Any company under investigation by the government looking to avoid the appointment of a compliance monitor will want to take a page from Petrobras’ playbook.
The Brazilian state-owned energy company on Sept. 27 reached a coordinated settlement with U.S. and Brazilian authorities for a combined total of $853.2 million for its role in one of the largest political corruption investigations, dubbed “Operation Car Wash,” the world has ever seen. As part of the three-year non-prosecution agreement entered with the Department of Justice, Petrobras admitted that executives at the highest levels—including members of its executive board and board of directors—facilitated and directed millions of dollars in corrupt payments to politicians and political parties in Brazil.
Despite the seriousness and pervasiveness of the misconduct, the Justice Department did not impose a compliance monitor—a significant tidbit of information for any company under criminal investigation seeking to avoid the expense and business disruption of a monitor, in favor of self-reporting.
As the FCPA Resource Guide notes, “Whether a monitor is appropriate depends on the specific facts and circumstances of the case.” That said, a handful of other recent agreements similarly include nearly identical language that lends compliance and legal executives plenty of insight into what factors enforcement authorities weigh when determining whether to impose a monitor.
At a macro level, the more sweeping a company’s remediation efforts and the more robust the state of its compliance program, the more likely a company is to avoid the imposition of a compliance monitor. At a micro level, Petrobras is a textbook case study, because although Petrobras did not voluntarily disclose the misconduct, the Justice Department credited its “full cooperation and remediation.”
What cooperation really means is giving the government a narrative of what happened, “instead of the government getting it piecemeal,” says Joseph Warin, a partner at Gibson Dunn who represented Petrobras. “That’s the way Petrobras approached it.”
Executing on that from a practical standpoint means, as Petrobras did:
Conducting a thorough internal investigation and proactively sharing in real-time facts discovered during the internal investigation and sharing information not otherwise available to the Department;
Making regular factual presentations to the Department;
Facilitating interviews of, and information from, foreign witnesses; and
Voluntarily collecting, analyzing, and organizing voluminous evidence and information for the Department in response to requests, including translating key documents.
“Sometimes you have folks focused only on the investigation and you don’t have folks focused on remediation, and that can cause you to lose valuable time in terms of making progress.”
Julie Myers Wood, CEO, Guidepost Solutions
Compliance and legal executives should also take a page from Petrobras’ “extensive remedial measures.” According to settlement documents, such remedial measures included:
Replacing its board of directors and the executive board;
Implementing governance reforms (e.g., expanding the scope of decisions requiring board approval);
Elevating and revamping the compliance function, including creating and staffing the Division of Governance and Compliance (DGC);
Limiting individual decision-making authority by implementing a “four eyes” approval policy that requires a second review by supervisors from different reporting lines for substantive decisions;
Enhancing its policies and procedures related to confidential reporting and investigations; and
Implementing measures to ensure Petrobras’ operations are insulated from improper political interference, including new hiring and promotion procedures, a comprehensive government relations policy, and protecting the Officer of DGC.
Other extensive remedial measures undertaken by Petrobras include:
Enhanced anti-corruption training: All employees must complete compliance training; the board and executive board must be provided with anti-corruption training; and employees engaged in the procurement of goods and services must receive specialized training.
Establishment of ethics and disciplinary committees.A new ethics committee is responsible for guiding, disseminating, and promoting compliance with ethical principles and conduct obligations. Additionally, a separate committee has been created within the company’s compliance function to discipline employees, including employees known to have violated company policies and procedures. This committee is also tasked with ensuring that discipline is meted out consistently, including suspending employees, removing their managerial functions, and terminating their employment.
Below, the Department of Justice explains in the settlement agreement reasons why it determined that an independent compliance monitor was unecessary.
[A]fter considering (a) through (k) above, the Fraud Section and the Office believe that the appropriate resolution of this case is a non-prosecution agreement with the company, and a criminal penalty with an aggregate discount of 25% off of the bottom of the U.S. Sentencing Guidelines fine range; that the Fraud Section and the Office will credit 80% of the criminal penalty against the amount the Company pays to Brazilian authorities, pursuant to their resolution, and 10% of the criminal penalty against the civil penalty imposed by the SEC. Based on the company's remediation and the state of its compliance program, the company's agreement to report to the Fraud Section and the Office as set forth in Attachment C to this Agreement (Corporate Compliance Reporting), and the fact that the company is based in Brazil and will separately be entering into a resolution with Brazil and will be subject to oversight by Brazilian authorities, including Brazil's Tribunal de Contas da Uniao and Comissao de Valores Mobil iitrios, the Fraud Section and the Office determined that an independent compliance monitor was unecessary.
Source: Department of Justice
Enhanced procurement and contracting controls.Petrobras has also centralized the procurement function, segregated procurement duties, and implemented a risk-based integrity due-diligence program for prospective contractors.
Petrobras is not the only company in which the government determined that an independent compliance monitor was not needed. Other companies that entered non-prosecution agreements or deferred-prosecution agreements over the last two years and avoided a monitor include Telia; SocGen; SBM Offshore; Keppel Offshore & Marine; JPMorgan Securities (Asia Pacific); Credit Suisse (Hong Kong); Legg Mason; and Imagina Media Audiovisual. Each of these eight NPAs and DPAs imposed a three-year term and contained extensive sections outlining the remedial and compliance efforts undertaken by each company.
Another best practice to keep in mind: Separate remediation efforts from internal investigation efforts. “Sometimes you have folks focused only on the investigation and you don’t have folks focused on remediation, and that can cause you to lose valuable time in terms of making progress,” says Julie Myers Wood, CEO at Guidepost Solutions, an investigations and compliance consultancy.
Almost always, weaknesses in the company’s control environment or compliance program will be discovered before the investigation ends and final recommendations have been made, Warin says. Take advantage of that knowledge and start on remediation efforts. “Don’t wait until the final aspects of the report are stitched up and finalized,” he says. “Under João [Elek]’s leadership at Petrobras, that is precisely what the company did.”
The Petrobras settlement also reflects the agency’s growing coordination with foreign counterparts when striking a multi-jurisdictional, joint resolution. According to the settlement documents, another determining factor in deciding whether to appoint a monitor, unique to this case, was “the fact that the company is based in Brazil and will separately be entering into a resolution with Brazil and will be subject to oversight by Brazilian authorities,” the Justice Department said in the settlement agreement.
The big-picture message is this: For companies in serious trouble with the government that want to avoid a monitor, it’s critically important to demonstrate to enforcers that they “have a proven track record and can show they took substantial steps over a period of time to get their house in order,” Wood says. That means demonstrating to enforcers that you took the problems seriously, aggressively dealt with them, that you made personnel changes, where appropriate, and you have additional monitoring in place to avoid repeating the same misconduct.
Another key factor is who is filling the oversight role. “Are they individuals that the regulator trusts? What outside help, in terms of law firms or consultants, are assisting with those remediation efforts, and do they have a strong track record?” says Wood.
That’s exactly what Petrobras did in this case. “The company early on decided to upgrade its compliance department dramatically and brought in a very seasoned, senior-executive type as the chief compliance officer, João Elek,” Warin says. “João leapfrogged the process, in my view, by implementing dramatic changes in the compliance program and examinations of all third parties. He implemented vigorous screening and essentially started at ground zero about who should be a contractor and who should not.”
When working with enforcers and the prosecutors, “one of the things that you always want to do in these matters is humanize the company,” Warin says. “We’re very big endorsers of getting the clients very visible to the enforcers and the prosecutors, so that they have a real sense of who they are, their seriousness of purpose, their character, and so forth.”
In Petrobras’ case, for example, the current CEO, former CEO, general counsel, and chief compliance officer met with the Department of Justice, or at least were visible to them. Instead of simply talking about the compliance program, that face-to-face connection allows enforcers and the prosecutors to see and hear from the people who are leading that program and what they have to contribute.
“You don’t go into your first meeting saying, ‘We don’t want a monitor,’” Warin says. “Likewise, prosecutors don’t go into the first meeting saying, ‘There will be a monitor.’ Matters evolve over time. You’re educating them about the compliance program, the effectiveness of it, how it’s being monitored, all of that. In the end, hopefully that transitions into them saying, ‘I don’t think we need to have a monitor.’”
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