 By Joseph P. Covington and Jessica Tillipman As has been widely reported, the Department of Justice has been using deferred prosecution agreements (“DPAs”) with increasing frequency in settling its enforcement actions against companies. This is especially true in the context of the Foreign Corrupt Practices Act. The rise in the use of DPAs has been rapid — growing from 5 in 2003 to 35 in 2006. DPAs typically require companies to hire an independent compliance monitor to review and evaluate internal controls, recordkeeping and compliance policies. Recently, monitorships have come under scrutiny with critics alleging that there is little oversight over the process in which monitors are selected, and that selection is based more on favoritism and personal relationships than experience and ability. This is especially problematic given that monitorships are frequently lucrative appointments, often lasting for years with multimilliondollar fees. The controversy surrounding monitorships began in 2007 when members of Congress learned that a consulting firm, founded by U.S. Attorney General John Ashcroft, stands to be paid up to $52 million under a monitoring contract with Zimmer Holdings. Zimmer Holdings, a medical supply company, entered into a DPA with the U.S. attorney’s office in New Jersey to settle accusations that it paid kickbacks to doctors who agreed to use its equipment. Under the terms of the DPA, the company agreed to hire the independent monitor selected by the U.S. Attorney for the District of New Jersey, Christopher Christie. Specifically, Christie directed the company to hire Ashcroft’s firm under a corporate monitor contract, worth $28 to $52 million over eighteen months. Not only was this particular contract awarded without public notice and bidding, Christie has acknowledged that he directed other medical supply companies — also charged with paying kickbacks to doctors — to hire former Department of Justice (DOJ) colleagues as corporate monitors. The issues surrounding the selection of corporate monitors are not limited to the District of New Jersey. DOJ has acknowledged that few internal guidelines exist relating to the hiring of independent monitors and that federal prosecutors are not required to seek approval of their monitor selections. In response, on January 22, 2008, Representative Frank Pallone (D-N.J.) introduced legislation establishing guidelines governing the selection of corporate monitors and requiring judicial oversight as part of the process. H.R. 5086 requires federal prosecutors to submit DPAs to a federal district court or magistrate judge for review to ensure consistency with the public interest and applicable laws. In making this determination, the judge or magistrate judge may consider: • the potential harm to employees and shareholders of the target corporation that may result from entering into the DPA; • the corporation’s degree of cooperation with investigators; • any remedial action taken by the corporation; • the availability of criminal charges against specific employees who may have engaged in criminal activity related to the corporate wrongdoing; and • the availability of sufficient alternative punishments pursuant to a DPA. If a DPA satisfies these criteria, the judge or magistrate judge may choose a monitor from a pool of pre-qualified firms. In addition, the bill requires monitors to be paid according to a predetermined fee schedule. The legislation has not passed in the House and no similar legislation has been introduced in the Senate. In the meantime, DOJ is considering whether to issue guidance to prosecutors regarding the selection of monitors. The apparent revolving door between DOJ and private practice in the selection of firms for monitors presents some additional concerns over nest-feathering. As a result, companies should now be in a better position to resist having DOJ impose a particular monitor on them. In addition, companies confronting an investigation which could potentially result in a DPA and the imposition of a monitor should consider the policy issues behind the legislation and stay informed on its progress — even if it does not pass. Joseph P. Covington is a partner in the Washington, D.C., office of Jenner & Block. He is a member of the firm’s white collar criminal defense and counseling, government contracts, defense & aerospace, antitrust and health care law practices. Jessica Tillipman is an associate in the Washington D.C., office. She is a member of the firm's government contracts and white collar criminal defense and counseling practices. Page: 1 of 1 pages for this article
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