Compliance Insider

Issue 21 > Compliance Alerts

Letter from the Editor in Chief

Dear Valued Compliance Insider® Reader, as you know, Compliance Insider® is a part of The Red Flag Group and we have been building our content across both Compliance Insider® and The Red Flag Group for several years. We have now decided to merge the content into one place and create a much better interactive platform that sits on The Red Flag Group website.

Issue 21 > Compliance Alerts

Chipotle stake demonstrates the share value of good governance

Companies that are caught in the middle of industry wide scandals face an uphill struggle to recover from both financial loss and reputational damage. For instance, Chipotle’s 2016 norovirus outbreak, which affected 400 people across 13 US states resulted in US$11 billion being wiped off the company’s market cap value. In the wake of the outbreak, the restaurant chain has been strengthening its food safety controls and introducing initiatives to bring customers back.

Issue 21 > Compliance Alerts

Australian government targets foreign bribery with anti-graft team launch

Recent corporate scandals involving Australian companies are threatening the country’s reputation for fairness, and the sitting federal government has had enough of it. Justice Minister Michael Keenan has announced that the government is to recruit a new team of 26 specialist anti-corruption investigators to tackle corporate corruption and prioritise foreign bribery probes. The new officers will include investigators, forensic accountants and lawyers, and will be located in Perth, Sydney and Melbourne.

Issue 21 > Compliance Alerts

Cyber attackers increasingly target Latin America

Despite its place among the so-called BRIC emerging economies, Brazil continues to be plagued by a number of integrity and compliance issues. Although the country and indeed the Latin American region as a whole can now boast hosting a growing presence of high profile firms in the energy and manufacturing sectors, they are also becoming increasingly notorious for data breaches. As such, it is vital that organisations in the region, as well as those looking to establish offshore branches, beef up their data security controls.

Issue 21 > Compliance Alerts

Reputational benefits of security compliance should be sufficiently persuasive

February’s high profile US$81 million heist on Bangladesh Bank revealed that weak security measures made it easier to hack into computers that were subsequently used to send messages requesting large money transfers. Bangladesh police confirmed that the central bank had lacked any kind of firewall, and that it had used second-hand, US$10 electronic switches to network those computers. Since then, the global financial messaging system that authenticated those transfers has tried in vain to encourage its member banks to comply with new security procedures, due in part to its lack of any regulatory authority over members. But such institutions are not giving due consideration to the reputational consequences of their actions and decisions.

Issue 21 > Compliance Alerts

Reputational concerns mount for Apple following EU tax ruling

A poor understanding of complex cross-border fiscal and taxation policies can result in the possible violation of relevant laws. However, utilising complex cross-border arrangements to knowingly bypass taxes demonstrates a lack of integrity and poor business conduct that can ultimately have reputational consequences. Apple has effectively been accused by Brussels of doing just that following the news that it has been hit with Europe’s largest tax penalty for receiving illegal state aid from Ireland.

Issue 21 > Compliance Alerts

Anti-corruption and the fight against terrorism

United States Secretary of State John Kerry has tied the war on terrorism to the worldwide fight against bribery and corruption. He directly tied the war on terrorism to the scourge of bribery and corruption in a speech last week in Nigeria, entitled ‘Remarks on community building and countering violent extremism’. This was not the terrorists’ tactical use of corruption to smuggle arms and terrorists across borders, but placing corruption firmly in the centre of a cause of terrorism.

Issue 21 > Compliance Alerts

All eyes on fallout from whistleblower award rejection

Sometimes the strongest statement can be made when you turn down an award. Such a statement was made last week by Eric Ben-Artzi when he declined his share of a whistleblower award from the Securities and Exchange Commission (SEC) for reporting that Deutsche Bank had improperly inflated the self-reported values of its portfolio of credit derivatives. Artzi was one of two employees who were scheduled to share in a US$16.5 million whistleblower award. Yet he declined the award and requested that his “share of the award be given to Deutsche and its stakeholders, and the award money be clawed back from the bonuses paid to the Deutsche executives”.

Issue 21 > Compliance Alerts

Saudi Arabia’s Vision 2030 will keep compliance officers busy

Saudi Arabia’s Council of Ministers has endorsed a sweeping set of programmes and reforms to be implemented by 2030. But, in addition to luring greater amounts of foreign investment, ‘Vision 2030’ also increases integrity and compliance risks.

Issue 21 > Compliance Alerts

Conducting pre-acquisition due diligence

While it may sound counter-intuitive, the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) encourage companies with strong compliance programmes to buy companies engaged in improper conduct in order to help implement strong compliance in those companies. Of course, the key element is to identify any areas of concern in the pre-acquisition phase and then remediate after acquisition. This means that a company that does not perform adequate Foreign Corrupt Practices Act (FCPA) due diligence before a merger or acquisition may face both legal and business risks. From the legal side, this means a potential FCPA violation if the conduct continues. From the business side, it means the true value of a company may be over-inflated if the business model was based on bribery and corruption.

Issue 21 > Compliance Alerts

Macau fights hard against money laundering in casinos

Macau, the peninsula situated on the southern coast of China, recently hit the headlines for Foreign Corrupt Practices Act (FCPA)–related investigations. It is the only region in China where gambling is legal, with its gaming industry being a major force driving the local economy. However, the gambling paradise is believed to constitute obstacles to worldwide anti-money laundering investigations, with suspicious transactions involving tax evasion, terrorist financing and other illicit payments hiding behind those fascinating gaming tables.

Issue 21 > Compliance Alerts

Self-reporting can have consequences but is vital to any remediation strategy

The virtues of self-reporting have long been debated. Although the idea of coming clean to the relevant authorities upon learning of a compliance violation can seem intimidating, companies stand to receive tangible benefits if they respond appropriately, cooperate fully, and make prompt remediation efforts to enhance their compliance programmes.

Issue 21 > Compliance Alerts

South Carolina money laundering law targets drug trafficking

Despite a slew of laws and regulations that aim to eradicate money laundering, cases of it occurring among private and public organisations continue to be reported. Despite this, however, an increasing number of countries and territories appear to be willing to step up and join the fight against money laundering. For example, South Carolina has become the last state in the United States to introduce a piece of legislation designed specifically to tackle money laundering.

Issue 21 > Compliance Alerts

1MDB probe raises questions around partner due diligence

What should you do if a business partner says about a proposed transaction, “Speed is the most important and one with a fairly quick and relaxed KYC [know your customer] process?” Should you run as far and as fast away from the person or company who says this kind of thing? Should you report this transaction partner to the appropriate authorities? Does such a statement raise any red flags that might need clearance or at least further investigation? These were just some of the queries that came to my mind when I read an article in the Financial Times by Kara Scannell entitled, ‘High flyer brought low’. This focused on Jho Law, an associate of the Prime Minister of Malaysia who is prominent throughout the scandal involving Malaysian sovereign wealth fund 1MDB.

Issue 21 > Compliance Alerts

Yahoo pursuit of breach authenticity shows integrity and security risks

Data security breaches represent a significant integrity and compliance risk to organisations. As such, companies need to carefully assess and manage how they and their third parties store data, the technology used to ensure that it remains secure and confidential, and the way in which that data is exchanged. For example, United States technology company Yahoo is attempting to ascertain whether a hacker has managed to access the current details of 200 million of its accounts, or whether a recent breach is similar to others in the last few weeks in only being able to secure fake or old data.

Issue 21 > Compliance Alerts

Malaysian sovereign wealth fund probe places spotlight on service providers

The fallout from the United States government’s forfeiture lawsuit filed in July alleging purchases of property funded through the looting of the Malaysian sovereign wealth fund, 1Malaysia Development Bhd (1MDB), has shed light on another area, that of service providers to the entity. It appears that 1MDB has lost yet another auditor. For example, The Wall Street Journal has reported that “Deloitte Touche Tohmatsu resigned in February. Earlier disputes over the fund’s accounts led to the firing of 1MDB’s previous auditors, KPMG and Ernst & Young, according to a Malaysian auditor general’s report last year.”

Issue 21 > Compliance Alerts

Failure to meet sustainability requirements has serious consequences

Sustainability is important to making sure that we have, and will continue to have, the water, materials and resources to protect human health and our environment. Companies and their supply chains now play a role in ensuring that they also protect the social, economic and other requirements that will allow them to support future generations. Tesco’s announcement that it is removing a number of John West tuna products from its shelves after the company failed to meet its sustainability standards is therefore welcome.

Issue 21 > Compliance Alerts

Islamic charity case highlights need for robust sanctions programme

A sanctions programme requires careful eyes on all lines of business across your company. It is about making sure that your company does not engage sanctioned entities through your sales agents, process transactions with sanctioned banks, or deal with a business partner that breaches sanctions laws. The need for a robust sanctions programme was highlighted again recently when a Missouri-based Islamic charity admitted in federal court to secretly funneling approximately US$1.4 million to Iraq in violation of United States sanctions.