Other Compliance News in the News…

This week I’ve been finishing a presentation for the Society of Corporate Compliance & Ethics annual conference (you’re all going and attending my talk on Sept. 28, right?), so I’m behind in posting material here.

Thankfully we have plenty of other thoughtful voices in the corporate compliance community, so let me stall for time by recommending some other articles you don’t want to miss.

First, the Financial Times has a searing column today from a man who won an $8.25 million whistleblower award from the Securities and Exchange Commission for reporting misconduct at Deutsche Bank—but the man, Eric Ben-Artzi, is publicly declining to take that money because in his opinion, the SEC did not punish Deutsche Bank senior executives harshly enough.

Ben-Artzi calls out all the awkward truths about SEC enforcement that we don’t say aloud. The agency imposed a $55 million fine against Deutsche Bank in 2015 for inflating the value of certain financial instruments on its books, partly thanks to information Ben-Artzi provided. But, he says, that $55 million fine was paid by the bank itself rather than the senior executives who committed the wrongdoing; the people who really suffered the pain of that fine were shareholders and employees.

What’s more, Ben-Artzi names several people who moved back and forth between the bank and the SEC: Robert Khuzami, Deutsche Bank’s top lawyer in North America, who then became head of enforcement at the SEC; Robert Rice, who ran the bank’s internal investigation and then went to the SEC in 2013.

Favoritism, the revolving door between regulator and regulated, the uselessness of imposing large fines against corporations rather than senior executives, the futility of reporting misconduct internally—it’s all in there. Bravo to Ben-Artzi for speaking up.

Second, the Financial Times scored again with an insightful look at a boring corner of finance: the tri-party repurchase market. Tri-party repos are simple, dull financial transactions that keep mutual funds and banks solvent on any given day. Tett explores why the large banks that broker these repos have all exited this market except one, the Bank of New York.

For the finance junkies out there, Tett gives you a great look at this niche of the banking world. For compliance and risk junkies, the insight is this: banks are struggling to find ways to grow in our low-interest rate world, and that is leading us to places we didn’t expect to be. We now have one bank handling a dull but crucial part of the financial world. That’s concentration of risk, and concentration of risk is not something we want—but here we are.

Several months ago I wrote a paper for NAVEX Global looking at mega-trends that will drive the GRC world at least into 2025, and our low-growth, low-interest rate environment was one of the big ones. This is an example.

fcpa-aliensIn FCPA world, my friend and colleague Tom Fox went a little nuts this week, writing a series of posts about Key Energy winning a very favorable settlement from the SEC and Justice Department over bribery payments in Mexico. Fox split his analysis into three parts, walking through the misconduct that happened at Key, how the company worked to identify and remediate the problem, and how that effort ended in a $5 million fine with the SEC (quite small, relatively speaking) and no criminal charges from the Justice Department.

This news happened last week, but Corporate Counsel has a look at the romance gone wrong between the general counsel of Fifth Third Corp. (a woman) and the CEO of Fannie Mae (a man). Both people disclosed the relationship to their respective boards. Fifth Third fired her, Fannie Mae kept him.

There are obvious subtexts about sexism here, but the broader issue for compliance officers is how to define a conflict of interest—including the question of whether one issue (a romance) can be a conflict for one person, but not for the other. In this case,  Fifth Third considered the relationship to be a problem because it did lots of business with Fannie Mae; but Fannie Mae decided the relationship was not a conflict because Fifth Third was one of many banks Fannie Mae worked with.

Above all, the case underlines the importance of a thoughtful conflicts-of-interest policy that can give the company a guide path for difficult scenarios like this one.

Lastly, the SCCE blog has a post this week about the challenges of conducting internal investigations in India. It has three authors include Laurel Burke, associate general counsel of Regal Beloit Corp.; and Sherbir Panag, a partner at MZM Legal, a white-collar crime law firm in Mumbai. (David Simon of the law firm Foley & Larder is the other author.) India is a perennial problem for compliance officers, and this is a good, quick read from compliance professionals who definitely know India.

That’s all for this week. I promise to post more pithy and witty insights next week.

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