Trends in the use of corporate monitors

Independent corporate compliance monitors have become increasingly common in settlements of government enforcement actions. In these settlements, the government often requires that the company utilize a monitor, typically for a period of two to four years, who will report to both the company and the government on a regular basis regarding the company’s compliance program. We interviewed Hughes Hubbard & Reed partner John F. Wood regarding recent trends in the use of monitors. Before joining Hughes Hubbard, Mr. Wood served in several positions at the U.S. Department of Justice, including as U.S. Attorney for the Western District of Missouri, Counselor to the Attorney General, and Deputy Associate Attorney General. While at Hughes Hubbard, he has worked on monitorships and represented companies that have had monitors.

Is there a trend in the use of corporate monitors? Will they be used less frequently in the Trump Administration?

Wood: In general, there has been an increase in the frequency with which government agencies have required the appointment of monitors in the resolution of enforcement actions. All signs are that the Department of Justice under Attorney General Jeff Sessions will continue to take an aggressive approach to corporate criminal enforcement. It is likely that DOJ will continue to require monitors. Moreover, corporate counsel should be aware that other agencies in addition to DOJ are starting to require monitors in their settlements.

What agencies in addition to DOJ are starting to use corporate monitors? Are monitors specific to the U.S., or are other countries using them as well?

Wood: Many other agencies are starting to use monitors. The Securities and Exchange Commission has required the appointment of monitors. An even more pronounced trend has been that state agencies have started requiring them as well. Perhaps the most significant of these has been the New York Department of Financial Services, which has imposed monitors on several large banks in the past few years. Other countries are requiring monitors as well, though not as frequently as U.S. enforcement agencies do. For example, my firm – Hughes Hubbard & Reed – was the first firm appointed jointly by the DOJ, SEC, and U.K. Serious Fraud Office to serve as a monitor.

How has the role of DOJ corporate monitors changed over the years? Have they become more or less intrusive?

Wood: In some of the early monitorships, the monitors truly monitored the day-to-day activities of the companies, looking for possible violations of law. Over time, DOJ provided more guidance for monitors, which is incorporated into a memorandum from the Deputy Attorney General and in specific deferred prosecution and non-prosecution agreements that called for the appointment of monitors. Today, monitors tend to be less focused on monitoring day-to-day activities of the companies and more focused on reviewing the overall effectiveness of companies’ compliance program. While this might mean that monitors are less intrusive on the business operations of a company, the monitors are as rigorous as ever in reviewing the overall compliance program. So in-house counsel and compliance officers work as closely as ever with monitors. It is also important to keep in mind that a monitor’s review of the compliance program includes how the program works in practice. A monitor will want to “get under the hood” and see how the written policies and procedures are being implemented. For example, a monitor will go beyond looking at a company’s written anti-corruption policies and procedures and also review the company’s anti-corruption training, due diligence files on agents and consultants, etc.

You have worked on monitorships and represented companies that have monitors. What advice do you have for companies in how they should interact with their monitors?

Wood: Always be candid with the monitor and have a “no surprises” rule. During the course of a monitorship, it is common for a company to come across shortcomings in its compliance program. If it didn’t have such shortcomings, it probably would not have needed a monitor in the first place. An experienced monitor will understand that no compliance program is perfect and will give the company a chance to address the shortcoming in the first instance. But if the company tries to hide the issue from the monitor and the monitor finds it anyway, it creates distrust in the relationship. By the way, the company should expect that the “no surprises” rule work both ways – the monitor should tell the company when he or she discovers an issue and should give the company a chance to address it, rather than waiting and criticizing the company for the first time in the monitor’s report.

Are corporate monitor reports publicly available?

Wood: Not yet, but this is the source of much litigation. Reporters and members of the public have sought access to several monitors’ reports. The companies, DOJ, and the monitors themselves have all opposed such efforts to make the reports public. So far, the two courts of appeals that have addressed the issue have concluded that the monitors’ reports are not “judicial records” and therefore that the public does not have a First Amendment or common law right of access. But there are also cases where reporters have sought the reports from government agencies under the Freedom of Information Act, and those cases are still being litigated. My own view is that if the reports were to become public, it could have a chilling effect on communications between companies and their monitors in the future. It would also force monitors to limit how much detail they put in their reports, which are intended only for the company and the government. A thorough report discusses the company’s compliance program in practice, which often requires discussion of sensitive business information. That just isn’t possible if the reports will become accessible to the public and the company’s competitors. Corporate counsel for companies facing potential monitorships should be aware that the issue of public release of monitor reports is far from resolved.

About John F. Wood

Hughes Hubbard & Reed partner John F. Wood’s practice focuses on corporate compliance, internal investigations, advocacy before government agencies, and litigation. Before joining Hughes Hubbard, Mr. Wood served in several positions at the U.S. Department of Justice, including as U.S. Attorney for the Western District of Missouri, Counselor to the Attorney General, and Deputy Associate Attorney General.