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.

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.

DOJ Hopes to Prosecute More Criminal Cases Arising Out of False Claims Acts

On Wednesday, Assistant Attorney General for the Criminal Division Leslie R. Caldwell spoke at the Taxpayers Against Fraud Education Fund annual conference in Washington D.C., and announced that the DOJ is closely examining civil False Claims Act lawsuits in order to find possible criminal cases. The DOJ published Caldwell’s remarks from the conference, run by a well-known nonprofit. If you represent government contractors, hospitals, other health care industry individuals and entities, or others involved in government programs, take note of this development and advise your clients accordingly.

Ms. Caldwell said that:

Today, I want to announce that we will be stepping up our use of one tool, and that is the fine work done by all of you in investigating and filing cases under the False Claims Act.

Through our Fraud Section, we will be committing more resources to this vital area, so that we can move swiftly and effectively to combat major fraud involving government programs.

(emphasis added).

She asked the audience, mostly members of the Plaintiff’s bar, to contact DOJ Criminal Division “[w]hen you are thinking of filing a qui tam case that alleges conduct that potentially could be criminal, I encourage you to consider reaching out to criminal authorities, just as you now do with our civil counterparts in the department and the U.S. Attorney’s Offices.” She noted that the DOJ Criminal Division has “unparalleled experience prosecuting health care fraud, procurement fraud, and financial fraud” and that they “will bring that expertise to bear by increasing our commitment to criminal investigations and prosecutions that stem from allegations in False Claims Act lawsuits.”

Ms. Caldwell emphasized all of the resources available to criminal prosecutors that might not be available to other enforcement agencies, including search warrants and wiretaps, consensual recordings, confidential informants.”

The announcement of the DOJ’s goal combined with attempts to streamline the referral process internally has many possible ramifications for white collar practitioners. First and foremost, if your client is facing exposure under the False Claims Act, be aware that the DOJ may be combing through the relators complaint to see if the alleged conduct raises criminal concerns or even working directly with the qui tam plaintiff’s lawyer who filed the civil suit. And if the DOJ Criminal Division does take notice and start investigating, the negotiations will inevitably shift from minimizing the financial penalties to avoiding criminal charges at all. The bottom line is that the DOJ has effectively upped its ability to collect much more in fines with the new threat of criminal prosecutions.