The Curious Absence of Corporate Monitors

Michael Volkov
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The Volkov Law Group

In 2020, the Justice Department did not insist on the appointment of any independent compliance monitors.  The year before, in 2019, DOJ insisted on the appointment of three independent corporate monitors – MTS Telecommunications, Fresenius and Wal-Mart.  If you ask me to distinguish between these cases and Goldman Sachs, Novartis or Herbalife, I would be hard pressed to provide a cogent explanation.  Granted, we are not privy to the detailed review by DOJ prosecutors and the possible explanation for differing treatment on these issues.

One other consideration is whether a multi-jurisdiction enforcement action involved imposition of a corporate monitorship or regulatory monitorship by a foreign jurisdiction.  In the Airbus SE case, the French regulator assumed a significant monitoring role.  In that case, there was no need to impose a US-based corporate monitor.  The same rationale was cited by DOJ in the 2018 Petrobras FCPA enforcement action. 

In October 2018, AAG Brian Benczkowski issued a new DOJ memorandum regarding the selection of corporate monitors.  The memorandum ensures increased transparency over the selection of independent corporate monitors.  Benczkowski emphasized that such monitors are unnecessary when a company has implemented an effective corporate compliance program at the time of the resolution of an investigation.  Under the memorandum, a monitor should only be imposed when there is a “clear benefit” to be derived from a monitorship relative to the projected costs and burdens to the company.

In focusing on the potential benefits of a corporate monitor, the memo lists the following non-exclusive factors:

  • Whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal controls system;
  • Whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
  • Whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems;
  • Whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future;
  • Whether, if misconduct occurred under a different corporate leadership or within a compliance environment that no longer exists within a company, the changes in corporate culture and/or leadership are adequate to safeguard against a recurrence of misconduct;
  • Whether adequate remedial measures were taken to address problem behavior by employees, management, or third-party agents, including, where appropriate, the termination of business relationships and practices that contributed to the misconduct; and
  • The unique risks and compliance challenges the company faces, including the particular region(s) and industry in which the company operates and the nature of the company’s clientele.

While this balancing approach appears to be reasonable, the question is hard to define given the general factors listed above.  There should be greater transparency and understanding of the rationale underlying DOJ’s determination.

No Monitor in the Goldman Sachs Case?

My skepticism reflects a serious concern as to why DOJ did not impose a corporate compliance monitor in the Goldman Sachs case.  As I have repeatedly stated, the Goldman Sachs case was the most significant FCPA prosecution in the FCPA’s history.  It struck right at the core of the purpose of the FCPA – to protect developing economies from that could have a negative impact on economic development.  The scale and scope of the Goldman Sachs bribery scheme was unprecedented.  The absence of meaning compliance and financial controls was blatant.

DOJ appears to have been persuaded that Goldman Sachs’ remediation measures eliminated any real potential for future violations.  I don’t buy it.  Goldman Sachs has a significant culture problem, a failure of corporate leadership to back up paper commitments to compliance with real resources and meaningful actions. Goldman Sachs, at a minimum, now faces a multi-year project to improve its corporate culture, elevate its compliance function, and demonstrate its real and significant commitment to compliance.

If there ever was a case that warranted an independent corporate monitor, then Goldman Sachs is the case.  DOJ’s failure to impose such a condition undermines its ability to ensure fair and equal treatment of FCPA violators.  I do  not make this criticism lightly – but the most egregious FCPA violation, by definition, warrants at a minimum, an independent corporate monitor.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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