Category: Compliance Bricks and Mortar

These are some recent compliance-related stories that caught my eye.

Lessons of the Financial Crisis: The Dangers of Short-Termism by Sheila C. Bair, Chairman of the Federal Deposit Insurance Corporation, in the Harvard Law School Forum on Corporate Governance and Financial Regulation

[I]n my opinion, the overarching lesson of the crisis is the pervasive short-term thinking that helped to bring it about. Short-termism is a serious and growing problem in both business and government. I would like to devote my remarks to explaining what I mean by this, and discussing how I think it plays into the policy challenges arising from the crisis.

SEC works to get rid of “The Lease to Nowhere” by Sonya Hubbard in Footnoted

The temperature may have officially reached the high 80s yesterday afternoon in Washington, D.C., but we bet it was significantly hotter in room 2167 of the Rayburn House Office Building. That’s where the SEC’s Chairman, Mary Schapiro, and its Inspector General, H. David Kotz, were in the hot seat to answer questions for the Congressional Sub-Committee on Economic Development, Public Buildings, and Emergency Management (which falls under the auspices of the Committee on Transportation and Infrastructure) about the $556 million, 10-year lease that the SEC signed last summer for 900,000 square feet of space in D.C.’s Constitution Center.

How Is Law School Like the NFL Draft? Jonathan Tjarks in Policymic

Admittance into a top-14 law school, like a scholarship from a top-10 college football program, is the culmination of a lifetime of striving. Of the over 100,000 high school seniors who play football, fewer than 3,000 sign Division I letters of intent. Similarly, the top 25% in Harvard Law’s 2009 class had an average GPA of 3.95 and a LSAT score of 175, which puts them in the 99th percentile of the over 100,000 test takers each year.

Can a Libyan Rebel Be a Foreign Governmental Official under the FCPA? by Tom Fox in FCPA Compliance and Ethics Blog

So I began to wonder, can a person be a Foreign Governmental Official when the persons they are assisting, the Libyan rebels, are not recognized as the national government of a country. Even if a government is under economic sanctions by almost every country in the world that does not necessarily mean that it is not the government of that country.

These are some compliance-related stories that caught my eye.

Okay, so this first one is not about compliance, but about the Tour de France that starts on Saturday morning for its three week race across France.

Top 10 Reasons Geeks Should Love the Tour de France in Wired’s GeekDad.

Fraud in Commercial Real Estate: Tips & Red Flags on Money Laundering & Terrorist Financings by Keith Mullen in Tough Times for Lenders

In the late 2006, FinCEN issued a study highlighting money laundering trends in the commercial real estate industry. In the information reviewed for this study, the most commonly reported suspected illicit financial activity associated with the commercial real estate sector is money laundering to promote tax evasion. … This should NOT be a surprise: Federal examiners have issued a 439 page manual on this topic. One good way to jump into the topic is to examine Appendix F to the manual, which contains a nice list of red flags for money laundering and terrorist financing. Here are some of the topics covered in the list –

How ‘Bad Boy’ Guarantees Can Make a Non-Recourse Loan Suddenly Become Recourse by Robert A. Silverman in National Real Estate Investor

Recent court decisions should serve as a warning to borrowers to carefully review the wording of recourse carve-out guarantees in both existing and proposed mortgages, lest they be held fully liable for real estate loans. While “non-recourse” loans typically require carve-out guarantees allowing the lender to pursue the guarantor’s assets in instances of “bad-boy” acts — such as waste, funds misapplication, environmental issues and voluntary bankruptcy filings — the precise wording of the guarantees is crucial.

The Bribery Act – Foreign public officials & why you should care who they are

Certain countries will contain many publicly owned businesses. For example, some corporations take the view that there is strong likelihood that local partners in China may constitute a public official. As a result they err on the side of caution and treat all local partners they deal with in that jurisdiction as state owned enterprises and the people they work for as foreign public officials.

5 Things to Know When Merging Compliance and Ethics Programs by John Martin, Bill Hughes and Edward Applegate in Corporate Compliance Insights

Corporate America has tried the stick and is now trying the carrot approach. Why is it so hard to integrate compliance with ethics? Here are five things to consider when attempting to integrate or combine compliance with ethics.

Creating a “Gap” Analysis and Sharing Issues with Management by Michael Portorti in FCPA Complaince and Ethics Blog

The Gap Analysis document can then be used to track status of deficiencies and used as a source to update Executive Management as necessary. It also can expose bottlenecks and identify potential revisions for controls that need additional tailoring to fit in with the Company’s operational environment. Accumulating deficiencies in this manner keeps all parties up-to-date on remediation progress so overall compliance efforts can move along at an acceptable rate.

These are some recent compliance-related stories that caught my eye:

What ‘Inside Job’ got wrong by Ezra Klein in the Washington Post

And ultimately, that’s what makes the financial crisis so scary. The complexity of the system far exceeded the capacity of the participants, experts and watchdogs. Even after the crisis happened, it was devilishly hard to understand what was going on. Some people managed to connect the right dots, in the right ways and at the right times, but not so many, and not through such reproducible methods, that it’s clear how we can make their success the norm. But it is clear that our key systems are going to continue growing more complex, and we’re not getting any smarter, or any less able to ignore risks that we know we should be preparing for. “Inside Job” may have missed that story, but the rest of us can’t afford to.

Flawed Incentives and Dubious Morals: JPMorgan & CDOs That Were “Built to Fail” by Matthew Philips in Freakonomics

See, the bankers at JPMorgan who sold these CDOs got paid regardless of how the things performed, whether every one of the thousands of mortgages stuffed into them paid off, or whether they all defaulted. So the incentive for the bankers was to sell as many CDOs as possible, even if they knew they were going to blow up in a year or two. It wasn’t their problem because it wasn’t their money. This raises an obvious moral question: were bankers morally remiss in pumping these mortgage bombs out into the world when they knew the wreckage they would cause? Or were they simply being good at their job?

Private Equity: compliance risk for portfolio company bribery? in The Bribery Act .com

Richard Alderman, Director of the SFO, has confirmed that in the SFO’s view Private Equity could have liability for the conduct of its investment portfolio businesses under the Bribery Act. … Speaking to an audience of Private Equity professionals Richard Alderman said that he assumed that those in the Private Equity industry have “a level of knowledge and due diligence that is very high because of the nature of what you do. You are, therefore, very well informed investors  with a high degree of knowledge of what happens in the companies you invest in. In any dealings we have with you on cases we are likely to start from that assumption.”

What Does The SEC FCPA Unit Chief Do? in the FCPA Professor

Given Cheryl Scarboro’s recently announced departure from the FCPA Unit Chief position (see here for the prior post), the SEC recently posted (here) the opening for the position. The “Major Duties” portion of the job posting is actually an interesting and informative read. Want proof that the SEC executes “targeted sweeps and sector-wide investigations.” It is in the job description.

These are some  compliance-related stories that caught my attention:

Still Writing, Regulators Delay Rules by Louise Story in the New York Times

Regulators overseeing financial reform are delaying many of the planned changes in the immense market for complex securities known as derivatives because they are running drastically behind schedule in writing their new rules.

The Road To Corruption by Richard E. Messick in The FCPA Blog

A new World Bank study on corruption in the roads sector shows the challenges contractors and engineering firms working in developing countries face when trying to avoid being drawn into schemes that violate the Foreign Corruption Practices Act or the anti-corruption laws of other nations or both.

What Codes of Conduct Should Really Achieve by Matt Kelly in Compliance Week‘s The Big Picture

If you’ve read any news coverage of Straus-Kahn and the IMF, you’ve already seen the startling fact that the IMF actually had two codes of conduct: one for senior executives, another for everyone else. The sheer stupidity of that should be self-evident to anyone who cares about corporate governance and conduct. It strikes anyone, even the rest of the world that doesn’t care about corporate compliance on a daily basis, as a double-standard that encourages all employees to ignore both codes.

The SEC Releases its 29th Annual Small Business Capital Formation Report in 100 F Street

Earlier today the Securities and Exchange Commission released its Final Report from the 29th Annual Forum on Small Business Capital Formation held in November 2010. This year’s forum yielded 36 recommendations from three working groups and a number of written recommendations submitted by organizations concerned with small business capital formation.

Here are some recent compliance-related stories that caught my eye.

Investment Advice from George Carlin by Kent Thune in The Big Picture

Try not to live in a hypothetical world.

“What if there were no hypothetical questions?” ~ George Carlin

Regulatory Delay Stokes Unease Over Dodd-Frank by Deborah Solomon and Victoria McGrane in the Wall Street Journal

Banks, investors and companies are scrambling to cope with uncertainty caused by regulators’ delays in fleshing out the Dodd-Frank financial-overhaul law, amid fears the holdup might disrupt the $583 trillion derivatives market and spark a wave of lawsuits. More than 100 new derivatives requirements in the law take effect on July 16, even though regulators have yet to issue final rules in the affected areas. The holdup raises concerns that a large swath of the financial system might be thrown into legal gray areas.

Lockheed Martin Gets Into Step With UK Bribery Act With New Policy by Samuel Rubenfeld in WSJ.com’s Corruption Currents

In one of the first examples of a multinational company publicly adapting its compliance procedures to the U.K. Bribery Act, Lockheed Martin Corp. said in a regulatory filing late Monday on behalf of a former subsidiary that it is changing its internal policy in light of the new law.

US Senators and Rep. Frank Urge SEC to Exclude Banks from Municipal Advisor Regulatory Regime in Jim Hamilton’s World of Securities Regulation

In the view of the Senators and Rep. Frank, this broad requirement would move the regulations beyond the intent of the legislative language and have the unintended consequence of subjecting many banks and bank personnel to onerous regulation regardless of whether they provide the type of advice that would warrant regulation under Dodd-Frank. Many banks provide a broad range of banking services to municipalities, they noted, including deposit, basic cash management, lockbox, and short-term lending services.

Here are some recent compliance-related stories that caught my attention:

Launching Into Unethical Behavior: Lessons from the Challenger Disaster by Ann E. Tenbrunsel and Max H. Bazerman in Freakonomics

On the night before the Challenger was set to launch, a group of NASA engineers and managers met with the shuttle contracting firm Morton Thiokol to discuss the safety of launching the shuttle given the low temperatures that were forecasted for the day of the launch. The engineers at Morton Thiokol noted problems with O-rings in 7 of the past 24 shuttle launches and noted a connection between low temperatures and O-ring problems. Based on this data, they recommended to their superiors and to NASA personnel that the shuttle should not be launched.

The Big Lesson From Compliance Week 2011 by Matt Kelly in Compliance Week

This year I can boil that lesson down to one telling insight, that sprang to mind thanks to two particular moments that happened during the conference: the superb keynote address given by U.S. Attorney Preet Bharara on Tuesday morning, and an outburst later that day from our first-ever Compliance Week protester.

“Profound personal integrity, repeatedly demonstrated and openly valued, is absolutely critical … The best-conceived compliance programs and practices and policies in the world will be too weak to stave off scandal if the core principles are not internalized, if there is not from the top a daily drumbeat for integrity.”

Hedge Fund Industry Asks for Global Regulatory Coordination as EU Implements Alternative Investment Fund Directive in Jim Hamilton’s World of Securities Regulation

During 2013 to 2015 there will be a passport for sales of EU alternative investment funds to investors within the EU. For US and other non-EU funds and managers, national private placement regimes will continue to operate. However, noted ESMA Chair Steven Maijoor, for these regimes to be used, appropriate co-operation arrangements will have to be put in place between the EU regulator concerned and the authority of the third country.

A Trader, an F.B.I. Witness, and Then a Suicide by Peter Lattman and William K. Rashbaum in the New York Times’ Dealbook

But the federal authorities’ techniques have rarely been seen on Wall Street before.

Late last year, F.B.I. agents conducted three simultaneous raids of large hedge funds. Two of those funds have since closed. And for the first time in an insider trading inquiry, the government has been using wiretaps — a method typically reserved for drug crimes and organized crime cases — to record the telephone conversations of Wall Street traders.

Be Careful Playing with Your New Things – Homeownership:

From XKCD

Here are some recent compliance related stories that caught my eye.

My Attorney Just Shattered My Crowdfunding Dreams by Christopher Hytry Derrington and Charles Hertlein in the Huffington Post

In February 2011, I announced on the Huffington Post that my company was going to try to raise investment capital via crowdfunding. Using online social networks, crowdfunding enables entrepreneurs to pitch their businesses to large pools of potential investors. But when I mentioned crowdfunding to my attorney, he said it would be virtually impossible for me to do because the SEC prohibits private business owners from soliciting funds from individual investors.

20 Questions Directors Should Ask about Compliance Committees by Tom Fox

What are some of the questions that the Board of Directors should be asking? We posit that a large public company should have Compliance Sub-Committee of Board members. We list 20 questions below which reflect the oversight role of directors which includes asking senior management and themselves. The questions are not intended to be an exact checklist, but rather a way to provide insight and stimulate discussion on the topic of compliance. The questions provide directors with a basis for critically assessing the answers they get and digging deeper as necessary.

California Extends IA Exemption for Hedge Fund Managers in Hedge Fund Law Blog

California currently has an exemption from the registration requirements for certain fund managers with more than $25M of AUM (Rule 260.204.9).  Back in March California requested input from the investment management community on how they might change the registration requirements when the SEC finalizes its IA registration rules as a result of the Dodd-Frank act.  At that time it was expected that the SEC would finalize its IA registration rules in time for managers to register before the July 21, 2011 registration deadline.  However, the SEC subsequently indicated that it would likely extend the registration deadline until the first quarter of 2012.  From this story by IA Watch, it looks like the Division of Investment Management is moving closer to officially moving the registration deadline to next year.

Whistleblower skirmish: Battling the SEC over how to rat out corp. fraud by Kaja Whitehouse in the New York Post

The US Chamber of Commerce is leading the fight for one side, demanding Schapiro force corporate whistleblowers to report wrongdoing first to executives at their workplace. In the opposite corner is a group of lawyers representing whistleblowers, who have formed the National Whistleblowers Center. They are demanding that Schapiro allow corporate whistleblowers to snitch wherever they feel is best — so they won’t be scared of reporting wrongdoing.

These are some compliance related stories that recently caught my attention.

Are Girl Scout Cookies Evil? by Chris MacDonald in the Business Ethics Blog

Well, apparently nothing is safe from criticism. Girl Guide cookies, as it turns out, are under attack for being made with palm oil, a tropical oil the production of which has been blamed for deforestation and for endangering the habitat of orangutans. Girl Scout cookies, in their current form, are apparently evil.

Division of Investment Management Requests Extensions of Deadlines for Mid-Sized Advisers and Private Fund Advisers in Compliance Avenue

IA Watch is reporting that the Division of Investment Management has formally requested that the Securities and Exchange Commission (SEC) move to next year the deadlines for mid-sized advisers (certain advisers with between $25 million and $100 million in assets under management) to switch to state registration and for private fund advisers with more than $150 million in assets under management to register with the SEC.  IA Watch states: “The formal request moves this closer to becoming reality, should the Commission act on it.”

Federal Court Rules that Private Invocation of Dodd-Frank Anti-Retaliation Whistleblower Section Requires Providing Information to SEC in Jim Hamilton’s World of Securities Regulation

In a case of first impression, a federal court ruled that the anti-retaliation whistleblower protection provisions of the Dodd-Frank Act require a prospective whistleblower to show that he either provided the information to the SEC, or that his disclosures fell specific categories listed in the whistleblower provisions. Further, even if the prospective whistleblower did not provide the information directly to the SEC, he could still be covered by Section 922 of Dodd-Frank if he gave information to outside counsel hired by the company’s independent directors to investigate the allegation and who he alleges reported it to the SEC. (Egan v. TradingScreen, Inc. et al., (SD NY), 10 Civ 8202 (LBS), May 4, 2011).

Treasury Clarifies FBAR Regulations for Private Investment Funds in the Harvard Law School Forum on Corporate Governance and Financial Regulation

On March 28, 2011, the Final Regulations, issued by the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“Treasury”) relating to the filing of Reports of Foreign Bank and Financial Accounts (“FBAR”) became effective. Notably, the Final Regulations do not require ownership interests in, or signing or other authority over, private investment funds, such as hedge funds and private equity funds, to be reported on FBARs, although Treasury will continue to study the issue. The Final Regulations apply to FBARs required to be filed by June 30, 2011 with respect to foreign financial accounts maintained in the calendar year 2010, and for all subsequent years.

The SEC Remains Behind the Times on Social Media by Bruce Carton in Securities Docket

The Securities and Exchange Commission continues to dip its toe into the social media waters, but it’s doing so in such a cautious, disjointed way that it undermines the usefulness of powerful online communication tools.

Here are some compliance-related stories that recently caught my eye:

Investing in an ethical corporate culture by Aarti Maharaj in Corporate Secretary

Companies are starting to distinguish between non-financial and financial risks in order to continue improving their overall governance and business structures. But non-financial risks, such as ethics, still don’t get the attention they deserve from industry experts. And this could have real – and financial – implications for your company.

Buffet, Sokol and Reporting to the SEC by Tom Fox

We certainly applaud the fact that Buffet timely notified the SEC. However, to publicly praise someone for conduct which may have violated securities law and led to that employee’s resignation and expect such praise to send a signal of reproach still leaves us, as it did initially with Andrew Ross Sorkin, “scratching my head about his reaction.”

Avon Probe Expands To Countries Beyond China by Joe Palazzolo in WSJ.com’s Corruption Currents

Avon Products Inc.’s probe into possible bribery of foreign officials has found evidence of improper payments to government officials in several countries beyond the probe’s original focus of China, The Wall Street Journal reported. The probe has uncovered millions of dollars of questionable payments to officials in Brazil, Mexico, Argentina, India and Japan that may have violated the Foreign Corrupt Practices Act, the Journal reported, citing a person familiar with the matter. The payments date back as far as 2004.

Russia Criminalizes Foreign Bribery by Joe Palazzolo in WSJ.com’s Corruption Currents

Russian President Dmitry Medvedev, who has made tamping down on corruption his signature issue, signed a bill on Wednesday outlawing foreign bribery and allowing prosecutors to seek large fines instead of prison sentences for graft. The law pushed Russia closer to accession to the Organization for Economic Cooperation’s anti-bribery convention, a key anti-corruption benchmark and a prerequisite for full membership to the OECD, which Russia has sought since 2009.

On a lighter note, Causation, Correlation and Your Dog from Doghouse Diaries