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28.1       Introduction

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 or 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, benefitting 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.1 Outside the criminal context, monitors have been used as conditions of settlements between business entities and a wide range of federal and state agencies, 2 as well as international bodies such as the World Bank.3 Even private litigants have included monitors in their settlement agreements.4

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 DOJ policy enactments, legal challenges and, more recently, 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 United States Department of Justice (DOJ) (including, of course, the various United States Attorney’s Offices (USAO)).5 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.

28.2       Evolution of the modern monitor

28.2.1    United States

Most monitorships arise as a result of a corporate guilty plea, deferred prosecution agreement (DPA) or non-prosecution agreement (NPA).6 The DOJ first used NPAs and DPAs in 1993,7 with the first recognised monitorship following in 1995, in connection with Consolidated Edison’s sentencing for disclosure failures following a deadly steam pipe explosion.8 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. (See also Chapters 8 and 9 on co-operating with authorities and Chapters 21 and 22 on negotiating global settlements.)

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).9 Concerns of cronyism, transparency and conflict of interests 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 twice updated its policies. 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).10
  • Breuer Memorandum: On 24 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.11
  • Grindler Memorandum: Finally, 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.12

As a result of these policies, the DOJ’s selection process is arguably the most formalised and transparent of any agency. Nevertheless, despite research suggesting that prosecutors have in fact followed the guidelines established in the DOJ materials,13 concern over the selection and use of monitors has continued. As a consequence of this escalating debate, the American Bar Association promulgated black-letter standards for monitors in August 2015 (ABA Standards).14 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.’15

Controversy over monitors has recently 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,16 as well as the confidentiality of monitor reports (see Section 28.4.5).17

28.2.2    United Kingdom

As the use of corporate monitors grew in the US 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.18 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 KC19 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 UK in the absence of a formal statutory footing. Indeed, it even drew notable judicial criticism on occasion. In the case of Innospec Ltd,20 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,21 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.’22

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 Publishing23 (in 2012). However, the actual and prospective role of monitorships as a tool of corporate compliance has increased substantially since the creation of the new DPA regime in the UK, 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.24

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 regulators expect them to play in 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.25

The SFO’s first application for a DPA was approved by a senior appellate judge, namely Sir Brian Leveson, President of the King's Bench Division, on 30 November 2015.26 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.’27 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 UK and the US, noting that ‘in 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.28 In the case of Standard Bank, he declared himself fully satisfied that the DPA was in the interests of justice.29

Following the high-profile Standard Bank case the SFO has recently made a second successful application for a DPA, approved by Leveson P on 6 July 2016.30 The company, which could not be named because of other, parallel legal proceedings, pleaded guilty to charges of conspiracy to corrupt. The DPA provided that the company 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.31 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.

Accordingly, the use of corporate monitorships looks set to increase in the UK, and a greater convergence with US practice can be expected. Subject to the terms of the Code, over the coming years the UK authorities’ approach to the appointment and conduct of corporate monitors is ever more likely to follow the lead of the US.

28.3       Selecting a monitor

28.3.1    Circumstances 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.32 (See also Chapters 3 and 4 on self-reporting to the authorities.) In addition, the government is also likely to consider the severity of the offence; duration and systemic nature of the misconduct, including the extent of ongoing operations where the misconduct occurred; the size and complexity of the company as a whole; the quality of the company’s existing compliance programme; and the extent of remediation.

These criteria make sense, of course, because, as commentators have noted:

The mere presence of a corporate monitor can help to change the culture of a company and how it approaches its internal controls and compliance and ethics programs. Corporate monitors force the company to direct attention and resources to compliance and ethics that more often than not were missing historically. . . . Both the regulatory body and the company routinely come out ahead because both entities do not have to expend what would otherwise be a huge amount of resources on an investigation and trial.33

A significant indicator of ‘tone at the top’ is whether a company has self-disclosed the misconduct. John Buretta, then Chief of Staff of the DOJ’s Criminal Division, noted during a 2013 conference: ‘Self-disclosure – or not – is a huge marker for us. It’s not dispositive, but important in assessing the ethical culture in the company. That can have an impact on whether we think a monitor is appropriate.’34 Further, before a corporation self-reports, it will often take preliminary steps to remediate the situation and improve its compliance programme. In so doing, the corporation may be able to show it is capable of developing a satisfactory compliance programme such that a corporate monitor is unnecessary.35 Therefore, with increased self-reporting, monitorships may decline.36 (See also Chapters 3 and 4 on self-reporting to the authorities.)

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.37

A similar test is 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.38

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).39 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.

28.3.2    Factors considered when appointing 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 establish a selection process to 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.40 Though the Morford Memorandum eschews a one-size-fits-all solution, and counsels that the selection process must be tailored to the facts of each case, it does suggest the adoption of certain procedures. Namely, the government and the corporation should discuss the monitor’s necessary qualifications and consider a pool of at least three qualified candidates.41 The ABA Standards, which generally align with the Morford Memorandum, further suggest that both parties ‘have a significant role in the selection process,’ enumerate multiple selection criteria, and outline mandatory and potential exclusions.42

To ensure impartiality in the selection process, the Morford Memorandum requires the DOJ to establish standing or ad hoc committees to consider monitor candidates, whose membership is composed of the office ethics adviser, criminal chief or relevant section chief, and at least one other experienced prosecutor. Prosecutors cannot unilaterally accept or veto the selection of monitor candidates and the Office of the Attorney General must approve the monitor. Often, the government will require assurances from the corporation that it will not employ or otherwise be affiliated with the monitor for at least a year from the date the monitor is terminated. Though the Morford Memorandum notes that it may be appropriate for the government to select three acceptable candidates from among the pool, with the corporation picking the final monitor,43 in practice, it is far more common for the corporation to nominate three candidates, with the DOJ making the final selection.44

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.45

28.3.3    Eligibility

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.46 Though 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 monitors are predominantly lawyers, and often former prosecutors.47 The same is true in the United Kingdom.

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 has already gone through four monitors as part of a 2010 settlement for failing to comply with anti-money laundering laws.48

28.4       The role of the monitor

28.4.1    Scope 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.49 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.50 Accordingly, the monitor may be required to assist with structural changes, as well as help alter corporate culture and normative expectations.51 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.52

The monitor is an independent third party, and does not serve as an employee or agent of either the corporation or the government.53 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’.54 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.55

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.56

28.4.2    Duration 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.57 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’.58

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.’59 For example, after Credit Suisse admitted to aiding US tax evasion, the 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.60 It is now thought that Credit Suisse’s monitorship may last three or more years.61 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.62

Hybrid monitorships – in which the monitor serves for approximately eighteen months and the corporation self-reports for the following eighteen – are also becoming increasingly common, especially in the context of FCPA investigations.63 As a further nuance, in at least one case, the DOJ agreed to defer to a pre-existing monitorship, implemented by the World Bank, in lieu of establishing its own monitorship. Specifically, 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.’64

28.4.3    Creating 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.65 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.66 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.67 In the UK, 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.68

Not only does a detailed work plan help control costs and increase transparency, but it also helps prepare all parties for the monitorship.69 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.70

28.4.4    Reviewing 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.71 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.’72 (See also Chapters 31 and 32 on privilege.) 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.73

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. (See Chapters 5 and 6 on beginning an internal investigation, 7 and 8 on witness interviews, and 12 and 13 on employee rights.) 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.74

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.75

28.4.5    Issuing 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. 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.76 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.77 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.78 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.’79

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).80 Until recently in the United States, it was expected that the monitor’s report would remain confidential and the government routinely denied freedom of information requests filed by news outlets for the production of these reports.81 However, as a recent case from New York demonstrates, courts can order a monitor’s report to become public under certain circumstances.82

Specifically, 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. 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.83 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.’84 The 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.85 HSBC and the government opposed the unsealing, claiming it ‘could provide a “road map” for criminals seeking to launder money.’86 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.87 HSBC and the government have since appealed the lower court’s order, and the fate of the report is still uncertain.

As a result of the HSBC debacle and 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 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.88

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

28.5       Costs 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).89     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.90 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.91

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.92

For example, in a recent case 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. 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.’93

28.6       Conclusion

Since 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 to 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.


  1. In 2014, for instance, the Department of Justice entered into a civil settlement with Citigroup that included a monitorship provision to address Citigroup’s false representations to investors regarding its residential mortgage-backed securities. See DOJ Press Release, Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages (14 July 2014). Monitors may also be used in private cases, especially where there are concerns that misconduct may reoccur or an institution’s culture needs to be remodelled to ensure future compliance. See, e.g., Athletics Integrity Agreement between the National Collegiate Athletic Association and The Big Ten Conference, and the Pennsylvania State University (29 August 2012), available at; NCAA, Former Sen. Mitchell Selected as Penn State Athletics Integrity Monitor (1 August 2012),
  2. The Environmental Protection Agency and Securities and Exchange Commission, among many others, also use monitors as part of settlements. See, e.g., Environmental Protection Agency News Release, Duke Energy Subsidiaries Plead Guilty and Sentenced for Clean Water Act Crimes (14 May 2015) (noting that various Duke Energy subsidiaries would be ‘monitored by an independent court[-]appointed monitor’); DOJ Press Release, Justice Department, Taiwan-Based AU Optronics Corporation Sentenced to Pay $500 Million Criminal Fine for Role in LCD Price-Fixing Conspiracy (20 September 2012) (discussing a court-appointed monitor in the antitrust matter against AU Optronics Corporation); Seth Schiesel & Simon Romero, WorldCom Strikes a Deal with SEC, N.Y. Times (27 November 2002), (discussing WorldCom’s settlement with the SEC, which included a monitorship).
  3. As part of the World Bank Sanctions Procedures, an independent monitor may be required for parties seeking to remain active with the Bank. World Bank Sanctions Procs. § 9.03 (15 April 2012), available at
  4. See, e.g., NCAA Appointed Integrity Monitor, supra note 2, at 1. Additionally, monitors are frequently appointed in lawsuits between private plaintiffs and the government. For example, a monitor was appointed as part of the City of New York’s settlement with private plaintiffs regarding the police department’s discriminatory enforcement of anti-trespassing rules. Memorandum Opinion and Order at 3 n.8, Davis v. City of NewYork, No. 10 Civ. 0699 (S.D.N.Y. 28 April 2015).
  5. Unless otherwise specified, references herein to ‘monitors’ or ‘monitorships’ concern DOJ/USAO corporate monitorships.
  6. DPAs and NPAs, while similar in that they are both pretrial settlement options available to the DOJ/USAO, have different collateral consequences for corporate defendants. With a DPA, the DOJ files a criminal information, which under the DPA the DOJ agrees to dismiss after a term of months or years if the corporate defendant complies with all other terms of the settlement. DPAs are, by virtue of being filed with a court, publicly available and therefore subject corporate defendants to adverse public relations and scrutiny. By contrast, with a NPA, the government agrees not to bring charges against the corporate defendant if it complies with the terms of the settlement; NPAs are not required to be disclosed, though they frequently are by the corporate defendant and/or the DOJ. Because NPAs do not involve the courts, they tend to be far more flexible and desirable for corporate defendants than DPAs.
  7. See US Gov’t Accountability Off., GAO-10-260T, Prosecutors Adhered to Guidance in Selecting Monitors for Deferred Prosecution and Non-Prosecution Agreements, But DOJ Could Better Communicate Its Role in Resolving Conflicts (2009).
  8. See James C. McKinley, Con Ed Fined and Sentenced to Monitoring for Asbestos Cover-Up, N.Y. Times (22 April 1995), Note, the DOJ was not the first government agency to use monitors. Monitors were used as early as 1978 by the SEC. SEC News Digest, Issue 80-71 at 3 (10 April 1980), available at (noting that in SEC v. Page Airways, Inc., the defendant agreed to ‘retain a Review Person to evaluate the methods and procedures followed in this investigation’).
  9. Amy Walsh, Is the Opaque World of Corporate Monitorships Becoming More Transparent?, Bus. L. Today (December 2015),
  10. Memorandum from Craig S. Morford, Deputy Att’y Gen., to All Component Heads and US Att’ys, Selection and Use of Monitors in Deferred Prosecution Agreements (7 March 2008) (the Morford Memorandum).
  11. Memorandum from Lanny A. Breuer, Assistant Att’y Gen., to All Criminal Div. Personnel, Selection of Monitors in Criminal Division Matters (24 June 2009).
  12. Memorandum from Gary G. Grindler, Deputy Att’y Gen., Additional Guidance on the Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations (25 May 2010) (the Grindler Memorandum). Advocates argue that shifting the costs of compliance from publicly funded regulators to the offending corporations is both fair and economically optimal, as internalising the expenses should make the corporations less likely to offend in the future. But some question whether monitors truly improve compliance and are worth the often multi-million dollar fees they charge to corporations (and by extension their shareholders). See Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  13. See US Gov’t Accountability Off., GAO-10-260T, Prosecutors Adhered to Guidance in Selected Monitors for Deferred Prosecution and Non-Prosecution Agreements (2009), available at
  14. ABA Standards for Monitors (4th ed. forthcoming) (standards adopted August 2015).
  15. Amy Walsh, Is the Opaque World of Corporate Monitorships Becoming More Transparent?, Bus. L. Today (December 2015), The ABA Standards provide a much more detailed discussion of best practices and considerations for the principles articulated in the DOJ guidance.
  16. For example, after a district court in the Southern District of New York found that Apple violated the Sherman Antitrust Act, the court ordered that Apple be subject to a compliance monitor. Apple challenged the appointment both before the district court and, thereafter, the Second Circuit Court of Appeals, alleging, inter alia, that the appointment violated the constitutional separation of powers. See United States v. Apple Inc., 787 F.3d 131, 136 (2d Cir. 2015). As but one example of the alleged constitutional violation, Apple highlighted that after it had moved the district court for a stay of the injunction appointing the monitor, the monitor ‘coordinated with the plaintiffs . . . and submitted an affidavit as an integral part of the opposition papers.’ Id. at 134, 138. The district court found that the monitor’s actions did not evidence the monitor’s prejudice against Apple, and though the Second Circuit concurred, it was far more critical of the monitor’s conduct: ‘It is certainly remarkable that an arm of the court would litigate on the side of a party in connection with an application to the court he serves.’ The Second Circuit also noted that the monitor’s submission on behalf of the plaintiffs ‘was the opposite of best practice for a court-appointed monitor.’ Id. at 138.
  17. Marieke Breijer, ABA London: Keep Monitor Reports Private, Global Investigations Rev. (13 October 2015), For further discussion).
  18. See further Jo Rickards & Johanna Walsh, DPA Corporate Monitorships in the UK, Global Investigations Rev. (21 September 2015),
  19. Later and on his retirement as a judge, he became General Counsel to the Serious Fraud Office.
  20. See R v. Innospec Limited [2010] Crim LR 665.
  21. Now Lord Chief Justice of England and Wales.
  22. R v. Innospec Limited [2010] Crim LR 665 at §§48-49.
  23. See the SFO’s press release describing the circumstances of this settlement, which arose because of the publisher’s unlawful practices in Kenya and Tanzania:
  24. See Crime and Courts Act 2013, Schedule 17, Part I, s.5(3)(e).
  25. See in particular Section 7 of the DPA Code of Practice, headed ‘Terms’.
  26. See the SFO’s press release:
  27. Idem at §13.
  28. See SFO v. Standard Bank Plc [2016] Lloyd’s Rep FC 102 at §2.
  29. Idem at §22.
  30. See the SFO’s press release:
  31. See SFO v. XYZ Ltd, unreported, 24 June 2016 at §64.
  32. See Is a Corporate Monitor Necessary?, Corp. Crime Rep. (8 May 2013),
  33. Ryan C. Pisarik and Jason T. Wright, The Corporate Compliance Monitor’s Role in Regulatory Settlement Agreements, SRR (Spring 2014),
  34. Is a Corporate Monitor Necessary?, Corp. Crime Rep. (8 May 2013),
  35. See, e.g., Joel Schectman, SEC Official: Company Reforms Can Make Monitorships Unnecessary, The Wall Street J. (15 October 2014), (quoting Jeffrey Knox, former head of the DOJ fraud section: ‘[I]f the compliance function is working, the company is on track, things are going well, having a third party [monitor] in there mucking things up might not be positive for anyone, not the company not the public.’).
  36. Deputy Attorney General Sally Quillian Yates’s September 2015 memorandum, ‘Individual Accountability for Corporate Wrongdoing’ (the Yates Memorandum), reinforces the importance of internal risk assessment and compliance monitoring. As promulgated, the Yates Memorandum requires early and complete self-reporting if a corporation wishes to obtain co-operation credit. Corporations are thus highly incentivised to self-report.
  37. See SEC Press Release, VimpelCom to Pay $795 Million in Global Settlement for FCPA Violations (18 February 2016), (noting that the SEC imposed a monitor on Dutch company VimpelCom as part of the parties’ settlement to resolve VimpelCom’s FCPA violations); Independent Monitor of Takata and the Coordinated Remedy Program, Takata Monitor, (Japanese company Takata agreed to a monitor in connection with its settlement with the US National Highway Traffic Safety Administration for Takata’s manufacture and sale of ammonium nitrate airbags.).
  38. See in particular Section 7.11 of the DPA Code of Practice.
  39. R v. Innospec Limited [2010] Crim LR 665 at §§48-49.
  40. Morford Memorandum, supra note 11, at 3.
  41. Id. at 4.
  42. ABA Standards for Monitors §§ 24–2.1; 24–2.4.; 24–2.4(3)–(4).
  43. Morford Memorandum, supra note 11, at 4.
  44. Rachel G. Jackson, Data Show Trend Away from Monitors for Voluntary Disclosures, Just Anti-Corruption (31 May 2012),!/
  45. See in particular Sections 7.15-7.17 of the DPA Code of Practice.
  46. See Morford Memorandum, supra note 11, at 3.
  47. One study found that half of all monitors appointed in connection with DPAs and NPAs since 2001 have been former prosecutors, leading some critics to describe the monitoring industry as a ‘full employment act for former federal prosecutors’. See Alison Frankel, DOJ Should End Secret Selection Process for Corporate Watchdogs, Reuters Blog (14 July 2014),; Steven Davidoff Solomon, In Corporate Monitor, a Well-Paying Job But Unknown Results, The NY Times: Dealbook (15 April 2014),
  48. Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  49. Morford Memorandum, supra note 11, at 5.
  50. See for example Dep’t of Justice Deferred Prosecution Agreement with Avon Products, Inc., 15 December, 2014, available at (‘[T]he Monitor will evaluate, in the manner set forth below, the effectiveness of the internal accounting controls, record-keeping, and financial reporting policies and procedures of the Company as they relate to the Company’s current and ongoing compliance with the FCPA . . . .’).
  51. Critics complain that ‘[l]ittle is publicly disclosed about what specifically they are supposed to accomplish [and] what they discover in their examinations . . . .’ Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  52. See in particular Section 7.21 of the DPA Code of Practice.
  53. Notably, some corporations have taken to hiring their own internal monitors following the government’s implementation of a monitor. For example, as part of Western Union’s 2010 settlement, Western Union received a monitor. Independently, Western Union also hired a consultant, leading to what in effect was a ‘dual system of internal monitors – one stipulated by the settlement and the other hired by the money-transfer firm.’ Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  54. F. Joseph Warin, Michael S. Diamant & Veronica S. Root, Somebody’s Watching Me: FCPA Monitorships and How They Can Work Better 13 U. Pa. J. Bus. L. 321, 364 (2011), available at
  55. Grindler Memorandum, supra note 13, § II.
  56. Morford Memorandum, supra note 11, at 7. Critically, undisclosed or continuing misconduct may invalidate the terms of the settlement and lead to an extension of the term and scope of the monitorship.
  57. Morford Memorandum, supra note 11, at 7–8.
  58. Id. at 7.
  59. Id. at 8 (‘For example, if a corporation ceased operations in the area that was the subject of the agreement, a monitor may no longer be necessary. Similarly, if a corporation is purchased by or merges with another entity that has an effective ethics and compliance program, it may be prudent to terminate a monitorship.’).
  60. John Letzing, Credit Suisse’s Tardiness Likely to Extend Monitor’s Sojourn, The Wall Street J. (6 January 2016),
  61. Id. (Noting that the process has been delayed although ‘[a] group of more than 100 Credit Suisse employees and external contractors hired by the bank’ have been assisting the monitor.).
  62. See Section 7.19 of the DPA Code of Practice.
  63. FCPA Digest, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act at 2, 6, Shearman & Sterling (6 January 2014), available at
  64. Dylan Tokar, With Alstom Monitor Agreement, DOJ Tries Something New, Global Investigations Rev. (4 February 2015), available at
  65. If disclosing the work plan to the company would limit the monitor’s effectiveness, however, the parties should consider an alternative arrangement. See ABA Standards for Monitors § 24-3.3(3).
  66. See Section 7.18 of the DPA Code of Practice.
  67. Jason T. Wright, The Corporate Compliance Monitor’s Role in Regulatory Settlement Agreements, SRR (Spring 2014),
  68. See Section 7.18 of the DPA Code of Practice.
  69. See Warin, supra note 55, at 360 (noting that the work plan also serves as a ‘gloss on the settlement agreement to be applied in subsequent years of the monitorship’).
  70. Jason T. Wright, The Corporate Compliance Monitor’s Role in Regulatory Settlement Agreements, SRR (Spring 2014),
  71. See Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015), (noting that the monitorship involved over 3,500 meetings with HSBC staffers, 11,500 document requests, and over 2 million pages of documents).
  72. ABA Standards for Monitors § 24-4.2(1)(a)–(2)(a). Despite the monitor’s independence, the monitor still has a duty to the corporation by nature of the appointment. Thus, the monitor cannot use proprietary or confidential information obtained during the monitorship for any purpose other than in furtherance of the monitorship. Where proprietary information is disclosed, the monitor and corporation should work together to ensure this information remains confidential. The parties should also stipulate how the monitor is to return any confidential or proprietary documents upon completion of the monitorship.
  73. See Section 7.14 of the Code.
  74. Except in limited circumstances, a company is not required to provide counsel or pay for counsel for employees being interviewed.
  75. ABA Standards for Monitors § 24-4.2(4)(d).
  76. Morford Memorandum, supra note 11, at 6.
  77. ABA Standards for Monitors § 24-4.3(1)(d). Giving the corporation the opportunity to review a draft report may improve the quality of the report, as the corporation can correct any errors and, where applicable, provide evidence to rebut the monitor’s negative findings.
  78. Morford Memorandum, supra note 11, at 6. For example, after Standard Charter settled charges that it disguised transactions that could have violated US sanctions, two monitors were appointed as well as one ‘independent consultant.’ The monitors’ findings that inadequate controls were used led to an additional $300 million fine. Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  79. Grindler Memorandum, supra note 13, § II.
  80. See Section 7.20 of the DPA Code of Practice.
  81. Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  82. The HSBC matter represents the most public instance of a party seeking access to a monitor’s report, however, it is not the only such example. See In re Depuy Orthopaedics, Inc. Pinnacle Hip Implant Prod. Liab. Litig., No. 11 MD 2244, 2013 WL 2091715 (N.D. Tex. 15 May 2013) (ordering disclosure of monitor’s report in a product liability matter).
  83. See Christie Smythe, Judge Lets Sun Shine on Secret HSBC Money Laundering Report, Bloomberg (29 January 2016),
  84. Nate Raymond, HSBC Money Laundering Report’s Release Likely Delayed: US Judge, Reuters (10 February 2016), See United States v. HSBC Bank USA NA, No. 12 CR 763 (JG), 2016 WL 347670, at *1, *6 (E.D.N.Y. 28 January 2016), appeal filed, No. 16-353 (2d Cir. 5 February 2016).
  85. HSBC Bank USA NA, 2016 WL 34760, at *1, *6.
  86. Nate Raymond, HSBC Money Laundering Report’s Release Likely Delayed: US Judge, Reuters (10 February 2016),
  87. Id.
  88. Karen F. Green and Timothy D. Saunders, Minding the Monitor: Disclosure of Corporate Monitor Reports to Third Parties, Bloomberg BNA (2014), available at
  89. Both the Morford Memorandum and the Grindler Memorandum counsel the need for prosecutors to be mindful of the costs of monitors and their potential impact on the corporation when negotiating settlements. Grindler Memorandum, supra note 13, § II (noting that the government ‘should help to instill public confidence in the Department’s use of monitors, including the Department’s mindfulness of the costs of a monitor and their impact on a corporation’s operations’); Morford Memorandum, supra note 11, at 2 (noting that prosecutors must be mindful of ‘the cost of a monitor and impact on the operations of a corporation’).
  90. Rachel Louise Ensign, Judge Rules HSBC’s Outside Monitor’s Secret Report Should be Made Public, The Wall Street J. (29 January 2016),; see also Rachel Louise Ensign & Max Colchester, Meet the Private Watchdogs Who Police Financial Institutions, The Wall Street J. (30 August 2015),
  91. Whereas fines are usually due in one lump sum, payments for monitors are commonly billed monthly. See Jason T. Wright, The Corporate Compliance Monitor’s Role in Regulatory Settlement Agreements, SRR (Spring 2014), (‘More often than not, however, this cost is far less than what the company would otherwise pay in fines, possible debarment, or legal fees in defending an enforcement action through trial.’); Patricia M. Sulzbach, Independent Corporate Monitors: A Company’s Friend or Foe?, ABA White Collar Crime Comm. Newsletter (18 April 2013), available at
  92. See also ABA Standards for Monitors §24-3.4.
  93. United States v. Apple, Inc., 787 F.3d 131, 133–34 (2d Cir. 2015).

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