Peter Henning of the New York Times White Collar Watch published an interesting piece on February 8 about the confidentiality of reports filed by corporate monitors after a non-prosecution agreement against a company.
The article describes a recent decision by Judge John Gleeson in the Eastern District of New York ordering that the corporate monitor’s report about HSBC be released publicly. HSBC was accused of failing to implement appropriate anti-money laundering compliance in 2012. HSBC settled the case, paying $1.92 million and agreement to an outside monitor for five years.
What Are NPAs and DPAs?
As a quick primer, non-prosecution agreements (NPA) and deferred prosecution agreements (DPA) share some similarities. They both are used when a company has or could be charged criminally. DOJ will offer an NPA or DPA as a resolution to an investigation into a company. Both entail meaningful punishment, such as financial penalties and compliance reforms, but avoid the collateral consequences of federal criminal convictions.
Under a DPA, the government files criminal charges with the court. Assuming all the terms of the DPA are followed by the company, the charges are later dismissed. Under an NPA no criminal charges are filed at the outset. But, if the company breaches the terms of the agreement, then they will be filed later.
Historically the terms and conditions contained in NPAs were less restrictive than those in DPAs. But the two types of agreements are increasingly becoming more alike as prosecutors have standardized the agreements.
About a third of recent NPAs and DPAs have required the appointment of an independent monitor. The monitor will…well..monitor what steps the company takes to comply with the law and try to ensure that the same problems do not recur.
An outside monitor is usually a lawyer at a big firm, often a former prosecutor or Main Justice official. All in all, it’s a pretty sweet gig if you can get it. The company foots the bill.
In practice, the company can’t limit the independent monitor. The company is understandably eager to cooperate with the government and avoid breaching the NPA or DPA to avoid criminal charges. The last thing a company under investigation needs is the monitor reporting back to DOJ that the company isn’t cooperating with the monitor’s efforts.
HSBC’s Monitor and His Report
For HSBC, DOJ chose Michael Cherkasky. He’s a former New York prosecutor and has also headed several companies, most recently Altigrity.
He filed a report in April 2015 under seal. Some reports say that it concluded that HSBC was making progress in its compliance efforts, but that the company was “too slow” to make changes in some areas.
After an individual suing HSBC in separate litigation asked for the report’s release, DOJ refused to do so. According to the NYT article:
The Justice Department responded by arguing that the report should stay secret because its release would expose sensitive information about anti-money laundering efforts, claiming that disclosure would give criminals a “road map” to weaknesses in the HSBC’s money laundering measures. The government also asserted that public disclosure would harm the monitor’s oversight because foreign regulators and bank employees who expected confidentiality would be less likely to cooperate in the future.
Judge Gleeson disagreed and on January 28 ordered that the report be released. He did conclude that the government could redact any sensitive information from the report.
He found that the public has a First Amendment right to see documents filed with the court, pointing out that his oversight of the deferred prosecution agreement “goes to the heart of the public’s right of access.”
DOJ has decided to appeal the decision and asked for a stay of the order.
The Moving Parts
There are a lot of moving pars here. First, as the NYT piece points out, “corporations may be reluctant to accept an outside monitor if there is a risk that the reports will be exposed to the public.”
Second, this concern must be balanced against the public’s right to see what its government is doing. This was an issue raised by Judge Gleeson.
Third, it’s a common complaint that the government has not charged individuals at fault for the financial crisis and has let companies avoid criminal charges. There is a public relations angle here that DOJ must have considered–it is seeking to hide its process of monitoring a big company’s compliance efforts.
I disagree with the NYT’s conclusion that companies may be reluctant to accept an outside monitor. Usually, companies are pretty desperate to avoid criminal charges (particularly if such charges come with debarment and losing government contract work). If DOJ wants to shove a monitor down the company’s throat, then, most often, a company will agree.
Thank you sir, can I have another?
I think the most likely outcome is that there will still be monitors as part of DPAs and NPAs but they either won’t write reports (and will give oral presentations) or they will write very limited reports that are “appropriate” for the public to read. This result will resolve DOJ’s concerns and may assuage a frustrated public that doesn’t realize the limited scope of the report.