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Second Circuit Denies Public Access to Monitor’s Reports on Separation-of-Powers Grounds

In a decision that will provide reassurance both to prosecutors and to the institutions with whom they enter into deferred prosecution agreements (“DPAs”), the Second Circuit (Katzmann, Lynch, Pooler (concurring)) held in United States v. HSBC Bank USA, N.A., No. 16-308(L), that the periodic reports submitted by an independent monitor responsible for evaluating compliance with a DPA are not “judicial documents” to which the public enjoys a First Amendment right of access.  To reach its holding, the Court was required to address foundational separation-of-powers questions regarding a court’s role in approving and supervising the implementation of a DPA.  The decision, written by Chief Judge Katzmann, will discourage courts from second-guessing decisions made by the executive branch in the legitimate exercise of its prosecutorial discretion.  Along with the Second Circuit’s decision in SEC v. Citigroup Global Markets, Inc., 752 F.3d 285 (2d Cir. 2014), which held that a district court reviewing a proposed SEC consent decree may only reject it under limited circumstances, last week’s decision makes clear that the Second Circuit envisions that district courts will not play a significant role in assessing the fairness of the government’s settlements with financial and other institutions. 


In 2012, the government entered into a five-year DPA with HSBC, in which the government agreed to defer prosecution of charges included in a four-count criminal information for alleged violations of the Bank Secrecy Act, the International Emergency Economic Powers Act, and the Trading with the Enemy Act.  The underlying wrongdoing related to HSBC’s failure to develop, implement, and maintain an effective anti-money laundering program, failure to conduct due diligence on correspondent bank accounts, and facilitation of financial transactions with sanctioned entities, including several in Cuba.  In exchange for entering into the DPA, HSBC committed to adopt a variety of measures designed to improve its compliance program, including retaining an independent monitor tasked with evaluating HSBC’s efforts to improve its anti-money laundering policies, procedures, and controls.  Pursuant to the DPA, the monitor is required to submit periodic reports to the government detailing his findings and recommending future action.  According to the terms of the DPA, these reports are to remain confidential.

Because the Speedy Trial Act, 18 U.S.C. § 3161(c)(1), mandates that a criminal trial begin within 70 days after a defendant is charged or makes an initial appearance, the parties were required to obtain the district court’s permission to exclude the five-year term of the DPA in computing that time limitation—a routine request necessary to ensure the proper functioning of any DPA.  Rather than rubber stamp the parties’ joint request, the district court invoked its “inherent supervisory power” to carefully scrutinize the details of the DPA and to either approve or reject the agreement on its merits.  According to the district court, “[b]y 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 July 2013, the court granted the parties’ request for a speedy trial waiver and approved the DPA “subject to [the court’s] continued monitoring of its execution and implementation.”  To facilitate its oversight, the court ordered the independent monitor to file quarterly letters with the court providing updates as to HSBC’s progress.  In April 2015, also pursuant to court order, the government filed with the court the monitor’s annual compliance report.  Originally filed under seal, the report spoke favorably of HSBC’s efforts to develop an effective compliance program but also noted, among other criticisms, that in some instances, HSBC’s progress had been “too slow.”  A few months later, a member of the public submitted a letter to the court noting that the report might be relevant to a complaint he had filed against the bank with the Consumer Financial Protection Bureau.  Based on that letter, the district court ordered the monitor’s report unsealed, subject to certain redactions.  The court concluded that the report was a “judicial document” subject to a qualified First Amendment right of public access, based on the report’s relevance to the court’s supervisory power and the fact that the report would be “integral to the future resolution of the case.”  Both HSBC and the government challenged the district court’s unsealing and redaction orders, which were stayed pending appeal. 


The Second Circuit determined that the monitor’s report does not constitute a judicial document and that the district court therefore abused its discretion in ordering the report unsealed.  A judicial document must be “relevant to the performance of the judicial function and useful in the judicial process.”  United States v. Amodeo, 44 F.3d 141, 145 (2d Cir. 1995). The monitor’s report, by contrast, is an executive document designed solely to assist the executive branch in exercising its exclusive authority to determine whether to pursue or dismiss charges against HSBC.

The Court rejected several proffered justifications for classifying the report as a judicial document.  First, the Court concluded that the document was not relevant to the district court’s self-proclaimed supervisory authority because the judicial branch does not, in fact, have “freestanding supervisory power to monitor the implementation of a DPA.”  While a district court possesses general authority to oversee “the administration of criminal justice among parties before the bar,” United States v. Payner, 447 U.S. 727, 735 n.7 (1980), this “extraordinary” power must be exercised sparingly and is typically invoked at the request of a defendant to address a purported impropriety.  While the Court acknowledged the theoretical possibility that a DPA might reflect executive misconduct or abuse of power, the Department of Justice—which has been charged with “tak[ing] Care that the Laws be faithfully executed,” U.S. Const. art. II, § 3—is entitled to a presumption of regularity in its prosecutorial conduct and decision-making.  Therefore, in the absence of a showing of impropriety (which was not present here), courts are bound to presume that prosecutors have properly discharged their official duties.  The Court cautioned, “[A] federal court has no roving commission to monitor prosecutors’ out-of-court activities just in case prosecutors might be engaging in misconduct.”  

Second, the Court rejected the notion that the monitor’s report was relevant to the district court’s obligation to “approv[e]” the DPA in order to stop the running of the speedy trial clock, 18 U.S.C. § 3161(h)(2).  That approval authority, the Court explained, is limited to the determination that a DPA has been executed in good faith and is not a manufactured attempt to circumvent the speedy trial time limits; a court does not have the authority to scrutinize the substantive merits of the DPA itself or to engage in ongoing oversight over the DPA’s implementation.  Once the court has determined that a DPA is “bona fide”—that is, that it is “genuinely intended to ‘allow[] the defendant to demonstrate his good conduct,’” 18 U.S.C. § 3161(h)(2), the court must grant a speedy trial waiver. 

Third, the Court was not persuaded by the argument that the monitor’s report would be relevant to deciding an eventual motion to dismiss the information against HSBC at the conclusion of the DPA’s term or to adjudicating a claimed breach of the DPA.  Even assuming arguendo that the report at some point might be relevant to those judicial functions, the Court noted that the district court had not yet faced either scenario and that attempting to predict the future relevance of the monitor’s report would be “inherently speculative.”  Moreover, while leave of court eventually would be required in order for the government to dismiss the information, see Fed. R. Crim. P. 48(a), a court is effectively obligated to grant any such request by the government unless it is made in bad faith.  Therefore it cannot be said that the monitor’s report itself would necessarily be relevant to analyzing the government’s future request for dismissal.

Judge Pooler wrote separately to express her concern regarding the evolution of DPAs in recent years.  Now most commonly employed to divert corporations from criminal charges, DPAs were originally developed to aid individual defendants in avoiding the collateral consequences of criminal convictions by placing them into treatment and rehabilitation programs supervised by paraprofessionals.  In the context of a corporate DPA, however, the executive acts as “prosecutor, jury, and judge,” negotiating the terms of the DPA and retaining sole discretion to determine whether the corporation has adequately complied with those terms, without any meaningful oversight from courts.  While she agreed with the Court’s analysis of the law as it currently stands, Judge Pooler respectfully requested that Congress take action to “restore some balance in the DPA process.”


Although the Court’s opinion does not focus on the commercially sensitive nature of the information contained in the HSBC monitor’s report, the Court may have feared that publication of such confidential and potentially damaging information would run contrary to the objectives of the DPA.  The relationship between an independent monitor and the entity subject to her oversight is a complex one.  Public disclosure of the criticisms and recommendations made by a monitor during a difficult transition period for a defendant attempting to forestall criminal prosecution may prove both counterproductive and unnecessarily punitive.  For the monitor to do her work, she must become familiar with the details of the corporation’s business and must learn information that, if disclosed, would cause competitive harm to the corporation.  Also, the Court made clear that a public report detailing the precise anti-money laundering weaknesses at a financial institution would serve as a road map for those seeking to launder the proceeds of criminal activity.  The Court was motivated, at least in part, by these practical considerations.

The Court’s ruling does seem to be cabined to circumstances in which prosecutorial discretion—and, by extension, separation-of-powers concerns—is at play.  The Court acknowledged two seemingly analogous scenarios, United States v. Amodeo, 44 F.3d 141 (progress report submitted pursuant to a consent decree regarding an investigation into union-related corruption), and United States v. Erie County, New York, 763 F.3d 235 (2d Cir. 2014) (compliance report submitted pursuant to a settlement agreement regarding conditions at local correctional facilities), in which similar evaluative reports were found to be judicial documents.  The Court distinguished Amodeo and Erie on the ground that the underlying agreements in those cases expressly contemplated court involvement whereas here, the Department of Justice alone was tasked with implementing the DPA.  The driving force behind the Court’s opinion appears to be a respect for and a desire to preserve the “ordinary distribution of power between the judiciary and the Executive in the realm of criminal prosecution” and the decision therefore may not protect from public disclosure other compliance reports addressing sensitive topics outside the prosecutorial context.  Even if a district court judge is well-intentioned, the Circuit is committed to protecting the prerogatives of prosecutors and regulators by limiting the district court’s authority.  In the SEC v. Citigroup decision, the Court cited to Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 866 (1984), in stating that federal judges are required to respect the “legitimate policy choices” made by the other branches of government.  Citigroup, 752 F.3d. at 296.

Finally, while the Second Circuit’s opinion appears to properly delineate the respective roles of the executive and judiciary under the current legal framework, Judge Pooler’s concurrence highlights a serious flaw in the manner in which DPAs with corporate defendants are currently administered.  Practically speaking, corporations often do not have the option of publicly fighting criminal charges.  As Judge Pooler noted, an indictment alone can lead to a corporation’s undoing, not to mention the stigma that it may cast on blameless employees and shareholders.  Therefore, a corporation may have little bargaining power in negotiating the terms of a DPA, leaving the government free first to extract major concessions in drafting the agreement and then to be the sole arbiter of the corporation’s compliance with that agreement.

At the same time, some members of the public view see another evil in an unsupervised DPA process.  Some have argued that the process is a means by which a financial institution can evade responsibility, with the assent of the government and without any role for the public to challenge the agreement.  Furthermore, a monitor should be selected solely based on merit, not on a personal friendship between the monitor and the prosecutor involved in the investigation.  Likewise, the appearance of fairness is compromised when a DPA requires the payment of funds to an entity, such as a university, with which the prosecutor has a personal connection.  Allegations of both of these abuses have been made in the past.  Some legislative rebalancing of the parties’ respective rights and enhanced judicial oversight of the execution and implementation of DPAs might have a significant effect in minimizing the potential coerciveness or unfairness inherent in that process.

-By Jessica Rice and Harry Sandick