Monitorships

32.1Introduction

In the United States, the past decade has seen a notable increase in the use of independent corporate monitors in connection with the resolution of corporate criminal and regulatory investigations. This trend has also recently found a statutory foothold in the United Kingdom, after a period of sporadic sampling of use of corporate monitorships as a tool in the sentencing armoury. Now, in the wake of the United Kingdom’s deferred prosecution agreement regime, it is safe to assume that the appointment of a monitor will increasingly feature in the settlement and disposal of corporate investigations. Although monitors come in many shapes and sizes, they typically help to create and supervise the implementation of compliance and remediation programmes to address the perceived deficiencies that gave rise to the wrongdoing. It is expected that monitors will reduce recidivism for corporate misconduct, benefiting the corporation, its shareholders and the public.

In the United States, monitors have been used in both the civil and criminal contexts, typically in conjunction with a settlement agreement negotiated between the parties to a dispute, and often with the approval and supervision of the courts.^[2] Outside the criminal context, monitors have been used as conditions of settlements between business entities and a wide range of federal and state agencies,^[3] as well as international bodies such as the World Bank.^[4] Even private litigants have included monitors in their settlement agreements.^[5]

Yet the prevalence of monitors as a condition of high-profile corporate criminal resolutions sets the stage for close scrutiny of the practice in the United States and has given rise to congressional hearings, several United States Department of Justice (DOJ) policy enactments, legal challenges and the promulgation of bar association standards. Therefore, this chapter will focus on monitors used in conjunction with the resolution of federal criminal investigations conducted by the DOJ (including, of course, the various United States Attorney’s Offices).^[6] Because the practice of using monitors is relatively new in the United Kingdom, this chapter will draw parallels and contrasts in UK law and practice where appropriate from the more developed US practice. After briefly discussing the history of corporate monitors in both countries, this chapter will analyse certain key issues surrounding the use of monitors in both jurisdictions, including the appointment, roles, supervision and funding of monitors.

32.2Evolution of the modern monitor

32.2.1United States

Most monitorships arise as a result of a corporate guilty plea, deferred prosecution agreement (DPA) or non-prosecution agreement (NPA).^[7] The DOJ first used DPAs and NPAs in 1993,^[8] with the first recognised monitorship following in 1995, in connection with Consolidated Edison’s sentencing for disclosure failures following a deadly steam pipe explosion.^[9] Spurred on by the collapse of Enron in 2001 and other high-profile instances of corporate misconduct, the US federal government prioritised and increased the investigation and prosecution of corporations. This increase naturally led to a growth in the number of corporate guilty pleas, DPAs and NPAs, and, concomitantly, the rise of monitorships as a condition of settlement.

As the frequency of monitorships has increased, so too has their level of scrutiny. One of the most controversial aspects of monitorships has been monitor selection. The issue received considerable attention in 2007 when Chris Christie – then the US Attorney for the District of New Jersey – approved, without a bidding process, a contract for a consulting firm founded by his former boss, Attorney General John Ashcroft, to serve as the monitor for medical device company Zimmer Holdings (a contract reportedly worth between US$28 million and US$52 million in monitor fees).^[10] Concerns of cronyism, transparency and conflicts of interest led the US Congress to hold an investigative hearing to better understand the appointment.

In the wake of – and likely to quell criticism over – that controversy, the DOJ first issued guidance on the retention and selection of monitors and has since updated its policies three times. The primary materials issued by the DOJ are as follows:

• Morford Memorandum: In March 2008, then acting Deputy Attorney General Craig Morford issued a memorandum establishing guidelines and decision-making procedures for the appointment of monitors titled ‘Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations’ (the Morford Memorandum).^[11]
• Breuer Memorandum: In June 2009, Assistant Attorney General Lanny A Breuer issued a memorandum titled ‘Selection of Monitors in Criminal Division Matters’, in which he built on the Morford Memorandum, outlined the terms required in all monitorship agreements and refined the selection and documentation process for monitors.^[12]
• Grindler Memorandum: Gary Grindler, then acting Deputy Attorney General, issued a memorandum in March 2010 titled ‘Additional Guidance on the Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations’ (the Grindler Memorandum), outlining the means by which corporations can reject a monitor’s recommendation for being too costly. This guidance was the result of the increasing costs of monitorships and heavy public scepticism about their benefits.^[13]
• Benczkowski Memorandum: In October 2018, Assistant Attorney General Brian A Benczkowski issued a memorandum titled ‘Selection of Monitors in Criminal Division Matters’ (the Benczkowski Memorandum) that supplemented the guidance provided by the Morford Memorandum. The Benczkowski Memorandum specifies, in greater detail, the principles for determining whether a monitor is needed and formalises in many ways the procedures for monitor nomination, selection and approval.^[14]

As a result of these policies, the DOJ’s selection process is arguably the most formalised and transparent of any agency. Nevertheless, concern over the selection and use of monitors abounds and the DOJ continues to internally assess the practice.^[15] As a consequence of this escalating debate, the American Bar Association promulgated black-letter standards for monitors in August 2015 (ABA Standards).^[16] The ABA Standards address a variety of issues, ranging from the selection and evaluation of monitors to the establishment of monitor work plans, and are ‘the culmination of three years of work by an ABA task force in consultation with judges, prosecutors, defence counsel, court personnel, and academics’.^[17]

Controversy over monitors has extended to the courtroom, as companies and monitors battle over, inter alia, the legality of court-appointed monitors and the scope of the monitor’s powers,^[18] the monitor selection process and the confidentiality of monitor reports.^[19]

32.2.2United Kingdom

As the use of corporate monitors grew in the United States after the collapse of Enron, so UK authorities increasingly recognised the possibility of deploying similar monitorships as part of the resolution of their own corporate criminal investigations.^[20] At the outset, this was done ad hoc and at the instigation of the relevant investigating authority. By way of example, in 2008 the Serious Fraud Office (SFO) settled civil proceedings against Balfour Beatty arising out of a construction project in Alexandria, Egypt. As part of that settlement, the SFO required the company to accede to ‘a form of external monitoring for an agreed period’. This was an early example of the SFO fashioning new tools to remedy perceived corporate governance failings.

Another example was the SFO’s successful prosecution of a construction firm, Mabey & Johnson Ltd, in 2009. This was the first-ever successful prosecution of a British company on charges of overseas corruption and breaching United Nations sanctions, and as part of its guilty plea Mabey & Johnson agreed to the appointment of an independent monitor for three years to oversee future conduct. Although this monitorship was approved by the court, Judge Geoffrey Rivlin KC^[21] noted that it was likely to prove an expensive exercise and ordered that the costs of the monitor for the first year be capped at £250,000.

Nonetheless, the use of monitorships remained a novelty in the United Kingdom in the absence of a formal statutory footing. Indeed, it even drew notable judicial criticism on occasion. In the case of Innospec Ltd,^[22] a manufacturer found to have paid substantial bribes to Indonesian officials, the English courts expressly criticised the three-year monitorship regime that had been jointly agreed by the SFO and DOJ as part of a ‘global settlement’ with the company. This was to be the first-ever US–UK joint monitorship, and illustrated the extent to which the UK investigating authorities were attracted by the US regime in adopting monitorships in the determination of corporate criminal investigations.

However, although the English court was prepared to approve this aspect of the settlement, the case – and in particular the terms of the cross-border determination reached between the parties – was controversial. Most unusually, a senior appellate judge, namely Lord Justice Thomas,^[23] was brought in to sit on the case at first instance. He made clear that the court’s approval for the appointment of a joint monitorship ‘should be no precedent for the future’. In particular, he stated that the dual monitorship risked incurring unnecessary costs, and noted that ‘imposing an expensive form of “probation order” seems to me unnecessary for a company which will also be audited by auditors well aware of the past conduct and whose directors will be well aware of the penal consequences of any similar criminal conduct.’ In his view, the sums used on such monitoring might have been better allocated to paying fines or compensation. Either way, he made clear that in future ‘the request for such an order will have to be fully explained in terms of its cost effectiveness.’^[24]

Innospec was widely seen as a setback for bilateral appointment of monitorships and signalled some judicial resistance to the US approach to presenting the court with a sentencing or settlement package to be approved. But, in spite of Lord Justice Thomas’s reservations, UK investigating authorities continued to seek and obtain orders for corporate monitorships, and these were included in civil recovery orders agreed between the SFO and both Macmillan Publishers (in 2011) and Oxford Publishing^[25] (in 2012). However, the actual and prospective role of monitorships as a tool of corporate compliance has increased substantially since the creation of the DPA regime in the United Kingdom, introduced by the Crime and Courts Act 2013. In light of that legislation, it is now clear that corporate monitorships have an express and permanent statutory place in the UK criminal law calendar of powers and remedies for holding a corporation to account.^[26]

Following the passing of that Act, the SFO launched a consultation process in June 2013 to finalise a Code of Practice for the new DPA regime (the Code). The Code was issued on 14 February 2014, and gives close attention to the role and duties of corporate monitors. Although such monitorships are not a mandatory feature of the new regime, the focus on monitoring in the Code is a powerful indication of the role that UK authorities expect them to play in the future. The Code also sets out a detailed framework for the appointment of monitors, the costs and terms of the monitorship, and the areas that the monitor may be expected to supervise or restructure.^[27]

The SFO’s first application for a DPA was approved by a senior appellate judge, Sir Brian Leveson, then President of the King’s Bench Division, on 30 November 2015.^[28] The DPA involved Standard Bank Plc, which was the subject of bribery charges relating to multimillion-dollar payments made by a former sister company in Tanzania. As part of the agreed DPA, Standard Bank agreed to submit, at its own expense, to an ‘independent review of its existing internal anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws’.^[29] The independent reviewer appointed was PricewaterhouseCoopers LLP. In his judgment approving the DPA, Leveson P made a number of observations about the difference between the DPA regimes in the United Kingdom and the United States, noting that ‘[i]n contra-distinction to the United States, a critical feature of the statutory scheme in the UK is the requirement that the court examine the proposed agreement in detail, decide whether the statutory conditions are satisfied and, if appropriate, approve the DPA.’ In particular, he observed that the court will only approve a DPA if it is fair, reasonable and proportionate in all the circumstances, but that it will typically consider this question in private so as not to prejudice any potential prosecution in the event of an adverse decision.^[30] In the case of Standard Bank, he declared himself fully satisfied that the DPA was in the interests of justice.^[31]

Following the high-profile Standard Bank case, the SFO soon made a second successful application for a DPA, approved by Leveson P on 6 July 2016.^[32] The company, Sarclad Limited, which originally could not be named because of parallel legal proceedings, pleaded guilty to charges of conspiracy to corrupt. The DPA provided that Sarclad would undertake a review of its internal compliance controls, and that its chief compliance officer would prepare a report for submission to the SFO on its anti-corruption policies and their implementation, to be submitted within 12 months of the DPA and then annually for the DPA’s duration.^[33] Although it is not known why this approach was taken by the SFO, it seems likely that it was because the company in question was relatively small and the appointment of a full-time monitor would have been unduly financially onerous. Again, this would appear to demonstrate the flexibility with which UK authorities are now prepared to apply monitoring tools to fashion bespoke remedies for corporate wrongdoing.

Another example is the DPA agreed between the SFO and Tesco Stores Ltd, the supermarket conglomerate, on 28 March 2017 in respect of alleged accounting irregularities. Deloitte was appointed to a monitoring role to review and report on Tesco’s controls and governance in respect of the recognition of commercial income.^[34] This suggests an ever wider role for corporate monitorships in the United Kingdom, which may be imposed in contexts beyond international bribery and corruption. However, the touchstone for the appropriateness of a monitorship is always likely to be how the corporate has responded to allegations of wrongdoing: in the recent DPA agreed between the SFO and Serco Geografix Ltd,^[35] dated 2 July and judicially approved on 4 July 2019, the SFO was satisfied that an undertaking of ongoing co-operation by its parent and a far-reaching corporate renewal programme were sufficient to make a monitorship unnecessary.

Nonetheless, the use of corporate monitorships looks set to increase in the United Kingdom, and a greater convergence with US practice can be expected. This is all the more so given the appointment of Lisa Osofsky, a former deputy general counsel of the FBI, as Director of the SFO in 2018. In a keynote speech on 17 October 2018, Ms Osofsky highlighted the differences between the UK and US regimes in respect of corporate prosecutions and DPAs but indicated that the SFO may take a more interventionist approach in future. Above all, she stressed that the SFO ‘will want assurance that companies are doing everything they can to ensure the crimes of the past won’t be repeated’.^[36] In that context, and subject to the terms of the Code, the UK authorities’ approach to the appointment and conduct of corporate monitors is ever more likely to follow the lead of the United States in the coming years.

32.3Circumstances requiring a monitor

In general, the DOJ assesses the need for the appointment of a monitor based on whether the corporation is capable of remediating, or has already remediated, its past wrongdoings without the assistance of a monitor. That, in turn, often translates into an enquiry of ‘tone at the top’ – whether, inter alia, management was involved in the criminal conduct, was negligent in failing to implement a proper compliance programme, fostered a culture that bred non-compliance with ethical and legal duties, and, critically, self-reported the misconduct to the DOJ.^[37] The DOJ places significant weight on a company’s decision to self-report, as evidenced by its treatment of monitors in the Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy, announced on 29 November 2017,^[38] and most recently updated in November 2019.^[39] The Corporate Enforcement Policy states: ‘When a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated . . . there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender.’^[40] Further, ‘[i]f a criminal resolution is warranted’, the DOJ ‘generally will not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program.’^[41] Significantly, the DOJ has recently signalled its intent to apply the Corporate Enforcement Policy’s principles to other white-collar matters,^[42] further emphasising the value it places on self-disclosure. Therefore, with increased self-reporting, it is reasonable to expect that monitorships will decline.^[43]

In addition to self-reporting, the Morford Memorandum sets forth two broad considerations to guide prosecutors when deciding when a monitor is appropriate: ‘(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.’^[44] Because of the breadth of these considerations, the DOJ, through the Benczkowski Memorandum, offered further guidance, and in particular clarified that when assessing ‘potential benefits’ of the monitorship, one must consider, among other factors: (1) if the misconduct involved the manipulation of books and records or the exploitation of an inadequate compliance programme, (2) the pervasiveness of the misconduct across the business organisation and the degree of its facilitation by senior management, (3) investments by the corporation to improve its compliance programme and internal controls, and (4) whether these remedial improvements had been tested to detect or prevent future similar misconduct.^[45] These considerations must be weighed in light of case-specific factors, including the particular regions and industries involved.^[46]

Notably, the Benczkowski Memorandum also states that the Criminal Division of the DOJ should only favour the imposition of a monitor when there is a ‘demonstrated need for, and a clear benefit’ from the monitorship relative to the ‘projected costs and burdens’ it will create.^[47] The defence bar read this as a marked shift away from monitorships. Benczkowski corrected this misimpression in a keynote address in April 2019: ‘Put simply, this guidance was not meant to do away with monitors – it was meant to focus our prosecutors’ determination on the appropriate factors so that monitors are imposed only where necessary and under the terms and scope that is appropriate for that given case.’^[48] In the wake of this guidance, the DOJ has seemingly tailored monitorships more narrowly to the issues at hand, as demonstrated by Walmart’s recent settlement, discussed further below. The DOJ also seems willing to adopt quasi-monitorship structures, where a full-blown monitorship is ill-suited.^[49]

Note that even corporations registered under the laws of a foreign country are subject to DOJ monitorships, provided the United States has jurisdiction over the corporation’s misconduct. Indeed, in recent years in the United States, monitors have been imposed on foreign offenders with increased frequency.^[50]

Similar tests are applied in the United Kingdom. The Code sets out some important considerations for the appointment of a monitor, including whether the company already has a ‘genuinely proactive and effective corporate compliance programme’, and whether the appointment would be fair, reasonable and proportionate in all the circumstances.^[51]

As in the United States, there is likely to be a particular focus on the degree of culpability of the management, especially if that management is still in place. Where the management has been entirely replaced, or where misconduct has been self-reported, there may be less need for an extended monitorship (see, for example, the observations made by the court in Innospec).^[52] Moreover, and again in light of the comments in Innospec, the United Kingdom is likely to apply a special focus to matters of cost-effectiveness. Much is likely to turn on an analysis of what is fair, reasonable and proportionate in the circumstances of the specific proposed monitorship.

32.4Selecting a monitor

The selection of the monitor is often the most controversial aspect of monitorships, as claims of cronyism abound. As outlined by the Morford Memorandum, the government should ensure that the monitor is highly qualified, does not have any conflict of interests (either with the government or the corporation), and will instil public confidence in the monitorship process.^[53] The Benczkowski Memorandum attempts to standardise the selection process by creating a Standing Committee on the Selection of Monitors (the Standing Committee).^[54] The Standing Committee comprises (1) the Deputy Assistant Attorney General with supervisory responsibility for the Fraud Section, who also serves as the chair of the Standing Committee, (2) the Chief of the Fraud Section (or other relevant Section), and (3) the Deputy Designated Agency Ethics Official for the Criminal Division.^[55] To the extent any of these individuals are unable to serve, they may designate a replacement. To the extent further replacements are necessary for any given case, the chair of the Standing Committee may appoint them.^[56]

The ABA Standards suggest that both parties ‘have a significant role in the selection process’, enumerate multiple selection criteria, and outline mandatory and potential exclusions.^[57] To this end, the Benczkowski Memorandum provides for the corporation to recommend three qualified candidates through a written proposal. The proposal should provide a description of the candidates’ qualifications and credentials; certification that the candidates have no current or future affiliation with the corporation and no conflict of interest in serving as the monitor; and a statement identifying the corporation’s first choice to serve as monitor.^[58] The Criminal Division attorneys handling the matter and their supervisors assess the candidates according to the factors detailed in the Benczkowski Memorandum, and recommend one of the candidates to the Standing Committee.^[59] The Standing Committee votes on the recommended candidate and forwards their acceptance or rejection to the Assistant Attorney General of the Criminal Division, who must review and consider the recommendation (and cannot unilaterally accept or veto it).^[60] As a further layer of review, all monitor candidates selected pursuant to DPAs, NPAs and plea agreements must be approved by the Office of the Deputy Attorney General.^[61]

One issue with past selection methods is that they have not resulted in a diverse monitor pool.^[62] For example, between 2004 and 2018, only three women and three non-white attorneys (all male) have been chosen by the DOJ to serve as FCPA monitors, even though there have been more than 45 settlements involving FCPA monitors during the same period.^[63] The DOJ appears to be alive to this issue. On 30 April 2018, the DOJ and a US-based subsidiary of Panasonic entered into a DPA to resolve FCPA violations, under which the company agreed to a two-year monitorship.^[64] The DOJ included a provision in the DPA that stated: ‘Monitor selections shall be made in keeping with the Department’s commitment to diversity and inclusion.’^[65] The DPA also includes various provisions that enable the DOJ to broaden the group of candidates from which it will select the monitor.^[66] While the DOJ cannot consider non-merit-based factors such as race and gender when choosing the most-qualified candidate, these provisions help ensure that the pool from which the DOJ makes its selection is more diverse. A DOJ spokesperson indicated that the above quoted language was added to the Criminal Division’s standard agreements last year,^[67] and therefore it will likely be a recurring feature in the department’s DPAs. It also remains to be seen whether the protocols established by the Benczkowski Memorandum will help create a more diverse monitor pool.

There is also an open question as to judicial oversight of the selection process. In March 2017, the DOJ reached a plea agreement with ZTE for conspiring to violate export control laws, under which ZTE would be subject to a three-year monitorship, with the monitor selected by the DOJ ‘in its sole discretion’ out of a pool of candidates proposed by ZTE.^[68] In an unprecedented move, the court overseeing the matter – the District Court for the Northern District of Texas – amended the terms of the plea agreement to impose a monitor of its own selection and to increase judicial oversight over the monitorship.^[69] Specifically, the plea agreement was amended to state that James M Stanton would be appointed as ZTE’s monitor,^[70] that ‘the Monitor is a judicial adjunct pursuant to Federal Rule of Civil Procedure 53’^[71] and that ‘[a]ll reports, submissions, or other materials encompassed by this agreement will be filed [with the Court].’^[72] The appointment of Mr Stanton, a lawyer in private practice and a former Texas state judge, is seen by some as particularly unusual given his lack of monitorship experience.^[73] Notably, ZTE’s monitorship was imposed as part of a plea agreement, which the court must review and approve. Accordingly, the court had the opportunity to amend the terms of the agreement before approving the plea. It remains to be seen whether courts will take as active a role in crafting the terms of monitorships imposed as part of DPAs and NPAs, which do not require the court’s approval.^[74]

In the United Kingdom, a slightly different appointment procedure has been laid down by the Code. As part of the negotiations surrounding a DPA in the United Kingdom, the company must provide the prosecuting authority and the court with details of three potential monitors, including their qualifications, their estimated costs and any links with the relevant company. The company should then indicate their preferred monitor of the three, stating the reasons for their preference. This choice will ordinarily be accepted by the prosecuting authority and court, except where a conflict of interest or a lack of relevant experience has been identified.^[75]

In terms of eligibility, the monitor must be independent from the company, and thus former employees, clients and close acquaintances are likely ineligible. Additionally, as the requirements of the monitorship will differ case by case, the monitor should be selected based on how well his or her qualifications pair with the requirements of the relevant monitorship.^[76] For example, the DPA between the DOJ and Panasonic lists the minimum contemplated qualifications of a monitor as (1) ‘sufficient independence’ from Panasonic, (2) ‘demonstrated expertise with respect to the FCPA and other applicable anti-corruption laws, including experience counseling on FCPA issues’, (3) ‘experience designing and/or reviewing corporate compliance policies, procedures and internal controls, including FCPA and anti-corruption policies, procedures, and internal controls’, and (4) ‘ability to access and deploy resources necessary to discharge the Monitor’s duties’ under the agreement.^[77]

In global settlements, both US and UK authorities increasingly see the value of appointing a monitor experienced in the laws of the relevant jurisdiction.^[78] Although the Morford Memorandum suggests that non-attorney experts ‘such as accountants, technical or scientific experts, and compliance experts’ may be better qualified for certain monitorships, in practice, in both the US and UK monitors are predominantly lawyers, and often have prosecutorial experience.^[79]

Note, however, as the requirements of the monitorship can evolve over the duration of the monitorship, and the appointed monitor may prove to be incompatible with the corporation, the government may replace the monitor and the monitor is free to resign. As one example of a rather tumultuous monitorship, Western Union went through four monitors as part of a 2010 settlement for failing to comply with anti-money laundering laws.^[80]

To avoid such situations, third-party organisations have devoted themselves to promoting the use, quality and efficiency of monitors.^[81] For example, the International Association of Independent Corporate Monitors – whose board is itself composed of many former monitors – offers resources and training to professionals, and has established a Code of Professional Conduct to serve as a template for best standards and practices.^[82]

32.5The role of the monitor

32.5.1Scope of the monitorship

The scope of the monitorship should be tailored to the circumstances of each case, with the ultimate goal of reducing the risk of recurrence of the corporation’s misconduct.^[83] Therefore, the monitor’s role should normally include a mandate for oversight, review and proposed modification of a company’s compliance programme to facilitate rehabilitation of existing misconduct and deterrence of future wrongdoing.^[84] Accordingly, the monitor may be required to assist with structural changes, as well as help alter corporate culture and normative expectations.^[85] In the United Kingdom, a list of items and procedures that the monitor may wish to consider as part of its monitoring programme is set out in the Code.^[86]

Following the Benczkowski Memorandum, appropriate tailoring has become increasingly important and gives parties the opportunity to think carefully about the shape the monitorship should take.^[87] In Walmart’s June 2019 settlement with the DOJ over FCPA violations, the company agreed to a monitorship whose mandate was narrowed both by geography (to four countries and the company’s headquarters) and subject matter (to specified Key Risk Areas).^[88] The agreement specifically stated: ‘The Monitor shall not conduct a comprehensive review of all business lines, all business activities, or all countries.’^[89]

The monitor is an independent third party and does not serve as an employee or agent of either the corporation or the government.^[90] Likewise, the monitor does not have an attorney–client relationship with either the corporation or the government. Nonetheless, it is critical for the monitor to have an open dialogue with, and co-operation from, the corporation and the government throughout the duration of the monitorship, which may include ‘iterative work plans, planning meetings prior to any substantive work, and mid-review meetings’.^[91] The parties should also stipulate what, if any, role the government or court should play in resolving disputes that may arise between the monitor and the corporation.^[92]

Though the monitor does not take on a prosecutorial function, he or she may nonetheless uncover continuing or undisclosed misconduct. The monitorship agreement ‘should clearly identify any types of previously undisclosed or new misconduct that the monitor will be required to report directly to the [government]’. And, on the other hand, the agreement should identify any misconduct that the monitor can, in its discretion, report to the government, the corporation or both.^[93]

32.5.2Duration of the monitorship

Monitorships can range from months to several years. The duration of the monitorship will in large part depend on the scope of the monitorship, and in particular the extent of the problems found and the necessary remedial measures.^[94] When negotiating duration, the parties should be mindful of, inter alia, the ‘nature and seriousness of the underlying misconduct’; the ‘pervasiveness and duration of the misconduct’; the complicity of senior management; the ‘corporation’s history of similar misconduct’; the corporate culture; the ‘scale and complexity of any remedial measures contemplated by the agreement, including the size of the entity or business unit at issue’; and the current ‘stage of design and implementation of remedial measures’.^[95]

In most cases, the monitorship agreement will permit the government to extend the monitorship at its discretion if the corporation has not satisfied its obligations under the settlement, and provide for early termination if the corporation can demonstrate ‘a change in circumstances sufficient to eliminate the need for a monitor’.^[96] For example, after Credit Suisse admitted to aiding US tax evasion, the New York State Department of Financial Services appointed a monitor for what was anticipated to be a two-year monitorship. However, shortly after the monitorship began in October 2014, a tolling period was triggered because Credit Suisse could not produce information at the pace and volume required by the monitor.^[97] After more than three years of monitorship, the Department of Financial Services entered a consent order requiring Credit Suisse to engage an independent consultant for an additional year.^[98] In the United Kingdom, this ability to extend monitorships has been formally recognised in the Code, subject to the extended term of the monitorship not exceeding the length of the DPA itself.^[99]

Hybrid monitorships – in which the monitor serves for approximately 18 months and the corporation self-reports for the following 18 months – are also becoming increasingly common, especially in the context of FCPA investigations.^[100] As a further nuance, the DOJ has, in some instances, agreed to defer to a pre-existing monitorship in lieu of establishing its own monitorship. As one example, the December 2015 settlement between Alstom and the DOJ, over Alstom’s various FCPA violations, required that Alstom be subject to an independent monitor. However, Alstom was already subject to a monitor in connection with a 2012 settlement with the World Bank. Rather than implement a second monitor, the DOJ agreed to defer to the existing World Bank-appointed monitor, provided that, inter alia, Alstom self-report to the DOJ ‘at no less than twelve-month intervals during a three-year term’.^[101]

Rolls-Royce reached a similar resolution in its January 2017 settlement with US, UK and Brazilian authorities over bribery and corruption charges (and, in the United States, FCPA charges). At the time, Rolls-Royce already had an independent monitor – Lord Gold – who was appointed to review the company’s anti-bribery and corruption compliance in connection with a 2013 settlement with the SFO. Though the company’s 2017 DPA with the SFO did not impose a second monitor, it did require Rolls-Royce, inter alia, to procure a further report from Lord Gold outlining recommendations for change and produce a written plan of how it would implement these recommendations.^[102] Likewise, the company’s DPA with the DOJ did not implement a further monitor, but did require the company to report to the DOJ at least once a year for the next three years and to produce a series of reports.^[103] When the SFO applied to the English Court for approval of the DPA, the senior judge who heard that application, Sir Brian Leveson, President of the King’s Bench Division, expressly referred to the appointment of Lord Gold and the ongoing monitoring process as important factors indicating that Rolls-Royce had properly addressed issues of corporate compliance; this made the DPA (as opposed to criminal prosecution) an appropriate outcome.^[104]

The 2019 Serco Geografix DPA took into consideration the fact that the parent company, Serco Group, had adopted an ongoing corporate renewal programme in 2013, which had been approved by the UK government, to improve assurance mechanisms and working practices within all companies in the group. In the approved judgment, Davis J said that this amounted to a significant remedial measure.^[105]

32.5.3Creating a work plan

Under the ABA Standards, the monitor should draft a detailed work plan at the outset of the monitorship, with input from the corporation and government.^[106] This is also a requirement of the UK regime under the Code, which stipulates that a work plan should be prepared even before the monitor’s appointment is finally approved.^[107] The work plan will ordinarily include an overview of the monitor’s role and objectives, a description of the corporation’s policies and procedures to be evaluated, a list of documents the monitor seeks to review, and a list of persons the monitor seeks to interview. The work plan should also include a proposed timeline for reaching certain milestones, such as a review of documents concerning the corporation’s compliance programme; interviews with senior management, the board of directors and audit committee; and deadlines for reporting of the monitor’s findings.^[108] In the United Kingdom, the work plan is required to set out provisions for costs and even to state with what frequency the monitor intends to report to the prosecutor.^[109]

Not only does a detailed work plan help control costs and increase transparency, but it also helps prepare all parties for the monitorship.^[110] Accordingly, the corporation will have a better understanding of what can be expected, and the act of preparing the work plan helps the monitor become familiar with the company’s culture and risk tolerance. Further, a detailed work plan helps ensure that the monitor’s expectations for the corporation are reasonable and that the government is comfortable with the monitor’s approach.^[111]

32.5.4Reviewing documents and interviewing witnesses

To serve as an effective monitor and issue tailored recommendations to the corporation, the monitor must understand the corporation and its business. To develop this understanding, the monitor must have wide access to the documents and information deemed reasonably necessary to carry out the monitorship.^[112] A recurring problem, however, is that given the monitor’s independence, corporations are hesitant to disclose sensitive information. Under the ABA Standards, the corporation is not required to provide documents covered by the attorney–client or work-product privilege, or documents for which disclosure would be ‘inconsistent with applicable law’.^[113] A similar approach is adopted under the UK Code, which requires the company to grant the monitor ‘complete access to all relevant aspects of its business during the course of the monitoring period’, but does not affect the company’s right to assert legal professional privilege over relevant documents.^[114]

It may also be necessary for the monitor to interview personnel, from low-level employees to senior management. The monitorship agreement should ordinarily address issues of employee rights that could arise during the monitorship, including privacy rights and the right to counsel – issues that take on added complexity where the monitor’s review is cross-border. Ordinarily, the monitor should inform interviewees of his or her identity and explain why information is being collected. The monitor should also inform interviewees whether they are the target of the monitor’s investigation and of their right to have counsel present during the interview. Where an employee chooses to exercise the right to counsel, the monitor must respect that decision.^[115]

The monitor may find it advisable to inform interviewees of the degree to which the information being provided will remain confidential and what, if anything, the monitor is required to do with that information. In some circumstances, such as when information would otherwise be hard to extract, it may be appropriate for the monitor to have the authority to collect information confidentiality to protect its sources.^[116]

32.5.5Issuing recommendations and reports

During the course of the monitorship, the corporation and monitor should work together to develop recommendations for improvement of the corporation’s compliance programme and to prevent recidivism of corporate misconduct. The recommendations should be mindful of local laws concerning, for example, data privacy and privilege. Depending on the scope and duration of the monitorship, the monitor may summarise his or her findings and recommendations in periodic reports to the government or court, or issue a single report at the end of the monitorship.^[117] As negative findings in the report have the potential to significantly harm the corporation, in some circumstances the monitor may provide the corporation with a preliminary draft and invite comments.^[118] Ultimately, however, the report is issued by the monitor alone, and must reflect the monitor’s honest conclusions and recommendations.

Where the corporation disagrees with one of the monitor’s recommendations, the corporation may reject it within a reasonable time, provided the government is informed. The government may consider this rejection when evaluating whether the corporation has fulfilled its obligations under the settlement.^[119] Under the Grindler Memorandum, where a corporation rejects a monitor’s recommendation on the basis of cost, it should provide a written proposal of ‘an alternative policy, procedure, or system designed to achieve the same objective or purpose’.^[120]

In the United Kingdom, the confidentiality of a monitor’s reports and correspondence is expressly recognised in the Code, and its disclosure is restricted to the company, the prosecuting authority and the court (except as otherwise permitted by law).^[121] Similarly in the United States, the government routinely denies Freedom of Information Act requests filed by news outlets for the production of monitor reports.^[122] However, the public’s right of access to such reports has been litigated in relation to the deferred prosecution agreement between the DOJ and HSBC.^[123]

By way of background, in 2012, HSBC reached a US$1.9 billion settlement with the government and secured a five-year DPA for HSBC’s failure to comply with anti-money laundering laws and US sanctions.^[124] In an unusual turn of events, the court approved the DPA on the condition that the court could continue to exercise ‘supervisory’ control over the case.^[125] A monitor was appointed as part of the settlement and issued a 1,000-page report in January 2015, a copy of which was filed under seal with the court. Thereafter, an HSBC mortgage customer asked the court to unseal the report so he could determine whether HSBC continued to engage in ‘unsafe and unsound business practices’.^[126] The lower court held that the report qualified as a ‘judicial record’ that should be filed publicly, and that ‘the public has a First Amendment right to see the Report’, though HSBC and the government could suggest redactions and parts to remain under seal.^[127] HSBC and the government opposed the unsealing, claiming it ‘could provide a “road map” for criminals seeking to launder money’.^[128] HSBC’s lawyer said the court’s order also called into question assurances given to foreign regulators who had provided information to the monitor on condition the report be kept secret.^[129] On 12 July 2017, the United States Court of Appeals for the Second Circuit reversed the lower court’s decision noting that ‘a district court’s role vis-à-vis a DPA is limited to arraigning the defendant, granting a speedy trial waiver if the DPA does not represent an improper attempt to circumvent the speedy trial clock, and adjudicating motions or disputes as they arise.’^[130] Given the limited supervisory role of courts in the DPA context, the Second Circuit held that a monitor’s report is not a judicial record because it is not ‘relevant to the performance of the judicial function’.^[131] The holding, which relies upon and is consistent with the DC Circuit Court of Appeals’ decision in United States v. Fokker Services BV, limits both a district court’s initial judicial review of a DPA and its subsequent oversight of the DPA’s execution.^[132]

The District Court for the District of Columbia made a similar ruling in 100Reporters LLC v. United States Department of Justice, concerning monitor reports issued in the wake of Siemens’ 2008 settlement with the United States and Germany. There, reporters sued to obtain the reports under FOIA. In a March 2017 decision, the court acknowledged that significant portions of the report may be exempt from production under FOIA – for example, because they contain ‘classic attorney work-product’ and ‘information [that] cuts to the core of Siemens’ business’, on which a competitor could rely to Siemens’ detriment – but the court was not prepared to find that all information should be so shielded.^[133]

Given the remaining uncertainty over the confidentiality of the monitor’s report, it has become best practice – as confirmed by ABA Standard 24-4.3(4) – for the government and the corporation to determine whether reports will be made public when negotiating the settlement agreement:

To perform its duties, the monitor needs access to unprivileged, confidential and proprietary business information of the corporation and communications among the corporation, the monitor and the government need to be candid and complete over an extended period.

Recognising that corporate information included in monitor reports may be used unfairly by competitors and others to disadvantage the corporation, DPAs and NPAs typically reflect the parties’ intentions to maintain the confidentiality of monitor reports.^[134]

Where a proposed settlement agreement instituting a monitorship lacks such explicit proviso for confidentiality, counsel should seek to revise and include it.

32.6Costs and other considerations

Monitorships can be extremely expensive, with monitors collecting multimillion-dollar fees, to be paid for by the corporation (and ultimately its shareholders).^[135] Critics note that the rise in monitorships has created ‘a lucrative cottage industry made up of former prosecutors and small consulting firms’, some of which even offer expertise in assisting corporations monitor their monitors.^[136] Others argue that the cost of the monitorship will be offset against the fines levied on the corporation and that the imposition of a monitor may help sway the government in favour of reduced fines.^[137]

The ultimate cost of the monitorship will largely depend on the scope and duration of the monitorship. Cost will also be influenced by the complexity of the settlement agreement, the state of the corporation’s existing compliance programme, and the geographic markets and industries in which the corporation operates. The monitor should take these various factors into consideration when providing the corporation with a projected budget. The monitor and the corporation should also consider and agree on an hourly rate or a fixed rate, any applicable rate adjustments and a potential fee cap. Further, to increase transparency and mitigate the risk of conflicts, the monitor should provide regular updates on the costs being incurred and expected to be incurred.^[138]

As one example of the issues that can arise because of costs, in 2014, Apple moved to disqualify its antitrust monitor for what it viewed as excessive billing and unprofessional conduct where the monitor, inter alia, had charged a rate of US$1,000 per hour in fees.^[139] The motion was denied by the Southern District of New York and affirmed by the Second Circuit, but the Second Circuit noted that the issues raised had ‘considerable resonance because the fairness and integrity of the courts can be compromised by inadequate constraint on a monitor’s aggressive use of judicial power’.^[140]

32.7Conclusion

Since their first widespread application in the 1990s, the use of monitors has rapidly expanded across industries and offences: banks, energy companies, unions, car manufacturers and fire departments have all been (or currently are) subject to oversight by monitors. Implemented to address a myriad of wrongs ranging from fraud and racketeering to discriminatory hiring practices, monitorships were in many ways viewed as panaceas.

Today, rising costs and increasing concerns about their efficacy have resulted in far greater scrutiny of all proposed monitorships. Where the past two decades represent an expansion in the breadth of cases where monitors were contemplated, the next two are likely to focus on and refine the scope. The ongoing debates over whether monitors’ reports should be public, the degree to which monitors are truly independent, and how monitors should be selected will result not only in additional litigation, but will also force an evolution in how monitorships are used as settlement tools. The issues identified throughout this chapter are live controversies, each likely to distil and develop the body of case law governing monitorships, ultimately resulting in a body of jurisprudence that imposes default standards of disclosure, transparency, control and authority on monitors, the government and defendants alike.

Footnotes