Compliance Insider

Issue 17 > Compliance Alerts

High profile food companies accused of unethical animal testing

Cruel forms of animal testing have allegedly been found at three well known food manufacturers. Danone, Nestle and Yakult have been accused of testing products already on the market in an attempt to find new money making angles. Some of the alleged practices include replacing 25 percent of the dietary needs of dogs with glucose injections. Animal testing is not necessarily illegal if conducted in a manner compliant with the law, but even then the practice remains offensive to some. With animal activist groups calling on the public to boycott the three brands, companies need to consider if any potential reputational damage is a price worth paying for the benefits gained from the scientific findings.

Issue 17 > Compliance Alerts

Human trafficker pleas highlight need for global inspections

Two human traffickers have pleaded guilty to charges that they helped Guatemalans enter the United States under the impression they were relocating for a better life, only to force them to work in terrible conditions at egg farms in Ohio. Aroldo Castillo-Serrano and Conrado Salgado Soto pleaded guilty to helping both adults and minors, some as young as 14 years old, enter the United States before putting them to work. The case serves as a reminder to companies to inspect their supply chains for slavery, even in so-called advanced countries such as the United States.

Issue 17 > Compliance Alerts

Data breaches now constitute poor business practice

Companies will be held responsible for breaches of customer data if it is proven that they failed to provide their customers with adequate protections. A ruling by the Third United States Circuit Court of Appeals in Philadelphia has confirmed that the Federal Trade Commission (FTC) can pursue its lawsuit against Wyndham Worldwide because the hotel company bore at least some of the responsibility for a number of hacks it has experienced. The decision effectively means that failing to protect customers now constitutes poor business practice.

Issue 17 > Compliance Alerts

Hedge funds settle for premerger disclosure failures

Three affiliated hedge funds and their management company have settled with the United States Federal Trade Commission (FTC) for allegedly failing to comply with filing and waiting requirements of the Hart-Scott-Rodino Act before purchasing Yahoo! shares. Third Point Partners Qualified, Third Point Ultra and Third Point Offshore Fund, together with management company Third Point, rebutted the accusations by saying that they were exempt from antitrust obligations due to the fact that the purchases were purely for investment purposes. This was rejected by the FTC’s Bureau of Competition.

Issue 17 > Compliance Alerts

Uzbek arrests show risk of politically exposed individuals

Nine associates of the oldest daughter of Uzbekistan President Islam Karimov have been arrested, as the list expands of her former and current business ties now detained by the police. The latest arrested associates of Gulnara Karimova allegedly include two former senior managers of a local Coca-Cola bottler as well as the President’s former financial adviser. The case demonstrates the need to perform due diligence on individuals to ascertain if they have political connections, as such people often present higher compliance and integrity risks.

Issue 17 > Compliance Alerts

Avon seeks settlement due to poor compliance culture

Avon Products has sought to settle a lawsuit in which it is accused of defrauding shareholders by failing to disclosure its inability to prevent the bribery of government officials in China. If approved, the US$62 million settlement would put an end to allegations that the cosmetic company’s former chief executive Andrea Jung and former chief financial strategy officer Charles Cramb intentionally misled shareholders by failing to notify them of the company’s inability to comply with the United States Foreign Corrupt Practices Act (FCPA). Some shareholders had described the company’s culture as being ‘actively hostile’ towards compliance.

Issue 17 > Compliance Alerts

BNY Mellon settlement highlights need for background screening

Bank of New York Mellon Corp (BNY) has agreed a US$14.8 million settlement with the United States Securities and Exchange Commission (SEC) for giving internships to family members of officials connected to a Middle Eastern sovereign wealth fund. The settlement is the first example of a bank violating the Foreign Corrupt Practices Act (FCPA) and also represents the first occasion where internships rather than cash have constituted an alleged bribe. The case highlights the need for companies to protect the business by verifying the credentials of potential employees.

Issue 17 > Compliance Alerts

Chinese executive bribery trial shows need for individual diligence

The former president of a Hong Kong-listed company is to stand trial for accepting bribes, among other charges. Former China Resources Power president Wang Yujun allegedly sought profits for others, took advantage of his position, and is guilty of embezzlement. He stood down from his role as president of the state-owned energy and investment conglomerate in September last year following the launch of an investigation one month earlier.

Issue 17 > Compliance Alerts

Doctor bribery case shows value of managing conflicts

The defence team for a doctor based in Long Island, New York, who has been accused of accepting bribes in exchange for referring patients to a New Jersey blood lab, has claimed that their client was not influenced by the money or gifts. Prosecutors say Bret Ostrager accepted US$3,300 a month in bribes, as well as meals and tickets to sporting events, concerts and Broadway musicals, by employees and associates of Biodiagnostic Laboratory Services. The lab allegedly generated more than US$900,000 in business from the doctor’s referrals.

Issue 17 > Compliance Alerts

Importance of KYC highlighted by mass arrests in Romania

Almost 600 people in Romania appeared in court during the first six months of 2015 to face charges of money laundering and forgery of currency. Romanian police conducted 93 operative actions between the beginning of the year and June, targeting and dismantling as many as 52 criminal groups that were also suspected of financing terrorism. The authorities seized RON 2 million (US$500,000), €740,000 (US$825,000) and US$35,631 in cash, as well as 465 buildings, 405 cars and an array of weapons. The seized goods serve as a warning to companies that it is not only financial institutions that need to monitor customers for money laundering. Other industry sectors need to conduct know-your-customer (KYC) procedures in order to recognise the necessary red flags.

Issue 17 > Compliance Alerts

Companies urged to conduct reviews as Apple cleared of music dominance

The European Commission (EC) will not charge Apple for antitrust violations after failing to find any evidence that the technology company’s deals with record labels and online music streaming services blocked rivals from accessing its music streaming platform. The executive arm of the European Union (EU) has been collecting information on Apple’s deals with various record labels since April, and said it will continue to monitor the market for misconduct. The case is a reminder for those at companies that hold dominant positions in a market to conduct reviews of how new transactions or changes in the business can affect the company’s dominance.

Issue 17 > Compliance Alerts

Nigeria still demands deep dive diligence despite new anti-graft body

Nigeria’s President has formed a committee to advise him on how best to combat corruption and reform the country’s legal system. President Muhammadu Buhari has appointed seven people to the Presidential Advisory Committee on Anti-Corruption, with most members having an academic background. Creation of the committee follows Buhari’s electoral promise to take on graft following his victory in May. But despite the apparent crackdown on corruption, companies are advised to continue with deep dives into areas of concern when it comes to conducting due diligence in Nigeria.

Issue 17 > Compliance Alerts

Pfizer accusations reinforce market dominance risk

The United Kingdom Competition and Markets Authority (CMA) has accused pharmaceutical firms Pfizer and Flynn Pharma of using their dominant market positions to charge excessive and unfair prices for an anti-epilepsy drug. Up to 50,000 people in Britain use phenytoin sodium capsules, which are manufactured by Pfizer and sold by Flynn Pharma. The case is a reminder that abuse of market dominance is one of the major risk areas that compliance officers need to be aware of, both for their own companies and for the third parties for whom they are responsible.

Issue 17 > Compliance Alerts

Accurate recordkeeping needed in alleged Somalia bribery case

The United Nations (UN) has accused a United Kingdom company of bribing officials in Somalia’s oil ministry with the aim of maintaining and expanding an oil exploration contract. Sanctions specialists at the intergovernmental organisation alleged that Soma Oil and Gas paid US$600,000 in bribes for the contract and an additional US$495,000 to a lawyer whose role it was to advise the Somali government during contract negotiations. Although the company responded by saying that the UN had misunderstood the purpose of the payments, it would have benefited from a paper trail that could have demonstrated thorough and in-depth recordkeeping.

Issue 16 > Compliance Alerts

San Francisco bribery allegations confirm gifts and politicians do not mix

United States federal court filings have alleged that San Francisco mayor Ed Lee took bribes and was involved in money laundering activities “in exchange for favours”. The filings relate to a criminal case concerning Richard ‘Shrimp Boy’ Chow, who is accused of running organised crime in San Francisco’s Chinatown area. Lee’s staff were accused of laundering money, although none of those mentioned in the court filing have been formally charged and no details of the alleged bribes were revealed.

Issue 17 > Research

Statistics on compliance: being a compliance officer

The work of a compliance officer never ends. Officers are either having to grapple with new legislation and regulations, navigate their company’s move into new products, new ventures and new jurisdictions, or conduct a gap analysis on the current compliance programme to see how to close any gaps. And, in addition to their compliance responsibilities, many have to dedicate time to non-compliance related work or pure administrative tasks – often without the full support of executive management.

Issue 16 > Compliance Alerts

EU removes two oil companies from Iranian sanctions list

The European Union (EU) has removed two Iranian oil producers from its sanctions list in what is the first move of its kind since Iran secured a nuclear agreement with the West. Petropars Operation and Management and Petropars Resources Engineering are both part of a group that is extracting gas in Iran, and had previously complained to the EU that there was insufficient evidence to warrant them being on the sanctions list.