[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

















                                 
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