Compliance Insider

Issue 21 > Compliance Alerts

Refreshed directors makes for good corporate governance

Companies need to have a strong, independent and diverse board of directors in order to provide rigorous and forward-thinking oversight. As the governing body of any company, a strong board is needed to promote the vision and mission of an organisation, provide internal and external leadership, and be the key organ of accountability to stakeholders. That was the message from corporate governance adviser Institutional Shareholder Services (ISS), which may target companies that fall short on board diversity by amending its investor voting guidelines.

Issue 21 > Compliance Alerts

The fight against corruption and Kant

It is interesting to still see folks claim that, because companies, senior managers, employees and contractors engage in bribery and corruption, it is all somehow the fault of the Foreign Corrupt Practices Act (FCPA) for not being effective. Such arguments hold about as much weight as asserting that speeding limits are ineffective because people choose to break the law and drive in excess of them. Those who argue that the FCPA is somehow ‘broken’ because people violate it miss the critical fact that, as long as there are financial rewards to be obtained, there are some people who will do almost anything to make more money.

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

The impact of ‘Brexit’ for compliance officers

The recent referendum result of the United Kingdom deciding to exit the European Union (EU) has come as a great surprise to many. It has already had a significant impact on the financial and currency-exchange markets, and will certainly create a significant period of uncertainty until the final terms of the exit have been negotiated and agreed.

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.

Issue 21 > Compliance Alerts

Corruption denial by Swiss Attorney General highlights political risks

Some companies aim to gain benefits by means of political influence, and merely being involved with one of these companies could be detrimental to your reputation. Many organisations therefore have a policy about engaging political parties, political officers or people heavily involved in government as one of their suppliers. This is to protect the impartiality of the company and also to ensure that there is minimal risk of bias towards a particular government or political party.

Issue 21 > Compliance Alerts

United States seeks massive civil forfeiture in 1MDB corruption scandal

In 2014, then United States Attorney General Eric Holder announced the formation of a new Kleptocracy squad within the Federal Bureau of Investigation (FBI) that would investigate and prosecute corruption cases across the globe. At the time, Holder said: “This specialised unit will partner with our Asset Forfeiture and Money Laundering Section to aggressively investigate and prosecute corruption cases – not only in Ukraine, but around the world. The squad of about a dozen personnel will consist of case agents and forensic analysts who are capable of unravelling the intricate money laundering transactions commonly employed by kleptocrats. Their sophisticated work will be supported by deputy marshals from the United States Marshals Service and analysts from FinCEN, which is our financial intelligence unit. And this new initiative will provide the United States with increased capacity to respond rapidly to political crises as they arise – so we can help prevent stolen assets from being dissipated or secreted away by deposed regimes.”

Issue 21 > Compliance Alerts

Mexican anti-graft law reform places onus on companies

The Mexican government’s response to public outcry against the high levels of graft and corruption existing in the country has finally seen it promulgate the secondary laws of Mexico’s National Anti-Corruption System. The onus now will be on organisations across multiple industries to review their compliance programmes and make sure that these are still applicable and compliant with local and international regulations.

Issue 21 > Compliance Alerts

Turning global supply chain risks into competitive advantage

As more and more companies expand their businesses internationally, compliance officers have a rapidly expanding risk universe to consider. In addition, recent outbreaks of violence and political stability around the globe have worsened many aspects of already difficult third party management for companies. Operating in an area with instability or high potential for illegal conduct increases the oversight and pre-engagement activities of compliance professionals.

Issue 21 > Compliance Alerts

Robust employee background checks can contribute to better cybersecurity

Companies operating in the financial industry need to take extra caution when it comes to employment as they are considered to be high risk for data security. It is important for such organisations to carry out comprehensive due diligence and background checks to weed out any unqualified or risky candidates. In other instances, it is worthwhile to have controls in place such as active monitoring or predictive analytics to flag suspicious activities and transactions.