How Can Regulators Leverage Monitors?

Jay Rosen discusses the various ways regulators at all levels – federal, state and local – use monitors, as well as how monitors can be used outside the regulatory context in areas as diverse as M&As, business ventures, IP and licensing.

Most compliance practitioners are aware of the role monitors play in the Foreign Corrupt Practices Act (FCPA) enforcement arena. However, the use of independent monitors is much broader than simply in criminal or civil enforcement actions involving a deferred prosecution agreement, nonprosecution agreement, corporate integrity agreement or other form of resolution.

Federal agencies use monitors for a wide variety of roles to ensure compliance with agreements.

Government Extending its Reach

At its most basic level, an independent monitor is a way for the government to extend its reach, both in terms of lengthening out the time of true government oversight and through many of the techniques we discussed in last week’s blog: focus group meetings, review documents, talking to senior and middle management. It is a very cost-effective way for federal, state and even local governments to extend out their reach.

This cost-effectiveness is driven home by the fact that the cost is not borne by the governmental entity or the regulators, but rather by the entity being regulated.

FCC Independent Monitor

Recently, AMI served as an independent monitor on a Federal Communications Commission (FCC) regulatory matter to ensure that the conditions around anticompetitive and other issues were met in exchange for the FCC’s approval of the merger between AT&T and DirecTV. For example, one of the conditions was that they had to offer a discounted broadband service to certain low-income households. The FCC wanted access to broadband for low-income families, particularly for school kids. The monitor assessed the marketing program on this issue, looking at their efforts to provide discounted broadband for low-income households.

Monitoring Hospital Conversions

Another example of a regulator engaging an independent monitor occurred in a matter where a state regulator, the Attorney General of Rhode Island, used a monitorship in a hospital conversion matter. In this case, a nonprofit hospital was purchased by a for-profit chain.

In such situations, the state Attorney General in most states will have to approve that transfer of assets from charitable assets to for-profit assets, applying certain conditions.

It could be in the area of recruiting physicians or requiring the acquiring institutions to keep the mental health services open. You don’t have to spend millions of dollars on new equipment; the conditions are generally around very specific metrics and are increasingly being used by government agencies as a way of not only having confidence that the regulatory decisions are being followed, but also providing some comfort and confidence to the public knowing that a monitor is looking over the shoulder of the organizations to ensure the public’s interest.

Nonregulatory Areas

An independent monitor can also be engaged in nonregulatory areas. One that certainly comes up is preacquisition due diligence in the FCPA realm. An independent monitor can be used to assess whether a target or takeover candidate has a robust compliance program. These same concepts also work in the licensing area in preacquisition work and even for a company that wants to test the audit compliance of customers.

Money Well-Spent

The bottom line is that independent monitors can come in and look at the system of controls in a wide variety of regulatory and legal areas.

There is no substitute for having somebody independent of the company with some expertise, common sense and practical reality coming in and asking, “How are you doing?”

You don’t have to do this all the time. It isn’t something you need to do even every year, but every once in a while, have somebody come in and take a hard look at how you’re doing and then report back internally to the company. It is money well-spent, because you have established that the organization being reviewed has a good program and if you need to fine-tune your program in certain ways, now you have a roadmap to follow.

In case you missed the earlier installments of this ongoing series, please see the links below.