The Past, Present, & Future of Monitoring with Rod Rosenstein
Intro:
Hello, and welcome to Integrity Through Compliance: AMI’s Business Success Series. This podcast was created by seasoned compliance experts at Affiliated Monitors to speak practically to your business needs. During this series you will hear from AMI’s experts in corporate compliance, healthcare, government contracts, antitrust, manufacturing, education, and more, who will provide their observations on industry trends, geared to raise your awareness and to protect your brand. So grab a cup of coffee and join us as we guide you and your business to integrity through compliance.
Don Stern
Okay, well welcome. My name is Don Stern. I’m a Managing Director of Corporate Compliance at Affiliated Monitors. This is part two of a series that we’re doing. The first part really focused on compliance programs and the Department of Justice guidance on compliance programs, and today we’re going to turn to a related but different subject. And that is the question of independent monitoring. Sometimes it’s the result of a Department of Justice or other government agency investigation, but I think it’s increasingly relevant, and we’re going to talk about that with our two guests today. First, my colleague Eric Feldman, who is a Senior Vice President and Managing Director of Corporate Ethics at Affiliated Monitors. Eric has a long career in government service, including various defense agencies, such as the CIA. And then also as our guest is Rod Rosenstein, former US Attorney in the District of Maryland for a number of years…government service for three decades, and most recently served as the number two official at the Department of Justice, where he was the Deputy Attorney General and had oversight responsibility over hundreds of investigations, some of which resulted in monitoring (or at least decisions whether or not to have a monitor). So with that background, you know, let me just first turn to you, Eric. You know, people have some misconceptions about monitoring. You know, they hear the phrase — most companies don’t particularly welcome having a monitor. They view it as intrusive; they view it as, in some cases, unnecessary. But what’s the history here? I mean, how did we get to the point where we’ve been talking about monitoring?
Eric Feldman
You know, the history of monitoring goes back quite some time. And as far as I can tell, it was born out of, (originally) out of the New York construction industry where, because of repeated incidents of fraud, it was felt that having independent monitors on the construction site actually watching what was happening (in terms of contracts and subcontracts) would help prevent fraud in the future on these construction contracts. So New York — New York agencies — had these kind of hands-on day-to-day monitors. That expanded into more of a broader DOJ use of monitors, particularly in the fraud section for Foreign Corrupt Practices Act cases. And lots of people think, when they hear monitors, that it’s all FCPA, when in fact we’ve done FCPA cases, but that is such a small fraction of the use of a monitoring solution to help resolve cases. It can be done at the municipal level, and utility companies, school boards — we monitor for a major city school board, for cases that arise.
It could be at the state AG level, and consumer protection cases, or other types of fraud cases. And then in the federal government, just about every federal agency has a suspending and debarring official that ensures that federal government contractors are responsible parties under the federal acquisition regulations. And in many cases (the majority of cases of administrative agreements that settle cases, kind of like a deferred prosecution agreement), a monitor is required to ensure that the company is doing what they’re supposed to be doing. Monitoring also has expanded to antitrust cases, Federal Trade Commission, Federal Communications Commission…really anywhere where an independent set of eyes can be helpful in determining if a company is remediating its initial problem and is complying with what they’ve agreed to do.
Don Stern
You know Rod, one of the observations I would make is that historically, prosecutors (including the Department of Justice) have not necessarily focused on what happens after there’s a conviction. I mean, that was certainly my perspective when I was a federal prosecutor, which is (whether we’re talking about individuals or, and here we’re talking about companies), you get the result, you move on to the next investigation. What happens to the company — does it really get the message, does it really make changes — frankly, I never really saw or understood at the time as something I should be concerned about. That’s changed and…I think it’s changed. So I guess that’s the first question. Has that changed? Are prosecutors really more focused on what happens after the conviction and if so, why?
Rod Rosenstein
Yeah, I think they are, Don, and that, as Eric explained…monitors grew up really without any guidance or oversight as to how they should be imposed. And then in 2008, the department first adopted standards. Craig Morford was a Deputy Attorney General who promulgated the first set of standards in the department, and basically they found three categories. The first question is, how do you determine whether there’s a need for a monitor? And that really focuses on the issue that you identified, which is: look, the purpose here shouldn’t be punitive. The monitor is not a form of punishment, or at least not intended to be a form of punishment. It’s supposed to be prospective, but you know, we’re not going to send the company to jail. We’re not going to put the company under the supervision of a probation officer like we would an individual. But can we impose a monitor to ensure that the company conforms its conduct to the law in the future?
The guidance, number two, addresses the issue of scope. That is, what is the scope of responsibilities of the monitor? A company may have made a mistake in one area. Do we give them monitor authority over that area, or do we broaden the authority of the monitor? And then number three, the selection process, because there’s been a lot of concern about how these monitors are selected. We want to avoid undue favoritism in the selection of monitors. And so the guidance, as it grew up first under Deputy Morford, it was modified somewhat by Gary Grindler there when he was acting Deputy AG in 2010. And then the most recent guidelines promulgated by the Criminal Division by Brian Benczkowski as Assistant Attorney General in 2018, really focused on the issues of the need for a monitor, and of a very formal selection process.
Don Stern
You know, when you talk about the memos…I know you’ve joked in some of your public comments, Rod, that in the past, Deputy Attorney Generals were known mostly by memos named for them, a little bit like Mount Rushmore. There’s the Holder Memo, the Morford Memo. I think your public profile has changed that for people occupying the position of Deputy Attorney General. And so there may be a memo named after you, but you know, you got your share of attention during the time you were DAG.
Rod Rosenstein
Well, that was unwelcome attention, Don, but one of our goals was to get away from that issue — from the policy of promulgating memos, which may or may not be known to the attorneys — and instead to put policies in the Justice Manual. We renamed the US Attorneys’ Manual the Justice Manual. And so, our goal was to put all the policies in the manual. Now ironically, this policy, which is promulgated by the Criminal Division, is not part of the US Attorneys’ Manual but this guidance I think does have a significant influence throughout the department.
Don Stern
So what do you see as the benefits for the government agencies going forward? And of course, many of the cases are brought, I wouldn’t say on behalf of government agencies (it might be the GAO, it might be a Department of Defense), but there are government agencies that are involved; it could be OIG in a pharmaceutical case. So, apart from the selection…because what you’ve described mostly is, you know, what’s the scope of the monitorship, should there be a monitorship, what’s the selection process. But then the monitor gets picked, and there’s a selection process. So what do you see as the benefit, if any, for the Department of Justice going forward, and how does the Department of Justice stay involved, be involved going forward?
Rod Rosenstein
Yeah, I think there’s both a prospective and a retrospective aspect of that, Don. In terms of going forward, the monitors often are required to file a regular reports, which gives the department an opportunity to review those reports and ensure that the company is complying with the terms of the resolution (be it a settlement agreement, or a DPA, or an MPA), and the department can ensure that the company is complying with those provisions. The other thing though, that the process does (and I think this really is highlighted in Benczkowski Memo) is that it holds out the prospect for a company, after they have been targeted in a criminal investigation, to reform their conduct and avoid a monitor by changing the corporate compliance policies, by changing the corporate culture — often by changing leadership. And so it has that benefit for prosecutors, that while the investigation is ongoing, the company’s incentivized not just to fight the investigation, but to actually change its ways, so that when you reach the point of negotiating a resolution the company’s in a better position. And the Benczkowski Memo really highlights that — the importance of changing the corporate culture, and of evaluating remedial measures taken by the company — and I think that that is of tremendous benefit to prosecutors because it ensures that the remedy comes not just after the cases resolved, but during the investigation itself.
Eric Feldman
I’d like to latch on to that point, if I can, because I think it’s an excellent point, and I’m not quite sure that companies (as a whole) have really absorbed that yet. And I do a lot in presentations and working with companies to communicate what’s in the Benczkowski Memo to them: that it matters, from the time of the incident to the time of the resolution, what it is that a company does. And that’s where most of the opportunity for remediation takes place. And spending the money, and the time, and effort to assess and evaluate your ethics and compliance program, and what failed. What didn’t work? What allowed this to happen? How can we tweak our internal controls, our messaging, strengthen our corporate culture, and demonstrate that to DOJ, so you don’t need a monitor?
I mean, I remember when the guidance came out, my phone was ringing off the hook — God, that’s an old term, isn’t it, ringing off the hook — with people saying, what is this going to do to your monitoring business? Because they’re saying that there may not be monitors in these cases. And to me, that was an opportunity, not, you know, some dire warning. It was an opportunity to try to help companies in a more proactive way, rather than waiting until after the fact, when the government mandates a monitor, and the government mandates the scope of the monitorship, and the duration, and everything else about it. Companies can proactively monitor their programs even up to the time that an incident occurred and they’re waiting on resolution.
Don Stern
You know Rod, one of the challenges (I thought, at least as a department has shifted more towards focusing on compliance, rewarding effective compliance programs, and then focusing on monitorships, and having an ongoing role for monitorships) was ensuring that department personnel at different levels was schooled enough, and sophisticated enough in compliance programs and how to assess it. Now, I know the department (you know, this goes back probably five or six years) has seemed to be centralizing expertise and authority in Main Justice and compliance programs. But I’m interested in knowing: has some level of education about what makes an effective program been rolled out to the US Attorneys’ office, or the litigating divisions? Because it isn’t as simple as having a Deputy Attorney General and the head of the Criminal Division know compliance. You really need to spread that knowledge more widely. What steps were taken, and are being taken?
Rod Rosenstein
I think that’s a good point, Don. I don’t know that there have been steps taken to roll out that training to US Attorneys, and it probably would be a good idea to do that. I know steps were taken within the Criminal Division of Main Justice, among other things, that in hiring in the Criminal Division, they’ve looked for people who have expertise, who have experience with compliance issues in the private sector. And of course, they’ve got a supervisory structure so that these decisions are not made at the frontline, but they’re made by experienced supervisors who’ve seen these issues in the past. But I think you raise a good point, and that more training throughout the field, through the US Attorneys’ offices, probably would be worthwhile.
Don Stern
Eric, what do you see as the — as I kind of alluded to it — you know, early on, I know at Affiliated Monitors, when we get appointed as a monitor and we meet with a company, in the early stages of that process, it’s kind of a begrudging process, which is: you know, this is a heavily negotiated document. You know, we don’t particularly like you having around, but we have to do it, and we’ll serve our time — our three-year monitorship or four-year monitorship. But yeah, I’m interested in any examples you can give where, notwithstanding, that as the monitorship gets underway there’s a sense that the monitorship has actually added value to the company, and added value to its compliance efforts. Can you speak to that?
Eric Feldman
Sure. You know I always thought, even as a federal IG, that being collaborative and being independent are not mutually exclusive terms. And when I serve as a monitor, I communicate that upfront — that I’m going to be independent. I’m going to call the balls and strikes as I see them, but I’m also here to help you succeed. The goal of everyone — of the prosecutors, of the monitor, and should be of the company — is to successfully complete the term of the agreement. And that means remediate, and not have a recurrence of the problem. So, right upfront, we asked the company to define, and we try to come up with a mutual definition. What does success for this monitorship look like? What do you want out of this? And, you know, ‘getting off early’ is not a good answer. And, ‘getting through this as fast as possible’ is not a good answer. Being a better company is probably a good answer. And using us — what we try to do is encourage companies to use the monitorship as an opportunity to get that independent third-party review of their program, and whether it’s working or not. Even if, under the best of circumstances, you have a compliance officer that truly believes that they put in place an effective program, and the problem that occurred was a one-off, it’s still an opportunity to have a third party really road test that program, and determine whether there are ways they can strengthen it. We have the benefit of having done this in hundreds of places. so we see best practices. Just as importantly, we see red flags and worst practices that we try to help companies avoid. They don’t have the benefit of that broad view that a monitor would have going into an organization.
Don Stern
Any advice, Eric, if you were advising, let’s say outside counsel, who was negotiating with the Department of Justice or some other government agency about a monitorship? You know, as Rod has alluded to, the Department of Justice has certain internal requirements in terms of selection and the like, but I’m sure you’ll agree with me. We see a big variety of, kind of the ‘monitor mandate’ from government agency to government agency, and a lot depends on the sophistication of outside counsel, and also the sophistication of the government agency. What advice would you give to a company that (for better or worse) is going to get a monitor, but they have some ability to negotiate some control over the scope and the level of specificity of that monitorship?
Eric Feldman
You know, first of all, I think that a company (even with the DOJ rules and guidance on the selection process in DOJ cases) can still drive the train quite a bit in selecting what kind of a monitor they’re going to have. And one of the criteria really ought to be experience in monitoring. You know, we see a lot of people that become monitors in one-off cases that have never been a monitor before. And in those cases, they really don’t know how to monitor. They may know subject matter expertise which, you know, we try to get in our teams anyway, but hiring someone who knows how to do the monitoring is much more efficient. It’s going to cost less money, and there could be much more focus on trying to fix and remediate. Second is to avoid monitors that have a scorched earth approach to life. Just like the IF business, ask the monitor (the prospective monitor), What do you see here is your role? If the role is to find more problems and to see if they’re still doing the bad thing, that really is not a good answer. The role is to determine whether or not the company is in compliance with the agreement as written, and you want that scope — the sanctity of that scope — to be maintained.
Don Stern
That’s a good segue to a two part question I want to ask Rod. The first is: what does the Department of Justice — at least on your watch — look for in a monitor? What kind of background skills, temperament, approach do you look for in a monitor? And secondly: what do you see as the Department of Justice’s ongoing role in a monitorship? I mean, some of these can go two, three, four, five years. There could be a change in personnel at the department level. What are the expectations that companies should have that the Department of Justice is going to keep its head in the game, and be concerned about the monitorship?
Rod Rosenstein
Yeah, you know, it’s interesting, Don. I think the first point I wanted to make is that under the DOJ guidelines, the slate of candidates are actually proposed by the company. So rather than the department imposing its own choice, the department is picking from three candidates who are proposed by the company. And the guidance actually specifies the type of criteria that the department is looking for, and that includes the candidates’ background, education, and training. Past experience, as Eric mentioned, is a relevant factor; the reputation in the community. Their experience in the particular area under investigation, because just general experience as a monitor may not be as relevant as specific experience in the industry that the company is engaged in. They look for evidence of objectivity and independence of the company, and the adequacy of the monitor’s resources. That is, who are they going to call on to do the work, to the extent they may actually have to do extensive field work, if it’s a big company and they’ve got to do work in the field? And so, the Criminal Division of the Justice Department looks at all these criteria, and then makes a recommendation from the slate of three candidates that are proposed by the company. That recommendation goes up through the Criminal Division’s chain of command, and then ultimately to the Deputy Attorney General. So there’s a very thorough process that is established to ensure that monitors are properly vetted, and they’re getting people with the correct background. On the second half of your question about ongoing supervision, there is a monitoring committee within the Criminal Division. So I haven’t had experience from my perspective in the private sector, but I do know that the idea, at least, is that there will be regular oversight of the monitors reports, and to the extent that any issues are flagged by the monitor, the Criminal Division will be in position to go talk to the company about how they plan to fix that problem.
Don Stern
Do you see your role…I mean, you mentioned the Criminal Division, and obviously that’s been the chief place in which monitorships have been part of a resolution (either a deferred prosecution agreement or a non-prosecution agreement). As you pointed out, Rod, you can’t put a company in prison. You can just extract and get fines — some remuneration for victims in some cases — and impose a monitorship, or other compliance programs. But we haven’t seen it used that often at the federal level in civil settlements. I mean, it’s probably happened. It’s certainly happening more and more on the antitrust side, but that’s not necessarily where a company has done something wrong, it’s just part of the resolution to remediate potential anti-competitive effects of the deal. Do you see a place for monitorships in the civil context?
Rod Rosenstein
I do. I think in inappropriate cases, it would be the right thing to do to impose a monitor if the department determined that there was an ongoing concern — that is, it hadn’t been properly remediated, and the company did not have an effective compliance program. But I think more often, as Eric suggested, it can be done internally by the company, and it’s part of their pitch for why they deserve a more lenient resolution: that they’ve taken steps on their own to ensure appropriate oversight.
Don Stern
What’s been your experience, Eric (and really the experience of Affiliated Monitors) in the context — the ways in which monitorships…and as you know, sometimes the “M word” is not used. It’s not called a monitor, it might be called something else. Companies don’t like the
“M word”. They don’t like monitors, they like “compliance officers” or something, but let’s say a third party look — third party assessment — imposed as part of a government resolution. What are the different contexts? Is it being used by state Attorney Generals’ offices? Is it being used at the local level?
Eric Feldman
Well, yeah, it’s being used more and more as a tool to resolve cases. You know, we, in our healthcare practice, do a lot relating to individual doctors (or other licensed professionals) in a state that are at risk of losing their license, which could be…not an advantage to a particular community, [and] to all the employees that work for that medical practice. And as an alternative, putting in a monitor to help remediate and resolve the behaviors that led to the enforcement action in the first place makes a lot of sense. It’s kind of interesting. And as I mentioned at the beginning, this is done at state, municipal school boards, federal agencies, not just the DOJ. But one of the benefits of monitoring overall to the government is that this doesn’t cost them anything. And if the government wants to know after the resolution that a company is or is not complying with the agreement that they negotiated, you know, very diligently, it doesn’t cost the government any money to impose a monitor. It costs the company money, and under the Benczkowski Memo, obviously that needs to be taken into account when a decision is made to have a monitor — that there is a cost associated with this. But the benefit to the government (and as we discussed, the benefit to the company) can be enormous, I think, over time.
Don Stern
Speaking of money, obviously an enormous amount of federal money is now going into COVID relief. We’ve seen a lot of money spent already, and of course, under the new bill, there’s another — what is it — $1.9 trillion which is going out the door. What do you see, Rod, in terms of the…call it the obligations, or the necessity for robust compliance, and then oversight by the Department of Justice to ensure that the money’s being well spent?
Rod Rosenstein
Yeah, the department, Don, has made clear throughout — really since last March — that they intend to be aggressive in pursuing cases of misuse of congressional funding. And for companies that have received funding, I think they are particularly vulnerable, number one, because there was a fair amount of ambiguity (and to some extent, chaos) early on as to how the money could be spent…changing rules, and so companies need to make sure that they’ve got their I’s dotted and their T’s crossed. And number two, we anticipate we’ll see a flood of whistleblower complaints because of the ambiguity in the rules, and because of ways companies have used the money. We anticipate that there’ll be a lot of qui tam cases filed in the coming years. And so for companies that want to protect themselves against that sort of thing, I believe that they ought to be in the business right now of conducting reviews of how they spent their COVID related funding, and making sure that they do have a documentation process to demonstrate that they spent the money in ways that were approved at the time, and that they show good faith. And I think companies that do that will be best positioned to head off either enforcement action, or to deter whistleblower complaints in the future.
Don Stern
Good. And I know that’s one of the areas you’re spending some time in your practice now.
Rod Rosenstein
That’s right. No, we do have companies that have received funding that want to make sure that they have everything documented, so that they’ll be prepared in the event that these investigations or litigation comes forward in the future.
Don Stern
What do you see — in terms of the future trend lines — for the Department of Justice’s use of monitors? I mean, do you see this…more the same, or do you see it on the increase, or is there a reluctance or resistance with the new Biden administration to have monitors? Any clue?
Rod Rosenstein
I don’t think there’s any reluctance at all, Don. I think if anything, the new administration may be even more inclined to impose monitors. I hope that they will respect the principles the department has come up with, particularly the weighing of costs and benefits. This, to me, is not a partisan issue — as I said, it was really reflected in the Morford Memo, which was in effect throughout the Obama administration. But there really ought to be some weighing of the costs and burdens; a recognition that monitoring on an ongoing basis does impose both financial costs on the company, and also can impose burdens on innovation. And so my hope is the new administration will take those considerations into account.
Don Stern
Good. Okay, let me first turn to you, Eric, with kind of a wrap up question. As you think about your vast experience with monitors and similar relationships — oversight of companies — any two or three high points [or] takeaways you want people to remember?
Eric Feldman
Sure. You know, consistent with the theme of what we discussed today: avoid a monitor. It can be done. And it seems funny for a monitor to say ‘avoid a monitor’. But given the weighing of the benefits and costs, and the ability of a company to demonstrate that it strengthened its compliance program and its corporate culture, there is an opportunity here — if they do the right things, if they proactively assess their programs — to avoid the monitor. Secondly, if you do have to have a monitor, make lemonade from the lemons. In fact, one of our clients — a big company — they call the project surrounding us as a monitor, they call it Project Lemonade, and what companies should do is take advantage of it. Use the monitor as an opportunity to get focus and resources on compliance within their company. All change is a result of conflict, and improvements in compliance within companies can happen after some resolution of an enforcement matter. It’s a great opportunity, use it.
Don Stern
Good observations. What about you, Rod? Any two or three takeaways on monitorships?
Rod Rosenstein
Yeah, let me pick up on Eric’s first point: that the goal of this policy really is to drive constructive change so companies can avoid government imposed monitors — even after wrongdoing occurs — by changing corporate leadership and culture, by improving internal controls and compliance programs, and by demonstrating that their programs will deter future misconduct. So that sort of thing, as Eric mentioned, can be done proactively before a company gets in trouble (or even after a company gets in trouble), so they’ll be best positioned to make their pitch to the department about the ultimate resolution.
Don Stern
Okay. It’s been a great discussion. Let me first thank you, Eric, my colleague had Affiliated Monitors for your participation, and of course, Rod Rosenstein, now a partner at King & Spalding. So thanks to both of you.
Rod Rosenstein
Thank you, Don.
Eric Feldman
Thanks, Don.
Outro
Thank you for joining Affiliated Monitors’ podcast, Integrity Through Compliance: AMI’s Business Success Series. Today’s segment is just a sample of the subject matter expertise captured by AMI’s compliance professionals. Go to our website at www.affiliatedmonitors.com to view the comprehensive list of industry and in-house talent AMI has available to enhance professional and business integrity programs and controls. Also, connect with us on LinkedIn to receive updates and trends in the areas of enforcement and compliance. If you have any questions about today’s podcast or would like to learn more, please contact us at podcast@affiliatedmonitors.com. Our Affiliated Monitors podcast production team of Deloris Saad, our compliance associate, and Dan Barton, our editor and podcast music composer, look forward to you joining us again for our next installment of Integrity Through Compliance: AMI’s Business Success Series.
