On October 12, 2018, at the NYU School of Law Program on Corporate Compliance and Enforcement Conference, Brian A. Benczkowski, Assistant Attorney General for the Department of Justice’s Criminal Division, announced new guidance to prosecutors regarding when to impose a corporate monitor as part of a corporate criminal resolution.
Benczkowski explained that the new guidance is rooted in “the foundational principle that the imposition of a corporate monitor is never meant to be punitive [and] . . . should occur only when necessary to ensure compliance with the terms of a corporate resolution and to prevent future misconduct.” He emphasized that as a matter of “longstanding practice . . . imposing corporate monitors . . . [constitutes] the exception, not the rule.”
According to Benczkowski, the new policy recognizes the limited need for the imposition of a monitor as part of a criminal resolution. It further recognizes that, insofar as a monitor is imposed, the scope of the monitorship should be narrowly tailored to address the specific issues and concerns giving rise to the need for a monitor.
In a 2008 memorandum, then-Acting Deputy Attorney General Craig S. Morford articulated a cost-benefit approach to guide prosecutors in assessing the need and propriety for a monitor. It sets forth two broad considerations: “(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.” The new guidance document, titled Selection of Monitors in Criminal Division Matters (“Benczkowski Memorandum”), builds on these considerations by identifying specific factors for prosecutors to consider in making this cost-benefit assessment.
As to the “potential benefits” of a monitor, the Benczkowski Memorandum directs prosecutors to consider the following factors:
- Did the underlying misconduct involve manipulating books and records or exploiting an inadequate compliance program or internal control systems;
- Was the misconduct pervasive across the organization, or did it involve senior management;
- Has the company made significant investments in, and improvements to, its corporate compliance program and internal control systems;
- Has the company tested remedial improvements and internal controls to establish that they would prevent or detect similar misconduct in the future;
- If the misconduct occurred under different corporate leadership or within an obsolete compliance environment, are the changes in corporate culture and/or leadership adequate to safeguard against a recurrence;
- Were adequate remedial measures taken to address problem behavior by employees, management, or third-party agents, including, where appropriate, terminating business relationships and practices that contributed to the misconduct; and
- As to the adequacy of remediation efforts and the effectiveness and resources of its compliance program, the unique risks and compliance challenges the company faces, including the particular region(s) and industry in which the company operates, and the nature of the company’s clientele should be considered.
With respect to weighing the potential costs to the company, the Benczkowski Memorandum instructs prosecutors to consider both the monetary burden on the company and whether the proposed scope of a monitor’s role is appropriately tailored to avoid unnecessary burdens to its operations.
The Benczkowski Memorandum embraces a guidance disfavoring the imposition of a monitor, except where “a demonstrated need for and clear benefit” of monitorship outweighs its “projected costs and burdens.” Notably, the Benczkowski Memorandum states that “[w]here a corporation’s compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary.”
The new guidance is of significance to companies under investigation as well as to companies that may be the subject of future investigation. The Benczkowski Memorandum identifies measures of “effective and appropriately resourced compliance programs and controls.” As such, it provides valuable resources for clients and their counsel. In the case of companies under investigation, the factors set forth in the Benczkowski Memorandum signal the remedial measures which, if taken prior to resolution, could obviate the imposition of a monitor. And more broadly, it signifies that companies that proactively maintain a well-designed and robust compliance program are likely not at risk of having a monitor imposed on them.
For companies that wish to avoid the imposition of a corporate monitor in the event a government investigation is launched, the new guidance provides incentives to institutionalize rigorous compliance cultures and programs as well as to remediate noncompliance promptly and thoroughly. In order to best position companies to avoid the enhanced costs a long-term monitorship could impose,