In 2019, nearly 60% of U.S. Department of Justice (DOJ) corporate resolutions in Foreign Corrupt Practices Act (FCPA) cases called for the imposition of an independent compliance monitor. Independent compliance monitors are appointed pursuant to a negotiated settlement, such as a deferred prosecution agreement, with an enforcement agency. The settlement defines the scope and term of the monitorship, which generally spans for several years following the announcement of the resolution.

The DOJ is not the only enforcement agency that relies on monitorships. In June 2019, for example, the New York State Department of Financial Services (NYDFS) solicited applications for a second independent compliance monitor for a financial institution after finding that the institution had failed to sufficiently remediate issues with its anti-money laundering compliance programs during the initial monitor term.

The DOJ and other government agencies continue to use monitorships as components of settlement agreements, despite October 2018 guidance from the DOJ indicating increased sensitivity to the costs and burdens of monitorships. Nevertheless, other recent guidance from the DOJ regarding effective corporate compliance programs may give companies another tool to use in their efforts to persuade enforcement agencies that a monitor is unnecessary.

This article will explore trends in the use of monitorships, provide practical tips on using the DOJ's guidance to potentially avoid a monitorship, and—if a company is required to retain a monitor—how to "survive" the monitorship.

Monitorship Trends

In October 2018, Assistant Attorney General Brian A. Benczkowski released a memorandum on the "Selection of Monitors in Criminal Division Matters" (the Benczkowski Memorandum). The Benczkowski Memorandum acknowledges the monetary costs and business disruptions that accompany monitorships, and instructs DOJ attorneys to conduct a cost/benefit analysis when determining whether a monitor is appropriate in a given case.

Under this policy, a corporate resolution should call for a monitor only as necessary to ensure compliance with the terms of a corporate resolution and to prevent future misconduct. The Benczkowski Memorandum urges DOJ attorneys to consider "whether the proposed scope of a monitor's role is appropriately tailored to avoid unnecessary burdens to the business's operations."

Companies welcomed the Benczkowski Memorandum's message, hoping that a cost/benefit analysis would yield fewer monitorships. But the DOJ continues to use monitorships in corporate resolutions, particularly in FCPA cases. In 2019, despite the issuance of the Benczkowski Memorandum, four of the seven DOJ FCPA corporate resolutions called for a monitor. In two of those cases, the DOJ imposed three-year monitorships with broad mandates because the companies failed to timely or appropriately remediate.

Some of the recent resolutions, however, suggest that the Benczkowski Memorandum has resulted in monitorships that are more limited in scope or have shorter terms. For example, in June 2019, Walmart Inc. (Walmart) resolved allegations related to misconduct by foreign subsidiaries in Mexico, India, Brazil, and China. The settlement documents recognize that Walmart engaged in significant remedial measures and, in that case, the monitor's term is limited to two years. The Walmart monitor's mandate also is tailored to certain areas that are described in the settlement documents as key risk areas (e.g., third-party intermediaries and donations) for operations in Walmart's headquarters and four additional countries in which Walmart operates. In 2019, Fresenius Medical Care similarly obtained a tailored monitorship because, before the resolution was imposed, it had engaged in remedial measures (detailed in the settlement) and had enhanced and committed to continuing to enhance its compliance program and internal controls.

How To Avoid Monitorships

The DOJ has emphasized that monitorships are necessary when companies fail to sufficiently remediate or address the underlying issues that led to the misconduct. The Benczkowski Memorandum is clear: "[w]here a corporation's compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary" (emphasis added).

As a result, prior to a resolution with an enforcement agency, a company should take every opportunity to identify the root causes of misconduct, assess the overall state of its compliance program, and implement appropriate remediation. Early on in internal investigations, companies are understandably preoccupied with identifying the key facts and the extent of the potential misconduct, navigating document retention and privilege issues, handling various stakeholders, and framing the circumstances to limit negative press coverage and reputational damage. But in the midst of that chaos, companies should be mindful of the root causes of the misconduct and attempt to implement basic remediation measures.

Government investigations, moreover, can drag on for years, providing companies with ample time to address remediation. For example, Mobile TeleSystems Public Joint Stock Company announced in March 2014 that it was under investigation for FCPA violations, but did not enter into the related deferred prosecution agreement—which called for a three-year monitorship—until five years later. Remediation, therefore, can and should occur hand in hand with a government investigation, and companies should enhance and test their compliance programs well before a resolution is finalized.

Companies also should track and communicate their remediation efforts to the government to argue that a monitor is unnecessary, or, in the alternative, that the monitorship should be limited in scope because certain areas of the compliance program have already been effectively implemented and tested.

What Is an 'Effective' Compliance Program?

In April 2019, the DOJ revised its "Evaluation of Corporate Compliance Programs" document, which provides guidance to prosecutors on how to evaluate corporate compliance programs. The guidance reorganized existing principles—sometimes known as the hallmarks of a compliance program—under three overarching questions:

(1) Is the corporation's compliance program well-designed?

(2) Is the program being applied earnestly and in good faith? In other words, is the program being implemented effectively?

(3) Does the corporation's compliance program work in practice?

With respect to each of these overarching questions, the document outlines and discusses certain topics for prosecutors to consider. For instance, on the question of whether the corporation's compliance program is well-designed, prosecutors are to look at the company's risk assessment, its policies and procedures, its training and communications, its confidential reporting structure and investigation process, its management of third parties, and its mergers and acquisitions due diligence.

Companies should consider the factors enumerated in the guidance when evaluating whether their own compliance programs are sufficient. This can be done at any time—and ideally, will be done before an investigation arises. Further, when negotiating a settlement with the DOJ or another government agency, a company can use the DOJ's framework to describe the remediation efforts it has undertaken and explain why its compliance program is now effective. Companies may be more successful in persuading government agencies that a monitor is unnecessary—or that a monitorship should be limited in scope—by using the DOJ's guidance on compliance programs, as the language in the guidance will be familiar to DOJ attorneys and may be given respect by other agencies.

So What If You Get a Monitor?

Despite a company's best efforts, the DOJ or another governmental authority may insist on imposing a monitor as part of a resolution. And while no company is happy to get a monitor, there are ways that a company can minimize the inevitable costs and disruption and can even use the monitorship to its advantage.

First, preparation is key. Once a company learns that it will have a monitor, it is important to prepare logistically. To evaluate a company's compliance program, a monitor must understand the business and thus will need access to documentation, personnel, and systems. Companies should ensure that they dedicate sufficient resources to handle the monitor's various requests and ensure that the monitorship proceeds smoothly. Failure to coordinate efficiently will lead to frustration on both sides and will result in additional time, effort, and costs.

Second, it is also essential to prepare stakeholders, including senior management, who may view the monitorship as a penalty and approach the process as a waste of time and resources. Re-framing the monitorship as an opportunity to revamp a compliance program and avoid additional long-term aggravation and costs—such as hefty sanctions imposed on repeat offenders—is helpful in obtaining stakeholder buy-in.

Third, companies should also focus on cooperating and communicating with the monitor and the government throughout the process. Once a monitor is imposed, companies have limited opportunity to challenge monitor requests. But maintaining open lines of communication and cooperating will again reduce unnecessary animosity and facilitate a smooth process.

Fourth, but perhaps most importantly, preparing, cooperating, and communicating increases the chances that the monitor will be able to certify the compliance program at the end of the monitorship term—avoiding an extension or the appointment of an entirely new monitor. Extensions are not only costly; they also lead to negative publicity and reputational damage.

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The DOJ and other government agencies continue to use monitors in corporate resolutions. By staying abreast of changes in DOJ guidance on monitorships and corporate compliance programs, companies can aid their own efforts to successfully navigate settlement discussions with the DOJ and other enforcement agencies and (hopefully) avoid a monitorship altogether.

Sarah Paul is a partner in the New York office of Eversheds Sutherland and a former federal prosecutor in the Southern District of New York. Olga Greenberg is a partner in the firm's New York office and Andrea Gordon is an associate in the Washington D.C. office.