Anthony Barkow, executive director for the NYU School of Law’s Center on the Administration of Criminal Law, testified on November 19 before the House Subcommittee on Commercial and Administrative Law about legislation under consideration that would limit former federal prosecutors from serving as or for corporate monitors in cases they investigated or prosecuted while in government service. Barkow favored the proposal, saying it would help close a loophole that “holds the potential to undermine public confidence in the criminal justice system and the Department of Justice.”

In order to avoid an indictment that would essentially wreck their businesses, many corporations enter negotiated agreements such as deferred prosecution agreements or nonprosecution agreements with the government. “Prosecutors have tremendous and significantly unchecked power and leverage over corporations facing possible indictment,” Barkow said. “This power and leverage typically leads corporations to agree to negotiated settlements rather than to proceed to trial.”

The power of prosecutors over indicted corporations extends to the selection of monitors who are retained to oversee compliance with these settlements. In his testimony, Barkow discussed potential conflicts of interest that arise in the selection of monitors. Barkow testified that the process could fall prey to the perception that it is “self-serving and corrupt.” Anecdotal evidence, Barkow said, also creates the perception of self-dealing in connection with such appointments. For example, in 2007, Zimmer Holdings, an orthopedic device maker, paid $169.5 million and entered into a deferred prosecution agreement with the Department of Justice in order to avoid criminal charges of conspiracy to violate anti-kickback laws. The deferred prosecution agreement required Zimmer to be subject of oversight by a Justice Department-selected federal monitor for 18 months. Then-New Jersey United States Attorney Chris Christie selected former U.S. Attorney General John Ashcroft to be the monitor. The contract with Christie’s former boss was signed without any other bids being made, was not announced publicly, and netted Ashcroft’s firm between $28 and $52 million.

“The monitors are essentially selected by the DOJ. The current process of selection is not competitive, insufficiently transparent, not subject to adequate recordkeeping, and open to the possibility of nepotism,” Barkow said. “And the actual output of the process is often that the DOJ selects DOJ or Securities and Exchange Commission alumni to serve as monitors.” Barkow says the proposed legislation would prohibit appointment of former prosecutors who had worked on the same matter while in government and thereby reduce the possibility of actual or perceived self-dealing.

“The primary benefit of the proposed legislation is its restorative impact on the public trust,” Barkow concludes. “The public cynicism that perceived self-dealing breeds is not mitigated depending on the nature of the relationship between the self-dealing party and the government.”

Posted November 20, 2009