Globally, there has been an increase in corporate criminal proceedings, with compliance monitorships used as a tool by governments and other organizations to ensure adherence to legal and regulatory requirements. A corporate criminal resolution may involve multiple regulators and include penalties, fines, disgorgement of proceeds, criminal guilty pleas, the appointment of a monitor, the requirement of a compliance officer or executive to certify the compliance environment, and self-reporting obligations. Various factors influence the decision to impose a monitor and aim to provide an independent and objective assessment of the company’s compliance efforts post-resolution. This article demystifies the role of the monitor by examining their appointment, responsibilities, and approach while offering tips on how to work with a monitor and leverage their expertise successfully.
Selection of a monitor
Enforcement agencies globally impose monitors in order to independently evaluate compliance with the terms of a corporate compliance resolution. In the U.S., monitors are imposed by authorities such as the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Department of Financial Services. The Anti-Corruption Agency fills the same role in France, and in the U.K., the Serious Fraud Office appoints monitors.
Authorities appoint monitors in consideration of “(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.”[1] The process by which a monitor is identified and selected depends on the type of monitorship.
Corporate compliance monitorships often follow published DOJ guidance to ensure a rigorous and consistent approach regarding the selection of monitors.[2] This comprehensive guidance provides valuable insights into the factors considered during the selection process for monitors in corporate deferred prosecution agreements, nonprosecution agreements, and criminal guilty pleas. It emphasizes the importance of qualifications, independence, transparency, and avoiding conflicts of interest when appointing monitors. Most commonly, selecting a monitor begins with the company providing a shortlist of qualified candidates to the regulator. The regulator reviews the proposed candidates’ experience, expertise, and independence and appoints the monitor. DOJ also considers its commitment to diversity, equity, and inclusion when selecting monitors.
In other instances—such as monitorships focused on enforcement—the regulator may independently identify several qualified candidates from which the company then makes the final monitor selection. Regardless of the type of monitorship, enforcement agencies and companies generally agree on the necessary qualifications of the monitor.
Qualifications and responsibilities of a monitor
A monitor is responsible for overseeing the company’s compliance with the settlement terms, identifying areas of noncompliance, and recommending remedial actions as necessary. To effectively carry out these responsibilities, a monitor must have key qualifications. First and foremost, they must have extensive experience in the relevant field. For example, a monitor appointed to oversee anti-corruption efforts should have a deep understanding of the anti-bribery and corruption regulations applicable to the company under monitorship, such as the Foreign Corrupt Practices Act or U.K. Bribery Act.
Additionally, monitors should be independent and impartial. This means there should be no conflicts of interest or relationships with the company subject to the monitorship that would compromise their objectivity. Monitors must also be able to provide effective oversight, which requires strong analytical and communication skills. Finally, the monitor candidate needs to have adequate and sufficient resources to “discharge the monitor’s responsibilities effectively,” as well as any specific additional qualifications required by specific circumstances.[3]
Monitorships can vary in scope, and a monitor’s responsibilities are driven by the type of misconduct, the maturity of the compliance program, and the resulting agreements. The primary responsibility of a compliance monitor is to ensure that the compliance program is adequately designed, fit for purpose, and is operating effectively to prevent the reoccurrence of the original misconduct.
A monitor’s scope and approach
The authority provides a monitor with a clear mandate on the scope of their responsibilities, encompassing tasks such as assessing the design, implementation, and effectiveness of the company’s remediation efforts. There are broad monitorships, where the monitor will look at all the compliance program’s elements, or narrow monitorships, where the monitor will only look at a company’s very specific aspects or processes. The monitor is responsible for reporting on the status of the company’s remediation efforts to regulators and other stakeholders. This can involve preparing regular reports or presenting them to key stakeholders, such as government agencies or board members.
Throughout the course of the monitorship, the monitor will typically undertake a variety of tasks, such as document review, transaction testing, interviews, walkthroughs, and reporting. This may include reviewing financial records, conducting interviews with employees, and performing other investigative activities as necessary. The monitor may also work with external auditors or other experts to ensure that the company’s compliance efforts are effective.
A monitor is also responsible for assessing the company’s identification of key risk areas and compliance monitoring. This often involves analyzing data and working with the company to establish metrics for measuring compliance, such as tracking the number and types of violations or assessing the effectiveness of training programs.
The monitor frequently enhances their team by bringing in subject matter experts—including data specialists, lawyers, forensic accountants, and other highly skilled professionals. This collaborative approach allows the monitor to access specialized knowledge and expertise in specific areas, enabling a comprehensive assessment and effective implementation of their monitoring responsibilities.
Working with a monitor
To facilitate a monitor’s mandate, the company under monitorship will need to be well-prepared and organized. By prioritizing effective project management and working collaboratively with the monitor, companies can help ensure that the monitorship is conducted efficiently, effectively, and in accordance with the settlement terms.
It is crucial for the company to dedicate the necessary resources to ensure the success of the monitorship and demonstrate a commitment to compliance and remediation. Company resources are needed to provide the monitor with access to relevant information and data, as well as coordinate interviews (with employees and stakeholders) and site visits. The company may also need to allocate personnel to support the monitorship, such as subject matter experts, compliance officers, and legal counsel.
In addition, the company may need to allocate financial resources to support the monitorship, such as funding for the monitor’s fees and expenses, as well as the costs associated with implementing any remedial measures recommended by the monitor. This may include investments in new technology, training programs, or changes to policies and procedures.
Benefits of a monitorship
While the cost associated with a monitorship can be substantial, numerous stakeholders can benefit from undertaking this process. Regulators and society at large stand to benefit as monitorships contribute to enhanced compliance, reduced likelihood of future misconduct, and strengthened regulatory oversight. Shareholders can derive value preservation benefits from a monitorship, as it helps mitigate risks and safeguards the company’s reputation, potentially avoiding further financial and reputational damages.
Monitorships can further help restore public trust in organizations involved in misconduct or illegal activity. The appointment of a monitor demonstrates a commitment to ethical behavior and compliance with laws and regulations. This can be particularly important for companies operating in industries where trust and reputation are critical factors in their success. The public is more likely to trust a company being monitored and is seen to be making efforts to comply with regulations.
For the company, monitorships help organizations identify improvement areas and enhance their overall compliance culture. This can include promoting ethical behavior, encouraging transparency and accountability, and fostering a commitment to regulatory compliance. Organizations can reduce the likelihood of misconduct, which could result in additional fines, legal fees, and damage to their reputation in the future—or even their license to operate. This can have a positive impact on employee behavior, as well as the company’s reputation and bottom line.
Conclusion
Authorities across the globe are using monitorships at an increasing rate to ensure companies have adequate compliance programs and controls where monitors play a vital role in evaluating companies’ remediation efforts. Accordingly, monitors are carefully selected based on impartial qualification criteria and given specific mandates to define their scope. Companies who understand the role of a monitor are better equipped to leverage the monitor’s expertise, improve their compliance program and control environment, and successfully complete their monitorship.
Takeaways
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Compliance monitorships are increasingly used to ensure adherence to legal and regulatory requirements.
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Monitors are responsible for overseeing compliance policies and procedures, conducting investigations and audits, identifying risks, and reporting on compliance efforts.
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Monitors must have extensive experience in the relevant field, be independent and impartial, and possess strong analytical and communication skills.
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When appointing a monitor, key considerations include their independence, qualifications and experience, ability to provide effective oversight, and cost.
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Benefits of a monitorship include reducing legal and regulatory risks, enhancing compliance culture, restoring public trust, improving risk management practices, and operational efficiency.