On July 28, 2020, Demarest and Kobre & Kim co-hosted a panel discussion on key considerations for compliance programs and monitorships as part of the Brazil-US 40 and Under White Collar Lawyers Initiative. The Panelists were Everson Bassinello, Chief Compliance Officer (CCO) of Braskem, a major Brazilian company in the petrochemical sector that recently successfully completed a U.S. court imposed monitorship, and Scott Hulsey, lawyer at Kobre & Kim who currently works on monitorships related issues on behalf of clients and was formerly a high-ranking DOJ official and corporate Chief Compliance Officer. The event was moderated by Martin De Luca, lawyer at Kobre & Kim, and Eloy Rizzo, partner in the Compliance & Investigations practice at Demarest.
The main goal of this panel discussion was to provide first-hand experience and key considerations for monitorships, particularly those imposed by the U.S. Department of Justice (“DOJ”), and to raise awareness of development bank monitorships (World Bank, African Development Bank and others).
What is a Monitorship
A monitorship is a program that enforcement agencies (such as the DOJ, the World Bank, etc.) impose on criminally-liable companies that 1) have bad track records in compliance procedures, and 2) indicate little capability of addressing the issues on their own. The main goal of a monitorship is to assist companies in implementing a more effective compliance program that can prevent future misconduct. However, they should never be imposed for punitive purposes. Instead, a monitorship is a way to assess the sanctioned entity’s compliance with the
terms of its corporate criminal resolution (e.g. DPA, NPA, plea agreement).
Because they are so cumbersome and expensive to the company, monitorships are imposed sparingly. Agencies may abstain from imposing the program if the company can prove that it has taken significant measures on its own to ramp up its compliance efforts, including enhancing its policies, procedures, and enforcement. Bringing in new leadership also can impact the decision whether or not to impose a monitorship.
The Role of the Monitor
The monitor is not supposed to conduct a historical investigation on the company, as misconduct has already been confirmed by the time that the monitorship begins. Instead, the monitor should focus on creating solutions to prevent future wrongdoings. Since every company’s situation is different, the monitorship should be uniquely tailored to the identified problem.
During the first months of the program, the monitor should conduct an assessment of the company’s compliance procedures with specific respect to the previously identified violations, to better understand what works and what needs to be improved. This phase includes, but is not limited to, document requests, interviews with employees and transaction testing. Brazil-U.S. 40 and Under White Collar Lawyers Initiative 2
At the end of the monitorship, which usually lasts from three to four years, the monitor is expected to determine if the company’s new compliance program is well-designed, effective, practicable.
The Selection of a Monitor
The monitor is the bridge between the enforcement agency and the company, so it needs to be a good fit for both. An advisable approach for the company is to select someone who demonstrates interest not only in the formal exercise of a monitorship, but also in working as a partner, adding real value to the company’s compliance program.
To optimize its effectiveness as a monitor, Kobre & Kim will delineate its plan at the outset of the monitorship. Specifically, the firm spells out in the engagement letter all actions that the monitor will pursue. These actions may often be divided into different phases of work, which may include a defined scope for document review, field visits and interviews, evaluation and implementation of current compliance programs, and written assessment reports of findings and progress. By clearly outlining a focused scope of work, the company can be well aware of the precise role of the monitor, as well as the costs to be expected.
For example, Kobre & Kim represented a state-owned construction corporation in acting as the independent integrity compliance monitor related to its debarment by a multilateral development bank to evaluate its written compliance program, undertake a number of site visits, and draft a report of findings in response to allegations that the corporation misrepresented its past construction experiences in bidding tenders. After conducting a targeted risk assessment of the company’s bidding procedure, the firm offered specific recommendations on strengthening relevant safeguards and ensuring sufficient compliance with multilateral development bank standards. The firm successfully demonstrated to the bank that these safeguards would prevent similar instances of fraudulent conduct from occurring. In addition, the firm proposed additional enhancements to other aspects of the company’s compliance program while keeping in mind the company’s risk profile and specific circumstances. As a result, the company achieved release from debarment within 18 months.
Providing the description of the monitorship plan early on in the process is also beneficial to the relationship between the monitor and the enforcing agency. If the authority blesses the scope of the plan, then the credibility of the monitor is protected. This is important if the law firm intends to run other monitorships in the future, as the enforcing agency holds veto power over the company’s selection of the monitor.
Outside Counsel during the Monitorship
The monitor does not represent the company that is being monitored but instead is a neutral between the company and the government. Therefore, it is a good idea for the company to have outside counsel during the process to protect attorney-client privilege and to receive independent legal advice.