Tuesday, March 11, 2008

Commentary on Government's Last Effort to Save Face on Corporate Monitoring

Today is the Subcommittee on Commercial and Administrative Law hearing on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" (see here)  And on the eve of this hearing, the DOJ has issued a new memo on the selection and use of monitors in deferred prosecution agreements.(see here).  But what exactly does this new memo do, and does it alleviate the issues that have arisen with respect to these agreements.

Clearly this memo provides some internal oversight by main justice when a monitor is being appointed. Perhaps the best aspect of this memo is that it provides that the Deputy AG must approve a monitor. It also creates a standard of a "reasonable person to question the monitor's impartiality"  and precludes an association between the monitor and corporation for a period of time following the completion of the monitoring relationship. Clearly these provisions are a step in the correct direction.

But the memo fails to go far enough in many respects. For example:

  • The memo emphasizes that it is merely internal guidance, and outside parties have no ability to enforce the statements in the memo. Like most DOJ guidelines, there is no remedy when the government fails to abide by its internal guidelines.
  • The choice of the monitor, the control of the monitor, and the communication by the monitor is all within the government.  Perhaps in the case of a non-prosecution agreement an argument can be made that there is no body for oversight.  But when a case has been filed in the courts, and a deferred prosecution agreement is reached, it seems fairer to have the neutral magistrate in the role of selecting the individual for this position.
  • Monitors should not be seen as working for the DOJ, yet the memo even goes so far as to say that "the 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."

This memo emphasizes a basic flaw in many deferred prosecution agreements.  In many instances, the agreements are not contractually valid and are lopsided agreements that basically provide for the corporation becoming an investigator and agent of the DOJ. Deferred prosecution agreements contain terms that place exclusive power in the hands of the government, even for determining whether a breach of the agreement has occurred. (See Zierdt & Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing, 96 Kentucky LJ (2007)) 

Congress is right to be holding hearings here.  If the best that the government can offer is more DOJ control, then Congress needs to intervene with legislation.

(esp)

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