Justice Department Recalibrates Corporate Monitors and DOJ Compliance Position

In a recent speech (here), Brian Benczkowski, the Assistant Attorney General for the Criminal Division outlined the Justice Department’s new policy governing imposition of a corporate compliance monitor.  (Here).

The Justice Department has faced criticism concerning the circumstances and the manner in which it decides to require a corporate monitor as part of a settlement agreement.

Some have suggested that the Justice Department has not been clear about the circumstances requiring imposition of a corporate monitor.  In addition, the Justice Department has suggested that the identity of corporate monitors has been restricted to certain companies and individuals, even though the companies themselves nominate potential corporate monitors under prevailing practices.

On another issue, AAG Benczkowski addressed the need to hire a new compliance counsel to replace Hui Chen.  AAG Benczkowski announced that the Justice Department did not plan to replace Hui Chen and instead rely on its existing compliance expertise.  To bolster prosecutors’ understanding of compliance, AAG Benczkowski plans to implement compliance training programs on compliance programs.

The Justice Department’s new corporate monitor policy and procedure builds on the former Morford memorandum adopted near the end of the Bush (II) Administration.  DOJ is returning to a stricter standard for imposing corporate monitors based on the weighing of the potential benefits of a corporate monitor (or conversely the nature and extent of the compliance program deficiencies) and the cost of imposing a monitor and impact on its operations.

In evaluating the benefits of a corporate monitor, Criminal Division attorneys are required to consider: (a) whether the underlying conduct involved exploitation of an inadequate compliance program or internal controls systems; (b) whether the misconduct was pervasive across the business organization or facilitated by senior management; (c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal controls; and (d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate they would prevent and detect similar misconduct in the future.

The new procedures give companies a fresh opportunity to argue in the context of settlement negotiations that new corporate leadership has implemented remedial enhancements to the company’s compliance program and reduced the applicable risk of recurrence of any misconduct.

In the end, DOJ will likely reduce the number of corporate monitors imposed in corporate settlements, but there still will be situations where a corporate monitor will be required.  In those cases where the company experiences serious misconduct across the organization, companies will still likely face imposition of a monitor.  On the other hand, the new policy creates real and significant incentives for companies to design and implement robust ethics and compliance program controls as a means to prevent and detect misconduct, and eliminate any potential for recurrence after misconduct occurs.

On the issue of replacing the DOJ Compliance Counsel, most prosecutors who work at the Justice Department believe they are familiar with current practices relating to ethics and compliance programs.  Prosecutors have extensive experience reviewing corporate compliance programs and the availability of training resources and programs will enhance DOJ’s existing expertise in this area.

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