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Harry Cassin
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Thomas Fox
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Scandal Hits The Compliance Monitors

The problems started for the Justice Department’s corporate monitoring program late last year. Five leading orthopedic device makers had been charged with bribing doctors in the U.S. to get their business. (Now they’re being investigated for bribing doctors overseas in violation of the Foreign Corrupt Practices Act.) In September, New Jersey’s U.S. Attorney Chris Christie used deferred prosecution agreements to settle the domestic cases. The terms required the appointment of compliance monitors — private parties who police the corporations from the inside, report directly to the DOJ, and send their bills for doing so to the companies themselves.

For the orthopedic device makers, Mr. Christie’s corporate monitors were ex-U.S. Attorney General John Ashcroft (his former boss), former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley. In other words, the monitors were people close to Mr. Christie.

No matter how you spin it — and Messrs. Christie and Ashcroft have been doing plenty of that — the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don’t buy the sinister version for a second, but lots of people will take it as gospel.

At this point, we might ask whether we need corporate monitors at all? Was there something terribly wrong with the old fashioned approach? Our experience with companies involved in the FCPA forerunner cases — companies that were required to operate under pre-FCPA consent decrees with the DOJ and SEC because of bribe-paying overseas — taught that the threat of expedited enforcement and enhanced penalties really worked. With the stakes always high — including potential jail time for executives — the companies changed their culture. Compliance became real, not cynical, and recidivism wasn’t an issue. Many of those monitorless companies are today’s model citizens of FCPA compliance.

Wherever the debate about corporate monitors ends up, the reality is that the program is badly wounded. And the people responsible for the bloodletting — with Messrs. Christie and Ashcroft at the top of the list — should have known better. This scandal is just beginning, but here’s a sample of what some others are already saying about it. By the sound of things, this is another problem for the Justice Department that isn’t going away any time soon.

  • Federal prosecutors are steering no-bid contracts to former government officials who earn millions of dollars by monitoring companies accused of cheating investors and other schemes. . . . In the past few years, U.S. attorneys in Alabama, New York and Virginia have turned to corporate monitors to keep companies clean, hiring various former prosecutors and SEC officials with ties to President Bush, his father and other Republican luminaries. Some prosecutors hammer out with companies a short list of candidates from which to choose, while others have retained veto power over a business’s choice. A smaller group has given corporate executives little input on the selection.– The Washington Post

  • In a letter to the Government Accountability Office, Sen. Patrick Leahy (D-Vt.) and U.S. Rep. John Conyers (D-Mich.) asked for that office to investigate “if political or personal favoritism played a role” in the appointment of dozens of monitors to potentially lucrative but secretive contracts. — The (New Jersey) Star Ledger
  • When the top federal prosecutor in New Jersey needed to find an outside lawyer to monitor a large corporation willing to settle criminal charges out of court last fall, he turned to former Attorney General John Ashcroft, his onetime boss. With no public notice and no bidding, the company awarded Mr. Ashcroft an 18-month contract worth $28 million to $52 million. — The New York Times
  • . . . much has been made of the estimated cost of former Attorney General John Ashcroft’s monitorship for Zimmer Holdings that will cost the company between $28 million and $52 million. That case is fairly straightforward, involving illicit payments to doctors to use the company’s devices in replacement surgeries. Indeed, it’s not clear how Ashcroft can charge that much for a fairly simple monitorship . . . . — The White Collar Crime Prof Blog
  • In November the Law Blog took interest in an eye-poppingly lucrative contract that the U.S. Attorney in New Jersey awarded to John Ashcroft, the former attorney general-turned-confidential strategic consultant. Now it seems that Ashcroft’s former employer — i.e., the Justice Department — has taken an interest too . . . Now, the DOJ has begun an internal inquiry into its procedures for selecting outside monitors to police settlements with large companies. Apparently, aides to [U.S. Attorney General] Mukasey were concerned about the appearance of favoritism. — The Wall Street Journal’s Law Blog

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