When white collar criminal prosecutions against corporate entities are settled, the U.S. Department of Justice (“DOJ”) will often require, as part of the settlement agreement, that the defendant entity retain an independent corporate monitor. In fact, over the past five years approximately one in three corporate resolutions have imposed monitor requirements.
1. Standard. According to the new guidance, monitorship shall only be required where there is a clear need for a monitor and the benefits of a monitor outweigh the financial and business burdens to the corporation.
2. Scope. While the new guidance is intended, in part, to decrease the DOJ’s dependence on monitors, it does broaden the scope of the monitorship program to apply not only to non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”), but also to court-approved plea agreements.
3. Aggravating Factors. In considering whether to impose a monitor, the following aggravating factors will weigh in favor of monitorship:
- Corporate manipulation of books and records;
- Corporate exploitation of an inadequate compliance program or internal control systems;
- Pervasive misconduct across the corporation; and
- Facilitation or approval of misconduct by senior management.
4. Mitigating Factors. In contrast to the aggravating factors listed above, the following factors are likely to weigh against a monitorship:
- Significant investments in the corporation's compliance program and internal control systems to remediate misconduct;
- Demonstrated improvements of the corporation's compliance program and internal control systems since the misconduct ocurred;
- Improvement of the entity's corporate culture;
- Removal of corporate leadership responsible for the misconduct; and
- Termination of business relationships and practices that contributed to the misconduct.
5. Terms and Conditions. All DPAs, NPAs, and plea agreements with the DOJ that require monitorship will include the following components:
- A description of the monitor's required qualifications;
- A description of the monitor selection process;
- A description of the process for replacing a monitor, if necessary;
- A stipulation that the monitor shall be selected within sixty days;
- An explanation of the monitor's responsibilities and scope of work; and
- A defined monitorship term.
6. Selection Process. At the outset, a corporation must identify three qualified monitor candidates and provide each candidate’s qualifications and a written certification that the candidates do not present a conflict of interest. Thereafter, the DOJ will review each candidate’s qualifications and ability to oversee the entity’s compliance program, and select the monitor based on the particular circumstances surrounding the misconduct.
Be sure to check back in with us next week as we examine international corporate compliance requirements.
About the Authors
Downrange authors Jennifer S. Huber, Adam Munitz, and Lidiya Kurin are members of FH+H's International Trade + Transactions Practice. Focusing primarily on the defense, security, and intelligence sectors, Jennifer, Adam, and Lidiya help businesses translate their domestic successes into overseas growth and assist foreign entities with sensitive investments in, and acquisitions of, U.S. businesses.
Additional information regarding their capabilities and previous representations can be found here.
- ￩ Previous: Five Things You Should Know About ... The Foreign Agents Registration Act ("FARA") Filing and Labeling Requirements