DOJ’s New Policy on Independent Monitors—Time to Beef Up Compliance

The Department of Justice’s new guidance regarding the appointment of corporate monitors could significantly change the dynamics for companies dealing with the important element of corporate compliance. Although the new guidance is couched as simply supplementing prior DOJ guidance in the “Morford Memo,” it could be a difference maker—it requires prosecutors to carefully weigh the monetary costs, as well as the burdens to a company’s operations, in deciding whether a monitor is required as a condition of a negotiated settlement with DOJ and, if necessary, to tailor the scope of the monitorship as narrowly as possible. The policy shift therefore creates opportunities for institutions to potentially avoid the imposition of a monitor if they redouble compliance efforts before winding up in DOJ’s cross-hairs. This article explores key takeaways to consider as a result of the DOJ’s new approach.

Cost-Benefit Analysis in the New Guidance

The new guidance was unveiled last month by Brian Benczkowski, the assistant attorney general in charge of DOJ’s criminal division who supplemented the Morford Memo. This latest guidance explicitly states that the only time a monitor should be imposed is where there is a demonstrated need for a monitor, and where there is a clear benefit that will outweigh the projected costs and burdens of the monitorship. Although the Morford memo recommended that prosecutors consider the potential benefits versus the cost and burden of imposing a monitor, the new guidance articulates more detailed factors that should be considered when making that cost-benefit analysis. Specifically, the new guidance states that in evaluating the potential benefits of a monitor, prosecutors should consider:

• whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;
• whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
• whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and
• 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.