Government-imposed monitors, a tool used to ensure that companies’ efforts to improve their compliance are in line with corporate criminal settlements, may become less commonplace, according to new guidance issued by the U.S. Justice Department.
The guidance, unveiled in a speech Friday in New York by Assistant Attorney General Brian Benczkowski, is intended to clarify, refine and codify factors that go into determining whether a monitor is needed, and the process in selecting one.
Following a settlement, a monitor reviews a company’s operations and compliance program, and, in consultation with the company and prosecutors, makes recommendations that management must implement.
During the past five years, about one-third of corporate criminal settlements coming through the Justice Department’s Fraud Section involved imposing a monitor.
The new guidance indicates that the government will take a closer look at whether a monitor is needed by weighing the projected costs to the business, the scope of a monitor’s role, and if the scope is appropriately tailored to avoid unnecessary burdens to the company’s operations.
“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,” the guidance said.
Imposing a monitor “will not be necessary in many corporate criminal resolutions,” Mr. Benczkowski said.
When deciding whether to impose a monitor, prosecutors will be expected to consider the type of misconduct in the case, its pervasiveness and whether it involved senior management. The guidance also considers whether the company has changed leadership following the misconduct.
Prosecutors also will weigh improvements a company has made to its compliance program during the investigation, and whether remedial measures have been tested for their potential to detect future misconduct.
The new guidance comes amid a broader review of corporate criminal enforcement policy by the Justice Department. Officials during the past year have changed policy governing Foreign Corrupt Practices Act enforcement and disbanded an Obama-era task force on financial fraud, launching a new group that targets market integrity and consumer fraud.
Under the monitorship program, companies must hire a third-party expert approved by the department and keep them for years, which adds costs to penalties included in a corporate resolution. Companies often complain about monitors’ meddling in day-to-day business, and about how their discoveries can sometimes lead to new penalties.
The Justice Department has been less inclined to use monitors in recent years, said Robert J. Anello, a partner at Morvillo Abramowitz Grand Iason & Anello PC, whose law practice focuses on white-collar criminal defense and regulatory enforcement. “This puts a structure over a zealous prosecutor,” he said.
The guidance is slightly more corporate friendly than the past in that it gives companies more opportunity to prove that their compliance improvements are adequate, said Daniel R. Alonso, managing director and general counsel of Exiger LLC, a compliance consulting firm. “They may have a few more arguments now to avoid a monitor,” he said.
Others view the new guidance as simply a formalization of existing policy that makes the process clearer.
“The greater transparency will significantly enhance a company’s ability to select the right candidate to be a monitor,” said Nat Edmonds, chair of the Washington litigation practice at Paul Hastings LLP, who selected monitors when he worked as an assistant chief in the Justice Department’s FCPA unit.
The new guidance didn’t include some of the most radical proposals recommended by Hui Chen, who used to serve as the Justice Department’s compliance counsel. Now an independent corporate compliance consultant, Ms. Chen weighed in on all of the monitorships when serving at the Justice Department and has hosted training for monitors on best practices.
Ms. Chen had suggested in November that the monitor program be federalized to take out the financial incentive for private individuals who make a career out of acting as a corporate monitor.
Ms. Chen said Friday that she was disappointed her ideas weren’t included and that she struggled to find anything new in the proposal. “This is just spelling out what they’ve always done,” she said.
Author: Samuel Rubenfeld