Compliance Insider

Issue 21 > Compliance Alerts

How compliance firms can partner with law firms to reduce risk

The demand for individuals and companies who are well-versed in various state, federal and international regulations and research regarding third party risk management is increasing. This dictates an increased need for legal professionals as well as specialised professional services firms. Companies have a growing need for compliance services due to increased regulation and legislation related to supply chain transparency and third party accountability. This includes the United Kingdom Modern Slavery Act, Conflict Minerals Act and the California Transparency in Supply Chains Act, along with high profile scandals such as the Panama Papers and Unaoil. Existing compliance consulting firms are starting to gain prominence with large, multinational companies that need to know more about their third parties, the risks they present and how to mitigate that risk.

Issue 21 > Compliance Alerts

IKEA recalls unstable furniture in bid to ease reputational damage

The need for companies that produce consumer goods to strictly adhere to safety regulations and standards has been highlighted again this week with news of a furniture recall by IKEA. The Swedish furniture company has issued a recall of approximately 29 million dressers and clothing chests in the United States after at least six children died when the furniture tipped over and crushed them. The fatalities included toddlers under the age of three from Minnesota, Washington and Pennsylvania. More than 70 injuries and numerous near-misses have also been reported in connection with the furniture, according to a report by the Consumer Product Safety Commission’s (CPSC).

Issue 21 > Compliance Alerts

Fraudulent US ‘frack master’ highlights need for robust bookkeeping

A supposed specialist on ‘fracking’ in the United States is facing charges that he misappropriated investor capital amounting to US$80 million to fund an extravagant lifestyle through his oil and gas company. Chris Faulkner, chief executive of Texas-based Breitling Energy Corporation, has been accused by the Securities and Exchange Commission (SEC) of misrepresenting himself as a specialist on hydraulic fracking, which is a method used to extract natural gas from shale rock formations, in order to defraud investors. In addition to some obvious lessons around investor due diligence, the case is a reminder to companies of the need to maintain robust bookkeeping in order to be able to identify illicit behaviour when it occurs.

Issue 21 > Compliance Alerts

Palm oil sustainability issues prompt audit improvements

Despite the creation last year of a group dedicated to promoting the use of sustainable palm oil products, the number of instances where sustainability is not practiced within companies continues to increase. In response to growing criticism and increased international scrutiny, the Roundtable on Sustainable Palm Oil (RSPO) – a body of consumers, green groups and plantation firms – has announced that it will be implementing even more rigorous auditing to ensure that assessments are done correctly.

Issue 21 > Compliance Alerts

Cybersecurity requires awareness

The first step in any recovery programme is to admit you have a problem. This means that if you continue to insist that your failings are caused by others, you will never to be able to identify, let alone fix the difficulties or even failures from the past. This simple axiom was once again demonstrated in spades last week when the former governor of the Bangladesh central bank had the temerity to blame the Federal Reserve Bank of New York for the theft of US$81 million from the Bangladesh central bank earlier this year.

Issue 21 > Compliance Alerts

Undeclared ingredients prompt worldwide snack recalls

The need for organisations in the food industry to implement stricter and more rigid quality checks on suppliers was reinforced recently with the announcement by the United States Food and Drug Administration (FDA) of a spate of snack recalls due to the possible inclusion of ingredients that could be harmful to consumer health. Mars Chocolate North America is recalling certain Combos branded products due to undeclared peanut allergens, and this followed a recall of more than 20 products by Kellogg Company for similar reasons. Meanwhile, Frito-Lay has recalled some of its Spicy Sweet Chili Doritos tortilla chips due to undeclared milk ingredients.

Issue 21 > Compliance Alerts

Fentanyl kickback scheme highlights need for stronger ethical culture

A company’s success and reputation can depend on the integrity and capabilities of its employees, and those organisations that fail to proactively cultivate these qualities in their employees could ultimately face serious reputational damage. This appears to have transpired in a case involving a small pharmaceutical company in the United States and two former employees, who were recently arrested on federal anti-kickback charges.

Issue 21 > Compliance Alerts

Reputational risk prompts Disney to probe alleged supplier labour violations

The news that Walt Disney Co is facing criticism over worker conditions at a number of its suppliers in China is a reminder that large companies are expected to manage risks in this area. Just when Disney should be celebrating the opening of its new US$5.5 billion theme park in Shanghai, the world’s largest entertainment company is being accused of allowing some of its local suppliers to mistreat their employees. Reports by China Labour Watch and Hong Kong-based Students & Scholars Against Corporate Misbehavior (SACOM) highlighted low wages as well as injuries and health risks emanating from exposure to chemicals and dust.

Issue 21 > Compliance Alerts

Compliance as a protection against schadenfreude in Germany

What do most people around the globe think of when they hear the term ‘Made In Germany’? When I heard this term, I always associated it with quality, excellence and honesty. The one thing that made the Volkswagen emissions-testing scandal different from other corruption scandals was that it negatively impacted the German national brand of ‘Made In Germany’. Volkswagen has gone from one of the most trusted car manufacturers in the world to an organisation that does not seem to know its left hand from its right, nor even where either hand resides. This is much more than a ‘death of a thousand cuts’, where information dribbles out on a daily basis. This is a company that cannot seem to make clear what cars, in what countries, or even what engines, may be part of the scandal.

Issue 21 > Research

Statistics on compliance: renewal due diligence

Monitoring third parties such as suppliers and distributors on a regular basis is essential to detecting new risks and changes that could increase your risk exposure. However, some companies only conduct due diligence and formal compliance checks when a new partnership is established or first contract is signed. Companies need to be regularly checking up on their third parties as part of an overall ongoing monitoring strategy around managing third party risks. Among other things, the results from this survey will cover the type of information that should be reviewed during renewals and how this differs by the type of third party, country and work that is being done. The results will also shed some light on how compliance professionals can cope with the necessity of conducting ongoing monitoring in the face of reduced budget and headcount.

Issue 20 > Compliance Alerts

Ransom payments not the way to manage cyberattack risks

The University of Calgary in Canada recently decided that the best way to manage risks associated with a cyberattack was to pay the ransom being demanded by a group of unidentified hackers. The educational institution paid almost C$20,000 (US$16,000) in untraceable Bitcoins to regain access to its email servers following a data breach. The criminals attacked the university at the end of May, blocking email access to some of its staff, students and faculty. At least 100 computers were reportedly infected by the virus although the university confirmed that no personal data was released to the public.

Issue 20 > Compliance Alerts

When and when not to self-disclose

The Department of Justice (DOJ) declined last week to bring any criminal charges against Nortek and Akamai Technologies under the Foreign Corrupt Practices Act (FCPA) for their bribery and corruption in China. Both companies settled with the Securities and Exchange Commission (SEC) through non-prosecution agreements (NPAs). The more I have considered the resolution documents from both enforcement actions the more I have come to believe that they are hugely significant and need to be studied by each and every chief compliance officer and compliance practitioner whose company is subject to the FCPA. This is because we may have well reached a turning point in FCPA enforcement, and how companies evaluate potential FCPA claims and disclosure.

Issue 20 > Compliance Alerts

Garment retailers warned of refugee supply chain risk in Turkey

Garment industry manufacturers have often been found to be susceptible to modern-day slavery practices in their supply chains, such as using restricted labour and having unsafe working conditions. This was confirmed again this week following the publication of a report by Human Rights Watch. High street garment retailers are being urged to review their supply chains in Turkey after it was claimed that child labour was “rampant” in the country’s garment sector.

Issue 20 > Compliance Alerts

Abbott confronts corruption during target due diligence

It will not be easy for Abbott Laboratories to terminate its planned acquisition of Alere despite the latter facing a United States Department of Justice (DOJ) probe into violations of the Foreign Corrupt Practices Act (FCPA). The US$5.8 billion agreement, which was announced in early February, was seemingly jeopardised when Alere disclosed that bribery investigations were underway into a number of its sales transactions in Africa, Asia and Latin America. However, the global diagnostic device and service provider has rejected attempts by Abbott to terminate the transaction.

Issue 20 > Compliance Alerts

ONGC whistleblower highlights reporting programme deficiencies

A retired chief engineer who worked at Oil and Natural Gas Corporation (ONGC) has disclosed fraudulent practices at the multinational corporation’s Ankleshwar facilities in Gujarat, India. Probin Chandra Bhagowaty, who worked at ONGC for 37 years, is now speaking up against the irregularities and raising his concerns with the ONGC chairman and managing director, Union petroleum minister Dharmendra Pradhan, and the Prime Minister’s Office (PMO), in an effort to encourage the launch of an independent probe.

Issue 20 > Compliance Alerts

General Mills recalls flour products after E.coli scare across multiple states

General Mills has announced a voluntary recall of over 10 million pounds of flour as a precautionary measure in response to an outbreak of E. coli O121 across 20 states in the United States. Thirty eight cases of the disease are being investigated with 10 individuals already hospitalised, according to the Centers for Disease Control and Prevention (CDC). The 38 cases occurred between 21 December and 3 May, according to General Mills.

Issue 20 > Compliance Alerts

BSI Bank closed after probe into money laundering and KYC protocols

The Monetary Authority of Singapore (MAS) has ordered the shutdown of BSI Bank (Singapore), the first merchant bank to be shut down in the country for 32 years, over alleged money laundering and involvement in Malaysia’s 1MDB scandal. The MAS immediately took action after the Office of the Attorney-General of Switzerland decided to pursue criminal charges against BSI SA Bank, the Swiss parent of the Singapore bank.

Issue 20 > Compliance Alerts

Australian executive jailed over money laundering charges in Singapore

The director of a consulting firm in Singapore has been sentenced to two years’ imprisonment after pleading guilty to 15 counts of transferring money gained from criminal activities and five counts of receiving kickbacks from the illegal transactions. SGS Consulting director Andrew Norman Barrell is the second ‘corporate money mule’ to be convicted in Singapore for charges under the Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act.