Category Archives: Compliance

Cost of (non-)Compliance

“U.S. Bancorp Is Charged, Fined in Laundering Case,” The Wall Street Journal, February 16, 2018 B2.  Bank fined over $600 million and criminally charged with laundering money.  And placed under a deferred prosecution agreement, which is always an adventure.

Bank allegedly constructed and operated its controls on money laundering “‘on the cheap.'”  Think of the money they saved!

Their shareholders, not so much.

How much would having adequate controls and filing required suspicious activity reports have cost?  More or less than $600 million?

A key compliance requirement for banks is to have adequate money laundering controls.  What does it say about the directors and officers that this bank didn’t have them?  Who’s responsible for this failure (i.e., who’s duty was it to prevent this?)?  Who’s getting canned?

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Filed under Board, Compliance, Compliance, Controls, Corporation, Directors, Duty, Duty of Care, Employees, Governance, Internal controls, Oversight, Oversight, Protect assets, Protect information assets, To report

Uber settles

“Uber Settles Trade-Secrets Case,” The Wall Street Journal, February 10, 2018 B1.  Uber pays more than $240 million to settle case, and agrees not to use certain technology on self-driving cars, allegedly belonging to Waymo.  The agreement not to use was worth perhaps $250 million.

How does your company make sure it isn’t using a third party’s intellectual property without permission?  Is this an important part of your compliance program?  How does your company manage its acquisitions of new companies, some of whom (or their employees) may not have been as diligent in avoiding trade secret theft?

How can you prevent people from bringing information that you do not want into your company?  What are your processes?

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Lessons learned?

I am not sure what to say about the Nunes memo about the DOJ and the FBI and the FISA court, and classified information and governance and compliance.  Too political to be educational.

So, the right-hand news item instead.  “Fed Limits Wells Fargo Growth, Replaces Directors,” The Wall Street Journal, February 3, 2018 A1.  Following a pretty bad year or two, following the customer cramming schedule or the auto insurance.  A former CEO. Lower bonuses.  Now the government takes control of a large bank and replaces the directors.  Restricts the bank’s future growth.  A 6% stock value drop, before this week’s really bad sell-off.  Cost: $300-400 million. Government says, “We cannot tolerate pervasive and persistent misconduct at any bank ….”

What’s the value of compliance?  Is it the possible loss of your ability to control your company?  Is this a lesson for directors, in that they may lose their positions (but they don’t have to refund their fees)(yet- the derivative suits are coming soon).  They didn’t even do that to BP!  The Chief Risk Officer is also retiring later this year.

Business case for compliance or better risk management?  For knowing what’s going on in your company?  Not sure what the lesson is for the shareholders.

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Filed under Board, Business Case, Compliance, Compliance, Compliance Verification, Controls, Corporation, Directors, Duty, Duty of Care, Employees, Governance, Inform market, Inform shareholders, Internal controls, Oversight, Oversight, Protect assets, Risk, Risk Assessment, Risk assessment, Supervision, To report

Vendors

“U.S. Probes Supplier to VW,” The Wall Street Journal, February 1, 2018 B2.  Engineering firm under criminal investigation for alleging helping VW cook the emissions tests – altering the nature of the information provided to the government.  See also, “Robert Bosch Workers Face Probe,” The Wall Street Journal, February 1, 2018 B3. (Similar allegations, but involving Chrysler).

Are you concerned about your vendors?  Do you make sure they comply with law?  Do you appreciate the data that confirms your own compliance?  What’s it worth to have that data be accurate?

Were this a blog about Crisis Management and Emergency Response, there would be an entry here about what you should do when you hear that someone else in your industry has been doing something bad.

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Filed under Accuracy, Board, Compliance, Compliance, Compliance Verification, Controls, Corporation, Data quality, Definition, Directors, Duty, Duty of Care, Employees, Governance, Information, Internal controls, Oversight, Oversight, Protect assets, Protect information assets, Third parties, Value, Vendors

Snoopy cried

“Shares of MetLife Plunge on Big Charge,” The Wall Street Journal, January 31, 2018 B16. MetLife needed to increase its reserves after “losing track of possibly tens of thousands of retirees owned monthly pension payments.”  Loses 9% of share value (and this was before the big drop this week!).  This was after they reduced their reserves earlier, resulting in increased revenues.  The day earlier, “Pension Snafu Hits MetLife Results,” The Wall Street Journal, January 30, 2018 B1. A “records mistake.”  Huh?

People have been and will be fired.  Will any senior executives take the hit?  What exactly is the company’s business?  Where was the Board on this?  Do they refund any of their fees?  At least the company admitted a material weakness in its financial systems.  Is the CFO nervous about what he/she signed?  Did the boost affect anyone’s bonus?  Did this affect the market?

This was not a records mistake.  It was a conscious decision.  Who decided to reduce the reserves and just forget about the pensioners who weren’t easy to find?

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Filed under Accuracy, Board, Compliance, Compliance, Compliance Verification, Controls, Corporation, Data quality, Directors, Duty, Duty of Care, Employees, Governance, Internal controls, Investor relations, Oversight, Oversight

GE

GE, fresh from the embarrassing disclosure that the Board didn’t know about the two-jet policy, is now being questioned by the SEC over its accounting practices.

“GE Faces An SEC Probe of Accounts,” The Wall Street Journal, January 25, 2018 A1.  Questions arise over how GE accounted for revenue on long-term projects.

How did the Board miss this, too?  The new CEO must be beside himself.  Welcome to the party.

 

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Filed under Accuracy, Board, Compliance, Compliance, Controls, Corporation, Culture, Culture, Directors, Duty, Employees, Governance, Inform market, Inform shareholders, Internal controls, Oversight, Oversight

Leaking government documents

One would think that professionals hold themselves to a higher standard, and would not conspire to take advantage of leaks of information from someone who shouldn’t be leaking it.

Au contraire, mes amis.

“Former KPMG Executives Charged,” The Wall Street Journal, January 23, 2018 B1.  KPMG execs arranged to get a heads up on which KPMG audits were going to be reviewed by the PCAOB.  After things went south and the investigation started, people started deleting emails and texts.  Same song, different verse.

So, working with a federal government agency to get confidential government information.  Consequence: criminal indictments of KPMG partners and civil suits.  They were also fired.  KPMG cooperated “fully” in the investigation.  The leakers at the government were angling for jobs at KPMG.

Lessons:

  1. Auditors commit crimes, too
  2. Confidential government information belongs to the government
  3. Conspiring with government employees to get that information is a crime
  4. Your employer has a lot of incentives to cut you loose if you’ve committed a crime in the course of your business
  5. It’s hard to get a job as an auditor after a criminal conviction
  6. Deleting emails and texts after an investigation started is Bad.  See also 18 USC §1519
  7. If partners in your firm are doing this, what else is going on?
  8. No one at the government has been charged

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