U.S. Department of Justice Issues New Guidance for the Selection of Monitors in Criminal Matters

In recent years, the appointment of a compliance monitor has been one of the most common features of corporate resolutions, particularly in the context of negotiated resolutions concerning violations of the Foreign Corrupt Practices Act and anti-money laundering laws. As the appointment of monitors has become more common, so has controversy and criticism on issues that range from potential for favoritism and lack of neutrality in the DOJ’s selection process to the significant cost and burden on a business organization, with overly broad scopes of engagement. That is likely to change under the “Benczkowski Memorandum,” which suggests a more scaled-back approach to monitorships. Benczkowski emphasized in prepared remarks announcing the new guidance that “a corporate monitor is never meant to be punitive.”² In addition, the new guidance instructs prosecutors to consider the “projected monetary costs” of a monitor, as well as “the proposed scope of a monitor’s role ... to ... avoid unnecessary burdens to the business’s operations.” The memorandum also provides that when determining whether a monitor is appropriate, prosecutors should consider, among other things, whether the business organization’s compliance program is effective and appropriately resourced at the time of resolution, in which case “a monitor will likely not be necessary.”

The new guidance supplements the guidance set forth in a 2008 memorandum issued by then-Acting Deputy Attorney General Craig S. Morford regarding the use of monitors in deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) with corporations (commonly known as the Morford Memorandum). It also supersedes the 2009 “Breuer Memorandum” on monitor selection, issued by then-Assistant Attorney General Lanny Breuer.³

The Benczkowski Memorandum closely tracks the Breuer Memorandum in certain respects but includes two notable changes. First, it expands the guidance on monitor selection to plea agreements between DOJ and a business organization, where previously the Breuer Memorandum was limited to DPAs and NPAs. Second, it highlights certain factors DOJ attorneys should consider in evaluating the use of a compliance monitor in its resolutions.

I. Guidelines for Assessing the Need for a Monitor

The new guidance recommits to the Morford Memorandum’s two main criteria regarding whether to impose a monitor: “(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.”⁴ The memorandum further outlines four key, but not exclusive, factors prosecutors should use in evaluating the potential benefits of a monitor:

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

In determining whether to impose a compliance monitor, prosecutors are also instructed to consider whether new corporate leadership, an improved compliance environment and/or remedial measures are enough, on their own, to adequately prevent recurring misconduct. The memorandum also instructs prosecutors to consider not only the monetary cost of a proposed compliance monitor in a given situation but also whether a monitor’s role is properly designed to minimize unnecessary burdens to the business’s operations. The memorandum makes clear that a monitor should be imposed only where there is a “demonstrated need” and “clear benefit” relative to the projected financial and business burdens.

II. Framework in Approving and Selecting a Monitor

In addition to the principles prosecutors should consider when imposing a compliance monitor, the memorandum sheds light on a multistep approval process required before a monitor can be imposed in a criminal case. Prosecutors must have approval from their supervisors, including their section chief, as well as the concurrence of the Assistant Attorney General for the Criminal Division (AAG) or his/her designee. All DPAs, NPAs or plea agreements between DOJ and the company that impose a monitor are now expected to include (1) a description of the monitor’s required qualifications; (2) a description of the monitor selection process; (3) a description for how to replace the monitor, if need be; (4) a statement that the parties will aim to complete the monitor selection process within 60 days of the execution of the underlying agreement; (5) an explanation of the monitor’s responsibilities and the monitorship scope; and (6) the term of the monitorship.

To initiate the monitor selection process, as has often been the case, the company will be asked to recommend three qualified candidates to prosecutors. Within 20 days from the execution of the DPA, NPA or plea agreement, the company should create a written submission for prosecutors that includes each candidate’s written qualifications and credentials, conflict-of-interest certifications from the company and each candidate, and the company’s first choice to serve as monitor.

Criminal Division attorneys and their supervisors evaluating each candidate should, according to the memorandum, consider the following criteria:

• each monitor candidate’s qualifications, credentials, “reputation in the relevant professional community, and past experience as a monitor”
• each monitor candidate’s experience and expertise with the underlying issues in the particular case
• each monitor candidate’s independence from the company and ability to be objective
• each monitor candidate’s resources in order to discharge the monitor’s responsibilities effectively
• “any other factor determined by the Criminal Division attorneys, based on the circumstances, to relate to the qualifications and competency of each monitor candidate as they may relate to the tasks required by the monitor agreement and nature of the business organization to be monitored”

If none of the company’s candidates meets the necessary criteria, prosecutors should ask the company to request one or more additional candidates.

Once prosecutors and their supervisors have selected a candidate, they are directed to create a Monitor Recommendation Memorandum to the Standing Committee. The Standing Committee consists of (1) the Deputy Assistant Attorney General with supervisory responsibility for the Fraud Section or his/her designee; (2) the Chief of the Fraud Section (or other relevant Section, if not the Fraud Section) or his/her designee; and (3) the Deputy Designated Agency Ethics Official for the Criminal Division. The Standing Committee will review the recommendation. If it accepts the recommended candidate, the Standing Committee will forward the acceptance up to the AAG for ultimate submission to the Office of the Deputy Attorney General (ODAG). If the Standing Committee rejects the proposed candidate, Criminal Division attorneys and their supervisors can submit one of the two other candidates the company selected. If the Standing Committee rejects all candidates, the Criminal Division attorneys and their supervisors should notify the company, which will need to resubmit monitor candidates.

The AAG cannot “unilaterally make, accept, or veto the selection of a monitor candidate.” The AAG has the discretion to request additional information from the Standing Committee or prosecutors and may also interview the proposed candidate. The AAG should then memorialize his or her concurrence or disagreement in writing when forwarding the recommendation to the ODAG. ODAG must approve all proposed monitors. If ODAG rejects the candidate, the prosecutors must inform the company.

The memorandum states in its conclusion that “the monitor selection process must be practical and flexible” and allows prosecutors to depart from this policy if approved by the Standing Committee.

In his remarks announcing the new policy, Benczkowski stated that DOJ’s goal “is to ensure that the [monitor appointment] process is fair, ensures the selection of the best candidate, and avoids even the perception of any conflicts of interest.”

¹ See https://www.justice.gov/criminal-fraud/file/1100366/download. Unless otherwise noted, other quoted statements in this client alert come from the memorandum.

² See https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-nyu-school-law-program.

³ See https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/response3-supp-appx-3.pdf.

⁴ See https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf.