Fokker Services BV’s $21 million settlement with the U.S. for violating Iran sanctions was delayed by a federal judge who questioned the deal’s terms and whether the aerospace company had voluntarily disclosed its wrongdoing.
U.S. District Judge Richard Leon set a hearing for July 24 for attorneys to address misgivings that include the size of the penalty levied on Fokker, the lack of charges against individuals and the scope of court oversight of the accord. Leon must sign off on the deferred-prosecution agreement before it can take effect.
“These are all components of the deal I have great concerns about,” Leon said during a hearing yesterday in Washington.
The judge said he was also troubled by a report in Bloomberg News that raised questions about whether Fokker voluntarily disclosed in 2010 that it had sold aviation parts and services to Iranian clients, including the military. The article cited three people who claimed the government learned about the violations in 2008, two years before Fokker disclosed them.
Prosecutors and the company said in court papers that Fokker’s self-reporting sparked the inquiry, and that the relatively lenient punishment the two sides agreed to was keyed to its forthright behavior.
The Bloomberg report “raises some questions about the accuracy of the government’s representations to the court,” Leon said.
Leon also asked both sides to file papers comparing how the proposed settlement with Fokker stacks up against other deferred prosecution agreements, including last year’s $1.9 billion accord with HSBC Holding Plc to resolve allegations the bank violated sanctions and money laundering laws.
Edward O’Callaghan of Clifford Chance LLP, an attorney for Fokker, declined to comment after the hearing.
Assistant U.S. Attorney Maia Luckner Miller, a prosecutor on the case, also declined to comment, saying that she hadn’t seen the Bloomberg article.
In a July 7 memorandum to the court, prosecutors said that Fokker, a unit of Fokker Technologies Holding BV, didn’t deserve the harshest of punishments because of its self-reporting. The parent company is a subcontractor on the U.S. military’s new F-35 fighter plane.
Three people with direct knowledge of the matter told Bloomberg News that government investigators first learned of wrongdoing by Fokker in late 2007 and early 2008, more than two years before it alerted the Justice Department. The people asked not to be named because details of the probe are confidential.
The Commerce Department’s Bureau of Industry and Security, which is a party to the settlement, said in a June 5 statement that the agreement stemmed from U.S. authorities’ own investigation. The department didn’t mention any self-reporting by the company.
Contacted before yesterday’s hearing, William Miller, a spokesman for U.S. Attorney Ronald Machen in Washington, declined to comment on claims the probe began without voluntary disclosure. Marianne Mulder, a spokeswoman for Papendrecht, Netherlands-based Fokker, declined to comment beyond a June 5 statement in which the company said it disclosed the transactions in 2010, took remedial action and cooperated fully with U.S. authorities. Peter Carr, a Justice Department spokesman, and Eugene Cottilli, a spokesman for the Commerce Department’s Bureau of Industry and Security, also declined to comment.
The hearing yesterday took place an hour before French bank BNP Paribas (BNP) SA pleaded guilty in Manhattan federal court as part of an $8.97 billion settlement of charges that it violated the same law broken by Fokker, the International Emergency Economic Powers Act.
BNP’s punishment, which includes a criminal conviction, stemmed from allegations that the bank moved $8.8 billion through the U.S. financial system as part of transactions involving individuals and entities in sanctioned countries.
The bank agreed to pay that amount back to state and federal authorities. The BNP settlement also called for a penalty of $140 million, or twice the amount of the $70 million profit Paris-based BNP earned from the illicit transactions.
Fokker’s $21 million penalty represents the total amount of revenue it generated from the violations, with no additional fine, according to court papers.
In court papers, Machen’s prosecutors cited several deferred prosecution accords reached by his office to show the agreement is in line with other sanctions violation cases.
The Fokker case grew out of an investigation into Aviation Services International BV, a Dutch company headed by Robert Kraaipoel and his son Neils, according to the three people with direct knowledge of the matter.
The Kraaipoels and their company pleaded guilty to IEEPA violations in 2009 and cooperated with prosecutors.
Because the deferred prosecution agreement was struck with Fokker Services, which had no direct involvement with the Pentagon’s F-35 project, the parent company is unlikely to lose its eligibility to work on the plane, according to Pentagon guidelines for contractors.
Fokker, which has been a contractor with the F-35 since 2002, supplies in-flight opening doors and flaps and electrical wiring systems.
The F-35 program is a $392 billion weapons system being produced by Lockheed Martin Corp. Laurie Tortorello, a spokeswoman for Lockheed Martin, didn’t respond to an e-mailed request for comment about its contracts with Fokker.
The case is U.S. v. Fokker Services BV, 1:14-cr-00121, U.S. District Court, District of Columbia (Washington).