(Adds prosecutors' claims)
By Aruna Viswanatha
WASHINGTON, Feb 5 (Reuters) - A U.S. judge on Thursday rejected an agreement by Dutch company Fokker Services B.V. to pay $10.5 million to resolve criminal charges it illegally shipped aircraft parts to Iran, Sudan and Myanmar, describing it as "grossly disproportionate" given the seriousness of the company's actions.
The ruling from U.S. District Judge Richard Leon in Washington comes as critics have questioned whether the U.S. Justice Department overuses so-called deferred prosecution agreements to resolve allegations of corporate misconduct, and whether judges should have greater oversight of such deals.
Prosecutors agreed last June to defer and ultimately drop charges that Fokker sent more than 1,000 parts, technology and services to sanctioned countries between 2005 and 2010 without first obtaining a license, as long as the company abided by the terms of the pact.
The Justice Department cited the company's efforts to disclose the conduct, improve its compliance program, and discipline employees as reasons for the lenient treatment.
In the Thursday ruling, Leon said he did not find those reasons sufficient, given the company earned millions of dollars from illegal transactions, the majority of which were with Iran, and that no related individuals were prosecuted.
The U.S. Attorney's office in Washington, which brought the case, had argued that the company was in dire financial straits and that the total $21 million in penalties--more than three times the company's $5.9 million in pretax profit from the misconduct--represented the outer limit of what the company could pay.
Leon said he was open to considering a modified version of the agreement.
"While I do not discount Fokker Services' cooperation and voluntary disclosure or, for that matter, its precarious financial situation...I cannot help but conclude that the presented here is grossly disproportionate to the gravity of Fokker Services' conduct in a post-9/11 world," Leon wrote.
A lawyer for Fokker and a spokesman for the U.S. Attorney's office said both parties were reviewing the opinion.
New York federal judge Jed Rakoff touched off a related debate when he rejected a 2011 agreement between Citigroup and securities regulators meant to resolve allegations the bank misled investors on a mortgage deal.
Rakoff said the practice of letting Citigroup neither admit nor deny the allegations left him unable to determine if the settlement was adequate, but an appeals court overturned him and Rakoff last August reluctantly approved the deal.
The case is USA v Fokker Services B.V. 13-121 in the U.S. District Court for the District of Columbia
Reporting by Aruna Viswanatha in Washington and Nate Raymond in New York; editing by Andrew Hay