When a corporation engages in misconduct that is widespread or pervasive, courts, regulators, or prosecutors often insist that the firm obtain assistance from an independent third party — a monitor — to oversee the firm’s remediation effort. The largest firms in the world — from Deutsche Bank, to Volkswagen, to Carnival Cruise Lines — have found themselves having to retain a monitor for corporate misconduct, despite attempts to avoid a monitorship entirely. Traditionally, monitors, or their special master forebearers, were utilized by courts to assist in overseeing compliance with court orders, and their work was both accessible and transparent. As corporate monitorships have evolved over the past fifteen to twenty years, however, the transparency norm has receded, even when the success or failure of the underlying remediation effort invokes issues of public concern.
This lack of transparency would, potentially, be of little concern if the courts, regulators, and prosecutors that are party to monitorships were fully able and willing to ensure the monitorship achieved its goals. The reality, however, is that these governmental actors have demonstrated their own susceptibility to concerns related to cronyism, capture, and, perhaps, competence. Because the governmental actors involved in monitorships have proven to, understandably, lack perfection in their supervision capabilities, the lack of transparency and oversight over monitors and monitorships has prompted public critique, academic debate, and litigation. And yet, it has proven next to impossible to identify a comprehensive manner in which to regulate monitorships.
This Article suggests a novel path forward through a mix of federal interventions. The Article argues that at the conclusion of all monitorships, the public should receive an accounting that details whether the firm has or has not engaged in a successful remediation effort. This Article suggests two paths for the public to receive this information: (i) a securities disclosure and (ii) the adoption of a new policy regarding the use of monitors via the Office of Management and Budget. The result of these interventions will be greatly increased public access to information about the conclusion of a firm’s monitorship. All monitors, regardless of type, gather, assess, analyze, and disseminate information, yet this information is often kept outside of the public sphere. This Article presents a piecemeal set of interventions that would help generate the move toward greater public reporting of monitorship outcomes.
In 2020, the United Auto Workers (UAW) union entered into a settlement with the Department of Justice (DOJ) to resolve allegations of corruption and fraud within the organization.1×1. See Press Release, U.S. Dep’t of Just., The United States Reaches a Settlement with the United Auto Workers Union to Reform the Union and End Corruption and Fraud (Dec. 14, 2020) [hereinafter UAW Press Release], https://www.justice.gov/usao-edmi/pr/united-states-reaches-settlement-united-auto-workers-union-reform-union-and-end [https://perma.cc/7QDZ-5WQS]. The DOJ brought both civil and criminal proceedings against the UAW and its members.2×2. Id. In particular, the government’s investigation “revealed an extensive and long-lasting effort by two former UAW presidents and their underlings to embezzle over $1.5 million in UAW money for their personal benefit through a series of fraud schemes.”3×3. Id. Additionally, the investigation “uncovered a scheme by one former UAW vice president and two other high-level UAW officers to demand and accept over $2 million in kickbacks from contractors.”4×4. Id. On the civil side, UAW officials received bribes from and embezzled money with executives at Fiat Chrysler —in the amount of over $3.5 million.5×5. Id. In short, the DOJ uncovered a culture of corruption and fraud within and throughout the UAW.
When misconduct is pervasive and widespread, as was found at the UAW, a question that often arises is whether the organization has the competence to remedy and respond to the misconduct on its own. If a determination is made — either by the court, regulator, or prosecutor —that oversight over the remediation effort6×6. Remediation efforts vary depending upon the type of underlying misconduct and the scope of injury to the firm or the public, but the success of a company’s remediation effort is essential to ensuring its long-term compliance with legal and regulatory mandates. See Veronica Root, The Compliance Process, 94 Ind. L.J. 203, 226–27 (2019). would be helpful, a monitor is often tasked with responsibility for overseeing that process. A monitor is “(i) an independent, private outsider, (ii) employed after an institution is found to have engaged in wrongdoing, (iii) who effectuates remediation of the institution’s misconduct, and (iv) provides information to outside actors about the status of the institution’s remediation efforts.”7×7. Veronica Root, Modern-Day Monitorships, 33 Yale J. on Regul. 109, 111 (2016) [hereinafter Root, Modern-Day]. Perhaps unsurprisingly given the sweeping nature of the misconduct uncovered at the UAW, a monitor was appointed to oversee operations at the UAW for a period of six years and assist it in rooting out the corrupt culture that permeated the organization.8×8. See Press Release, U.S. Dep’t of Just., U.S. District Court Appoints Neil Barofsky to Be the Independent Monitor over the United Auto Workers Union (May 12, 2021), https://www.justice.gov/usao-edmi/pr/us-district-court-appoints-neil-barofsky-be-independent-monitor-over-united-auto [https://perma.cc/7CVJ-ERRG].
Monitors are utilized by courts, the DOJ, the Department of Health and Human Services, the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and a plethora of other governmental actors to ensure that firms engage in effective remediation efforts.9×9. See Compliance Monitors: Everything You Wanted to Know but Were Too Afraid to Ask, Gibson Dunn LLP (Nov. 3, 2021), https://www.gibsondunn.com/wp-content/uploads/2021/11/WebcastSlides-Compliance-Monitors-Everything-that-you-wanted-to-know-but-were-afraid-to-ask-03-NOV-2021.pdf [https://perma.cc/HB4W-NWKN]; see, e.g., Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and Exactech, Inc. (Dec. 7, 2010), https://www.sec.gov/Archives/edgar/data/913165/000119312510276734/dex103.htm [https://perma.cc/NHY6-EPF3]. Remediation can take a variety of forms, from effectuating detailed mandates from a court or government regulator to creating a new compliance program, and remediation efforts are often overseen by monitors. Indeed, even as the use of monitors ebbs and flows as administrations change,10×10. The use of monitors by the DOJ tends to wane in Republican administrations as corporate enforcement activities decrease and ramp up again in Democratic administrations as corporate enforcement activities increase. We seem to be currently in an era of increase, but the reality is that these enforcement trends are cyclical and tend to be tied to administrative priorities. Compare Press Release, U.S. Dep’t of Just., Assistant Attorney General Brian A. Benczkowski Delivers Remarks at NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance (Oct. 12, 2018), https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-nyu-school-law-program [https://perma.cc/YW7K-4H8K] (DOJ official in Trump Administration declaring that DOJ’s “longstanding practice of imposing corporate monitors [is] the exception, not the rule”), with Press Release, U.S. Dep’t of Just., Deputy Attorney General Lisa O. Monaco Gives Keynote Address at ABA’s 36th National Institute on White Collar Crime (Oct. 28, 2021) [hereinafter Monaco Press Release], https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute [https://perma.cc/9MHL-4WYR] (DOJ official in Biden Administration announcing: “In recent years, some have suggested that monitors would be the exception and not the rule. To the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception, I am rescinding that guidance.”). That said, because different federal and state agencies refer to what this Article defines as a monitor by a variety of names (for example, “compliance consultant,” “independent compliance consultant,” and so on), it has proven to be challenging to understand the full number of monitors being utilized at any given time. monitors continue to provide an incredibly important function in industries of all types across the nation. The monitor is charged with (i) ensuring that the remediation effort is successful or (ii) alerting those involved in the agreement giving rise to the monitorship that the firm failed to meet its remediation obligations. The monitor has access to a wide range of nonpublic information within and throughout the firm and uses that information to evaluate the progress the firm is making toward remedying the underlying misconduct. Whether it is Volkswagen’s dodging of U.S. emissions standards,11×11. See Press Release, U.S. Dep’t of Just., Volkswagen AG Agrees to Plead Guilty and Pay $4.3 Billion in Criminal and Civil Penalties; Six Volkswagen Executives and Employees Are Indicted in Connection with Conspiracy to Cheat U.S. Emissions Tests (Jan. 11, 2017) [hereinafter Volkswagen Press Release], https://www.justice.gov/opa/pr/volkswagen-ag-agrees-plead-guilty-and-pay-43-billion-criminal-and-civil-penalties-six [https://perma.cc/ZS6W-WJ37]. HSBC’s failure to prevent money laundering by drug cartels,12×12. See Press Release, U.S. Dep’t of Just., HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti–Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement (Dec. 11, 2012) [hereinafter HSBC Press Release], https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-bank-usa-na-admit-anti-money-laundering-and-sanctions-violations [https://perma.cc/HGA5-L75F]. ZTE’s delivery of U.S. goods to Iran in contravention of U.S. export control and sanctions laws,13×13. See Press Release, U.S. Dep’t of Just., ZTE Corporation Agrees to Plead Guilty and Pay Over $430.4 Million for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran (Mar. 7, 2017), https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending [https://perma.cc/7W9D-X85S]. or Carnival Cruise Line’s continual violation of environmental laws and requirements,14×14. See Press Release, U.S. Dep’t of Just., Princess Cruise Lines and Its Parent Company Plead Guilty to Environmental Probation Violations, Ordered to Pay $20 Million Criminal Penalty (June 3, 2019) [hereinafter Carnival Press Release], https://www.justice.gov/opa/pr/princess-cruise-lines-and-its-parent-company-plead-guilty-environmental-probation-violations [https://perma.cc/9LEN-6GV4]. corruption is uncovered at sophisticated organizations time after time. And when this misconduct is significant, widespread, or pervasive, the courts, regulators, or prosecutors often require the firm to retain (and pay the fees for) a monitor to oversee its remediation process targeted at resolving and responding to that misconduct.
Take Carnival Cruise Lines. In April 2017, a subsidiary of Carnival Cruise Lines, Princess Cruise Lines Ltd., pleaded “guilty to felony charges stemming from its deliberate dumping of oil-contaminated waste from one of its vessels and intentional acts to cover it up.”15×15. Id. A $40 million criminal penalty and five-year probationary period were imposed, during which “all Carnival related cruise lines vessels eligible to trade in U.S. ports were required to comply with a court approved and supervised environmental compliance plan . . . including audits by an independent company and oversight by a Court Appointed Monitor.”16×16. Id. During the first two years of the probationary period, the monitor identified numerous additional violations ongoing at the company, including purposeful actions taken by Carnival to conceal violations of the environmental compliance plan.17×17. See id. The discovery of these violations led to additional monetary penalties in the amount of $20 million and even more enhanced supervision.18×18. Id. The monitor in the Carnival case is a traditional, court-ordered monitor. The monitor files his reports with the court — making them publicly accessible — and plays an integral role in conveying information about the status of Carnival’s remediation efforts to the government, the prosecutor, the court, and the public.19×19. See, e.g., Quarterly Report of the Court Appointed Monitor (December 2019), United States v. Princess Cruise Lines, Ltd., No. 16-20897-CR (S.D. Fla. Jan. 7, 2020), ECF No. 172 [hereinafter Carnival Monitor Quarterly Report]. And yet, most corporate monitorships today, unlike the Carnival monitorship, occur without meaningful, or any, court supervision and its accompanying high levels of transparency.
Indeed, many corporate monitors perform their work without much, if any, public accounting regarding their efforts or findings, or the firm’s success or failure in its remediation effort. Take the monitoring of HSBC. In 2012, HSBC Bank USA N.A. and HSBC Holdings plc (collectively, “HSBC”) entered into a deferred prosecution agreement with the DOJ after admitting that HSBC failed to “maintain an effective anti–money laundering program” and to “conduct appropriate due diligence on its foreign correspondent account holders.”20×20. HSBC Press Release, supra note 12. Through this agreement, HSBC entered into a corporate compliance monitorship for a period of five years.21×21. Deferred Prosecution Agreement at 15, 17, United States v. HSBC Bank USA, N.A., Cr. No. 12-763 (E.D.N.Y. Dec. 11, 2012), ECF No. 3-2. In addition to ensuring that HSBC complied with the agreement’s requirements, the monitor was also tasked with providing yearly reports and assessments to — among others — HSBC’s Board of Directors and the DOJ.22×22. Deferred Prosecution Agreement attach. B, at B-1 to -2, B-6, B-8, HSBC Bank USA, Cr. No. 12-763, ECF No. 3-4. Importantly, the HSBC monitor’s reports, unlike those in the cases of the UAW and Carnival, were kept secret.23×23. See id. attach. B, at B-11.
To limit access to the monitor’s reports, the government moved to have the first report placed under seal.24×24. Letter from Kelly T. Currie, Acting U.S. Att’y, E. Dist. of N.Y., & M. Kendall Day, Chief, Asset Forfeiture & Money Laundering Section, U.S. Dep’t of Just., to Judge John Gleeson 13, United States v. HSBC Bank USA, N.A., No. 12-CR-763, 2016 WL 347670 (E.D.N.Y. Jan. 28, 2016), rev’d, 863 F.3d 125 (2d Cir. 2017), ECF No. 35. The district court, however, rejected this motion and entered an order that would have permitted the public dissemination of the monitor’s report with redactions for sensitive information.25×25. HSBC Bank USA, 2016 WL 347670, at *7; see also Rachel Louise Ensign, Judge Rules HSBC’s Outside Monitor’s Secret Report Should Be Made Public, Wall St. J. (Jan. 29, 2016, 11:46 AM), https://www.wsj.com/articles/judge-rules-hsbcs-outside-monitors-secret-report-should-be-made-public-1454086003 [https://perma.cc/9GM4-3Q5Z]. HSBC, the DOJ, and the monitor all objected to the release of information, stating that it would impede the monitor’s effectiveness26×26. Second Circuit Rules that Compliance Monitor’s Report Is Not a Judicial Document, Rejecting District Court’s Supervisory Power over Deferred Prosecution Agreement, Paul, Weiss, Rifkind, Wharton & Garrison LLP (July 18, 2017), https://www.paulweiss.com/media/3977189/18jul17-hsbc.pdf [https://perma.cc/8JKP-8THT]. and that the report at issue was an interim, not a final, report.27×27. Brief for Defendants-Appellants at 49, HSBC Bank USA, 863 F.3d 125 (2d Cir. 2017) (No. 16-308(L)), ECF No. 123-1; see also Letter from Kelly T. Currie, Acting U.S. Att’y, E. Dist. of N.Y., & M. Kendall Day, Chief, Asset Forfeiture & Money Laundering Section, U.S. Dep’t of Just., to Judge John Gleeson, supra note 24, at 5. Moreover, the monitor expressed concerns that releasing the interim report might create a “chilling effect” on his ability to work with HSBC employees.28×28. Affidavit of Michael G. Cherkasky ¶ 11, HSBC Bank USA, No. 12-CR-763, ECF No. 35-1 [hereinafter Cherkasky Affidavit]. Ultimately, the Second Circuit reversed the district court’s order, effectively blocking public access to the monitor’s report.29×29. HSBC Bank USA, 863 F.3d at 129; see also Jonathan Stempel, U.S. Appeals Court Blocks Release of HSBC Money Laundering Report, Reuters (July 12, 2017, 10:12 AM), https://www.reuters.com/article/us-hsbc-moneylaundering/u-s-appeals-court-blocks-release-of-hsbc-money-laundering-report-idUSKBN19X1VS [https://perma.cc/5YAR-LTDL].
Scholars have long debated whether monitors’ key deliverables — their reports generated during, and at the conclusion of, the monitorship — should be disclosed to the public30×30. Compare Brief for Amicus Curiae Professor Brandon L. Garrett in Support of Appellee, HSBC Bank USA (No. 16-308(L)) (arguing that reports of HSBC’s monitor should be made public), and Brandon L. Garrett, The Public Interest in Corporate Settlements, 58 B.C. L. Rev. 1483, 1529–30 (2017) [hereinafter Garrett, Corporate Settlements] (“[T]he reports of monitors should be made public, so affected parties have enough information to know whether to intervene if compliance is lacking. . . . I hope the practice changes and that prosecutors and corporations make it a policy to routinely make portions of these monitors reports public.”), and Brandon L. Garrett, The Public Interest in Corporate Monitorships: The HSBC Case, Oxford Bus. L. Blog (Nov. 16, 2016), https://www.law.ox.ac.uk/business-law-blog/blog/2016/11/public-interest-corporate-monitorships-hsbc-case [https://perma.cc/6HDF-GR3L] (“Keeping implementation of corporate deals in the dark itself harms the process immeasurably. . . . [A]s a matter of policy, the DoJ should insist that [monitors’] reports be made public.”), with Root, Modern-Day, supra note 7, at 150 (noting that relations between the government, the corporation, and corporate compliance monitors would benefit from greater confidentiality as it may “achieve greater cooperation . . . and . . . more effective monitorships”). or kept confidential.31×31. I have previously argued that corporate compliance monitor reports should be kept confidential to ensure candor by firm employees and have expressed support for the passage of a statutory privilege that protects communications amongst the monitor, government, and monitored corporation. See Veronica Root, The Monitor-“Client” Relationship, 100 Va. L. Rev. 523, 564–67, 571–72 (2014) [hereinafter Root, Monitor-“Client”]. The HSBC monitor also expressed concern regarding a potential “chilling effect” on his ability to obtain information from employees if the reports were made public. Cherkasky Affidavit, supra note 28, ¶ 11. I continue to believe that different types of monitorships should be governed by different transparency and confidentiality norms. One contribution of this Article, however, is to demonstrate that one could allow the current customs for monitorships to generally continue as they have, while adding in a separate, standardized public reporting requirement. Many believe the reports prepared and turned over to the government and firm should simultaneously be turned over to the public, as has been the case for decades for traditional, court-ordered monitorships. Others, myself included, believe that because there has been a norm of secrecy for many corporate monitorships since around 2004, a push toward full transparency of existing monitor reports would likely result in material changes to the information contained therein. There is no legal requirement for corporate monitors to issue a written report; it is a custom. As a result, there is nothing stopping the monitor from providing a different method of disseminating information to the firm and governmental actor that required the retention of the monitor.32×32. See, e.g., NFL Fines Washington Football Team $10 Million After Investigation into Workplace Culture, ESPN (July 1, 2021), https://www.espn.com/nfl/story/_/id/31745729/nfl-fines-washington-football-team-10m-culture-investigation [https://perma.cc/34AP-BR8F] (noting that attorneys representing “40 former employees . . . had wanted the report to be made public, but attorney Beth Wilkinson, who conducted the investigation, orally submitted her findings and recommendations to the league”).
If the court, regulator, or prosecutor that is party to the monitorship were able to supervise the monitor’s work perfectly in each instance of a monitorship, one might have a strong argument that there should be minimal concerns about keeping the monitor’s work from the public. Unfortunately, the governmental actors that are parties to the creation of monitorships are not, in fact, perfect. Whether the reasons are (i) concerns about cronyism in the monitor-selection process,33×33. See Terry Frieden, Deals for Corporate Monitors Reined In by Justice Department, CNN Pol. (Mar. 10, 2008, 2:41 AM), http://edition.cnn.com/2008/POLITICS/03/10/ashcroft.corporate.monitor/index.html [https://perma.cc/AX4R-ELAL]. There have also been allegations of the appointment of monitors who are “friends” with the judges overseeing the case. See, e.g., Alex Shephard, As Expected, Judge Cote Refuses to Remove Meddling Monitor Michael Bromwich from the Apple Case, Melville House (Jan. 17, 2014), https://www.mhpbooks.com/as-expected-judge-cote-refuses-to-remove-meddling-monitor-michael-bromwich-from-the-apple-case [https://perma.cc/QFD8-K49E]. (ii) objections related to improper relationships between the monitor and the government,34×34. See, e.g., United States v. Apple Inc., 787 F.3d 131, 138 (2d Cir. 2015) (“It is certainly remarkable that an arm of the court would litigate on the side of a party in connection with an application to the court he serves.”). (iii) fears of potential capture by the firm of regulators or prosecutors,35×35. Root, Monitor-“Client,” supra note 31, at 579–80. or (iv) doubts about the ability of the court or government to supervise actively all aspects of the work performed by a monitor — particularly when that work is outside of the expertise of a court, regulator, or prosecutor36×36. Monitors engage in a variety of activities that a judge may or may not have experience with, like performing cultural surveys or assessing the efficacy of a firm’s compliance program. See, e.g., Closing Letter of the Court Appointed Monitor (April 19, 2017–April 18, 2022) at 4–5, United States v. Princess Cruise Lines, Ltd., No. 16-20897-CR (S.D. Fla. Apr. 6, 2022), ECF No. 276 [hereinafter Carnival Monitor Closing Letter]. The reality, however, is that one of the reasons a monitor is appointed is that the complex nature of the oversight required would not be an efficient use of the government’s resources. See Root, Modern-Day, supra note 7, at 118–19. — there are many grounds for believing that despite their best efforts, these governmental actors are unable to engage in perfect supervision of the work undertaken by monitors.37×37. For example, the DOJ recently concluded a review of its use of monitorships in civil settlement agreements and consent decrees with state and local governmental entities, in the wake of complaints regarding insufficient supervision by the courts and DOJ over monitors, with a particular focus on the decision about when a monitorship should conclude. See Press Release, U.S. Dep’t of Just., Attorney General Merrick B. Garland Announces Results of Monitor Review (Sept. 13, 2021), https://www.justice.gov/opa/pr/attorney-general-merrick-b-garland-announces-results-monitor-review [https://perma.cc/7SEN-T7XM]. Indeed, in a review conducted by the Deputy Attorney General that was discussed publicly in September 2022, it was determined “that some monitors were not properly vetted for conflicts of interest or overseen to make sure they stayed on budget or task and that they did not always have a plan.”38×38. Ephrat Livni, Justice Department Seeks to Entice Companies to Be Better Corporate Citizens., N.Y. Times (Sept. 15, 2022), https://www.nytimes.com/2022/09/15/business/justice-department-corporate-compliance.html [https://perma.cc/H7UA-UTQP].
Given this reality, scholars and practitioners have debated two particularly important questions on the issue of monitors today. First, scholars and practitioners ask what amount of public disclosure is appropriate for the work undertaken by monitors. As demonstrated by the HSBC example, the public often has very little access to much detail surrounding the corporate monitor’s work or the remediation efforts of the monitored corporation. Indeed, even in instances where the public was told that a corporation’s conduct was so concerning that it necessitated the retention of a monitor to oversee its remediation effort, the DOJ has opposed having the monitor’s identity and the monitor’s assessments publicly disclosed.39×39. See, e.g., Tokar v. U.S. Dep’t of Just., 304 F. Supp. 3d 81, 88–89 (D.D.C. 2018). The upshot is that for most monitorships that take place without meaningful court involvement, very little information is disclosed about the ultimate success of the remediation effort the monitor was responsible for overseeing.
Second, scholars and practitioners inquire about the lack of oversight over monitors themselves. With regard to oversight, it is important to remember that monitors are not members of a recognized profession.40×40. See Veronica Root, Constraining Monitors, 85 Fordham L. Rev. 2227, 2235 (2017) [hereinafter Root, Constraining Monitors]. Many monitors are lawyers or accountants by education and training, but, when undertaking engagements as monitors, they fall outside of the professional oversight that traditionally governs members of these professions.41×41. See id. at 2237. Additionally, there is no requirement that a monitor be a member of a recognized profession.42×42. See Root, Monitor-“Client,” supra note 31, at 531. Therefore, even if the professional regulation of lawyers and accountants were revised to capture conduct undertaken as a monitor, there would still be a class of individuals serving as monitors who would remain outside these traditional oversight mechanisms. Consequently, monitors exist in a regulatory vacuum — a vacuum that has proven quite difficult to fill via congressional action43×43. See infra section III.A.1.a, pp. 790–91. See generally Accountability in Deferred Prosecution Act of 2009, H.R. 1947, 111th Cong. (2009); Accountability in Deferred Prosecution Act of 2008, H.R. 6492, 110th Cong. (2008). or court supervision.44×44. But see, e.g., United States v. HSBC Bank USA, N.A., No. 12-CR-763, 2013 WL 3306161, at *1 (E.D.N.Y. July 1, 2013) (“The Court will maintain supervisory power over the implementation of the [deferred prosecution agreement] and directs the government to file quarterly reports with the Court while the case is pending.”); SEC v. Am. Int’l Grp., Inc., 854 F. Supp. 2d 75, 83 (D.D.C. 2012), rev’d, 712 F.3d 1 (D.C. Cir. 2013).
This Article argues that at the conclusion of all monitorships, the public should receive an accounting that details whether the firm has or has not engaged in a successful remediation effort. Requiring greater transparency of the work done during monitorships would create a backstop to the imperfect supervision undertaken by governmental actors who are parties to monitorships today by addressing the dual problems of a lack of information disclosure by, and oversight for, monitors. Increased transparency regarding the results of monitorships will provide the public an opportunity to know (i) whether a monitored corporation has successfully completed its remediation effort and (ii) whether the monitor has accomplished the goals of the monitorship. This Article proceeds in four parts.
Part I provides a primer on the use and role of monitors and monitorships. Part I defines the term “monitor” and illustrates how monitorships have evolved over time, resulting in different categories of monitorships — (i) traditional, court-ordered monitorships, (ii) enforcement monitorships, (iii) corporate compliance monitorships, and (iv) modern, court-ordered monitorships.45×45. See generally Root, Modern-Day, supra note 7.
Part II discusses the problems of attempting to create disclosure and oversight norms for modern-day monitorships. Since the 1999 issuance of the Holder Memorandum46×46. The Holder Memorandum sparked the beginning of corporate prosecutions as we know them today. Memorandum from Eric H. Holder, Jr., Deputy Att’y Gen., U.S. Dep’t of Just., to All Component Heads & U.S. Att’ys (June 16, 1999) [hereinafter Holder Memorandum], https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF [https://perma.cc/X5JB-9AEN]. That said, there was not a significant ramp-up of corporate prosecutions that began utilizing monitors until around 2004. See F. Joseph Warin, Michael S. Diamant & Veronica S. Root, Somebody’s Watching Me: FCPA Monitorships and How They Can Work Better, 13 U. Pa. J. Bus. L. 321, 325 (2011) (noting that “federal authorities brought only five enforcement actions in 2004” under the Foreign Corrupt Practices Act (FCPA) before “enforcement exploded” in later years). — which laid the foundation for current corporate enforcement policy47×47. See Veronica Root Martinez, The Government’s Prioritization of Information over Sanction: Implications for Compliance, 83 Law & Contemp. Probs. 85, 89–92 (2020) [hereinafter Martinez, Government’s Prioritization] (“Much progress has been made within compliance efforts since the release of the Holder Memorandum in 1999, which invigorated the prosecution of corporations for white collar crimes . . . .” Id. at 92.); Jennifer Arlen, Prosecuting Beyond the Rule of Law: Corporate Mandates Imposed Through Deferred Prosecution Agreements, 8 J. Legal Analysis 191, 198 n.25 (2016) (“Since 2003, prosecutors have increasingly used [deferred prosecution or nonprosecution agreements] to retain jurisdiction over, and impose sanctions on, firms that avoid formal indictment and/or conviction.”). — many corporations that agree to enter into monitorships do so (i) without formal or robust court involvement48×48. See, e.g., Agreement Containing Consent Order at 1, Intel Corp., No. 9288 (F.T.C. Mar. 17, 1999), 1999 WL 164046 (“Respondent waives . . . all rights to seek judicial review or otherwise to challenge or contest the validity of the order entered pursuant to this Agreement . . . .”); see also Jennifer O’Hare, The Use of the Corporate Monitor in SEC Enforcement Actions, 1 Brook. J. Corp. Fin. & Com. L. 89, 108–09 (2006) (discussing the degree of power the SEC has in selecting a corporate monitor compared to that of the courts); Root, Modern-Day, supra note 7, at 120 (“Specialized governmental units . . . often enter into agreements resolving allegations of organizational wrongdoing without formal court involvement.”). and (ii) with an assurance of limited public disclosure of the monitor’s reports and assessments.49×49. See, e.g., Deferred Prosecution Agreement attach. D, at D-2, United States v. Herbalife Nutrition Ltd., No. 20-CR-00443 (S.D.N.Y. Sept. 1, 2020), ECF No. 4-1 (“[P]ublic disclosure of the reports could discourage cooperation, impede pending or potential government investigations, and thus undermine the objectives of the reporting requirement. For these reasons, among others, the reports and the contents thereof are intended to remain and shall remain non-public . . . .”); Rule 11 Plea Agreement at Exh. 3-14, United States v. Volkswagen AG, No. 16-CR-20394 (E.D. Mich. Mar. 10, 2017), ECF No. 68 [hereinafter Volkswagen Plea Agreement] (noting that the monitor’s “reports and the contents thereof are intended to remain and shall remain non-public”). Additionally, corporations, monitors, and the DOJ have all resisted attempts to turn over more information regarding monitorships to the public. Thus, there is very limited information disclosure about the ultimate results of monitorships. At the same time, monitors operate in a regulatory vacuum. Congress, courts, policymakers, academics, and the legal profession have all noted this lack of oversight and have engaged in activities to attempt to create boundaries to gov-ern the behavior of monitors.50×50. See Root, Constraining Monitors, supra note 40, at 2233–34 (describing failed statutory attempts and limited prosecutorial guidance seeking to constrain monitorships). These attempts, however, have largely failed, resulting in the absence of formal oversight governing today’s monitorships.51×51. Id.
Part III puts forth the thesis of this Article. It argues that at the conclusion of all monitorships, the public should receive an accounting that details the work completed by the monitor and the firm. The creation of a public report detailing the work done during the monitorship would help to address the problems of a lack of information disclosure and oversight for monitors by providing the public an opportunity to know (i) whether a monitored corporation has successfully completed its remediation effort and (ii) whether the monitor has accomplished the goals of the monitorship.
Part III begins by describing two potential, complementary interventions for creating such a mandate: (i) a securities disclosure and (ii) the adoption of a new policy regarding the use of monitorships via the Office of Management and Budget (OMB). The Part goes on to outline the standardized terms that should be considered in crafting a public reporting mandate. The Part then turns to securities literature and analyzes why public companies should be required to provide information about monitorships, whether that information is deemed material or nonmaterial, to both shareholders and stakeholders.52×52. See generally Ann M. Lipton, Not Everything Is About Investors: The Case for Mandatory Stakeholder Disclosure, 37 Yale J. on Regul. 499, 535 (2020); Hillary A. Sale, Public Governance, 81 Geo. Wash. L. Rev. 1012, 1020–21 (2013); Allison Herren Lee, Comm’r, U.S. Sec. & Exch. Comm’n, Keynote Remarks at the 2021 ESG Disclosure Priorities Event: Living in a Material World: Myths and Misconceptions About “Materiality” (May 24, 2021), https://www.sec.gov/news/speech/lee-living-material-world-052421 [https://perma.cc/J5M4-G4GG]. Drawing on white-collar corporate crime literature, it explains that the general public has an interest in obtaining information about monitorships. It concludes by discussing how a public reporting mandate might also address the oversight problem plaguing monitorships.
Part IV turns to some additional considerations raised by this Article’s argument and proposal. In particular, it addresses why the problems of disclosure and oversight are unlikely to be resolved by requiring the reports that monitors currently generate to be turned over to the public. A supplementary report is necessary. The Part then addresses whether the Article’s proposal will lead to a decrease in the number of monitorships entered into between organizations and governmental actors. It next discusses how a public reporting mandate might increase shareholder activism and potential liability concerns for public corporations. Finally, the Part discusses whether a public reporting mandate might exacerbate concerns about the government abdicating its oversight responsibility through its use of monitorships.
The Article then concludes.
* Professor of Law, Duke University School of Law. Many thanks to Atinuke Adediran, Matthew Adler, Lisa Bernstein, Guy-Uriel Charles, John Coates, Kevin E. Davis, Deborah DeMott, Lisa Fairfax, Gina-Gail S. Fletcher, Brandon L. Garrett, Sarah Haan, Bruce Huber, Daniel Kelly, Maria Maciá, Cary Martin Shelby, Patricia O’Hara, Dave Owen, Elizabeth Pollman, Usha Rodrigues, Daria Roithmayr, Jay Tidmarsh, and to the participants of the SMU Dedman School of Law Faculty Colloquia, NDLS PECI Disclosure Roundtable, Lutie A. Lytle Black Women Law Faculty Writing Workshop, the Brooklyn Law School White Collar Crime Semi-nar, the UC Hastings College of the Law Faculty Colloquia, the Touro Law Center Faculty Colloquia, the 2016 Culp Colloquium sponsored by Duke Law School, and the 2015 Legal Ethics Schmooze sponsored by Stanford Law School for helpful comments and conversations. Thanks to Cait-lin-Jean Juricic, Nathanial Hall, Shelby Dedo, Lucas Mears, Veronica Meffe, Marissa (Wahl) Huffman, and Quinn Kane for invaluable research assistance.