Joint or dual monitorships — the finer points

Jim McGovern and Isabel Carvalho

Having a monitor appointed is intrusive. It signals the enforcement authorities neither trust your company’s compliance program nor believe your company can behave without outside oversight.

Embraer settles FCPA case

Brazilian aircraft maker Embraer S.A. settled its FCPA case with DOJ, the MPF, and Brazil’s securities and exchange commission, or Comissão de Valores Mobiliários (CVM), in October 2016. Embraer agreed to hire a “joint” compliance monitor that will share reports with both countries’ enforcement authorities. This marked the first time a company has joint reporting responsibilities to both the U.S. and Brazil.

In many corporate U.S. Foreign Corrupt Practices Act (FCPA) resolutions with the Department of Justice (DOJ), the company must agree to an independent compliance monitor. That’s on top of a monetary penalty. And given that bribery and corruption investigations often involve regulators in multiple jurisdictions, the company may need dual monitors. This was the case for Brazilian group Odebrecht S.A. and its petrochemicals unit Braskem S.A., two companies in the so-called Operation Car Wash, or Lava Jato, investigation.

Because local jurisdictions want their interests addressed, companies should choose monitors that comply with DOJ’s standards. This way, you can focus on complying and avoid the burden of reporting the same activity to two monitors. Although the government appoints monitors, the company pays for them.

More than half DOJ’s 35 deferred prosecution agreements and non-prosecution agreements in 2016 saw companies hire independent monitors. That’s a higher ratio than any other year since 2008, according to the policy think tank Manhattan Institute.

DOJ’s standards for monitors

Outside the U.S., using monitors is a recent phenomenon; inside the U.S., it’s nothing new. Since 2008, DOJ has issued three policies about choosing monitors — in the Morford, the Breuer, and the Grindler memos. The guidance seeks to make sure monitors are qualified, respected, and free from conflicts of interest.

Although you play a part in choosing your monitor, it is an agent of neither the company nor the government. But DOJ must have faith and confidence in the monitor. Indeed, the monitor is free to decide whether it should report new or undisclosed conduct.

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