On October 11, 2018, the U.S. Department of Justice (“DOJ”) released an updated policy regarding the selection of corporate monitors. The policy—entitled “Selection of Monitors in Criminal Division Matters” (“Policy”)—is designed to guide the DOJ’s decision-making on whether to require a monitor as part of corporate criminal resolutions. U.S. DOJ, Selection of Monitors in Criminal Division Matters. On the same day, Assistant Attorney General Brian A. Benczkowski provided remarks about the Policy at the NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance. Mr. Benczkowski explained that while the DOJ continues to adhere to the view that “every case will at some stage require a deep look into the sufficiency and proper functioning of the subject company’s compliance program,” the Policy nonetheless recognizes that “the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor.” DOJ Press Release, Assistant Attorney General Brian A. Benczkowski Delivers Remarks at NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance. Thus, the Policy appears to signal a potentially meaningful shift away from the use of monitors by the DOJ, at least in cases involving historical conduct where companies have made meaningful efforts to remediate and invest in corporate compliance programs.
The Policy builds on the principles set out in a DOJ memorandum from March 2008 known as the “Morford Memo,” which set forth the two broad considerations that guide prosecutors when assessing whether to require a monitor as part of corporate criminal resolutions: “(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.” Elaborating on this cost-benefit analysis, the Policy advises that a corporate monitor should be imposed only where there is “a demonstrated need for, and clear benefit to be derived from,” a monitor when compared to the costs and burdens to the corporation. Factors that the DOJ will now consider when determining the “potential benefits” of requiring a monitor include:
(a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;
(b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
(c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and
(d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future.
Building off this list of factors, the Policy states that a monitor “will likely not be necessary” if a corporation’s compliance program is “demonstrated to be effective and appropriately resourced at the time of resolution.” Thus, in cases where a corporation has remediated any compliance failures by the time of resolution, the corporation should now have a particularly strong argument that no monitor would be appropriate—an argument that defense firms routinely make but which, in the past, has often fallen on somewhat deaf ears. The new policy also mandates that, where a monitorship is imposed, its scope should be “appropriately tailored to address the specific issues and concerns that created the need for the monitor.” To comply with this requirement, Criminal Division settlement agreements must now include an explanation of the scope of the monitorship, along with a description of the process for replacing a monitor, if necessary. Furthermore, Mr. Benczkowski emphasized that prosecutors have an ongoing obligation to ensure that monitors are acting properly and effectively by “operating within the appropriate scope of their mandate.”
In the same speech, Mr. Benczkowski also announced that the Criminal Division will eliminate the position of compliance counsel, which had been created during the Obama administration. In eliminating the position, Mr. Benczkowski cited a number of institutional limitations of relying on a single person as the repository of compliance expertise. For instance, “[e]ven when fully briefed on a matter, a single compliance professional who has not been involved in a case throughout an investigation is not likely to have the same depth of factual knowledge as the attorneys who make up the case team. Nor can any one person be a true compliance expert in every industry [that the DOJ] encounter[s].” Nonetheless, Mr. Benczkowski made clear that assessing the compliance function will continue to be a key consideration in every corporate enforcement matter. Accordingly, rather than hiring a new compliance counsel, the Criminal Division will develop a hiring and training program designed to create “a workforce better steeped in compliance issues across the board.”
This policy represents the latest effort by the DOJ to update, refine, and clarify its corporate enforcement policies. Viewed alongside the transition of the FCPA Pilot Program to the permanent FCPA Enforcement Policy in November 2017, see Shearman & Sterling LLP, Deputy Attorney General Rod Rosenstein Announces Revised FCPA Corporate Enforcement Policy, Need-to-Know Litigation Weekly, Dec. 5, 2017, http://www.lit-wc.shearman.com/deputy-attorney-general-rod-rosenstein-announces-, as well as the expansion of that program to other white collar contexts in March 2018, see Shearman & Sterling LLP, DOJ Announces Intent to Apply Principles From FCPA Corporate Enforcement Policy to Other White Collar Contexts, Need-to-Know Litigation Weekly, Mar. 13, 2018, https://www.lit-wc.shearman.com/doj-announces-intent-to-apply-principles-from-fcpa, the DOJ’s announcement of this updated policy represents the most recent effort by the DOJ to bring more predictability and transparency to its corporate enforcement approach. How the Policy will play out in practice remains to be seen, but at the very least, the Policy should further incentivize companies to invest in robust compliance programs and actively remediate identified misconduct, as the Policy gives a clearer basis than previously existed for such companies to argue against the imposition of a monitor (and its associated costs) when entering into settlements with the DOJ.