United States: DOJ Announces Updated Guidance On Monitorship Imposition And Selection

Last Updated: October 18 2018
Article by Charles E. Duross, James M. Koukios and Vanshika Vij

On October 12, 2018, the Assistant Attorney General (“AAG”) for the U.S. Department of Justice’s Criminal Division, Brian A. Benczkowski, announced a new memorandum regarding the imposition and selection of monitors for business organizations involved in Criminal Division cases (the “Benczkowski Memo”). The Benczkowski Memo closely tracks the Criminal Division’s previous guidance from 2009 (the “2009 Memo”). For example, the Benczkowski Memo retains the 2009 Memo’s basic structure for selecting a monitor: the company to be monitored proposes a pool of three qualified monitor candidates; line attorneys and supervisors from the relevant Criminal Division Section interview the candidates and submit a monitor recommendation memo to the Standing Committee on the Selection of Monitors; the Standing Committee reviews the recommendation and votes on whether to accept it; and the recommendation is submitted to the Office of the Deputy Attorney General (“ODAG”) for final approval.  Nevertheless, the Benczkowski Memo incorporates some longstanding practices developed by the Criminal Division’s Fraud Section since the 2009 Memo was issued and contains some notable changes and helpful clarifications that companies in settlement negotiations with the Criminal Division will want to consider. Our key takeaways are:

  • Addressing the issue of “scope creep,” the Benczkowski Memo explicitly directs Criminal Division attorneys to consider whether the scope of the monitor’s role is “appropriately tailored to avoid unnecessary burdens to the business’s operations” when determining whether to impose a monitor. In cases where a monitor is imposed, the  Non-Prosecution Agreement (“NPA”), Deferred Prosecution Agreement (“DPA”), or plea agreement should now also include an explanation of “the monitorship’s scope,” in addition to describing the responsibilities of the monitor. These are positive additions to the process, as they should help mitigate the unnecessary costs and additional business disruption that can result from scope creep.
  • Going forward, the Criminal Division’s Front Office, including the AAG, may be more involved in the imposition or selection of a monitor. Although the AAG may only note his/her concurrence, or non-concurrence, when forwarding the Standing Committee’s recommendation to the ODAG, the Benczkowski Memo specifies that, in addition to considering the Standing Committee’s monitor recommendation, the AAG may personally interview the Standing Committee’s recommended candidate. 
  • A number of updates in the Benczkowski Memo incorporate what we know to be existing Fraud Section practices that have developed over time since 2009. Among other things, the Benczkowski Memo:

    • Elaborates on the specific factors Criminal Division attorneys should consider when evaluating the potential benefits of a monitor, including whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems; the pervasiveness of the misconduct; improvements and investments that have been made to the company’s compliance program; and whether remedial improvements to the company’s compliance program and internal controls have been tested to demonstrate effectiveness;
    • Requires Criminal Division attorneys to include in the monitor recommendation memo a description of the candidates who were considered but not selected for the monitorship;
    • Requires that monitor candidates certify that they have notified clients whom they represent in matters involving the relevant DOJ component of their candidacy and have either received a waiver from those clients or withdrawn as counsel in those matters; and
    • Extends the “cooling off” period, during which a monitor may not work for the company, from one to two years.
  • Potentially in response to recent public criticism (and some FOIA requests) regarding a perceived lack of transparency in monitorship selection and a perceived lack of diversity in previous monitor candidates, the Benczkowski Memo specifies how documents regarding the selection process should be retained and expressly prohibits “unlawful discrimination” in the submission or selection of a monitor candidate.

Overall, while the Benczkowski Memo does not include much that is new, we believe it does helpfully update the monitorship guidance from 2009 by incorporating many longstanding practices that have developed in the monitorship selection and oversight process. This will provide useful guidance to companies and practitioners who may not be as familiar with the process. When it comes to monitorships, which can be very costly and disruptive to companies, this additional transparency into the Criminal Division’s expectations and approach is a welcome development. In the past few years, there has been a significant uptick in the use of monitors by the Criminal Division, and although this may simply be the product of the particular type and seriousness of the cases resolved during this time period, it remains to be seen whether this new guidance, and the potentially greater involvement of the AAG, signals that there will be fewer monitorships on the horizon.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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