The baseball playoffs are here and the Houston Astros are up in Beantown to open the American League Championship Series (ALCS) against the Boston Red Sox. The Astros won an ugly Game 1 in spite of our starter and Number 1 ace Justin Verlander’s meltdown in the 5thinning, walking four, with two wild pitches to give up two runs to tie the game in that inning. However the game may have turned on the final batter in that inning who took a clear call third strike and then whined, moaned and complained about it so vociferously that the Red Sox Manager Alex Cora continued to do so from the dugout. It is not clear what Cora said, i.e. did he say one of the very few words you cannot say to an umpire in baseball, but he was tossed.

The Astros took the lead in the 6thand never looked back. With a Game 2 win against 0-9 in the playoffs David Price, the Astros will come home with a 2-0 lead and will look to close out the series in Houston. The Astros will then return to the World Series for the first back-to-back since the great Yankee run from the 1990s. Go Astros.

In a Corporate Compliance and Enforcement (PCCE) conference speech last week, at the NYU School of Law Program, Assistant Attorney General Brian Benczkowski announced that the Department of Justice’s (DOJ’s) criminal division has revised its guidelines on the imposition and selection of corporate monitors. This policy was made effective through the release of a memo from Benczkowski to all Criminal Division personnel on October 11th, (the “Benczkowski  Memo”) which supplements the prior Morford Memo on this subject.

The Morford Memo had two basic requirements for the selection of a monitor: (1) what were the potential benefits and (2) what would be the cost and the impact on a corporation. The Benczkowski Memo adds several factors prosecutors must consider including, “(a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems; (b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management; (c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and (d) 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.”

This means the DOJ should consider whether the environment which led to the underlying conduct violative of the Foreign Corrupt Practices Act (FCPA) still exists in an organization and whether the change in leadership and culture are enough to insure the company does not become a recidivist. The DOJ should also consider the actions taken against those involved in the illegal conduct, such as termination of employment or termination of business relationship. The DOJ must also evaluate the company’s “remedial efforts and the effectiveness and resources of its compliance program.”

The Benczkowski Memo sets out requirements for each monitor agreement, including a list of persons within the DOJ who must approve of the monitor. Whether required in a Deferred Prosecution Agreement (DPA), Non-Prosecution Agreement (NPA) or other agreement, there must also be a description of the monitor’s qualifications and the monitor selection process, together with a plan to replace the monitor, if required. There should be an explanation of the monitor’s scope and the length of the monitorship. The monitor selection process should be completed within 60 days.

The DOJ has set up a Standing Committee which will oversee the selection process and the monitor’s compliance with all applicable regulation and guidance. The Benczkowski Memo also lays out the nomination and selection process. The Company must certify the candidate is its “first choice” and describe the candidates qualification. The company must certify there is no conflict of interest and that it will not employ the monitor for up to two years after the monitorship concludes. There are also criteria for DOJ monitor selection listed and they include such areas as monitor expertise, reputation and past experience as a monitor. The specific expertise in an industry or areas of the monitorship will be considered as well as objectivity and independence. The monitor must also be able to adequately and sufficiently discharge their duties going forward.

The front-line DOJ prosecutor handling the matter and their supervisor(s) who make a monitor recommendation are required to prepare a memo to the Standing Committee on the following matters: (a) a brief statement of the underlying case; (b) a description of the proposed disposition of the case, including the charges filed (if any); (c) an explanation as to why a monitor is required in the case, based on the considerations set forth in this memorandum; (d) a summary of the responsibilities of the monitor, and his/her term; (e) a description of the process used to select the candidate; (f) a description of the selected candidate’s qualifications, and why the selected candidate is being recommended; (g) a description of countervailing considerations, if any, in selecting the candidate; (h) a description of the other candidates put forward for consideration by the Company; and (i) a signed certification, on the form attached hereto, by each of the Criminal Division attorneys involved in the monitor selection process that he/she has complied with the appropriate conflicts-of-interest guidelines. All of the above must be approved by the Standing Committee, the Assistant Attorney General over the division and the Deputy Attorney General.

The Benczkowski Memo answers many of the criticisms around monitors leveled years ago by companies when there was less transparency around the process. Over the past several years, the DOJ was worked to create greater transparency in the process for the parties involved, which has been accomplished. Others have argued for more public transparency in the process. The Benczkowski Memo appears to answer that recent criticism, and, to that extent, provides greater certainty to the process, which is certainly a positive. In the area of FCPA enforcement, this DOJ has continued its policy of consolidating how the Fraud Section has been working for some time.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

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