United States v. HSBC Bank USA, N.A.

863 F.3d 125, 2017 WL 2960618, 2017 U.S. App. LEXIS 12412
Court of Appeals for the Second Circuit·Decided July 12, 2017·No. Docket Nos. 16-308(L), 16-353, 16-1068, 16-1094·Published·Cited by 47 cases

Opinions

Judge POOLER concurs in a separate opinion.

KATZMANN, Chief Judge:

We are called upon in this case to address the role of a district court in monitoring the implementation of a deferred prosecution agreement. In December 2012, plaintiff-appellant the United States entered into a five-year deferred prosecution agreement (the “DPA”) with defendants-appellants HSBC Holdings pic and HSBC Bank, USA, N.A. (collectively, “HSBC”), deferring prosecution of charges under the Bank Secrecy Act, the International Emergency. Economic Powers Act, and the Trading with the .Enemy Act. The still-pending agreement provides that if. HSBC complies with its extensive obligations under the DPA, the government will seek the dismissal of those charges at the conclusion of the DPA’s term. If, on the other hand, HSBC breaches the DPA, the government may seek to. convict HSBC on the deferred charges. To inform that determination, the DPA provides for the appointment of an independent monitor charged with preparing periodic reports on HSBC’s ongoing compliance with anti-money laundering laws and with the DPA itself.

[129]*129When the government and HSBC jointly moved for a speedy trial waiver, the district court (Gleeson, J.) invoked its supervisory power both to review and “approve” the DPA on its merits and to condition its approval on the court’s monitoring of the DPA’s implementation. In the exercise of that asserted authority, the district court subsequently ordered the government to file a confidential report prepared by the indepéndent monitor " regarding HSBC’s compliance with the DPA (the “Monitor’s Report”). In November 2015, appellee Hubert Dean Moore, Jr., a member of the public, moved to unseal the Monitor’s Report. The district court granted the motion, subject to redactions, finding that the Monitor’s Report was a “judicial document” to which the public enjoyed a qualified First Amendment right of access. The government and HSBC appeal the district court’s unsealing arid redaction orders, arguing that the district court ran afoul of separation of powers principles in involving itself in the implementation of the DPA.

We agrée. By sua sponte invoking its supervisory power at the outset of this case to oversee the government’s entry into and implementation of the DPA, the district court impermissibly encroached on the Executive’s constitutional mandate to “take Care that the Laws be faithfully executed.” U.S. Const. art. II, § 3. In the absence of evidence to the contrary, the Department of Justice is entitled to a presumption of regularity—that is, a presumption that it is lawfully discharging its duties. Though that presumption can of course be rebutted in such a way that warrants judicial intervention, it cannot be preemptively discarded based on the mere theoretical possibility of misconduct. Absent unusual circumstances not present here, a district court’s role vis-á-vis a DPA is limited to arraigning the defendant, granting a speedy trial waiver if the DPA does not represent an improper attempt to circumvent the speedy trial clock, and adjudicating motions or disputes as they arise. Because the Monitor’s Report is not now relevant to the performance of the judicial function, it is not a “judicial document” and the district court erred in ordering it unsealed. Accordingly, we reverse.

Background

A. The DPA

• HSBC Holdings pic (“HSBC Holdings”), incorporated and headquartered in England, is the ultimate parent company of one-of the largest banking and financial services groups in the world. HSBC Bank USA, N.A., headquartered in the United States, is a federally chartered- banking institution and an indirect subsidiary of HSBC Holdings.

In December 2012, following an investigation that lasted more than four years, the United States entered into a five-year deferred prosecution agreemént with HSBC. See Joint App. 30-104. Under a typical DPA with a corporate defendant, the defendant admits to a statement of facts, subriiits to the filing of criminal charges against it on the basis of those facts, and agrees to a forfeiture or fine and to institute remedial measures. In exchange, the government agrees to defer prosecution and to ultimately seek dismissal of all charges if the defendant complies with the DPA If the government determines that the defendant has breached the DPA, however, the government may rip up the agreement and pursue the prosecution.

The government’s DPA with HSBC followed this framework. As contemplated by the DPA, the government filed a four-count criminal information (the “Information”) charging HSBC Bank, USA, N.A. with willfully violating the Bank Secrecy [130]*130Act by failing to develop, implement, and maintain an effective anti-money laundering program (Count 1) and by failing to conduct due diligence on correspondent bank accounts held on behalf of foreign persons (Count 2). As a result of these failures, some $881 million in drug trafficking proceeds were laundered through HSBC Bank USA, NA. The government also charged HSBC Holdings with violating U.S. sanctions laws by willfully facilitating financial transactions in the United States for various sanctioned entities, in violation of the International Emergency Economic Powers Act (Count 3), and with willfully facilitating financial transactions for sanctioned entities in Cuba, in violation of the Trading with the Enemy Act (Count 4). In addition, HSBC admitted to a 30-page Statement of Facts and agreed .to forfeit $1,256 billion to the United States.

HSBC further agreed to continue to cooperate fully with the government and to adopt (or continue to adhere to) dozens of measures designed to remediate the deficiencies in its compliance program. To that end, HSBC Holdings agreed to retain an independent compliance monitor (the “Monitor”) to be approved by the government. As set forth in an attachment to the DPA, the Monitor is charged with “evalu-at[ing] ... the effectiveness of the internal controls, policies and procedures of HSBC Holdings and its subsidiaries ... as they relate to [those entities’] ongoing compliance with the Bank Secrecy Act, International Emergency Economic Powers Act, Trading With The Enemy Act and other applicable anti-money laundering laws ..., as well as [with] the enumerated remedial measures [in the DPA].” DPA, Attach. B ¶ 1. The DPA requires the Monitor to submit periodic reports to HSBC and the government detailing his findings and making recommendations designed to improve HSBC’s compliance with the-DPA and with anti-money laundering laws generally. By the terms of the DPA, the Monitor’s reports- are intended to remain nonpublic.

Finally, the DPA provides that the government will seek to dismiss the Information with prejudice at the conclusion of the DPA’s term if the government determines that HSBC has fully complied with the DPA. If, on the other hand, the government “determines, in its sole discretion, that [HSBC] ha[s] (a) committed any crime under U.S. federal law subsequent to the signing of th[e] [DPA], (b) at any time provided in connection with th[e] [DPA] deliberately false, incomplete, or misleading information, or (c) otherwise breached the [DPA],” all bets are off and the government may pursue the deferred charges. DPA ¶ 16.

B. Proceedings Before the District Court

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United States v. HSBC Bank USA, N.A., 863 F.3d 125, 2017 WL 2960618, 2017 U.S. App. LEXIS 12412 (2d Cir. 2017).

863 F.3d 125 (United States v. HSBC Bank USA, N.A.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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