For the past three years, an increasing number of companies have avoided conviction in cases brought by the Department of Justice (DOJ) by entering into deferred prosecution agreements (DPAs) or nonprosecution agreements (NPAs)1. A standard provision of these agreements is the appointment of a "monitor" who is tasked with supervising the company's compliance with the terms of the agreement and reporting to the government the company's pro gress under, or its breach of, the agreement. Traditionally, the monitor has been selected by the govern - ment with blind acceptance by the company. More recently, due to controversies and potential conflicts surrounding such lucrative appointments, DOJ has attempted to provide guidance for the selection of the monitor. Among other things, the new guidelines provide companies with the opportunity to select their own independent corporate monitor, with approval of that monitor coming from the Deputy Attorney General, and not U.S. attorneys and assistant attorneys general.

Will the institution of DOJ guidelines for the selection of a monitor provide the guidance and transparency needed to avoid future controversies? In examining this new trend, this article provides a brief overview of the history and purpose of DPAs, the standards for selection of the monitor who is charged with enforcing those agreements, and a brief discussion of Willbros Group Inc., one of the first cases to include guidelines for the selection of a corporate monitor in the DPA in light of the recently issued DOJ guidelines. This article also will discuss a recent change to the U.S. Attorney's Manual addressing language in DPAs, NPAs, and plea agreements providing for "extraordinary restitution" to unrelated third parties. In the past, these third parties were usually selected because of their relationship with the corporate monitor or prosecuting attorney, and not because they were harmed in any way by the criminal conduct of the defendant.

In 2003, two catalysts sparked a surge of DPAs2: the post-indictment collapse of Arthur Andersen, which was reportedly offered a DPA but refused the conditions, and the issu - ance of a memorandum from thenacting Deputy Attorney General Larry Thompson describing the nine factors DOJ considers in corporate charging decisions.3 The Thompson Memorandum—also at the center of the controversy concerning DOJ's requiring corporate waivers of the attorney-client privilege and workproduct protection—expressly provided that there would be situations in which a corporation's cooperation might make "pretrial diversion" an option. In order to provide some consistency in how companies were determined to be eligible for "pretrial diversion," Thompson articulated nine factors that could be used in deciding whether to offer a company a DPA. In addition to the factors normally considered by a prosecutor, which include the sufficiency of the evidence; the likelihood of success at trial; the probable deterrent, rehabilitative, and other consequences of conviction; and the adequacy of noncriminal approaches,4 the nine factors are:

  1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable polices and priorities, if any, governing the prosecution of corporations for particular categories of crime;

  2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management;

  3. the corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it;

  4. the corporation's timely and voluntary disclosure of wrong doing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorneyclient and work product protection;

  5. the existence and adequacy of the corporation's compliance program;

  6. the corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrong - doers, to pay restitution, and to cooperate with the relevant government agencies;

  7. collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally culpable and impact on the public arising from the prosecution; and [sic]

  8. the adequacy of the prose - cution of indivi duals respon s ible for the corporation's malfeasance; [and]

  9. the adequacy of remedies such as civil or regulatory enforcement actions.5

All of these factors, however, were intended only to guide prosecutors in their decision of whether to prosecute a corporation, as Thompson's list was not "complete" or "exhaustive."6 In 2006, then-acting Deputy Attorney General Paul McNulty issued a memorandum highlighting the same nine factors, but the only additional guidance provided by the McNulty Memorandum was a more detailed discussion of waiver provisions in DPAs.7 At that time, there was no additional guidance on how corporate monitors would be selected, or what particular qualifications were necessary for appointment. In most cases, the selection of corporate monitors appeared to be at the whim of prosecutors, which led to increased scrutiny of the process.8

The primary purpose of a DPA is to provide a company with time to prove that it has reformed itself into a good corporate citizen; however, the task of determining whether such reformation has taken place is often complex and time-consuming. For example, the process may involve reviewing and testing the company's compliance, accounting, information management, and internal control functions. This clearly demands expertise and time that is often far beyond the resources of prosecutors. As a result, corporate monitors are appointed to oversee the adoption and implementation of best practices in all areas. And because each agreement is different, the breadth of the corporate monitor's authority has varied from one case to the next. Internally, in March of this year, DOJ responded to these variations, and the outcry for reform of the corporate monitor selection process, with yet another memorandum, this one by Deputy Attorney General Craig Morford, that established departmental guidelines for the use of corporate monitors in DPAs.9 The Morford Memorandum provides that corporate monitors are needed to ensure, among other things, that corporations operate lawfully and have the capacity to detect, deter, and respond to misconduct, and it lists nine "Principles" that are to be used in the selection and use of monitors in DPAs. The principles are:

  1. 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 . . . .

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 . . . [and] 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 . . . . [T]he Office of the Deputy Attorney General must approve the monitor . . . [and] 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 . . . . [T]he Government should [also] 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;

  1. A monitor is an independent third-party, not an employee or agent of the corporation or of the Government;

  2. 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;

  3. 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;

  4. Communications 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 Govern - ment and the corporation;

  5. 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;

  6. 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;

  7. The duration of the agreement should be tailored to the problems that have been found to exist and the types of remedial measure needed for the monitor to satisfy his or her mandate; and

  8. 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.10

The Morford Memorandum also provides that "[p]rosecutors 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," so that a copy of the agreement can be sent to the Deputy Attorney General for the Criminal Division upon its execution. 11 This is the first time there has been any such requirement, as prosecutors had been able to appoint corporate monitors at their own discretion.

On May 14, 2008, subsequent to the issuance of the Morford Memorandum, Willbros Group, Inc. entered into a DPA and agreed to pay a $22 million penalty for violations of the Foreign Corrupt Practices Act (FCPA).12 The sixcount criminal information that was filed against the company charges Willbros with one count of conspiring to make bribe payments to Nigerian and Ecuadorian officials, two counts of violating the FCPA in connection with the authorization of specific corrupt payments to officials in those countries, and three counts of violating the FCPA by falsifying books and records relating to corrupt payments and a tax fraud scheme. Although the Willbros DPA includes provisions on the appointment of an independent corporate monitor, Willbros, not the government, is charged with locating an appropriate candidate who will serve as monitor.13 The Willbros DPA provides that the monitor "shall have, at a minimum . . . demonstrated expertise with respect to the FCPA . . . experience designing and/or reviewing corporate compliance policies, procedures and internal controls, including FCPA-specific policies, procedures and internal controls . . . and sufficient independence from [Willbros] to ensure effective and impartial performance of the Monitor's duties . . . ."14 Under the terms of the agreement, the government may oppose the monitor selected by Willbros, but it is Willbros that would be required to find another suitable candidate.15 This is a far cry from the past appointments of generally any former judge, prosecutor, or government official, no matter what their backgrounds or qualifications. The Willbros DPA also includes an attachment dedicated to the provisions that will govern Willbros's relationship with the appointed monitor, and the provisions echo the nine Principles of the Morford Memorandum.16

In another more recent development concerning DPAs and NPAs, in response to the past controversy surrounding these agreements, another memorandum has been issued by the Department of Justice regarding "extraordinary restitution."17 The Filip Memoran - dum amends the U.S. Attorney's Manual and provides that "[p]lea agreements, [DPAs] and [NPAs] should not include terms requiring the defendant to pay funds to a charitable, educational, community, or other organization or individual that is not a victim of the criminal activity or is not providing services to redress the harm caused by the defendant's criminal conduct." 18 Pursuant to the memorandum, corporate defendants are still allowed to make unilateral decisions to make such payments, but "extraordinary restitution" is "restricted because it can create actual or perceived conflicts of interest and/or other ethical issues," as "restitution is [not] intended . . . to provide funds to an unrelated third party."19 As Congress continues to address issues regarding conflicts of interest and DPAs and NPAs, more developments, and possibly legislation, are sure to follow.

Footnotes

1.See Eric Lichtblau, Leniency for big corporations in the U.S., International Herald Tribune, April 9, 2008, http://www.iht.com/articles/2008/04/09 /business/justice.php ("In a major shift of policy, the Justice Department . . . put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.").

2 See, e.g., John C. Coffee, Deferred Prosecution: Has It Gone Too Far?, Nat'l L.J., July 25, 2005, at 13.

3 Memorandum from Larry D. Thompson to Heads of Department Components and U.S. Attorneys Re: Principles of Federal Prosecution of Business Corporations, January 20, 2003, http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm.

4 Id. at 2.

5 Id. at 3.

6 Id.

7 Memorandum from Paul J. McNulty to Heads of Department Components and U.S. Attorneys Re: Principles of Federal Prosecution of Business Organizations, December 12, 2006, http://www.justice.gov/dag/speeches/2006/ mcnulty_memo.pdf.

8 See Lichtblau, supra note 1 ("DPAs have become controversial because of a medical supply company's agreement to pay up to $52 million to the consulting firm of John Ashcroft, the former attorney general, as an outside monitor to avoid criminal prosecution. That agreement has prompted congressional inquiries and calls for stricter guidelines."); see also Edward F. Malone & Justin C. Steffen, The Future of Deferred Prosecution Agreements: Congress Tries a Little Oversight, BNA White-Collar Crime Report, May 9, 2008, Vol. 3, No.10

10.Memorandum from Craig S. Morford to Heads of Department Components and U.S. Attorneys Re: Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations, March 7, 2008, http://0225.0145.01.040/dag/morford -useofmonitorsmemo- 03072008.pdf.

10.Id. at 3-8.

11.Id. at 2.

12.USDOJ.GOV, Willbros Group Inc. Enters Deferred Prosecution Agreement and Agrees to Pay $22 Million Penalty for FCPA Violations, http://www. (usdoj.gov/opa/pr/2008/May/08_crm_417.htmllast visited June 12, 2008).

13 See Corporate Crime Reporter, Willbros Gets Bribery Prosecution Deferred, 22 Corporate Crime Reporter 20, May 14, 2008, www.corporatecrimereporter.com/documents/ willbrosd pa.pdf.

14 Id. at 13.

15 Id. at 13-14.

16 Id. at 51-60.

17 Memorandum from Mark Filip to Holders of the U.S. Attorneys' Manual Re: USAM 9- 16.325: Plea Agreements, Deferred Prosecution Agreements, Non-Prosecution Agreements and "Extraordinary Restitution," May 14, 2008, http://amlawdaily.typepad.com/amlawdaily /files/extraordinary_restitution_attach.pdf.

18 Id. at 1.

19 Id.

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