Should corporations be allowed to pick monitors?

Are monitor picks the result of an inside the beltway good old boy network?

And why doesn’t the Department of Justice make the names of monitors public?

These were some of the issues raised a panel on corporate monitors at the Corporate Crime Reporter Conference earlier this month at the National Press Club.

Participating on the panel were Dan Newcomb of Shearman & Sterling, George Stamboulidis of Baker Hostetler, Gil Soffer of Katten Muchin, Joseph Warin of Gibson Dunn, and John Buretta, chief of staff of the Criminal Division at the Department.

The panel was moderated by Shirah Neiman of SN Compliance.

Neiman questioned why the Department has adopted a policy of letting the corporation propose three names to be the monitor.

“It’s my understanding that the Department of Justice — at least the Criminal Division —  has opted to follow a practice where the Department allows the company to propose the names of three or more candidates for the monitorship and the Department will then select from among those candidates,” Neiman said.

“If those don’t pan out and the Department rejects them, then the company comes up with more names. But it appears to be a practice where the Department does not propose it’s own names.”

Neiman asked Buretta — “Is there such a policy, when was it adopted?”

“The practice varies from case to case,” Buretta said. “Ordinarily the agreements provide that there will be three submitted from the company, which does reflect some practicalities.”

“The company will be in a position to identify conflict concerns as to the company and any potential prior engagement by a prospective monitor. They will have a sense of the industry and who some of the experts are in the industry.”

“What happens from there does vary quite a bit,” Buretta said. “Sometimes we find all three would be great candidates. Sometimes one, sometimes none. And we go back to the company for a variety of reasons, either because the person who is proposed doesn’t have the background or expertise for this particular misconduct issue that was the subject of the resolution or because there is some appearance or other issue with respect to that person’s either involvement with the company or matters with the company.”

“One important component is to make sure we are making a selection that we feel comfortable with from an ethical issue,” he said.

Neiman said that when she inquired about the HSBC money laundering case — “how the monitor as being selected, the answer was — we are following the practice in the Department of Justice to let the company propose several names and then we will pick from among those names or do so until the company comes up with a name that is acceptable to us.”

“And that is different from what the Morford Memo says — which is that the government can be very flexible, including that the government can select the monitor,” Neiman said.

“And I know in the Southern District of New York, where I came from, they consider anywhere from 3 to 12 names. they will consider what the company proposes, but they do the selecting. They chose the monitor and it may not be from among the names that the company proposes.”

“To me, it’s certainly seems, as a long standing former prosecutor, that allowing the defendant in some serious criminal cases to pick their own monitor does not always make sense.”

“And the Department should scout around and select from its vast experience, monitors that they believe will do the best job and not leave it to the company to select,” Neiman said.

Warin said he disagreed with Neiman on this point.

“These are very calibrated selection processes in Main Justice in my experience,” Warin said. “From a company’s perspective, it is not inviting your in laws in for a long weekend — it’s inviting your in laws in for three years. I have great in laws, but you might not want them there for three years. So you might want to understand the nature of that relationship and is it going to be effective or not.”

“Giving some deference to the company to say — I like this person, but I just don’t know that we have the right chemistry — it has nothing to do with — they are going to take a dive for the corporation or not, or they are not going to be independent or not.” Soffer said that a few years ago, the Government Accountability Office did a study of DPAs NPAs and monitorships.

“They look at about twelve they selected randomly, in which the corporation had selected the monitor and presented in the first instance the choices,” Soffer said.

“And in every instance, the Department of Justice had reported satisfaction with the selection.”

Soffer said that he was not aware of any instance in which “the Department of Justice has said this system is broken because the corporation had selected a patsy.”

“I just don’t think it has happened,” Soffer said.

Newcomb said that “the Department of Justice doesn’t always agree with the company’s selection.”

“I had a very painful experience where the general counsel of my client had three great candidates because they all went to school together,” Newcomb related.

“They sat next to each other in law school. I said — those folks won’t fly and I was right. Not that we didn’t try to sell them. They were in each case quite distinguished lawyers, quite celebrated lawyers, but they weren’t particularly technocrats in the subject matter. And the Department ended up putting a technocrat in.”

Buretta said that “there shouldn’t be any misimpression left that we don’t heavily scrutinize the candidates wherever they arise from.”

“It is a very intensive process that involves not infrequently multiple interviews of multiple candidates that are pretty lengthy interviews in which we ask a lot of questions,” Buretta said.

“We often ask pretty detailed presentations about their game plan, their outlook on how they would approach them, we vet them for any prior interactions with the company. And not infrequently —  and I’ve seen this personally — we reject candidates for one reason or another, and that’s just the first level of scrutiny that occurs.”

Neiman then raised the cronyism issue.

“I don’t know of exceptions to the ‘let the company pick’ policy,” Neiman said. “The argument has been made that when Main Justice allows the company to pick three names, essentially you are enabling former Main Justice employees who represent the clients to select their former colleagues.”

“So, you are sort of removing it from the Department of Justice — to be involved in cronyism — but you are sort of allowing former Department of Justice employees to select three names, including other former Department employees. My question is — is there anything to this problem?”

Newcomb said “there are two monitors I am familiar with — myself and my partner — neither of whom are in Washington.”

“So, there at least some examples that go the other way,” Newcomb said.

Warin said — “I guess I’m the Washington lawyer who answers the question, huh?”

“I’ve always thought the cronyism issue is a false God,” Warin said.

“What John says about scrutiny — it’s absolutely true. The candidates get bios, they have face to face interviews, occasionally they are asked for follow up questions and asked to make written submissions. There is no hometowning the process, in my experience. And I’ve been involved with monitors on every side of the prism. I’ve been a monitor. I’ve helped select monitors for companies. I’ve done it in the FCPA space. I’ve done it in a whole range of other topics and areas.”

“And I find it frankly insulting to the Department of Justice by people who make that allegation that they are not doing their job. They are doing their job splendidly in my view in this space.”

“And you can imagine if you are a former prosecutor. They don’t just phone it in in any respect. That just doesn’t happen. It’s a complete fallacy in my judgment.”

“The issue is not that they wouldn’t be good monitors,” Neiman said.

“It also undersells where companies are,” Warin said. “Most companies want to be in the posture to say — if we are going to have a monitor, we want this to be value added to the organization, that enhances the organization. And they also have a posture — never again. We don’t want to go through the experience that put us at loggerheads with the Department of Justice ever again. So, let’s get it right.”

“Some people think all companies don’t want to have monitors. But there are actually different stakeholders in companies that have different perspectives on that. Some people in the business say — maybe a monitor might be good for a period of time.”

Soffer agreed with Neiman that most monitors come from Main Justice.

“If we had the numbers in front of us, we would find that most monitors have been at one time at the Department of Justice or the SEC — most mostly the Department — I think that’s how the numbers shake out,” Soffer said.

“But no matter what selection process you chose, that is likely to be the outcome because companies would want to go people who are known quantities, who are respected by their peers, by the government, and who also have a track record of working on internal investigations and complicated ones and interfacing with the government,” Soffer said.

“That tends to be former attorneys with the DOJ and SEC and other entities. So, there will be that natural inclination to select people of that ilk. But that will be a product of any selection process, it seems to me, except one that unfairly excludes people who have the most talent and ability to do the work.”

Buretta said that “if I think back over the last year on the selections of the standing committee in the Criminal Division, many of them are just not former DOJ folks.”

“There is an increasing focus on folks who are familiar with the industry or who have experience beyond just being lawyers,” Buretta said. “A lot of the monitors being selected now come from consultant and forensic firms or folks who are expert on a particular industry. I’ve seen that in the healthcare sphere. There are cases where the selection is between a former DOJ person and someone who really knows this industry, has no ethical conflict of any kind and has a full staff of people capable of doing the monitorships. And those folks on occasion are getting monitorships. I can’t speak to ten or five years ago, but certainly today, I don’t see that phenomenon at all.”

Neiman then raised the issue of why the Department of Justice doesn’t make the names of all monitors public.

“I had an experience when I wanted to know who was selected as a monitor after the fact,” Neiman related.

“And the Department of Justice often puts on its website a press release when they announce a DPA or NPA or a prosecution. But the monitor isn’t yet selected. If they are not going to issue a press release when the monitor is selected, there is nothing in the public record about who is the monitor. When I asked Denis (McInerney) if there was a list and if I could have it, he said yes there is a list and no I couldn’t have it.”

“Can people get that list?” Neiman asked Buretta.

“Shouldn’t it be transparent? And if not, will the Department agree to post who the monitor is in all cases it is involved with so that you can go on the web site and see who ultimately became the monitor?”

Buretta said that “the only way I could fairly answer that question is to point to the necessity of the independence of the monitor.”

“Usually, the monitorship agreements have a provision in them that says this person is not an employee of the Department of Justice nor of the defendant company,” Buretta said. “In light of that need for independence, you can see why putting out there prominently who the selection is could cut against the concept of independence and the fact that they are not our agent or the defendant’s agent.”