge Spencer noted that the Guidelines range of seven or eight years, “would be unfair, it would be ridiculous, under these facts.” The Sentencing Guidelines, which calculate sentencing ranges based upon various factors, including the severity of the crime (which takes into account the financial loss to victims), the defendant’s role in the offense, and the defendant’s criminal history, are now only advisory, but they provide the initial framework for the Court’s sentencing determinations. Yet the Guidelines have steadily (and not necessarily slowly) increased over the years for white collar criminal offenses, resulting in lengthy sentences for first-time criminal defendants convicted of economic crimes. Judge Spencer recognized that “a price must be paid” and that “unlike Pontius Pilate, I can’t wash my hands of it all. A meaningful sentence must be imposed.” But looking at the totality of the circumstances – and thanks to the defense’s skillful use of sentencing letters, witnesses, and the clear articulation of the governor’s remorse – the Court refused to impose the lengthy sentence calculated under the Guidelines.

“World Tour” FCPA Compliance Lesson: Review Employee’s Expense Reports

On Monday, the SEC sanctioned two former defense contractors, Stephen Timms and Yasser Ramahi, for violating the Foreign Corrupt Practices Act. Timms and Ramahi worked in sales for FLIR Systems Inc., a company headquartered in Oregon that produces thermal imaging, night vision, and infrared cameras and sensor systems. The heart of the prohibited conduct is that Timms and Ramahi took Saudi government officials on a “World Tour” in order to secure business for the company. Timms and Ramahi agreed to settle the SEC’s charges and pay financial penalties.

According to the SEC press release:

            Timms and Ramahi traveled to Saudi Arabia in March 2009 and provided five      officials with expensive luxury watches during meetings to discuss several business opportunities. Timms and Ramahi believed these officials were important to sales of both the binoculars and the security cameras. A few months later, they arranged for key officials, including two who received watches, to embark on what Timms referred to as a “world tour” of personal travel before and after they visited FLIR’s Boston facilities for a factory equipment inspection that was a key condition to fulfillment of the contract. The officials traveled for 20 nights with stops in Casablanca, Paris, Dubai, Beirut, and New York City. There was no business purpose for the stops outside of Boston, and the airfare and hotel accommodations were paid for by FLIR. Prior to providing the gifts and travel to the Saudi Arabian officials, Ramahi and Timms each had taken FCPA training at the company that specifically identified luxury watches and side trips as prohibited gifts.

      In addition to this, Timms and Ramahi then falsified records to try and hide their misconduct. In fact FLIR’s own finance department “flagged the expense reimbursement request for the watches during an unrelated review of expenses in the Dubai office and questioned the $7,000 cost, Timms and Ramahi obtained a second, fabricated invoice showing a cost of 7,000 Saudi Riyal (approximately $1,900 in U.S. dollars) instead of the true cost of $7,000 in U.S. dollars.” Then, the men also directed “FLIR’s local third-party agent to provide false information to the company to back up their story that the original submission was merely a mistake.” The SEC’s investigation into this is “ongoing” but so far, FLIR has not been subject to any SEC action. Instead, two former employees of the company consented to the entry of the order by the SEC.

The SEC’s enforcement action demonstrates the value of a rigorous training and compliance program, as well as employing responsible and astute people within your company’s finance department. An effective compliance program not only educates employees on company policies and legal obligations, but also enables employers to monitor and detect policy or legal violations. Most bad acts within the realm of the white collar world leave a trail of discoverable evidence behind them. There is often some sort of cover-up after the fact that the government can trace, and this can lead to multiple indictments. Companies who routinely review records, and hire outside help if necessary when issues are discovered can avoid legal ramifications.

 

Eric Holder to Resign: Who Will Be the Next Attorney General?

After serving 5 ½ years as Attorney General, Eric Holder will formally announce his resignation later today at the White House. In addition to being the first African American Attorney General in U.S. history, he ranks as the fourth-longest tenured AG in history and also one of the few remaining Cabinet members from the beginning of the Obama administration.

His successor will need to be confirmed, and this could take some time. So who will be chosen to replace him?

NPR is reporting that “sources say a leading candidate for that job is Solicitor General Don Verrilli, the administration’s top representative to the Supreme Court and a lawyer whose judgment and discretion are prized in both DOJ and the White House.” Verilli is currently the 46th Solicitor General of the United States. His official biography on the DOJ page states that:

Verrilli previously served as Deputy Counsel to President Obama and as an Associate Deputy Attorney General in the U.S. Department of Justice. Prior to his government service, he was a partner for many years in Jenner & Block, and co-chaired the firm’s Supreme Court practice. He handled numerous cases in the Supreme Court and the courts of appeals, including MGM Studios, Inc. v. Grokster, which established that companies building businesses based on the unauthorized distribution of copyrighted works can be liable for inducing infringement; and Wiggins v. Smith, which established principles governing the right to effective assistance of counsel at capital sentencing.

Verrilli maintained an active pro bono practice throughout his career in private practice, and received several awards for his efforts. He also taught First Amendment law as an adjunct professor at Georgetown University Law School from 1992 through 2008.

Verrilli received his undergraduate degree from Yale University and his J.D. from Columbia Law School, where he served as editor-in-chief of the Columbia Law Review. He served as a law clerk to the Honorable J. Skelly Wright of the United States Court of Appeals for the D.C. Circuit and to the Honorable William J. Brennan, Jr. of the United States Supreme Court.

Even assuming that the President taps Verilli to follow his old boss Holder, he may face an uphill battle from Senate Republicans. He is, after all, the man that NPR dubbed “the man behind the defense of Obama’s health law,” as having successfully argued the administration’s position for three days before the Supreme Court regarding the Patient Protection and Affordable Care Act.