Monaco Memo – A Jolt for Compliance: Part 4 – New Factors in Selecting Monitors | Thomas Fox – Compliance Evangelist

Today, we continue our exploration of the Monaco Memo by considering the sections relating to the evaluation of cooperation during the pendency of the investigation and the evaluation of a company’s compliance program at the conclusion of the resolution. These portions of the Monaco Memo should be studied intently by every compliance professional as they lay out what the Department of Justice (DOJ) will require to grant discounts under the FCPA Corporate Enforcement Policy. Today, I want to look at the provisions regarding monitors and monitorships. In many ways, they are some of the most interesting parts of the Monaco Memo.

The section on monitors and monitorships is broken down into three parts; (1) criteria for determining if a monitor is warranted; (2) criteria for selection of a monitor; and (3) monitor oversight. I am going to focus on the first prong, the criteria for determining if a monitor is warranted. You may recall the prior test to determine whether a monitor was warranted was last

articulated in the Benczkowski Memo. The test basically had an organization implement an effective compliance program and then test it. However, now there is a 10-factor test, which as Washington & Lee University, School of Law Professor Karen Woody says, greatly increases the temperature on corporations. The 10 factors are:

  1. Whether the corporation voluntarily self-disclosed the underlying misconduct in a manner that satisfies the particular DOJ component’s self-disclosure policy;
  2. Whether, at the time of the resolution and after a thorough risk assessment, the corporation has implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future;
  3. Whether, at the time of the resolution, the corporation has adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct in the future;
  4. Whether the underlying criminal conduct was long-lasting or pervasive across the business organization or was approved, facilitated, or ignored by senior management, executives, or directors (including by means of a corporate culture that tolerated risky behavior or misconduct, or did not encourage open discussion and reporting of possible risks and concerns);
  5. Whether the underlying criminal conduct involved the exploitation of an inadequate compliance program or system of internal controls;
  6. Whether the underlying criminal conduct involved active participation of compliance personnel or the failure of compliance personnel to appropriately escalate or respond to red flags;
  7. Whether the corporation took adequate investigative or remedial measures to address the underlying criminal conduct, including, where appropriate, the termination of business relationships and practices that contributed to the criminal conduct, and discipline or termination of personnel involved, including with respect to those with supervisory, management, or oversight responsibilities for the misconduct;
  8. Whether, at the time of the resolution, the corporation’s risk profile has substantially changed, such that the risk of recurrence of the misconduct is minimal or nonexistent;
  9. Whether the corporation faces any unique risks or compliance challenges, including with respect to the particular region or business sector in which the corporation operates or the nature of the corporation’s customers; and
  10. Whether and to what extent the corporation is subject to oversight from industry regulators, or a monitor imposed by another domestic or foreign enforcement authority or regulator.

The old Benczkowski Memo test is found in factors 2 and 3. However, factor 1 is whether or not the company self-disclosed the incident(s) at issue. Moreover, factors 4-6 all related to conduct and actions when the illegal activity occurred, not after discovery and self-disclosure. Factor 4 relates to the length or pervasiveness of the conduct and whether senior management was involved. Factor 5 reviews “the exploitation of an inadequate compliance program or system of internal controls.” Factor 6, asks if compliance personnel were involved or were basically negligent in failing to “appropriately escalate or respond to red flags.” Factors 7-10 refine company actions post-reporting and do relate to actions after a company became aware such as investigations and remedial actions (factor 7), a reduction in the company’s risk profile (factor 8), or unique regulatory or business challenges (factors 9 and 10).

The Monaco Memo states, “prosecutors will not apply any general presumption against requiring an independent compliance monitor (“monitor”) as part of a corporate criminal resolution, nor will they apply any presumption in favor of imposing one.” The Monaco Memo also states, “Prosecutors should analyze and carefully assess the need for a monitor on a case­ by-case basis, using the following non-exhaustive list off actors when evaluating the necessity and potential benefits of a monitor.” Finally, the DOJ believes “compliance monitors can be an effective means of reducing the risk of further corporate misconduct and rectifying compliance lapses identified during a corporate criminal investigation.” This statement leads me to believe the DOJ is very concerned about corporate recidivism. Whatever the ultimate reasons are it does appear that, as Professor Woody noted, the heat is definitely turned up.

One thing did strike me about this list is that provides a clear roadmap for compliance professionals to use in proactive manner. You now know the precise factors the DOJ will review so you can look at them on an ongoing basis to (1) determine if your organization has issues which need to be addressed; (2) allows you to remediate before the government comes knocking or you have to self-disclose; and (3) if you use an independent third-party as a part of this proactive process, you can document compliance if you need to do so going forward if the government comes knocking independently of your self-reporting.

I hope you will join me for my next post to wrap up with some final thoughts.

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