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Democrats Move to Regulate Corporate Monitors
Reform legislation would be aimed at making selection of monitors in business crime cases more transparent
Legal Times
July 15, 2008
U.S. Rep. Linda Sanchez (D-Ca.)
Image: Diego M. Radzinschi / Legal Times
Democrats plan to take another shot at trying to regulate the use of outside monitors for companies accused of wrongdoing by the Justice Department.
Rep. Linda Sanchez, D-Calif., chairwoman of the House Judiciary Subcommittee on Commercial and Administrative Law, says the current Justice Department guidelines used to select corporate monitors are insufficient and says she will introduce reform legislation this week.
"There's no transparency in how the monitors are selected for these often lucrative contracts," Sanchez told Legal Times. "There's no reporting requirement. You have a potential for abuse there."
The practice of hiring outside consultants to oversee corporate compliance programs has been under scrutiny since The Star-Ledger of Newark, N.J., reported in November that U.S. Attorney Christopher Christie of New Jersey helped the Ashcroft Group -- the consulting firm of ex-Attorney General John Ashcroft -- obtain a contract worth between $28 million and $52 million to monitor Zimmer Holdings, a medical supply company accused of Medicare fraud.
The General Accountability Office, at the request of Senate Democrats, has an ongoing investigation into the use of monitors. The amount in the Ashcroft deal, which would be paid by Zimmer, even surprised some officials at Main Justice.
In March, the Justice Department issued new guidelines for choosing corporate monitors. Named after then-Deputy Attorney General Craig Morford, the Morford memo created internal panels of DOJ officials and federal prosecutors to review monitor candidates. (pdf)
Criminal Division officials have previously said DOJ's study of the issue leading up to the new guidelines was not undertaken in response to the publicity generated by the Zimmer contract.
In January, Rep. Frank Pallone, D-N.J., introduced a proposal to codify the DOJ practices, but the bill did not get very far. Among other things, it would have required court approval of the monitor contracts and set fee schedules for monitors.
However, since then, much more is known about the way DOJ has managed such deals. In late May, the House Judiciary Committee released DOJ records showing that at least 20 of 39 monitor contracts issued since 2001 have gone to former Justice officials or prosecutors. Others hired for such work include a former federal judge, ex-Securities and Exchange Commission officials and corporate compliance consultants.
The use of monitors also increased from a single case in 2001 to 14 last year. This year, three agreements involving monitors have been announced since the March guidelines went into effect. However, the values of such contracts remain under wraps because Justice officials say they are private transactions between corporations and monitors.
Sanchez, who oversaw a March 11 hearing in which Ashcroft and others testified, declined to detail what her legislation will call for, but said it will build on Pallone's first try and be more "comprehensive."
"As a result of that hearing and some of the testimony given ... what the new bill would do is take the basis of [Pallone's legislation] and add in adequate safeguards," Sanchez said last week.
Laura Sweeney, a spokesperson for the Criminal Division, says the department has yet to see any proposed legislation. "In the meantime, we have the [March 10] guidelines, and we think they are working," Sweeney says.
Some defense attorneys believe legislating the issue goes too far and instead advocate for more specific internal DOJ rules.
"[The Morford memo] didn't really tell when a monitor would be appropriate," says Stevan Bunnell, a partner at O'Melveny & Myers specializing in white-collar work and a 20-year Justice veteran. "It was very general and vague. Maybe that's the best they can do."
Joshua Hochberg, a partner at McKenna Long & Aldridge and a former fraud section chief in the DOJ's Criminal Division, also wishes the Morford guidelines could be tweaked to further clarify when and how deferred prosecutions and nonprosecution deals should be applied.
Both Hochberg and Bunnell, as well as other defense attorneys, say court oversight of corporate monitors would keep companies from entering into such agreements.
"If you formalize the process that much and require court approval ... I don't think it's in the best interest of the company," says Hochberg.
Hochberg defends the use of monitors who are former career prosecutors or DOJ line attorneys, but admits the Ashcroft deal has given the profession a bad reputation.
"Having a DOJ person makes sense. There were two problems in the [Christopher] Christie situation," Hochberg says. "I think people were surprised at the amount of anticipated fees. That got a lot of attention and ... in the past, most of the [monitor] selections had been for DOJ people who were career people, not political appointees."
Morford's March 10 guidelines, issued a day before Ashcroft testified at the congressional hearing, effectively reined in prosecutors -- such as Christie -- who had been free to appoint their own monitors.
The guidelines call for ad hoc committees within U.S. Attorneys' Offices or the Justice Department to consider monitor candidates, who will then be vetted by U.S. Attorneys and assistant attorneys general. Ultimately, the deputy attorney general has final say over the selection of a monitor.
At least one defense attorney welcomes the congressional scrutiny, although he doesn't advocate for legislation.
"If there was a good old boy network of prosecutors out there, it's been taken off the table," says the lawyer, who wishes to remain anonymous because he deals with Justice Department officials while defending corporate clients. "A long, distinguished career in public service doesn't mean one is qualified to be a monitor."
