Topic will focus on the role of audit committees in tackling FCPA compliance
04 May 2010 – The chief executive of The Red Flag Group, a leading international compliance and corporate governance consultancy advising Fortune 500 companies, is set to speak at a US national conference on audit committee effectiveness to be held in Washington, DC.
Scott Lane, CEO of The Red Flag Group, is set to speak at the AICPA National Audit Committee Forum: Best Practices and Practical Applications organised by the American Institute of Certified Public Accountants. It will be held on July 29 and July 30. (http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/AuditAttest/PRDOVR~PC-NACF/PC-NACF.jsp)
At the conference, Mr Lane will be speaking about the role of a company’s audit committee in ensuring compliance with the US Foreign Corrupt Practices Act (FCPA). They include:
• What should a board be asking management to consider as part of FCPA compliance
• What should management be doing to update the board
• The steps an audit committee should take when considering the company’s FCPA compliance programme
• The importance of an audit committee managing FCPA and anti-bribery programmes internationally
• The need for directors to be appraised of the risks around FCPA and international corruption
• Why an audit committee needs to make sure audit programmes are in place and proactively searching for FCPA risks
• That the audit committee, chief compliance officer, general counsel, and internal audit department all understand their roles and responsibilities in the organisation
“The Obama administration, through the Department of Justice and the SEC, has made curtailing corruption one of its main focuses. The board or audit committee of any US company which has significant operations overseas, and which isn’t taking corruption as a top priority, is effectively putting themselves in the cross hairs. This crackdown has been exemplified by the recorded fines that have been meted out by US anti-corruption agencies over the past few years,” said Mr Lane.
“At the same time, the new Bribery Bill passed by the UK parliament will allow companies to significantly reduce their prosecution risk if they have adequate internal controls in place to prevent corruption. In light of these new developments, corporate boards of directors and audit committees have an obligation to make sure they are actively managing their FCPA and anti-bribery compliance programmes. To do otherwise is to invite heavy criminal fines of the scale that we have witnessed in the market in recent years, as well as reputational damage which will have an impact long after the financial penalties have been written off and forgotten,” he added.
Mr Lane is a compliance sector veteran with over 12 years of experience in providing advice in issues ranging from legal, internal audit, export control, to ethics and corporate governance. He has led corruption investigations in over ten countries, and has published more than 20 articles in leading Asian newspapers and journals. He has worked in senior director and general counsel capacities in various multinational corporations in Australia, UK, and in Hong Kong.
The forum will be attended by top compliance professionals from around the world, senior officials from various US regulatory departments – among them Robert Khuzami, the US Securities and Exchange Commission’s (SEC) director of enforcement, as well as CEOs, CFOs, and other senior executives from global multinational corporations.
Wednesday 5 May 2010
Monday 22 February 2010
Daimler settles US bribery charges for US$200 million
German car maker Daimler AG has agreed to pay US$200 million to resolve US allegations that it paid bribes to win overseas business contracts, according to a report by Bloomberg. As part of the deal, two of Daimler AG’s subsidiaries will also plead guilty to having paid bribes to foreign government officials.
Citing unnamed sources familiar with the deal, the report said that Daimler has agreed to the payment to settle a US Department of Justice (DoJ) probe on whether it had violated the Foreign Corrupt Practices Act (FCPA), as well as a civil probe by the Securities and Exchange Commission (SEC).
The deal has been submitted by government lawyers to a US district court judge for approval. A spokesperson for Daimler said: “We are in discussions with the DoJ and SEC regarding consensually resolving the agencies’ investigations. There can be no assurances about whether and when settlement with the DoJ and SEC will become final and effective.”
Both US agencies declined to comment.
According to the report, the probes centred on a whistle-blower claim by an auditor at the car-marker’s former DaimlerCrysler subsidiary. The auditor, David Bazzetta, claimed in 2004 that he was fired after he learnt that the car-maker had kept secret bank accounts to bribe foreign government officials, and complained to his superiors. Mr Bazzetta dropped his complaint in 2005 after his claim was settled, the report said.
Citing unnamed sources familiar with the deal, the report said that Daimler has agreed to the payment to settle a US Department of Justice (DoJ) probe on whether it had violated the Foreign Corrupt Practices Act (FCPA), as well as a civil probe by the Securities and Exchange Commission (SEC).
The deal has been submitted by government lawyers to a US district court judge for approval. A spokesperson for Daimler said: “We are in discussions with the DoJ and SEC regarding consensually resolving the agencies’ investigations. There can be no assurances about whether and when settlement with the DoJ and SEC will become final and effective.”
Both US agencies declined to comment.
According to the report, the probes centred on a whistle-blower claim by an auditor at the car-marker’s former DaimlerCrysler subsidiary. The auditor, David Bazzetta, claimed in 2004 that he was fired after he learnt that the car-maker had kept secret bank accounts to bribe foreign government officials, and complained to his superiors. Mr Bazzetta dropped his complaint in 2005 after his claim was settled, the report said.
Rio Tinto executives officially charged
China has officially charged four employees of Anglo-Australian mining giant Rio Tinto, who were arrested last year amid tense price negotiations with Chinese steel companies, with bribery and obtaining commercial secrets.
The four, including Australian citizen Stern Hu, were detained in July and officially arrested in August on suspicion that they had violated Chinese national security. According to a statement released by the Number 1 branch of the Shanghai People’s Procuratorate, the four are officially indicted on charges of “taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises.” The executives allegedly requested and accepted bribes from Chinese steel companies.
They are also accused of attempting to steal commercial secrets from Chinese steel companies by making “promises”, or through illegal means, according to the report which was published by the state-run news agency Xinhua.
The report added that the police had concluded its investigation and sent the case to prosecutors on January 11.
Last year’s arrests came as Rio Tinto was engaged in tense price negotiations with Chinese steel companies over the sale of iron ore. It also came in the heels of Rio Tinto’s rejection of a US$19.5 billion deal to buy an 18 per cent stake in the company by the Aluminium Corp of China. Because of the timing, there has been speculation that the case was politically motivated.
The Wall Street Journal has reported that the Australian government has confirmed the indictments, but added that a trial date has not be set.
The Journal also reported that the case came as many foreign companies have re-evaluated their China strategies – especially whether the benefits of doing business in the world’s fastest growing emerging market outweigh the risks. It cited a threat from internet search giant Google to leave the China market, over an alleged attempt to break into its email system that was traced back to China.
The report also said that at least two foreign mining companies are now asking for waivers prior to commencing commercial negotiations, to preclude their executives from being charged with criminal wrongdoing in the performance of their duties.
The four, including Australian citizen Stern Hu, were detained in July and officially arrested in August on suspicion that they had violated Chinese national security. According to a statement released by the Number 1 branch of the Shanghai People’s Procuratorate, the four are officially indicted on charges of “taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises.” The executives allegedly requested and accepted bribes from Chinese steel companies.
They are also accused of attempting to steal commercial secrets from Chinese steel companies by making “promises”, or through illegal means, according to the report which was published by the state-run news agency Xinhua.
The report added that the police had concluded its investigation and sent the case to prosecutors on January 11.
Last year’s arrests came as Rio Tinto was engaged in tense price negotiations with Chinese steel companies over the sale of iron ore. It also came in the heels of Rio Tinto’s rejection of a US$19.5 billion deal to buy an 18 per cent stake in the company by the Aluminium Corp of China. Because of the timing, there has been speculation that the case was politically motivated.
The Wall Street Journal has reported that the Australian government has confirmed the indictments, but added that a trial date has not be set.
The Journal also reported that the case came as many foreign companies have re-evaluated their China strategies – especially whether the benefits of doing business in the world’s fastest growing emerging market outweigh the risks. It cited a threat from internet search giant Google to leave the China market, over an alleged attempt to break into its email system that was traced back to China.
The report also said that at least two foreign mining companies are now asking for waivers prior to commencing commercial negotiations, to preclude their executives from being charged with criminal wrongdoing in the performance of their duties.
Hong Kong Police probes failed PCCW buyout
The Hong Kong Police is investigating the failed bid by tycoon Richard Li Tzar-kai to take city’s telecommunications provider PCCW private, a buyout that was dogged by allegations of vote-rigging in a shareholder ballot needed to approve the deal.
According to the Bloomberg report, which cited unnamed sources, the offices of at least one of Li’s companies were searched on February 10. They also searched the offices of Fortis Insurance (Asia), which was embroiled in the PCCW vote-rigging scandal last year. The report also said the police had search warrants for Li’s residences, without saying whether they were exercised.
Last year, the city’s securities market regulator, the Securities and Futures Commission, blocked a bid by Pacific Century Regional Development (PCRD), which was controlled by Li, to execute a HK$2.1 billion buyout of PCCW – a company on which Li also serves as chairman. This came amid allegations that hundreds of people, including employees at Fortis, were given shares in the telecoms giant in return for voting in favour of the deal. While the practice was technically legal, a Hong Kong court ruled that it undermined the spirit of the law, and amounted to manipulation. The deal was finally blocked.
The report said that no charges have yet been filed, and the investigation is on-going. Li has not been accused of any wrongdoing.
“We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible. We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing,” lawyer Martin Rogers, representing Li, told the wire service.
Fortis Asia confirmed it had received inquiries from the police earlier in the month, but declined to say whether they were related to Li or PCCW. PCCW, the SFC, as well as the police did not comment.
According to the Bloomberg report, which cited unnamed sources, the offices of at least one of Li’s companies were searched on February 10. They also searched the offices of Fortis Insurance (Asia), which was embroiled in the PCCW vote-rigging scandal last year. The report also said the police had search warrants for Li’s residences, without saying whether they were exercised.
Last year, the city’s securities market regulator, the Securities and Futures Commission, blocked a bid by Pacific Century Regional Development (PCRD), which was controlled by Li, to execute a HK$2.1 billion buyout of PCCW – a company on which Li also serves as chairman. This came amid allegations that hundreds of people, including employees at Fortis, were given shares in the telecoms giant in return for voting in favour of the deal. While the practice was technically legal, a Hong Kong court ruled that it undermined the spirit of the law, and amounted to manipulation. The deal was finally blocked.
The report said that no charges have yet been filed, and the investigation is on-going. Li has not been accused of any wrongdoing.
“We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible. We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing,” lawyer Martin Rogers, representing Li, told the wire service.
Fortis Asia confirmed it had received inquiries from the police earlier in the month, but declined to say whether they were related to Li or PCCW. PCCW, the SFC, as well as the police did not comment.
UBS loses trade secrets theft case
The US Financial Industry Regulatory Authority (FINRA) has ruled against UBS in its allegations that three of its former employees stole an algorithmic trading code used by the bank.
The arbitration case found in favour of the three employees – Jatin Suryawanshi, Partha Sarkar, and Sanjay Girdhar. According to the UBS complaint, they were accused of misappropriating trade secrets, breach of contract, breach of fiduciary duty, unfair competition and “other wrongdoing” while they were employed by UBS Securities.
They were accused of obtaining proprietary company information – in this case the source code for UBS’s algorithmic trading programmes. They were then planning to give the source code to their new employees at investment bank Jefferies & Co, according to the report which appeared in Securities Industry News.
Reports said that Sarkar had allegedly copied 25,000 lines of computer source code from UBS computers. This was roughly equal to the length of one algorithm, or parts of several. He then allegedly emailed this code to this personal email account. Suryawanshi was also accused of attempting to hide his colleague’s theft by deleting the records from a UBS computer.
The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS. Suryawanshi was accused of a breach of fiduciary duties by poaching the other two programmers to work for other investment bank. The three former UBS employees had denied the charges.
Citing an unnamed source, the report said that the ruling ends the dispute, with neither party seeking further action. All requests for injunctions or damages were rejected, and the arbitration fees will be split between UBS and the three former employees.
Of the three member arbitration panel, one member dissented the final decision but no further explanation was given, the report said.
“We are absolutely delighted to have this put behind them so that they, and Jefferies, can go forward,” said lawyer Lance Gotko, who represented the former UBS programmers.
FINRA said it does not comment on the results of its arbitration cases. UBS has also declined to comment.
The arbitration case found in favour of the three employees – Jatin Suryawanshi, Partha Sarkar, and Sanjay Girdhar. According to the UBS complaint, they were accused of misappropriating trade secrets, breach of contract, breach of fiduciary duty, unfair competition and “other wrongdoing” while they were employed by UBS Securities.
They were accused of obtaining proprietary company information – in this case the source code for UBS’s algorithmic trading programmes. They were then planning to give the source code to their new employees at investment bank Jefferies & Co, according to the report which appeared in Securities Industry News.
Reports said that Sarkar had allegedly copied 25,000 lines of computer source code from UBS computers. This was roughly equal to the length of one algorithm, or parts of several. He then allegedly emailed this code to this personal email account. Suryawanshi was also accused of attempting to hide his colleague’s theft by deleting the records from a UBS computer.
The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS. Suryawanshi was accused of a breach of fiduciary duties by poaching the other two programmers to work for other investment bank. The three former UBS employees had denied the charges.
Citing an unnamed source, the report said that the ruling ends the dispute, with neither party seeking further action. All requests for injunctions or damages were rejected, and the arbitration fees will be split between UBS and the three former employees.
Of the three member arbitration panel, one member dissented the final decision but no further explanation was given, the report said.
“We are absolutely delighted to have this put behind them so that they, and Jefferies, can go forward,” said lawyer Lance Gotko, who represented the former UBS programmers.
FINRA said it does not comment on the results of its arbitration cases. UBS has also declined to comment.
Sunday 7 February 2010
BAE’s US$450 million bribery settlement
British aerospace company BAE Systems has agreed to pay nearly US$450 million in fines to settle longstanding bribery allegations in the US and UK.
The US portion of the settlement, which has been hailed as an example of increasing willingness of US federal authorities to impose the country’s tight ethical standards on foreign defence contractors, includes a fine of US$400 million to settle a charge of conspiring to make false statements in connection with regulatory filings and undertaking – about whether the company had created an anti-corruption programme. BAE also agreed in its agreement with the US Department of Justice (DoJ) to strengthen its compliance programmes.
It will also pay a penalty of £30 million to settle a charge by the UK’s Serious Fraud Office (SFO) of breach of duty to keep accounting records in relations to payments made to a former consultant in Tanzania. Part of the UK fine will be made to an as-yet unnamed Tanzanian charitable foundation. The agreements also stipulate that BAE will plead guilty to both the US and UK charges. For the SFO, the case represents a victory of sorts. The agency in 2004 had initially launched an investigation into BAE’s alleged bribery payments in Saudi Arabia, a case that spilled over into Czech Republic, Romania, South Africa, and Tanzania. The case was then scuttled in 2006, causing widespread public criticism for the office.
Both settlements are in connection with allegations that the company made commission payments to a marketing consultant related to the sale of a radar system to Tanzania in 1999. BAE admitted that it failed to accurately record the payments in its accounting books, and that it failed to thoroughly examine the records to make sure they were reasonably accurate and permitted them to remain uncorrected.
Richard Alderman, director of the SFO, said in an interview with the Wall Street Journal: “The SFO has been totally vindicated.”
“This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation. I’d … like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards,” he said separately in a statement.
“These settlements enable the company to deal finally with significant legacy issues,” BAE chairman Dick Olver said in a statement. He added that the company has systematically enhanced its compliance policies and processes in recent years, and regretted and accepted full responsibility for its past failings.
The US portion of the settlement, which has been hailed as an example of increasing willingness of US federal authorities to impose the country’s tight ethical standards on foreign defence contractors, includes a fine of US$400 million to settle a charge of conspiring to make false statements in connection with regulatory filings and undertaking – about whether the company had created an anti-corruption programme. BAE also agreed in its agreement with the US Department of Justice (DoJ) to strengthen its compliance programmes.
It will also pay a penalty of £30 million to settle a charge by the UK’s Serious Fraud Office (SFO) of breach of duty to keep accounting records in relations to payments made to a former consultant in Tanzania. Part of the UK fine will be made to an as-yet unnamed Tanzanian charitable foundation. The agreements also stipulate that BAE will plead guilty to both the US and UK charges. For the SFO, the case represents a victory of sorts. The agency in 2004 had initially launched an investigation into BAE’s alleged bribery payments in Saudi Arabia, a case that spilled over into Czech Republic, Romania, South Africa, and Tanzania. The case was then scuttled in 2006, causing widespread public criticism for the office.
Both settlements are in connection with allegations that the company made commission payments to a marketing consultant related to the sale of a radar system to Tanzania in 1999. BAE admitted that it failed to accurately record the payments in its accounting books, and that it failed to thoroughly examine the records to make sure they were reasonably accurate and permitted them to remain uncorrected.
Richard Alderman, director of the SFO, said in an interview with the Wall Street Journal: “The SFO has been totally vindicated.”
“This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation. I’d … like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards,” he said separately in a statement.
“These settlements enable the company to deal finally with significant legacy issues,” BAE chairman Dick Olver said in a statement. He added that the company has systematically enhanced its compliance policies and processes in recent years, and regretted and accepted full responsibility for its past failings.
Board independence not translating into corporate governance
Just because a company has increased the formal side of the independence of its board of directors, does not actually mean that that it has improved its corporate governance standards, a recently-released study has warned.
Published in the February edition of the Academy of Management Journal, the study, conducted by researchers James Westphal and Melissa Graebner, noted that corporate CEOs are adopting tactics which give an impression of high board independence – something which is traditionally equated with good corporate governance practices in the financial community, the report said. However, this appearance of board independence was only superficial, and was being done to manipulate investment bank stock analysts into producing favourable reports of the company, they said.
Surveying 1,300 CEOs from large companies in the US, the report noted that while many companies appointed directors which had no formal ties to the company he is charged with monitoring, but in reality they are typically connected socially with its senior management – most notably the CEO. While this may give an appearance that the company’s board of directors had a high degree of independence from senior management, such a board may in actuality be influenced through the personal ties that its individual members have with the company’s CEO, the report said.
The latest research is part of series of studies conducted by the authors on impression management– which examines how companies manipulate outside impression of its management practices, without effecting actual change in the company itself. The study found that by engaging in activities that are typically pleasing to stock analysts, they increased the likelihood of a stock upgrade by 36 per cent, and reduced the likelihood of its downgrade by 45 per cent.
“Obviously, the CEOs were pushing the right ideological buttons,” noted the study’s authors, who also suggested that companies include information on the social relationships of board members to CEOs as part of standard information provided in basic company literature.
“If the CEO is a college classmate of a director or they worked together for the same firm or they are board members of the same organisation, these relationships are probably going to affect a company’s governance. Why should it be hard for stock analysts or investors or other interested parties to get access to that information? Certainly there is a case for transparency here,” they said.
Published in the February edition of the Academy of Management Journal, the study, conducted by researchers James Westphal and Melissa Graebner, noted that corporate CEOs are adopting tactics which give an impression of high board independence – something which is traditionally equated with good corporate governance practices in the financial community, the report said. However, this appearance of board independence was only superficial, and was being done to manipulate investment bank stock analysts into producing favourable reports of the company, they said.
Surveying 1,300 CEOs from large companies in the US, the report noted that while many companies appointed directors which had no formal ties to the company he is charged with monitoring, but in reality they are typically connected socially with its senior management – most notably the CEO. While this may give an appearance that the company’s board of directors had a high degree of independence from senior management, such a board may in actuality be influenced through the personal ties that its individual members have with the company’s CEO, the report said.
The latest research is part of series of studies conducted by the authors on impression management– which examines how companies manipulate outside impression of its management practices, without effecting actual change in the company itself. The study found that by engaging in activities that are typically pleasing to stock analysts, they increased the likelihood of a stock upgrade by 36 per cent, and reduced the likelihood of its downgrade by 45 per cent.
“Obviously, the CEOs were pushing the right ideological buttons,” noted the study’s authors, who also suggested that companies include information on the social relationships of board members to CEOs as part of standard information provided in basic company literature.
“If the CEO is a college classmate of a director or they worked together for the same firm or they are board members of the same organisation, these relationships are probably going to affect a company’s governance. Why should it be hard for stock analysts or investors or other interested parties to get access to that information? Certainly there is a case for transparency here,” they said.
Wednesday 3 February 2010
US businesses failing to make ethics disclosures
Companies are dodging ethics disclosures that were put in place to deal with the types of misconduct that brought about the downfall of energy giant Enron in 2001, according to the authors of a new study.
Conducted by University of Georgia law professor Usha Rodrigues and Texas Tech University professor Mike Stegemoller, the study examined the disclosure of related party transactions that are required under section 406 of the US Sarbanes-Oxley act, which requires public companies to disclose the code of ethics, or explain the lack of one. It also requires companies to reveal immediately whenever it grants a waiver of that code to its top three corporate officers.
The results of the study, which will be published in the March edition of Virginia Law Review, found that companies are either delaying such disclosures, or have failed to do so altogether, according to a report published in Compliance Week. What is more, the authors also found no evidence that the US Securities and Exchange Commission has ever sought to enforce non-compliance of the rule.
“Companies aren’t disclosing the information the way they’re supposed to. They are not labelling it correctly and they are delaying the disclosure,” Ms Rodrigues told the trade publication.
In conducting the study, the authors examined US corporate filings between 2003 and 2008. They found that during the entire period, there were only 36 instances where waivers for section 406 were filed with the SEC. The report noted that section 406 was drafted in reaction to the Enron accounting scandal of 2001, in which special purpose entities were used by senior corporate officers to keep debts off the energy giant’s balance sheet and off the public radar.
To mask their failure to make the required ethics waiver disclosures, the authors said one tactic adopted by companies is to make the disclosure for related party transactions in the annual proxy statement, which are filed separately, instead.
In other cases, companies have watered down their ethics codes so that they did not disallow the types of violations that led to section 406’s adoption. This meant they were able to minimise the need for disclosure.
The authors said they believe that one reason why companies have chosen to shy away from making the required disclosures is because they were unfamiliar in dealing with corporate codes of ethics, which have only been recently introduced to many organisations. They believe companies did not yet have a system in place to flag violations or waivers as they happen. Alternatively, they said other companies may have intentionally chosen to ignore the disclosure requirements because the SEC is unlikely to enforce it, the report said.
To address concerns, the authors suggest that the ethics waiver disclosure requirements be eliminated altogether. Instead, all public companies should require its CEO, CFO, or chief accounting officer to disclose related party transactions immediately, rather than in the annual 8-K filing, they argued.
Conducted by University of Georgia law professor Usha Rodrigues and Texas Tech University professor Mike Stegemoller, the study examined the disclosure of related party transactions that are required under section 406 of the US Sarbanes-Oxley act, which requires public companies to disclose the code of ethics, or explain the lack of one. It also requires companies to reveal immediately whenever it grants a waiver of that code to its top three corporate officers.
The results of the study, which will be published in the March edition of Virginia Law Review, found that companies are either delaying such disclosures, or have failed to do so altogether, according to a report published in Compliance Week. What is more, the authors also found no evidence that the US Securities and Exchange Commission has ever sought to enforce non-compliance of the rule.
“Companies aren’t disclosing the information the way they’re supposed to. They are not labelling it correctly and they are delaying the disclosure,” Ms Rodrigues told the trade publication.
In conducting the study, the authors examined US corporate filings between 2003 and 2008. They found that during the entire period, there were only 36 instances where waivers for section 406 were filed with the SEC. The report noted that section 406 was drafted in reaction to the Enron accounting scandal of 2001, in which special purpose entities were used by senior corporate officers to keep debts off the energy giant’s balance sheet and off the public radar.
To mask their failure to make the required ethics waiver disclosures, the authors said one tactic adopted by companies is to make the disclosure for related party transactions in the annual proxy statement, which are filed separately, instead.
In other cases, companies have watered down their ethics codes so that they did not disallow the types of violations that led to section 406’s adoption. This meant they were able to minimise the need for disclosure.
The authors said they believe that one reason why companies have chosen to shy away from making the required disclosures is because they were unfamiliar in dealing with corporate codes of ethics, which have only been recently introduced to many organisations. They believe companies did not yet have a system in place to flag violations or waivers as they happen. Alternatively, they said other companies may have intentionally chosen to ignore the disclosure requirements because the SEC is unlikely to enforce it, the report said.
To address concerns, the authors suggest that the ethics waiver disclosure requirements be eliminated altogether. Instead, all public companies should require its CEO, CFO, or chief accounting officer to disclose related party transactions immediately, rather than in the annual 8-K filing, they argued.
Companies with compliance programmes to get lighter sentences
Companies in the US which have implemented compliance programmes could see their penalties reduced if found guilty of white collar crime under a proposal being floated by the US Sentencing Commission.
The independent federal agency, which is charged with issuing guidelines to assist US judges during sentencing, has suggested that judges should take into consideration during sentencing whether companies have in place corporate compliance programmes designed to fight corruption, according to a report which appeared in the Wall Street Journal.
However, the proposal, which is being released by the commission as part of a public consultation exercise, will require that a company’s compliance officer to have direct access to its board of directors in order to qualify for the lenient treatment, the report said. The compliance officer must also be made responsible for detecting criminal activity in the organisation, and misconduct must be reported in a timely manner to the authorities.
If a company meets these requirements, it could qualify for lenient treatment even if its senior officers were involved in the misconduct, the report said.
William Sessions III, the agency’s chairman, said the idea behind the proposal is to foster direct communication between compliance officers and the corporate board of directors in companies, elevating the tackling of corruption and wrongdoing to the most senior levels of organisations.
He said it was designed to help companies obey the law, even if some of its corporate officers had not. “You are basically circumventing the people responsible for the illegal act,” he told the newspaper.
The proposal will now be discussed in a public hearing on March 18, with the commission expected to vote on it in April.
The independent federal agency, which is charged with issuing guidelines to assist US judges during sentencing, has suggested that judges should take into consideration during sentencing whether companies have in place corporate compliance programmes designed to fight corruption, according to a report which appeared in the Wall Street Journal.
However, the proposal, which is being released by the commission as part of a public consultation exercise, will require that a company’s compliance officer to have direct access to its board of directors in order to qualify for the lenient treatment, the report said. The compliance officer must also be made responsible for detecting criminal activity in the organisation, and misconduct must be reported in a timely manner to the authorities.
If a company meets these requirements, it could qualify for lenient treatment even if its senior officers were involved in the misconduct, the report said.
William Sessions III, the agency’s chairman, said the idea behind the proposal is to foster direct communication between compliance officers and the corporate board of directors in companies, elevating the tackling of corruption and wrongdoing to the most senior levels of organisations.
He said it was designed to help companies obey the law, even if some of its corporate officers had not. “You are basically circumventing the people responsible for the illegal act,” he told the newspaper.
The proposal will now be discussed in a public hearing on March 18, with the commission expected to vote on it in April.
Tuesday 26 January 2010
Chinese Corruption Crackdown Spreads; Companies with Business Relationships with Chinese Government Officials Need to be Increasingly Vigilant
[Press Release] HONG KONG, Jan. 24 /PRNewswire/ -- With the news that Chinese graft-busters have targeted officials in the Guangdong city of Maoming in their on-going anti-corruption drive, foreign businesses operating in China need to reassess their dealings with government officials to identify whether they have been involved in activities that could be perceived as bribery and put a stop to it, says The Red Flag Group.
In recent years, Chinese efforts to crackdown on corruption among government officials have mainly focused on the so-called first-tiered cities. This included the sentencing in 2008 of Chen Liangyu, Shanghai's former communist party chief, and the dismissal of XuZhongheng, a former major of Shenzhen, both for bribery.
However, in a sign that the crackdown is turning towards emerging tier two cities, Chinese language media have reported that officials in the city of Maoming are being investigated for corruption. They include Yang Guangliang, Maoming's vice-mayor, who was placed under detention by the Central Commission for Discipline Inspection last October. Also targeted was Cheng Bin, the police chief of Maoming Public Security Bureau, and Yang Qiang, director of Maoming's Maogang district police bureau.
This followed other tier two city officials who have been recently netted by Chinese graft-busters, such as Chen Xizhao, deputy chief of police in the Guangdong city of Lianjiang, who was fired after it was reported that he invited 1,000 guests to a Christmas party at his residence. Also, Ye Shuyang, a former police chief in the city of Shaoguan, was arrested in 2008 and is set to stand trial for accepting more than 30 million yuan in bribes over a period of 20 years.
"Whereas previously, China's anti-corruption drive have mainly been focused in the largest cities such as Guangzhou and Shenzhen, what we are seeing now is the effort moving towards normally less high profile places such as Maoming," said Scott Lane, Principal and CEO of The Red Flag Group.
"What this means is that now more than ever, companies not only need to proactively assess business they have done with Chinese officials in the past, but also with any officials with whom they have established any sort of relationship, regardless of whether money has ever changed hands," Lane said, adding that it was important to identify activities that may have supported bribery. Companies need to analyze the different transactions that have taken place, whether they are deals, the use of third parties, or giving gifts or lavish entertainment to officials.
"In a country where the provision of gifts and lavish meals is a routine part of the business dealings, companies more than ever need to make sure they can keep track of and maintain thorough records of all gifts, entertainment and travel it provides to business relationships. It is only then that managers can have the information they need to spot red flags early, and prevent activity from occurring that incurs the full wrath of Chinese fraud investigators," Lane added.
"A company's compliance personnel should be able to use software, such as our ComplianceDesktop Gift and Benefits Tool, to make queries. They should be able to type in the names of the officials, and see whether any gifts or entertainment had been provided to the said officials, along with details such as what they were, the cost, when it was given, and whether there were any special circumstances," he said.
Requiring installation of no new hardware or software, the tool, which is part of ComplianceDesktop's anti-corruption suite, adapts and automates a company's gifts and entertainment policy by allowing for automatic approval of certain expenses which meet pre-set criteria. If a situation arises in which employees need guidance on whether they can give a certain gift to a certain official, they can access the tool using a web-based interface or a web-enabled mobile phone. By answering a number of questions, the tool can calculate whether the gift can be given according to the company's policies, as well as any further rules or additional procedures that must be followed.
In addition, the tool also allows employees to provide detailed records whenever they are giving gifts, including details of the recipient such as their name, affiliation, and contact information. It also allows for the generation of customized reports to suit each individual company's needs.
"ComplianceDesktop's Gift and Benefits Tool is an inexpensive and powerful way to allow companies to keep track of all out-going gifts. This is especially so considering the enormous lost opportunity and real cost that companies can experience if they get caught by Chinese graft-buster for giving an official an appropriate gift, even if it was given with the most innocent of intentions," Lane said.
About The Red Flag Group
The Red Flag Group is one of the world's leading independent Corporate Governance and Compliance firms providing thought leadership around Compliance to Fortune 1000 companies. Our main goals include helping companies develop and maintain efficient and effective Governance and Compliance programs in the emerging markets. The firm consists of ex in-house counsel and compliance officers and have offices in the USA, Hong Kong, Sydney, Singapore, London, and Dubai. For more information, go to www.redflaggroup.com.
SOURCE The Red Flag Group
In recent years, Chinese efforts to crackdown on corruption among government officials have mainly focused on the so-called first-tiered cities. This included the sentencing in 2008 of Chen Liangyu, Shanghai's former communist party chief, and the dismissal of XuZhongheng, a former major of Shenzhen, both for bribery.
However, in a sign that the crackdown is turning towards emerging tier two cities, Chinese language media have reported that officials in the city of Maoming are being investigated for corruption. They include Yang Guangliang, Maoming's vice-mayor, who was placed under detention by the Central Commission for Discipline Inspection last October. Also targeted was Cheng Bin, the police chief of Maoming Public Security Bureau, and Yang Qiang, director of Maoming's Maogang district police bureau.
This followed other tier two city officials who have been recently netted by Chinese graft-busters, such as Chen Xizhao, deputy chief of police in the Guangdong city of Lianjiang, who was fired after it was reported that he invited 1,000 guests to a Christmas party at his residence. Also, Ye Shuyang, a former police chief in the city of Shaoguan, was arrested in 2008 and is set to stand trial for accepting more than 30 million yuan in bribes over a period of 20 years.
"Whereas previously, China's anti-corruption drive have mainly been focused in the largest cities such as Guangzhou and Shenzhen, what we are seeing now is the effort moving towards normally less high profile places such as Maoming," said Scott Lane, Principal and CEO of The Red Flag Group.
"What this means is that now more than ever, companies not only need to proactively assess business they have done with Chinese officials in the past, but also with any officials with whom they have established any sort of relationship, regardless of whether money has ever changed hands," Lane said, adding that it was important to identify activities that may have supported bribery. Companies need to analyze the different transactions that have taken place, whether they are deals, the use of third parties, or giving gifts or lavish entertainment to officials.
"In a country where the provision of gifts and lavish meals is a routine part of the business dealings, companies more than ever need to make sure they can keep track of and maintain thorough records of all gifts, entertainment and travel it provides to business relationships. It is only then that managers can have the information they need to spot red flags early, and prevent activity from occurring that incurs the full wrath of Chinese fraud investigators," Lane added.
"A company's compliance personnel should be able to use software, such as our ComplianceDesktop Gift and Benefits Tool, to make queries. They should be able to type in the names of the officials, and see whether any gifts or entertainment had been provided to the said officials, along with details such as what they were, the cost, when it was given, and whether there were any special circumstances," he said.
Requiring installation of no new hardware or software, the tool, which is part of ComplianceDesktop's anti-corruption suite, adapts and automates a company's gifts and entertainment policy by allowing for automatic approval of certain expenses which meet pre-set criteria. If a situation arises in which employees need guidance on whether they can give a certain gift to a certain official, they can access the tool using a web-based interface or a web-enabled mobile phone. By answering a number of questions, the tool can calculate whether the gift can be given according to the company's policies, as well as any further rules or additional procedures that must be followed.
In addition, the tool also allows employees to provide detailed records whenever they are giving gifts, including details of the recipient such as their name, affiliation, and contact information. It also allows for the generation of customized reports to suit each individual company's needs.
"ComplianceDesktop's Gift and Benefits Tool is an inexpensive and powerful way to allow companies to keep track of all out-going gifts. This is especially so considering the enormous lost opportunity and real cost that companies can experience if they get caught by Chinese graft-buster for giving an official an appropriate gift, even if it was given with the most innocent of intentions," Lane said.
About The Red Flag Group
The Red Flag Group is one of the world's leading independent Corporate Governance and Compliance firms providing thought leadership around Compliance to Fortune 1000 companies. Our main goals include helping companies develop and maintain efficient and effective Governance and Compliance programs in the emerging markets. The firm consists of ex in-house counsel and compliance officers and have offices in the USA, Hong Kong, Sydney, Singapore, London, and Dubai. For more information, go to www.redflaggroup.com.
SOURCE The Red Flag Group
Sunday 24 January 2010
Ex-Credit Suisse broker jailed for 5 years
A former broker at investment Credit Suisse has been jailed for five years for misleading his clients by telling them that nearly US$1 billion was being invested in US government backed student loans, when in fact were tied to more risky sub-prime mortgages.
Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.
According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.
This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.
As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007.
Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.
A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”
Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.
Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.
According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.
This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.
As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007.
Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.
A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”
Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.
DoJ nets largest number of individuals in record FCPA case
In what is to date the largest number of individuals netted in a single FCPA case, the US Department of Justice (DoJ) has arrested and charged 22 executives at military and law enforcement production companies with attempting to bribe foreign government officials to win business contracts.
The 22 executives, who hailed from different companies based in the US, UK, and Israel, were indicted at the conclusion of a joint undercover sting operation carried out in cooperation with the FBI. It marks the first time that the DoJ has made use of such a technique in going after US companies who bribe foreign officials, as well as being the largest single investigation and prosecution against individuals in the history of the department’s enforcement of the US Foreign Corrupt Practices Act (FCPA).
“This on-going investigation is the first large scale use of under-cover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the DoJ against individuals for FCPA violations. The fight to erase foreign bribery from the corporate play book will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Lanny Breuer, assistant attorney general of the DoJ’s criminal division.
According to the indictments, the accused allegedly engaged in schemes to pay bribes to the defence minister of an African nation. As part of the undercover operation, FBI agents posed as sales agents who were led to believe represented a minister of defence in a country in Africa. The executives are accused of allegedly agreeing to pay a 20 per cent commission to the sales agent, in what they believed would lead to the award of US$15 million contract to outfit the country’s presidential guard.
The accused executives, who are aged between 25 and 66 and hailed from a range of companies producing gear ranging from small arms, to ballistic vests and armoured vehicles, were told that half of this commission amount would be paid directly to the said defence minister. They also agreed to prepare price quotations in connection with the deal, one which represented the true cost of the contract, and another which included the extra 20 per cent kickback. The executives also allegedly agreed to do a small test deal to show the fictitious defence minister that he would receive the 10 per cent bribe.
They were arrested in Las Vegas and in Miami by FBI agents, and all were charged with conspiring to violate the FCPA, conspiring to engage in money laundering, and engaging in substantive violations of the FCPA. The indictments also sought to forfeit any illegal profits the company may have generate from bribery. If found guilty, the executives each face a maximum prison sentence of five years for both the conspiracy and FCPA counts, as well as 20 years for money laundering.
The 22 executives, who hailed from different companies based in the US, UK, and Israel, were indicted at the conclusion of a joint undercover sting operation carried out in cooperation with the FBI. It marks the first time that the DoJ has made use of such a technique in going after US companies who bribe foreign officials, as well as being the largest single investigation and prosecution against individuals in the history of the department’s enforcement of the US Foreign Corrupt Practices Act (FCPA).
“This on-going investigation is the first large scale use of under-cover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the DoJ against individuals for FCPA violations. The fight to erase foreign bribery from the corporate play book will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Lanny Breuer, assistant attorney general of the DoJ’s criminal division.
According to the indictments, the accused allegedly engaged in schemes to pay bribes to the defence minister of an African nation. As part of the undercover operation, FBI agents posed as sales agents who were led to believe represented a minister of defence in a country in Africa. The executives are accused of allegedly agreeing to pay a 20 per cent commission to the sales agent, in what they believed would lead to the award of US$15 million contract to outfit the country’s presidential guard.
The accused executives, who are aged between 25 and 66 and hailed from a range of companies producing gear ranging from small arms, to ballistic vests and armoured vehicles, were told that half of this commission amount would be paid directly to the said defence minister. They also agreed to prepare price quotations in connection with the deal, one which represented the true cost of the contract, and another which included the extra 20 per cent kickback. The executives also allegedly agreed to do a small test deal to show the fictitious defence minister that he would receive the 10 per cent bribe.
They were arrested in Las Vegas and in Miami by FBI agents, and all were charged with conspiring to violate the FCPA, conspiring to engage in money laundering, and engaging in substantive violations of the FCPA. The indictments also sought to forfeit any illegal profits the company may have generate from bribery. If found guilty, the executives each face a maximum prison sentence of five years for both the conspiracy and FCPA counts, as well as 20 years for money laundering.
Sunday 17 January 2010
Johnson & Johnson accused of paying kickbacks to raise drug sales
Drug company Johnson & Johnson has been accused of paying tens of millions of dollars in kickbacks to a US nursing home pharmacy company to increase sales of drugs to patients.
The US Department of Justice (DoJ) said between 1999 and 2004, the pharmaceutical giant illegally paid Kentucky-based Omnicare, the biggest pharmacy serving nursing homes in the US, to buy Johnson & Johnson drugs and to promote their use at nursing homes. The kickback were directed towards a number of the company’s products, including Propulsid, Levaquin, Procrit, Duragesic, and Ultram, but the biggest share of the payments revolved around Risperdal, which is prescribed to help control anxiety.
According to the report which appeared in the Wall Street Journal, it is common in the pharmaceutical industry for drug makers to pay rebates for drugs sold through middlemen, such as Omnicare, whose role it is to process prescriptions, distribute the drugs, and manage insurance coverage. The practice is not illegal. Instead, prosecutors are accusing Johnson & Johnson of hiding the rebates, partly by disguising them as payment for information that Omnicare usually provides for free to drug company clients.
The report said that intermediary companies such as Omnicare often wield strong influence in the drug making business, because they determine the brands of drugs prescribed to millions of patients in the US.
The 34-page complaint cites evidence such as admission in internal presentations by Johnson & Johnson executives of the pivotal role played by Omnicare in product selection by nursing home patients. In one email, the company calculated that US$3 million in rebates would result in US$9 million in sales, with a net return of US$4.8 million. In 2000, the two companies entered into a four-year agreement, involving a payment of US$4.65 million to Omnicare, in return for the pharmacy company making an effort to persuade patients to switch to Johnson & Johnson products.
The complaint also alleges that Johnson & Johnson sponsored Omnicare’s annual national managers meeting at a Florida resort. Between 1999 and 2004, the drug company paid US$50,000 for the sponsorship each year, and in return its sales managers were able to rub shoulders with Omnicare managers, and persuade them to buy more of the company’s drugs. The report goes on to say that the DoJ complaint was brought about by two whistle-blowers who were former employees at Omnicare.
Johnson & Johnson, which is based in New Jersey, has responded by saying that its acts were “lawful and appropriate”, and that the company is looking forward to defending against the claims in court. The company did not elaborate further.
The US Department of Justice (DoJ) said between 1999 and 2004, the pharmaceutical giant illegally paid Kentucky-based Omnicare, the biggest pharmacy serving nursing homes in the US, to buy Johnson & Johnson drugs and to promote their use at nursing homes. The kickback were directed towards a number of the company’s products, including Propulsid, Levaquin, Procrit, Duragesic, and Ultram, but the biggest share of the payments revolved around Risperdal, which is prescribed to help control anxiety.
According to the report which appeared in the Wall Street Journal, it is common in the pharmaceutical industry for drug makers to pay rebates for drugs sold through middlemen, such as Omnicare, whose role it is to process prescriptions, distribute the drugs, and manage insurance coverage. The practice is not illegal. Instead, prosecutors are accusing Johnson & Johnson of hiding the rebates, partly by disguising them as payment for information that Omnicare usually provides for free to drug company clients.
The report said that intermediary companies such as Omnicare often wield strong influence in the drug making business, because they determine the brands of drugs prescribed to millions of patients in the US.
The 34-page complaint cites evidence such as admission in internal presentations by Johnson & Johnson executives of the pivotal role played by Omnicare in product selection by nursing home patients. In one email, the company calculated that US$3 million in rebates would result in US$9 million in sales, with a net return of US$4.8 million. In 2000, the two companies entered into a four-year agreement, involving a payment of US$4.65 million to Omnicare, in return for the pharmacy company making an effort to persuade patients to switch to Johnson & Johnson products.
The complaint also alleges that Johnson & Johnson sponsored Omnicare’s annual national managers meeting at a Florida resort. Between 1999 and 2004, the drug company paid US$50,000 for the sponsorship each year, and in return its sales managers were able to rub shoulders with Omnicare managers, and persuade them to buy more of the company’s drugs. The report goes on to say that the DoJ complaint was brought about by two whistle-blowers who were former employees at Omnicare.
Johnson & Johnson, which is based in New Jersey, has responded by saying that its acts were “lawful and appropriate”, and that the company is looking forward to defending against the claims in court. The company did not elaborate further.
SEC names unit heads, new enforcement measures
The US Securities and Exchange Commission (SEC) has named the heads of the five specialist investigation units and its market investigation unit – which were created last year, as it continued what it described as its biggest shake-up since its establishment in 1972.
Concurrently, SEC Enforcement Division director Robert Khuzami also announced new measures and tools designed to help the beleaguered agency, which has been criticised for missing massive fraud such as that perpetrated by Wall Street swindler Bernard Madoff, ferret out white collar crime earlier.
The appointments announced by the SEC include Thomas Sporkin, former deputy chief at the SEC’s Office of Internet Enforcement, who will take over the new Office of Market Intelligence. Bruce Karpati, founder and head of the commission’s Hedge Fund Working Group, and Robert Kaplan, previously an SEC enforcement division assistant director, will take charge of a unit focused on asset management.
A unit looking into large scale market abuses and manipulation will be led by Daniel Hawke, who was director of SEC’s Philadelphia office. Structured and new products will be overseen by Kenneth Lench, also formerly an assistant director at the SEC’s enforcement division. Cheryl Scarboro, previously an associate director in the SEC’s enforcement division, will head the unit focusing on violations of the Foreign Corrupt Practices Act, while Elaine Greenberg, former the associate regional director of the SEC’s Philadelphia regional office, will take up leadership of the unit scrutinising municipal securities and public pensions.
“These specialised units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed and an increased in expertise throughout the division. By making connections between similar tips from different outside sources, our new Office of Market Intelligence will enable the division to better focus resources on those tips and referrals with the greatest potential for uncovering wrongdoing,” Mr Khuzami said.
Mr Khuzami also announced the agency will now authorise staff to use tools, inspired by those used by the Department of Justice and which were previously unavailable to them, in eliciting cooperation from companies and individuals during investigations.
They include cooperation agreements, which recommend the bestowal of credit for cooperation in investigations where substantial assistance has been rendered, and deferred prosecution agreements, where the agency agrees to forego for a limited period, any enforcement act provided the other party agrees to cooperate fully in an investigation and to comply with conditions either prohibiting or requiring certain actions.
Finally, SEC enforcement staff will be allowed to use non-prosecution agreements, in which the commission would agree to not prosecute an offender provided that they provide cooperation.
Mr Khuzami also said the SEC has also streamlined the process for submitting witness immunity requests to the Justice Department, as well as set out clearer guidelines on how it evaluates the cooperation provided by companies and individuals during enforcement investigations.
Concurrently, SEC Enforcement Division director Robert Khuzami also announced new measures and tools designed to help the beleaguered agency, which has been criticised for missing massive fraud such as that perpetrated by Wall Street swindler Bernard Madoff, ferret out white collar crime earlier.
The appointments announced by the SEC include Thomas Sporkin, former deputy chief at the SEC’s Office of Internet Enforcement, who will take over the new Office of Market Intelligence. Bruce Karpati, founder and head of the commission’s Hedge Fund Working Group, and Robert Kaplan, previously an SEC enforcement division assistant director, will take charge of a unit focused on asset management.
A unit looking into large scale market abuses and manipulation will be led by Daniel Hawke, who was director of SEC’s Philadelphia office. Structured and new products will be overseen by Kenneth Lench, also formerly an assistant director at the SEC’s enforcement division. Cheryl Scarboro, previously an associate director in the SEC’s enforcement division, will head the unit focusing on violations of the Foreign Corrupt Practices Act, while Elaine Greenberg, former the associate regional director of the SEC’s Philadelphia regional office, will take up leadership of the unit scrutinising municipal securities and public pensions.
“These specialised units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed and an increased in expertise throughout the division. By making connections between similar tips from different outside sources, our new Office of Market Intelligence will enable the division to better focus resources on those tips and referrals with the greatest potential for uncovering wrongdoing,” Mr Khuzami said.
Mr Khuzami also announced the agency will now authorise staff to use tools, inspired by those used by the Department of Justice and which were previously unavailable to them, in eliciting cooperation from companies and individuals during investigations.
They include cooperation agreements, which recommend the bestowal of credit for cooperation in investigations where substantial assistance has been rendered, and deferred prosecution agreements, where the agency agrees to forego for a limited period, any enforcement act provided the other party agrees to cooperate fully in an investigation and to comply with conditions either prohibiting or requiring certain actions.
Finally, SEC enforcement staff will be allowed to use non-prosecution agreements, in which the commission would agree to not prosecute an offender provided that they provide cooperation.
Mr Khuzami also said the SEC has also streamlined the process for submitting witness immunity requests to the Justice Department, as well as set out clearer guidelines on how it evaluates the cooperation provided by companies and individuals during enforcement investigations.
Monday 11 January 2010
Corruption in UK set to rise in 2010
Corruption and bribery cases in the UK reached record-highs in 2009, and this trend is expected to continue, according to accounting firm KPMG.
Initial figures from the firm’s annual Fraud Barometer, which has been published for 21 years consecutively, show a fraud rate in the first six months of 2009 that was the highest in the report’s history, according to London newspaper The Guardian.
In all, there were 160 cases of serious fraud in the UK, costing £636 million.
Hitesh Patel, a partner at KPMG Forensic, said the near-record rate of fraud continued into the second half of 2009, and is expected to stay high in the next 12 months.
He said: “Overall, I would expect incidents of fraud to increase and the picture is likely to get worse before it gets better. The question is how big will the fraud spike be?” Mr Patel added that fraud has a so-called “long-tail”, which means it usually takes several years before fraud is detected, investigated, and brought to court – if ever. This means that the full impact of the credit crunch and the ensuing global financial crisis on fraud will continue to be felt in the years ahead.
“As companies look to increase top-line growth and reduce operational costs in the current stressed economic environment, supply chain and accounting related frauds are likely to be an issue in 2010. The drive to secure new business means that bribery and corruption offenses by employees may become an issue for companies,” Mr Patel said.
He added that this will become more important as the UK implements a draft bribery bill, which potentially makes companies liable if they are found to be negligent in preventing bribery and corruption. The bill is expected to become law in the UK before the end of the year.
The firm’s barometer tracks fraud cases with charges in excess of £100,000.
Initial figures from the firm’s annual Fraud Barometer, which has been published for 21 years consecutively, show a fraud rate in the first six months of 2009 that was the highest in the report’s history, according to London newspaper The Guardian.
In all, there were 160 cases of serious fraud in the UK, costing £636 million.
Hitesh Patel, a partner at KPMG Forensic, said the near-record rate of fraud continued into the second half of 2009, and is expected to stay high in the next 12 months.
He said: “Overall, I would expect incidents of fraud to increase and the picture is likely to get worse before it gets better. The question is how big will the fraud spike be?” Mr Patel added that fraud has a so-called “long-tail”, which means it usually takes several years before fraud is detected, investigated, and brought to court – if ever. This means that the full impact of the credit crunch and the ensuing global financial crisis on fraud will continue to be felt in the years ahead.
“As companies look to increase top-line growth and reduce operational costs in the current stressed economic environment, supply chain and accounting related frauds are likely to be an issue in 2010. The drive to secure new business means that bribery and corruption offenses by employees may become an issue for companies,” Mr Patel said.
He added that this will become more important as the UK implements a draft bribery bill, which potentially makes companies liable if they are found to be negligent in preventing bribery and corruption. The bill is expected to become law in the UK before the end of the year.
The firm’s barometer tracks fraud cases with charges in excess of £100,000.
Chinese corporate governance crusader fired for fraud
Hong Kong-listed China Mobile, the world’s largest mobile phone company, has dismissed vice chairman Zhang Chunjiang amid allegations of “serious financial irregularities”.
Mr Zhang, who according to a Financial Times report was a leading proponent for increased accountability for boards of directors and senior managers at state-owned enterprises (SOE), has also been removed as communist party secretary and vice-president at the mobile phone company’s main subsidiary in China.
Reports quoting the Chinese-language Caijing Magazine allege that Mr Zhang is suspected of hiding losses at a previous company. He is alleged to have concealed losses at China Netcom, another telecoms provider, ahead of its merger with China Unicom in 2008.
The FT report says that Mr Zhang is particularly noted for his efforts to improve corporate governance at SOEs by balancing the interests of the Chinese Communist Party, with those of minority shareholders.
According to the China Daily, Chinese officials have recently pledged to target corruption by high-ranking executives at state-owned enterprises, after a string of corruption scandals involving senior SOE executives last year.
They included Kang Rixin, former general manager of China National Nuclear Corporation, who has been under investigation for “grave discipline violations” since August. In July, Chen Tonghai, a former chairman of Sinopec, was sentenced to death for taking almost 200 million yuan in bribes.
“We will push ahead with investigations and try to curb corruption in SOEs in restructuring, mergers, and acquisitions, property transactions and construction projects,” said Qu Wanxiang, a vice-minister of supervision. The report said that Chinese graft-busters will focus on senior-ranking executives, and will seek to mete out severe penalties for bribery, and for setting up slush funds that are off the books.
The report also said that the Chinese government has been seeking to improve corporate management at SOEs. It quoted Lin Yueqin, an economist at the Chinese Academy of Social Sciences, as saying that this effort was hampered by a system whereby SOE executives are appointed by central authorities. This gives way to abuses of power, because corporate boards of directors often do not have the authority to properly supervise the appointed executives, he said.
Mr Zhang, who according to a Financial Times report was a leading proponent for increased accountability for boards of directors and senior managers at state-owned enterprises (SOE), has also been removed as communist party secretary and vice-president at the mobile phone company’s main subsidiary in China.
Reports quoting the Chinese-language Caijing Magazine allege that Mr Zhang is suspected of hiding losses at a previous company. He is alleged to have concealed losses at China Netcom, another telecoms provider, ahead of its merger with China Unicom in 2008.
The FT report says that Mr Zhang is particularly noted for his efforts to improve corporate governance at SOEs by balancing the interests of the Chinese Communist Party, with those of minority shareholders.
According to the China Daily, Chinese officials have recently pledged to target corruption by high-ranking executives at state-owned enterprises, after a string of corruption scandals involving senior SOE executives last year.
They included Kang Rixin, former general manager of China National Nuclear Corporation, who has been under investigation for “grave discipline violations” since August. In July, Chen Tonghai, a former chairman of Sinopec, was sentenced to death for taking almost 200 million yuan in bribes.
“We will push ahead with investigations and try to curb corruption in SOEs in restructuring, mergers, and acquisitions, property transactions and construction projects,” said Qu Wanxiang, a vice-minister of supervision. The report said that Chinese graft-busters will focus on senior-ranking executives, and will seek to mete out severe penalties for bribery, and for setting up slush funds that are off the books.
The report also said that the Chinese government has been seeking to improve corporate management at SOEs. It quoted Lin Yueqin, an economist at the Chinese Academy of Social Sciences, as saying that this effort was hampered by a system whereby SOE executives are appointed by central authorities. This gives way to abuses of power, because corporate boards of directors often do not have the authority to properly supervise the appointed executives, he said.
Sunday 3 January 2010
UTStarcom settles Chinese bribery claims for US$3m
US-based network equipment maker UTStarcom has been fined US$3 million for bribing employees at state-owned telecommunications firms in China.
The fine includes payments of US$1.5 million each to the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). According to a complaint filed by the SEC, a wholly-owned Chinese subsidiary of UTStarcom paid close to US$7 million between 2002 and 2007 for hundreds of trips for employees of state-owned telecommunications companies in China who were UTStarcom’s customers.
The trips, which included popular US tourist destinations such as Hawaii, Las Vegas, and New York, were supposedly for training purposes, and were recorded as such in UTStarcom’s financial accounts, according to the DoJ. However, the company did not have any facilities in the said locations, and conducted no training. The true purpose of these trips, according to the agencies, was sightseeing, and for UTStarcom to obtain and keep lucrative supply contracts.
The SEC has also alleged that UTStarcom gave lavish gifts and all-expenses paid executive training trips in the US for existing and potential customers in China and Thailand. The company also hired, and provided them with work visas, individuals who were affiliated with foreign state-own companies that were customers. In reality, the individuals did no work for UTStarcom. The California-based company also made improper payments to sham consultants in China and Mongolia, with the knowledge that funds would eventually be used to bribe foreign government officials.
“UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia. It is important for corporate America to recognise that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under US law,” said Marc Fagel, director of the SEC’s San Francisco office.
As part of an agreement, which did not require the company to admit or deny the wrongdoings, UTStarcom will also be required to implement stronger internal controls, and will be required to make annual FCPA (Foreign Corrupt Practices Act) compliance reports to the SEC. The DoJ said it has taken into account the fact that UTStarcom internally investigated and then self-disclosed the violation, cooperated with a probe by the department, and undertook remedial actions. Because of this, the agency said it will not prosecute the company or its subsidiaries for making the improper payments, provided it continues to satisfy the terms of the agreement.
The fine includes payments of US$1.5 million each to the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). According to a complaint filed by the SEC, a wholly-owned Chinese subsidiary of UTStarcom paid close to US$7 million between 2002 and 2007 for hundreds of trips for employees of state-owned telecommunications companies in China who were UTStarcom’s customers.
The trips, which included popular US tourist destinations such as Hawaii, Las Vegas, and New York, were supposedly for training purposes, and were recorded as such in UTStarcom’s financial accounts, according to the DoJ. However, the company did not have any facilities in the said locations, and conducted no training. The true purpose of these trips, according to the agencies, was sightseeing, and for UTStarcom to obtain and keep lucrative supply contracts.
The SEC has also alleged that UTStarcom gave lavish gifts and all-expenses paid executive training trips in the US for existing and potential customers in China and Thailand. The company also hired, and provided them with work visas, individuals who were affiliated with foreign state-own companies that were customers. In reality, the individuals did no work for UTStarcom. The California-based company also made improper payments to sham consultants in China and Mongolia, with the knowledge that funds would eventually be used to bribe foreign government officials.
“UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia. It is important for corporate America to recognise that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under US law,” said Marc Fagel, director of the SEC’s San Francisco office.
As part of an agreement, which did not require the company to admit or deny the wrongdoings, UTStarcom will also be required to implement stronger internal controls, and will be required to make annual FCPA (Foreign Corrupt Practices Act) compliance reports to the SEC. The DoJ said it has taken into account the fact that UTStarcom internally investigated and then self-disclosed the violation, cooperated with a probe by the department, and undertook remedial actions. Because of this, the agency said it will not prosecute the company or its subsidiaries for making the improper payments, provided it continues to satisfy the terms of the agreement.
Billions went missing in China in 2009
Chinese officials embezzled away more than US$34 billion in government funds in the first 11 months of 2009, according to figures released country’s National Audit Office.
Covered 99,000 companies, government bodies, and public institutions in China, the office found that 234.7 billion yuan (around US$34.4 billion) were misused by government officials from January to November. So far, around 16.3 billion yuan have been recovered, according to a report which appeared in China Daily.
More than 230 people, including 67 government officials, have been handed over to disciplinary authorities as a result of the investigation, according to the report.
The investigation interviewed more than 20,000 government officials – including provincial-level cadres, and heads of large state-owned companies, and 55 Chinese central government departments.
According to the report, the National Audit Office’s director Liu Jiayi said that there have been improvements in the fight against corruption in China. However, embezzlement, waste of money, and false fiscal reporting still existed in many central government departments, he added.
“Criminals are now more intelligent, and covert,” said Mr Liu, according to the New York Times. The office said that money was being lost through money laundering, and the issuance of fraudulent loans. In some cases the government was being cheated through the sale or purchase of land or mining rights.
Chinese Premier Wen Jiabao, who was attending the national auditing conference where results of the investigation were announced, has urged the agency to remain vigilant in monitoring public investment projects – an area which has been traditionally prone to embezzlement and waste.
Covered 99,000 companies, government bodies, and public institutions in China, the office found that 234.7 billion yuan (around US$34.4 billion) were misused by government officials from January to November. So far, around 16.3 billion yuan have been recovered, according to a report which appeared in China Daily.
More than 230 people, including 67 government officials, have been handed over to disciplinary authorities as a result of the investigation, according to the report.
The investigation interviewed more than 20,000 government officials – including provincial-level cadres, and heads of large state-owned companies, and 55 Chinese central government departments.
According to the report, the National Audit Office’s director Liu Jiayi said that there have been improvements in the fight against corruption in China. However, embezzlement, waste of money, and false fiscal reporting still existed in many central government departments, he added.
“Criminals are now more intelligent, and covert,” said Mr Liu, according to the New York Times. The office said that money was being lost through money laundering, and the issuance of fraudulent loans. In some cases the government was being cheated through the sale or purchase of land or mining rights.
Chinese Premier Wen Jiabao, who was attending the national auditing conference where results of the investigation were announced, has urged the agency to remain vigilant in monitoring public investment projects – an area which has been traditionally prone to embezzlement and waste.
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