When the Department of Justice (DOJ) settles Foreign Corrupt Practices Act (FCPA) cases with corporate defendants, the settlement sometimes stipulates that the firm must retain a “corporate monitor” for some period of time as a condition of the DOJ’s decision not to pursue further action against the firm. The monitor, paid for by the firm, reports to the government on whether the firm is effectively cleaning up its act and improving its compliance system. While lacking direct decision-making power, the corporate monitor has broad access to internal firm information and engages directly with top-level management on issues related to the firm’s compliance. The monitor’s reports to the DOJ are (or at least are supposed to be) critically important to the government’s determination whether the firm has complied with the terms of the settlement agreement.
Recent initiatives by transparency advocates and other civil society groups have raised a question that had not previously attracted much attention: Should the public have access to these monitor reports? Consider the efforts of 100Reporters, a news organization focused on corruption issues, to obtain monitorship documents related to the 2008 FCPA settlement between Siemens and the DOJ. Back in 2008, Siemens pleaded guilty to bribery charges and agreed to pay large fines to the DOJ and SEC. As a condition of the settlement, Siemens agreed to install a corporate monitor, Dr. Theo Waigel, for four years. That monitorship ended in 2012, and the DOJ determined Siemens satisfied its obligations under the plea agreement. Shortly afterwards, 100Reporters filed a Freedom of Information Act (FOIA) request with the DOJ, seeking access to the compliance monitoring documents, including four of Dr. Waigel’s annual reports. After the DOJ denied the FOIA request, on the grounds that the documents were exempt from FOIA because they comprised part of law enforcement deliberations, 100Reporters sued.
The legal questions at issue in this and similar cases are somewhat complicated; they can involve, for example, the question whether monitoring reports are “judicial records”—a question that has caused some disagreement among U.S. courts. For this post, I will put the more technical legal issues to one side and focus on the broader policy issue: Should monitor reports be available to interested members of the public, or should the government be able to keep them confidential? The case for disclosure is straightforward: as 100Reporters argues, there is a public interest in ensuring that settlements appropriately ensure future compliance, as well as a public interest in monitoring how effectively the DOJ and SEC oversee these settlement agreements. But in resisting 100Reporters’ FOIA request, the DOJ (and Siemens and Dr. Waigel) have argued that ordering public disclosure of these documents will hurt, not help, FCPA enforcement, for two reasons:
- First, making the reports public might reduce the quality and usefulness of monitor reports in the future. As DOJ argued in the 100Reporters case, “[i]f the information that a monitor gives the DOJ can be obtained through FOIA, companies and their employees are not likely to be candid with monitors.” After all, monitors already have to manage a delicate balancing act: to foster an open and effective relationship with employees such that the company provides adequate information, while at the same time fulfilling their responsibility to obtain information to pass to regulators, thoroughly and without bias. If monitors know that their reports will likely be subject to public access, they may find this much more challenging. Indeed, in the 100Reporters case, Dr. Waigel argued that a ruling favoring 100Reporters would imperil the “unfettered access of future compliance monitors” to sensitive corporate information in the future.
- Second, a rule that monitor reports must be made public might make companies much more resistant to agreeing to a monitor as part of a settlement. Companies likely already dislike having a monitor; they would really dislike having a monitor whose reports will open up all sorts of company information to public view. As Siemens has argued in the 100Reporters case, monitor reports may reveal corporate proprietary information that companies believed would remain private when agreeing to install a monitor. While that interest could be addressed by redacting proprietary information (as Judge Gleeson noted when ordering public access to monitoring reports related to a deferred prosecution agreement involving HSBC’s anti-money laundering controls), companies may still be concerned that redactions will be inadequate. Companies might further worry that even information that is not strictly proprietary might have a substantial effect damaging effect on the firm’s business if it is released. Additionally, companies may be concerned that the release of even a limited amount of information might increase the risk of shareholder suits—ultimately meritorious or not. Those potential costs may make it less likely that a company would agree to a settlement that includes a corporate monitor.
While these are both plausible concerns, the actual effect is unclear:
- On the question whether making monitor reports transparent will impede monitors’ ability to get information from the company, it seems unlikely that companies subject to the threat of criminal prosecution would deliberately and openly refuse to comply with agreed-upon settlement terms, including full cooperation with the monitor. However, transparency requirements may make companies less willing to make more affirmative, forthcoming disclosures beyond what is strictly required. On the other hand, the DOJ and the courts could arguably consider this–perhaps based on the monitors’ reports on the fullness of the company’s cooperation–in their evaluations of companies’ remedial efforts.
- As to whether making monitorship reports public will cause companies will shy away from monitorships more generally, for those who believe monitorships are a useful tool for altering company behavior (and not just an expensive formality), this could be a big problem, if the empirical claim is in fact true. However, if it’s true, as many have argued, that companies facing the threat of FCPA indictment have little choice but to agree to the government’s terms, then if the government continues to insist on monitorships, a disclosure requirement, while still unpleasant for companies, wouldn’t have much impact on settlement practices. Also, it’s possible that court-mandated public disclosure, if implemented, would set a new norm of disclosure over time, with little effect on parties’ willingness to settle.
The DOJ’s role in settlements, which involves both prosecuting past behavior as well as ensuring future compliance, is one of public concern and raises real questions about the appropriate balance between settlement transparency and efficacy that require further examination. Indeed, this is an area where a more careful and rigorous study of the likely empirical effects of a disclosure requirement is sorely needed.