Under the Trump administration, guidance and speeches from U.S. Department of Justice officials had suggested that monitorships were costly and disruptive, only needed in exceptional circumstances.
But in a speech Thursday, Monaco did away with that, noting that if prior DOJ guidance had suggested that monitors are “the exception and not the rule,” that she is “rescinding that guidance.”
“I am making clear that the department is free to require the imposition of independent monitors,” Monaco said.
Attorneys framed Monaco’s comments as signaling a sensible reversal of Trump-era guidance that had discouraged the use of monitorships and arguably led to the omission of the key compliance tool in some major recent settlements.
“This was a needed development,” said Michael Sullivan, a Finch McCranie LLP partner and former federal prosecutor with three decades of experience in civil and criminal litigation. “White collar crime is a serious problem that damages shareholders, hurts honest businesses and society as a whole.”
Historically, the DOJ has installed monitorships to oversee compliance programs in the most serious cases, a way to implement strict, structured requirements to ensure that problems are fixed. But some major recent Wall Street settlements, including those tied to scandals uncovered at Goldman Sachs Group Inc. and JPMorgan Chase & Co. last year, raised concerns that without a monitorship, the companies could ultimately repeat the same mistakes.
“It really made no sense to take the option off the table,” said Sullivan, speaking generally and not about specific companies.”Corruption is like a cancer … Why take away what may be the best course of treatment for your sickest companies?”
Monitors can help the Justice Department free up resources while allaying concerns “that they might let a company off too easily, or where they’re concerned that a problem has not been fully addressed and could lead to a repeat offender,” Sullivan said.
While no company is likely to request a monitor due to the costs and organizational burdens, they often make companies stronger in the long run, he argued.
Specifically, monitors help to elevate the voices of legal and compliance teams and whistleblowers, beef up internal hotlines and communications for fielding complaints, and generally make sure potential problems are dealt with before they rise to the level of a criminal investigation, he explained.
“You want to encourage those voices within an organization who are trying to do things legally and honestly and ethically,” Sullivan said. “Once a monitor gets in there, those types of opinions are now listened to [and] the company strengthens its processes.”
Sullivan, who was the counsel to the monitorship overseeing the Volkswagen emissions scandal, called that resolution a case in point. Under a 2017 plea agreement with the DOJ, Volkswagen’s three-year compliance overhaul led to hundreds of new internal regulations and policies that had to pass muster with an independent compliance monitor, Larry D. Thompson.
On the completion of the compliance overhaul in September, Herbert Diess, chairman of Volkswagen’s management board, hailed Thompson as having “helped us make Volkswagen a stronger, more transparent company.”
In line with the Trump administration’s general pro-business stance, former DOJ officials had arguably discouraged monitorships. In April 2017, then-Attorney General Jeff Sessions signaled a retreat from the enforcement of monitorships, stressing that the DOJ would “take into account whether companies have good compliance programs … and whether they take suitable steps to remediate problems.”
In October 2018, then-Assistant Attorney General Brian A. Benczkowski delivered a speech at the New York University School of Law announcing new guidance on monitorships, something Monaco appeared to directly refute on Thursday.
“The goal of the new guidance is to further refine the factors that go into the determination of whether a monitor is needed,” Benczkowski said at the time, stating that the new approach was “consistent with our long-standing practice of imposing corporate monitors as the exception, not the rule.”
In recent years, “statements from the department have put a chill on the inclusion of monitorships in settlements,” said Neil Barofsky, chair of Jenner & Block‘s monitorship practice and former federal prosecutor, in an email to Law360.
But the Monaco speech indicates “an important correction to the Department of Justice’s previous approach to monitors,” added Barofsky, who served as the presidentially-appointed first special inspector general of the $700 billion Troubled Asset Relief Program, or TARP.
“Although certainly not appropriate in all cases, monitors can be strong and effective agents of positive change for a company whose employees or officials’ misconduct was bad enough to warrant prosecution by the [DOJ],” he said.
As part of a broader, tougher stance on corporate crime, Monaco said the DOJ will focus more on companies’ prior rap sheets, enhance efforts to bring guilty individuals to justice alongside their companies, and no longer give a “free pass” in the way of deferred prosecution agreements, which allow companies to avert formal charges by paying fines and beefing up compliance.
Georges Lederman, special counsel in Withers LLP’s white collar defense and investigations team and a former New York prosecutor, said he believes the additional key DOJ focus areas — self-reporting and cooperation, specifically — will be weighed heavily when the agency makes determinations on whether to require a compliance monitor or grant a deferred prosecution agreement.
“The imposition of a monitorship is going to depend in large measure on whether the Justice Department becomes aware of any corporate malfeasance voluntarily and proactively by the corporation, or by some other means,” Lederman said. “The result of this more robust approach going forward: much more stringent compliance protocols put in place that may in the future deter corporate malfeasance.”
Despite the signal that monitorships could increase moving forward, Kenneth Feinberg, a renowned mediation and alternative dispute resolution attorney, called into question whether the use of monitorships has really ebbed and flowed to a considerable degree between Republican and Democratic administrations.
“I don’t think that in a Republican administration the last few years that monitorships disappeared, or were disfavored more than in previous administrations,” said Feinberg, whose work has included responsibility over payments from the U.S. government’s September 11th Victim Compensation Fund.
Even if they have, Feinberg noted that monitorships are “just one tool” in the DOJ’s arsenal. Overall, Monaco presented an “impressive” blueprint for a tougher stance on corporate crime,” Feinberg said, although he added that it remains to be seen how much of a change it will bring.
“It’s all well and good to announce that there are new priorities for white collar corporate crime,” Feinberg said. “OK, I hear you. [But] show me the beef here. Show me the evidence of that in terms of prosecutions, convictions, settlement agreements, sanctions.”
Asked if he is skeptical, Feinberg answered, “I’m not skeptical. I’m rather encouraged. I think that politically and substantively, it’s an excellent message coming from the deputy attorney general.”
“We will monitor — the public, and the media — we will monitor the department, and let’s see what the department does in terms of ramping up white collar crime as a priority for investigation and enforcement,” he said.