Today, I want to explore the differences in two types of monitorships; a post-resolution monitorship and a pre-settlement monitorship. I am joined in this exploration by Eric R. Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI).

Post-Resolution Monitorship

Feldman explained that most generally, a “post-resolution monitorship is essentially a situation where a government agency and a private organization, it could be a corporation it could be a nonprofit organization, has a requirement of settling some kind of a dispute or a matter between those two entities the company; the regulator agrees they are going to use a monitor to ensure that any specific conditions of the agreement to settle the matter are met.” He went on to note it is usually an independent third-party who is brought in for this purpose.

Post-resolution monitorships are well-known to the compliance community through Foreign Corrupt Practices Act (FCPA) enforcements. Yet Feldman stressed they are used in a much wider area of practice than simply FCPA. He said, “Other kinds of enforcement scenarios would involve state Attorneys Generals that perhaps are investigating and settling cases with companies involving consumer protection or even civil rights cases. State regulatory boards, medical boards and other types of licensing institutions and various states, could sign agreements that require a monitor to monitor the conditions of those agreements.” Of course, there are situations where there is court ordered enforcement as a result of a court ordered settlement and “a monitor is required to report to the court and both parties’ compliance with that particular agreement.”

Yet monitorships have been employed in anti-trust scenarios to ensure compliance not only with Consent Decrees but with Federal Trade Commission (FTC) or Federal Communications Commission (FCC) approved merger conditions. Here Feldman pointed to the example of the merger conditions between DirecTV and AT&T. In that case, the monitor was charged with reviewing and assessing compliance with certain merger conditions. Feldman noted there was no enforcement action and no wrongdoing but a recognition by all parties involved for the need of a truly independent third party to assess compliance with the acquisition conditions.

One thing about the post-resolution monitorship is that if viewed as a tool for compliance, a wider variety of uses can be envisioned. In the FCPA world, we have seen shareholder actions brought against Boards of Directors and companies for failing in their duties to put compliance programs in place. Occasionally, these actions are resolved before the conclusion of a FCPA investigation or enforcement action. If you had a post-settlement monitorship for the shareholder action, both the findings of the monitor and the monitor’s report could potentially help the recalcitrant company under the new FCPA Corporate Enforcement Policy. In such a scenario a post-resolution monitorship could have the impact of a pre-settlement monitorship.

Feldman concluded by noting, there are a number of applications and uses of an independent, credible third-party to facilitate the resolution of disputes. There are different ways having a third party come in and help to resolve issues; the number of ways is almost infinite or at the very least, limited to your imagination. Often a monitor could come in collect information on what one or both of the parties are doing to help facilitate a settlement. Feldman discussed matters such as consumer protection issues. He noted that AMI has done monitorships where state agencies have done investigations of consumer protection and AMI would come in as a “secret shopper” to determine whether an organization is in fact doing what it is supposed to be doing.

The bottom line is that there is certainly no finite number of categories for the post-resolution monitorship. They can be utilized in a wide variety of ways to help facilitate not only resolution of enforcement actions but to satisfy compliance with a wider variety of cares, concerns and issues.

Pre-Settlement Monitorship 

Feldman explained that a “pre-settlement monitorship is an organization using an independent body to conduct any kind of a third-party review or assessment.” It can also be considered as a proactive monitorship. It involves a company desiring to assess its implementation of a compliance and ethics program on a proactive basis. Such a monitorship does more than simply focus on whether there is a compliance program in place but more fully assesses its effectiveness. This assessment can be used by a wide variety of parties, such as the corporation itself, with its stakeholders, with regulators or even with the public to demonstrate compliance with a wide variety of issues.

Feldman explained that a key piece of the pre-settlement monitorship is to assess the company’s culture of compliance. Using such a proactive monitorship can help an organization to assess not only where they might be at this point in time but also work to create a road map to improve and strengthen their culture of compliance and ethics. Finally, as Feldman noted, “Another reason for doing a pre-settlement monitorship might be when a company wants to explicitly demonstrate its due diligence to law enforcement or regulators should something occur in the future that would result in action against the company.”

He noted German enforcement authorities are now assessing if companies engage in sufficient investigations of not only whom they are doing business, which is traditional third-party due diligence, but the authorities are inquiring if a company is putting the same effort into assessing itself. The pre-settlement monitorship is an excellent mechanism to do so. He stated, “in Germany there has been a move on the part of the governments to take into account all due diligence activities that a company has taken in the past which would include a pre-settlement kind of monitorship when there is any fine or penalty or action on any issue against the company in the United States.”

Another way to consider it might be as a “preemptive strike against more punitive action on the part of government agencies”. Feldman related that his company, AMI, has had instances where companies subject to an action with one level of government, such as a US Attorney’s Office in one area of the country, will use the pre-settlement monitorship to avoid being suspended or barred by the federal government and from federal government contracts. The pre-settlement monitorship performed a complete review, then made recommendations for remediations. This led to positive resolution with the government in the form of no suspension or debarment.

When viewed in the light of the three prongs of any best practices compliance program, prevent, detect and remediate, the power of a pre-settlement monitorship comes more clearly into focus. A monitorship was traditionally viewed as an after-the-fact portion of an enforcement action. However, through the pre-settlement monitorship, the tool becomes not only proactive but prescriptive as you are using as an ongoing monitoring solution. It is even more powerful because of the independent nature of the monitor, in bringing an unbiased eye to a compliance program.

Another use of the pre-settlement monitorship is in the mergers and acquisition (M&A) arena. Feldman noted, “We have had situations where companies will, as part of the merger and acquisition pre-acquisition due diligence process, hire an independent third-party monitor to review the target company to ensure that they in fact have the right kind of ethics and compliance posture and corporate ethical culture to be able to fully integrate into their organization if closing occurs.” Once again, this scenario speaks to the breadth and scope of the pre-settlement monitorship as a tool.

Feldman concluded that it is critical that the monitor bring real value through the monitorship. He said the monitorship should provide insight through using a variety of investigative techniques, including interviews, document reviews and forensic auditing. All of this can provide solid information to not only a Chief Compliance Officer (CCO) but also the leadership of an organization.

This week, in a five-part podcast series, I am exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I am joined in this exploration by Feldman and Vincent L. DiCianni, founder and President of AMI, who is the sponsor for this podcast series. You can check it out each day, when the new podcast posts on this site at 10 AM CDT and at noon on iTunes.

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© Thomas R. Fox, 2018