As highlighted in this prior post , DOJ Assistant Attorney General Brian Benczkowski recently announced a new DOJ monitor policy via this written memo  titled “Selection of Monitors in Criminal Division Matters.”
The memo is not Foreign Corrupt Practices Act specific, but FCPA relevant as it establishes “standards, policy, and procedures for the selection of monitors in matters being handled by Criminal Division attorneys” and “shall apply to all Criminal Division determinations regarding whether a monitor is appropriate in specific cases and to any deferred prosecution agreement (“DPA”), non-prosecution agreement (“NPA”), or plea agreement between the Criminal Division and a business organization which requires the retention of a monitor.”
Before diving into the specifics of the memo, it is important to note the following.
Some type of monitoring requirement is a condition of most modern corporate FCPA enforcement actions resolved by the DOJ. Such requirements generally fall into the following categories:
- Self-Reporting / Monitor-Lite (see for example the PTC enforcement action )
- Enhanced Monitoring Obligations (see for example the Johnson & Johnson enforcement action )
- Hybrid Monitor (see for example the Diebold enforcement action )
- Independent Monitor (see for example the VimpelCom enforcement action )
The recent DOJ memo appears to only involve formal, independent monitors.
These types of monitors (as opposed to the other types of monitoring requirements highlighted above) are relatively rare in recent FCPA enforcement actions. Since 2016, the DOJ has resolved 29 corporate enforcement actions and only 11 (38%) have required an independent monitor. Moreover, the majority of these monitors (7 out of 11 – approximately 65%) were in enforcement actions involving foreign companies (SQM, Teva, Odebrecht/Braskem, LAN/Latam Airlines, Vimpelcom and Panasonic).
In short, although U.S. companies have had independent monitors imposed as a condition of settlement in resolving recent FCPA enforcement actions (Zimmer Biomet (a repeat offender), Las Vegas Sands (the DOJ simply requested reports from the SEC’s monitor in a previously resolved enforcement action) and Och-Ziff), it is very rare for a U.S. company resolving an FCPA enforcement action to have an independent monitor imposed.
With this important background information, the remainder of the post summarizes the so-called Benczkowski Memo. For starters, the memo is divided into a relatively short substantive portion and relatively long (indeed most of the 8 pages) procedural portion regarding how monitors will be appointed, the terms of monitor agreements, the DOJ’s standing committee on the selection of monitors, the selection process, etc. These procedural type issues of course are only relevant to the extent a monitor is appointed. Thus, the remainder of this post highlights the “Principals for Determining Whether A Monitor Is Needed In Individual Cases.”
The memo states (emphasis added in bold):
“Independent corporate monitors can be a helpful resource and beneficial means of assessing a business organization’s compliance with the terms of a corporate criminal resolution, whether a DPA, NPA, or plea agreement. Monitors can also be an effective means of reducing the risk of a recurrence of the misconduct and compliance lapses that gave rise to the underlying corporate criminal resolution.
Despite these benefits, the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor. The Morford Memorandum explained that, “[a] monitor should only be used where appropriate given the facts and circumstances of a particular matter[,]” and set forth the two broad considerations that should guide prosecutors when assessing the need and propriety of a monitor: “(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.” The Memorandum also made clear that a monitor should never be imposed for punitive purposes.
This memorandum elaborates on those considerations. In evaluating the “potential benefits” of a monitor, Criminal Division attorneys should consider, among other factors:
(a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;
(b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
(c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and
(d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future.
Where misconduct occurred under different corporate leadership or within a compliance environment that no longer exists within a company, Criminal Division attorneys should consider whether the changes in corporate culture and/or leadership are adequate to safeguard against a recurrence of misconduct. Criminal Division attorneys should also consider whether adequate remedial measures were taken to address problem behavior by employees, management, or third-party agents, including, where appropriate, the termination of business relationships and practices that contributed to the misconduct. In assessing the adequacy of a business organization’s remediation efforts and the effectiveness and resources of its compliance program, Criminal Division attorneys should consider the unique risks and compliance challenges the company faces, including the particular region(s) and industry in which the company operates and the nature of the company’s clientele.
In weighing the benefit of a contemplated monitorship against the potential costs, Criminal Division attorneys should consider not only the projected monetary costs to the business organization, but also whether the proposed scope of a monitor’s role is appropriately tailored to avoid unnecessary burdens to the business’s operations.
In general, the Criminal Division should favor the imposition of a monitor only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens. Where a corporation’s compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary.”
However, a few concerns remain.
For starters, like with any DOJ policy the new memo is full of ambiguous terms such as: manipulation, exploitation, inadequate, pervasive, facilitated, senior management, significant, tested, adequate, appropriately tailored, unnecessary burden, effective, and appropriately resourced.
Substantively, the factor of “whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future” is concerning because “prevent or detect” is not even a legal standard found in the FCPA. Rather, as highlighted in numerous prior posts (see here  for instance) the FCPA’s internal controls provisions state that an issuer shall “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” certain financial objectives are met. The FCPA then defines “reasonable assurances” and “reasonable detail” to “mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”
The following statement from the memo is also potentially concerning:
“In assessing the adequacy of a business organization’s remediation efforts and the effectiveness and resources of its compliance program, Criminal Division attorneys should consider the unique risks and compliance challenges the company faces, including the particular region(s) and industry in which the company operates and the nature of the company’s clientele.”
Does this mean that a large multinational oil and gas company doing business in Africa is more or less likely to receive a monitor compared to a small privately held company selling shoestrings in Finland?
Regardless, law enforcement and law enforcement policies are supposed to be blind and not specific to certain companies and certain industries. Indeed, as applied to the FCPA context, this factor is likely in violation of OECD Convention Article 5 which states:
“Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”
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