The Life Cycle of a Monitorship

This chapter addresses commencing a monitorship, previews issues that may arise during a monitorship and discusses reporting. Many issues that could arise in a monitorship are addressed by a few key documents finalised at or near the commencement of a monitorship, which provide a window on the entire life cycle of a monitorship: the agreement,^[2] the engagement letter and the work plan.

The agreement

In many respects, the agreement that sets forth the monitorship is its beginning and end, defining the terms and powers of the monitor, including critical issues such as access to information and the monitor’s role in disputes.

Understanding the scope

Every monitorship begins with a close reading of the agreement; in circumstances where the monitor is selected before the agreement is final, the monitor may even have input on key provisions.

Understanding the monitor’s job is not as straightforward as it may seem. In the throes of negotiation, the parties may leave provisions vague, concluding that they obtained enough to argue about meaning later. That tendency in negotiations can result in the most significant areas of dispute in a monitorship. When an agreement states that ‘the monitor must ensure that policies and procedures comply with X law’, does that require a paper review of policies and procedures or a review of how these policies and procedures are implemented? These are vastly different enterprises. If an agreement authorises a monitor to interview employees, does the agreement permit the company^[3] to have a representative present for those interviews? When an agreement directs a monitor to review compliance issues in a particular line of business, does that include only compliance of the type that led to the monitorship or all compliance matters in the line of business? Does a ‘review’ of customer records and transactions mean examination of all such records and transactions or is sampling expected or sufficient?

When, in the middle of a monitorship, the parties have a significant disagreement regarding the scope of the monitor’s duties, there is no easy mechanism to resolve the dispute. For that reason, it is best to identify and resolve as many disputes as possible at the outset of the monitorship.

Understanding the parties’ view of scope

A first step following review of the agreement is a meeting with each party. Although joint kick-off meetings involving the government, the party undergoing the monitorship and the monitor have some value, separate meetings are far more desirable because the monitor needs to hear from both sides in a candid manner. The monitor can explain his or her approach during these meetings but their primary purpose is for the monitor to obtain information from the parties.

From the government, the monitor needs to understand the underlying facts – not because the monitor necessarily will be doing a retrospective investigation but because he or she needs to know the background for specific provisions in the agreement. In addition, the monitor can ask the government about areas of the investigation that may never have been completed but nonetheless are addressed, in some fashion, in the agreement.

From the party undergoing monitorship, the monitor needs extensive briefings about the company itself (structure, personnel, relevant policies and procedures, and IT systems). In addition to this, the monitor should learn about the company’s view of the facts that led to the agreement and any steps that have already been taken to address the underlying conduct. In most cases, the company will have made significant changes during the pendency of the investigation, both as a means to avoid further violations of law and to mitigate potential punishment. These efforts, of course, require testing, but monitored parties often make significant progress before the agreement is signed.

In many cases, the company and the government will have very different perspectives. The government may view the company as unchanged – with the same problems that resulted in the agreement. That can lead to a mismatch between the agreement and the goals of the monitorship (e.g., the agreement may demand that the monitor expend significant resources overseeing an activity that the company has already stopped). In addition, monitored parties will often plead that the government misunderstood the underlying facts (e.g., ‘the government always thought we did X but we never did’). These long-standing disputes can be a source of tension throughout the monitorship.

Finally, the separate meetings allow the monitor to explore areas that may be vague in the agreement. At the end of these meetings, the monitor will often have a short list of issues about which the parties do not appear to have a meeting of the minds. These issues can be addressed in the context of the work plan (discussed below) or may be discussed separately. Some areas of dispute may be sufficiently minor that the monitor prefers to wait to address them in the context of a concrete dispute later in the monitorship. In most circumstances, however, a monitor should seek to get agreement on key issues at the outset or, at a minimum, to set expectations.

If agreement is not possible, the parties may look to the monitor to be the tiebreaker. That is not an ideal or recommended approach for disputes about the meaning of the agreement. The agreement is, after all, that of the parties, not the monitor. Parties, however, are loathe to renegotiate or to seek court intervention (if available) to resolve issues. Thus, the monitor is often drawn into being the arbiter.

In this situation, the monitor has a couple of choices. The monitor can pursue a ‘third way’, developing a compromise that advances the goals of the agreement but does not treat the disputed issue as binary, with a winner and loser. Such a compromise will generally need buy-in from the parties. Or if the monitor must interpret the agreement, the role is like that of a judge, making the most reasonable interpretation possible, in the context of the overall agreement.

The engagement letter

An entire chapter could be written about monitor engagement letters. However, the focus here is on addressing a few important issues, primarily of relevance to the monitor.

Payments or budget

For the monitored party, cost is an enormous issue. In practice, however, it is very difficult for a monitored party to complain about a monitor’s expenditure.^[4] Although there have been cost caps in some monitorships,^[5] they are rare. Caps are a relatively crude, but effective, means of focusing a monitorship’s scope. For the monitored party, a cap or limit on ‘how big’ the monitorship might get responds directly to the most significant concern that monitored parties have (at least, in the abstract, at the beginning of a monitorship). For the monitor and the government, caps can raise significant concerns if they create an incentive for the monitored party to drive up the cost to the monitor, including by delaying or resisting production of documents. Even where a cap is acceptable to both sides (again, that is rare), it may be difficult to set a cap at the outset of a monitorship.

Notably, in some cases, the government also has concerns about costs and may be (somewhat) aligned with the company. Increasingly, government lawyers have put pressure on monitor candidates to keep costs down, primarily in the name of avoiding public or judicial criticism. With monitor-selection processes becoming increasingly subject to requests for proposals or similar submissions, budgeting and cost estimates have become a significant part of the competition to become a monitor.^[6]

For a monitor candidate, it is incredibly difficult to propose a legitimate budget before commencing work. Even if the scope of the agreement is relatively fixed, the variables (the seriousness of the issues, remediation performed prior to the agreement, the company’s approach to producing information, etc.) overwhelm what is known. Although the government and the monitored party may be attracted to a low-cost proposal, in many circumstances they may actually be choosing the least candid monitor candidate.

Because pre-monitorship estimates are fraught with uncertainty, budgeting is an important component of the early part of the monitorship. In the engagement letter or the work plan, the parties should discuss budgets and costs. In many respects, this approach mirrors what a lawyer should provide any client in a substantial matter – a real effort to budget (probably after the work plan), a heads-up when costs will significantly exceed what has been anticipated, and a discussion about steps the monitor and the company can take to keep costs down.

Single point of contact

Although a monitor may want a free hand to contact company personnel (see below), most monitorships function best if the monitored party has a primary contact person who is responsible for interacting with the monitor and making sure that the company is responsive. This individual needs to have sufficient authority to get the attention of company personnel.

Messaging concerning the monitor’s role and the agreement

Some agreements specifically define what the company must tell employees about the monitor’s role and cooperation.^[7] Even if not set forth in the agreement, there is value in agreeing what will be communicated to employees. If employees come to believe that the monitor is an enemy or a spy, rather than someone committed to a key aspect of the company’s long-term health (compliance), the company will not be successful in completing its obligations.

Confidentiality

Although confidentiality may seem obvious, it can be tricky in the context of a monitorship. A monitor, in most cases, should have a wide range of access to company materials, including materials protected by various state and federal laws.^[8] Thus, monitors are generally bound by strong confidentiality provisions.

But a monitor’s role entails making reports – often for the public or to a court that may make them public, or to a government agency subject to public records laws. Expectations should be clear at the outset as to what will happen with the monitor’s reports – are they intended or likely to be made public? Are they admissible in the event of a dispute? The parties may also need to consider whether, and under what circumstances, the monitor may share information with law enforcement agencies or entities other than the government entity that signed the agreement. Finally, whether through the engagement letter or the work plan, the parties should agree on a process for reviewing information that may become public for confidentiality, allowing for redactions or other appropriate protections.^[9]

Access to information

Other chapters cover the many challenges of accessing data and information in foreign countries. Owing to local law restrictions, document review, interviews and even report writing may need to occur in person, in country, with strict limitations.

But even domestic monitorships require thoughtful consideration of how information should be handled. Every company has significant confidential information (e.g., financial institutions, consumer companies, healthcare companies and educational institutions), especially personally identifiable information (PII). Absent proper procedures, a monitor can become the weak link in the protection of this type of information. If the information is provided to the monitor and then lodged on a law firm’s or a consulting firm’s computer system, it may lack the types of protection ordinarily accorded by the monitored party. In many cases, it will make sense for the monitor team to have secure laptops or other computers with direct access to some of the monitored party’s systems, but not connected to a law firm’s or a consulting firm’s system. These arrangements ensure that the monitor’s access is no less secure than that of a senior employee of the monitored party. Finally, in any request for information, the monitor should consider minimising the need for any PII that would be removed from the systems the company has implemented to protect it.

Testimony by the monitor or indemnities

In many cases, the agreement itself will define whether the monitor can be required to testify and, if so, under what circumstances. The parties may want the monitor available to testify in the event of a dispute; even if the parties do not envision such a testimony, the court, if one is involved, may want to hear from the monitor.^[10]

There is almost no situation in which a monitor will want to testify in a dispute. The parties – whether through the court that entered a consent judgment or through a new case filed to enforce the agreement – usually have ample ability to obtain and present evidence. Although the monitor’s work may have been important in defining the issue or uncovering evidence (and the monitor is likely to provide this evidence to the government), the monitor’s opinion or view of the dispute is rarely dispositive or even admissible evidence.

Even more problematic is the possibility of the monitor being called to testify in wholly separate disputes. For example, consumers filing a class action lawsuit against a company may seek the testimony of the monitor – or production of the monitor’s work papers – to obtain evidence of the company’s alleged wrongdoing (whether prior to the monitorship or during the pendency of the monitorship). Similarly, members of Congress may seek information about the monitorship, whether out of an interest in the monitored party, the monitor or the conduct of the government in imposing a monitorship.

None of these situations is attractive for the monitor. For that reason, where not otherwise covered by the agreement, a monitor’s engagement letter should make it exceptionally clear that the monitor will not be called to testify in any proceeding and shall be prohibited from producing documents absent a court order. Moreover, as part of the broad indemnity that should be given to the monitor, if that testimony (including production of documents) is compelled, the monitored party must pay the defence costs. Although none of the above will defeat a court order, it should provide some measure of protection for the independence of the monitor and some disincentive for the parties to embroil the monitor in collateral disputes.

Building a team

Although monitors are often individuals, monitorships are all about the team. The process of defining a monitor’s tasks – in the agreement, as refined in the work plan – goes hand-in-hand with building a team to complete those tasks.

Increasingly, monitors put together a team of lawyers, auditors, consultants and subject-matter experts as part of the monitorship selection process. Even when tentative decisions are made before selection, a critical early component of a monitorship is determining whether additional expertise is needed. On this point, the initial phases of the monitorship – understanding the agreement, meeting the parties and discussing their expectations, and developing a detailed work plan – can reveal gaps in the monitor’s team. For example, the parties may believe that the key areas for testing in a monitorship under the US Foreign Corrupt Practices Act are financial controls, rather than legal issues or training – the former may be better addressed by an auditor, the latter by a lawyer.

The foundation of a great monitor team is no different from any high-functioning team – and similar to the constituents of a successful compliance team in a company. The monitor needs to set the tone at the top. He or she will generally appoint a day-to-day lieutenant – or multiple lieutenants, if the monitorship is large in scope – to manage the team’s work. There needs to be a clear understanding of what each member of the team is doing – both to ensure that the requisite tasks are performed and to avoid a team member feeling redundant in his or her role (a common problem when lawyers and non-lawyer professionals work together).

An often forgotten and critical component of the monitor ‘team’ can be compliance personnel at the monitored party. Although they must be viewed carefully, given the monitor’s role, the company’s compliance team and, in some cases, internal audit group, can be strong allies for the monitor (and vice versa).^[11] Moreover, collaborating with in-house personnel can enhance and strengthen the in-house group; after all, when the monitor leaves, the in-house team will remain and may be the most important factor in continued and sustained compliance by the company. Allowing a monitor to take full advantage of the company’s own work has many advantages: it can reduce costs, convey transparency and candour, and focus the work the monitor needs to do.

The work plan

Other than the monitor’s reports, the most significant written document is the work plan, which sets out a road map for the monitorship. Some agreements specifically require a work plan;^[12] it should be one of the monitor’s first tasks, even if not explicitly required by the agreement.^[13] In general, all parties should agree on the work plan, although, in the event of disagreement, the monitor or the government usually resolves disputes.

The topics to be covered by an initial work plan will vary, but essential components almost certainly include:

• the monitor’s tasks and the methodologies or approaches the monitor will use to evaluate compliance;
• access to information, including witness interviews;
• the monitor’s approach to communicating issues or information; and
• addressing non-compliance and alleged misconduct.

The work plan will evolve significantly, however, during the course of the monitorship.

Tasks and testing methodologies

Work plans can come in many forms but most will include both a rough calendar for planned tasks and a task-by-task discussion of how the monitor will approach testing compliance. For example, when will the monitor seek to complete specific testing? Will the monitor prioritise specific areas, delaying testing on others until later? How far in advance of a report must the monitor receive data or testing to include it in a report?

Most work plans will, whether in chart form or otherwise, break down specific tasks, explain the intended means for examining compliance with the relevant provisions, highlight information that may be required and identify open issues for discussion. The work plan should address the following kinds of questions:

• What kinds of documents will be requested?
• What systems will need to be accessed?
• Is this a policy or procedure review, or one that is focused on outcomes?
• Will sampling be used and, if so, what are the broad outlines of the sampling protocol?^[14]
• Are interviews contemplated and, if so, what purpose will they serve?
• Are there thresholds for materiality with respect to potential non-compliance?

Once a work plan is adopted, there will be a strong presumption that the monitor will employ those methodologies in evaluating compliance. However, a monitor cannot accept a work plan that limits his or her ability to adjust if circumstances change. For example, a monitor who intends to use sampling to evaluate specific types of compliance must retain the discretion in appropriate circumstances – following disclosure and discussion – to expand the sample or abandon a sampling approach if the underlying assumptions of the sampling approach come into question.^[15]

Access to information and interviews

Documents and information

In almost every circumstance, a monitor is entitled to non-privileged information possessed by the monitored party.^[16] Although there may be specific types of documents that the government and the monitored party might define as outside scope (e.g., the monitorship does not extend to activities in X country and thus document requests regarding those activities would be inappropriate), absent such an agreement, the work plan must contemplate that the monitor gets any documents that he or she needs to complete the work.

Monitored parties will often complain that a monitor’s demands are unduly burdensome. On this point, the monitored party may have limited recourse. However, it is better practice for a monitor not to approach testing compliance like a civil litigant demanding huge amounts of email with metadata. Rather, the monitor should focus on what is required to reasonably ensure compliance. That could involve a substantial email review; however, in most cases, it will not.

The rationale for focusing the monitor’s resources is directly related to the outcomes the monitor is seeking to achieve. The goal of any monitorship is for the company to be better able to comply at the end of the monitorship. No company can, on a continuing basis, attempt the impossible in its approach to compliance; it will have to implement controls, make reasonable choices, invest sufficiently (but not without limit) and foster a culture of compliance. To help a company implement a sustained commitment to compliance, the monitor needs to demonstrate that it can be achieved with reasonable investments that can be made on a continuing basis.

Recordings

Call recording systems are a critical tool for compliance teams at companies that communicate with numerous consumers by phone. Although there have been few monitorships that directly touch on consumer interactions, those that have – principally the state attorney general consent judgments with for-profit education institutions^[17] – have required call recordings of interactions between company personnel and consumers as the centrepiece of the agreement.^[18]

A combination of random listening and targeting listening based on key-word searches will almost always be the best approach. The latter requires implementation of transcription or other search capabilities that will increase costs for the monitored party. For companies that do significant business with consumers by phone and have had an agreement imposed on them because of allegations of misrepresentation, this sort of transcription or search capability is absolutely essential. Without it, given the volume of calls, it is impossible for the compliance team or the monitor to identify patterns of misleading statements. Defining search terms is a challenging and evolving process during a monitorship.^[19]

Interviews

Interviews can be a source of contention in a monitorship. Some agreements specify clearly the monitor’s access to all personnel.^[20] However, even those agreements may not specify whether the monitor may compel any employee to be interviewed without company counsel present. From the company’s perspective, the monitor, although independent, is viewed as an arm of the government; compelled interviews without counsel may be perceived as government overreach, particularly if potential consequences are severe (i.e., revocation of a deferred prosecution agreement or imposition of criminal penalties). From the monitor’s perspective, however, having company counsel present may be perceived as a means of obstruction.

In most cases, both sides work in good faith to set ground rules at the outset; a discussion about monitor access to employees will be far more heated if the first time it arises is in the context of specific allegations of non-compliance. There is no single approach that has been adopted by all monitors. Some have insisted on the absolute right to interview without company counsel present, even if, in most circumstances, the monitor does not exercise that right. Other monitors have agreed that company counsel can participate in interviews with current company employees. Another approach could give the monitor some latitude to talk to employees without counsel present in settings where compulsion is not apparent – tours of facilities, focus groups, voluntary interactions of different kinds – but permit company counsel’s participation when an interview is compelled or when senior officials are the subject of the interview. Finally, monitors may want to sit in on regular meetings of company personnel (such as compliance meetings); although that can be perceived as intimidating, it can build trust over time and give the monitor a clear sense of how the company is operating.

Whistleblowers, former employees and customers present special cases. A monitor must preserve the ability to speak with whistleblowers (broadly construed to include any employee who voluntarily seeks out the monitor) without notice to, or the presence of, company counsel. The same is often true about former employees; the parties may agree in the work plan to a required disclosure so that former employees understand the terms of their inter­action with the monitor team (e.g., voluntary, encouraged or requested by the company, subject to the former employee’s separation agreement, or required by the agreement).

Customers of the monitored party present a much more complex problem. Unless they have affirmatively reached out to the monitor, it feels invasive for a monitor to use personal information obtained from company files to approach a customer. Although it may be appropriate in some circumstances – for example, if the customer is a large company represented by counsel – it will rarely be appropriate when the customer is an individual consumer.

That is not to say that monitors cannot find some means to get relevant information from customers. Monitors and the monitored party may be able to obtain feedback from consumers, for example by requesting volunteers in a communication from the company to consumers or using voluntary focus groups to which the monitor has access.

Communication of issues, including disputes

The cadence of every monitorship is different but a work plan will usually establish regular communication between a monitor’s team and the monitored party (as well as the government). A regular weekly status call is a common approach. These calls or meetings will be more or less frequent at different phases of the monitorship.

A work plan should also set forth expectations for how the parties will handle issues of non-compliance and disputes. Except in unusual circumstances, or if otherwise required by the agreement, a monitor should identify issues of material non-compliance to the monitored party prior to publishing a report of that non-compliance; in many cases, the monitor will share a draft report himself or herself. The monitored party should have the opportunity to address the issue, so that, in a report, the non-compliance is addressed with its solution or, at a minimum, a plan to address it. Although not always possible, this approach is most consistent with the goals of a monitorship, namely sustained compliance.

Some agreements have explicit provisions for how material non-compliance will be addressed: identification, validation, formation of a corrective action plan and evaluation of the completion of a plan.^[21] Even if not specifically addressed, that approach will often be the best way to deal with these issues. In any event, however, unless specifically limited by the agreement, the government will generally have the option of looking at reported non-compliance – even if subsequently addressed through a corrective action plan or other means – and determining whether it triggers consequences under the agreement.

Findings and new obligations

Although an agreement defines a monitored party’s obligations, new obligations may be imposed during the course of a monitorship; these may be as a result of a negotiation between the parties, clarification of the agreement, or non-compliance, requiring a corrective action.^[22] The work plan should set forth – at least in general terms – how the parties will deal with these eventualities.

New obligations that were not part of the original agreement may be difficult to enforce. For that reason, it is critical for the parties to specify, in writing, any new or different obligations that go beyond or alter the terms of the agreement. The corrective action plan requirement in some agreements attempts to fulfil this goal. Where the parties have not agreed in writing about obligations additional to the agreement, however, there is a significant risk of dispute about actions the monitored party is required to take.

Other types of misconduct

A monitor’s job is limited by the scope of the agreement. Given the nature of the monitor’s role, it is not uncommon for a monitor to become aware of misconduct, including violations of law that are not the subject of the agreement. Many agreements specify the monitor’s obligations for addressing violations of the agreement itself^[23] but they frequently do not address misconduct that is outside the monitor’s scope.

In most circumstances, a monitor should not undertake a new investigation of information outside the scope of the monitorship. In the case of a whistleblower, the best course may be to facilitate communication by the whistleblower to the relevant government agency. In other circumstances (such as information uncovered from documents or during interviews), the monitor will need to evaluate what course to take. One approach is to provide the relevant information to the monitored party to allow it to investigate and address where necessary. This approach can be coupled with an implicit or explicit threat that, if the monitored party does not disclose to the government, the monitor will do so. Alternatively, the monitor can identify the potentially unlawful conduct to both the government and the monitored party, which may result in an internal investigation by the company, an investigation by the appropriate government agency, or expanded scope (by agreement) for the monitor to investigate and address the allegations of misconduct. Although these approaches, which give the company an opportunity to address alleged misconduct, are common, the monitor always must retain the discretion – whether required by the agreement or not – to report to the government immediately any apparent violations of law that threaten public health or safety.

Reporting

As the product of most monitorships, reports are the primary way in which (1) a government evaluates whether the monitor was effective, (2) the monitored party assesses whether the monitor has been fair and (3) the public understands what the monitorship has accomplished.

Report writing is an incredibly resource-intensive aspect of a monitorship. Many monitors have a separate team solely dedicated to reports. As a number of monitors have noted, if the government and the monitored party understood how much effort went into reports, they would probably request fewer. For the company, the more reports that are produced, the greater the cost.

This section focuses primarily on the first and last report; many of the interim and ongoing reports will follow a template set with the first report and can be more formulaic.

First report

The first report differs from those that follow because it will often not focus on continuing compliance. Rather, it will discuss the state of the company at the commencement of the monitorship (its structure, steps taken before the monitorship, etc.) and the methodologies the monitor will undertake to review compliance. In many cases, the first report is a less detailed version of the work plan.

The first report will often provide a schedule for the monitor’s work. For example, if the monitor intends to focus on specific issues in the first year and move on to other issues in subsequent years, that can be explained to set expectations. In some cases, the first report will provide a high-level overview of the monitor’s initial impressions, but monitors should be wary about drawing or suggesting any early conclusions. It will often be six months to a year (or even longer) before a monitor can make reasonable judgements about the monitored party’s approach to compliance – and even those assessments are provisional.

Final report and conclusion of the monitorship

A number of dynamics come into play in the last year of a monitorship. Company responsiveness can decline; in fact, monitored parties have been known to try to ‘wait out’ the monitor. In that final year, the monitor must ensure that there is no backsliding.

The final report provides an opportunity to look both backwards and forwards – how far the company has come during the course of the monitorship, the challenges that remain, long-term issues the company will need to address and additional steps the company should take on the road to sustained compliance. It can provide a road map for the company to follow once the monitor leaves. The final report is also an opportunity to look at the agreement itself and note what worked. Although an argument can be made that this type of commentary is outside the scope of the monitorship, it is valuable to the government, the courts and the public to learn from the experiences of individual monitorships. Reports are the best way for these lessons to be passed on.

Footnotes