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Day 13 of 31 Days to More Effective Compliance Program-The Fair Process Doctrine

FCPA Compliance & Ethics -

The Fair Process Doctrine is a key component of any best practices compliance program. In the Department of Justice’s Evaluation of Corporate Compliance Programs, Prong 8 Incentive and Disciplinary Measures it states: Incentive System – Consistent Application – Have the disciplinary actions and incentives been fairly and consistently applied across the organization? In the FCPA Corporate Enforcement [...]

The post Day 13 of 31 Days to More Effective Compliance Program-The Fair Process Doctrine appeared first on Compliance Report.

Remarks at the Inaugural Meeting of the Fixed Income Market Structure Advisory Committee

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on Saturday, January 13, 2018 Editor's Note: Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent public statement. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

I am delighted to welcome all of you to the inaugural meeting of the Fixed Income Market Structure Advisory Committee, or “FIMSAC” as many of us like to call it. This is a significant day for the Commission. There are a few matters of importance to discuss, and I will try to be efficient, as I know we are all eager to kick off today’s [January 11, 2018] discussion on bond market liquidity. [1]

To start, I would like to extend a warm welcome to our two new Commissioners, Robert Jackson and Hester Peirce. With Commissioners Stein and Piwowar, we have benefited from intellect, experience, perspective and energy, as well as ongoing commitment to our mission. My interactions with Rob and Hester have made it clear that we will have more of these important attributes.


Paying for Performance in Private Equity: Evidence from VC Partnerships

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by David T. Robinson (Duke University), on Saturday, January 13, 2018 Editor's Note: David T. Robinson is the J. Rex Distinguished Professor at Duke University Fuqua School of Business. This post is based on a recent paper by Professor Robinson; Niklas Hüther, Assistant Professor at Indiana University Kelley School of Business; Thomas Hartmann-Wendels, Professor at the University of Cologne; and Soenke Sievers, Professor at Paderborn University. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here).

Limited partner agreements in private equity typically focus on three elements of compensation: Management fees, carried interest, and the timing provisions that govern when general partners receive carried interest. By now, the standard conventions in most Limited Partnership Agreements (LPAs) are well understood by most observers and students of the industry—most investment managers (general partners, or GPs) charge 1.5% to 2.5% management fees to their investors (the limited partners, or LPs), and take a 20% carried interest in the net return in the exited investments, resulting in the “2 and 20” compensation structure that is commonplace in private equity.


Janet Kennedy on US Embassy Economic Officers [Podcast]

The Compliance & Ethics Blog -

By Adam Turteltaub Typically, when compliance professionals interact with members of the US Government it is in an enforcement context. Not all parts of the government, though, serve that role.  When putting together the SCCE regional compliance meeting in Sarajevo in October, we contacted the local embassy for help, which they were more than […]

NWC Executive Director Stephen Kohn Featured in Washington Post Video

Whistleblower Protection Blog -

The release of the Steven Spielberg film The Post (starring Tom Hanks and Meryl Streep) has prompted a new upsurge in interest about whistleblowers. In 1971, Daniel Ellsberg released the Pentagon Papers to the New York Times, Washington Post and other newspapers which published the shocking revelations of how the American people had been lied to about the Vietnam War for decades.

In an interview with the Washington Post, Stephen Kohn, executive director of the National Whistleblower Center, explains how whistleblowing is a fundamentally American creed. The country’s original whistleblower law dates to the founding fathers and whistleblower protections can be found in three places in the First Amendment: the freedom of speech (so whistleblowers can inform about misconduct), the freedom of the press (so whistleblowers can get their message to the public), and the ability to petition the government for redress (so whistleblowers can seek institutional change).  The release of the Pentagon Papers and the Courts’ subsequent protection of Ellsberg and the press reaffirmed these core American values.

Watch the video here: What is a whistleblower: How to be a journalist

* * *

Stephen M. Kohn, is an partner in the Washington, D.C. based law firm of Kohn, Kohn & Colapinto and the author of The New Whistleblower’s Handbook. Mr. Kohn created a special online resource for each of the rules contained in the book to be used as a tool for his readers: 30 Rules and Resources for Whistleblowers.

Breaking News in the Industry: January 12, 2018

Loss Prevention Media -

Police arrest man accused of pointing gun at LP associates

A man accused of pointing a gun at loss prevention officers in a Kohl’s store on Monday was arrested Wednesday. Tulsa Police detectives said Christopher Casto, 32, was taken into custody and booked into the Tulsa Jail. Police said Casto was detained Monday by company officers at the store near 71st Street and Garnett Road on allegations that he was trying to steal a speaker. When they took him to an office, he pulled a gun, pointed it at the employees and fled, police said. A search of Casto’s vehicle revealed a small-caliber silver semi-automatic pistol that matched the description of the gun pointed at the employees, police reported. Casto was booked into the Tulsa Jail about 4:20 p.m. Wednesday. His bail was set at $44,000. [Source: Tulsa World]

Suspended 4-star offensive lineman withdrawing from Florida

Offensive lineman Kadeem Telfort, one of nine Florida players suspended last summer for their involvement in credit card fraud, is withdrawing from the university, his mother confirmed. Telfort, a 4-star offensive tackle in the 2017 recruiting class, was an early enrollee last year and went through spring practice for the Gators before being suspended in August. “At this time, Kadeem is withdrawing from the University of Florida,” his mother Gerta Telfort said in a text message. “Kadeem and I will not be making any further comments until we deem it appropriate. Thank you for understanding.” Telfort’s mother did not say where he might be looking to transfer to continue his college football career. Seven of the nine Gators players facing recommended third-degree felony charges from the University of Florida Police Department for using stolen credit card information to make unauthorized purchases were offered pre-trial interventions that essentially amount to probation. If those players meet the requirements laid out by the State Attorney’s Office, the recommended felony charges would be dismissed. Telfort and defensive lineman Jordan Smith were not among that group as they faced too many recommended charges  — up to 30 in Telfort’s case for 13 counts of use of another person’s credit card without consent, 12 counts of fraud-illegal use of credit card, four counts of possession of a forged instrument and one count for fraud/obtaining property for under $20,000.  [Source: Statesman]

Deputies recover $10K in stolen items while investigating fraud

The Montgomery County Sheriff’s Office in Tennessee said deputies recovered a slew of items totally $10,000 while investigating credit card fraud. Detectives found the suspects were using a reshipping scam to move the stolen goods. The MCSO said the criminals would purchase the items with a stolen credit card and ship them to a third party, who would then reship them to a foreign address. Many times, the third part is unaware they are involved in a scheme, according to the MSCO. The MCSO said two common reshipping scams are work-at-home and sweetheart scams. In a sweetheart scam, criminals lurk on dating websites or social media to chat with people. Once they do, the criminal will ask them to help their business or family by shipping packages to foreign country or claim to be with a charity or mission and need help in delivering “donated” items to another part of the world. In a work-at-home scam criminals post job openings online offering work-at-home positions such as “merchandising manager” or “package processing assistant.” Responsibilities include receiving packages and mailing them to a foreign address on behalf of a client, using postage-paid mailing labels provided via email. Officers said prosecuting these kinds of crimes if difficult. “Prosecution in reshipping scams is problematic because the location of the criminal is difficult to find and in many cases they are outside the country,” said Sandra Brandon, MCSO public information officer.  [Source: Fox 17 News]

Texas man admits he stole credit cards from children to fuel spending spree

A Houston man is facing prison time after admitting he stole children’s credit card numbers to bolster a wire fraud and aggravated identity theft, according to a Justice Department news release. Amir Ali Bey, 35, pleaded guilty on Wednesday before U.S. District Judge Kenneth M. Hoyt to two counts of wire fraud and one count of aggravated identity theft, according to the release from U.S. Attorney Ryan K. Patrick. The identity fraud ran from July 27, 2016 to May 19, 2017 with the goal of acquiring obtain money, cars and other luxury items. Bey made fake credit profiles under several aliases, including the name Daniel Isaiah Murray, which he used to apply for new lines of credit, according to court documents. Bey intentionally took credit card numbers of minors because they were less likely to monitor their credit histories. He also used fake drivers’ licenses and pay stubs to and used rental mailboxes based on these fraudulent identifications, investigators from the U.S. Postal Inspection Service said. Police found multiple fake IDs, credit cards and bank documents in a search of Bey’s apartment in May 2017 which they linked to the wire fraud scheme. [Source: Chron]

Maryland man is charged after Washington County deputy fires shot during shoplifting call

No one was injured Wednesday night when a Washington County Sheriff’s Office deputy fired a shot at a Landover, Maryland, man after he allegedly tried to strike another deputy with his car during a shoplifting call at the Target store in Halfway, Maryland State Police said. Melson Shamel Perry, 26, was able to get away from authorities for a short time before he was arrested at a home on Bower Avenue near Hagerstown, according to a state police news release. Perry was charged with first-degree assault, theft of less than $1,500 and theft scheme of less than $1,500, according to court records. Troopers said in a news release that Washington County Sheriff Douglas Mullendore requested the help of state police in conducting an investigation into an assault on a deputy during the attempted arrest of Perry. The incident involved a deputy firing a weapon. Investigators from the Maryland State Police homicide unit and criminal-enforcement division responded to the scene. Detectives were contacted late Wednesday afternoon by an employee at Target in the 17000 block of Cole Road in Halfway, according to the charging document filed by the sheriff’s office. An employee said a known theft-scheme suspect was in the store. The suspect, later identified as Perry, was known to enter Target stores, where he would return a previously purchased iPad for a refund or gift card, according to the state police news release. Instead of returning an iPad, he would return the resealed box with materials inside to simulate the weight of the device. In Wednesday’s incident, Perry is accused of purchasing an iPad at Target for $1,059.99 shortly after 4 p.m., the sheriff’s office charging document said.

Perry came back at about 5:30 p.m., returned the iPad box and was given $1,059.99 in cash before leaving the store, the sheriff’s office said. The object used to weight the box was a can of tuna fish, the document said. Two deputies — one in uniform and driving a marked patrol vehicle — arrived at the store shortly before 5:30 p.m. and waited in the parking lot, state police said. They were notified when Perry left after getting the refund. The deputy grabbed the door while ordering Perry to surrender, state police said. Instead of giving up, Perry drove directly at the deputy approaching the front of his car. Troopers said the deputy who had been at the driver’s-side door fired his pistol as the car headed toward the other deputy. The Dodge struck the patrol car and a privately owned vehicle as Perry drove between them and fled the parking lot, state police said. The Dodge was found abandoned with the registration plates removed.  Mullendore said the deputy who fired the shot would be placed on administrative leave, with pay, until an investigation into the incident is concluded. The name of the deputy wasn’t released. Noting that Perry already was on probation for another conviction and now was charged with a crime of violence, District Judge Mark D. Thomas on Thursday ordered that he remain held without bond. Perry has a pending criminal case in Virginia and theft and assault convictions in other states, the judge said during a bond-review hearing. [Source: HeraldMailMedia]

Revised shoplifting bill proposes stricter punishments

For three years, State Representative Randall Patterson has been working with south Mississippi police departments to come up with a bill to deter shoplifters. He introduced a bill last year that made it past the house, but failed in the senate. Patterson says he hopes this year will be different with the support of Senator Mike Seymour. “It’s just costing us a bunch of money in our small business arena, even the bigger retailers too,” said Seymour. That cost, according to Patterson, could be into the billions nationwide. Several retailers at the promenade in D’Iberville say shoplifting costs their stores thousands every year. They say that it’s usually the consumers who pay the price for those crimes. That’s something shopper Rhonda Gage isn’t OK with. “It’s not fair to us who are just average consumers out shopping for our families to have to pay higher prices because of somebody else’s mistake or wrong doing,” Gage said. Seymour believes the bill adds enough punishment to deter most people from stealing. “It has different phases,” he said. “Most of them deal with just the amount between a felony and a misdemeanor.” In the house version of the bill, first and second offenses would be misdemeanors punished by up to six months in jail and a $1,000 fine. A third offense would be considered a felony with a $1,000 fine and possibly three years behind bars. The bill also says any offense with more than $500 in merchandise would be considered an automatic felony offense. James Harris of Gautier, believes it will have some effect, but doesn’t think it will do what law makers are hoping. “I think it’ll knock down the offenses quite a bit but, at the end of the day, the people that are shoplifting will still shoplift,” said Harris. Patterson and Seymour both know it will take some work in committee, but hope to see the bill pass this session. [Source: WLOX News]

The post Breaking News in the Industry: January 12, 2018 appeared first on LPM.

Interview: 'Boards have a fiduciary duty to protect planet Earth'

Ethical Corporation Feeds -

It just takes a few people to affect change; a few people to get the message out that business cannot keep making money at any price.

One of them is Philippe Joubert, founder of Earth on Board, a group of organisations, including ClientEarth, CDP, the B Team, We Mean Business and the World Business Council for Sustainable Development, whose aim is to move boards away from focusing on short-term profits, and to put sustainability first in order to build long-term value.

Image: Channels: EnvironmentTags: Earth on BoardCISLnatural capital accountingPrince of Wales Corporate Leaers GroupClientEarthRE100

Pennsylvania Man Convicted of Kidnapping Two Women While Fleeing Scene of Retail Theft

Loss Prevention Media -

A Dauphin County, Pennsylvania, man was convicted of all charges stemming from a September 2016 incident in which he stole several items from a Walmart and abducted two women while fleeing from the store’s loss prevention associates. A  jury found Michael Ortiz guilty of kidnapping, robbery, unlawful restraint, terroristic threats and retail theft, according to the District Attorney’s Office. The incident occurred on Sept. 30, 2016. According to evidence presented at trial, Ortiz loaded a shopping cart with several items, concealing them in plastic bags he had brought, and exited by pushing the cart through an unattended checkout aisle. As he was about to leave the store, Ortiz was confronted by a loss prevention associate who had been watching him over the store’s surveillance system. Ortiz left the cart and ran.

As he fled across the parking lot, Ortiz spotted a car with two women inside. The women had just finished loading their purchases into the car. Ortiz jumped in the car’s back seat and ordered the women to drive him away, pretending that he had a gun and threatening to kill them if they did not comply. When the car stopped at a red light, the woman in the passenger seat removed a legally concealed handgun, pointed it Ortiz, and ordered him out of the car. Ortiz grabbed the weapon and attempted to get it away from the woman, but she overpowered him and fired a shot to let him know the gun was real. Ortiz then fled. He turned himself in to police a day later. Ortiz is scheduled to be sentenced on February 2, 2018. [Source: Fox43 News]

The post Pennsylvania Man Convicted of Kidnapping Two Women While Fleeing Scene of Retail Theft appeared first on LPM.

Day 12 of 31 Days to a More Effective Compliance Program-Financial Incentives for Compliance

FCPA Compliance & Ethics -

One of the areas that many companies have not paid as much attention to in their compliance programs is compensation. However, the DOJ and SEC have long made clear that they view monetary structure for compensation, rewarding those employees who do business in compliance with their employer’s compliance program, as one of the ways to [...]

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‘Together Rainforest Alliance and UTZ will be a more powerful force for positive change’

Ethical Corporation Feeds -

January 2018 marks an auspicious beginning for the Rainforest Alliance and UTZ, which have just formally merged into a new organisation that carries forth the Rainforest Alliance name. The new Rainforest Alliance has a bold and ambitious goal: to accelerate and scale up our work to tackle today’s most urgent challenges: climate change, social inequity, rural poverty, and biodiversity loss.

Image: Channels: Supply ChainsTags: biodiversityclimate changeSDGspovertyclimate-smart agricultureHuman rightsIndigenous PeopleGlobal Living Wage CoalitionMarsNestléCargillLiptonPatagonia

What the New Tax Rules Mean for M&A

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Deborah L. Paul, T. Eiko Stange, and Joshua M. Holmes, Wachtell, Lipton, Rosen & Katz, on Friday, January 12, 2018 Editor's Note: Deborah L. Paul, T. Eiko Stange, and Joshua M. Holmes are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Ms. Paul, Mr. Stange, and Mr. Holmes.

President Trump has signed into law the most sweeping changes to business-related federal income tax in over three decades. The new law, referred to as the Tax Cuts and Jobs Act (the “Act”), is expected to have far-reaching implications for domestic and multinational businesses as well as domestic and cross-border transactions, impacting the structure, pricing and, in some cases, viability of broad categories of deals. Among other things, the Act lowers tax rates on corporations and income from pass-through entities, permits full expensing of certain property, imposes additional limits on the deduction of business interest and adopts certain features of a “territorial” tax regime. By lowering tax rates, the new law makes conducting business in the United States more attractive. But, to pay for the reduced rates, the Act includes numerous revenue-raising provisions as well. The changes will shift transaction dynamics in complex and potentially unanticipated ways that will unfold over time, raising challenging interpretive questions that taxpayers and advisors will be grappling with for years to come. By vastly reducing the incentive for U.S.-parented multinationals to hold cash offshore, the new law is expected to free up cash for M&A activity, capital expenditures, debt repayment or stock buybacks.


Busy Directors and Shareholder Satisfaction

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Wayne R. Guay and Kevin D. Chen (University of Pennsylvania), on Friday, January 12, 2018 Editor's Note: Wayne R. Guay is the Yageo Professor of Accounting and Kevin D. Chen is a doctoral candidate at The Wharton School of the University of Pennsylvania. This post is based on their recent paper.

The job of a corporate director has become increasingly time consuming. The Wall Street Journal recently reported that the director of a public firm spends an average of 248 hours a year on each board, up from 191 hours in 2005. In light of this growing time demand, corporate directors face increasing investor scrutiny regarding the number of boards on which a given director sits. Prior research has examined the firm-level performance implications of corporate boards that have a large proportion of “busy” directors. However, there are several difficulties in these studies. In particular, firm-level analysis masks important heterogeneity in the time constraints and the expertise benefits of busy directors. For example, sitting on three boards might be excessive for a director with a full-time job, but it might be reasonable, or even optimal, for an individual who is retired. Also, certain firms (e.g., less experienced firms) may benefit more from the expertise and advising of a busy director. Furthermore, there may be omitted firm-level characteristics that are driving both director busyness and firm performance, which suggests that an observed positive (negative) association between director busyness and good (poor) firm performance does not necessarily imply that busy directors are beneficial (detrimental) to shareholders.


Weekly Roundup: January 5–11, 2018

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by HLS Forum on Corporate Governance and Financial Regulation, on Friday, January 12, 2018 Editor's Note: This roundup contains a collection of the posts published on the Forum during the week of January 5–11, 2018. Non-rating Revenue and Conflicts of Interest
Posted by Bo Becker and Ramin Baghai (Stockholm School of Economics), on Friday, January 5, 2018 Tags:  Tax Reform Implications for U.S. Businesses and Foreign Investments
Posted by Philip Wagman, Richard Catalano, and Alan Kravitz, Clifford Chance, on Friday, January 5, 2018 Tags:  Industry Tournament Incentives and the Product Market Benefits of Corporate Liquidity
Posted by Jian Huang (Towson University), Bharat A. Jain (Towson University), and Omesh Kini (Georgia State Unviersity), on Saturday, January 6, 2018 Tags:  Damage Quantification in Delaware for Breaches of Contract in Post-Merger Litigation
Posted by Arthur H. Rosenbloom (Consilium ADR), on Sunday, January 7, 2018 Tags:  Ineffective Stockholder Approval for Director Equity Awards
Posted by Joseph Penko, Robert Saunders, and Audrey Murga, Skadden, Arps, Slate, Meagher & Flom LLP, on Sunday, January 7, 2018 Tags:  Does Size Matter? Bailouts with Large and Small Banks
Posted by Eduardo Dávila (New York University) and Ansgar Walther (University of Warwick), on Monday, January 8, 2018 Tags:  Delaware Court Ruling on Dual-Class Recapitalization Involving Controlling Stockholders
Posted by David J. Berger, Wilson Sonsini Goodrich & Rosati, on Monday, January 8, 2018 Tags:  Raising the Stakes on Board Gender Diversity
Posted by Brianna Castro, Glass, Lewis & Co., on Monday, January 8, 2018 Tags:  Managing the Family Firm: Evidence from CEOs at Work
Posted by Andrea Prat (Columbia University), on Tuesday, January 9, 2018 Tags:  Analysis of SEC Ruling on Apple Shareholder Proposal
Posted by Arthur H. Kohn, Sandra Flow, and Mary E. Alcock, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday, January 9, 2018 Tags:  Compensation Season 2018
Posted by Jeannemarie O’Brien, Adam J. Shapiro, and Andrea K. Wahlquist, Wachtell, Lipton, Rosen & Katz, on Tuesday, January 9, 2018 Tags:  Pay-for-Performance Mechanics
Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Wednesday, January 10, 2018 Tags:  CEO Gender and Corporate Board Structures
Posted by Melissa B. Frye (University of Central Florida) and Duong T. Pham (Georgia Southern University), on Wednesday, January 10, 2018 Tags:  Activist Investing in Europe—2017 Edition
Posted by Armand Grumberg, Scott Hopkins, and Lorenzo Corte, Skadden, Arps, Slate, Meagher and Flom LLP, on Wednesday, January 10, 2018 Tags:  Political Uncertainty and Cross-Border Acquisitions
Posted by Chunfang Cao (Sun Yat-sen University), Xiaoyang Li (Shanghai Jiao Tong University), and Guilin Liu, (Huatai Property & Casualty Insurance Co., Ltd.), on Thursday, January 11, 2018 Tags:  The Most Important Developments in M&A Law in 2017
Posted by Gail Weinstein, Philip Richter, and Steve Epstein, Fried, Frank, Harris, Shriver & Jacobson LLP, on Thursday, January 11, 2018 Tags:  SEC Guidance on Tax Reform Reporting
Posted by Catherine M. Clarkin, Robert W. Downes, and Brian D. Farber, Sullivan & Cromwell LLP, on Thursday, January 11, 2018 Tags: 

Compliance Bricks and Mortar for January 12

Compliance Building -

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

Five Things to Think About Before a Surprise SEC Exam

by Joshua M. Newville, Robert E. Plaze, Christopher Wells and Alexandra V. Bargoot

If a team from the SEC arrives at your office and says, “We are conducting an on-site examination and would like to talk to the CCO right now,” are you prepared? A handful of registered investment advisers have faced surprise SEC exams in recent months. These exams come in two flavors: either a “for cause” exam arising from SEC staff concerns relating to a specific ongoing issue, or a standard exam that for some reason has a surprise component. [More…]

Are You Ready for Your Next Regulatory Exam?

by Patty P. Tehrani, Esq.

I know regulatory examinations can be stressful but without a defined process even more so. I’ve lived through exams managed without a process and those guided by one and not surprisingly having a process inevitably garnered better results. Below I share some practical tips to help you develop an examinations process or improve one that you already have. [More…]

Eight Compliance Events to Watch in 2018

by Matt Kelly

Without further delay, then, my annual list of compliance issues that should be worth watching in 2018. In no particular order…

SEC guidance on cybersecurity.  [More...]

“The Big Chill”: Personal Liability and the Targeting of Financial Sector Compliance Officers

by Court E. Golumbic

Prominent law enforcement and regulatory officials have referred to financial sector compliance officers, as “essential partners” in ensuring compliance with relevant laws and regulations, whose “difficult job[s]” merit “appreciat[ion] and respect.” Officials have noted the critical role these professionals play in shaping the culture of financial institutions, as well as the industry more generally. However, a series of recent enforcement actions in which financial sector compliance officers have been personally sanctioned has strained this partnership, fueling concerns among financial sector compliance officers that they are being unfairly targeted. [More…]

Court Rejects SEC Request For “Obey The Law” Injunction

in SEC Actions

[A] district court has granted summary judgment against the Commission in a Securities Act Section 5 case centered on a years long Ponzi scheme based on the statute of limitations and refused to enter an injunction, although Kokesh is not actually citedSEC v. Jones, Civil Action No. 17-11226 (D. Mass. Opinion Jan. 5, 2018).[More…]

Discretionary Management of IRAs: Prohibited Transaction Issues for RIAs

However, there is a caveat. That is, BICE only applies to non-discretionary investment advice. In other words, if the financial institution or its advisors have the responsibility or authority to make the decisions, or if they actually make the investment or transaction decisions, and there is a financial conflict of interest (that is, a prohibited transaction), BICE does not provide relief. To make matters even worse, there are very few exemptions for prohibited transactions resulting from discretionary decisions. Based on conversations with RIAs over the last few months, I have learned that many of them are not aware that, where they have financial conflicts (for example, 12b-1 fees or payments from custodians) for discretionary investment management for IRAs, there is usually not an exemption and the compensation is prohibited. [More…]

Some bitcoin foolishness:

Miami Bitcoin Conference Stops Accepting Bitcoin Due to Fees and Congestion
Next week the popular cryptocurrency event, The North American Bitcoin Conference (TNABC) will be hosted in downtown Miami at the James L Knight Center, January 18-19. However, bitcoin proponents got some unfortunate news this week as the event organizers have announced they have stopped accepting bitcoin payments for conference tickets due to network fees and congestion. [More..]

Long Island Iced Tea shares soar after changing name to Long Blockchain
A visit to the new website shows that Long Blockchain is in the “preliminary stages of evaluating specific opportunities” in the blockchain space. At this time, the company has no agreements with any blockchain entities, nor does it have assurance that an agreement will be forthcoming, the website said. [More…]

While the cat’s away

Ethical Boardroom Feeds -

By Patricia J. Harned – Chief Executive Officer, Ethics & Compliance Initiative



When I was 10 years old, my mother took a full-time job in a nearby office so that she could provide a second source of income for our family. My siblings and I were old enough not to need a babysitter, so every day after school we became ‘latch-key’ kids – at home without supervision.

We were never big troublemakers as children, so there was no great risk that we would set the house on fire or cause some other calamity. Nevertheless, without fail, every afternoon the phone would ring at some point while we were home alone. When one of us would answer, my mother would inevitably be on the other end of the line explaining that she was calling ‘just to say hello’. Now, we might have been young kids, but my siblings and I all knew what she was really doing. She wanted to check up on us.

Nowadays, I meet leaders who have a similar perspective as my mom did, way back when. I have met CEOs who routinely call their offices while on travel, simply to be sure that their employees are actually working. I have heard other executives confess that they occasionally call remote employees, just to be sure that they are not ‘working’ while on the golf course. As leaders, we tell ourselves that it is all part of the effort to ‘trust but verify’ that the organisation is operating according to plan. However, on some deep level, I suspect that every one of us cannot help but wonder whether there is also some truth to the adage that, no matter how kind-hearted and trustworthy our employees may be, ‘when the cat’s away, the mice will play’.

We are not completely crazy to think that way. Despite the fact that most organisations today have established codes of conduct to set out their policies and standards for workplace conduct, and even though most supervisors say that their employees are committed to ethical conduct, each year an average of 44 per cent of workers at all levels say that they still observe at least one act that violates those standards, or the law. Thus it seems that, even if the cat is present in the workplace, the mice still play.

Importantly, however, levels of workplace misconduct have decreased by 25 per cent in the United States since several prominent regulations have been enacted; namely Sarbanes-Oxley, Dodd-Frank and a number of industry-specific requirements for corporate compliance programmes. Prior to the passage of those regulations, as many as 55 per cent of employees said they observed some type of wrongdoing in a given year. What has mattered is not that the regulations existed, but that companies established the systems and controls that are linked to the reduction of workplace wrongdoing. Those systems were prescribed by regulatory requirements and enforced when violations occurred. So, there is also some truth to the idea that we need the regulatory and enforcement cats to stay.

Is the cat going away?

Lately, I have received a number of calls from journalists asking me about the implications of what, so far, appears to be a loosening of US enforcement against corporate violations and the potential for the repeal of some of the legislation that has clearly influenced corporate conduct. There are some legitimate reasons for eyebrows to be raised. For example:

  • Wall Street regulators have imposed far lower penalties in Trump’s first six months of office than the Obama administration’s initial six months
  • So far, the Trump administration has collected about 60 per cent less money in fines from companies for violating pollution-control regulations compared to the same period of the past two presidential administrations
  • The only regulatory settlement that one of the biggest corporate scandals this year – Wells Fargo – has faced out of legal claims totalling $3.3billion has been a $185million settlement with Consumer Financial Protection Bureau (lead regulator), the Office of the Comptroller of the Currency and the LA City Attorney
  • The House of Representatives passed a bill in March that would substantially reduce private litigation by consumers against corporations and another bill in June that could undo significant portions of Dodd-Frank

Taken together, it comes to mind that once again, we are all concerned that we might be witness to the proverbial enforcement cat going away – and the likelihood that the corporate mice will begin to play in ways that we do not want them to.

“From a board perspective, it is easy to prioritise regulatory requirements and enforcement activities. Yet it is important for leadership to not lose sight of the importance of ethics and compliance programmes and strong cultures, simply on their own merits”

That worry may be well-founded. After all, the majority of these regulations were established as a result of corporate misdeeds. Sarbanes-Oxley didn’t exist until a rash of corporate scandals took place (Enron, Tyco and Comcast among them). Thanks to the financial crisis, the same was true for Dodd-Frank. Even Chapter 8 of the US Federal Sentencing Guidelines – the framework that has in many ways become the de facto standard for ethics and compliance programmes – did not exist until judges were in need of guidance in sentencing of corporations that had been convicted of a crime.

So, it begs a few questions: if the tides are turning and regulatory and enforcement efforts continue to recede, how should boards think about ethics and compliance in their organisations? Should they shout for joy and count the cost savings for lack of a need of internal controls? Or should they double down on their programmes for fear that if the cat is going away, the mice will begin to play?

Double down

One need only think of Uber, Rolls-Royce or Volkswagen to appreciate the need for boards to remain vigilant in insisting upon strong ethics and compliance programmes in the organisations they govern. In each of these instances, we have yet to see what will come from enforcement actions for alleged wrongdoing. But already we are witness to the significant reputational loss from which these organisations now need to recover. And sadly, directors of these organisations discovered far too late that their corporate compliance programmes and cultures were not what they thought them to be.

ECI’s research has shown that when an organisation has a high-quality ethics and compliance programme in place, acts of misconduct are reduced by as much as 34 per cent. These programmes include the following:

  • A code of conduct, or other form of written standards
  • Training of employees on what actually constitutes corruption
  • Risk assessment to determine areas of greatest exposure
  • Systems for employee reporting/raising of concerns
  • Protections for employees who take steps to report (internally or externally)
  • Disciplining of employees who violate the code of conduct

These efforts must be accompanied by a focus on building and sustaining a strong ethical culture in an organisation, too. Culture is not influenced by regulation; it is the result of several activities and commitments by management to:

  • Communication of a set of core values that are intended to guide employee decisions and actions
  • Leadership efforts to consistently talk about the importance of integrity and to model the conduct they expect from the workforce
  • Supervisors’ reinforcement of the core values and the messages senior leaders are communicating
  • Encouragement and reinforcement that management wants employees to raise concerns and reports of suspected corruption
  • Systems in place to fairly and consistently investigate reports of wrongdoing
  • Accountability of employees, regardless of the level, when they engage in corruption

From a board perspective, it is easy to prioritise regulatory requirements and enforcement activities. Yet it is important for leadership to not lose sight of the importance of ethics and compliance programmes and strong cultures, simply on their own merits. These values pay dividends. It’s been show that:

  • Employee pressure to compromise standards is reduced by 76 per cent
  • Misconduct is reduced by 66 per cent
  • Employee reporting rises by 31 per cent
  • Retaliation against whistleblowers is reduced by 54 per cent

Additionally, employee engagement increases and their overall satisfaction with the organisation rises when high-quality programmes are in place. All of these outcomes are well worth the investment of an organisation in ethics and compliance.

Become the cat

Boards should begin to think of their company’s ethics and compliance programme as being essential to business strategy, regardless of what happens with regulation and enforcement. In other words, the board should be the cat that ensures that the mice stay in line. How can they do that?

If you are a director and you want to monitor the well-being of your organisation’s ethics and compliance programme and culture, you should not allow any board meeting to adjourn unless the following metrics have been provided to your satisfaction.

1. Communication of values and standards Boards should expect that multiple efforts are underway to communicate the importance of organisational values and standards in everyday business activity. Directors should ask for metrics showing:

  • Direct mention of the organisation’s core ethical values in most formal and informal communications by the CEO and other C-suite executives
  • Visibility of the code of conduct and reference to policies that relate to key risk areas
  • Use of multiple methods of communication to promote helplines (and other reporting mechanisms)
  • Encouragement of employee reporting of concerns
  • Use of incentives to recognise employee performance that aligns with the organisation’s values

2. Employee perspectives of the organisational culture Ask management to regularly gather information from employees to gauge their perceptions of the workplace from an ethics and compliance perspective. When significant shifts occur, management should be able to explain root causes and address efforts underway to resolve any issues.

Methods for this data collection can vary, but directors should be able to regularly receive metrics demonstrating employee sentiment. Ask management to utilise:

  • Surveys of employees
  • Focus groups
  • Ambassador programmes (employees embedded in operations who serve as sounding boards)
  • Internal social media sites
  • External social media sites (e.g. LinkedIn)
  • 360 degree evaluations and other feedback loops (e.g. evaluations of training programmes)

Reports and investigations

When cultures begin to erode, employees stop reporting wrongdoing to management.  Or if they do come forward to raise a concern about observed misconduct, employees in weakening cultures often say that they experience retaliation for having done so. This is a very serious risk to an organisation. Once retaliation begins to occur, there is a silencing effect overall. The worst thing that can happen is for the organisation to become a place where wrongdoing is taking place and employees are afraid to make problems known.

“Boards should begin to think of their company’s ethics and compliance programme as essential to business strategy, regardless of what happens with regulation and enforcement. In other words, the board should be the cat that ensures that the mice stay in line”

Management should be able to provide the board with a high-level summary report on a regular basis, listing the concerns that are being raised. Additionally, directors should be aware that, on average, only five per cent of reports of alleged violations are made to a formal company helpline. If business leaders are not providing insight into the reports that are made directly to supervisors or other members of management, ask them to do so.

It is equally important to monitor the investigations and disciplinary processes in place. Ask management to regularly provide an in-depth report on a few randomly selected cases. Pay attention to the:

  • Length of time from the receipt of a report to the closure of an investigation
  • Treatment of the employee who reported and the employee who was alleged to have committed a violation
  • Consistency of the process from one case to another
  • Extent to which employees involved report that they experienced retaliation for having come forward
  • Root cause analysis of the problem, lessons learned by the company and changes being implemented as a result

Turnover rates

When employees are dissatisfied with their jobs, they leave the organisation. When the culture becomes toxic and trouble is brewing, they leave in droves. Ask management to provide regular reports of employee turnover, especially in key operations where performance pressure is higher.

Perhaps most importantly, as a director, the message that ethics and compliance programmes and culture are important begins with you. It is your job to insist that management continually finds new strategies, better benchmarks, or additional sources of information to satisfy the board that your organisation is aware of the observance of standards and the well-being of its ethical culture.

After all, when the cat’s away, the mice will play.


About the Author:

Dr. Patricia J. Harned is Chief Executive Officer (CEO) of the Ethics & Compliance Initiative (ECI). Dr. Harned oversees ECI’s research agenda and its networking and conference events. She also directs outreach efforts to policymakers and federal enforcement agencies in Washington, D.C., and speaks and writes frequently as an expert on ethics in the workplace, corporate governance and global integrity. Dr. Harned advises CEOs and directors on effective ways to build an ethical culture and promote integrity in organisational activities.

Dr. Harned has served as a consultant to many leading organizations, including Penn State University, BP and the New York Stock Exchange. She has testified before Congress and the U.S. Sentencing Commission. Dr. Harned has been featured in media outlets including the Wall Street Journal, Washington Post, USA Today and CNN, and has appeared on the “Diane Rehm Show.” She was selected by Ethisphere Magazine as one of the 100 Most Influential People in Business Ethics in 2014, and was named one of the Top 100 Thought Leaders in Trustworthy Business Behavior in both 2010 and 2011 by the non-profit organization Trust Across America. Dr. Harned holds a Bachelor of Science in education degree from Elizabethtown College in Pennsylvania, a Master of Education degree from Indiana University and a Doctorate in the Philosophy of education from the University of Pittsburgh.

This Week in FCPA- Episode 84, the Playoffs are Here (for the Patriots) edition

FCPA Compliance & Ethics -

In this episode, Jay Rosen and myself take a look at some of the top compliance stories over the past week. Does Free Speech exist at the office? Can you tell your boss what you think of them? Ben DiPietro looks at a new Department of Labor approach in WSJ Risk and Compliance Journal. Are [...]

The post This Week in FCPA- Episode 84, the Playoffs are Here (for the Patriots) edition appeared first on Compliance Report.

UN votes to impose new sanctions against North Korea

Global Compliance News -

On 22 December 2017, the UN Security Council (UNSC) unanimously voted to imposed new sanctions on North Korea following its intercontinental ballistic missile test in November. The UNSC adopted Resolution 2397 (2017), which seeks to limit North Korea’s access to refined petroleum products and crude oil, and its earnings from workers abroad. The measures involve the following:

  1. North Korea’s imports of refined petroleum have been capped to 500,000 barrels for 12 months starting on 1 January 2018;
  2. North Korea’s imports of crude oil have been capped at 4 million barrels for 12 months as of 22 December 2017;
  3. Expansion of sectoral sanctions by introducing a ban on the export of food and agricultural products, machinery, electrical equipment, earth and stone, wood and vessels from North Korea;
  4. A ban on the supply, sale or transfer to North Korea of all industrial machinery, transportation vehicles, iron, steel and other metals (except spare parts to maintain North Korean commercial civilian passenger aircraft currently in use);
  5. Requirement for Member States to repatriate all North Korean nationals earning income within 24 months from 22 December 2017;
  6. Authorisation for Member States to seize, inspect, freeze and impound any vessel in their territorial waters found to be illicitly providing oil to North Korea through ship‑to‑ship transfers, or smuggling coal and other prohibited commodities from the country; and
  7. Designation of an additional 16 individuals (mainly banking officials – asset freezes and travel bans imposed), and 1 entity (‘Ministry of the People’s Armed Forces’ – asset freeze imposed).

The UNSC stated that additional tests of nuclear weapons or long‑range ballistic missiles by North Korea would result in further restrictions on its import of petroleum.

Following the adoption of Resolution 2397 (2017), OFAC also designated as SDNs two individuals, listed in said resolution, pursuant to Executive Order 13687. Kim Jong Sik and Rik Pyong Chol are senior officials in the Workers’ Party of Korea Munitions Industry Department and both are said to be key figures in North Korea’s ballistic missile development. As a result of the SDN designations, any property or interests in property of these SDNs (as well as any entities 50% or more owned by them) that come within the possession or control of a US person are blocked, and transactions by US persons involving the designated persons are generally prohibited.

The EU has also aligned its list of sanctioned parties with Resolution 2397 (2017); the 16 individuals and 1 entity stated in point 7 above have been transposed into the EU sanctioned parties list for North Korea.

The post UN votes to impose new sanctions against North Korea appeared first on Global Compliance News.


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