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Corporate Monitorships Delayed as Justice Department Vets Picks

Sept. 23, 2022, 8:45 AM

The Justice Department has yet to name compliance monitors for three companies that settled criminal probes by accepting independent reviews, potentially undercutting Biden administration efforts to enhance the widely-criticized enforcement tool.

Delays in each of the criminal monitorships announced since Biden took office range from four months following the DOJ’s plea deal with Glencore to a nine-month wait at NatWest Markets.

Department leaders have rejected some candidates nominated by companies, adding time to the selection process, and senior officials are scrutinizing individual decisions amid a study of monitorships ordered by the deputy attorney general, according to two sources familiar with the matter.

Delays mean monitorships will likely extend beyond the term of agreements that companies reached with the Justice Department. It could also impair the late-arriving monitors’ ability to support remediation, even as Deputy Attorney General Lisa Monaco has sought to improve public transparency and internal oversight of the monitorship process.

The “lack of symmetry” is “punitive to the companies,” said Sandra Moser, a white-collar defense partner at Morgan Lewis and chief of the DOJ Criminal Division’s fraud section from 2017-2019. “When the three years is up, assuming no breach, it should be up.”

In an interview on Wednesday, a DOJ official acknowledged the department’s rigorous screening has elongated the appointment process in some instances, but said companies are contributing to the delays in others.

On Thursday, the department’s criminal fraud section updated its website to reflect that Frances McLeod, a veteran compliance professional, has been chosen to monitor Balfour Beatty Communities, nine months after the housing contractor pleaded guilty to defrauding three branches of the US military.

Selection Process

The appointments, which bring legal community prestige and lucrative earnings potential, are highly coveted among Big Law partners.

Criminal Division policy requires companies to select a replacement nominee each time the department denies one of their three finalists, which can happen at many stages and for reasons such as insufficient experience or a conflict of interest. When picks are rejected, it takes time for a company to interview and vet new contenders. A department committee then reviews the updated slate, with the Criminal Division front office and deputy attorney general’s office ultimately signing off.

In the past, the DOJ tried to pick one monitorship team—out of a company-nominated slate of three options—in time to begin policing corporate conduct at the start of a resolution’s term, when possible, former department officials said.

While the purpose of the monitor is to help “reform a corporation,” a lag in choosing contenders means the monitor would “not be able to provide input into the overall strategy at the foundational level,” said Hui Chen, a former DOJ compliance consultant when the fraud section began deploying monitorships more frequently in the Obama administration.

In prior circumstances, some businesses started searching for monitor candidates while still negotiating final terms of a deal with prosecutors. Although that’s not always an approach companies take as they resist the imposition of a monitor, said the DOJ official.

“Some of these companies are debating us until the very last hour about whether the monitorship should even be part of the resolution,” the official said, speaking on condition of anonymity. “The best thing that a company can do to get a monitor quickly, if that’s what they want, is to give us the candidates quickly.”

Avoiding Delays

Enforcers in past years tried to make sure monitors are in place quickly. The outside team of attorneys, consultants, and accountants can then begin tasks that include interviewing employees and collecting documents to assess the company’s progress in preventing the recurrence of misconduct, such as overseas bribery.

How much of an impact the delays have depends on the role DOJ intends the monitor to play, Chen said. If the monitor is assigned to guide the company to find the right course, as opposed to merely grading them, then the “situation is even worse,” she said, “because that person’s not there when you’re setting the strategy.”

DOJ has also tried to avoid delays as a way to assure companies that they won’t be subject to the often expensive and burdensome monitorship beyond the resolution’s conclusion. In one of the four monitorship settlements since 2021—a deferred prosecution agreement reached in April with waste management company Stericycle Inc.—DOJ imposed a two-year monitorship that was shorter than the resolution’s three-year term.

Attorneys for all four companies didn’t respond to requests for comment.

‘Get in and Get Out’

Prolonged waits for monitors overlap with a period in which department leadership has taken a closer look at its selection procedures.

After monitors fell out of favor under former President Donald Trump, Biden-appointed DOJ officials revived their use as a method to deter corporate crime and resolve ineffective company compliance programs.

Monaco convened an advisory group in October to study corporate crime policies, leading to the memo last week that called on all DOJ divisions to adopt a monitor selection process that promotes “consistency, predictability, and transparency.”

While reasons for denying certain nominees aren’t clear, Monaco has delineated a set of priorities. These include mandating that an ethics official sit on the selection committee to ensure the other DOJ committee members don’t have past entanglements with the finalists. Department attorneys have often worked at some of the same large law firms that wind up in the running to land a monitorship.

“The whole process is under an incredible microscope right now,” said Joe Whitley, a twice-appointed former US attorney in Georgia.

Once DOJ adapts to the new protocols, Whitley, now a partner at Womble Bond Dickinson, said he expects “the process will become more streamlined,” particularly if Monaco can secure the $250 million she announced DOJ is seeking from Congress next year to support corporate crime initiatives.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com