DOJ Principles For the Selection of Monitors: Of Increasing Importance In Resolving DOJ and SEC Investigations

Earlier this month, Acting Deputy Attorney General Craig S. Morford issued a memorandum entitled “The Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations.” The nine principles and the related comments in the memorandum are significant in view of the increasing use of monitors, consultants and experts in resolving federal criminal investigations of corporation.

While the principles in the memorandum only apply to Department of Justice criminal prosecutions, they may also impact the resolution of other Federal inquiries such as SEC investigations. In many instances there are parallel settlements of DOJ inquiries and SEC investigations. For example, last year the SEC and DOJ simultaneously settled FCPA charges with York International. The SEC settlement included a requirement that an independent compliance monitor be retained. SEC v. York International Corp., Civil Action No. 7-01750 (D.D.C. Filed Oct. 1, 2007). The DOJ criminal investigation was resolved by entering into a deferred prosecution agreement which required the company to implement a compliance program and procedures reviewed by an independent monitor. U.S. v. York International Corp., No. 07-01750 (D.D.C. Filed Oct. 1, 2007).

According to the memorandum, a “monitor’s primary role is to evaluate whether a corporation has both adopted and effectively implemented ethics and compliance programs to address and reduce the risk of recurrence of the corporation’s misconduct.” At the same time, the duty of compliance remains with the corporation, not the monitor who is not responsible to the shareholders. Key points of consideration under the memorandum include:

1) the government and the company should discuss the necessity of, and role for, a monitor at the outset and ensure that selection is based on merit and avoids any conflict;

2) the monitor must be independent and not affiliated with the business organization;

3) the primary responsibility of the monitor is to ensure compliance with the agreement, either the deferred prosecution or non-prosecution agreement;

4) the monitor’s responsibility should be tailored to his or her specific obligations;

5) communication among the government, the corporation and the monitor, either orally or in writing as appropriate, are in the interest of all the parties;

6) if the business organization elects not to adopt a recommendation made by the monitor that fact, along with the reasons, should be reported to the government;

7) the agreement should specify previously undisclosed or new misconduct that the monitor must report to the government and give him or her the discretion to report other misconduct;

8) the duration of the appointment should only be for a term sufficient to carry out the specific function; and

9) the agreement should provide for an extension at the election of the government under appropriate circumstances and, conversely, for early termination where the business organization can demonstrate that it is appropriate.

The text of the memorandum can be viewed here.