For several years, scholars, regulators, corporations, practitioners, reporters, and the public have debated whether monitor reports should be publicly available. Those in favor of greater transparency argue, in part, that allowing access to monitor reports would serve as an additional check on efforts to improve compliance within corporations. Those in favor of robust confidentiality argue, in part, that confidentiality serves to encourage more frank conversations and effective participation in the monitorship process by employees at the monitored organization. The debate, however, was largely an academic one, because courts appeared to defer to the government’s contention that monitor reports should be kept confidential.[1] Yet in January 2016, a district court ordered that HSBC’s monitor’s report be made publicly available, subject to certain redactions. The district court’s ruling triggered yet another round of commentary and discussion regarding the appropriate norms governing the disclosure of monitor reports. But the HSBC controversy provides an opportunity to think beyond the standard back-and-forth regarding what norms should be adopted to govern disclosure of monitor reports. It provides a perfect opportunity to look at a consequence of such aggressive court intervention.
If the appellate court upholds the district court’s ruling, the HSBC case will serve as precedent that supports the notion that monitor reports arising out of formal court proceedings should be made available to the public. This outcome, however, would not necessarily function as a clean “win” for those who advocate in favor of greater transparency and accessibility of monitors’ reports. Indeed, ordering public disclosure of the HSBC monitor’s report may serve to encourage interested parties in future negotiations where monitorships are contemplated to engage in actions that will avoid similar court rulings.
HSBC maintained that if it had to explain to [foreign] regulators that only certain parts of the Monitor’s reports will remain confidential (and that neither those regulators nor HSBC will have control over which parts are redacted), those regulators would likely withdraw consent to the process, resulting in a loss of Monitor access to protected data from those foreign jurisdictions. The same effect will likely follow for HSBC employees, on whose candor and cooperation the success of the Monitorship depends. If employees anticipate that even portions of the Monitor’s reports will become public, they may be far less willing to be fully candid with the Monitor’s team for fear that information not deemed necessary to redact will identify or be traceable to them.[2]
If other companies have similar concerns regarding the public disclosure of monitors’ reports, the district court’s ruling granting access to the HSBC monitor’s report could have a deterrent effect on companies and the government.
For example, the HSBC case, if upheld, may discourage a future company’s willingness to enter into an agreement with the government that includes a monitorship as one of the deferred prosecution agreement (“DPA”) terms. Companies may employ more aggressive negotiation tactics in an attempt to obtain terms that will guarantee a more limited role for court oversight. If companies are more reluctant to enter into DPAs with monitorships as one of their terms, it may provide the government an incentive to avoid circumstances that could lead to court rulings similar to that found in the HSBC case, which the government can easily do. One strategy the government could employ may be a decrease in the utilization of DPAs. For example, if the government elects to enter into non-prosecution agreements (NPAs) instead of DPAs when requiring monitorships, the government can game the court out of the situation altogether, thereby avoiding future similar rulings.
Those advocating in favor of robust transparency of monitors’ reports may want to consider whether obtaining unfettered access to these reports via court order is worth the risk of decreasing court oversight over monitorships and the negotiated settlements that contain monitorship provisions. If robust court oversight begins to signal aggressive public disclosure, it may encourage companies and the government to engage in (even more) actions outside the court system. Even without full public disclosure of monitors’ reports, court involvement when negotiated settlements include monitorships can provide meaningful oversight of the monitorship relationship. For those concerned with issues like (i) capture of the monitor and regulators, (ii) cronyism within the monitor selection process, or (iii) corruption more generally within the monitorship process, even limited court oversight has the benefit of serving as a check on the monitorship process.
Monitorships are a complex remediation tool, which currently lack definitive oversight and guidance, and many monitorships take place without any court involvement. For the subset of monitorships that do currently occur as part of formal court proceedings, like the HSBC monitorships, the question is whether achieving greater access to monitors’ reports via court order is worth the risk of shrinking the pool of monitorships subject to court oversight to an even smaller level than it is today.
Footnotes
[1] See, e.g., SEC v. Am. Int’l Grp. 712 F.3d 1 (D.C. Cir. 2013) (ruling that a monitor’s report did not qualify as a judicial record and therefore would remain confidential).
[2] HSBC Letter in Support of Filing under Seal 5, United States v. HSBC Bank USA, N.A., No. 12-CR-763, Dk. No. 38 (June 1, 2015) [hereinafter HSBC Letter].
Veronica Root is an Associate Professor of Law at University of Notre Dame Law School. Professor Root teaches Corporate Compliance & Ethics, Professional Responsibility, and Contracts.
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