Department of Justice Guidance on Company Disputes with Corporate Monitors

Department of Justice Guidance on Company Disputes with Corporate Monitors

As part of deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs), prosecutors may continue to require a company to engage an independent monitor to oversee and ensure a company's compliance with the agreement.1 There has been mounting concern about monitor accountability, oversight, costs, and potential favoritism in the monitor selection process.2 In response, the Department of Justice recently issued additional guidance for federal prosecutors regarding the selection and oversight of monitors.

The DOJ and companies that are parties to DPAs and NPAs have cooperated in the selection of monitors.3 DOJ officials often select monitors based on their personal knowledge of those attorneys who have suitable qualifications and rely on recommendations.4 Nonetheless, there has been criticism that the use of monitors results in substantial costs to companies and that there is a potential for favoritism in the appointment process.

The DOJ initially addressed these concerns in the Morford Memorandum, issued by then-Acting Deputy Attorney General Craig Morford in March 2008, which sought to ensure that the monitor selection process was collaborative and that the most qualified candidates were selected. Specifically, the Morford Memorandum articulated nine basic principles for federal prosecutors to apply in drafting DPA and NPA provisions providing for monitors.5 The GAO found that prosecutors adhered to the Morford Memorandum in selecting 4 of the 6 monitors required under DPA and NPA agreements between March 2008 and September 2009.6

However, the GAO also found that the DOJ did not clearly communicate to companies its role in addressing their concerns about the cost and scope of the duties of the monitors, and amount of work to be completed by the monitor.7 Some companies were unaware that there existed a mechanism for resolving disputes with monitors even though that process is typically spelled out in the agreement, while others were hesitant to request the involvement of DOJ because of a fear of reprisal or a lack of understanding of the role of DOJ.8

Given the DOJ's reliance on monitors to ensure compliance with DPAs and NPAs, the GAO concluded that the DOJ should more clearly communicate to companies its role in resolving disagreements with monitors.9 Such a process would also allow the DOJ to be better informed of potential performance issues related to monitors. Therefore, the GAO recommended that the Attorney General issue guidelines regarding this issue.10

On May 25, 2010, Acting Deputy Attorney General Gary G. Grindler issued the Grindler Memorandum,11 which applies only to criminal matters and to the DOJ. The Grindler Memorandum adds a tenth principle to those outlined in the Morford Memo: that monitorship agreements explain the role of the Department in resolving disagreements that may arise between the corporation and the monitor.12

In applying the additional principle, prosecutors should be mindful of several considerations.13 First, the DOJ's role in resolving disputes should make it clear that it is not a party to the engagement agreement between the company and the monitor, and thus, the DOJ is precluded from arbitrating contractual disputes between the parties. Second, the DOJ's role generally should be limited to determining whether the company has complied with the terms of the agreement. Finally, the DOJ's role will depend on the public and law enforcement interests implicated by the dispute. The Grindler Memo offers examples of disputes that DOJ may resolve, such as a disagreement over the monitor's recommendations regarding the compliance program, its implementations, and improvements needed, as well as the monitor's role and responsibilities under the agreement.

When a monitor makes a recommendation that a company considers unduly burdensome, impractical, unduly expensive, or otherwise inadvisable, the Grindler Memo suggests that a company may propose, in writing, an alternative policy, procedure, or system designed to achieve the same objective or purpose as the disputed recommendation of the monitor.14 However, if the company and the monitor cannot agree on a particular recommendation, the DOJ should be promptly informed, and can resolve the disagreement.15

Federal prosecutors, when drafting language about the DOJ's role in such dispute resolution, should make it clear that any relevant concerns be raised in the first instance with the U.S. Attorney's Office or the Department Component handling the case.16 The Grindler Memo also recommends including language in the agreement establishing annual, or more frequent, meetings between company representatives and DOJ officials to discuss the monitorship and any company concerns, including such topics as the scope or costs of the monitorship.17 Nonetheless, the Grindler Memo recognizes that any specific DPA or NPA provisions are dependent on both the facts and circumstances of the case, as well as the monitor's specific responsibilities.

Interestingly, most of the DPAs and NPAs reached during the past decades have generally included a clear process for a company to express its objections to the recommendation of a monitor, and propose less burdensome and costly alternatives. If such disagreements could not be resolved, there has always been a mechanism for access to DOJ.

1 U.S. GOV'T ACCOUNTABILITY OFFICE, GAO 10-110, REPORT TO CONGRESSIONAL REQUESTERS: DOJ HAS TAKEN STEPS TO BETTER TRACK ITS USE OF DEFERRED AND NONPROSECUTION AGREEMENTS, BUT SHOULD EVALUATE EFFECTIVENESS 1 (2009) [hereinafter GAO Report], available at http://www.gao.gov/new.items/d10110.pdf.
2 GAO Report, supra note 12, at 3-4.
3 Id. at 3.
4 Id.
5 Memorandum from Craig S. Morford, Acting Deputy Att'y Gen. 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), available at http://www.justice.gov/dag/morford-useofmonitorsmemo-03072008.pdf.
6 U.S. GOV'T ACCOUNTABILITY OFFICE, GAO 10-260T, REPORT TO CONGRESSIONAL REQUESTERS: PROSECUTORS ADHERED TO GUIDANCE IN SELECTING MONITORS FOR DEFERRED PROSECUTION AND NONPROSECUTION AGREEMENTS, BUT DOJ COULD BETTER COMMUNICATE ITS ROLE IN RESOLVING CONFLICTS 5 (2009), available at http://www.gao.gov/new.items/d10260t.pdf. See also GAO Report, supra note 12, at 4.
7 Id.
8 Lorraine McCarthy, DOJ Issues Guidance for Prosecutors Drafting Corporate Monitor Agreements, 5 WHITE COLLAR CRIME REP. 395 (June 4, 2010).
9 GAO Report, supra note 12, at 4.
10 Id.
11 Memorandum from Gary G. Grindler, Acting Deputy Att'y Gen., 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), available at http://www.justice.gov/dag/dag-memo-guidance-monitors.html.
12 Id.
13 For further information on these considerations, see id.
14 Id.
15 Id.
16 Id.
17 Id.

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