Court Opinion

ID: 2776921
Source: CourtListenerOpinion
Date Created: 2015-02-05 16:01:08.203516+00
Date Added: 2024-06-11T10:52:35.191495
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA )
)
)
v. ) Case No. 14-cr-121 (RJL)
) a
) F I L E E33
FOKKER SERVICES B.V.,
; FEB 05 2015
Defendant ) Siam. 08. District is; Bankruptcy.
Courts for the District of Columbia“
MEMORANDUlkI OPINION

(February i, 2015) [Dkt. #3]

On June 5, 2014, the United States (“the Government”) ﬁled an Information
charging Fokker Services B.V. (“Fokker Services”) with one count of Conspiracy to
Unlawfully Export U.S.-Origin Goods and Services to Iran, Sudan, and Burma. See
Information (“Info”) [Dkt. #1]; see 18 U.S.C. § 371 (conspiracy to commit offense
against the United States); 50 U.S.C. § 1705 (International Emergency Economic Powers
Act). The conspiracy, which spanned a ﬁve-year period of time from 2005 to 2010,
included over 1100 separate illegal shipments of parts and components used in aircraft
aviation and navigation systems and other aircraft systems that were subject to export
control for national security and/0r anti-terrorism reasons. Before the Court now is a
Joint Consent Motion for Exclusion of Time Under the Speedy Trial Act (“STA Mot”)
[Dkt. #3]. Upon consideration of the parties’ pleadings, argument, relevant law, and the

entire record therein, the motion is DENIED.

BACKGROUND

Fokker Services is a Dutch aerospace services provider and subsidiary of Fokker
Technologies Holding B.V., a Dutch manufacturing and technical services company.
Info. '1] 1. Fokker Services serves operators and owners of aircraft manufactured by
Fokker Services’ predecessor, Fokker Aircraft, B.V. Info. 11 3. It provides “logistical
support, component maintenance, repair and overhaul, technical services, and aircraft
maintenance and modiﬁcation.” Id. Fokker Services uses aircraft parts manufactured
throughout the world, including in the United States. Id.

Fokker Services’ United States activities are subject to United States laws and
oversight by the Department of Treasury’s Ofﬁce of Foreign Assets Control (“OFAC”),
which administers and enforces economic and trade sanctions against certain foreign
countries, as well as the Department of Commerce’s Bureau of Industry and Security
(“BIS”). Info. 11 4. Among those regulations with which Fokker Services’ US. activities
must comply are the economic sanctions the Government has established with respect to
Iran, Iranian Transaction Regulations, 31 C.F.R. Part 5601; Burma, Burmese Sanctions
Regulations, 31 C.F.R. Part 537; and Sudan, Sudanese Sanctions Regulations, 31 C.F.R.
Part 538.

The Iranian and Sudanese sanctions prohibit, among other things, the unlicensed
exportation or re-exportation, directly or indirectly, of any goods, technology, or services

from the United States or any US. person to Iran or Sudan. Id. §§ 538.205, 560.204.

‘ These are now called the Iranian Transactions and Sanctions Regulations after being renamed and
reissued in 2012.

Here, Fokker Services is charged with a ﬁve-year conspiracy to violate and evade
United States export laws for the beneﬁt, largely, of Iran and its military during the post-
9/1 1 world when we were engaged in a two—front War against terror in the Middle East.
These voluminous violations during that period were knowing and willful, and were
orchestrated at the highest levels of the company. The company brought in $21 million
in revenue from these illegal transactions of parts that were being excluded from sale to
these particular countries for national security and anti-terrorism reasons. Indeed, the
majority of Fokker Services’ illegal conduct involved sales of aviation and avionic parts
to Iran.

Notwithstanding this egregious conduct over a sustained period of time, the
Government has agreed to dismiss the Information if Fokker Services pays a ﬁne of
$10.5 million, cooperates with the Government, implements its compliance program, and
complies with US. export laws for only eighteen months. As such, even when combined
with penalties it must pay to other US. regulatory agencies as part of a global settlement
on these issues,3 the Government is not requiring Fokker Services to pay as its ﬁne a
penny more than the $21 million in revenue it collected from its illegal transactions.
GOVt.’s 7/7 Mem. at 15-16.

Ifthat is not surprising enough, under the DPA no individuals are being
prosecuted for their conduct at issue here, Govt.’s 7/7 Mem. at 18-20, and a number of

the employees who were directly involved in the transactions are being allowed to remain

3 Fokker Services is required to pay an additional $10.5 million to resolve BIS and OFAC’S

investigations. Govt.’s Mem. in Supp. of Deferred Prosecution Agreement Reached with Fokker Servs.
B.V. at 15 (“Govt.’s 7/7 Mem.”) [Dkt. #8].

11

with the company, FS fl 40ii. Although Fokker Services did ultimately hire a new
president, the other employees who engaged in this conduct simply “received training . . .
[and] were removed from decision—making positions or demoted, or had some of their
duties reassigned.” Id.; see also Govt.’s 7/7 Mem. at 12. Finally, the DPA does not call
for an independent monitor, or for any periodic reports to be made to either this Court or
the Government verifying the company’s compliance with US law over this very brief
18—month period. See Govt.’s 7/7 Mem. at 13—14. As such, the Court is being left to rely
solely on the self—reporting of Fokker Services. One can only imagine how a company
with such a long track record of deceit and illegal behavior ever convinced the
Department of Justice to agree to that!

The parties, not surprisingly, argue that Fokker Services” voluntary self—disclosure
of the conduct at issue, cooperation and remediation efforts, and precarious ﬁnancial
condition support the Government’s position that the current DPA appropriately punishes
Fokker Services while allowing for company rehabilitation. Govt.’s 7/7 Mem. at 5-6, 10-
17, Govt.’s 7/18 Mem. at 5—10, 15-17; Fokker Servs.’ 7/18 Mem. at 8-10. I disagree.

While I do not discount Fokker Services’ cooperation and voluntary disclosure4 or,
for that matter, its precarious ﬁnancial situation,5 after looking at the DPA in its totality, 1
cannot help but conclude that the DPA presented here is grossly disproportionate to the

gravity of Fokker Services’ conduct in a post—9/11 world. In my judgment, it would

4 In light of the Government’s September 30, 2014 Status Report, I am satisﬁed with the Govemment’s
conclusion that Fokker Services’ disclosure was voluntary. See Govt.’s Status Report [Dkt. #20].

5 The Government has represented that Fokker Services requires ﬁnancial support from its parent
company, Fokker Technologies Holding B.V., in order to meet the costs of complying with this

agreement and others Fokker Services has reached with other US. agencies. Govt.’s 7/18 Mem. at 17
n.5.

12

undermine the public’s conﬁdence in the administration of justice and promote disrespect
for the law for it to see a defendant prosecuted so ancmically 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. Surely one would expect, at a minimum, a fine that exceeded
the amount of revenue generated, a probationary period longer than 18 months, and a
monitor trusted by the Court to verify for it and the Government both that this rogue
company truly is on the path to complete compliance. As such, the Court concludes that
this agreement does not constitute an appropriate exercise of prosecutorial discretion and
I cannot approve it in its current form. To be clear, however, I am not ordering or
advising the Government, or the defendant, to undertake or refrain from undertaking any
particular action—~I am merely declining to approve the document before me. I remain
open to considering a modified version in the future should the parties agree to different
terms and present such an agreement for my approval.

CONCLUSION

Thus, for all the foregoing reasons, the parties’ Joint Consent Motion for
Exclusion of Time Under the Speedy Trial Act [Dkt. #3] is hereby DENIED. An

appropriate order shall accompany this Memorandum Opinion.

(7/

/

l

RICHARD J N
United States District Judge

13

The Iranian sanctions also prohibit the rc-exportation from a third country to Iran of any
goods, technology, or services that had been exported from the United States. Id.
§ 560.205. The Burmese sanctions prohibit new investment in Burma and the
exportation or re-exportation of ﬁnancial services to Burma from the United States or any
US. person. Id. § 537.202, 537.204. The sanctions against all three countries further
prohibit transactions by US. people or within the United States to evade or avoid the
sanctions’ prohibitions. Id. §§ 537.206, 538.211, 560.203. Fokker Services historically
has worked with eleven Iranian customers, including ﬁve Iranian military customers
(e. g, its Army, Navy, and Air Force), four Sudanese customers, and four Burmese
customers. Info. 1111 6—8.

The Information charges Fokker Services with violating US. export laws from
2005 until 2010 “by engaging in illegal transactions involving the export and re-export of
aircraft parts, technology, and services to U.S.-sanctioned countries, speciﬁcally, Iran,
Burma, and Sudan . . ., without ﬁrst obtaining a license from OFAC.” Info. 1] 9.
Speciﬁcally, Fokker Services is charged with “knowingly initiating, either directly or
indirectly, 1,153 shipments of aircraft spare, repaired, or exchanged parts, or a
combination thereof" with a US. nexus2 to customers the company knew to be located in

sanctioned countries. Info. 11 10.

 

2 The Information deﬁnes “US. nexus” as one of two possibilities: “(1) [Fokker Services] sent shipments
to US. repair shops for repair knowing that the shipments consisted of parts and technology derived from
aircraft controlled by [Fokker Services’] customers located in U.S.-sanctioned countries; or (2) the
shipments contained U.S.-origin parts or technology that were subject to export license requirements
under US. law at the time of shipment.” Info. 1] 10.

3

The Information charges a scheme of deliberate conduct to evade the sanctions
and detection by US companies and authorities. According to the Information, Fokker
Services withheld or falsiﬁed tail numbers, or falsely indicated parts were to be used as
“stock parts” when reporting to US. or UK. companies so as to conceal its customers’
afﬁliations with U.S.-sanctioned countries. Info. 11 21a. It tracked US. companies”
attention to export controls and directed business to those companies that were not
vigilant regarding compliance. Info. ‘1 21b. The company deleted references to Iran in
materials sent to U.S. subsidiaries and repair shops, Info. 1i 21c, and removed ﬁelds
relating to ultimate end—user information from an internal parts-tracking database, Info.
11 21d. In addition, Fokker Services directed employees to hide activities and documents
related to Iranian transactions from US. Federal Aviation Administration inspectors.
Info. 11 210. Although Fokker Services did brieﬂy suspend operations with Iran in 2008,
it quickly resumed business with Iranian commercial customers. Info. 1i 22d-e. This
business with Iran continued in spite of advice to senior management from an export
compliance manager and in—house counsel in 2009 that no U .S.~origin parts could be
shipped to Iran. Info. 11 22f. The Information seeks forfeiture of $21 million. Info. at 1 1.

On the same day that it ﬁled the Information, the Government ﬁled a Deferred
Prosecution Agreement (“DPA”) and attendant Factual Statement (“FS”), STA Mot, Ex.
A [Dkt. #3-1], along with its Motion to Exclude Time Under the Speedy Trial Act, STA
Mot. The Factual Statement sheds additional light on the circumstances surrounding and

following the alleged actions here. The majority of illegal conduct at issue involved

Iranian customers. FS at 1 n.1. Gross revenue from shipments in violation of US. export

laws totaled approximately $21 million. FS 1] 4.

The Factual Statement makes clear that certain policies and practices were carried
outwith the knowledge and approval of senior management. FS 1] 2. As early as 2002,
Fokker Services was aware of US. export laws regarding Iran, because it applied for a
license from OFAC to re-export U.S.-originated trafﬁc control systems to Iran; the
license was denied in 2004. F8 W 19, 21.

In 2007, management organized a working group to evaluate export compliance
policies, particularly regarding Iran. FS 1[ 23. The working group explicitly recognized
the prohibitions put into place by American sanctions. Id. In 2008, Dutch customs
authorities detained two packages ol‘parts and wamed Fokker Services it could not
defend the company if it encountered problems with United States authorities regarding
export compliance. FS W 25-27. Despite this knowledge and warning, Fokker Services
continued to do business with its Iranian civilian customers, though ceased business with
Iranian military customers. FS 1111 27—28. With respect to US. sanctions in particular,
Fokker Services decided it would comply with US. export laws “only to the extent it was
bound by the terms of any end-user statements [it] had signed with US companies.” FS
‘ﬁ 28. Members of the management team, including the president of the company, were
aware of this decision. F S 1] 29.

In 2010, however, the company changed course. On June 23 of that year, Fokker
Services provided BIS and OFAC an initial notice of disclosure of transactions

implicating U.S. regulations, which it has supplemented with additional submissions. FS

5

1H] 36, 38. The company hired an outside law ﬁrm to conduct an internal investigation
and has cooperated with US. law enforcement and regulatory authorities. FS W 36, 39.

According to the Factual Statement, Fokker Services has undertaken some
voluntary steps to enhance its compliance programs, which now is subject to regular
audits. FS ‘11 40, 40ix. It stopped all new business with U.S.-sanctioned countries and
fulﬁlled its pre—existing contractual obligations only to the extent transactions complied
with US. law. FS ﬂ 40i. After investigating the conduct of its employees, Fokker
Services ﬁred its president, demoted or reassigned the duties of certain personnel, and
trained employees in US. export controls and economic sanctions. FS 1i 40ii. In the
meantime, it has adopted a new compliance program with ofﬁcers who report to the
highest levels of management, including one ofﬁcer who reports to Fokker Services’
parent company, and has revised its written compliance materials. F S 1] 40iii-iv. The
company’s electronic systems now allow employees to determine if a part previously has
been used in an embargoed country. FS 11 40v. Employees can report potential violations
anonymously and are trained in compliance. FS 1i 40viii, x. The company incorporated
language into its contracts indicating it will not export or re-export in violation of US. or
certain other laws and requires all customers to sign end-user agreements. FS 1t 40 vi-vii.
Finally, Fokker services terminated its relationship with sanctioned banks and closed its
Iranian ofﬁce presence. FS 11 40xi.

The United States government and Fokker Services have entered into an
agreement whereby Fokker Services accepts and acknowledges responsibility for its

conduct in violation of US. export laws, and the United States agrees to dismiss with

6

prejudice the charges against Fokker Services if the company complies with all terms of
the agreement for a period of eighteen months. DPA w 2, 4. Pursuant to the DPA,
Fokker Services agrees to pay the United States $10.5 million dollars, DPA ﬂ 3, continue
to cooperate with United States authorities and agencies regarding the conduct at issue,
DPA W 5, 6, implement its new compliance program and policies, DPA ll SVi-vii, and, of
course, comply with US. export laws, DPA ll Six. Upon successful completion of the
eighteen-month agreement term, the United States agrees it will not prosecute Fokker
Services or other members of its corporate family for acts within the scope of or related
to the investigation and Factual Statement, unless relating to a transaction Fokker
Services failed to disclose. DPA ll 7.
ANALYSIS

The DPA was ﬁled before this Court in conjunction with a motion to exclude time
under the Speedy Trial Act, 18 U.S.C. § 3161. STA Mot.; STA Mot., Ex. A. The Speedy
Trial Act calls for a trial to begin within 70 days ofthe filing of an information or
indictment. 18 U.S.C. § 3161(c)(1). However, when calculating the time in which a trial
on a charged offense must commence, the Act excludes certain periods of delay. Id.
§ 3161(h). Relevant here, the statute excludes “[a]ny period of delay during which
prosecution is deferred by the attorney for the Government pursuant to written agreement
with the defendant, with the approval of the court, for the purpose of allowing the
defendant to demonstrate his good conduct.” Id. § 316l(h)(2). The plain language of the
statute calls for court approval, and it is this approval the parties now seek. See United

States v. HSBC Bank USA, N.A., N0. 12-CR-763, 2013 WL 3306161, at *3 (E.D.N.Y.

7

July 1, 2013) (“[U]nder a plain reading of this provision, a court is to exclude the delay
occasioned by a deferred prosecution agreement, but only upon approval of the
agreement by the court”).

Both of the parties argue, not surprisingly, that the Court’s role is extremely
limited in these circumstances. Govt.’s Supplemental Mem. in Supp. of Deferred
Prosecution Agreement Reached with Fokker Services B.V. at 10-15 (“Govt.’s 7/18
Mem.”) [Dkt. #11]; Fokker Servs. B.V.’s Mem. in Supp. of the Deferred Prosecution
Agreement with the Govt. at 2—4 (“Fokker Servs.” 7/18 Mem.”) [Dkt. #12]. They
essentially request the Court to serve as a rubber stamp unless there is an indication that
(a) the defendant did not enter into the agreement willingly and knowingly, Govt.’s 7/18
Mem. at 10, or (b) the agreement was designed solely to circumvent Speedy Trial Act
limits, Govt.’s 7/ 18 Mem. at 12; Fokker Servs.’ 7/ 18 Mem. at 2—3. Unfortunately for the
parties, the Court’s role is not quite so restricted.

My fellow District Judge in the Eastern District of New York, Judge John
Gleeson, addressed this very issue last year, and I agree with his well—reasoned
conclusion that a District Court has the authority “to approve or reject the DPA pursuant
to its supervisory power.” HSBC, 2013 WL 3306161, at *4; see also United States v.
WakeMed, No. 5:12-CR-398-BO, 2013 WL 501784 (E.D.N.C. Feb. 8, 2013) (approving a
DPA after holding two hearings, considering the wrongful conduct and agreed upon
terms, and “weighing the seriousness of defendant’s offense against the potential harm to
innocent parties that could result should this prosecution go forward”). Indeed, it is that

“supervisory power . . . [that] permits federal courts to supervise the administration of

8

criminal justice among the parties before the bar.” United States v. Payner, 447 US.
727, 735 n.7 (1980) (internal quotation marks omitted); see also Bank of Nova Scotia v.
United States, 487 US. 250, 264 (1988) (Scalia, J ., concurring) (“[E]very United States
court has an inherent supervisory authority over the proceedings conducted before it

. .”).

One of the purposes of the Court’s supervisory powers, of course, is to protect the
integrity of the judicial process. See Payner, 447 US. at 735 n.8; see also HSBC, 2013
WL 3306161, at *6 (“The inherent supervisory power serves to ensure that the courts do
not lend ajudicia] imprimatur to any aspect of a criminal proceeding that smacks of
lawlessness or impropriety”). Indeed, Justice Louis Brandeis himself addressed the
responsibility of the court to uphold the integrity of the judicial process by denying legal
redress in appropriate situations in order to maintain respect for law and private
conﬁdence in the administration of justice. See Olmstead v. United States, 277 U.S. 43 8,
483-85 (1928) (Brandeis, J., dissenting).

The Government, of course, has the clear authority not to prosecute a case. See
I. C. C. v. Bhd. ofLocomotive Engineers, 482 US. 270, 283 (1987). Indeed, this Court
would have no role here if the Government had chosen not to charge Fokker Services
with any criminal conduct—even if such a decision was the result of a non-prosecution
agreement. But the Government has charged Fokker Services with criminal activity.
And it does not propose to dismiss the case at this point; rather, under the proposed
resolution, this criminal case would remain on this Court’s docket for the duration of the

agreement’s term. DPA 11 4.

The parties are, in essence, requesting the Court to lend its judicial imprimatur to
their DPA. In effect, the Court itself would “become [an] instrument[] of law
enforcement.” McNabb v. United States, 318 US. 332, 347 (1943). The parties also seek
to retain the possibility of using the full range of the Court’s powers in the future should
Fokker Services fail to comply with the agreed upon terms. To put it bluntly, the Court is
thus being asked to serve as the leverage over the head of the company.

When, as here, the mechanism chosen by the parties to resolve charged criminal
activity requires Court approval, it is this Court’s duty to consider carefully whether that
approval should be given. “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.”
HSBC, 2013 WL 3306161, at *5.

I do not undertake this review lightly. I am well aware, and agree completely, that
our supervisory powers are to be exercised “sparingly,” United States v. Jones, 433 F.2d
1176, 1181-82 (DC. Cir. 1970) (internal quotation marks omitted), and I fully recognize
that this is not a typical case for the use of such powers. The defendant has signed onto
the DPA and is not seeking redress for any impropriety it has identiﬁed. See United
States v. Johnson, 221 F.3d 83, 96 (2d Cir. 2000) (describing the contexts in which
supervisory powers generally are exercised). But the Court must consider the public as
well as the defendant. After all, the integrity of judicial proceedings would be
compromised by giving the Court’s stamp of approval to either overly-lenient

prosecutorial action, or overly-zealous prosecutorial conduct.

10