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Do We Need German Monitorship? An interview with Nicole Willms, Partner, Pohlmann & Company.

21 Jan 07:00 by Nicolai von Steinaecker and Sven Laacks

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Our Talking Heads series continues with an interview with Nicole Willms, Partner at Pohlmann & Company.

Nicole, who started her career as an international business lawyer at the beginning of 2005, has been a partner at Pohlmann & Company for seven years. She regularly advises German and international clients on complaince, corporate governance, and general corporate law.  She has deep expertise in the design, development, implementation, and auditing of compliance management systems, particularly in the context of compliance Monitorships.   

Nicolai von Steinaecker and Sven Laacks, Directors at Laurence Simons Search, catch up with Nicole to discuss the background of the new corporate criminal liability regime (VerSanG) in Germany and learn more about the most interesting experiences of her career.

Laurence Simons Search (LSS): Good morning Nicole, thank you for taking the time to speak with us today.  We would like to congratulate you once again on winning the JUVE Awards Compliance at the end of last year.  We know that you have been kept very busy of late assisting with highly publicized work including consulting the U.S. Monitor at VW and starting as the U.S. Monitorship team for Ericsson.  How busy do you predict the market will be in 2021?

Nicole Willms (NW): Thank you for the flowers and you are right – 2020 was both labour intensive and successful for our team at Pohlmann, and it looks very much like we are not running out of work this year either.

LSS: How do we have to imagine that U.S. authorities appoint you as a Compliance Monitor?  

NW: The "Monitorship" is used by U.S. authorities as a requirement in criminal proceedings against companies. In an agreement to temporarily, or permanently, suspend the procedure, the company can appoint a monitor for a specified period of time.  Typically, U.S. authorities select the monitor from a list of proposals that the company concerned creates.

The Department of Justice, (DoJ), has clarified its selection criteria here in recent years:  firstly, it depends on the practical corporate management and compliance management expertise of the potential monitor.  At Pohlmann, we have a special unique selling point: in addition to our clear consulting focus on compliance and governance, many of our colleagues have concrete monitoring experience, and this is quite special, also in-house as former executives or compliance employees at companies under supervision. This creates trust on the part of companies and the authorities have already been happy to follow the proposal to call us, twice.   In my view, however, the cross-functional approach is also important: does the Monitor team next to the purely legal expertise also have the capability  to realistically assess company-specific processes and their successful implementation?

For international companies with headquarters in Europe there is also the understandable desire to work with a European monitor.  In addition, to the not to be under-estimated advantage of the same time zone, cultural aspects also play a major role here. Furthermore, as a boutique, we have another advantage: the necessary independence in the matter, i.e., from the company concerned, we can verify and confirm without great difficulty and – as usually required – also guarantee for a certain time after a Monitorship.

LSS: Interesting - what exactly do you mean by cultural aspects?

NW: With such an extensive and complex undertaking as the Monitorship, the resulting effort is often significantly underestimated by all involved in advance. The participants do not know each other and a "stress situation" arises easily, since the bindingly agreed time limits also demand speed.

Occasionally, companies find the targeted and extensive requests of the Monitor to be offensive, while the Monitor, in return, often misses the necessary and expected transparency and cooperation from the company. Cultural barriers do not make the already somewhat tricky situation easier.

However, one must be clear about the fact that a Monitor will only be used if the US authorities assume systemic misconduct and control failures and consider it necessary to independently and competently monitor the design and implementation of a compliance management system (CMS) that will function effectively in the future.  Overall, we are seeing an increasingly “inter-cultural” view of the American authorities, not least through the appointing of non-American monitors.

Also interesting in this context is the official investigation of the bribery allegations in the Airbus Group at the beginning of last year. In this instance, U.S. prosecutors have worked closely with the English and French ones.  In the settlement with Airbus, the U.S. authorities not only noticeably reduced their share of the total fine. In exchange for Airbus' commitment to undergo targeted reviews of its compliance program by the French Anti-Corruption Authority (AFA) over a period of three years, they have refrained from ordering a monitor. More interestingly, the still quite young French anti-corruption legislation is in some cases more rigorous than the American one: even the mere absence of a CMS can be sanctioned, regardless of whether there have been irregularities or corruption in business conduct. 

Perhaps our most exciting cultural mandate to date has been the Monitorship for a company primarily active in Russia and other CIS countries, which was under the guise of the DoJ and SEC due to its US stock market listing.  We successfully completed the Monitorship within the planned three years. I do not know if an American monitor would have been just as successful here. 

LSS: If we look at the VerSanG, how strict are the now planned German regulations?  Do they meet international standards?  I recently read in an interview with Hiltrud Werner, Board Member for Legal & Compliance at VW, that the DoJ only ordered its own monitor at the time because it was not yet provided under German law to supervise the proper implementation of instructions to avoid future association acts in court (as of 4 January 2021).

NW: The VerSanG has many good approaches and will hopefully help us to create "equality of arms" in our increasingly globalized economy. But in my opinion, it is not brave enough and remains too daring in many aspects. Particularly, there is a suspicion that the term "monitor" has been deliberately avoided.  The "competent body" provided for instead, which is supposed to examine the effective implementation of applied compliance measures and finally "certify" them, does not yet exist in German law. Also, the selection criteria raised in the grounds of the law are not concrete and strict enough. So, for example, there is no mention of the need for independence.

The focus on a 'certificate’ also seems problematic to me.  Should the commissioned "competent body" get authentic insights into relevant business processes and the entire structure and give ongoing suggestions and recommendations, or is it, as currently planned, only about a retrospect evaluation based on specifically prepared documents? I doubt that such a certification model can meet the high international standards, especially those of the USA. It seems that in the draft of the VerSanG one deliberately wanted to distinguish one another from the American, often criticized as an expensive and elaborate Monitorship model.  It is just a shame that the Federal Ministry of Justice and Consumer Protection (BMJV) did not even pick up the phone and inquire about the positive experiences and conceivable design and optimization options from practice. Definitely a missed opportunity!

LSS: Do you think that with the VerSanG a case like Wirecard could have been avoided?

NW: No, I do not think so. This case is certainly special in many ways. However,, it can be argued against the certification model. According to what we can see from the review of the case in the press, Wirecard had no internal control system, neither claims nor contract management, the supervisory board looked away, and even the responsible auditors and the supervisory authorities did not detect anything for a long time.

If a long-standing, external auditor and the authorities can be deceived so extensively, then it quickly becomes clear that it is not enough that a "competent body" assesses the compliance measures (allegedly) implemented by a company and rate any positive developments in retrospect. We have to remember that the cases in which we need any form of Monitorships are cases of serious and systemic misconduct. You cannot remediate such a misconduct with one or two singular compliance measures - it needs a change of culture and one's mind. Therefore, the help of an experienced "sparring partner", who independently gives suggestions and works together with the company on establishing integral and sustainable preventive concepts is needed. However, such a partner must also be given the necessary insight and integrated extensively into the relevant business processes.

LSS: So, in a sense, the monitor can be seen as an opportunity for a fresh start?

NW: Absolutely! Although a Monitorship is initially a considerable challenge and ties up both, human and financial resources, companies are emerging much stronger from this crisis situation. The causes are eliminated, vulnerabilities are discovered, and reliable processes are implemented to prevent systemic misconduct in the future.  In a holistic design that also incorporates the corporate culture, a Monitorship creates an excellent momentum for a "cultural change". In addition to the mitigation of sanctions, which will soon be standardized by law, other things are also important.

LSS: What do you have in mind?

NW: Good corporate governance, effective compliance management, and internal control systems are meanwhile clearly belonging to good form. More and more investors are paying close attention to this. But it is also an advantage towards employees and customers to be well positioned here. Thus, our advisory services serve not only investors who undertake possible targets and check their portfolios, but also companies that want or need to explain the effectiveness of their CMS to a major customer. By the way, our clients also include newly appointed members of the Board of Management, which, not least with regard to a potential personal liability, would like to obtain an external critical assessment. They want to know if their company is in the right position and able to deal effectively with compliance challenges of all kinds. Or are there possibly still “white spots”? And we can already see the first D&O insurance companies on the market, who grant discounts if a demonstrably functioning CMS exists.

LSS: Nicole, one last question: You founded the German Chapter of the Woman's White Collar Defense Association (WWCDA) in autumn 2019 and are not only The German Chapter Lead, but also a member of the global WWCDA Monitor/Receiver Committee. What are you and your female colleagues planning next in Germany and how many monitors are female?

NW: A good question, as it is also discussed in other areas currently. Female monitors are still rare, including in the US. To actively manage the turnaround here too, the globally active network of the WWCDA has raised the topic to the top of the agenda last year with the announcement of the Monitor/Receiver Initiative.  It is a question of networking the numerous suitably qualified and practically experienced female colleagues and promoting them to the outside world to relevant authorities. The demand for lists and profiles of female candidates is increasing and this is very pleasing. Also, in the German Chapter of the WWCDA, there are colleagues who already have well-known Monitorship experience. With the foundation of the German Chapter, however, we have also positioned ourselves well beyond the topic of Monitorships: the network brings together colleagues - lawyers as well as management consultants - from the areas of criminal law, compliance, corporate law and governance, forensics and audit, thus providing an excellent basis for a complimentary professional exchange around corporate governance, criminal defense, internal investigation and compliance management. The combination is optimal to international mandates, but also specifically in relation to the VerSanG. If, in addition, the first German female monitor emerges from our ranks soon, that would of course be perfect!

LSS: Thank you Nicole, a perfect closing word! Thank you very much for the exciting insights, we wish you and your colleagues at Pohlmann continued success and we will, of course, be very pleased to see a JUVE announcement about future appointments as a monitor – perhaps even foreseeable in Germany!