Department of Justice Monitorships: They’re Costly, They’re Disruptive, and They’re Making a Comeback

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On October 28, 2021, Deputy Attorney General Lisa Monaco addressed the ABA’s National Institute on White Collar Crime, in which she made clear that monitorships are back on the menu as a means of ensuring corporate compliance. DAG Monaco stated that, “to the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception,” she is rescinding that guidance, emphasizing “that the department is free to require the imposition of independent monitors whenever appropriate.”1

Knowledge of the monitorship process – what may lead to it and what it can mean for your organization – is crucial for general counsels and employees alike. This article intends to demystify these court appointments, providing an overview of Department of Justice2 Monitorships, when they are imposed, what they can entail and cost, and what they mean for both industry and counsel.

Background

For nearly thirty years,3 courts have used the appointment of outside advisors as an alternative prosecutorial and penal mechanism in cases of corporate malfeasance. Rather than immediately punish or fine the offender, as part of Deferred Prosecution Agreements (“DPAs”) or Consent Agreements (“CAs”), courts have begun appointing monitors, “an independent third party who assesses and monitors a company’s adherence to the compliance requirement of an agreement that was designed to reduce the risk of recurrence of the company’s misconduct.”4

The modern “monitor” can be traced back to the 1980s, when the DOJ appointed third-party “trustees” in RICO cases to “liberate” labor unions from the control of organized crime groups.5 Then, in 1994, in Prudential Securities, the Department of Justice appointed an “independent ombudsman” to the company’s board of directors, who was tasked with receiving ethics and compliance complaints and submitting compliance reports to the U.S. Attorney’s office.6 Since then, the DOJ has written much about the imposition of independent monitors in a series of memoranda.7

Today, monitors are appointed in a variety of cases under a variety of regulatory schemes, including the Foreign Corrupt Practices Act,8 Export regulations,9 and banking10 and antitrust cases,11 as well as others.12

About Monitorships

What does a monitorship entail? Some key considerations:

  • First and foremost, the independent corporate compliance monitor will have extensive access to a company’s files and operations to better understand how to improve compliance within the organization.

  • Depending on the circumstances of the case, “the corporation may select a monitor candidate, with the Government reserving the right to veto the proposed choice.”13

  • The duration of the monitorship will be tailored to the case, based on various aggravating and mitigating factors.14

  • The monitor is appointed at the expense of the company, 15 which can be substantial depending on the length of the monitorship and corporate reform necessary.

Because the monitor is independent and court-appointed, as they evaluate an organization’s compliance and work to reform the behavior that led to the violation of U.S. law, they will be reporting their progress and any developments to the court. To do this, the monitor will need access to company documents and information, and employees (for interviews),16 so that they have adequate knowledge of the organization’s operations and compliance program to make an informed assessment.

Then, depending on the terms set out in the DPA or CA, the monitor will make periodic reports to the court about the organization’s conduct and progress. Most important of these is the Final Report, which will summarize the course of the monitorship and progress made, describe outstanding challenges or long-term issues for the company, and overall close out the monitorship.17

FCPA Monitorships

In recent years, high-profile and important cases have resulted in monitorships as part of DPAs following violations of the Foreign Corrupt Practices Act (“FCPA”).

For example, in 2019, Ericsson, the telecommunications giant, as part of a DPA in which it was subject to a fine of more than $500 million, was appointed a monitor to “address and reduce the risk of any recurrence of the Company’s misconduct,” specifically to “evaluate…the effectiveness of the internal accounting controls, record-keeping, and financial reporting policies and procedures…as they relate to the Company’s current and ongoing compliance with the FCPA and other applicable anti-corruption laws.”18 Seen here, the monitor is appointed to work with the organization toward reducing the risk of recidivism and reforming internal controls. Further, they are not necessarily limited to the scope of the FPCA. Monitors have broad oversight in this regard.

Export Controls Monitorships

In addition to FCPA monitorships, recently the DOJ has imposed monitorships for violations under a complex web of regulations concerning the export of U.S.-origin goods or U.S. property. These include Department of State’s Directorate of Defense Trade Controls (“DDTC”) and International Traffic in Arms Regulations (“ITAR”), Department of Commerce’s Bureau of Industry and Security’s (“BIS”) Export Administration Regulations (“EAR”), and Department of Treasury’s Office of Foreign Asset Control (“OFAC”), which imposes economic sanctions and embargoes on regions and lists of entities around the globe.

What these all have in common is that they regulate international business involving U.S. goods, persons, or property. Courts have appointed monitors in cases involving all the above regulatory schemes,19 indicating that because of the complex nature of these laws, they would rather the offending entities reform their behavior rather than deny them export privileges altogether.

***

According to the DOJ, Monitorships are here to stay. While they are a versatile tool for prosecutors, they can be costly for businesses charged with violations of U.S. law. To minimize your organization’s risk of violation, and thus the risk of having a monitorship imposed, it is prudent to have a compliance program in place to prevent violations before they occur.

It will be less costly to improve your compliance program now than to pay a hefty settlement along with the legal fees of a court-appointed monitor. Because, as the adage goes, an ounce of prevention is worth a pound of cure.

 

1 Press Release, U.S. Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Gives Keynote Address at ABA's 36th National Institute on White Collar Crime, (Oct. 28, 2021), (available at https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute).

2 Other governmental agencies, such as the Securities and Exchange Commission, may impose monitorships as well. However, this article will focus on DOJ monitorships.

3 See United States v. Prudential Sec., Inc, No. 94-2189 (SDNY 1994), Deferred Prosecution Agreement, at 3. See also, Anthony S. Barkow, et al., The Guide to Monitorships, (2020), at 3.

4 U.S Dep’t of Justice and U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (Jan. 16, 2015) at 71 (available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf).

5 Kenneth R. Wallentine “A Lease Upon Labor: RICO Trusteeships on Labor Unions,” 7 Hofstra Lab. & Emp. L.J., 341, (1990), (available at https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1124&context=hlelj).

6 United States v. Prudential Sec., at 3.

7 See generally, U.S. Dep’t of Justice, Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations, [“Morford Memo”] (March 7, 2008), (available at https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf); and U.S. Dep’t Justice, Selection of Monitors in Criminal Division Matters, (Oct. 11, 2018), (available at https://www.justice.gov/opa/speech/file/1100531/download).

8Barkow, et al., The Guide to Monitorships, 40.

9 See U.S. Dep’t of Justice, Export Control and Sanctions Enforcement Policy for Business Organizations, (Dec. 13, 2019), 2, (available at https://www.justice.gov/nsd/ces_vsd_policy_2019/download).

10 See In the Matter of Deutsche Bank AG, Consent Order, N.Y. Dep’t of Fin. Servs. (Jan. 30, 2017), 20, (available at https://www.dfs.ny.gov/system/files/documents/2020/03/ea170130_deustche_bank.pdf).

11 See United States v. Apple Inc., Docket Nos. 14-60, 14-61 (2d. Cir. 2014) (available at https://law.justia.com/cases/federal/appellate-courts/ca2/14-60/14-60-2015-05-28.html).

12 This is not an exhaustive list. A variety of government agencies implement monitorships in industries and cases apart from those listed here. These are beyond the scope of this article.

13 U.S. Dep’t of Justice, Morford Memorandum, 3.

14 Id., at 7-8.

15 Vikramaditya Khanna and Timothy L Dickinson, ‘The Corporate Monitor: The New Corporate Czar’, 105 Mich. L. Rev., 1713, 1730 (2007), (available at https://repository.law.umich.edu/mlr/vol105/iss8/4).

16 Barkow, et al., The Guide to Monitorships, 34-36.

17Id., 39.

18 United States v. Telefonaktiebolaget LM Ericsson, Deferred Prosecution Agreement, Attachment D, D-1. (Nov. 28, 2019), (available at https://www.justice.gov/criminal-fraud/file/1226521/download).

19 For an example under the ITAR (called a “Special Compliance Officer” in this case), see, In the Matter of: Airbus SE (29 January 2020), (available at https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=136d4db3db6204907ede365e7c9619ea); see also, United States v. ZTE Corp., No. 3:17-cr-00120-K-1 (N.D. Tex. 22 March 2017), as an example under the EAR and OFAC.

DISCLAIMER: 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.

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