Corporate monitorships are back on the agenda under the Biden-Harris Administration in the United States. Companies facing a monitorship have an important undertaking ahead that will shape the outcome of the pending monitorship and the future of the company.1 This article is largely directed toward financial-services companies and the leadership, boards and counsel who advise them but could apply to other industries as well.

A lot has been written about corporate monitors and monitorships—how they have come to be, how the selection process works and how they operate under various enforcement agreements. The focus of this article, however, is on what to look for when selecting a corporate monitor.

Background

Monitorships typically come through enforcement orders and agreements.2 The terms of the monitorship are set forth in the underlying agreement, including the length, scope and requirements. The terms will vary depending on the particular facts and circumstances but are largely driven by the kind of wrongdoing that the impacted company engaged in—who was involved, the nature of the regulatory breach, whether the company had a compliance program, the efficacy of that program and the findings that have arisen therefrom.

In 2008, Craig S. Morford, then-acting deputy attorney general for the U.S. Department of Justice (DOJ), issued guidance in a memorandum entitled “Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations.”3 Since that time, the guidance has been modified a number of times.4 Throughout the Obama Administration, the DOJ’s use of corporate monitors grew significantly, particularly in the aftermath of the financial crisis.5 However, in 2018, under the Trump Administration, the approach to using monitors changed, with an increased focus on addressing the question of whether, and under what circumstances, a monitor is needed in an individual case. Brian A. Benczkowski, then-assistant attorney general for the DOJ’s Criminal Division, wrote in a memorandum to all Criminal Division personnel that the “Division should favor the imposition of a monitor only where there is a demonstrated need for, and a clear benefit to be derived from, a monitorship relative to the projected costs and burdens”.6 Practitioners largely viewed this pronouncement as establishing a presumption that “a corporate monitor should be regarded as the exception rather than the rule”.7 To that end, in 2020, the DOJ did not require the appointment of a single independent corporate monitor in any of its settlement agreements.8

Much has been written about anticipated changes at the DOJ under the new administration and with the appointment of Attorney General Merrick Garland. Most commentators agree that under the Biden DOJ, there will likely be an increase in the number of new investigations and in the imposition of corporate monitorships when the government identifies significant criminal violations of law by companies.9 In short, monitorship will remain an important tool in the DOJ’s arsenal of enforcement.

What to look for when selecting a monitor

As noted, this article does not address ways to avoid a monitorship when an enforcement action is underway. It assumes that this debate is over, and the selection process has begun.

The Morford Memorandum outlines the process and criteria for selecting a monitor in its first principle:

The monitor must be selected based on the merits. The selection process must, at a minimum, be designed to: select a highly qualified and respected person or entity suitable for the assignment and all the circumstances; (2) avoid potential and actual conflicts of interest, and (3) otherwise instill public confidence by implementing the steps set forth in this principle.10

The relevant commentary suggests that the government and the impacted company should discuss and come to an agreement on what qualities, expertise and skills the monitor should have.11 It also recognizes that while attorneys may have the appropriate skills, other practitioners, “such as accountants, technical or scientific experts, and compliance experts, may have skills that are more suitable when serving as a monitor under the particular agreement”.12 

Subsequent DOJ guidance has supplemented the Morford Memorandum with additional direction addressing the selection and qualifications of the monitor. On June 24, 2009, then-assistant attorney general Lanny A. Breuer issued a memorandum entitled “Selection of Monitors in Criminal Division Matters”.13 In addition to specifically adding the requirement that counsel for the impacted company recommend to the DOJ a pool of three qualified monitor candidates, counsel should also provide a description of each candidate’s qualifications and credentials to support the recommendation.14 The guidance also permits the company to “express a preference and/or identify the monitor candidate among the pool that is its first choice to serve as the monitor”.15 Further, Criminal Division attorneys when making a recommendation within the DOJ on the selection of the monitor should consider:

  1. each monitor candidate’s general background, education and training, professional experience, professional commendations and honors, licensing, reputation in the relevant professional community and past experience as a monitor;
  2. each monitor candidate’s experience with the particular area(s) at issue in the case under consideration and experience in applying the particular area(s) at issue in an organizational setting;
  3. each monitor candidate’s degree of objectivity and independence from the company so as to ensure effective and impartial performance of the monitor’s duties;
  4. the adequacy and sufficiency of each monitor candidate’s resources to discharge the monitor’s responsibilities effectively; and
  5. any other factor determined by the Criminal Division attorneys, and by the circumstances, to relate to the qualifications and competency of each monitor candidate as they may correlate to the tasks required by the monitor agreement and nature of the business organization to be monitored.16

Subsequent DOJ guidance, although materially updating the principles for determining whether a monitor is needed in a particular case, left largely intact the Morford and Breuer Memoranda guidance on the criteria for monitor selection.

In short, the DOJ guidance requires that a potential monitor should have the background, experience, resources and independence to qualify and to serve effectively. With the Breuer Memorandum, the impacted company has the important opportunity to influence the choice of monitor, without any compromise of monitor independence—something those companies should fully leverage.

General qualifications and background

In addition to understanding a candidate’s general background, education, professional experience, licensing and past experience as a monitor, there is more information the impacted company and its counsel should consider before presenting its nominations. For example:

  • Has the candidate served previously as a monitor who covered the issues at stake in the current matter? Similarly, has the candidate worked as a government attorney, outside counsel for a company or relevant officer, employee or director of a company at which the issues were substantially similar? Ask the candidate for a history of monitorships, independent consultancies and regulatory-action remediation engagements.
  • Does the candidate have references from either a previously monitored company or its counsel? If so, undertake those reference checks.
  • If the candidate conducted any prior monitorships, did any result in a satisfactory outcome for both the company and the government? Have the candidate generally describe those outcomes.
  • Has the candidate advised or consulted with companies regarding similar issues? Understand the capacity, the industry and the issues at stake.
  • Does the candidate have the ability to organize and direct the team that would be supporting the monitorship?
  • How knowledgeable is the candidate about the industry, product and regulatory requirements for the matter at issue?
  • Does this monitorship require the engagement of someone who deeply understands the operational components of the businesses in that industry or has access to those kinds of resources? Does the candidate have the appropriate domain knowledge to understand the company, the business paradigm and the industry in which the company competes?
  • Will the candidate personally engage in the monitorship process as the team develops its recommended findings or conclusions? Direct involvement by the designated monitor ensures that the company receives the expertise and leadership for which it contracted.
  • Is the candidate capable of offering practical observations to the impacted company that would help it address the underlying issues at stake?
  • Will the monitor abide by either the International Association of Independent Corporate Monitors’ Code of Professional Conduct or the American Bar Association’s Standards for Criminal Justice Monitors and Monitoring?17
Resources and approach

After concluding that the candidate has the general background, experience and qualifications to serve as a monitor, inquiring about the candidate’s team, resources, bench strength and expertise beyond the monitor him/herself are important considerations when determining whether to nominate a particular candidate. Put another way, selecting the individual monitor is important, but understanding who the team is that will support this work and its methodology is just as important. Although an individual monitor is accountable for the overall engagement, much of the outcome of the monitorship is dependent on the team that supports the overall engagement. The ability to tap a diverse team of experts and practitioners should be of paramount concern when nominating a monitor. Assessing what is actually needed—whether it be experts, operators, accountants, compliance professionals or practitioners who understand the business, the challenges and common practices in the industry—will drive a better outcome. Reviewing the resumes and backgrounds of individual potential team members will also provide a window on the depth and breadth of the team that would support the monitor. Questions to ask or areas to consider when evaluating a candidate’s available resources and likely approach may include:

  • Does the group or firm that would support the monitor (the monitor team) have a reputation for independence and integrity with clients, law enforcement and regulators?
  • Does the monitor team work in the same organization as the monitor? What sort of oversight and supervision does the monitor have for the monitor team?
  • Have members of the monitor team served as senior regulators in the particular industry of the impacted company?
  • Do members of the monitor team have the appropriate certifications, degrees and demonstrated experience in the chosen field to support this engagement?
  • Most monitorships require the ability to use, manipulate and analyze data. Are the appropriate data scientists and the like who can support this engagement available?
  • Will the members of the monitor team have an understanding and working knowledge of operating systems and other technology in use at the company and in the industry? Do team members have that necessary background, or is the monitor able to access that talent as needed?
  • Will appropriate project-management resources be provided? A monitorship is an enormous burden on the impacted company. Having an effective project manager who coordinates the daily engagement and serves as an appropriate gatekeeper to avoid duplicative efforts and requests can help minimize that burden.
  • Have members of the monitor team worked together previously, and will they remain together throughout the engagement? Although turnover is not usual for extended engagements, understanding team members’ tenure as a group is important. Further, understanding and gaining commitment from the monitor candidate and the monitor team that there will be continuity in staffing will help ensure stability and predictability.
  • What standard reporting will the monitor team use, what is the frequency of such reporting, and what interaction model will the team use when working?
  • How will the monitor team vet findings, recommendations or observations? How will the monitor team validate factual conclusions with the impacted company before those conclusions are finalized?
  • What are the billing practices and related policies of the monitor and the monitor team?
Independence

 With respect to issues surrounding independence, DOJ guidance is clear and has remained unchanged.18 Objectivity and independent judgment are important to “ensure effective and impartial performance of the monitor’s duties”.19 What is not stated in the DOJ guidance is that although the monitor is ultimately accountable to the DOJ for the quality of the work undertaken, the monitor is also independent of both the government and the company and is there to provide thoughtful, unbiased and measured conclusions consistent with his/her overall mandate as outlined in the agreement. Thus, the monitor must be neither an agent of the government nor the company but instead must rely on his/her expertise and the expertise of the monitor team to render a balanced and impartial assessment of the company’s compliance with its obligations under the agreement.

When considering a particular candidate to serve as a monitor, it is important to know whether that candidate and the monitor team will approach issues and the task itself with curiosity and inquisitiveness as opposed to judgment and fixed conclusions. Gathering all of the facts and approaching issues without bias or a predetermined view of the state of a program will ensure fairness in the process. So much rides on the final conclusions of the monitor; accordingly, it is important that the monitor approaches all issues with a willingness to learn, gather facts and collect input from others before rendering any conclusions.

Finally, often independence requires stature—that is, stature to effectively stand by the final conclusions of the monitor even in the face of vigorous opposition. If the monitor has approached all issues with an open mind, rigorous analysis and transparent reasoning, independence requires that he/she remain steadfast in his/her conclusions or findings, regardless of from where pushback comes. That is, in essence, the nature of the role.

Conclusion

Impacted companies must use the opportunities they have to nominate and prioritize their choices of monitors carefully and deliberately.

As Seen in International Banker June 2021

References and additional notes

1 A corporate monitorship places on the party undergoing the monitorship an independent monitor who provides oversight of that company as required by a deferred prosecution agreement, non-prosecution agreement or another type of settlement agreement with the government. See also:Corporate Compliance Insights: “Corporate Monitorship 101: Who Are They, and What Can You Expect?”, Jay Rosen, April 26, 2019. (https://www.corporatecomplianceinsights.com/corporate-monitorship-101-who-they-are-and-what-you-can-expect/)
2 For purposes of simplicity, this article will largely reference the process adopted by the U.S. Department of Justice for the imposition of a monitor under either Deferred Prosecution Agreements (DPAs) or Non-Prosecution Agreements (NPAs), but many of the ideas outlined herein can apply in other enforcement action orders and agreements when an independent monitorship or consultancy is required.
3 U.S. Department of Justice: Morford Memorandum: “Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations,” Memorandum from Craig S. Morford, Acting Deputy Attorney General, DOJ, March 7, 2008. (https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf)
4 See discussion below.
5 Forbes: “Rethinking Corporate Monitors: DOJ Tells Companies To Mind Their Own Business,” Robert Anello, October 15, 2018. (https://www.forbes.com/sites/insider/2018/10/15/rethinking-corporate-monitors-doj-tells-companies-to-mind-their-own-business/?sh=4567a33c5b41)
6 U.S. Department of Justice: Benczkowski Memorandum: “Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the Global Investigations Review Live New York,” Brian A. Benczkowski, Assistant Attorney General, DOJ, October 8, 2019. (https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-global-investigations)See also: Harvard Law School Forum on Corporate Governance: “The DOJ’s New Corporate Monitor Policy,” Ronald C. Machen, Erin G.H. Sloane and Emily Stark, Wilmer Cutler Pickering Hale and Dorr LLPNovember 5, 2018. (https://corpgov.law.harvard.edu/2018/11/05/the-dojs-new-corporate-monitor-policy/)
7 American Bar Association: ABA Practice Points: “DOJ Highlights New Guidance on Corporate-Compliance Monitors Among 2018 Achievements,” Eileen H. Rumfelt, April 11, 2019 (https://www.americanbar.org/groups/litigation/committees/criminal/practice/2019/doj-highlights-new-guidance-on-corporate-compliance-monitors-among-2018-achievements/)
8 Corporate Compliance Insights: “The Curious Absence of Corporate Monitors: When is the Benefit for a Monitorship Clear?”, Michael Volkov, January 27, 2021. (https://www.corporatecomplianceinsights.com/curious-absence-corporate-monitors/)
9 Skadden: “Biden Administration Signals Its Intention To Be Tougher on Corporate Crime,” David Meister, Jocelyn E. Strauber, Ernie E. Butner IV, Andrew C. Stavish, January 26, 2021. (https://www.skadden.com/insights/publications/2021/01/2021-insights/litigation-controversy/biden-administration-signals-its-intention)
10 See Morford Memorandum at Reference 3.
11 Id.
12 Id.
13 U.S. Department of Justice: Breuer Memorandum: “Selection of Monitors in Criminal Division Matters,” Memorandum from Lanny A. Breuer, Assistant Attorney General, DOJ, to All Criminal Division Personnel, June 24, 2009. (https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/response3-supp-appx-3.pdf)
14 Id.
15 Id.
16 Id.
17 IAICM: International Association of Independent Corporate Monitors: Code of Conduct. (https://iaicm.org/about-independent-corporate-monitors/code-of-conduct/See also: American Bar Association: Criminal Justice Standards: Monitors Standards. (https://www.americanbar.org/groups/criminal_justice/standards/MonitorsStandards/)
18 See Morford Memorandum at Reference 3, Breuer Memorandum at Reference 13, Benczkowski Memorandum at Reference 6.
19 See Benczkowski Memorandum at Reference 6.

Author

John P. Carey

John Carey, Senior Managing Director with Treliant, is an accomplished banking executive and attorney with a broad mix of business, regulatory, legal, corporate governance, compliance, and management experience in major consumer financial services companies, at a national law firm, and in government service. He is particularly strong in addressing and…