    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                         TRANSPARENCY AND INTEGRITY IN
                              CORPORATE MONITORING

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       COMMERCIAL AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               NOVEMBER 19, 2009

                                   __________

                               Serial No. 111-64

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
    MAXINE WATERS, California            DARRELL E. ISSA, California
    WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
    ROBERT WEXLER, Florida               STEVE KING, Iowa
    STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
    HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
      Georgia                            JIM JORDAN, Ohio
    PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
    MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
    JUDY CHU, California                 TOM ROONEY, Florida
    LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
    TAMMY BALDWIN, Wisconsin
    CHARLES A. GONZALEZ, Texas
    ANTHONY D. WEINER, New York
    ADAM B. SCHIFF, California
    LINDA T. SANCHEZ, California
    DEBBIE WASSERMAN SCHULTZ, Florida
    DANIEL MAFFEI, New York

           Perry Apelbaum, Majority Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel
                                     ------

               Subcommittee on Commercial and Administrative Law

                        STEVE COHEN, Tennessee, Chairman

    WILLIAM D. DELAHUNT, Massachusetts   TRENT FRANKS, Arizona
    MELVIN L. WATT, North Carolina       JIM JORDAN, Ohio
    DANIEL MAFFEI, New York              HOWARD COBLE, North Carolina
    ZOE LOFGREN, California              DARRELL E. ISSA, California
    HENRY C. ``HANK'' JOHNSON, Jr.,      J. RANDY FORBES, Virginia
      Georgia                            STEVE KING, Iowa
    ROBERT C. ``BOBBY'' SCOTT, Virginia
    JOHN CONYERS, Jr., Michigan
    JUDY CHU, California

                         Michone Johnson, Chief Counsel

                        Daniel Flores, Minority Counsel

                                C O N T E N T S

                                  ----------

                               NOVEMBER 19, 2009

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Steve Cohen, a Representative in Congress from the
      State of Tennessee, and Chairman, Subcommittee on Commercial
      and Administrative Law.........................................     1
    The Honorable Trent Franks, a Representative in Congress from the
      State of Arizona, and Ranking Member, Subcommittee on
      Commercial and Administrative Law..............................     2
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Chairman, Committee on the
      Judiciary, and Member, Subcommittee on Commercial and
      Administrative Law.............................................     4

                                   WITNESSES

    Mr. Anthony Barkow, Executive Director, Center on the
      Administration of Criminal Law, New York University School of
      Law
      Oral Testimony.................................................     6
      Prepared Statement.............................................     9
    Ms. Eileen R. Larence, Director of Homeland Security and Justice,
      U.S. Government Accountability Office
      Oral Testimony.................................................    32
      Prepared Statement.............................................    34
    Mr. Gil M. Soffer, Partner, Katten Muchin Rosenman, LLP
      Oral Testimony.................................................    55
      Prepared Statement.............................................    57
    Mr. Brandon L. Garrett, Associate Professor of Law, University of
      Virginia School of Law
      Oral Testimony.................................................    64
      Prepared Statement.............................................    67

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan,
      Chairman, Committee on the Judiciary, and Member, Subcommittee
      on Commercial and Administrative Law...........................     4

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Material submitted by the Honorable Steve Cohen, a Representative
      in Congress from the State of Tennessee, and Chairman,
      Subcommittee on Commercial and Administrative Law..............    96

               TRANSPARENCY AND INTEGRITY IN CORPORATE MONITORING

                                  ----------

                          THURSDAY, NOVEMBER 19, 2009

                  House of Representatives,
                         Subcommittee on Commercial
                                and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 11:10 a.m., in
    room 2141, Rayburn House Office Building, the Honorable Steve
    Cohen (Chairman of the Subcommittee) presiding.
        Present: Representatives Cohen, Conyers, Johnson, Franks,
    and Coble.
        Staff present: (Majority) Carol Chodroff, Counsel; Adam
    Russell, Professional Staff Member; and (Minority) Zachary
    Somers, Counsel.
        Mr. Cohen. Good morning. This hearing of the Committee on
    the Judiciary Subcommittee on Commercial Administrative Law
    will now come to order. Without objection, the Chair will be
    authorized to declare a recess of the hearing, and I will now
    recognize myself for a brief statement.
        This morning the subcommittee revisits the selection and
    use of independent corporate monitorships, an issue that was
    first raised in the 110th Congress. This issue was considered
    again in this Congress in a hearing on the use of deferred or
    non-prosecution agreements, a.k.a. DPAs, in criminal cases
    involving criminal corporate defendants.
        With the growth in the use of corporate deferred and non-
    prosecution agreements in the last decade, it became evident
    over time that there were no meaningful standards governing
    when the government could or should enter into such agreements
    or what the scope of such agreements should be. Even more
    troubling was the complete lack of guidance with respect to the
    selection and use of and the compensation for corporate
    monitors to implement such agreements.
        The absence of standards governing how corporate monitors
    were to be selected and what the scope of their authority led
    to disturbing suspicions of abuse. Caesar's wife came into our
    Committee once again with issues concerning the propriety of
    appointment of certain individuals and the multi-million
    dollars that they received.
        One notorious example, which we explored in our previous
    hearings, was the Zimmer case. That is when Caesar's wife was
    very disturbed. U.S. Attorney then, now governor-to-be
    Christopher Christie, selected former Attorney General John
    Ashcroft to serve as a corporate monitor, for which Mr.
    Ashcroft collected a fee of up to or in the neighborhood of or
    resembling or within the margin of error of $52 million. A tidy
    sum, it could pay for some drycleaning for Mrs. Caesar's robes.
        The circumstances surrounding his appointment and service
    as a monitor were not made public at the time of his selection,
    and no provision was ever made for oversight or accountability
    concerning his performance as monitor. This lack of
    transparency was troubling to our subcommittee and to the
    corporate world and to the public, as articulated in several
    articles and media reports. That was Caesar himself, yes.
        These concerns prompted the subcommittee to hold hearings
    on this issue and to request the Government Accountability
    Office to investigate the matter. Their report will be released
    in the next few weeks, and I look forward to learning what the
    Government Accountability Office discovered.
        The Department of Justice has also provided some guidance
    with respect to the selection of corporate monitors. Although I
    appreciate the steps they have taken, they are not etched in
    stone or statute, and more, therefore, is needed. There must be
    a fundamental change in the monitoring process so that we can
    ensure greater transparency and integrity and safeguard against
    the abuses or appearance of abuse in the past.
        The perception of unfairness and cronyism undermines
    governmental authority and integrity in the judicial justice
    process, and the selection of corporate monitors to oversee
    pretrial agreements must be fair, and it must be perceived as
    fair. Public trust and confidence are essential elements of an
    effective justice system. Sometimes the appearance of justice
    is just as important as justice itself, the reality thereof.
        Congress has a critical role to play in this area, and I
    believe the guidance governing the selection and use of
    corporate monitors should be codified in Federal statute,
    therefore not leaving it to the whims and caprices of future
    Administrations.
        Accordingly, I have drafted, or had drafted, the
    Transparency and Integrity in Corporate Monitoring Act, which
    will protect against actual and perceived conflicts of interest
    with respect to Federal prosecutors who leave the U.S.
    attorney's office to work as corporate monitors. I believe this
    bill will fill an important gap in providing accountability and
    transparency and avoiding abuse with respect to the selection
    and use of corporate monitors.
        There are revolving doors in most areas of government, in
    most states as well as Federal systems, and a revolving door is
    not a bad thing, for if you move with it, you don't get hit on
    the rear as you leave. I look forward to discussing these
    corporate monitoring issues and thank our witnesses for being
    here today.
        I now recognize my colleague, Mr. Franks, the distinguished
    Ranking Member of the Subcommittee from the State of Arizona,
    for his opening remarks.
        Mr. Franks. Well, thank you, Mr. Chairman.
        I thank all of you for being here.
        Mr. Chairman, deferred prosecution agreements are an
    invaluable tool in the Justice Department's arsenal for
    combating corporate crime. These agreements allow the
    government to achieve all the benefits of a criminal
    prosecution without subjecting the companies, their employers,
    their employees and shareholders to the collateral consequences
    of a prosecution and conviction.
        In contrast to the far more rigid criminal sentencing
    process, deferred prosecution agreements permit the Justice
    Department and corporate defendants to work together in a more
    flexible environment to remedy past violations and prevent
    future illegal conduct. They serve to rehabilitate the company,
    root out illegal and unethical conduct, discipline culpable
    employees, help promote good citizen corporate citizenship
    going forward, and they allow prosecutors to achieve more than
    they could through the court-imposed fines and restrictions
    alone.
        The benefits of deferred prosecution agreements have been
    recognized by Bush I, Clinton, Bush II and Obama Justice
    Departments. In some cases part of an effect of a deferred
    prosecution agreement is the use of a corporate monitor to
    oversee the implementation of and compliance with the
    agreement's provisions.
        Corporate monitors help ensure that companies institute
    meaningful changes and develop the best compliance programs
    possible. Additionally, corporate monitors can verify that
    companies are fulfilling the obligations of the deferred
    prosecution agreement to a much greater extent than the
    department could accomplish on its own.
        Now, despite the benefits of corporate monitors, their use
    has engendered criticism in recent years in the press and from
    some Members on the other side of the aisle. Much of this
    criticism was levied, in my opinion, to an attempt to derail
    the gubernatorial campaign of former New Jersey U.S. Attorney
    Chris Christie.
        As hearings before the subcommittee demonstrated, however,
    the criticism of Governor-elect Christie's use of corporate
    monitors was unjustified. Yet we are here today to consider
    whether legislation is needed to avoid conflicts of interest in
    the appointment of compliance monitors.
        And honestly, I do believe the case has been made that
    congressional legislation is needed. I think that it is not
    needed in this area. I don't see the case. It is not to say
    that I believe that the appointment of corporate monitor should
    be ungoverned. I just don't think there is credible reason to
    believe that Justice Department has or has not or cannot
    develop sufficient internal regulatory guidance on the
    appointment of corporate monitors.
        It seems to be an area where we are majoring on a minor,
    and maybe taking the risk of having to minor on majors. Over
    the past 10 years since the initial Holder memo on deferred
    prosecution agreements, the department has continually fine-
    tuned its rules for these agreements.
        And at this point, I think the Nation's corporate law
    enforcement goals would be best served by continuing to leave
    it to the department to ensure transparency and integrity in
    corporate monitoring. We do not need to unnecessarily tie the
    department's hands with legislation at this point, in my
    opinion.
        So in closing, let me just say that I find it disappointing
    that the Committee is once again revisiting the subject of the
    appointment of corporate monitors when we have yet to take a
    look at the Obama administration's appointment of countless
    policy czars. Certainly, these czars, who are not subject to
    Senate confirmation, wield far greater power than any corporate
    monitor.
        And I hope that in future the Chairman will direct this
    Committee's oversight efforts to these constitutionally
    questionable, yet highly powerful czars to the same degree that
    we have investigated corporate monitors.
        And I look forward to the witnesses' testimony, and I thank
    the Chairman and yield back the balance of my time.
        Mr. Cohen. Thank you, Mr. Franks. And as soon as the
    Chairman gives me jurisdiction over czars, right now we are
    just dealing with, like, you know, Roman times and their wives,
    but once we get up to czarist Russia and the Chairman gives me
    that authority, well, we might look into that.
        Mr. Chairman, is that something you would like to get
    into--czarist Russia?
        Mr. Conyers. Would that jurisdiction come to your
    Committee?
        Mr. Cohen. I tend to doubt it.
        Mr. Conyers. Well, if it doesn't----
        Mr. Cohen. Commercial and--well, that was kind of a
    commercial. That was infomercial against the Obama campaign, so
    it could be considered commercial.
        Mr. Conyers. If it would come to your Committee, I would be
    more disinclined to----
        Mr. Cohen. Moving right along with our bombastic review,
    thank you, Mr. Chairman.
        I thank the gentleman from Arizona for his statement.
        I now recognize Mr. Conyers, the distinguished Chairman of
    this Committee, distinguished Member of this subcommittee, and
    a icon and lion in the legislative world of the United States
    of America.
        Mr. Conyers. Thank you, Chairman Cohen, Mr. Frank, Ranking
    Member.
        I have asked for the notebooks. Mr. Christie left the
    hearing rather abruptly the last time, and I just wanted to try
    to refresh my memory to see if there could be any useful
    purpose in asking him to rejoin the Committee. And I will put
    my statement in the record. Thank you.
        [The prepared statement of Mr. Conyers follows:]
    Prepared Statement of the Honorable John Conyers, Jr., a Representative
      in Congress from the State of Michigan, Chairman, Committee on the
     Judiciary, and Member, Subcommittee on Commercial and Administrative
                                      Law
        Today's hearing will focus on the selection and use of independent
    corporate monitors to oversee deferred prosecution and non-prosecution
    agreements.
        In January of 2008, media reports detailing questionable
    appointments of independent monitors by the Justice Department under
    the prior Administration began to surface. In response, the Judiciary
    Committee conducted an investigation into the Department's use of
    deferred prosecution and non-prosecution agreements.
        We soon learned that the lack of guidelines in this area had led to
    vast discrepancies across jurisdictions in the terms of agreements and
    in the selection of corporate monitors to oversee them.
        To address these concerns, the Department issued guidelines on
    monitor selection in March 2008, and mandated the collection and
    tracking of these agreements.
        Last fall, the Government Accountability Office commenced an
    examination of the Department's use and oversight of deferred
    prosecution agreements and non-prosecution agreements, including a
    focus on the selection and use of corporate monitors.
        I understand that report is due to be released by mid-December. I
    look forward to reading the report, and to hearing testimony from our
    GAO witness and our other witnesses this morning.
        I am pleased to hear that, by most accounts, there has been
    positive progress in this Administration with respect to greater
    transparency, uniformity, and accountability in this area.
        It is important to consider, however, what more remains to be done,
    and what role Congress can and should play in terms of codifying
    guidance to ensure greater transparency and fairness in the process.
        There are three key areas I would like to focus on in particular
    today.
        First, whether the guidelines issued last year by the Department in
    the Morford Memorandum are sufficient for providing accountability,
    transparency, and uniformity.
        As a reminder, on the eve of this Subcommittee's March 2008 hearing
    on corporate settlement agreements, the Justice Department issued a
    memorandum from then-Acting Deputy Attorney General Craig S. Morford to
    the heads of Department components and United States Attorneys,
    regarding the selection and use of monitors in deferred prosecution
    agreements and non-prosecution agreements with corporations.
        This memorandum articulated nine principles covering three areas:
    (1) the selection of monitors, (2) the scope of their responsibilities,
    and (3) the duration of monitorships.
        It also advised prosecutors to consider both a monitor's potential
    benefits to the corporation and to the public, as well as a monitor's
    cost and impact on corporate operations.
        While I applaud the Department for developing these guidelines, I
    would like to hear today about whether they quelled the controversy by
    ensuring sufficient accountability, transparency, and fairness.
        As we discussed at the last hearing, the guidance does not address
    whether a deferred prosecution agreement or a non-prosecution agreement
    should be used, or how the agreements should be structured.
        Also, it fails to rein in the tremendous leverage that the
    government and the monitor have over the corporation entering into an
    agreement.
        Corporations facing criminal prosecution are faced with a very
    difficult choice: they can either risk a conviction and a possible
    corporate death sentence after trial, or be coerced into accepting the
    terms and fees the monitor and prosecutor dictate.
        It is important for us to remember that, no matter how helpful the
    Morford Memorandum guidance might be, it is only internal Department of
    Justice guidance. It is not binding in any court of law.
        The second area we should examine concerns the compliance of
    prosecutors with the Morford Memorandum guidelines.  For example, I
    want to know:
        Who are the monitors who have been selected since the Morford
    Memorandum was issued?
        What is the prior professional experience of these monitors?
        Have there been actual, potential or perceived conflicts of
    interest in the selection of monitors since the Morford Memorandum was
    issued?
        I would also like to hear whether adherence to those guidelines has
    been documented. It is one thing to claim compliance; it is another
    thing to demonstrate it.
        I don't wish to steal our GAO witness Ms. Larence's thunder, but
    she has been working diligently on the GAO's report, and I anticipate
    she will be able to shed some light on the compliance issue, and what
    still remains unaddressed.
        I would also like to explore whether we even have enough
    information at this point to determine whether the Morford Memorandum
    guidance is sufficient.
        From what I understand, since 2008 there have only been four
    deferred prosecution agreements and non-prosecution agreements that
    have resulted in the appointment of corporate monitors.
        Are four cases enough to give us an accurate picture of whether the
    abuse or the appearance of abuse in the system has been completely
    eliminated?
        Finally, the third area I want to examine is the role of Congress
    in ensuring transparency and integrity in the selection and use of
    corporate monitors.
        Although the Morford Memorandum is clearly a positive step,
    codification of that guidance might be necessary to ensure the
    continuation of positive progress, and to prevent future abuses.
        In the last two hearings, we discussed New Jersey U.S. Attorney
    (and now Governor-elect) Christopher Christie's appointment of former
    Attorney General John Ashcroft to be a corporate monitor in the Zimmer
    Holdings case, which was very troubling.
        That appointment was made without public notice, without any
    bidding, and without any input from a neutral judge or the company
    subject to the monitoring.
        Mr. Ashcroft reportedly received $52 million for 18 months of work
    as a result of this appointment--fees that were apparently non-
    negotiable.
        In light of the fact that Mr. Ashcroft supervised Mr. Christie when
    he was Attorney General, this arrangement presented the strong
    appearance of cronyism.
        Last May, The New York Times reported that at least 30 of the 41
    monitors appointed in deferred prosecution agreements since 1994 were
    former government officials, and 23 were former prosecutors.
        Congressional action might be warranted to ensure that such
    cronyism--or the appearance of it--does not happen in future cases.
        I also understand that the Chair of this Subcommittee, Steve Cohen,
    plans to introduce legislation to create greater transparency and
    integrity in the appointment of corporate monitors.
        I hope that today's testimony will illustrate the best path forward
    for Congress and the Justice Department to ensure that the corruption
    of the past stays in the past, and that the selection and use of
    corporate monitors will be transparent and fair, in this new
    Administration and beyond.
        I thank the witnesses for coming today, and I look forward to your
    testimony about this important issue.
                                   __________

        Mr. Cohen. Thank you, Mr. Chairman.
        Other Members' opening statements will be included in the
    record.
        Now I would like to welcome the witnesses for today's
    hearing and thank you for your willingness to participate.
    Without objection, your written statement will be placed in the
    record. We have asked you to limit your remarks to 5 minutes.
    There is a lighting system there. It starts with the green
    light. After 4 minutes it turns yellow, and then after 1 more
    minute it turns red. And at that time you should try to
    conclude your remarks.
        After each witness has presented his or her testimony,
    subcommittee Members will be permitted to ask questions under
    the same 5-minute limitation, although it won't be as strictly
    enforced.
        Our first witness is Mr. Anthony Barkow. Mr. Barkow is an
    executive director of the Center on the Administration of
    Criminal Law, NYU School of Law. Prior to establishing the
    center in 2008, he was assistant United States attorney in the
    Southern District of New York, where he primarily prosecuted
    terrorism and white-collar criminal cases. From 1998 through
    2002, Mr. Barkow was assistant United States attorney for the
    District of Columbia, and from 1996 to 1998 he was trial
    attorney in the attorney general's honors program, the
    Department of Justice's Office of Consumer Litigation.
        Mr. Barkow, we appreciate your service and appreciate your
    being with us. And would you proceed with your testimony?

     TESTIMONY OF ANTHONY S. BARKOW, EXECUTIVE DIRECTOR, CENTER ON
    THE ADMINISTRATION OF CRIMINAL LAW, NEW YORK UNIVERSITY SCHOOL
                                 OF LAW

        Mr. Barkow. Thank you, Chairman Cohen. Chairman Cohen,
    Ranking Member Frank and Chairman Conyers and Members of the
    Subcommittee, thank you for inviting me to testify before you
    today. It is an honor to appear before you to discuss these
    issues.
        I would like to discuss briefly why I think that this
    proposed legislation is beneficial and offer three suggestions
    for possible improvement. The proposed legislation would take
    steps to fill a gap in the current law that governs the post-
    employment activity of former Federal prosecutors.
        Current law prohibits former DOJ employees from litigating
    the same matters in which they personally and substantially
    participated while in government service. However, current law
    does not expressly prohibit a former prosecutor from serving as
    a monitor for a company that he himself investigated and
    prosecuted, nor does it clearly prohibit a former prosecutor
    from serving in a monitorship that arose out of a deferred
    prosecution or non-prosecution agreement that she herself
    negotiated. The proposed legislation remedies these gaps.
        This proposed legislation is important for several reasons.
    First, it would target the problem of revolving door monitoring
    employment and the perception of self-dealing by prosecutors.
    Actual self-dealing, of course, is corrupt and criminal, but
    public confidence in government is undermined even by the mere
    appearance of self-dealing.
        If it looks like there is a revolving door between
    government service as a prosecutor and a monitorship for a
    private company, there is a real danger that it will foster
    public cynicism about government by feeding the public's belief
    that government actors are not always looking out for the
    public's interest, but rather their own. Even if government
    actors are not in fact corrupt, the perception of corruption in
    government activities has a dispiriting and corroding effect.
        Under current law, there is a risk that prosecutors who
    have worked on a DPA or NPA will later serve as monitors
    because of DOJ's power to select those monitors and the fact
    that monitors are often DOJ or SEC alumni. After searching
    public documents, I am unaware of any monitors who have been
    appointed who previously worked on the same matter that they
    later monitored. Nonetheless, the proposed legislation would
    impose prophylactic measures that would eliminate the
    possibility of such appointments.
        Second, the proposed legislation would be appropriately
    tailored to address this danger. If an apparent scrivener's
    error that I will mention in a moment is corrected--or would be
    corrected--the proposed legislation would bar former
    prosecutors from acting as or working for a monitor only on the
    same matters in which they worked while in government. Former
    prosecutors could still serve as monitors, as long as they had
    no involvement with the investigation or prosecution of the
    company subject to the DPA or NPA.
        Third, the proposed legislation appropriately would apply
    not only to U.S. attorneys, but also to AUSAs. Given that the
    proposal's primary policy benefit would be to prevent actual
    self-dealing and to avoid any appearance of impropriety, no
    substantive distinction should be made between political
    appointees and those who serve under them.
        Report of an award of a lucrative monitorship in a no-bid
    contract would have an equally deleterious effect on public
    confidence, whether it identified the contract recipient as a
    U.S. attorney who oversaw the prosecution that created the
    employment opportunity as it would if the contract recipient
    were the AUSA who handled the prosecution from day to day.
        Fourth, the proposed legislation would find analogues in
    other areas, which I discuss further in my written testimony.
        Fifth, the proposed legislation would have few significant
    costs. It would not reduce the actual quality of monitoring.
    The supply of available monitors would still include the
    thousands of former prosecutors who had not previously worked
    on the particular case, as well as people with experience in
    corporate America, independent private sector inspector
    generals or others, who in many situations might in fact be
    better monitors than former prosecutors.
        I have three brief suggestions for the subcommittee's
    consideration. First, the subcommittee may want to consider
    whether the time period of the proposed bar should be
    lengthened. The most analogous current provision to the
    legislative proposal is the prohibition on advocacy and
    representation in the same matter in which the former
    government employee participated. That prohibition is
    permanent. Similarly, the justifications for the proposed
    legislation do not seem to diminish with the passage of time.
        Second, the subcommittee may want to consider whether the
    scope of the persons covered under the proposed legislation
    should be expanded. As it is currently being considered, it
    would apply only to former prosecutors of U.S. attorneys
    offices, but not to former political appointees or other
    lawyers in main Justice, who may also work on NPAs or DPAs as
    monitors. There is no apparent reason to exempt DOJ's criminal
    division, which is responsible for more than one-third of
    monitor appointments or top DOJ officials from these
    prohibitions.
        Third and finally, the proposed legislation has what
    appears to be a scrivener's error that I recommend correcting
    that makes it overbroad in one respect. The proposal would bar
    monitorships arising out of DPAs only to which a former
    employee has a connection, but would bar monitorships arising
    out of any NPA, whether the former employee has any connection
    to the underlying matter or not.
        Thank you again for allowing me to testify and to share my
    thoughts on these issues. I would be happy to answer any
    questions that you might have.
        [The prepared statement of Mr. Barkow follows:]
                    Prepared Statement of Anthony S. Barkow

                                   __________
        Mr. Cohen. Thank you, Mr. Barkow. I appreciate your
    observing the red light. And recently deceased and former
    person that sat at that chair, Mr. William Safire, would have
    appreciated your testimony as well, I think.
        Our second witness is Ms. Eileen Larence. Is it Lawrence or
    Larence?
        Ms. Larence. Larence.
        Mr. Cohen. Larence? Ms. Larence currently serves as
    director for homeland security and justice issues at the U.S.
    Government Accountability Office. In this capacity she manages
    congressional requests to assess the various law enforcement
    and DOJ issues as well as state of terrorism related
    information sharing since 9/11.
        Ms. Larence, will you begin your testimony?

     TESTIMONY OF EILEEN R. LARENCE, DIRECTOR OF HOMELAND SECURITY
           AND JUSTICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Ms. Larence. Chairman Cohen, Ranking Member Franks and
    Chairman Conyers, I am pleased to provide the results of our
    ongoing review of Department of Justice practices in using
    deferred and non-prosecution agreements rather than prosecution
    to address some corporate crime.
        My testimony today will focus more specifically on the
    department's use of independent monitors to ensure company
    compliance with these agreements. Concerns about monitors and
    their independence have been raised, especially when U.S.
    attorney offices require companies to hire certain monitors,
    such as former Attorney General Ashcroft.
        For our work, we interviewed or surveyed companies,
    monitors and department officials on their views about how
    monitors are selected, what experience the monitors have, and
    how companies can resolve concerns about their monitors. In 40
    cases to date, Justice has required the companies hire and pay
    an independent monitor. Justice does this when it does not have
    the time, resources or requisite technical expertise to conduct
    the monitoring, among other reasons.
        Companies usually, but not always, play some part in
    identifying and selecting monitors, although Justice approves
    the ultimate decision. Company and Justice officials say they
    typically use personal knowledge and colleague recommendations
    to identify monitors and are usually looking for expertise,
    including former Justice experience or certain legal or
    industry knowledge, as well as assurance that the monitor is
    free of any conflict of interest.
        In March 2008 Deputy Attorney General Morford issued
    guidelines calling for the department and companies to
    collaborate on selecting monitors and to ensure they are
    qualified and did not have conflicts, among other things. Each
    litigating unit is to use an internal committee to select
    monitors and obtain the deputy attorney general's approval on
    this decision.
        Justice has selected four monitors since the memo and
    complied with these guidelines in each case. However, Justice
    does not always document its compliance, and in June testimony
    to you, we recommended that Justice do so to ensure
    accountability. In response, since August, Justice now requires
    that the Office of the Deputy Attorney General use a checklist
    showing compliance with the guidelines.
        So what experience did the monitors provide? Companies have
    hired 42 individual monitors so far, and more than half had
    previously worked with Justice, although only a few were
    selected within 3 years of leaving the department. Eight worked
    in the same Justice unit that issued the DPA or NPA. The
    remaining monitors had experience in state or local government,
    the private sector, and other Federal entities and agencies,
    among other areas.
        Eight of 13 company representatives we contacted, most of
    whom had monitors who worked with Justice, valued and did not
    have concerns about the monitor's Justice experience. But five
    representatives, including several whose monitors worked at
    Justice, said this experience could appear to compromise the
    independence, although they did not have this concern with
    their individual monitor. The Criminal Division requires
    monitors and others to certify they are free of conflicts,
    which could be one way to address concerns about favoritism.
        Finally, we looked at how companies resolve concerns about
    their monitors. Seven of 13 raised concerns about the scope and
    performance of their monitors, three about the monitor's total
    compensation, and three about the monitor's rates, which range
    from about $300 to $900 an hour for companies in our survey.
        But some companies were not certain how they could resolve
    these concerns or what role Justice could play in this. Justice
    officials said the department could help in some instances, but
    would be limited, once a company and a monitor signed a
    contract, since Justice is not a party to that contract.
    Justice officials said it would then generally be up to the
    company to ensure the monitor is performing.
        Justice also said companies could incorporate the monitor
    requirements spelled out in the DPA or NPA into the monitor's
    contract and include a provision to terminate the contract if
    the monitor didn't perform. But only one of 13 companies we
    surveyed had such a provision. And it is not certain what
    leverage companies may have to include one, given that Justice
    ultimately selects monitors.
        The fraud section of the Criminal Division and at least one
    U.S. attorneys office include in the DPA or NPA itself an
    explanation of the role they will play in resolving specific
    monitor concerns. We are recommending that the attorney general
    direct all litigating components and use the training offices
    to do this, depending on the facts and circumstances of each
    case.
        Mr. Chairman, that concludes my statement, and I would be
    happy to answer any questions.
        [The prepared statement of Ms. Larence follows:]
                    Prepared Statement of Eileen R. Larence

                                   __________

        Mr. Cohen. Thank you very much.
        Those annoying bells mean we are supposed to vote, but the
    15-minute vote really becomes like a 20-minute vote, so we can
    probably get both of your testimonies in, if you are nice with
    the red light, and I get this introduction done quickly.
        Our third witness is Mr. Gil--is it Soffer?
        Mr. Soffer. Yes.
        Mr. Cohen. Soffer, co-chair of the firm of Katten Muchin
    Rosenman--white collar. He joined the firm in August 2000, 6
    years Federal prosecutor prior to that, concentrates his
    practice in white-collar criminal litigation, corporate fraud
    litigation, corporate investigations, insurance litigation and
    anti-fraud, counsel to the deputy attorney general in D.C., and
    shortly thereafter appointed as associate deputy general.
        During his year-long term with the Department of Justice,
    he has played an integral part in drafting the department's
    corporate monitor principles and corporate charging principles
    and provided training on the latter policy to U.S. attorneys
    offices nationwide, previously served in DOJ as assistant U.S.
    attorney in Chicago from 1994 to 2000.
        Will you proceed with your testimony, Mr. Soffer?

                 TESTIMONY OF GIL M. SOFFER, PARTNER,
                      KATTEN MUCHIN ROSENMAN, LLP

        Mr. Soffer. Yes, thank you. Chairman Cohen, Ranking Member
    Franks and Chairman Conyers, thank you very much for the
    opportunity to testify today about an issue of great importance
    to prosecutors, corporations and the public alike.
        As you mentioned, I served last year as associate deputy
    attorney general, and in that capacity I have played a role in
    formulating the department's corporate monitor principles. We
    had one overarching goal in mind with respect to the selection
    of monitors, and that was to formulate a selection process
    designed to produce both a high-quality and conflict-free
    corporate monitor. I believe the department's corporate monitor
    principles achieve that goal.
        The very first principle goes to the matter before the
    subcommittee today. Simply put, principle number one is
    designed to ensure integrity in monitor selection. It lays out
    several key requirements toward that end.
        First, government lawyers involved in the selection process
    must comply with all existing conflict of laws guidelines--
    conflict of interest guidelines. Second, the government must
    establish a committee to review monitor candidates. And third,
    the deputy attorney general's office must approve the selection
    of the monitor.
        Principle one also directs that monitors be selected, where
    possible, from a pool of at least three qualified candidates.
    Now, these requirements have teeth. That is particularly true
    with respect to concerns over perceived cronyism by a
    prosecutor's office. Requiring that monitors be vetted by a
    committee diminishes the influence of any one person over the
    selection process, be that a U.S. attorney or assistant
    attorney general or even a line prosecutor.
        Likewise, requiring that monitors be selected, if possible,
    from a pool of candidates makes it even less likely that
    monitors will be cherry-picked by government officials seeking
    to reward friends or former colleagues.
        Even more significant, requiring the approval of the Office
    of the Deputy Attorney General provides an extraordinary check
    and balance against the selection of monitors for inappropriate
    reasons. And I use the word ``extraordinary'' without
    exaggeration. There are few matters at the department that
    require consultation with the deputy attorney general's office.
    There are even fewer that require the approval of the deputy
    attorney general's office, and there are fewer still that
    require approval on individual criminal cases.
        Now, I have seen the proposed legislation that would
    restrict the ability of former prosecutors to serve as monitors
    on cases in which they were involved while employed by the
    government. A limitation of this sort would certainly mitigate
    the perception that government lawyers might choose to work on
    a given case with the intent of angling for a monitorship after
    their government service expires. It would also reduce the
    appearance of favoritism in the selection of monitors.
        These are worthy goals, and in fact they would complement
    the precautions that are already set forth in the department's
    monitor principles. But even assuming that such restrictions
    are appropriate, the question remains who should impose them
    and when.
        Legislation has many virtues, including the force of law,
    the imprimatur of this body, and a permanence unlike any
    guidance that the executive branch can issue. But it also poses
    a risk where the practices in question are evolving and where a
    sufficient record of experience has not yet developed on which
    to fashion immutable policy. In such matters care must be taken
    to avoid imposing an inflexible set of rules that may fit one
    type of case, but that restrict the ability of prosecutors and
    corporations alike to handle other cases with maximum
    effectiveness.
        Now, there are clearly sound arguments in favor of imposing
    a cooling off period on government lawyers before they become
    eligible to serve as monitors. It is not inconceivable, though,
    that an unusual case would warrant the involvement of a former
    prosecutor with experience in the same matter. All parties
    would arguably benefit from having a monitor with knowledge of
    the matter at hand and from the efficiencies that such a
    monitor would bring to the engagement.
        Alternatively, even if the monitor herself did not work on
    the same matter previously, she might wish to partner with the
    former prosecutor who did for the purpose of accelerating her
    own learning curve and tapping into the expertise of her
    partner.
        Now, it may well be that any benefits of this sort simply
    are outweighed by the problems created by engaging former
    prosecutor as monitors on the same matters they handled while
    in government service, but that issue has not arisen in any
    monitor engagements to date.
        Over time, as more cases involving monitors develop,
    principle one may require adjustment to ensure that its
    purposes are satisfied. At that point, the department, in the
    exercise of its law enforcement authority and with its ability
    to fine-tune any changes that may be appropriate for existing
    policy, would be well suited to make any necessary
    modifications. At present, however, the department's corporate
    monitor principles appear to have worked.
        I thank you again for the opportunity, and I look forward
    to any questions that may be asked.
        [The prepared statement of Mr. Soffer follows:]
                      Prepared Statement of Gil M. Soffer

                                   __________

        Mr. Cohen. Thank you, Mr. Soffer.
        Although I believe we probably could get Professor
    Garrett's testimony in and get to vote on time, counsel has
    suggested that probably we should go ahead and amble up there
    and save Professor Garrett for when we come back, which should
    be give or take 30 minutes.
        This isn't an attempt to, like, freeze you and make it
    difficult to kick the field goal. We are not calling a timeout
    for that reason. We are just calling a recess so we can amble
    up there. And we will recess and come back. Thank you.
        [Recess.]
        Mr. Cohen. We are back. And our next witness will be
    Professor Garrett--Mr. Garrett. Professor Brandon L. Garrett,
    UVA Law School faculty and 2005 was associate professor, area
    is research and publication, include criminal procedure,
    wrongful convictions, habeas corpus, corporate crimes, civil
    rights, civil procedure, con law, and new forms of public
    governance. Prior to joining the UVA school, he worked as an
    associate at Cochran, Neufeld & Scheck.
        NSS project? Good. So should New York City.
        Wrongful conviction, DNA exoneration, and police brutality
    cases. I just got the book with all the exonerated. Very nice.
        Professor Garrett, will you proceed with your testimony?
        Mr. Garrett. Thank you, Chairman Cohen, Ranking Member
    Franks and distinguished Members of the Subcommittee, for the
    opportunity to testify before you.
        Mr. Cohen. Apparently, you have to push the button. Thank
    you.
        Mr. Garrett. It is pushed.
        Mr. Cohen. You should draw it close to you.
        Mr. Garrett. Draw it closer.
        Mr. Cohen. You have to embrace it.

     TESTIMONY OF BRANDON L. GARRETT, ASSOCIATE PROFESSOR OF LAW,
                  UNIVERSITY OF VIRGINIA SCHOOL OF LAW

        Mr. Garrett. Thank you. I will keep it very close to my
    mouth.
        I am an associate professor of law at the University of
    Virginia School of Law. My scholarship focuses on criminal
    procedure, and I have studied the growing phenomena of Federal
    organizational prosecution agreements.
        Federal prosecutors have adopted what is a creative and
    forward-looking approach to corporate prosecutions by entering
    agreements designed to avoid dire consequences of an indictment
    while implementing what I have called structural reforms.
    Attention to these complex agreements is largely because of
    their national importance, and this subcommittee has played a
    crucial role by examining these agreements.
        In response to scrutiny of monitor selection practices, in
    March 2008, as we have heard, the Department of Justice issued
    new internal guidelines. Those guidelines are useful. However,
    they do not go far enough. The GAO has suggested that the
    guidelines be supplemented, and I am encouraged that the DOJ is
    apparently in the process of reconsidering those guidelines,
    perhaps to some extent.
        Since the 1990's, but mostly the past decade, Federal
    prosecutors have entered more than 120 pre-indictment
    prosecution agreements, typically labeled as deferred or non-
    prosecution agreements. Of those, at least 48 required the firm
    to retain an independent monitor.
        Most agreements also include detailed provisions for the
    creation or improvement of compliance programs, and monitors
    are tasked with supervising the implementation of compliance
    measures, often in very large corporations and over a period of
    many months and years. They do not possess duties to
    shareholders, nor do they represent the firm or prosecutors.
    They are independent, and they wield enormous influence and
    power, particularly where their duties are often broadly
    defined.
        The selection of these powerful monitors is the subject of
    some concern. Most agreements provide that the prosecutor
    primarily select the monitor, perhaps with input from the firm.
    I have argued that a judicial role in selecting the monitor
    could avoid any lingering perception that these highly
    lucrative positions could be awarded as political plums. In
    only a handful of cases, however, did a court select the
    monitor.
        Existing regulations do bar the appearance of favoritism or
    providing favorable or preferential treatment. On the other
    hand, those prohibitions do not specifically address employment
    of former prosecutors. The proposed legislation does address
    that problem.
        Putting potential conflicts to one side, we should also be
    skeptical that a former prosecutor is always necessarily the
    right choice, particularly one who recently left government
    service or lacks extensive compliance or industry experience.
    Strong familiarity with the industry and with implementation
    and analysis of corporate compliance is a crucial
    qualification. We should consider other ethical and
    professional obligations of these monitors as well.
        Monitors should be committed to evenhandedness and a
    neutral evaluation of the evidence. They should adhere to the
    scope of their retention agreement. They should be impartial.
    They should be efficient and prompt. They should be not just
    competent generalists, but have strong familiarity with the
    industry and experience and with best practices for
    implementing compliance.
        Proposed additions to the American Bar Association rules of
    professional conduct would create additional and far more
    detailed obligations for third-party neutrals. And another
    model for an effort to adopt such a set of professional
    standards for monitors is in their organization of independent
    private secretary inspectors general, or IPSIGs.
        Another important area for further inquiry is the fees
    charged by monitors. I take it that the GAO is examining this
    issue. Their preliminary report highlights how firms may have
    little recourse, should the monitor not exercise sound billing
    judgment. One advantage of judicial oversight would be to
    permit the court to periodically review billing or respond to
    any complaints.
        Finally, the effectiveness of monitors remains unexamined.
    From the outside we can't tell whether monitoring is
    ineffectual, effective, or excessive and overly burdensome. Few
    agreements required, as per the United States Sentencing
    Guidelines, that a compliance program be itself continually and
    carefully evaluated.
        As the Guidelines recognize, simply creating a compliance
    program is not enough, if no one is rigorously auditing its
    effectiveness. Absent such ongoing assessments, we can't be
    confident that a compliance program is not a mere paper
    program. And this is not a hypothetical problem. Last year we
    had an instance of a repeat violator, a firm that pleaded
    guilty to a violation of a prior deferred prosecution
    agreement.
        Improved guidelines regarding selection of monitors will be
    a useful first step. However, the need for ever more
    complicated guidelines could be avoided by simply involving
    courts not just in selecting the monitor, but in approving
    agreements, evaluating monitors' effectiveness, and
    adjudicating any disputes regarding implementation or a claim
    of a breach. Federal courts already do this. They supervise
    similar efforts during organizational probation.
        So I hope that this subcommittee, the GAO and the DOJ
    continue to examine corporate prosecutions and potential
    improvements and as well as reforms. And I thank you for the
    opportunity to speak. I look forward to any questions.
        [The prepared statement of Mr. Garrett follows:]
                    Prepared Statement of Brandon L. Garrett

                                   __________

        Mr. Cohen. Thank you, Professor Garrett. I appreciate your
    testimony.
        And we will now have opportunities for Members to ask
    questions, and I will begin by recognizing myself.
        The--and I hate to use this phrase, but in a way I want to
    use the phrase, because it is the right phrase, even when it
    might be interpreted incorrectly, the 300-pound elephant that
    is in the room, a little-bitty elephant. What is it? A 3,000-
    pound elephant? Is that was it is? A 3,000-pound elephant. It
    is the Christie situation. And----
        Mr. Franks. Back off here, buddy. [Laughter.]
        Mr. Cohen. You said he was three----
        Mr. Franks. Don't throw your weight around here.
        Mr. Cohen. I can see the story now. Franks says he is 2,700
    pounds heavier.
        There was a lady in his office, Ms. Brown, and she was--the
    New York Times wrote about this; this is why it is the
    elephant--former assistant U.S. attorney. And she resigned her
    office and got involved in some things, and she took a job with
    a law firm that represented one of the companies that had a
    monitor in a deferred prosecution agreement. She went to work
    for this firm that represented DePuy Orthopedics Inc., one of
    five companies identified as a target in this litigation of
    kickbacks among the makers of artificial hips and knees.
        My question to the panel--I guess I will start with Mr.
    Barkow and go just down the line--do you think that there
    should be a limitation on an assistant U.S. attorney going to
    work for a law firm that represented a monitor in a--not a
    monitor, but represented a company that was monitored, that she
    or he had something to do with the selection of the monitor or
    the decision to have a DPA?
        Mr. Barkow. Mr. Chairman, without having thought deeply
    about this, my initial reaction to that is no.
        I think that, first of all, there is in current law a
    prohibition on a person while in government employment, and
    including DOJ, working on a matter while negotiating a plan
    with a particular company or with a law firm that has an
    interest or financial interest in matters that they are working
    on. So while the AUSA or Federal prosecutor would be working in
    government, they wouldn't be able to work on a case that the
    ultimate future employer was involved in.
        When a former prosecutor ultimately lands at a law firm
    that is actually working on matters before their former office,
    I think that wall procedures whereby those former prosecutors
    could be kept from working on a particular matter--at first
    blush, I would think that those are probably sufficient, but
    this is an initial reaction without having studied this that
    deeply.
        Mr. Cohen. Thank you.
        Ms. Larence?
        Ms. Larence. Well, what we can speak to is what we found
    during the course of our audit is that the selecting committees
    themselves, as well as the approval from the deputy attorney
    general, require that they scrutinize whether or not the
    monitor has a conflict of interest, and so there are internal
    controls in the current process that Justice uses to try to
    ensure against those kinds of concerns.
        Mr. Cohen. Mr. Soffer? What is your thought as a former
    prosecuting or U.S. attorney, and I guess it could extend to a
    criminal case, if you had made a deal, made an offer? But I
    don't--you know, should there be some kind of line there--some,
    6 months, 1 year, something?
        Mr. Soffer. Well, let me begin by saying I second Mr.
    Barkow, and I only come to it from the perspective of a partner
    at a firm who hires people out of government and was just
    rehired himself some 9 months ago.
        Anytime a new matter comes into the firm that touches on
    any work involving the Department of Justice, I am asked, ``Did
    you have anything to do this matter?'' If the answer is yes, a
    very solid and very high wall is built so that I don't touch
    it, I don't go near it, I am not consulted. In no way do I play
    any role in it.
        I think I--first, that is the standard approach, I think.
    And I do believe it has been effective, just judging from my
    own experience.
        Mr. Cohen. I am trying to recall, and I should. There was
    something in Los Angeles with one of the U.S. attorneys, and
    they came up in the firing of the U.S. attorneys that----
        What was it--did a----
        Yes, Ms. Yang. And she took a job with a law firm, left,
    that was----
        Where it was stated the firm had some litigation before
    them?
        Mr. Franks. Gibson Dunn you are thinking of, maybe?
        Mr. Cohen. Maybe.
        Mr. Franks. Was this Ms. Yang?
        Mr. Cohen. You know the situation? What was that? Do you
    want to brief that for me and give me the issue?
        Mr. Soffer. All I knew is that Ms. Yang went to Gibson
    Dunn.
        Mr. Cohen. But didn't Gibson Dunn have some action going on
    when she----
        Mr. Soffer. I don't know.
        Mr. Cohen. Professor Garrett?
        Mr. Garrett. I believe she is a monitor or was a monitor in
    these agreements.
        But I mostly want to second what Tony Barkow said, that
    existing rules do, you know, provide that one can't be acting
    as a government employee to further an interest in future
    employment. And, you know, conflicts rules might prevent one
    from working on matters in which one, you know, might conflict
    with one's former role representing a client being the
    government.
        Monitors are sort of a special situation, because they
    don't have a client. They are not representing anyone. They are
    not providing legal advice. They are acting like third-party
    neutrals.
        I also think that there is really a separate issue where
    unless someone had extensive, you know, compliance experience
    or, you know, doing corporate governance work before becoming a
    prosecutor, someone who recently left a job as a prosecutor
    really may not be the right person. And they may not have
    industry experience or the kind of skills that you need to
    really administer something, which is incredibly complex.
        To build a compliance program, to measure its
    effectiveness--that is a very difficult work, and you really
    would want someone who had that kind of specialized experience
    and not someone who is new to that kind of industry work.
        Mr. Cohen. I am going to take it one further step, and then
    we are going to yield to Mr. Franks.
        Last year the New York Times reported at least 30 of the 41
    monitors appointed under deferred prosecution agreements since
    1994 were government officials, and 23 were former Federal
    prosecutor. Would you find that strange?
        Mr. Garrett. The data that I have collected gibes with
    that. Certainly, many of these monitors have been former
    prosecutors. And from what the GAO tells us, it is not strange
    at all, because it is the prosecutors, the current prosecutors,
    who are primarily involved in this selection.
        And when you don't have an open process where talented and
    qualified people can apply, if you are depending on word-of-
    mouth, you know, you would expect that former colleagues would
    be the ones who would have a leg up in a word-of-mouth process,
    which maybe is a reason that the entire selection should be
    made more transparent.
        Mr. Cohen. And, Mr. Soffer, you said something about the
    suggestion that U.S. attorneys might not be skilled in certain
    areas and therefore they needed these monitors. But if they
    weren't skill when they were prosecutors, how do they get
    skilled when they are former prosecutors?
        Mr. Soffer. Well, I would say that one of the--a key
    thought behind our promulgation of these guidelines when I was
    in the department was precisely that. It will not always be the
    case that a former prosecutor is the right choice. Let me begin
    with that. And I think there is some large number of monitors
    who in fact did not have prior ties with the department.
        But the second observation is former prosecutors do have a
    skill which, I think, is very useful in monitoring, and that is
    particularly after, frankly, they enter private practice and
    then get into the business of internal investigations, they
    become expert at conducting internal investigations, and they
    become expert at ferreting out wrongdoing, identifying
    wrongdoing, devising ways to correct wrongdoing. And so they do
    bring that skill to an engagement.
        If it is a complex or esoteric industry or some subject
    matter which is not within their ken, then it does make sense
    for them, and they often do partner up with experts, such as
    corporate lawyers often do or criminal lawyers often do when
    they engage Ernst & Young or Price Waterhouse or other forensic
    accountants, just to cite one example, to assist them with the
    difficult subject matter. So they do bring a skill. It may not
    be a skill that encompasses all that is required, and for that
    reason they may partner with others.
        Mr. Cohen. Thank you, sir.
        I now yield to Mr. Franks for his questioning.
        Mr. Franks. Well, thank you, Mr. Chairman.
        Mr. Soffer, I will start with you, sir. Can you illustrate
    an example or even a hypothetical as to what the impediments to
    effective compliance monitoring would be if Congress passed
    legislation to limit the department's authority to select
    former U.S. attorneys or assistant U.S. attorneys to serve as
    compliance monitors? In other words, what would be--what are
    the impediments that would be created if we legislate in this
    direction?
        Mr. Soffer. Well, I see two problems, essentially. The
    first is conceptual. The second is a more practical one.
        The conceptual problem is that I think it involves an
    encroachment on turf and that constitutionally the
    department's--that is constitutionally the executive branch's,
    because fundamentally the selection and use of a monitor
    involves making decisions about prosecution and whether there
    should be prosecution and how to resolve a case short of
    prosecution, which is at its core an executive function. That
    is a conceptual problem.
        More practically, I believe there would be situations where
    you would very much want as a monitor, as a corporation, as the
    government, to engage someone who had previously served in
    government service, I think for just the reasons that I was
    just articulating to the Chairman.
        And finally, I would just note beware of the law of
    unintended consequences. And here is an example. One of the
    considerations that we tossed about in thinking about these
    guidelines is whether there should be a bar against monitors
    who had a prior relationship with the corporation.
        Now, at first blush it might conclude, well, of course,
    someone who had a prior relationship with the corporation ought
    not serve as a monitor, because that suggests conflicts. But we
    wanted to allow for the possibility that the corporation may
    have engaged a lawyer or an outsider, a monitor prior,
    previously, who came to know the compliance program, who
    perhaps launched the compliance program, and therefore it made
    a great deal of sense to continue using as a monitor.
        And I see from the GAO's report that there is at least one
    such case just like that, where the corporation and the
    government agreed to engage a monitor who had a prior
    relationship with the corporation, the point being you don't
    know what you are going to get when you pass a very broad and
    far-reaching piece of legislation or bar. You may have
    circumstances that you don't want to rule out.
        Mr. Franks. So do you believe that, at a minimum at least,
    that we should allow more time for the department to gain the
    experience under the Morford memo and inform us about the
    results of their experience in that regard before we proceed to
    consider legislation?
        Mr. Soffer. I do, but I want to make clear it may be that
    the suggestions that are built into this legislation are very
    sound policy. There is no question they could be. But let us
    find out. Let us not look for a solution in search of a
    problem.
        Mr. Franks. Okay. Is it your perspective that the
    department's efforts to formulate guidance designed to ensure
    the integrity and transparency and the selection of corporate
    monitors--do you think that those efforts have been successful?
        Mr. Soffer. Well, I do, and I think that is borne out by
    the GAO's report, which finds that since the promulgation of
    those guidelines, the department has abided by and complied
    with those principles.
        Mr. Franks. Well, thank you, sir. I appreciate your
    testimony.
        Ms. Larence, I guess I would sort of take off the same
    general idea there. Based on your work studying the selection
    of compliance monitors, do you have any reason to believe that
    the Justice Department will not follow its own guidance and
    procedures with regard to compliance monitors or deferred
    prosecution agreements in general?
        Ms. Larence. Well, it has found to date of the four
    monitors selected since the Morford memo, all four did comply
    with the guidelines, and I think if Justice responds to a
    recommendation to make sure they have transparency and
    accountability that they are complying with those guidelines,
    that will also help.
        I did want to note that of those four monitors, three did
    have former Justice experience in their backgrounds, but on
    average it had been anywhere from 18 to 20 some years since
    they had been employed at the department.
        Mr. Franks. Thank you.
        Mr. Barkow, don't you believe that there are perhaps
    benefits to leaving the guidelines for the use and selection of
    compliance monitors up to the department rather than setting
    them into stone through legislation? Do you think there is any
    advantage there?
        Mr. Barkow. I think that it is certainly possible that the
    Department of Justice might promulgate rules and regulations
    that address this, but I guess I would point out that most of
    the rules that I discussed in my written testimony and that I
    mentioned here today are congressionally enacted and
    presidentially signed laws. They are statutes. And I see this
    network of laws that govern post-government service employment
    as arising in significant part out of congressional action, so
    I think it is appropriate for Congress to set the terms of
    post-employment, post-government service employment for
    executive branch and other government officials.
        Mr. Franks. All right. Well, thank you.
        Well, let the record show that when I mentioned the 300-
    pounds as rather small for an elephant, that there was no other
    entendre involved, okay?
        Mr. Cohen. Thank you, Mr. Franks.
        And now to Mr. Johnson, the distinguished Chairman of the
    subcommittee On constitutional law--not constitutional law--
    courts and antitrust, from the State of Georgia.
        Mr. Johnson. Thank you, Mr. Chairman. And thank you for
    holding this hearing.
        Mr. Soffer, you said something that kind of got mine
    attention, and you said legislation on this issue could become
    a solution to a problem that--or a solution looking for a
    problem.
        But, you know, I must respectfully take issue. I think that
    the public sees how the government has coddled these firms,
    particularly financial services firms, and how we have, due to
    lack of regulation, allowed these firms to become too big to
    fail. And that is a issue that Chairman Cohen's CAL Committee,
    as well as my subcommittee on competition policy, we have been
    looking at.
        And I think the American people probably assume that, if
    they knew anything about these deferred prosecution agreements,
    I would think if they knew that I would assume they would be
    thinking that these kinds of agreements are monitored by the
    courts, and there is a criteria that is established that would
    allow for certain firms to have the benefit of the deferred
    prosecution agreement.
        How many of these deferred competition--excuse me, deferred
    prosecution agreements been invoked? When was the first one
    that was done? And how much money has been charged in fees by
    the firms that are given the work of monitoring?
        And also whether or not there are any--I know a lot of
    people assume that African-American or minority law firms are
    not capable of handling business on this level, but I would
    take issue with that. There are a lot of people who have come
    out of large firms, worked in this area, and know exactly how
    to perform on something like this. Is there--and if you would
    give me a number of minority firms that have gotten some of
    this business?
        Mr. Soffer. Let me begin with the third question and agree
    wholeheartedly with the notion that it is entirely
    unsupportable to believe that African-American owned firms or
    minority owned firms are not up to the task of this work.
        As to the question of have there been any and how many? I
    don't know.
        Mr. Johnson. Does anybody else on the panel know?
        Okay. That is a problem.
        And by the way, are these financial services firms
    generally that get these deferred prosecution agreements?
        Mr. Soffer. Are those that get deferred prosecution
    agreements generally financial services firms? I don't think
    so, because they have fallen in several areas, including health
    care, foreign corrupt practices, and other areas, frankly, one
    of my co-panelists probably can speak to even more directly
    than I. But my recollection is that the majority are not
    financial services firms.
        Mr. Johnson. How would the public ever be able to validate
    what you just said?
        Mr. Soffer. Well, there are actually----
        Mr. Johnson. I am still wanting those numbers, too, in
    responses to my other questions.
        Mr. Soffer. We have a record of virtually every, if not
    every deferred prosecution agreement that has been issued. And
    in fact, my co-panelist to my left, Professor Garrett, has
    assembled a list of those on a Web site. So you can actually
    have access to those, and we can see what those agreements
    provide.
        Mr. Johnson. Some are done prior to indictment. Others are
    done after indictment. If the deferred prosecution agreement is
    entered into prior to indictment, is there any way for the
    public to be able to assess the numbers of those and which
    firms got the work? Any transparency?
        Mr. Soffer. I believe there is transparency as to deferred
    prosecution agreements, which by definition at some point
    involve the filing of charges and in almost every instance the
    filing or publication of the document that represents the
    agreement.
        With respect to some number of non-prosecution agreements,
    it may be that there is not disclosure of those agreements to
    the public at large. And I must confess to being at something
    of a disadvantage. I am no longer in the department, so I can't
    track this information, but I believe that is accurate.
        Mr. Johnson. All right. And anyone else is--please feel
    free to respond to any of the questions that I have posed.
        Ms. Larence. I have some data for you, sir. The first
    agreement that we track started in 1993, and to date there have
    been 152 of those.
        In terms of transparency, GAO was able to identify the
    monitors that were selected in 46 of the 48 cases, and we were
    able to look at the background, publicly available information
    about the backgrounds of those monitors, and so we could see
    their employment history. So that type of information is
    available.
        But we also found, similar to what Mr. Soffer said, a
    deferred prosecution agreement would be available because of
    the filings in court, but it is unclear to what extent non-
    prosecution agreements are publicly available.
        Mr. Johnson. Do we have numbers on how many deferred
    prosecution agreements were entered into prior to indictment?
    And could that be the reason why you were only able to get
    information on--what--48 of the 152 deferred prosecutions--or
    the GAO, that they looked at?
        Ms. Larence. Sorry, sir. I just wanted to clarify. There
    were 152 agreements in total. Of those 152 agreements, 48 of
    them required a monitor. And the department has selected 46
    monitors to date. There's still two cases that they haven't
    selected, so we were able to obtain publicly available
    information on all 46 of the monitors.
        Mr. Johnson. Okay. I understand.
        Ms. Larence. I don't have a response, sir, to your earlier
    question about pre-indictment.
        Mr. Cohen. Thank you.
        We will do a second round, and I will obviously start.
        We are looking at two areas of legislation, which I would
    like your help on. One is the idea of having a more transparent
    and check and balance type of system in selecting the monitors.
    And the other is the question on the revolving door.
        And so, you know, Mr. Soffer, you said these are executive,
    and it is a system of balances and checks in the government.
    But, as Mr. Barkow mentioned, most of the prohibitions on
    revolving doors are statutory. And there are other statutory
    limitations on executive power. And if you don't have some
    type--I mean the executive----
        It is an interesting situation here. We have got a Member
    here on the Republican side, who is more or less defending and
    saying we don't want to restrict the Obama administration from
    all these situations, and yet we have got Democrats that think,
    well, it would be a good idea to have general restrictions,
    because it is, you know, get goose and gander.
        And, you know, I just--don't you think that there has to
    be--the legislative has to find ways, because whether it is
    Obama or whether it is Bush, the executive has a tendency to
    take care of their own. That is just politics and human nature.
        And there should be some way that there is a check and
    balance on that natural tendency to try to take care of either
    friends who are prosecutors or friends who have contributed or
    whatever. You don't see that as a necessary part of the system?
        Mr. Soffer. Well, you know, I do as a general matter see
    that as an important part of the system, but I think here we
    are dealing with a very unusual circumstance, almost sui
    generis. And that is, a, it is in the realm of criminal
    prosecution, which is a different animal to begin with. So many
    of the dimensions of criminal prosecution are not transparent.
    There is an exquisite sensitivity, in fact, to if not secrecy,
    at least to confidentiality in the criminal process.
        And it is also, perhaps more than any other function, a
    core function of the executive branch. So I would argue that it
    is a slightly different scenario than the norm in that there
    has to be a greater sensitivity to imposing requirements on a
    process that is fundamentally prosecutive.
        Mr. Cohen. Well, like probation--the executive can decide
    to give probation, but nevertheless the probation system and
    the option is created by the Congress.
        Mr. Soffer. That is true. Of course, there are many
    features of the probation system which are also not for public
    view, including reports provided by the probation officer to
    the court that the public cannot see.
        So again, as a conceptual matter, I don't disagree with
    you, Mr. Chairman. But when it comes to the selection of a
    monitor himself or herself, because it is so much fundamentally
    a part of the prosecutor decision, I just think great care has
    to be taken.
        Mr. Cohen. What about the idea of the judge being involved
    in it? I mean that is, again, the judge is a judicial official.
        Mr. Soffer. Yes.
        Mr. Cohen. You don't get into the--I know the prosecutor is
    the executive, but the judge has got ultimate discretion over
    the case, and when it comes into that type of situation, the
    judge is who is--you know, don't you see that it may be good
    for the judge to check off on something as a check and balance?
        Mr. Soffer. Here, too, I would be very cautious, because
    the--first, as a practical matter, to involve judges in
    proceedings that have not yet ripened into a court matter, and
    after all, some of what we are talking about here are
    negotiations between the government and a defendant or a target
    that may never reach the point of a plea agreement, of criminal
    charges being filed and pursued, so you already involve judges
    stepping beyond the normal bounds.
        As a practical matter, too, that may impose serious delays.
    Judges are very good at what they do, but they are very
    overloaded. And to present more matters to them, which would
    involve and would have to involve, if they are going to do the
    job right, a careful look at who the monitors are, what the
    facts of the case are, what are the needs of the case, what are
    the qualifications of these monitors, could impose a serious
    delay.
        Mr. Cohen. Professor Garrett, what about the executive
    having total autonomy here?
        Mr. Garrett. I respectfully disagree with--I do disagree
    with Mr. Soffer. I think that having courts involved would make
    sense and would actually simplify the process. You know, there
    are some agreements where judges were involved in the selection
    of the monitor. There were only three of them, but it wasn't a
    burdensome, cumbersome process, really.
        The firm submitted a few names. The prosecutor submitted a
    few names. And I think in at least one the regulatory agency
    submitted names of people they thought would be qualified. And
    the judge picked the one that seemed the most appropriate.
        You know, given the number of agreements that we have each
    year--you know, in the 20's in a good year; there have been 14
    so far this year--we are not talking about an enormous number
    of agreements that would impose a substantial burden on the
    judiciary.
        And this is not a fundamentally prosecution driven decision
    here. There are many, many contexts in which courts are the
    ones that appoint a special master or a monitor as part of a
    corporate probation agreement like you mentioned, Mr. Chairman.
    So this is already the type of decision that is often made by a
    judge and not by a prosecutor.
        You know, the only issue would come up in non-prosecution
    agreements where no document is filed with the court, and for a
    court to be involved, they would have to be pursued as deferred
    prosecution agreements, because there there at least is a
    charging document filed.
        Mr. Cohen. Mr. Barkow, do you have a thought?
        Mr. Barkow. Yes, Mr. Chairman. I think that it is important
    to keep in mind that prosecutors today in the criminal justice
    system, particularly the Federal system, have a great deal of
    what would ordinarily be viewed as regulatory power. Ninety-
    five percent or more of defendants in criminal cases plea. The
    pleas are largely driven by prosecutive charging decisions
    because of the penalties that apply and the incentives that are
    provided to defendants to plead guilty rather than go to trial.
        And it is no different in the corporate arena. In fact, it
    may even be a more extreme example, as I discussed in some more
    detail in my written testimony. And so prosecutors have
    tremendous power to put a case in a corporate defendant, or
    potential corporate defendant, in a situation where they
    really, acting rationally, need to accept one of these deferred
    prosecution or non-prosecution agreements, and they need to
    accede to the appointment of a monitor.
        And I think that that is really akin to classic regulatory
    activity. And when we look at regulatory activity, we are
    concerned about the appearance of self-dealing. We are
    concerned about the revolving door. And so I think that
    congressional oversight over the activities of executive branch
    officials who are involved in regulatory activities is very
    important.
        Mr. Cohen. Under Mr. Soffer's theory, you would have no
    check and balance. I mean this is an executive function. They
    can just decide we are going to give you a call. Hey, we got
    this thing, and we maybe can handle this in a little bit
    different way, and here is who is going to be your monitor. And
    here we do it, and there is no check and balance. It is as if
    they think they are being gouged or overly scrutinized.
        Mr. Barkow. I think that is right, Mr. Chairman. I mean
    there are certain areas where the executive needs more
    authority and needs to have more discretion. I don't think that
    this is one of them, where it is necessary to the carrying out
    of the executive function.
        Mr. Cohen. Thank you.
        I now yield to the defender of the Administration, Mr.
    Franks.
        Mr. Franks. So, Mr. Soffer, you talked about the divisions
    between the executive branch and the judicial branch and the--
    even maybe in this case--the legislative branch. That is
    something we try not to talk about too much--the Constitution
    in the Judiciary Committee. It is kind of been a hands-off
    subject most of the time.
        But isn't there a separation of powers issue with involving
    judges in the process? I mean can you expand that and tell us
    why?
        Mr. Soffer. Well, there is. And I begin by--I began by
    observing a separation of powers issue even with this branch.
    But there certainly is with involving judges. Again, judges are
    entrusted with the job of adjudicating disputes. They do that.
    They do it well. And only they can do it.
        Prosecutors are entrusted with the job of law enforcement,
    which includes within it the decision about whom to prosecute,
    how to prosecute, whether to prosecute. And so the key question
    simply becomes, in my view, what are we talking about here?
        Is the selection of a monitor more akin to an adjudication
    of a dispute between two rival parties, or is it more akin to a
    question of how to resolve a criminal case and how best to do
    it and through what mechanism to do it? And I submit that it is
    the latter, rather than the former. And because it is the
    latter, it is at its core an executive function, not a judicial
    one.
        Mr. Franks. Well, you may have probably figured out that I
    agree with you. But, you know, whenever we bring the judge and,
    you know, usually in the regular judicial process, if it were a
    judicial matter, there would be some type of, you know,
    oversight of another judge.
        I mean what would be the review in this setting, if the
    legislation passed as written? If the judge, say, made a
    decision on a monitor that some of the participants disagreed
    with, would there be the standard judicial review process? Or
    would the legislation lock it in?
        Mr. Soffer. If this legislation passed now, it would have
    the force of laws. I don't know what review process there would
    be. It would----
        Mr. Franks. I am talking about the judge's action under the
    legislation. If the judge chose a monitor that someone didn't
    like, do you just go ahead and review that? I mean would we be
    able to appeal that judge's decision?
        Mr. Soffer. And it is hard to know, frankly, because there
    is no process that is laid out for that issue.
        Mr. Franks. I think that was really my point.
        Mr. Soffer. Oh.
        Mr. Franks. But from your perspective, how well--the
    department's deferred non-prosecution agreements--how well have
    they worked over the years? Given the track record of the
    criminal justice system in general, how--do you think these
    stick out like a sore thumb somehow, or an 800-pound gorilla or
    anything like that?
        Mr. Soffer. Yes, I--no, I don't. I think they have worked
    well. And it is worth remembering what was the impetus behind
    these, or certainly behind their expanded use. And that was the
    prospect of an Arthur Andersen, just to be blunt.
        To prosecute a corporation, if the choice is between
    declining and prosecuting, and the fact, say, you really need
    to prosecute, because there was some wrongdoing here, and that
    is your only choice as a prosecutor, and you prosecute, you
    potentially bring down a corporation, and you harm shareholders
    and pensioners and the public and employees.
        That is not a result anyone should want, so deferred
    prosecution agreements, non-prosecution agreements really do
    hit the middle ground, which is critical, because it both
    observes law enforcement needs and the needs of the public.
        Mr. Franks. Well, I mean I think everyone here wants to try
    to arrive at the most just, you know, place. But I agree with
    you these monitors and the deferred prosecution agreements put
    another tool in the hands of law enforcement in a way that I
    believe can serve the overall cause of justice pretty
    significantly, especially in these complex corporate
    involvements.
        And I guess I--if it is all right, Ms. Larence, let me just
    ask you one question.
        And then I will yield back, Mr. Chairman.
        The main problem you identify in your written testimony
    seems to be with regard to the lack of clarity in the Justice
    Department's role in resolving disputes between the company and
    the monitor. How would you suggest that the department address
    that concern?
        Ms. Larence. We are making a recommendation to the
    department that they require the litigating units in U.S.
    attorney offices to clearly specify in the DPA or NPA itself
    the role that the Justice Department will take in that specific
    case, what kinds of conflicts do they feel they can address and
    what process the company can use to raise these concerns to
    Justice so that the company knows at the beginning whether they
    can look to Justice for help on these issues or not.
        Mr. Franks. Well, thank you.
        Mr. Chairman, sometimes, you know, it is amazing how
    perspectives change depending on what the subject is and which
    side which party is on. But, you know, a lot of times we have
    the debate as to, say, drug users, where they get caught
    abusing drugs. And a lot of times those on the Democrat side of
    the aisle say that, well, we need to have the ability to put
    them in treatment with the threat of prosecution later. But I
    actually think there is a place for that. I really do.
        But, you know, seems like we are kind of switching roles
    here a little bit. There is a tremendous place for these
    deferred prosecution agreements. They offer a new tool, and I
    think that to push them more in the direction of--a litigious--
    to try to press it into litigation is not a good move, unless
    there was some major problem with where we are right now, and I
    just don't see that. So I have already expressed that, and I
    yield back.
        Mr. Cohen. Thank you, Mr. Franks. And I am not against
    deferred prosecution agreements or drug users who--whether they
    are on the radio or not--having an opportunity to clean up
    their act. Either way, it is fine with me.
        But I do think there needs to be some controlling of the
    system to make sure that people are selected for the right
    reasons to be the monitors. And I don't think that having a
    judge involved or some other way to make sure that there are
    not cronyism involved is an important thing to make this system
    work.
        Mr. Barkow, Ms. Larence indicated only four monitors have
    been selected after the guidelines of the Morford memorandum,
    since it took effect. And the selection process was documented
    in only two of those cases.
        In light of that, please respond to this statement Mr.
    Soffer made--or his written testimony--``The Justice
    Department's effort to formulate guidance designed to ensure
    integrity and transparency in the selection process appears to
    have worked.'' How do we know it has worked, when we have only
    had two cases?
        Mr. Barkow. I think it--Mr. Chairman, I think it is hard to
    tell. The GAO report discussed almost exclusively monitorships
    that were entered into before the writing of the Morford memo,
    and it revealed that in those instances DOJ essentially
    selected the monitors and that DOJ selected those monitors
    largely from a pool of people that the decision-makers
    themselves knew.
        And as of the time of the GAO report, written report, there
    were two, and now I guess there are four. And so I don't know
    that we have sufficient data to really determine exactly how
    the Morford memo is working. But as I pointed out, the Morford
    memo itself may not have been intended to, but it doesn't
    actually target exactly what this proposed legislation might
    target.
        Mr. Cohen. Mr. Soffer, the fifth requirement of the first
    principle in the Morford memorandum is that corporations should
    agree not to employ or become affiliated with the monitor for
    at least a year after the monitorship expires. If that makes
    sense, why doesn't it make sense that an AUSA shouldn't go to
    work for a monitor for a year?
        Mr. Soffer. Well, two observations. The first is the
    impetus behind that restriction our suggestion is that you
    don't want the possibility that the monitor, while working as a
    monitor, was all along angling for employment by the
    corporation afterwards.
        Mr. Cohen. Right.
        Mr. Soffer. And understood. And there is no question that
    animates the same concern that we have been discussing today,
    which is don't we worry that an AUSA will likewise be so
    motivated? The short answer is it may well be so in policy, and
    I want to come back to that point.
        I am not disagreeing that there is validity to these
    concerns and that it may be appropriate to impose that
    restriction. My point is simply that it hasn't reached the
    level now where it is clear that it is a problem or that it
    would be a problem. And if it does reach that point, then let
    the department do exactly what it is done in these principles,
    which is to formulate a suggestion and to put it out as
    guidance. There is no reason why it can't do the same if the
    issue arises in this outher context.
        Mr. Cohen. Well, let me ask you this. We started out
    appointing these monitors in what year--1994, 1996? When did we
    start with DPAs and monitors?
        Mr. Soffer. DPAs started in 1993, 1994. I can't recall when
    the first monitor was selected.
        Mr. Cohen. But whatever. It has been a while ago.
        Mr. Soffer. It has been a while.
        Mr. Cohen. And when was the Morford memorandum issued?
        Mr. Soffer. March of 2008.
        Mr. Cohen. So we relied on the Clinton administration and
    the Bush administration to monitor themselves, and yet they
    didn't do it till 2008. The legislative branch might have been
    slumbering in not coming up with something, or maybe they
    proposed something that made this all of a sudden become a
    front burner issue for the Justice Department.
        But if the Justice Department has come up with the Morford
    memorandum--let us assume they hadn't, because they hadn't done
    it in the previous umpteen years--should the legislative, even
    if they think--and you think the Morford memorandum is a good
    thing----
        Mr. Soffer. I do.
        Mr. Cohen. Well, should the legislature not say we want to
    pass such a law? We should just wait on the U.S. attorney to do
    it and the attorney general? And if the attorney general
    doesn't do it, well, that is their business. They are not doing
    it. So we think it is good government, we think it is a grand
    thing, but they are not doing it, so we are not going to do it.
    That is not--doesn't make sense, does it?
        Mr. Soffer. Well, I think, put in those terms, no, it
    doesn't make sense. I think----
        Mr. Cohen. That is enough. [Laughter.]
        Go ahead.
        Mr. Soffer. No, I think that the Morford--candidly, the
    Morford memo had its genesis at a time when there was some
    concern about one particular instance. What I worry about is it
    is an example of bad facts making bad laws, lawyers like to
    say.
        The Morford memo--although, frankly, not spurred entirely
    by that incident--nevertheless arose around the same time. It
    tried to look beyond just the moment and tried to take into
    account all relevant principles and tried to consider all
    possible permutations down the road.
        What I worry about is that if we take that same incident,
    and we were moved by the moment to pass legislation--which is
    fundamentally immutable; it takes an act of Congress to undo an
    act of Congress--then we are going to regret what we have done.
        And if there is no pressing need to do it, because the
    monitors are in effect and because--or rather, the principles
    are in effect and because at least on the--granted, it is not a
    great body of evidence thus far, but on what we know, it has
    worked, or the department has abided by, then I don't think we
    take the next step and make it immutable.
        Mr. Cohen. I am going to ask one more question.
        I didn't see Mr. Johnson come in before I started asking
    questions, and I apologize to you for that.
        But he brought up the issue about the fees that have been
    paid some of the monitors, and the Ashcroft is the 800-pound
    gorilla--and $52 million. Have any of you all looked at that or
    had any opportunity--maybe Ms. Larence--to look at exactly what
    he charged? And you said $300 to $900 an hour is a typical fee.
        Ms. Larence. We surveyed----
        Mr. Cohen. Shouldn't somebody monitor the dollar amount? I
    mean that corporations are kind of afraid. This person has got
    them, you know, in their grip, and they can't question the
    charges. Shouldn't there be kind of an omsbudsperson?
        Mr. Soffer. Well, let me just offer a plug, then, for Ms.
    Larence's report, which included--at least the earlier report,
    or it is actually the most recent--a recommendation that the
    department make clear its role in the deferred prosecution
    agreements and make clear its role in serving as an ombudsman
    between the corporation and the monitor and in seeking to
    resolve disputes. It is an excellent recommendation. That is
    one I believe the department is likely to follow.
        Mr. Cohen. And did you--Ms. Larence, do you want to--you
    are all going to be saved in a few minutes by the buzzer, but
    do you have any--want to follow up on that all?
        Ms. Larence. We did survey a number of monitors. And of the
    13 that we surveyed, they reported that the hourly fees ranged
    from $300 to $900 an hour. We did not have access to the Zimmer
    agreement to be able to look at the charges in that individual
    case.
        Mr. Cohen. Does anybody have familiarity with the Zimmer
    agreement?
        Professor?
        Mr. Garrett. I think this subcommittee tried that without
    success, to get more information about the billing and that
    agreement. My understanding was that what the subcommittee
    found out was that it was a retainer, and so there wasn't
    hourly billing records. And so that again raises the question
    of what recourse the company has if a monitor isn't exercising
    good judgment in terms of billing or if there is a retainer
    that at the outset seems excessive.
        Ms. Larence. We do know in that case that the company did
    go to the U.S. attorney office to raise concerns about the
    fees, but the U.S. attorney office sort of said you need to
    work it out between the monitor, and the company felt like they
    had obviously no leverage to do that, so they did feel like
    they didn't have an avenue in that case.
        Mr. Cohen. Right.
        Mr. Soffer, don't you think there needs to be somebody out
    there to be the good guy or the good girl?
        Mr. Soffer. Well, if now we are talking about engaging, for
    example, a judge for the purpose of flyspecking agreements for
    the legitimacy of the fees that are being charged and to
    moderate disputes in real time as that goes forward, I think we
    really are trodding too much--we are demanding too much of
    judges, and I think we are encroaching too much on the
    executive function. I think we are imposing delays.
        And so I come back to Ms. Larence's suggestion in her
    report that let there be a fully collaborative process,
    including the Department of Justice, if there are genuine
    disputes about fees or other issues.
        Mr. Cohen. But it didn't work. The U.S. attorney told them,
    ``Go work it out. I am not getting--I am not going to mess with
    this. You go work it out with the firm.'' And they tried the
    firm. The monitor had gone and--the firm had gone to the
    monitor, and they couldn't work it out. It never happened.
        And they are just kind of--and I have had consultations
    with a couple of these folks, and they just say they have no
    choice. And some of the expenses are outlandish. Doesn't the
    Congress have a duty to represent these corporate interests? I
    mean I know some people don't care about corporations, but some
    people do.
        Mr. Soffer. Oh, I represent them, and I care deeply about
    them. But I don't think that their interests are ill served or
    underserved by the current structure. My experience has been
    they are not shy about expressing their concerns.
        And the scenario that we are now describing obviously
    predated the Morford memo, and it certainly has predated the
    GAO's directive, or recommendation rather, that the department
    consider inserting itself more aggressively. So I think it may
    be a different picture going forward.
        Mr. Cohen. Mr. Johnson, with apologies for overlooking you,
    you are recognized.
        Mr. Johnson. Thank you, Mr. Chairman.
        These deferred prosecution agreements--I don't disagree
    with them in principle. I think that prosecutors should have
    that ability to use when legitimately necessary. And insofar as
    criminal cases go, I have always thought that it is a great
    idea for prosecutions to be deferred for first offenders,
    should it be a logical and useful step and in society's best
    interests.
        And by the way, all of those types of agreements are
    subject to public records, although you may not be able to get
    pre-sentence investigation reports. But you go to the clerk's
    office, and you can find out all about these kinds of
    agreements.
        And I believe that there should be the same kind of
    mechanism on the top end. When I say the top end, I mean the
    corporations that can afford to pay a $7 million fee of a
    monitor. And so my purpose today is just simply to raise some
    issues that legislation may need to address.
        Can you tell me--and I know that deferred prosecution
    agreements are entered into to maintain stability of a company
    that is could be the non-financial or financial that has a
    crucial role in the American and perhaps world economy. Are
    there any other purposes that you see as legitimate for these
    agreements to be invoked?
        Mr. Garrett? Professor Garrett?
        Mr. Garrett. Yes, I mean many of the companies that have
    been subject to these agreements were large corporations that
    have, you know, public importance. And I think, you know, the
    department has said that one of the purposes of these
    agreements is to focus sort of in a forward-looking way on
    creating reforms to make sure that whatever the misconduct that
    was, that it didn't repeat.
        And so that is a laudable purpose, and I suppose the notion
    is simply punishing the firm, fining the firm may not be
    sufficient if reforms aren't in place, and second, that an
    indictment and the consequences that could flow from an
    indictment or conviction might be overkill, over deterrence,
    and they might indeed cause an Andersen-type situation.
        Mr. Johnson. Don't you think that that is a good thing, if
    a too big to fail entity is brought to justice and given the
    death penalty, if you will, strapped in an electric chair,
    fried to death like we had here in Virginia this week? Or their
    choice could be to do the--you know, the--of the poison peel
    kind of thing in being executed. But don't you think it is good
    for the public to see that this large entity is not above the
    law?
        Mr. Garrett. You know, I suppose that is what the
    organizational prosecution guidelines, the Thompson memo, was
    about. Not all companies receive these agreements. There are
    certainly still plenty of corporations that are indicted and
    sign plea agreements. Some of those plea agreements require the
    imposition of monitors just like deferred prosecution
    agreements do, except the company then has the consequence of
    that conviction.
        Mr. Johnson. Well, certainly, and once they are indicted,
    that becomes public information, unless it is under seal, which
    does not occur in the overwhelming majority of cases, correct?
        Mr. Garrett. It certainly has been a struggle sometimes to
    get copies of some of these deferred and non-prosecution
    agreements. I think in particular because of the work of this
    subcommittee, the department has made them public, and it has
    been much easier lately to get copies of them.
        But what you also bring up in terms of just making sure
    that the work of sort of remedying misconduct occurs in fact,
    you know, we really do want to make sure that not only are
    appropriate monitors being selected, but we want to make sure
    that they are really doing their jobs effectively so that we
    don't have any more misconduct in these organizations.
        And so I am also concerned not about monitors just doing
    too much work or billing too much, but you want there to be
    some check if the monitor is not doing enough. And that is
    something we don't know about. I think that is something that
    the GAO may be looking at. But we want to really be sure that
    these monitors are effective. And I don't know what sort of
    assessment is being done so that we can have some sense that
    these monitors really are doing effective work.
        Mr. Johnson. Thank you. And I really do believe that this
    kind of business that is sent to law firms to become deferred
    prosecution monitors should be opened up to minority firms. I
    have a feeling that it is not.
        Thank you.
        Mr. Cohen. Thank you.
        Professor Garrett, you said that you thought that this
    agreement memorandum came about after the subcommittee started
    its work. Did you say that? Or maybe it was Mr. Soffer in his
    written testimony.
        Mr. Soffer, you were there. You were there when the
    memorandum came about. What case was it or what subcommittee
    hearing triggered this?
        Mr. Soffer. It actually preceded the subcommittee hearing.
    So as I recall the sequence of events, some time in the early
    to mid, perhaps, 2007, the department began its work
    considering whether monitor principles would be appropriate. In
    November, I think it was, of 2008 the now governor or Governor-
    elect Chris Christie situation came into full view. And then it
    was in March of--November 2007, I am sorry--March of 2008 that
    the principles were promulgated, and then very shortly
    thereafter there was the first hearing on this matter.
        Mr. Cohen. Well, I thank each of you for coming and giving
    your testimony. I think we have had a great panel. We have all
    learned a lot, and we will try to--if you have any other
    thoughts you would like to submit, we would appreciate it in
    helping us to come through with our legislation or where we
    should go.
        Without objection, Members have five legislative days to
    submit any additional written questions to you, which we would
    forward to you and ask you to answer as promptly as possible.
    They will be made part of the record. Without objection, the
    record will remain open for 5 legislative days for the
    submission of any other materials.
        And I thank everyone for their time and patience.
        The hearing of the Subcommittee of Commercial and
    Administrative Law is promptly adjourned.
        [Whereupon, at 1:21 p.m., the subcommittee was adjourned.]
                                A P P E N D I X

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                   Material Submitted for the Hearing Record

     Material submitted by the Honorable Steve Cohen, a Representative in
      Congress from the State of Tennessee, and Chairman, Subcommittee on
                       Commercial and Administrative Law