[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
DEFERRED PROSECUTION: SHOULD
CORPORATE SETTLEMENT AGREEMENTS BE
WITHOUT GUIDELINES?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
----------
MARCH 11, 2008
----------
Serial No. 110-174
----------
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.govFOR
SPINE deg.
DEFERRED PROSECUTION:
SHOULD CORPORATE SETTLEMENT AGREEMENTS BE WITHOUT GUIDELINES?
DEFERRED PROSECUTION: SHOULD
CORPORATE SETTLEMENT AGREEMENTS BE
WITHOUT GUIDELINES?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
MARCH 11, 2008
__________
Serial No. 110-174
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
41-190 PDF WASHINGTON DC: 2009
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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 STEVE CHABOT, Ohio
MAXINE WATERS, California DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah
ROBERT WEXLER, Florida RIC KELLER, Florida
LINDA T. SANCHEZ, California DARRELL ISSA, California
STEVE COHEN, Tennessee MIKE PENCE, Indiana
HANK JOHNSON, Georgia J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida
BRAD SHERMAN, California TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
Perry Apelbaum, Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------
Subcommittee on Commercial and Administrative Law
LINDA T. SANCHEZ, California, Chairwoman
JOHN CONYERS, Jr., Michigan CHRIS CANNON, Utah
HANK JOHNSON, Georgia JIM JORDAN, Ohio
ZOE LOFGREN, California RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts TOM FEENEY, Florida
MELVIN L. WATT, North Carolina TRENT FRANKS, Arizona
STEVE COHEN, Tennessee
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
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MARCH 11, 2008
Page
OPENING STATEMENTS
The Honorable Linda T. Sanchez, a Representative in Congress from
the State of California, and Chairwoman, Subcommittee on
Commercial and Administrative Law.............................. 1
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Ranking Member, Subcommittee on Commercial
and Administrative Law......................................... 3
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............................................. 17
WITNESSES
The Honorable John Ashcroft, The Ashcroft Group, LLC, Washington,
DC
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Mr. Timothy L. Dickinson, Paul, Hastings, Janofsky, & Walker,
LLP, Washington, DC
Oral Testimony................................................. 35
Prepared Statement............................................. 37
The Honorable David E. Nahmias, The United States Attorney's
Office Northern District of Georgia, Atlanta, GA
Oral Testimony................................................. 123
Prepared Statement............................................. 125
The Honorable George J. Terwilliger, III, Esquire, White & Case,
LLP, Washington, DC
Oral Testimony................................................. 134
Prepared Statement............................................. 136
Brandon Garrett, Professor, University of Virginia School of Law,
Charlottesville, VA
Oral Testimony................................................. 145
Prepared Statement............................................. 147
The Honorable Frank Pallone, Jr., a Representative in Congress
from the State of New Jersey
Oral Testimony................................................. 312
Prepared Statement............................................. 314
The Honorable William Pascrell, Jr., a Representative in Congress
from the State of New Jersey
Oral Testimony................................................. 319
Prepared Statement............................................. 321
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable Christopher B. Cannon, a
Representative in Congress From the State of Utah, and Ranking
Member, Subcommittee on Commercial and Administrative Law...... 4
Article from The Record titled ``Christie's All-Out War,''
September 23, 2007, submitted by the Honorable Christopher B.
Cannon, a Representative in Congress from the State of Utah,
and Ranking Member, Subcommittee on Commercial and
Administrative Law............................................. 291
Article from The American Spectator titled ``First Spitzer, Now
Stryker,'' March 11, 2008, submitted by the Honorable
Christopher B. Cannon, a Representative in Congress from the
State of Utah, and Ranking Member, Subcommittee on Commercial
and Administrative Law......................................... 329
Article from The Washington Times, titled ``Medical supplier
Stryker probed,'' March 11, 2008, submitted by the Honorable
Christopher B. Cannon, a Representative in Congress rrom the
State of Utah, and Ranking Member, Subcommittee on Commercial
and Administrative Law......................................... 330
APPENDIX
Material Submitted for the Hearing Record
Responses to Post-Hearing Questions submitted by the Honorable
Linda T. Sanchez, a Representative in Congress from the State
of California, and Chairwoman, Subcommittee on Commercial and
Administrative Law to the Honorable John Ashcroft, The Ashcroft
Group, LLC, Washington, DC..................................... 338
Responses to Post-Hearing Questions submitted by the Honorable
Linda T. Sanchez, a Representative in Congress from the State
of California, and Chairwoman, Subcommittee on Commercial and
Administrative Law to Timothy L. Dickinson, Paul, Hastings,
Janofsky, & Walker, LLP, Washington, DC........................ 364
Responses to Post-Hearing Questions submitted by the Honorable
Linda T. Sanchez, a Representative in Congress from the State
of California, and Chairwoman, Subcommittee on Commercial and
Administrative Law to the Honorable David E. Nahmias, The
United States Attorney's Office Northern District of Georgia,
Atlanta, GA.................................................... 368
Responses to Post-Hearing Questions submitted by the Honorable
Linda T. Sanchez, a Representative in Congress from the State
of California, and Chairwoman, Subcommittee on Commercial and
Administrative Law to the Honorable George J. Terwilliger, III,
Esquire, White & Case, LLP, Washington, DC..................... 378
Responses to Post-Hearing Questions submitted by the Honorable
Linda T. Sanchez, a Representative in Congress from the State
of California, and Chairwoman, Subcommittee on Commercial and
Administrative Law to Brandon Garrett, Professor, University of
Virginia School of Law, Charlottesville, VA.................... 379
Prepared Statement of James K. Robinson, former Assistant
Attorney General for the Criminal Division, United States
Department of Justice.......................................... 383
Letter to the Honorable Linda T. Snchez from the Honorable George
J. Terwilliger, III............................................ 412
DEFERRED PROSECUTION: SHOULD
CORPORATE SETTLEMENT AGREEMENTS BE
WITHOUT GUIDELINES?
----------
TUESDAY MARCH 11, 2008
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:40 a.m., in
room 2141, Rayburn House Office Building, the Honorable Linda
Sanchez (Chairwoman of the Subcommittee) presiding.
Present: Representatives Conyers, Sanchez, Johnson,
Lofgren, Delahunt, Cohen, Cannon, Feeney, and Franks.
Staff present: Eric Tamarkin, Majority Counsel; Daniel
Flores, Minority Counsel; and Adam Russell, Professional Staff
Member.
Ms. Sanchez. This hearing of the Committee on the
Judiciary, Subcommittee on Commercial and Administrative Law
will now come to order. I will now recognize myself for a brief
statement.
I have called today's hearing to shed light on the use of
pre-trial prosecution agreements in corporate crime cases, a
growing practice that has so far been operating mostly in the
shadows without guidelines and without oversight. Today's
hearing is not being held with prejudice for or against
deferred prosecution and non-prosecution agreements, but rather
with concern about the number of unanswered questions
surrounding them.
The concept of deferred prosecution originated as a
rehabilitation option for non-violent juvenile and drug
offenders. After prosecutors file an indictment, the
prosecution is put on hold in exchange for commitments by the
offender to reform and provide restitution. If the offender
meets the obligations in the agreement, prosecutors may ask a
judge to dismiss the indictment.
In the past 6 years, the Justice Department has
increasingly relied upon a similar tool for white-collar
crimes, usually involving private corporations. In such cases,
an independent corporate monitor is often hired to determine
whether the target corporation has complied with the
obligations in the deferred prosecution or non-prosecution
agreement.
Late last year, I was troubled to learn of what appeared to
be a back room sweetheart deal where New Jersey U.S. attorney,
Christopher Christie appointed John Ashcroft, the former
attorney general, to serve as an independent corporate monitor
and collect fees between $28 million and $52 million. I was
also concerned to learn from press accounts that Mr. Ashcroft
was selected with no public notice and no bidding, and he had
to use considerable time to prepare for the assignment and
learn more about the business that he was contracted to
monitor.
When I continued to investigate the issue of deferred
prosecution agreements and the appointment of independent
corporate monitors, I discovered that the parties to these
agreements were operating in a wild west type of environment
with no laws and no Justice Department guidelines. Less than 24
hours before today's hearing, the department sent us a memo
mapping out some guidance with regard to the selection and use
of monitors. And while I do believe that this may be a good
start, uncertainties still remain as to how monitors should be
selected and how these agreements should be structured.
The absence of standards governing how independent
corporate monitors are selected has resulted in a hodge-podge
of approaches across jurisdictions. For example, in several
agreements prosecutors selected the monitor, typically after
consulting with the corporation. In others, the corporation
selected the candidate.
Additionally, a few agreements provide for collaboration
among the corporation, regulators, and prosecutors in the
selection. Finally, in at least three agreements, a court
played a significant role in the monitor's selection process.
Furthermore, the current system lacks guidelines to direct
how independent corporate monitors conduct oversight of the
corporation once they have been selected. Most monitors are
granted broad powers to gather information, institute polices,
and oversee compliance.
For example, in one matter, the monitor had the power to
``require any personnel action, including termination regarding
individuals who were engaged in or were responsible for the
illegal conduct described in the information.'' In essence, the
agreement allowed the monitor to act as the prosecutor, judge,
and jury for these employees.
While uncertainty is common in many aspects of deferred
prosecution agreements, one thing does remain certain. The
government has tremendous leverage over a corporation entering
into an agreement. Corporations facing criminal prosecution
have an unfair choice. They can either risk a conviction and
perhaps even dissolution after trial or be coerced into
accepting the terms and the monitoring that a prosecutor
unilaterally believes are appropriate.
Unfortunately, because of a lack of transparency in many
aspects of deferred prosecution agreements, we still don't know
the full scope of this issue. On January 10th, Chairman
Conyers, Congressman Pascrell and I sent a letter to the
Justice Department requesting that the department disclose all
deferred prosecution agreements and the individuals selected as
monitors. It has been 2 months since our request, and we have
yet to receive a response.
While we patiently await the department's disclosure of
information, this hearing serves as a critical starting point
of bringing deferred prosecution agreements and the appointment
of monitors out from behind the shadows. Accordingly, I look
forward to probing these issues further and considering whether
legislation in this area is appropriate.
I would like to recognize now the Ranking Member of the
full Judiciary Committee, Mr. Smith, who has joined us and has
some opening words.
Mr. Smith. Thank you, Madam Chair. I really don't have an
opening statement. I do want to, however, welcome former
Attorney General John Ashcroft to our hearing today. I know
what he is going to say, and I agree with it. And I just
appreciate his taking the time to be here today.
Madam Chair, I also want to read an excerpt from an article
in the New York Times today that speaks to the subject matter
that we are here to discuss. And here is the exact quote from
the New York Times article today.
``Outside lawyers who have reviewed Mr. Ashcroft's fee
schedule said it was not out of line.'' Madam Chair, if you
read that in the New York Times, that says a whole lot. And so,
I just appreciate their commentary, and I appreciate your
having this hearing today. With that, I will yield back.
Ms. Sanchez. I thank the Ranking Member of the full
Committee, Mr. Smith, and would like to recognize at this time
our distinguished Ranking Member of the Subcommittee, Mr.
Cannon.
Mr. Cannon. Thank you, Madam Chair. I would ask unanimous
consent to have my full statement entered into the record.
Ms. Sanchez. Without objection, so ordered.
[The prepared statement of Mr. Cannon follows:]
Prepared Statement of the Honorable Christopher B. Cannon, a
Representative in Congress From the State of Utah, and Ranking Member,
Subcommittee on Commercial and Administrative Law
Mr. Cannon. And I do that because I understand Mr. Ashcroft
has a travel obligation he has informed the majority of and
would need to leave at 12. And I think that he ought to have
plenty of time to respond to the allegations that are being
made.
You made a point of Mr. Christie's involvement. He has been
a remarkably effective prosecutor. And to a degree that becomes
an issue I hope that we could address that. But I would like to
thank you, Madam Chair, for this hearing. As you know, we have
talked about the concerns that I have with prosecutorial
discretion. And we have a marvelous panel here for addressing
that issue and in particular, as it relates to the matters that
we have before us today.
So I hope that we come out of here with a much expanded
view of what the possibilities are for, not only helping U.S.
attorneys handle the extraordinary burdens that they have, but
also helping us focus on how we in Congress and particularly,
this Committee can become much more involved in the process of
where we are seeing prosecutorial discretion is handled
throughout the country. So I want to thank you again for
drawing this panel together.
I want to thank all the panelists for being here today. I
suspect this will be a very interesting hearing. And I hope we
can clear the air and allow Mr. Ashcroft to have the
opportunity to respond with particulars to the suggestions of
the possibility of impropriety, referring back to what Mr.
Smith has just said, when the New York Times suggests that
things don't seem out of line, there is probably a pretty good
guess that they are not.
But I think it would be very important that we have the
opportunity to air both the charges that have been sort of
insinuated against Mr. Christie and also Mr. Ashcroft and that
we get beyond that and then start looking at the--we have a
marvelous panel of people who actually understand these issues
in great depth. And I hope we can plumb that understanding and
learn how to do our job or learn what we can do here to be much
better at our job.
So thank you, Madam Chair. I yield back.
Ms. Sanchez. I thank the gentleman for his statement.
I would now like to recognize at this time Mr. Conyers, a
distinguished Member of the Subcommittee and the Chairman of
the full Judiciary Committee. Mr. Conyers?
Mr. Conyers. Thank you, Madam Chairwoman, for holding the
hearing. You and Chris Cannon are to be commended. And I
appreciate the constructive tone with which we are beginning
these off. I welcome John Ashcroft as the former attorney
general and likewise, all the witnesses.
All we are doing today, sir, is exploring the Department of
Justice's use of corporate settlement agreements. We know that
they are a useful prosecutorial tool, several aspects of their
implementation that require congressional oversight and
possibly legislative attention, as has been suggested.
Congressional oversight of these agreements is probably
essential to provide transparency. We understand the importance
of these agreements as effective prosecutorial tools and
respect confidentiality concerns. We, nonetheless, want to know
the number of agreements into which the department has entered
these agreements and the details around them. I am going to ask
that of the Department of Justice.
How many of these kinds of agreements are floating around?
And it is important in light of the fact that the number of
these agreements have increased dramatically during the tenure
of our star witness here, former Attorney General John
Ashcroft.
In an effort to obtain information regarding the agreement,
as Chairwoman Sanchez has indicated, we are still waiting to
receive a response from the attorney general. Now, despite the
guidance that the department released yesterday afternoon
regarding the use of corporate monitors in these agreements,
this guidance still fails to ensure uniformity in the
agreements themselves. Indeed, some agreements require the
implementation of compliance programs, restitution, and fines
while others do not.
While it may be necessary to fashion some agreements on a
case-by-case basis, and we can concede that, general uniformity
could ensure the fairest application. We hope that we will have
these concerns addressed during the hearing today.
We hope that the recently-released department guidelines
regarding the selection of corporate monitors are successful
applied and implemented, because otherwise there is the
potential for department politicization. One such example for
this potential has arisen in the agreement between Zimmer
Holdings and the United States Attorney's office in which
Attorney Christopher Christie, who has been described here as a
stellar U.S. attorney, a trial expert, but that we still have a
problem with the naming of our former Attorney General John
Ashcroft as corporate monitor.
Pursuant to this agreement, they have agreed to pay Mr.
Ashcroft's firm anywhere from between $28 million and $52
million. And if it is not asking too much, we would like to
know exactly how much is involved here.
Prior to the appointment of our former attorney general,
there was neither public notice of the monitor position nor any
public bidding for the assignment that we know of. This
highlights the concern that brings us all here this morning.
We must assure the public that the Department of Justice is
not rewarding political allies in a forum where prosecutorial
independence is absolutely necessary. Our investigation into
the removal of nine U.S. attorneys has taught us,
unfortunately, that the department can be politicized in a way
that undermines public confidence. And so, we hope that the
department guidelines released yesterday accomplish the goal of
restoring public confidence.
And finally, there ought to be independent judicial
oversight of corporate settlement agreements because currently
there is no transparency and no requirement that they be made
public. Judicial oversight would help to ensure greater
legitimacy of these agreements by providing a neutral decision-
maker to prevent abuses and politicization as well as ensure
proper completion of the terms of the agreements.
And so, I hope that all of our witnesses will help throw
light on a subject that has not been examined up until now. And
that is why I commend this Committee and its leadership for
holding this hearing today.
Thank you, Madam Chair.
Ms. Sanchez. I thank the gentleman for his opening
statement.
And at this time, I would like to welcome two of our
colleagues who have joined us on the dais, Mr. Pascrell and Mr.
Pallone. They are not Members of the Subcommittee, but they
will be listening in and providing testimony for our second
panel.
Without objection, other Members' opening statements will
be included in the record. And without objection, the Chair
will be authorized to declare a recess of the hearing at any
point.
I am now pleased to introduce our witness panel for today's
hearing. Our first witness is Mr. John Ashcroft. Mr. Ashcroft
serves as chairman of the Ashcroft Group, LLC, which provides
confidential strategic consulting and crisis counseling to
major international corporations. Prior to forming the Ashcroft
Group, Mr. Ashcroft served during the first term of President
George W. Bush from 2001 until 2005 as the 79th U.S. attorney
general.
During his tenure as attorney general, the corporate fraud
task force was established within the department to restore
integrity to the marketplace. Prior to his appointment as
attorney general, Mr. Ashcroft was elected to the U.S. Senate
in 1994 and served on the Senate Judiciary, Foreign Relations,
and Commerce Committees.
From 1985 through 1993, Mr. Ashcroft served as governor of
Missouri and served as chairman of the non-partisan National
Governors Association in 1991 and 1992. He received awards from
the Business Roundtable, U.S. Chamber of Commerce, and National
Federation of Independent Businessmen for his service in the
Senate.
We want to welcome you, Mr. Ashcroft.
Our second witness is Timothy Dickinson. Mr. Dickinson is a
partner in the Washington, D.C. firm of Paul, Hastings,
Janofsky & Walker, LLP. Mr. Dickinson's practice is devoted
primarily to international commercial matters, including all
aspects of political risk insurance, the Foreign Corrupt
Practices Act, U.S. export laws, and economic sanctions. Mr.
Dickinson works closely with a wide range of industries on FCPA
matters, including establishment of compliance programs, due
diligence in acquisitions, special investigations, and defense
before U.S. regulators.
In 2005, Mr. Dickinson was appointed independent expert by
Monsanto as part of a deferred prosecution agreement with the
Department of Justice. Mr. Dickinson is currently an adjunct
professor at the University of Michigan Law School where he
teaches trans-national law and international commercial
transaction. He has served on the board of editors of the FCPA
Reporter since 1997 and is the director of the International
Law Institute course on government integrity and anti-
corruption initiatives.
Welcome to you, Mr. Dickinson.
Our third witness is David Nahmias. Is that a correct
pronunciation? Mr. Nahmias is the United States attorney for
the Northern district of Georgia. He serves as the chief
Federal law enforcement officer in that district representing
the United States in all criminal and civil litigation in
Federal court.
In January of 2005, Mr. Nahmias was appointed to serve on
the attorney general's advisory committee of the United States
attorney, which reviews and recommends policies for Federal
prosecutors nationwide. The attorney general also appointed Mr.
Nahmias as chairman of the White Collar Crime Subcommittee in
October of 2007.
Prior to his appointment as the U.S. attorney, Mr. Nahmias
served as a deputy assistant attorney general in the criminal
division, the fraud section, the appellate section, and the
capital case unit. Mr. Nahmias practiced with the law firm of
Hogan & Hartson in Washington, D.C. and served as a law clerk
for Judge Warren Silverman of the U.S. Circuit Court for the
District of Columbia and for Justice Antonin Scalia of the
Supreme Court of the United States.
Welcome to you, Mr. Nahmias.
Our fourth witness is George Terwilliger. Is that the
correct pronunciation? Thank you--a partner with the law firm
of White & Case, LLP, Mr. Terwilliger's clients include
national and international companies and prominent individuals.
He has represented the interests of major corporations and
other institutions in civil and criminal enforcement
proceedings, including financial crimes and environmental,
anti-trust, health care, and tax matters, among others.
Prior to joining White & Case, LLP, Mr. Terwilliger served
as the presidential appointee in two Administrations. He was
the deputy attorney general in charge of all Justice Department
operations, including crisis response. He also served as a
presidentially appointed United States attorney for 5 years and
for 8 years as a Federal prosecutor.
Welcome again to you.
Our final witness on our first panel is Brandon Garrett.
Professor Garrett joined the University of Virginia Law School
faculty in 2005 as an associate professor of law. His areas of
research and publication include criminal procedure, wrongful
convictions, habeas corpus, corporate crimes, civil rights,
civil procedure, constitutional law, and new forms of public
governance.
Prior to joining the University of Virginia School of Law
faculty, Professor Garrett worked as an associate in New York
City at Cochran, Neufeld & Scheck, LLP litigating wrongful
convictions, DNA exoneration, and police brutality cases. He
clerked for the Honorable Pierre Leval of the U.S. Court of
Appeals for the 2nd Circuit.
I want to thank you all for your willingness to participate
in today's hearing. Without objection, your written statements
will be placed into the record in their entirety. And we are
going to ask that you please limit your oral remarks to 5
minutes.
You will note that we have a lighting system that starts
with a green light when your testimony time starts. At 4
minutes, you will get the yellow warning light that you have
about a minute left to conclude your testimony. And then when
your 5 minutes have expired, you will see the red light.
If you are caught mid-sentence when the red light comes on,
we will naturally allow you to finish your last thought before
moving on to our next witness. After each witness has presented
his or her testimony, Subcommittee Members will be permitted to
ask questions subject to the 5-minute limit.
With that, I would now invite Mr. Attorney General to
please begin his oral testimony.
TESTIMONY OF THE HONORABLE JOHN ASHCROFT,
THE ASHCROFT GROUP, LLC, WASHINGTON, DC
Mr. Ashcroft. Good morning. And, Chairman Conyers, and
Madam Chairwoman Sanchez, and other Members of the Committee,
my written testimony has about eight points, which I would like
to summarize in my oral remarks now and see if I can get that
done in 5 minutes.
You have covered point one, my experience. And I thank you
for reminding folks that I served as state auditor, state
attorney general, governor of the state, senator, United States
senator, serving on Committees like Labor and Human Resources
and serving as the attorney general of the United States. I
thank you.
Point two--the public safety effort that we rendered at the
Department of Justice is one which is important and should be
considered. While most Americans focused on the Department of
Justice's record in successfully preventing another attack
after September 11th, violent crime dropped to a 30-year low.
Teen drug use dropped for the first time in a decade. Gun crime
fell to record lows.
The department won the largest health care fraud cases in
the Nation's history. There was a 73 percent increase in health
care fraud recoveries totaling $4.5 billion. And after the
corporate malignancies of the 1990's surfaced, shaking
worldwide confidence in our financial markets, we organized the
corporate fraud task force, which reestablished a standard of
integrity restoring America's reputation for sound and secure
markets. In dozens of corporate fraud prosecutions, over 600
corporate criminals were convicted, including 31 chief
financial officers.
Point three--deferred prosecution agreements protect the
American public from corporate criminality while placing the
cost of that protection on the corporate wrongdoers, not on the
taxpayers. My fellow panel members have written about job loss
and functional dislocations of traditional criminal
prosecutions destroying entire corporations rather than
addressing limited malignancies.
In my experience, prosecutors understand that a corporate
indictment can be a corporate death sentence. A deferred
prosecution can avoid the catastrophic collateral consequences
and costs that are associated with corporate conviction.
Point four--as we seek to achieve with other tools in law
enforcement, we should constantly seek to improve deferred
prosecution agreements. As a result, I welcome and I support
the principles announced in the additional guidelines from the
Department of Justice.
Point five--as attorney general, I instructed every U.S.
attorney to--and I did this personally eyeball to eyeball. I
had meetings with each of them--to be blind to the party
affiliation and political preferences of individuals. That
principle guided my endeavors, including deferred prosecution
agreements. It was true then. It should be true now.
Partisan consideration should be totally unwelcome in the
enforcement of our Nation's laws. I learned only last week that
during my tenure more Democrats were appointed as monitors than
were Republicans. Partisan affiliation should neither qualify
nor disqualify a person from being selected to do public
service in the role of a monitor. The focus should be on the
quality of service and the results that are expected.
Point six--A monitor should be independent, should demand
the highest quality work and the finest professional standards
and be unwavering in the face of pressure. As you may or may
not recall, there were plenty of people who attacked me for the
way that I chose to defend America from terrorism. Those
assaults did not shake my commitment to protect innocent
American lives from terrorist attacks.
Similarly, a monitor should be immune to pressure and
should not allow attacks from whatever sources to contaminate
the cause of justice. I will not allow external pressures to
compromise my responsibilities as a monitor.
Point seven--a monitor protects the public from further
corporate abuse. In my case, five monitors are charged with
reforming an entire industry which is mired in criminal
allegations of Medicare fraud and kickbacks to surgeons. There
are pending criminal cases against defendant corporations,
corporations that have already paid $311 million in civil
settlements. There is an active, ongoing criminal investigation
into multi-million dollar payments to physicians that might
have altered physicians' judgments about which devices they
will implant or prescribe for their patients.
A surgeon who makes decisions based on the receipt of
illegal kickbacks violates his responsibility to his patients,
breaches the public trust, and breaks the law. It must be
stopped.
Point number eight----
Ms. Sanchez. Mr. Ashcroft, your time is expired. But we
will allow you to go ahead and summarize your final points
before we move on.
Mr. Ashcroft. Thank you very much. The marketplace rewards
corporations who from the chaos of contamination bring the
clarity of integrity. On January 29, 2008, Zimmer, for which I
am the monitor, publicly announced that it will expand its
compliance program to all product lines and all of its global
operations, reforms that are well beyond the mandates of the
deferred prosecution agreement.
After the first full quarter working with our monitoring
team, Zimmer reported adjusted net earnings of $276 million, a
28 percent increase over the previous quarter. Zimmer now
projects adjusted net earnings to exceed $1 billion in 2008.
Following these announcements, the corporation's market
capitalization increased $2.1 billion.
The $2.1 billion increase is in direct contrast to the
steep market decline in stocks generally this year. The
marketplace rewards a commitment to corporate integrity and
results.
In summary, effective deferred prosecution agreements can
protect taxpayers. They can serve the cause of justice and
enhance corporate integrity. And I thank you for the additional
time.
[The prepared statement of Mr. Ashcroft follows:]
Prepared Statement of the Honorable John D. Ashcroft
Ms. Sanchez. We thank you for your testimony, Mr. Ashcroft.
Mr. Dickinson, I would invite you to provide your testimony
at this time.
TESTIMONY OF TIMOTHY L. DICKINSON, PAUL, HASTINGS, JANOFSKY, &
WALKER, LLP, WASHINGTON, DC
Mr. Dickinson. Thank you, Madam Chairwoman and Mr.
Chairman, Members of the Committee. As you noted, I am a
partner in the law firm of Paul, Hastings, Janofsky & Walker. I
also serve as an adjunct professor at the University of
Michigan Law School and hold a number of bar association and
other positions.
In addition, I serve as the independent consultant for
Monsanto Company and Delta and Pineland Company. I have been in
practice for over 25 years and have counseled companies on
issues relating to the Foreign Corrupt Practices Act, including
DPAs for my entire career. I also assisted in developing the
World Bank's voluntary disclosure program, VDP, and worked with
bank staff to advise a VDP participant on improving its
compliance program.
It is a great pleasure to be here today. And I should state
at the outset that I am here in my personal capacity only and
not as a representative of any company, client, law firm, law
school, et cetera.
In the interest of time, I will limit my remarks to three
areas. First, when is a monitor an appropriate component of a
deferred prosecution agreement? Second, in such circumstances,
how should the monitor be appointed? And third, how should the
scope of the monitor's work be determined?
To date, no guidelines have been issued outlining the
appropriate circumstances for appointment of a monitor as a
part of a DPA. This is troubling because of the potential
inconsistency and lack of predictability if, in similar
circumstances, certain prosecutors insist upon a monitor and
others do not. To remedy this concern, I would favor guidance
from the Department of Justice that would establish clear
criteria for prosecutors to follow when considering the
inclusion of a monitor in the terms of a DPA.
I would favor the imposition of a monitor under narrow
circumstances such as when a company has elected not to
establish a comprehensive compliance program or when there has
been a fundamental breakdown in a company's internal controls
or compliance program that the company has not adequately
addressed itself. Such a standard would leave some flexibility
to prosecutors but would also provide companies with the option
to take aggressive remedial actions themselves in lieu of the
intrusion of a corporate monitor.
With respect to the appointment process prior to March 7,
there were no guidelines. To date, the appointment process
appears to be a mix of prosecutor appointments, recommendations
for approvals, as, Madam Chair, you noted, but without any
particular guidance. While I recognize that some flexibility in
the appointment process may be beneficial to the government's
objectives, the lack of a defined methodology for the
appointment does not, in my view, serve the ultimate
government's objective of ensuring compliance with the law.
I would propose that the appointment process follow a
fairly simple formula. First, the company involved in the
deferred prosecution would propose to the government its
preferred candidate. Such candidate would be required to be
clearly qualified in the substantive area of law at issue. As I
am sure everyone is aware, monitors have been utilized in a
number of types of cases, including securities fraud, tax
issues, export violations, and my field, the Foreign Corrupt
Practices Act.
It is my view that anyone who a company would propose as
its monitor should have the requisite demonstrated expertise
such that the government and the public can be assured that the
monitor's duties will be carried out in an effective manner.
Upon receipt of the company's proposed candidate, I would
recommend that the government be given a veto over such
appointment should the government believe that the person
proposed does not possess the requisite skills or independent
integrity to ensure a successful execution of his or her
duties. I should point out that this was the formula or a
similar formula to that which resulted in my own monitorship.
Finally, the methodology for establishing the scope of the
monitor's work is another topic that might be considered. In
order, once again, to ensure a successful monitorship--and I am
mindful that some critics may say that my use of the term
successful is by definition an impossible result to achieve--
all parties involved, including the government, should agree at
the early stages of any monitorship as to the scope, timing,
and budget of the monitor's activities.
Of course, adjustments may be appropriate and necessary,
depending on what transpires during the monitor's terms. And
some flexibility must be allowed.
This would eliminate some of the uncertainty as to cost of
monitors, which need to be factored into a company's analysis
for entering into the agreement and would reduce the potential
abuses of monitors. Thus, I would welcome guidelines to be
issued by the Justice Department that would set out in a
transparent manner when a monitor would be deemed necessary as
well as the methodology to be followed in the appointment
process and in defining the scope of work.
I would be happy to elaborate on my comments. I have
included additional comments in my written statement. And thank
you very much.
[The prepared statement of Mr. Dickinson follows:]
Prepared Statement of Timothy L. Dickinson
ATTACHMENT
Ms. Sanchez. Thank you, Mr. Dickinson. We appreciate your
testimony. And you came in right at the 5-minute mark. Very
well done.
Mr. Nahmias, at this time I would invite you to provide
your testimony.
TESTIMONY OF THE HONORABLE DAVID E. NAHMIAS, THE UNITED STATES
ATTORNEY'S OFFICE NORTHERN DISTRICT OF GEORGIA, ATLANTA, GA
Mr. Nahmias. Thank you, Madam Chairwoman, Ranking Member
Cannon, and other distinguished Members of the Subcommittee. I
appreciate the opportunity to discuss the important work of the
Justice Department in preventing, deterring, and punishing
corporate crime. The investigation and prosecution of corporate
crime has been an important priority of the Department since
the corporate fraud crisis of 2001 and 2002 and has resulted in
more than 1,200 convictions of individuals and entities and the
recovery of hundreds of millions of dollars in fines,
penalties, and restitution for victims.
We recognize, however, that criminal conviction of a
corporation and sometimes even the indictment of a corporation
can have significant collateral consequences for innocent third
parties who may include employees, pensioners, shareholders,
creditors, customers, and the general public. As set forth in
the Department's Principles of Federal Prosecution of Business
Organizations, prosecutors properly consider such collateral
consequences in determining whether to charge the corporation.
Prosecutors may use a variety of tools other than
indictment and prosecution to achieve the goal of justice for
victims and the public. These tools include deferred
prosecution agreements, or DPAs, and non-prosecution
agreements, or NPAs. Under these agreements, a corporation
against which the government has sufficient evidence to file
criminal charges, potentially undertakes a period of probation
subject to specific conditions by agreement with the government
instead of as a result of a criminal conviction that would have
substantial collateral consequences.
A DPA differs from an NPA in that a DPA typically includes
a formal charging document and an agreement that is filed with
the court, while in the NPA context, there is typically no
charging document and the agreement is normally maintained by
the parties.
Deferred prosecution and non-prosecution agreements occupy
an important middle ground in the resolution of corporate crime
cases that may have distinct advantages over simply declining
prosecution, which may allow a corporate criminal to escape
without direct consequences, or charging and convicting a
corporation and producing a result that may have calamitous
collateral consequences. These agreements typically require the
payment of restitution to victims, and/or fines and penalties
long before such payments could be obtained in most cases
through formal charging, protracted litigation, and inevitable
appeals.
The agreements encourage corporate cooperation in obtaining
the evidence necessary to prosecute culpable individuals.
Perhaps most importantly, by requiring the adoption of solid
internal controls and ethics and compliance programs, the
agreements encourage corporations to root out illegal conduct,
prevent recidivism, and ensure that they are committed to
business practices that meet or exceed applicable legal and
regulatory mandates.
Thus, these agreements can help restore the integrity and
preserve the financial viability of a corporation that had
descended into criminal conduct. If the corporation satisfies
the obligations imposed by the agreement within a defined
period, usually 1 to 5 years, then the government will not
proceed with the prosecution. If the corporation materially
fails to comply with the agreement, then the government retains
the discretion to go forward with prosecution and in most
cases, to use admissions of the corporation to prove the case.
Since at least 1992, DPAs and NPAs have been used to
resolve a variety of cases involving a wide variety of criminal
offenses. But while the use of DPAs and NPAs to resolve such
cases has expanded since the fraud crisis early in this decade,
it is still a relatively limited practice.
Even more limited in number are the DPAs and NPAs that
include the use of a corporate monitor. Monitors are
independent. They are not employees or agents of the
government, and they are not paid with taxpayer funds. Instead,
the monitor is retained by the corporation, which pays for the
monitor along with all the other costs of implementing the DPA
or NPA.
The appointment of a monitor is not necessary in every
case, but it can have distinct advantages for the public in
appropriate cases. Monitors allow the government to verify
through the work of an independent observer whether a
corporation is fulfilling the obligations to which is has
agreed. A monitor may also provide specialized expertise to
oversee and ensure compliance with complex and technical
aspects of a corporate agreement.
We believe, as Attorney General Mukasey has previously
indicated, that the issuance of additional policy guidance
concerning the use of DPAs, NPAs, and monitors will improve
consistency and transparency and encourage best practices. As
you know, yesterday the Deputy Attorney General issued a set of
nine principles on the selection and use of monitors in
corporate deferred and non-prosecution agreements.
The first of these principles sets forth a detailed policy
on how monitors should be selected, which focuses on ensuring
the selection of a respected, highly qualified monitor who is
suitable for the particular assignment and free of any conflict
of interest.
As we go forward, we recognize that we will face new and
varied forms of corporate crime. The Justice Department will
continue its efforts to develop appropriate policies that
provide useful guidance to prosecutors in this area. In doing
so, we bear in mind that while public attention may focus on
high-profile corporate fraud cases, DPAs, NPAs, and independent
monitors have also been used creatively and successfully in
other less prominent but equally meaningful corporate crime
contexts.
It is important that we avoid imposing an inflexible policy
that fits one type of case--which may be the unusual type of
case--but constrains the ability of Federal prosecutors to
resolve other types of cases in the best interest of our only
client, the citizens of the United States. Thank you.
[The prepared statement of Mr. Nahmias follows:]
Prepared Statement of the Honorable David E. Nahmias
Ms. Sanchez. Thank you, Mr. Nahmias. We appreciate your
testimony.
At this time, I would invite Mr. Terwilliger to please
proceed with your testimony.
TESTIMONY OF THE HONORABLE GEORGE J. TERWILLIGER, III, ESQUIRE,
WHITE & CASE, LLP, WASHINGTON, DC
Mr. Terwilliger. Thank you. Chairwoman Sanchez, Ranking
Member Cannon, Members of the Committee, Mr. Smith, thank you
for inviting me to appear before the Committee today. The
proper handling of cases involving allegations of unlawful
conduct by corporations and other businesses is a matter of
vital interest to many who are stakeholders in those companies.
That includes the people who own them, including the tens of
millions of mutual fund owners and other shareholders of public
companies, the millions of employees of those companies who
depend on these employers for their livelihood, and the
countless individuals and other businesses that depend on the
goods and services that these companies provide.
I appreciate the opportunity to share my views as the
Committee considers issues concerning business crime and
related policies, and/or guidelines which are important to
achieving basic fairness by ensuring that like cases are
treated alike. The views I offer for your consideration are
from the perspective of 30 years of law practice, now divided
almost evenly between public service and private practice.
At the Justice Department I began my career as a law clerk
while in law school and finished as the acting attorney general
of the United States and in between dealt with many of these
kinds of cases and these issues. I now represent businesses,
including corporations, their boards, audit committees, and
their leaders as they navigate their way through enforcement
matters, including those under the jurisdiction of the
Department of Justice.
Deferred prosecution agreements provide a middle ground
between a criminal and a civil disposition. The company avoids
the appropriate and often considerable adverse collateral
consequences that would attend to either a guilty plea to
criminal violations or worse, a conviction after trial, while
the government achieves deterrence and punishment objectives
without the expenditure of the massive resources and the
litigation risks that would be necessary to indict and try such
a case.
As noted, DPAs often impose an obligation on the company to
employ at its expense an outside monitor. At its core, the
function of an outside corporate monitor is to observe the
conduct of a company relevant to its obligations under a DPA
and to report the product of those observations, including the
monitor's judgment about the company's conduct and its
commitment to compliance obligations.
Thus, to perform these functions, a monitor should be a
person, to borrow a phrase, learned in the law, but as
importantly, a person with the background, experience, proven
judgment, and integrity to make keen and credible observations
and reports concerning the compliance of a given type of
business with its legal obligations. Consistent with the
government's duty to assure the public that the administration
of law is free of any partisan consideration, the process of
selecting monitors with these qualifications should be
transparent, subject to layered review, and approval at Main
Justice in Washington.
The selection of monitors should be on the basis of merit
and enjoy input from both the government and the subject
company. In my own view, since the monitor will be paid for
with corporate funds and can provide value to the company in
achieving its compliance objectives, the best approach is for
the company to select a monitor from a panel of candidates,
each of whom has been previously designated as acceptable by
the government. I think the Department of Justice has taken an
important and valuable step forward by articulating a
principled basis for the selection and use of monitors, as it
did in its memorandum of March 7.
DPAs often describe the monitor as a compliance consultant.
In my judgment, that is a good description of the role of the
monitor as both a consultant to a company and as an internal
observer of compliance who reports relevant findings to the
government. Some go even farther and describe the monitor as
being a government representative who is essentially given a
seat at the boardroom table. I think this goes too far.
Monitors should not have the power to run companies, and
those who maintain the responsibility under the law, the
management and directors of public corporations, should. It is
equally important that any guidelines prescribing monitor
functions not be dictated by the Congress.
Under the separation of powers doctrine, neither Congress
nor the judiciary can control the executive branch's exercise
of prosecutorial discretion. The decision whether to enter into
a DPA or require some other terms in deciding whether to bring
charges in the exercise of prosecutorial discretion belongs to
the executive branch. I believe the legislation that the
Committee has considered is not, therefore, well-advised.
I thank the Chair and the Subcommittee for allowing me to
be heard today and appreciate that my written statement will be
included in the record.
[The prepared statement of Mr. Terwilliger follows:]
Prepared Statement of the Honorable George J. Terwilliger, III
Ms. Sanchez. Thank you, Mr. Terwilliger. And we appreciate
your testimony.
And at this time, I would invite Professor Garrett to begin
his.
TESTIMONY OF BRANDON GARRETT, PROFESSOR, UNIVERSITY OF VIRGINIA
SCHOOL OF LAW, CHARLOTTESVILLE, VA
Mr. Garrett. Chairwoman Sanchez, Ranking Member Cannon, and
Members of the Subcommittee, thank you for the opportunity to
testify before you today. I am an associate professor of law at
the University of Virginia School of Law. In 2007 I published
an article exploring remedies in deferred and non-prosecution
agreements in organizational cases. I will describe these
agreements and then discuss two recommendations for reform,
guidelines concerning their content, and judicial oversight
over their adoption and implementation.
First, just to describe an example, in 2007 after a lengthy
investigation, the IRS referred a criminal tax case involving
KPMG International to the U.S. attorney's office for the
Southern district of New York. In 2005 prosecutors announced
that they had reached a deferred prosecution agreement with
KPMG. The settlement stated that if at the end of 14 months
prosecutors were satisfied that KPMG had complied with its
terms, they would move to have the case dismissed.
In the agreement, KPMG provided detailed admissions of
wrongdoing. KPMG agreed to shut down its entire private tax
practice and to cooperate fully in an investigation of current
and former employees.
KPMG also agreed to retain an independent monitor for 3
years in order to implement an elaborate compliance program.
The monitor was paid by KPMG and had the power to recommend
policy changes, obtain access to documents, interview
employees, and to employ any personnel necessary. The district
judge approved the agreement, and at the end of 14 months,
prosecutors moved to dismiss the case stating the agreement had
been effective. However, prosecutions of certain individual
KPMG employees remained ongoing.
At least 39 of these prosecution agreements were entered in
the 4 years after the Thompson memo was issued in 2003. I have
gathered data from the texts of these agreements with some
difficulty where several were not readily available. Most
resembled the KPMG agreement and involved compliance programs
and independent monitors.
In preparation for this hearing, I also compiled updated
data reflecting 43 agreements entered into 1 year and 2 months
after the McNulty memo was issued in December of 2006. In just
slightly more than a year, more agreements were entered than
had been entered during the almost 4 years the Thompson memo
was in effect. That represents a remarkable acceleration in the
use of pre-indictment agreements with organizations.
I turn now to reform proposals advanced most recently in
legislation drafted by Representative Pallone and in the
statement of principles authored by Representative Pascrell.
First, while the McNulty memo provides useful guidance on
whether a firm should be charged at all, scant guidance exists
regarding the structure of the remedies included in the
agreements themselves or their implementation. The new Morford
memo just issued by the DOJ addresses only a very limited set
of issues concerning the selection and certain duties of
monitors. Much more remains to be done.
Several areas are particularly ripe for such guidance.
Since 2003 when the Thompson memo was signed, at least 39
agreements included the retention of monitors. Of those, only
one advertised an open position to solicit candidates. And in
only three did a court play any role in selecting the monitor.
The new Morford memo procedures forbid the unilateral
prosecutorial selection of monitors and provide for conflict
checks and vetting of monitors by prosecutors. However, those
guidelines neither require public notice of a monitor position
nor judicial approval, both of which would alleviate any
perception of cronyism in the selection of monitors.
Many other questions remain. Why do some agreements not
require creation of a compliance program? Why do some not
include fines or restitution? When are non-prosecution versus
deferred prosecution agreements appropriate?
Additional guidelines could clarify such issues--judicial
oversight of these agreements could provide greater legitimacy
by providing a mutual decision-maker as well as greater
transparency by making aspects of this process public. The U.S.
code requires judicial approval of any deferral of prosecution,
but does not address issues unique to the deferral of
organizational prosecutions.
For example, a court could be required to conduct an
approval hearing in which the public or affected parties would
have notice and an opportunity to comment, as is the case when
certain agencies enter consent decrees. Regarding
implementation, when an agreement ends, no information is
typically released except the bare facts that prosecutors were
satisfied it was successful. The court could publicly report on
the monitor's progress.
Further, agreements provide prosecutors with unilateral
authority to declare a breach and terminate an agreement. A
firm may lack any pre-indictment remedies should a prosecutor
arbitrarily declare a breach. Courts could be provided with the
authority to adjudicate pre-indictment any dispute regarding a
breach.
Now that pre-indictment agreements have become the
preferred method for resolving organization prosecutions, it is
time to consider ways to improve their fairness, transparency,
and effectiveness. Prosecution guidelines concerning remedies
and increased judicial oversight are warranted to achieve those
goals.
I would be pleased to answer any questions that you and
your fellow Committee Members may have. And thank you for this
opportunity to speak to you.
[The prepared statement of Mr. Garrett follows:]
Prepared Statement of Brandon Garrett
ATTACHMENT 1
ATTACHMENT 2