The guidance emphasizes flexibility and cost-benefit analysis in the monitor selection process, and along with the recognition by the US Department of Justice that monitors should be appointed only when absolutely necessary, it suggests a likely reduction in the use of compliance monitors in corporate plea agreements.

The US Department of Justice’s Criminal Division has issued new guidance on the appointment of compliance monitors in corporate plea agreements. In an October 11 Memorandum, Assistant Attorney General Brian Benczkowski advised that the Criminal Division should consider multiple factors—including the type of conduct involved, subsequent changes within the company, and associated costs and burdens—before deciding to impose a monitor. Though it notes the benefits of monitors under certain circumstances, the guidance makes clear that they should be imposed only as necessary.

Benczkowski announced the new guidance during remarks at NYU School of Law on October 12.

The new memo, which replaces prior guidance issued in 2009, is intended to supplement a 2008 memorandum by then-Acting Deputy Attorney General Craig Morford. It extends the terms of the Morford Memorandum to court-approved plea agreements, as well as the previously covered deferred prosecution and non-prosecution agreements. Critically, as Benczkowski explained in his remarks at NYU, the guidance emphasizes that “the imposition of a corporate monitor is never meant to be punitive” and is “the exception, not the rule.”

Under the terms of the new guidance, the Criminal Division must “appropriately tailor” any monitorship in order to take into account the nuances of a particular case. In deciding whether to impose a monitor in the first place, the Criminal Division is to consider the potential benefits of a monitor and the costs associated with the prospective monitorship. This evaluation of the “potential benefits,” the memo explains, involves consideration of factors including whether

  1. the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;
  2. the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
  3. the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and
  4. 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.

In addition, the memo directs the Criminal Division to consider whether the conduct at issue took place in a compliance environment that is no longer in place, and whether it occurred under different corporate leadership. Under such circumstances, the memo explains, the changes may be “adequate to safeguard against a recurrence of misconduct,” and a monitorship may not be necessary.

The guidance also establishes internal procedures within the Criminal Division for the review and imposition of monitors. Importantly, the guidance directs the Criminal Division to create a Standing Committee on the Selection of Monitors, consisting of the deputy assistant attorney general supervising the Fraud Section (or a designee); the chief of the Fraud Section (or a designee); and the deputy designated agency ethics official for the Criminal Division. The standing committee is to convene whenever the Criminal Division recommends the imposition of a monitor. In reviewing the prospective monitorship, the standing committee is directed to consider a monitor recommendation memorandum prepared by Criminal Division attorneys assigned to the matter, and may interview candidates in its discretion. The standing committee’s recommendation to approve or veto the selection of a monitor candidate is then submitted to the assistant attorney general for review.

In his remarks at NYU, Benczkowski explained that these considerations, taken together, are meant to “further refine the factors that go into the determination of whether a monitor is needed, as well as clarify and refine the monitor selection process.” Benczkowski emphasized the memo’s consideration of the costs and benefits of appointing a monitor in a particular matter, as well as its prioritization of the principle that monitorships should not be punitive. As Benczkowski explained and as the guidance itself emphasizes, “the monitor selection process must be practical and flexible” due to the “unique facts and circumstances” presented by each case.

This heightened emphasis on flexibility and cost-benefit analysis, together with the Criminal Division’s recognition that a monitor should be imposed only when absolutely necessary, suggests that the new guidance will likely lead to a reduction in the use of compliance monitors where corporate plea agreements are at issue.