In recent years, and with increasing frequency, long after the headlines announcing their blockbuster fines and criminal settlements have faded, companies have faced the burden of retaining a compliance monitor or reporting to the Department of Justice, as a condition of their resolution.
Seeking to address complaints that such monitorships raise questions as to actual or apparent conflicts of interest, have become over-used and over-burdensome, and for other reasons, Assistant Attorney General Brian Benczkowski issued a memorandum to the Department's Criminal Division on 11 October 2018, entitled Selection of Monitors in Criminal Division Matters (the Benczkowski Memo).1 The Benczkowski Memo establishes a new set of standards for the Justice Department in determining whether a monitor is needed in individual cases and, if so, agreeing on the terms of a monitor's engagement and their selection.2
In determining whether a monitor is warranted, the Benczkowski Memo places greater emphasis on balancing the need for and benefits from a compliance monitor against the resulting burden on the company: "In general, the Criminal Division should favor the imposition of a monitor only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens. Where 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 Benczkowski Memo thus does not eliminate corporate compliance monitors as a tool available to Justice Department prosecutors where they can show that the appointment of a monitor is appropriate and conducted in accordance with the guidance in the Benczkowski Memo. However, the standard noted above does appear to give companies a greater opportunity to avoid the imposition of a monitor by demonstrating to the Department the adequacy of their compliance program during the resolution process.
The Benczkowski Memo requires that in determining whether to impose a monitor Criminal Division attorneys must consider, among other factors:
- 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; and
- 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.
It then goes on to set out the detailed process by which monitors will be appointed in the future, in order to demonstrate independence, review their necessity, and instill confidence in the process. This process broadly maps the existing methodology used to appoint monitors, and requires:
- Approval for appointment of the monitor prior to entering into a DPA, NPA or Plea Agreement that appoints a compliance monitor and a requirement that any such agreement must contain:
- A description of the monitor's required qualifications;
- A description of the monitor selection process;
- A description of the process for replacing the monitor during the term of the monitorship, should it be necessary;
- A statement that the parties will endeavor to complete the monitor selection process within sixty (60) days of the execution of the underlying agreement;
- An explanation of the responsibilities of the monitor and the monitorship's scope; and
- The length of the monitorship.
- Within 20 days of the agreement the company should propose three monitor candidates, who will be considered by the Justice Department, including by a Standing Committee on the Selection of Monitors and by Justice Department leadership. If no candidates are considered appropriate by the Justice Department then the company will be required to propose new candidates for consideration.
Finally, the Benczkowski Memo emphasizes that when a monitor is warranted, the "scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor." A review of the scope of the monitor's role and its limitations will therefore form an important part of the review and approval of their appointment.
In announcing the Memo in a speech delivered at the NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance on 12 October 2018,3 Benczkowski also indicated that the Justice Department would no longer hold a dedicated position of compliance counsel. The role of compliance counsel within the DOJ's Fraud Section was established in 2015 and had been intended to be an expert position to advise Department prosecutors on corporate compliance and to assess companies' compliance programs during the corporate criminal resolution process.4 One role of the compliance counsel had been to review companies' compliance programs and determine whether a monitor was justified. Going forward, Benczkowski anticipates that this role will be performed by a broader range of DOJ prosecutors more closely involved in the relevant enforcement actions. Accordingly, Benczkowski plans to enhance Justice Department training for prosecutors on corporate compliance and to actively hire prosecutors with corporate compliance experience.
Key Takeaway for Clients
The Benczkowski Memo represents a moderate but potentially important change in the Justice Department's approach to the appointment of corporate compliance monitors. It reinforces the importance of having an adequate corporate compliance program and associated procedures in place when resolving corporate criminal cases, and highlights the benefits of such a program in resolving matters with the Justice Department. Therefore the state of a company's compliance program, both at the time of the wrongdoing, and at the time of resolution, will continue to be a critical factor in the Justice Department's determination of how to resolve corporate criminal matters.
Similarly, the Justice Department's expectations as to what represents a effective corporate compliance program and the guidance that it has issued (including under the now defunct compliance counsel regime), remain in place. Baker McKenzie has distilled this guidance, and that of other regulators and enforcement agencies into Five Essential Elements of Corporate Compliance.
While the Justice Department will continue to consider a company's compliance program, remediation and culture in determining if and how to resolve a corporate criminal matter with a company, all else being equal, the Benczkowski Memo gives grounds for companies and defense counsel to resist the appointment of a compliance monitor to oversee companies compliance remediation and enhancement post-resolution, and, when a monitor is appointed, to narrow the mandate of the Monitor to an appropriate scope.
1. The Benczkowski Memo can be found here: https://www.justice.gov/opa/speech/file/1100531/download
2. The Benczkowski Memo supplements but does not replace the prior guidance on the appointment of compliance monitors issued in March 2008 by Craig Morford, Acting Deputy Attorney General on the Selection and use of Monitors in Deferred Prosecution Agreement and Non-Prosecution Agreements with Corporations.
3. A Transcript of the speech can be found here: https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-nyu-school-law-program
4. See https://www.justice.gov/criminal-fraud/file/790236/download