New guidance from the Department of Justice (“DOJ” or “the Department”) clarifying the factors DOJ will consider when deciding whether to impose a corporate monitor may further reduce the imposition of corporate monitors in DOJ settlements, limit the scope of monitorships if imposed, and also serve to provide helpful guidance to companies about compliance measures that may help to avoid the imposition of a corporate monitor in the future.
On October 11, in apparent recognition of the significant burden borne by companies whose settlements include a corporate monitor, the DOJ issued new guidance providing greater clarity on the Department’s decisions to impose monitors and outlining elevated procedures for selecting and approving individuals to serve as monitors.1 The new guidance, which Brian A. Benczkowski, Assistant Attorney General for the Criminal Division of DOJ, publicly announced on October 12 at the New York University School of Law,2 confirms long-standing DOJ policy that a corporate monitor should not be imposed as a punitive measure, and instructs that the Department will favor monitors as part of future settlements only when the need and benefits derived from such monitor outweigh the projected costs and burdens to the company. In his remarks, Benczkowski emphasized that where a company’s compliance program is “effective and appropriately resourced” at the time of settlement to prevent future misconduct, “a monitor will likely not be necessary.” Benczkowski also stressed that careful consideration will be afforded by the highest levels of the Justice Department on the selection of individual monitors to avoid any real or apparent conflicts of interest.
The October 11 guidance does not set forth entirely new DOJ policy, but rather supplements the Department’s 2008 Morford Memorandum, which focused on the selection of a corporate compliance monitor.3 However, the new guidance affords companies with open investigations who may be before the Department greater clarity on DOJ decision-making about when monitors will be imposed, and also identifies the types of remedial measures and compliance testing that companies should perform when issues arise to mitigate the need for a corporate monitor in the future.
DOJ will Consider Corrective Measures, Improved Internal Controls and Cost to the Company When Determining Whether to Impose a Compliance Monitor
The new guidance and announcement suggest that DOJ now favors ameliorative measures and internal controls over expensive and, potentially, invasive corporate monitors.
Expanding on earlier guidance, the new policy instructs prosecutors, when deciding whether to use a monitor, to consider numerous case-specific facts, including the type and pervasiveness of the misconduct, whether the misconduct was facilitated by senior management and whether the company has changed leadership following the misconduct. Earlier guidance simply instructed prosecutors to “consider the facts and circumstances of a particular matter,” which could include the adequacy of a company’s internal controls and whether a company has ceased operations in the area where the criminal misconduct occurred. The new guidance further instructs DOJ prosecutors weighing the imposition of a monitor to consider “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,” recognizing that even companies with robust compliance programs face the possibility of violations in higher risk jurisdictions.
Notably, the new guidance instructs prosecutors to focus on a company’s current culture and leadership, as opposed to past, problematic culture and leadership, when determining whether a monitor is needed to prevent future misconduct. Under earlier guidance, prosecutors were instructed to consider similar information; however, that information was used to help determine the duration of a monitorship, not whether a monitor should be used in the first place.
Importantly, prosecutors are instructed to weigh the need for such a monitor against the “cost and burden” to the company. The historical cost of corporate monitors, which can be in the tens of millions of dollars depending on the scope and duration of the monitorship, received much negative publicity in the last several years, and the balancing test articulated in the new guidance suggests that the need for such a monitor must indeed be significant if the Department is to require a monitor as part of any settlement.
To make this determination, Benczkowski stated that the Department will no longer employ a subject-matter expert to look at the adequacy (or inadequacy) of a company’s internal controls and compliance program, but rather, this assessment will be performed, in the first instance, by line prosecutors themselves. Benczkowski explained that the Department’s decision not to replace DOJ’s full-time compliance counsel, a position formerly held by compliance expert Hui Chen, resulted in part from the recognition of the challenges presented by housing the Department’s compliance expertise in a single professional, and that in the future, DOJ professionals with compliance training and experience will be involved in all of the Department’s investigations and enforcement actions.
Monitorships, When Imposed, Should be Limited in Scope
In cases where the Department determines that the need for a monitor does outweigh the cost and burden, the Benczkowski Memo states that the scope of monitorships should be “appropriately tailored to address the specific issues and concerns that created the need for the monitor[,]” and to “avoid unnecessary burdens to the business's operations.” This guidance should help to address the problem of monitor “mission creep” — when a monitor, given a broad mandate to prevent future misconduct, imposes sprawling, expensive and infeasible changes to a company’s operations, potentially impacting areas of the business that are unrelated to the underlying offense.
Elevated Approvals and a More Structured Process for Selecting Monitors
The October 11 guidance also establishes a new process by which compliance monitors should be selected. Under prior guidance, the corporation, the government, or both, would select the initial pool of candidates from which a monitor would be selected and then an ad hoc or standing committee of prosecutors would consider and approve (or veto) the candidates.
Under the Department’s new policy, the company’s counsel is exclusively charged with selecting the pool of candidates from which the monitor will be selected and then, according to the guidance, reviewed and approved by a newly created Criminal Division Standing Committee on the Selection of Monitors (the ”Standing Committee”), comprised of the Deputy Assistant Attorney General for the Fraud Section, the Chief of the Fraud Section, and the Deputy Designated Agency Ethics Official for the Criminal Division, or their respective designees.
What This Means For You
Whether entirely new or merely a more detailed recitation of existing Department policy, the October 11 guidance no doubt is a welcomed pronouncement for companies currently cooperating with DOJ investigations, and may lead to a reduction in the imposition of monitors. As part of his remarks, Benczkowski noted that in the last five years, approximately one in three corporate resolutions required the imposition of a corporate monitor. In some areas, including resolutions concerning companies’ compliance with the U.S. Foreign Corrupt Practices Act, (15 U.S.C. § 78dd-1, et seq.) (“FCPA”), which historically have included a high percentage of the Department’s monitorships, the Department appears to have already begun moving away from imposing corporate monitors. Indeed, in 2017, not one of the four companies receiving the largest corporate settlements that year included a monitor, and last month’s record-breaking settlement entered into by Brazilian state-owned energy conglomerate Petrobras did not include a monitor. The revised policy balancing the need for a monitor against the high burden to a settling company, may result in a further reduction in the use of corporate monitors as DOJ aligns its practices with the newly announced guidance.
But perhaps of more immediate significance to companies that are not currently under DOJ scrutiny, the October 11 guidance outlines the compliance and remedial measures that will be important to the Department in determining whether a compliance monitor will be necessary. Companies are well-advised to consider the factors outlined in the guidance when evaluating and enhancing compliance programs, particularly where an issue has come to light indicating the need for remediation and program enhancement. In addition, as the Department continues to publicize its interest in ensuring that compliance programs are more than simply facially adequate, companies must ensure that they have implemented a process for testing and evaluating the effectiveness of their compliance policies and procedures, and have a defined way, such as through the use of metrics, to demonstrate the effectiveness of their programs.