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The Department of Justice's commitment to deterring and
preventing corporate crime remains a high priority. The
Principles of Federal Prosecution of Business Organizations set
forth guidance to federal prosecutors regarding charges against
corporations. A careful consideration of those principles and
the facts in a given case may result in a decision to negotiate
an agreement to resolve a criminal case against a corporation
without a formal conviction—either a deferred prosecution
agreement or a non-prosecution agreement.[FN2] As part of some
negotiated corporate agreements, there have been provisions
pertaining to an independent corporate monitor.[FN3] The
corporation benefits from expertise in the area of corporate
compliance from an independent third party. The corporation, its
shareholders, employees and the public at large then benefit from
reduced recidivism of corporate crime and the protection of the
integrity of the marketplace.
The purpose of this memorandum is to present a series of
principles for drafting provisions pertaining to the use of
monitors in connection with deferred prosecution and non-
prosecution agreements (hereafter referred to collectively as
"agreements") with corporations.[FN4] Given the varying facts
and circumstances of each case—where different industries,
corporate size and structure, and other considerations may be at
issue—any guidance regarding monitors must be practical and
flexible. This guidance is limited to monitors, and does not
apply to third parties, whatever their titles, retained to act as
receivers, trustees, or perform other functions.
A monitor's primary responsibility is to assess and monitor a
corporation's compliance with the terms of the agreement
specifically designed to address and reduce the risk of
recurrence of the corporation's misconduct, and not to further
punitive goals. A monitor should only be used where appropriate
given the facts and circumstances of a particular matter. For
example, it may be appropriate to use a monitor where a company
does not have an effective internal compliance program, or where
it needs to establish necessary internal controls. Conversely,
in a situation where a company has ceased operations in the area
where the criminal misconduct occurred, a monitor may not be
necessary.
In negotiating agreements with corporations, prosecutors
should be mindful of both: (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. Prosecutors
shall, at a minimum, notify the appropriate United States Attorney or
Department Component Head prior to the execution of an agreement that
includes a corporate monitor. The appropriate United States Attorney or
Department Component Head shall, in turn, provide a copy of the agreement to
the Assistant Attorney General for the Criminal Division at a reasonable
time after it has been executed. The Assistant Attorney General for the
Criminal Division shall maintain a record of all such agreements.
This memorandum does not address all provisions concerning
monitors that have been included or could appropriately be
included in agreements. Rather this memorandum sets forth nine
basic principles in the areas of selection, scope of duties, and
duration.
This memorandum provides only internal Department of Justice
guidance. In addition, this memorandum applies only to criminal
matters and does not apply to agencies other than the Department
of Justice. It is not intended to, does not, and may not be
relied upon to create any rights, substantive or procedural,
enforceable at law by any party in any matter civil or criminal.
Nor are any limitations hereby placed on otherwise lawful
litigative prerogatives of the Department of Justice.
| | II. | SELECTION
| 1.
| Principle: Before beginning the process of selecting
a monitor in connection with deferred prosecution agreements and
non-prosecution agreements, the corporation and the Government
should discuss the necessary qualifications for a monitor based
on the facts and circumstances of the case. The monitor must be
selected based on the merits. The selection process must, at a
minimum, be designed to: (1) select a highly qualified and
respected person or entity based on suitability for the
assignment and all of the circumstances; (2) avoid potential and
actual conflicts of interests, and (3) otherwise instill public
confidence by implementing the steps set forth in this Principle.
To avoid a conflict, first, Government attorneys who
participate in the process of selecting a monitor shall be
mindful of their obligation to comply with the conflict-of-interest guidelines set forth in 18 U.S.C. § 208 and 5
C.F.R. Part 2635. Second, the Government shall create a standing
or ad hoc committee in the Department component or office
where the case originated to consider monitor candidates. United
States Attorneys and Assistant Attorneys General may not make,
accept, or veto the selection of monitor candidates unilaterally.
Third, the Office of the Deputy Attorney General must approve the
monitor. Fourth, the Government should decline to accept a
monitor if he or she has an interest in, or relationship with,
the corporation or its employees, officers or directors that
would cause a reasonable person to question the monitor's
impartiality. Finally, the Government should obtain a commitment
from the corporation that it will not employ or be affiliated
with the monitor for a period of not less than one year from the
date the monitorship is terminated.
Comment: Because a monitor's role may
vary based on the facts of each case and the entity involved,
there is no one method of selection that should necessarily be
used in every instance. For example, the corporation may select
a monitor candidate, with the Government reserving the right to
veto the proposed choice if the monitor is unacceptable. In
other cases, the facts may require the Government to play a
greater role in selecting the monitor. Whatever method is used,
the Government should determine what selection process is most
effective as early in the negotiations as possible, and endeavor
to ensure that the process is designed to produce a high-quality
and conflict-free monitor and to instill public confidence. If
the Government determines that participation in the selection
process by any Government personnel creates, or appears to
create, a potential or actual conflict in violation of 18 U.S.C.
§ 208 and 5 C.F.R. Part 2635, the Government must proceed as
in other matters where recusal issues arise. In all cases, the
Government must submit the proposed monitor to the Office of the
Deputy Attorney General for review and approval before the
monitorship is established.
Ordinarily, the Government and the corporation should discuss
what role the monitor will play and what qualities, expertise,
and skills the monitor should have. While attorneys, including
but not limited to former Government attorneys, may have certain
skills that qualify them to function effectively as a monitor,
other individuals, such as accountants, technical or scientific
experts, and compliance experts, may have skills that are more
appropriate to the tasks contemplated in a given agreement.
Subsequent employment or retention of the monitor by the
corporation after the monitorship period concludes may raise
concerns about both the appearance of a conflict of interest and
the effectiveness of the monitor during the monitorship,
particularly with regard to the disclosure of possible new
misconduct. Such employment includes both direct and indirect,
or subcontracted, relationships.
Each United States Attorney's Office and Department component
shall create a standing or ad hoc committee ("Committee")
of prosecutors to consider the selection or veto, as appropriate,
of monitor candidates. The Committee should, at a minimum,
include the office ethics advisor, the Criminal Chief of the
United States Attorney's Office or relevant Section Chief of the
Department component, and at least one other experienced
prosecutor.
Where practicable, the corporation, the Government, or both
parties, depending on the selection process being used, should
consider a pool of at least three qualified monitor candidates.
Where the selection process calls for the corporation to choose
the monitor at the outset, the corporation should submit its
choice from among the pool of candidates to the Government.
Where the selection process calls for the Government to play a
greater role in selecting the monitor, the Government should,
where practicable, identify at least three acceptable monitors
from the pool of candidates, and the corporation shall choose
from that list.
| | III.
| SCOPE OF DUTIES
A. INDEPENDENCE
| | 2. | Principle: A monitor is an independent third-party,
not an employee or agent of the corporation or of the
Government.
Comment: A monitor by definition is distinct and
independent from the directors, officers, employees, and other
representatives of the corporation. The monitor is not the
corporation's attorney. Accordingly, the corporation may not
seek to obtain or obtain legal advice from the monitor.
Conversely, a monitor also is not an agent or employee of the
Government.
While a monitor is independent both from the corporation and
the Government, there should be open dialogue among the
corporation, the Government and the monitor throughout the
duration of the agreement.
B. MONITORING COMPLIANCE WITH THE AGREEMENT
| 3. | Principle: A monitor's primary responsibility should
be to assess and monitor a corporation's compliance with those
terms of the agreement that are specifically designed to address
and reduce the risk of recurrence of the corporation's
misconduct, including, in most cases, evaluating (and where
appropriate proposing) internal controls and corporate ethics and
compliance programs.
Comment: At the corporate level, there may be a
variety of causes of criminal misconduct, including but not
limited to the failure of internal controls or ethics and
compliance programs to prevent, detect, and respond to such
misconduct. 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. A well-designed
ethics and compliance program that is not effectively implemented
will fail to lower the risk of recidivism.
A monitor is not responsible to the corporation's
shareholders. Therefore, from a corporate governance standpoint,
responsibility for designing an ethics and compliance program
that will prevent misconduct should remain with the corporation,
subject to the monitor's input, evaluation and recommendations.
| 4. | Principle: In carrying out his or her duties, a
monitor will often need to understand the full scope of the
corporation's misconduct covered by the agreement, but the
monitor's responsibilities should be no broader than necessary to
address and reduce the risk of recurrence of the corporation's
misconduct.
Comment: The scope of a monitor's duties should be
tailored to the facts of each case to address and reduce the risk
of recurrence of the corporation's misconduct. Among other
things, focusing the monitor's duties on these tasks may serve to
calibrate the expense of the monitorship to the failure that gave
rise to the misconduct the agreement covers.
Neither the corporation nor the public benefits from
employing a monitor whose role is too narrowly defined (and,
therefore, prevents the monitor from effectively evaluating the
reforms intended by the parties) or too broadly defined (and,
therefore, results in the monitor engaging in activities that
fail to facilitate the corporation's implementation of the
reforms intended by the parties).
The monitor's mandate is not to investigate historical
misconduct. Nevertheless, in appropriate circumstances, an
understanding of historical misconduct may inform a monitor's
evaluation of the effectiveness of the corporation's compliance
with the agreement.
C. COMMUNICATIONS AND RECOMMENDATIONS BY THE
MONITOR
| 5. | Principle: Communication among the Government,
the corporation and the monitor is in the interest of all the
parties. Depending on the facts and circumstances, it may be
appropriate for the monitor to make periodic written reports to
both the Government and the corporation.
Comment: A monitor generally works closely with a
corporation and communicates with a corporation on a regular
basis in the course of his or her duties. The monitor must also
have the discretion to communicate with the Government as he or
she deems appropriate. For example, a monitor should be free to
discuss with the Government the progress of, as well as issues
arising from, the drafting and implementation of an ethics and
compliance program. Depending on the facts and circumstances, it
may be appropriate for the monitor to make periodic written
reports to both the Government and the corporation regarding,
among other things: (1) the monitor's activities; (2) whether the
corporation is complying with the terms of the agreement; and (3)
any changes that are necessary to foster the corporation's
compliance with the terms of the agreement.
| 6. | Principle: If the corporation chooses
not to adopt recommendations made by the monitor within a reasonable time,
either the monitor or the corporation, or both, should report that fact to
the Government, along with the corporation's reasons. The Government may
consider this conduct when evaluating whether the corporation has fulfilled
its obligations under the agreement.
Comment: The corporation and its officers and
directors are ultimately responsible for the ethical and legal
operations of the corporation. Therefore, the corporation should
evaluate whether to adopt recommendations made by the monitor.
If the corporation declines to adopt a recommendation by the
monitor, the Government should consider both the monitor's
recommendation and the corporation's reasons in determining
whether the corporation is complying with the agreement. A
flexible timetable should be established to ensure that both a
monitor's recommendations and the corporation's decision to adopt
or reject them are made well before the expiration of the
agreement.
D. REPORTING OF PREVIOUSLY UNDISCLOSED OR NEW MISCONDUCT
| 7. | Principle: The agreement should clearly
identify any types of previously undisclosed or new misconduct that the
monitor will be required to report directly to the Government. The agreement
should also provide that as to evidence of other such misconduct, the
monitor will have the discretion to report this misconduct to the Government
or the corporation or both.
Comment: As a general rule, timely and open
communication between and among the corporation, the Government
and the monitor regarding allegations of misconduct will
facilitate the review of the misconduct and formulation of an
appropriate response to it. The agreement may set forth certain
types of previously undisclosed or new misconduct that the
monitor will be required to report directly to the Government.
Additionally, in some instances, the monitor should immediately
report other such misconduct directly to the Government and not
to the corporation. The presence of any of the following factors
militates in favor of reporting such misconduct directly to the
Government and not to the corporation, namely, where the
misconduct: (1) poses a risk to public health or safety or the
environment; (2) involves senior management of the corporation;
(3) involves obstruction of justice; (4) involves criminal
activity which the Government has the opportunity to investigate
proactively and/or covertly; or (5) otherwise poses a substantial
risk of harm. On the other hand, in instances where the
allegations of such misconduct are not credible or involve
actions of individuals outside the scope of the corporation's
business, the monitor may decide, in the exercise of his or her
discretion, that the allegations need not be reported directly to
the Government.
| | IV. | DURATION
| 8. | Principle: The duration of the agreement
should be tailored to the problems that have been found to exist and the
types of remedial measures needed for the monitor to satisfy his or her
mandate.
Comment: The following criteria should be considered
when negotiating duration of the agreement (not necessarily in
this order): (1) the nature and seriousness of the underlying
misconduct; (2) the pervasiveness and duration of misconduct
within the corporation, including the complicity or involvement
of senior management; (3) the corporation's history of similar
misconduct; (4) the nature of the corporate culture; (5) the
scale and complexity of any remedial measures contemplated by the
agreement, including the size of the entity or business unit at
issue; and (6) the stage of design and implementation of remedial
measures when the monitorship commences. It is reasonable to
forecast that completing an assessment of more extensive and/or
complex remedial measures will require a longer period of time
than completing an assessment of less extensive and/or less
complex ones. Similarly, it is reasonable to forecast that a
monitor who is assigned responsibility to assess a compliance
program that has not been designed or implemented may take longer
to complete that assignment than one who is assigned
responsibility to assess a compliance program that has already
been designed and implemented.
| 9. | Principle: In most cases, an
agreement should provide for an extension of the monitor provision(s) at the
discretion of the Government in the event that the corporation has not
successfully satisfied its obligations under the agreement. Conversely, in
most cases, an agreement should provide for early termination if the
corporation can demonstrate to the Government that there exists a change in
circumstances sufficient to eliminate the need for a monitor.
Comment: If the corporation has not satisfied its
obligations under the terms of the agreement at the time the
monitorship ends, the corresponding risk of recidivism will not
have been reduced and an extension of the monitor provision(s)
may be appropriate. On the other hand, there are a number of
changes in circumstances that could justify early termination of
an agreement. For example, if a corporation ceased operations in
the area that was the subject of the agreement, a monitor may no
longer be necessary. Similarly, if a corporation is purchased by
or merges with another entity that has an effective ethics and
compliance program, it may be prudent to terminate a
monitorship.
FN 1. As used in these Principles, the terms "corporate" and
"corporation" refer to all types of business organizations,
including partnerships, sole proprietorships, government
entities, and unincorporated associations.
FN 2. The terms "deferred prosecution agreement" and "non-
prosecution agreement" have often been used loosely by
prosecutors, defense counsel, courts and commentators. As the
terms are used in these Principles, a deferred prosecution
agreement is typically predicated upon the filing of a formal
charging document by the government, and the agreement is filed
with the appropriate court. In the non-prosecution agreement
context, formal charges are not filed and the agreement is
maintained by the parties rather than being filed with a court.
Clear and consistent use of these terms will enable the
Department to more effectively identify and share best practices
and to track the use of such agreements. These Principles do not
apply to plea agreements, which involve the formal conviction of
a corporation in a court proceeding.
FN 3. Agreements use a variety of terms to describe the role
referred to herein as "monitor," including consultants, experts,
and others.
FN 4. In the case of deferred prosecution agreements filed with a
court, these Principles must be applied with due regard for the
appropriate role of the court and/or the probation office.
| March 2008
| Criminal Resource Manual 163
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