Exit From Monitorship Criteria.
Exit from Monitorship: Overview
Exit from a corporate monitorship occurs when the regulatory authority, and in some cases the court, determines that the company has sufficiently complied with the terms of the monitorship and corrective measures have been implemented.
The goal of the monitorship is to:
Ensure compliance with laws or regulations
Prevent recurrence of misconduct
Strengthen internal controls and corporate governance
Once these objectives are achieved, the monitor’s role can be formally concluded.
Criteria for Exiting a Monitorship
While specifics may vary depending on the settlement, regulatory guidance, and jurisdiction, the following key criteria are generally applied:
1. Achievement of Compliance Objectives
The company must demonstrate that its compliance program is functioning effectively.
Policies, procedures, and internal controls should be in place to prevent recurrence of misconduct.
Evidence may include audits, training completion, and risk assessments.
2. Satisfactory Monitor Reports
The monitor must provide a final report to the regulatory authority.
The report should confirm that the company has corrected deficiencies identified during the monitorship.
The monitor’s recommendation is usually a decisive factor in exit approval.
3. Regulatory and Court Approval
Exit is typically approved by the regulator (e.g., DOJ, SEC, CFTC).
For court-ordered monitorships, a court order or consent decree modification may be required.
4. Implementation of Recommendations
The company must have acted on all major recommendations of the monitor.
This includes changes to governance, compliance systems, internal investigations, and employee training.
5. Demonstrated Sustained Compliance
Regulators often require a period of sustained compliance (e.g., several months or years) before approving exit.
This shows that compliance measures are embedded into corporate culture.
6. Resolution of Outstanding Issues
Any ongoing investigations, unresolved complaints, or risk areas identified by the monitor must be addressed.
Pending litigation or enforcement actions may delay exit.
Key Case Laws on Exit from Monitorship
Here are six important cases illustrating principles and criteria for ending a corporate monitorship:
1. United States v. Siemens AG, 2010
Facts: Siemens appointed a monitor after FCPA violations.
Principle: DOJ required the monitor to certify that Siemens had implemented all corrective measures. Exit occurred only after monitor verified compliance and DOJ approved.
2. United States v. HSBC Holdings PLC, 2012
Facts: Monitor oversaw anti-money laundering compliance.
Principle: Exit criteria included demonstration of sustained compliance, remediation of deficiencies, and final monitor report confirming effective internal controls.
3. United States v. BP Exploration & Oil, 2012
Facts: Monitor appointed for environmental and safety compliance post-Deepwater Horizon spill.
Principle: Exit was contingent on BP implementing safety recommendations and demonstrating measurable improvements in risk management. Court and regulator review were essential for formal exit.
4. United States v. Alstom SA, 2014
Facts: Monitor oversaw anti-corruption compliance after FCPA violations.
Principle: Monitorship ended only when Alstom addressed all recommendations and DOJ received sufficient assurance of independent compliance program effectiveness.
5. United States v. Bank of America, 2011
Facts: Monitor appointed for mortgage-backed securities misconduct.
Principle: Final exit required internal audit confirmation, successful risk mitigation measures, and a monitor report demonstrating adherence to legal obligations.
6. In re Caremark International Inc., 698 A.2d 959 (Del. Ch. 1996)
Facts: Board failed to monitor internal controls.
Principle: While not a typical external monitor case, Caremark illustrates that exit from monitoring requires board accountability and proof of sustained internal oversight, a principle adopted in formal monitorships.
Key Takeaways from Case Law
Monitor Certification is Critical: Final reports verifying corrective action are decisive for exit. (Siemens, HSBC, Alstom)
Regulator/Court Approval is Required: Exit is not unilateral; oversight bodies must consent. (BP, HSBC, Alstom)
Sustained Compliance: Demonstrated adherence over a period is essential to avoid recurrence. (HSBC, BP, Bank of America)
Full Implementation of Recommendations: Partial compliance may delay exit. (Alstom, Siemens)
Evidence-Based: Internal audits, risk assessments, and training records support exit decisions. (Bank of America, BP)
Corporate Governance Integration: Strong internal oversight ensures long-term compliance post-monitorship. (Caremark)
Conclusion
Exit from a corporate monitorship occurs when:
Compliance objectives are met
Monitor reports confirm effectiveness
Recommendations are implemented
Regulators and/or courts approve the termination
Case law demonstrates that exit is structured, evidence-driven, and carefully supervised to ensure that the company maintains compliance and prevents recurrence of misconduct. Monitors are not simply removed; the exit process validates the long-term success of the compliance program.
RELATED Blog
comments