New Year, New DOJ: Recent Resolution of Fraud Allegations Signals DOJ’s Increased Use of Corporate Monitorships

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[co-author: Olivia Hinerfeld]

On December 21, 2021, the U.S. Department of Justice (“DOJ”) announced a resolution of its criminal investigations into NatWest Markets Plc (“NatWest”), a global banking and financial services firm based in the United Kingdom. Accused of violating the terms of a 2017 non-prosecution agreement (“NPA”), NatWest pleaded guilty to one count of wire fraud and one count of securities fraud, agreeing to pay approximately $35 million in a criminal fine, restitution, and forfeiture. Additionally, NatWest agreed to serve three years of probation, and — most notably — to engage an independent compliance monitor. The imposition of a corporate monitor represents a stark departure from the previous administration’s reticence to employ this costly and often burdensome sanction.

Background on the NatWest Investigation

The DOJ’s resolution stems from a series of investigations into NatWest for misconduct over the past decade. In 2015, NatWest entered a guilty plea for a scheme to manipulate the foreign currency market and was placed on probation. Two years later, DOJ entered into an NPA with the firm for a separate allegedly fraudulent scheme. Court documents and NatWest admissions reveal the basis of the latest fraud allegations, which relate to the manipulation of U.S. Treasury markets. According to the company’s sworn admissions, from approximately 2008 to 2014, NatWest traders in London and Connecticut engaged in schemes to defraud in connection with the purchase and sale of U.S. Treasury futures contracts.1 In the schemes, NatWest traders allegedly participated in “spoofing” by placing orders with the intent to cancel those orders before execution in an effort to profit by deceiving other market participants. The so-called spoof orders allegedly inserted false information into the market to artificially deflate or inflate the prevailing market price so that NatWest traders could profit.

In determining the criminal resolution with NatWest, DOJ considered the nature and seriousness of the offenses, NatWest’s substantial prior history of misconduct, its breach of a prior NPA, and the state of NatWest’s compliance and ethics program. When announcing the guilty plea, Deputy Attorney General Lisa Monaco — DOJ’s second-in-command — proclaimed that “there will be serious consequences for a company that breaches the terms of an agreement with the government.”2 She added, “Company executives should realize that investment in compliance programs can avoid situations like this, and take action accordingly.”3

The Rise and Fall and Rise Again of Independent Corporate Monitors

We previously detailed the role of independent corporate monitors and their expansive development over the past two decades here. Briefly, DOJ first promulgated guidance for prosecutors considering the appointment of corporate monitors in 2008.4 DOJ supplemented this guidance several times over the years, with the publication of the “Breuer Memo” in 2009,5 the “Grindler Memo” in 2010,6 and most recently the “Benczkowski Memo” in 2018.7 Under the Trump administration, DOJ used monitors sparingly and only in the most egregious circumstances in part due to an acknowledgment of their highly intrusive and expensive nature. Specifically, the Benczkowski Memo stated that prosecutors should favor the imposition of a monitorship “only where there [was] a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens.”8 The Trump administration’s seemingly restrained approach was borne out by statistics. In April 2020, DOJ began publishing a list of all corporate monitors actively engaged by companies as a part of criminal resolutions with the Criminal Division’s Fraud Section. At the time, only thirteen companies had active monitorships. Today, that number has shrunk to seven.9

Nonetheless, the NatWest resolution is a bellwether of change. We recently reported that DOJ was poised to break with the previous administration and begin imposing more corporate monitorships as a part of resolutions. While the NatWest resolution covers financial fraud, all instances of alleged fraud that DOJ investigates could see an increased imposition of corporate monitorships, including False Claims Act and Foreign Corrupt Practices Act investigations, making this development relevant to a wide array of companies. At the American Bar Association’s National Institute on White Collar Crime in October 2021, Deputy Attorney General Lisa Monaco made clear that corporate criminal enforcement would be a major priority of the Biden administration. In a departure from the Trump administration’s approach, she remarked that “[f]or clients negotiating resolutions, there is no default presumption against corporate monitors. That decision about a monitor will be made by the facts and circumstances of each case.”10

Looking Ahead: Develop a Robust Compliance Program

Taken together, the DOJ’s recent statements and the NatWest resolution demonstrate that companies should take seriously the prospect of negotiating a corporate resolution, and if facing investigation, seek sound advice from competent counsel and prioritize compliance and remediation on the front end to potentially avoid the imposition of a corporate monitor. Not only can a robust compliance program help avoid instances of misconduct, but such a program can pay dividends for companies that find themselves already under investigation. When negotiating a resolution, DOJ will consider a company’s preexisting remediation efforts in determining whether to impose a monitorship. Involving outside counsel with experience in government investigations can ensure that a company’s compliance program is designed in accordance with what DOJ will view more favorably.

1 Information, United States v. NatWest Markets Plc, No. 3:21-cr-187 (D. Conn. 2021), https://www.justice.gov/opa/press-release/file/1457981/download.

2 Press Release, U.S. Dep’t of Justice, NatWest Markets Pleads Guilty to Fraud in U.S. Treasury Markets (Dec. 21, 2021), https://www.justice.gov/opa/pr/natwest-markets-pleads-guilty-fraud-us-treasury-markets.

3 Id.

4 Memorandum from Craig S. Morford, Acting Deputy Att’y Gen., U.S. Dep’t of Justice, to Heads of Department Components and United States Attorneys, 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.

5 Memorandum from Lanny A. Breuer, Assistant Att’y Gen., U.S. Dep’t of Justice, to All Criminal Division Personnel, Selection of Monitors in Criminal Division Matters (June 24, 2009) (“Breuer Memo”), https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/response3-supp-appx-3.pdf.

6 Memorandum from Gary G. Grindler, Acting Deputy Att’y Gen., U.S. Dep’t of Justice, to Heads of Department Components and United States Attorneys, Additional Guidance on the Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations (May 25, 2010) (“Grindler Memo”), https://www.justice.gov/sites/default/files/dag/legacy/2010/06/01/dag-memo-guidance-monitors.pdf.

7 Memorandum from Brian A. Benczkowski, Assistant Att’y Gen., U.S. Dep’t of Justice, to All Criminal Division Personnel, Selection of Monitors in Criminal Division Matters (Oct. 11, 2018) (“Benczkowski Memo”), https://www.justice.gov/criminal-fraud/file/1100366/download.

8 Id. at 2.

9 List of Independent Compliance Monitors for Active Fraud Section Monitorships, U.S. Dep’t of Justice (last updated Nov. 4, 2021), https://www.justice.gov/criminal-fraud/monitorships.

10 Remarks from Lisa Monaco, Deputy Att’y Gen., U.S. Dep’t of Justice, to ABA’s 36th National Institute on White Collar Crime (Oct. 28, 2021), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute.

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