Friend or Foe?  Selecting a Compliance Monitor

Friend or Foe? Selecting a Compliance Monitor

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February 05, 2009

Buried in the news of Siemens' staggering settlement with US authorities, was an important "first":  the DoJ permitted Siemens to retain a non-American compliance monitor.   Given the discomfort with continued oversight by teams of US lawyers, this was a considerable coup, but Dr. Theo Waigel seems a strange choice for the DoJ’s first foray into non-American compliance monitors. 

 

While certainly a politician of considerable stature within Germany – and particularly Bavaria - his anti-bribery experience is unclear. His tenure as Germany’s Minister of Finance pre-dated Germany’s criminalization of transnational bribery. When Waigel was at the helm, bribes were a routine, deductible business expense. His stated expertise is in banking law and his national law firm claims no particular expertise in compliance. Indeed, on the whole website, there appears to be just one deeply buried reference to “corporate governance”.

How are compliance monitors selected?  Who makes the final decision?   We asked Billy Jacobson, a partner with Fulbright & Jaworski and, until recently, Assistant Chief in the DoJ’s Fraud Section.  Spinning a silk purse out of a regulatory sow's ear, Billy notes that the process remains confusing and unpredictable, but that more clarity is on the way…

 

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“While the DOJ has not been shy about advertising the use of compliance monitors as part of recent FCPA dispositions, the method of selecting those monitors remains mysterious to many.  This is especially disconcerting given that the very idea of a monitor seems to terrify corporate executives.

One source of confusion?   The Fraud Section’s selection process has changed over the years and hasn’t been formalized in any way.  In some cases, the Fraud Section has picked the monitor; in other cases, the company has picked subject to Fraud’s veto power; and in still others, the company and Fraud jointly arrived at the monitor selection through some sort of ill-defined consensus.

In March 2008, in response to Congressional threats to regulate the selection of monitors and to possibly force the courts to play a role, then Acting Deputy Attorney General Craig Morford issued a memo providing slightly more clarity to the use of monitors in criminal dispositions.  This “Morford Memo” clarifies some aspects of the monitor process, but curiously leaves the method of selecting monitors opaque. 

The Morford Memo makes certain things clear:

      - the monitor’s primary responsibility is to assess and monitor a corporation’s compliance with the terms of the underlying agreement between the parties: deferred prosecution agreements, non-prosecution agreements or plea agreements;

      - the monitor’s role is not to investigate historical misconduct;

- the monitor is an independent third-party and not an employee or agent of either the government or the company; and

- the underlying agreement should usually have provisions allowing for the extension or reduction of the monitor’s terms, depending on the company’s performance under the agreement.

While the Morford Memo doesn’t provide a uniform selection process for DOJ components, including the Fraud Section, it does address certain aspects of the process.  For example, the memo provides that each DOJ component should establish either a standing or ad hoc committee to consider monitor candidates and the Office of the Deputy Attorney General (DAG) must approve the monitor.  The memo essentially leaves it to each DOJ component to devise a mechanism for monitor selections and even allows that each office may alter its selection methodology depending on the facts of a given case.  This lack of clarity is curious, especially in light of the scandal involving the selection of monitors by the US Attorneys Office in New Jersey and the subsequent Congressional pressure that prompted the writing of the memo in the first place.

Unfortunately for FCPA-geeks (and, I use that term lovingly), the Fraud Section has not yet issued a formal statement in response to the Morford Memo.  That said, perhaps the most important part of the Fraud Section’s selection process is settled; the section apparently has decided that it will allow companies to choose their monitors in the first instance, as opposed to having the Fraud Section make the choice.   This is a tremendous boon to companies forced to accept a monitor as they will be able to interview monitor candidates and find one they feel comfortable with. 

Companies will not have unfettered discretion over their monitor choice.  The choice still will be subject to Fraud Section veto if he or she doesn’t meet certain criteria such as: (1) sufficient FCPA experience; (2) sufficient independence from the company, (3) a good reputation in the professional community; and (4) the quantity and quality of resources needed to carry out the tasks expected of monitors.  It should not be a challenge for a company to find a FCPA practitioner it is comfortable with and that the Fraud Section will accept.  However, companies should realize that the Fraud Section, by virtue of being involved with every FCPA case in the country, is probably in a better position than any other entity to know which alleged FCPA experts really are qualified in this area.  (These days, of course, there are even more lawyers advertising their FCPA expertise than those claiming to have gone to law school with President Obama).  Therefore, to avoid a Fraud Section veto, companies should question the potential candidate hard about their FCPA qualifications and even ask other known experts in the field their opinion of the candidate and the likelihood that the Fraud Section will accept them.   

Other aspects of the monitor selection process still require clarification.  I expect that the Fraud Section will make known their formalized process over the next few months.  That process, at a minimum, will consist of some sort of committee for monitor selection and a method for passing the section’s decision on to the DAG’s office.  The Fraud Section and the DOJ as a whole now realize that the more transparency they bring to the monitor selection process, the greater chance they have of avoiding having the process controlled by the courts or legislated by Congress.”

 

 

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Friend or Foe? Selecting a Compliance Monitor

Comments 3

  1. We’re Baaaack…Compliance Monitors 2.0 « TRACE blog

    […] The Ashcroft controversy spurred a Congressional investigation and led the DOJ to publish a memorandum in 2008 known as the “Morford Memo”, which set out guidelines on the selection and use of compliance monitors in deferred prosecution agreements.  (For more on the Morford Memo, see this previous post from TRACE blog: Friend or Foe? Selecting a Compliance Monitor) […]

  2. We’re Baaaack…Compliance Monitors 2.0 « TRACE blog

    […] The Ashcroft controversy spurred a Congressional investigation and led the DOJ to publish a memorandum in 2008 known as the “Morford Memo”, which set out guidelines on the selection and use of compliance monitors in deferred prosecution agreements.  (For more on the Morford Memo, see this previous post from TRACE blog: Friend or Foe? Selecting a Compliance Monitor) […]

  3. We’re Baaaack…Compliance Monitors 2.0 « TRACE blog

    […] The Ashcroft controversy spurred a Congressional investigation and led the DOJ to publish a memorandum in 2008 known as the “Morford Memo”, which set out guidelines on the selection and use of compliance monitors in deferred prosecution agreements.  (For more on the Morford Memo, see this previous post from TRACE blog: Friend or Foe? Selecting a Compliance Monitor) […]

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