Why DOJ’s deferred prosecution of Essentra FZE is a good deal for it, & for us.

In the Washington suburbs, $665,112 will buy you a nice house, but not a mansion. A settlement with the Treasury Department for a civil penalty in that amount isn’t going to bankrupt a large multinational corporation. Its main impact on Essentra FZE, a UAE-based subsidiary of a British corporation that makes cigarette filters, may be in its access to financial services and legal fees, which would still be worth every penny if they exceeded the penalty. You could argue back at me that under Treasury’s penalty enforcement guidelines, the Office of Foreign Assets Control imposed the maximum allowable penalty of twice the amount of the transactions. But this outcome was probably the best either side could have hoped for, as I’ll explain below.

Essentra FZE, a cigarette filter and tear tape manufacturer located in the United Arab Emirates, has agreed to settle its potential civil liability for three apparent violations of the North Korea Sanctions Regulations, 31 C.F.R. part 510. Specifically, Essentra FZE exported cigarette filters to the DPRK through a network of front companies in China and other countries using deceptive practices, and received payment for the shipment of these goods into its bank accounts at the foreign branch of a U.S. bank between September 2018 and December 2018. OFAC determined that Essentra FZE did not voluntarily self-disclose these apparent violations, and that these apparent violations constitute an egregious case.​ [link]

It only becomes evident just how much worse things might have been for Essentra FZE when you read this part of the agreement.

The feds could have gotten this information in any number of ways; I’ll keep my speculation to myself. But what the Defendant’s lawyers must have realized when they read this was that the prosecution had evidence of knowledge, concealment, illegality, and intent—specifically, that the Defendant’s officers dealt with a blocked person “willfully.” The government doesn’t have to prove that a defendant necessarily knew precisely what law he was breaking, but that he knew he was doing something illegal. In most financial prosecutions, it’s not proving the underlying transaction that’s the challenge, it’s proving intent. That willfulness not only put Essentra FZE near the top of OFAC’s guidelines for Treasury’s civil enforcement authority, the evidence of willfulness also made Essentra FZE a target for criminal prosecution.

Under the terms of its agreement with Treasury, the Defendant will take a series of measures to improve its sanctions compliance, including the acceptance of U.S. government monitoring and oversight of its operations. But under a second agreement with a completely different cabinet department—a Deferred Prosecution Agreement with the Justice Department—it also agrees to cooperate with the feds, and potentially, to incriminate other defendants. This is essentially a guilty plea, a waiver of potential sentencing arguments, and an agreement to clean up its act and cooperate against other targets in the investigation, in exchange for avoiding criminal prosecution, penalties, and forfeitures. Either side can ask the court to withdraw from a deferred prosecution if it believes the other side violated the terms.

The feds sometimes do deferred prosecution agreements if a defendant is willing and able to provide useful information about other targets in a law enforcement investigation, typically after the defendant’s lawyers make a proffer to the government about what information they can provide. The government can’t use the information from the proffer to prosecute that defendant if either side withdraws from the agreement later. It typically won’t offer a DPA unless, after a review by senior DOJ attorneys, the government concludes that the defendant’s information is useful against a bigger defendant, and that the defendant will cooperate fully, holding nothing back. In this DPA, the Defendant explicitly agrees to cooperate with the feds, and it hasn’t been a secret for a very long time that cigarette counterfeiting and trafficking collectively form one of Pyongyang’s most lucrative rackets. The fact that this agreement is unsealed tips off other potential co-defendants, and DOJ knows that. That causes me to speculate that this isn’t the last we’ll see of Essentra FZE’s evidence, and that we’ll see more about this racket sooner rather than later. That’s why this deal is also good news for the government.