On October 12, 2018, Brian Benczkowski, Assistant Attorney General for the Criminal Division of the United States Department of Justice (DOJ), announced1 the “Selection of Monitors in Criminal Division Matters” memorandum (the Benczkowski Memorandum).2 The Benczkowski Memorandum supplements the existing 2008 “Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations” (the Morford Memorandum)3 and replaces prior guidance issued in 2009 by then Assistant Attorney General Lanny A. Breuer (the Breuer Memorandum).4
In his speech, Benczkowski noted that over the past five years, approximately one in three corporate resolutions have involved a corporate monitor. In addition to setting forth the process for selecting a monitor, the Benczkowski Memorandum emphasizes the need to balance the costs and benefits of imposing a monitorship and to limit the scope of monitorships to avoid unnecessarily burdening a company. During his speech, Benczkowski also announced a new approach to cultivating compliance expertise within the DOJ.
Choosing to Impose a Monitor: In line with prior guidance, the Benczkowski Memorandum calls for the DOJ to engage in a cost/benefit analysis when determining whether to impose a corporate monitor. The DOJ should evaluate the potential benefits of a monitor for both the corporation and the public, while being cognizant of the cost of the monitor and the monitorship’s impact on the corporation’s operations. According to the Benczkowski Memorandum, monitors “should never be imposed for punitive purposes.” Instead, monitors should only be imposed “as necessary to ensure compliance with the terms of a corporate resolution and to prevent future misconduct.”
According to the Benczkowski Memorandum, when evaluating the potential benefits of a monitor, the DOJ should consider, among other factors, (1) whether the conduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal controls system; (2) whether the conduct was pervasive across the business or approved or facilitated by senior management; (3) whether the corporation has made significant investments in and improvements to its corporate compliance program and internal controls; and (4) whether remedial improvements to the compliance program and internal controls system have been tested to demonstrate that they will prevent or detect similar misconduct in the future.
These considerations are consistent with Attorney General Jeff Sessions’ April 2017 statement that, in deciding whether to bring charges, the DOJ “will continue to take into account whether companies have good compliance programs.”5 The Benczkowski Memorandum goes even further, stating that “[w]here 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” (emphasis added), thereby incentivizing corporations to implement or enhance their compliance programs after uncovering misconduct.
Limited Scope: While monitors have traditionally engaged in a broad review of a corporation’s compliance program, the Benczkowski Memorandum suggests tailoring the scope of the monitor’s review based on the facts of the case. Again noting the potential high costs of a monitorship, the Benczkowski Memorandum requires that the DOJ “consider…whether the proposed scope of a monitor’s role is appropriately tailored to avoid unnecessary burdens to the business’s operations.”
Increased Transparency on Monitor Selection: The Benczkowski Memorandum sets forth the process for approving a monitor. The counsel for the corporation will submit three qualified monitor candidates for the DOJ’s consideration. In contrast to the Breuer Memorandum, the Benczkowski Memorandum allows the corporation to identify its preference among those three options. It is unclear how much weight the DOJ will give to the corporation’s preference.6
The Benczkowski Memorandum details the approval process of a potential monitor, beginning with the Criminal Division attorneys handling the matter and the Section supervisors, who will interview each candidate to assess his/her qualifications and credentials. The Criminal Division attorneys will then submit a recommendation memorandum for review by the Standing Committee on the Selection of Monitors, comprised of the Deputy Assistant Attorney General for the Fraud Section, the Chief of the Fraud Section, and the Deputy Designated Agency Ethics Official (the Standing Committee). The recommendation must then be approved by the Assistant Attorney General and then by the Office of the Deputy Attorney General.
The Benczkowski Memorandum notes that the selection process should “instill public confidence in the [monitor selection] process.” In Benczkowski’s speech, he emphasized that this is part of the rationale for requiring a Criminal Division ethics official on the Standing Committee: “We want to ensure that businesses and the public are confident in the selection process, avoiding any suggestion that monitors are chosen for inappropriate reasons, including personal relationships or past employment in the Department.”
While concern about public confidence is not new, the emphasis in his speech is noteworthy given that public scrutiny of the monitor appointment process has intensified. In 2008, the Morford Memorandum was implemented following criticism of the DOJ and accusations of cronyism following certain appointments to lucrative corporate monitorships. Criticisms about the opaque selection process and the potential for preferential treatment have continued. In one case, the US District Court for the District of Columbia ordered the DOJ to disclose the names of corporate compliance monitor candidates for 15 companies, as well as information related to the DOJ committee tasked with evaluating the candidates and selecting the monitor.
No More Compliance Counsel Expert: During his speech, Benczkowski confirmed that the role of the DOJ Compliance Counsel Expert, held by Hui Chen until her resignation in June 2017, would not be filled. He expressed concerns about only having a single person in a single litigation section of the DOJ with compliance expertise, calling it “shortsighted from a management perspective.” He stressed that the DOJ will instead engage in diverse hiring of “prosecutors and supervisors [who] have a strong foundational understanding of what constitutes an effective approach to compliance.”7
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The increased emphasis on cost considerations and on limiting the scope of monitorships may decrease the number of monitorships imposed by the DOJ in the future. However, corporations should remain cognizant that the World Bank and other regulators, including the United Kingdom’s Serious Fraud Office, continue to impose ongoing compliance requirements. Furthermore, while this new guidance may provide an opportunity for corporations under investigation to escape imposition of a monitor with broad authority, corporations should strive to eliminate compliance deficiencies to avoid harsher penalties and future “recidivist” issues.
The language in the Benczkowski Memorandum and in other recent pronouncements suggests that the DOJ is less likely to impose a monitor on a company that has implemented or enhanced its compliance program in an attempt to self-remediate. Therefore, companies that identify misconduct should focus on implementing and testing their compliance programs in the hopes of avoiding the imposition of a costly monitorship and other penalties.
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1 Assistant Attorney General Brian A. Benczkowski Delivers Remarks at NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance (Oct. 12, 2018), https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-nyu-school-law-program.
2 Assistant Attorney General Brian A. Benczkowski, Memorandum, Selection of Monitors in Criminal Division Matters (Oct. 11, 2018), https://www.justice.gov/opa/speech/file/1100531/download.
3 Acting Deputy Attorney General Craig S. Morford, Memorandum, Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations (Mar. 7, 2008), https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf.
4 Assistant Attorney General Lanny A. Breuer, Memorandum, Selection of Monitors in Criminal Division Matters (June 24, 2009) available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/response3-supp-appx-3.pdf.
5 Attorney General Jeff Sessions Delivers Remarks at Ethics and Compliance Initiative Annual Conference (Apr. 24, 2017), https://www.justice.gov/opa/speech/attorney-general-jeff-sessions-delivers-remarks-ethics-and-compliance-initiative-annual.
6 There is a similar process in the United Kingdom, where corporations name three potential monitors and indicate their preference. As required by the U.K. DPA Code of Practice, “[t]he prosecutor should ordinarily accept [the corporation’s] preferred monitor.” Crime and Courts Act 2013, UK Serious Fraud Office Deferred Prosecution Agreements Code of Practice § 7.17.
7Dylan Tokar v. U.S. Dep’t of Justice, No. 1:16-cv-2410 304, F.Supp.3d 81 (D.D.C. Dec. 8, 2016) (granting Plaintiff’s motion for summary judgment and requiring the DOJ to produce the names of unselected candidates for corporate monitor positions). The Judge followed plaintiff’s logic that the public interest in learning the names of these individuals outweighed any de minimis privacy interest. Plaintiff had argued that “the corporate monitor selection process is potentially vulnerable to manipulation” and “the government or the corporate entity under investigation [could be] taking advantage of the selection process in a manner that undermines the DPA objectives”.
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