As highlighted in prior posts here and here, in October 2018 the DOJ released a new monitor policy titled “Selection of Monitors in Criminal Division Matters.”
The memo was not Foreign Corrupt Practices Act specific, but FCPA relevant as it established “standards, policy, and procedures for the selection of monitors in matters being handled by Criminal Division attorneys” and “shall apply to all Criminal Division determinations regarding whether a monitor is appropriate in specific cases and to any deferred prosecution agreement (“DPA”), non-prosecution agreement (“NPA”), or plea agreement between the Criminal Division and a business organization which requires the retention of a monitor.”
As stated in the DOJ memo:
“Independent corporate monitors can be a helpful resource and beneficial means of assessing a business organization’s compliance with the terms of a corporate criminal resolution, whether a DPA, NPA, or plea agreement. Monitors can also be an effective means of reducing the risk of a recurrence of the misconduct and compliance lapses that gave rise to the underlying corporate criminal resolution.
Despite these benefits, the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor. The Morford Memorandum explained that, “[a] monitor should only be used where appropriate given the facts and circumstances of a particular matter[,]” and set forth the two broad considerations that should guide prosecutors when assessing the need and propriety of a monitor: “(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.” The Memorandum also made clear that a monitor should never be imposed for punitive purposes.”
The DOJ’s October 2018 memo elaborated on those considerations and instructed DOJ attorneys to consider, among other factors, the following:
“(a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;
(b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;
(c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and
(d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future.
Where misconduct occurred under different corporate leadership or within a compliance environment that no longer exists within a company, Criminal Division attorneys should consider whether the changes in corporate culture and/or leadership are adequate to safeguard against a recurrence of misconduct. Criminal Division attorneys should also consider whether adequate remedial measures were taken to address problem behavior by employees, management, or third-party agents, including, where appropriate, the termination of business relationships and practices that contributed to the misconduct. In assessing the adequacy of a business organization’s remediation efforts and the effectiveness and resources of its compliance program, Criminal Division attorneys should consider the unique risks and compliance challenges the company faces, including the particular region(s) and industry in which the company operates and the nature of the company’s clientele.”
The DOJ memo further states:
“In weighing the benefit of a contemplated monitorship against the potential costs, Criminal Division attorneys should consider not only the projected monetary costs to the business organization, but also whether the proposed scope of a monitor’s role is appropriately tailored to avoid unnecessary burdens to the business’s operations.
In general, the Criminal Division should favor the imposition of a monitor only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens. Where a corporation’s compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary.”
Measured against these DOJ factors, it is ridiculous that Walmart had a monitor imposed upon it as a condition of resolving its recent FCPA enforcement action (see here, here and here for prior posts). As stated by the DOJ in the Walmart NPA:
“the Company has engaged in significant remedial measures, including enhancing its anti-corruption compliance program and internal accounting controls related to anti-corruption, including: (1) hiring a Global Chief Ethics & Compliance Officer (“CECO”) who holds an Executive Vice President position, an International Chief Ethics & Compliance Officer (“International CECO”), and a dedicated Global Anti-Corruption Officer, with separate reporting lines to the Audit Committee of the Board of Directors; (2) adding dedicated regional and market Chief Ethics & Compliance Officers, foreign market anti-corruption directors and anti-corruption compliance personnel at the Company’s home office and in the Company’s foreign markets, with separate reporting lines to the Audit Committee of the Board of Directors; (3) conducting, across each of the Company’s markets, enhanced monthly and quarterly anti-corruption monitoring by dedicated Company Financial Controls and Continuous Improvement Teams (who monitor at the store-level), with results tracked in a centralized, real-time automated monitoring system; (4) enhancing annual anti-corruption risk assessments across all international markets; (5) enhancing on-site global anti-corruption audits to test adherence to enhanced anti-corruption related internal accounting controls and procedures; (6) enhancing anti-corruption related internal accounting controls on the selection and use of third parties, including building a custom third party automated portal to evaluate, manage and identify third party intermediaries and conducting third party audits and risk-based anti-corruption training of third parties; (7) enhancing global anti-corruption training and awareness program, including enhanced onboarding and annual in-person and computer-based anti-corruption training for directors, senior management, and employees most likely to interact directly or indirectly with government officials; (8) implementing an automated global license management system for obtaining and renewing licenses and permits and a global donation management system, which enhances controls relating to charitable donations; and (9) terminating business relationships with third parties involved in the conduct at issue;
the Company has enhanced and has committed to continuing to enhance its compliance program and internal accounting controls related to anti-corruption, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment B to the NPA.”
For good measure, the SEC also stated:
“Walmart’s remedial measures include: (1) hiring a Global Chief Ethics & Compliance Officer , an International Chief Ethics & Compliance Officer, and a dedicated Global Anti-Corruption Officer, with separate reporting lines to the Audit Committee of Walmart’s Board of Directors; (2) adding dedicated regional and market Chief Ethics & Compliance Officers, foreign market anti-corruption directors, and anti-corruption compliance personnel at Walmart’s home office and in Walmart’s foreign markets; (3) conducting, across each of Walmart’s markets, enhanced monthly and quarterly anti-corruption monitoring; (4) enhancing on-site global anti-corruption audits to test adherence to enhanced anti-corruption related internal accounting controls and procedures; (5) enhancing anti-corruption related internal accounting controls on the selection and use of third parties; (6) enhancing global anti-corruption training and awareness programs; (7) implementing an automated global license management system for obtaining and renewing licenses and permits and a global donation management system, which enhances controls relating to charitable donations; and (8) terminating business relationships with third parties involved in the conduct at issue.”
As further noted in this article: “Walmart now employs about 1,000 people in its compliance department, including more than 100 monitors who have conducted at least 16,000 in-store compliance assessments in international markets since 2014.”
In assessing whether a monitor was truly necessary in the Walmart enforcement action, it is interesting to note that five days after the Walmart enforcement action the DOJ announced an FCPA enforcement action against TechnipFMC. As highlighted in this prior post: (i) Technip became an FCPA repeat offender; (ii) the enforcement action involved violations of the FCPA’s anti-bribery provisions (not merely the books and records and internal controls provisions as in the Walmart action); and (iii) according to the DOJ, the company and its co-conspirators caused more than $69 million in corrupt payments to be made in Brazil and in Iraq knowingly and willfully conspired to pay, and paid, bribes in connection with seven contracts to provide metering technologies for oil and gas production measurement to the Iraqi government. However, notwithstanding these egregious allegations, and the fact that Technip became an FCPA repeat offender, the DPA states: “the DOJ determined that an independent compliance monitor is unnecessary.”
Even though it is ridiculous that Walmart had a monitor imposed upon it as a condition of resolving its FCPA enforcement action, the actual monitor agreement is interesting for several reasons.
First, as stated in the resolution documents “the company retained the Monitor (identified in various reports as former FBI Director Louis Freeh) prior to the date” of the NPA. Indeed, as highlighted in this media report, Freeh began his monitor work in approximately Fall 2018. So why then did it take the DOJ and SEC an additional six plus months to resolve the matter?
Second, the Monitor’s mandate is not to “conduct a comprehensive review of all business lines, all business activities, or all countries” but rather limited as follows:
“During the Term of the Monitorship, the Monitor will assess, in the manner set forth below, the anti-corruption-related internal accounting controls related to anti-corruption, record-keeping, and financial reporting policies and procedures of the Company as they relate to permits and licensing, real estate development and construction (not to include the Company’s real estate strategic planning process), donations (not to include corporate-level donations or activity by the Walmart Foundation), and third-party intermediaries (collectively, the “Key Risk Areas”). The Monitor’s assessment regarding anti-corruption controls in the Key Risk Areas shall solely extend to four countries in which Walmart operates selected based on the Monitor’s review of the Company’s fiscal year 2018 international risk assessment (collectively, the “Monitor Countries”) and to the Company’s Home Office in Bentonville, Arkansas (the “Home Office”).
[…]
In addition, the Monitor will assess the commitment of the Board of Directors and senior management to the corporate anti-corruption compliance program described in [the NPA] and the Company’s implementation of the corporate-anti-corruption compliance program for the Key Risk Areas in the Monitor Countries and the Home Office.”
See this recent FCPA Flash podcast regarding the Walmart monitor with Ephraim (Fry) Wernick who recently departed the DOJ as Assistant Chief of the FCPA Unit.
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