Friday, January 11, 2008
A standard feature of most deferred and non-prosecution agreements involving corporations is the appointment of an outside monitor to ensure the company's compliance with the terms of the settlement, which often includes increased internal controls and other changes to the line of business that triggered the investigation. These agreements have become the norm these days, and hardly a month goes by without an announcement that a case has been resolved and a monitor appointed. There are no rules related to DPAs, with each U.S. Attorney's Office and the Department of Justice sections pretty much on their own regarding the particulars of the agreement. The "Wild West" aspect may be coming to an end, however, as the Department disclosed that it is looking at adopting internal guidelines for the selection of monitors and the standards for entering into DPAs. This comes on the heels of Congressional pressure to rein in the discretion of U.S. Attorneys, specifically the U.S. Attorney in New Jersey, who picked the monitors for five medical implant suppliers as a condition of settling a case involving improper kickbacks. The tipping point was the revelation that one of the five, former Attorney General John Ashcroft, the monitor for Zimmer Holdings, will be paid anywhere from $29 million to $52 million for the work by his firm. These positions can be quite lucrative, and as I discussed in an earlier post (here), the monitored company has little leverage in controlling the costs of the monitorship because it has a powerful incentive to cooperate at almost any cost to get out from under the DPA.
Congress has started to weigh in on the matter. Letters from the chairmen of the House and Senate Judiciary Committees to Attorney General Mukasey seek information about the appointment of monitors. Senator Leahy's letter (here) states, "Please provide the Judiciary Committee with a list of all contracts, including dollar amounts, awarded since 2001 to outside lawyers retained by companies for monitoring compliance with out-of-court settlements reached in criminal investigations between companies and the Department. Please also explain the procedure followed to select the person or firm monitoring compliance." The monitors work for the company, not the federal government, so it is unlikely the Department of Justice has access to most contracts for serving as a monitor. The Department has little interest in getting involved in such details, so to gather that information the Committee may have to contact each company, a much more laborious process. Regarding the procedure for selection, the simple answer is that there does not appear to be one, or at least each district has its own process. The promise of Congressional hearings will likely push the Department of complete its internal guidelines as soon as possible to avoid having legislation proposed on the issue.
One appeal of DPAs has been the fact that they are subject to almost no outside oversight: the judiciary does not become involved in the negotiation or approval of the agreement because it is only a contract between the parties, and there have been no general guidelines by the Main Justice about what types of cases are appropriate for resolution by a DPA. That will change in the near future now that the agreements, especially the appointment of monitors, has come under greater scrutiny. An interesting question will be whether greater regulation means these agreements will be used less frequently. A Newark Star-Ledger story (here) discusses the situation. (ph)