Morford Memo Morphed: Who Picks the Corporate Monitors?

What do the Biomet, HSBC, United Technologies, and Moneygram 2012 deferred prosecution agreements have in common?

In each settlement, the company nominates three monitors.

And the Justice Department gets to pick one.

Even in major corporate plea agreements in 2012, the corporate criminal gets to nominate those overseeing the agreement.

In the BP Gulf oil spill plea agreement, for example, BP gets to pick the auditor — subject to Department of Justice approval.

The pattern reflects an unwritten policy change that has been in effect at the Department of Justice for over a year now.

For major corporate crime cases, in particular those emanating from the Main Justice and involving the Foreign Corrupt Practices Act (FCPA), fraud or money laundering — the corporation will nominate corporate monitor candidates and the Department picks from the list of corporate nominated candidates.

That’s according to monitors who have been briefed on the Department’s policy shift.

The Morford Memo was written in 2008 by then Acting Deputy Attorney General Craig Morford to govern the selection and use of monitors in major corporate crime settlements.

The Morford Memo has not been updated to reflect the most recent policy shift.

Nor has the policy shift been memorialized in any written document.

But it’s de facto Main Justice policy nonetheless.

On the issue of selecting corporate monitors, the Morford memo says:

“Because a monitor’s role may vary based on the facts of each case and the entity involved, there is no one method of selection that should necessarily be used in every instance. For example, the corporation may select a monitor candidate, with the government reserving the right to veto the proposed choice if the monitor is unacceptable. In other cases, the facts may require the government to play a greater role in selecting the monitor.”

But under the new policy, for major corporate crime cases emanating from the Justice Department, there is “one method of selection” — the corporation nominates.

“This ensures that the monitor comes from the boys club,” said one monitor who was briefed on the matter by high ranking Criminal Division officials but who asked not to be identified.

“In FCPA cases where Main Justice alums in DC firms represent most of the companies under investigation, they recommend each other for the monitorships. Many of them are in fact at big law firms.”

U.S. Attorneys are given greater leeway in choosing monitors — and in some major corporate crime cases, they have kept control of the process.

For example, in the SAIC settlement for contract fraud, the U.S. Attorney in Manhattan appointed the monitor.

SAIC had no say in the matter.

But in some recent major corporate crime cases handled by the Justice Department, the corporation gets to pick the monitor without any input from prosecutors.

In the Marubeni FCPA deferred prosecution agreement, for example, Marubeni picked the corporate compliance monitor and the Department has no say in the matter.

Brandon Garrett, a professor at the University of Virginia Law School, is writing a book titled Too Big to Jail: How Prosecutors Take on Corporations.

Garrett is troubled by the Justice Department’s corporate monitor policy.

“Complicated and varying provisions for selecting corporate monitors could be made simple,” Garrett told Corporate Crime Reporter. “A federal judge could select and supervise the monitor with input from all of the parties. I have long that that such a process would be simpler, fairer, and produce stronger monitoring. But prosecutors have been almost entirely allergic to involving a judge in monitoring.”

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