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Compliance Week Coverage

Conflicts Minerals Ruling Doesn't Mean Companies Are Off the Hook

April 22, 2014

The timing of a recent court decision rejecting part of the SEC's rule on conflict minerals could not have been worse: Many companies were already straining to meet the June 2 deadline. With no further guidance from the SEC, as of yet, some companies are stuck on how to proceed. "People should be doing all of the same things they have been doing," says Michael Littenberg, a partner at law firm Schulte Roth & Zabel.
 

Managing Third-Party Corruption Risks in Decentralized Companies

April 22, 2014

When Hewlett-Packard settled for $108 million to resolve charges of Foreign Corrupt Practices Act violations, the Justice Department detailed an elaborate bribery scheme that involved resellers, vendors, and shell companies. According to EY's recent global fraud survey, some 90 percent of reported FCPA cases have involved third-party intermediaries. Inside, we look at how some companies are improving their monitoring and due-diligence systems to get a handle on such risks.
 

Rethinking the Role of Free Speech in Corporate Disclosure

April 22, 2014

A Federal court decision to invalidate an SEC disclosure requirement related to conflict minerals on the basis that it violated the First Amendment may open the door to a slew of legal challenges questioning the constitutionality of disclosure requirements. "The D.C. Circuit's opinion strikes a potentially significant blow to the securities regulation regime and the integrity of the U.S. capital markets," says Michael Siebecker, professor of law at the University of Denver's Sturm College of Law.
 

When Non-Poaching Deals Cross the Line Into Collusion

April 22, 2014

To stifle bidding wars for top talent and to stem the tide of employee defections, some companies reach non-solicitation agreements with industry peers that prohibit them from recruiting workers already on the other company's payroll. Yet such arrangements can easily violate anti-trust laws. A class-action lawsuit against several technology companies has already netted $20 million in settlements. More details inside.
 

Beware of Bizarre and Far-Fetched Whistleblower Claims

April 22, 2014

Most companies do an adequate job of investigating serious whistleblower claims and protecting those who make them from illegal retaliation. It is the bizarre, far-fetched claims, or claims from problematic employees and serial reporters, however, where many companies get tripped up. "That's where some companies run into legal trouble," says Heather Sager, a member of the labor and employment group at law firm Vedder Price. "They reach a conclusion before they do the investigation."
 

Internal Audit Struggles as It Attempts to Serve Many Masters

April 22, 2014

Internal audit is under a market-driven mandate to look beyond internal controls, but it is finding it tough to determine just where to leverage its expertise and how to act as an advocate for the business, while still preserving independence to provide unvarnished assurance. "Internal audit has to be a master to all. That creates problems," says Jason Pett, U.S. internal audit services leader for PwC.
 

High-Speed Trading Under Siege

April 15, 2014

A new book, an FBI crackdown on insider trading, and plenty of populist rhetoric is putting the heat on firms that conduct high-frequency trading. The big question is what, if anything, regulators will do to level the playing field? Some ideas include a tax on HFT and "speed bumps" to slow order entries, but some say plenty of rules are already in place. More on the debate inside.
 

Anti-Corruption Enforcement Widens Nets to More Industries

April 15, 2014

Global regulators are looking beyond the usual suspects for potential violations of bribery and corruption laws. According to a new report, enforcement actions are quickly piling up in industries that haven't had much exposure in the past, such as retail, technology, and entertainment. Regulators are "reaching into industries that traditionally have not been thought of as posing high FCPA risk," says Laurence Urgenson, a partner with law firm Mayer Brown.
 

Extraction Payment Disclosure Moves Forward, Despite Delays

April 15, 2014

The Securities and Exchange Commission will rewrite a Dodd-Frank Act requirement that oil, gas, and mining companies disclose payments they make to foreign governments. When remains unclear, but some multinational companies, now facing similar regulations around the world, are moving forward and voluntarily reporting the expenditures. Full details inside.
 

FDA Cautions Drug and Medical Companies on Promotional Pitfalls

April 15, 2014

The Food and Drug Administration is urging drug and medical device companies to use caution when making product claims on social media, during interviews, in investment materials, and in other public communications. "There's the possibility that the FDA could view materials as promotional even if the company might not have thought of them that way," says Julie Tibbets, a partner in the FDA group at law firm Alston & Bird.
 

Tension Builds Over PCAOB Plans to Overhaul Audit Reports

April 15, 2014

During discussions to explore a proposal for new auditor disclosures, preparers voiced more objection than auditors, who seemed conciliatory when addressing demands that they tell investors more about what they find during the audit. Some said it was the company's job to disclose problems. "It feels strange to have the auditor giving information other than the basic audit steps," said Monty Garrett, vice president of finance for Verizon.
 

New Leadership, Same Priorities for the DoJ's Criminal Division

April 15, 2014

As Leslie Caldwell awaits Senate confirmation to become assistant attorney general and the new chief of the U.S. Department of Justice's Criminal Division, many are wondering what the transition will mean for the agency's enforcement priorities. During her confirmation hearing, she testified that she intends to enforce criminal laws vigorously and "apply them with equal force, whether the wrongdoing occurs in a boardroom, across a computer network, or on a street corner." More details inside.
 

Could an SEC Disclosure Overhaul Actually Make Things Worse?

April 08, 2014

The Securities and Exchange Commission has embarked on a comprehensive review of disclosure requirements. Don't expect results any time soon, experts warn, and some also fret that the ambitious effort could actually add to the compliance burden and increase costs. "There is the potential it could become more time consuming," says Brian Lynch, a partner at the law firm Drinker Biddle & Reath.
 

Why Citigroup's Stress Test Failure Shouldn't Be So Surprising

April 08, 2014

Citigroup was among the largest of five banks to fail this year's round of stress testing by the Federal Reserve. How could a bank with an army of risk managers get caught off guard? Easy, say those who are familiar with the test, which they say contains lots of subjective measures. "What the Fed is looking for can't be done on a spreadsheet," says Dan Ryan, leader of PwC's financial services advisory practice.
 

Justice Department Uses Wire Fraud to Pursue Product Safety Case

April 08, 2014

The Department of Justice is in hot pursuit of product safety cases, and if the record $1.2 billion settlement it reached with Toyota last month is any indication, General Motors—which is facing its own product safety investigation—could be in for an unwelcome surprise. "It signals that the government will use every means at its disposal to go after what it perceives to be harmful conduct," says Maureen Ruane, a partner with law firm Lowenstein Sandler.
 

As Whistleblower Protections Expand, Companies Must Act

April 08, 2014

With whistleblower complaints rising and regulators and courts expanding the pool of employees covered by whistleblower retaliation rules, companies must ensure they have systems and policies in place to handle whistleblower claims properly. Companies with established procedures for handling claims, including documenting everything, stand a better chance of mitigating retaliation risks. More inside and related stories at left.
 

Mostly Smooth Sailing for Early Adopters of COSO Framework Update

April 08, 2014

Early adopters of the updated COSO framework say they're finding their existing internal controls map rather well to the newly articulated principles contained in the updated framework, although they need to bring more controls into the scope of their internal control evaluation and audit to show it. "These are things we normally do already, but it was a matter of documenting them," says Courtney Connors, senior operational controller for GE.
 

SEC Could Consider New Cyber-Security Disclosures

April 01, 2014

In light of large data security breaches at companies like Target and Neiman Marcus, the Securities and Exchange Commission is gathering feedback on the need for new cyber-security and data breach disclosures. During a recent roundtable on the topic, company representatives and advisers mostly opposed the idea. Many of them, however, were in favor of new guidance on how to adhere to the current rules. Details inside.
 

Winning the Battle to Get 'Buy-In' on Compliance

April 01, 2014

Getting executives and middle managers to support the goals of compliance can be an uphill battle at many companies, especially where compliance is viewed as an obstacle to getting things done. To change that view, compliance needs to show that the program can add value. "The stronger the safety controls, the more risks you can take," says Anthony Dell, global chief compliance and ethics officer at investment adviser Ares Management.
 

Internal Audit Looks Beyond Finance for New Leadership

April 01, 2014

The evolution of internal audit from a function concerned mostly with financial accuracy to one that covers a broader array of risks is compelling companies to look for internal audit leaders with more diverse backgrounds and work experiences. "The chief auditor needs to know what will work and what will not work, so they need operational skills and the gravitas to effect change," says Emmett Lange, a principal at internal audit services firm Sunera.
 

Delaware Court Ruling Keeps Liability in Place for Deal Advisers

April 01, 2014

The Delaware Chancery Court ruled in a recent case that the protections that shield directors from personal liability in breaches of fiduciary duty do not extend to third-party consultants. The decision could open the door to more liability for deal advisers. "I think you're going to see financial advisers being named as defendants in these lawsuits far more often," says Jason Halper, a partner with law firm Cadwalader.
 

Nation's Top Energy Regulator Keeping a Close Eye on Wall Street

April 01, 2014

The Federal Energy Regulatory Commission is looking as much these days at certain financial instruments as the physical energy commodities it has traditionally regulated. The agency even struck a deal with the Commodities Futures Trading Commission to cooperate more on regulation. "We are going to see FERC stepping up its enforcement powers to be a little more feared, not only in the energy community, but in financial communities as well," says Felix Shipkevich, a principal at law firm Shipkevich.
 

FDA Guidance Provides Clarity to Drug and Medical Device Companies

April 01, 2014

The Food and Drug Administration has issued new guidance on two important topics for pharmaceutical and medical device companies. One will make it easier for them to distribute academic papers that discuss potential unapproved uses of drugs and medical devices without worrying about charges of off-label promotion. The other clarifies how medical device makers can solicit feedback on the FDA approval process. Full details inside.
 

SEC Suggests Private Websites for Underlying ABS Details

March 25, 2014

The Dodd-Frank Act requires companies that issue asset-backed securities to provide more details on the underlying securities. That information, however, can include sensitive consumer data or could harm competition. Looking to solve that problem, the SEC is now proposing that issuers provide the information on password-protected Websites. Critics say the plan doesn't do enough to protect them from liability. Details inside.
 

Setting the Scope of an Investigation

March 25, 2014

Establishing the parameters of an investigation is a critical responsibility for compliance officers. Define an investigation too narrowly and the company risks missing important pieces of evidence. Define it too broadly and the investigation can drag on for long time periods and burn through cash. Inside, we look at how to rightsize an investigation and avoid "scope creep" and other problems.
 

Some Questioning if DPAs Will Work in the United Kingdom

March 25, 2014

It's almost four years since Britain passed one of the world's toughest anti-bribery and corruption laws, but its main enforcement body, the Serious Fraud Office, has struggled to bring any major cases. The move to adopt deferred-prosecution agreements could change that, but some remain unconvinced. "Without believing that jail sentences are a real possibility, companies won't see the benefits of volunteering their cooperation," says Andrew Durant, a senior managing director at FTI Consulting.
 

Large Companies Report Wide Variance on Uncertain Tax Positions

March 25, 2014

Many major companies are reporting big differences in the relative amounts they state for uncertain tax positions, leading tax experts to conclude the new transparency around uncertain tax positions is causing some companies to take tamer positions than others. "Clearly there are companies that continue to take aggressive tax positions," Scott Wragg, managing director for accounting firm CBIZ MHM, says.
 

True Detective—Lessons in Removing the Mask

March 25, 2014

One of the more difficult tasks in managing the corruption risks that come with doing business with third parties is identifying those parties' true beneficial ownership. In our latest installment of the GRC Illustrated Series, we look at how to design a set of processes and controls to get a continuous view of the owners and other risks associated with third parties.
 

Think You Don't Need to Worry About the EPA? Think Again

March 18, 2014

The Environmental Protection Agency is pursuing a wide array of industries on a host of environmental regulations. And like the SEC or Justice Department, enforcement targets can earn leniency with cooperation and self-reporting. "You are always better off coming in early and advising us of a problem as opposed to waiting for us to come and get you," says Doug Parker, director of the EPA's Criminal Investigation Division. (See related podcast, left.)
 

Trade Sanction Enforcement on the Rise

March 18, 2014

As the U.S government considers more trade sanctions against Russia for its actions during the crisis in Ukraine, companies are putting their trade sanction compliance programs in order since enforcement actions are on the rise. The Office of Foreign Assets Control, which is responsible for enforcing violations, brought 27 enforcement actions in 2013, up from 16 in 2012. More inside.
 

Balancing the Power of Social Media With Compliance Risks

March 18, 2014

While no one doubts the power of communicating over social media, the risks are numerous. First are the risks of running afoul of regulations that cover records retention, e-discovery, labor relations, advertising, and disclosure, to name a few. Then there are the reputational risks involved with unmanaged or unplanned messaging. To strike a balance, companies must craft policies that don't overly restrict the business from leveraging social media, while addressing all these risks. More inside.
 

Court Decision Could Advance Compliance at Private Companies

March 18, 2014

A U.S. Supreme Court decision earlier this month has expanded whistleblower protections under the Sarbanes-Oxley Act to private companies that contract with public companies. The ruling could force many private companies to adopt compliance policies for investigating and handling whistleblower complaints. "Private companies might have felt like they had a free pass in the past," says Randy Stephens, vice president of advisory services for NAVEX Global. "This decision clearly ends that misconception."
 

Regulators Push for More Transparency on Independent Valuation Services

March 18, 2014

When preparing financial reports that include a hefty amount of fair-value accounting, companies have been caught in a dispute between valuation professionals and auditors. Valuation firms want to protect their proprietary processes, while auditors want more transparency. The SEC is weighing in by pushing valuation firms to better meet the needs of the financial reporting community, and the industry is taking heed. More inside.
 

SEC and States Square Off Over Reg. A Securities Offerings

March 18, 2014

Looking to reinvigorate rarely used Regulation A, which exempts some securities offerings from registration, Congress increased the capital-raising threshold from $5 million to $50 million. The SEC went a step further and pre-empted the state review process for such offerings. Now, state securities regulators are fighting back, demanding the return of their oversight and pitching a new, streamlined review process. More inside.
 

Tide Shifting on Derivative Valuation Methods, Reporting

March 11, 2014

A new trend in derivatives valuation is starting to pull financial reporting in a more volatile direction, as greater consideration for risk in derivatives is starting to dribble onto U.S. corporate balance sheets. Some banks, including JPMorgan, are incorporating costs or benefits associated with funding into valuations. "It's a drive toward valuations that are more market-centric," says Espen Robak, president of Pluris Valuation Advisors.
 

Corruption Focus Europe: Where the Real Risks Are

March 11, 2014

When the European Commission issued its first report on the state of anti-corruption programs across the 28 EU member states in February, plenty of usual suspects like Slovenia and Croatia earned poor marks. But some of the largest countries in Europe, including Spain, Italy, and France—places where many U.S. companies do business—also fared poorly. Inside, we look at the state of corruption in the European countries where U.S. companies have the largest presence.
 

Some Aren't Waiting for Final Rules on Pay Ratio Disclosures

March 11, 2014

Executive compensation advisers anticipate that the SEC will finalize a controversial pay ratio disclosure rule by early summer, giving companies about six months to ramp up the systems needed to compare CEO pay to the median compensation of their employees. Smart companies are starting on compliance now, and some are already running into problems. Details inside.
 

Boards Look to Boost IT, Data Security Oversight

March 11, 2014

Two recent surveys find that boards admit they have a poor grasp of cyber-security and data breach risks, and that management does a poor job of providing them with adequate information for effective oversight. To bridge the gap, boards are looking to boost their IT and data management experience and ask better questions of management. Details inside.
 

Pressure Mounting on Companies to Get Sustainability Reporting Right

March 11, 2014

As sustainability reporting steadily moves into the mainstream, companies are faced with dual challenges: determining just what sustainability data will be informative for the audience they want to reach, and developing efficient processes to gather that data. "These are not trivial reports to put together. They take resources, staffing, knowledge, and information gathering," says Christianna Wood, chairman of the Global Reporting Initiative.
 

Studies Find Weaknesses in Data Management Programs

March 04, 2014

Big Data may be here, but lots of companies are still struggling to get a handle on garden variety information. Indeed, two separate benchmarking reports released last month revealed that while most companies claim to have information and records management programs in place, many are not up to par. "Organizations are not doing a great job at managing traditional, unstructured information," says Richard Wolf, founder of GRC advisory firm Lexakos.
 

SEC to Focus More on Data in Examinations, Inspections

March 04, 2014

The SEC says it will look harder for outliers in financial reporting. At the SEC Speaks event last month, officials said the SEC will work to connect the dots of data-based initiatives and better integrate them into examinations, investigations, and prosecutions. "We are using powerful new data analytics and technology tools in our National Exam Program to conduct more effective and efficient risk-based examinations," Chairman Mary Jo White said.
 

A Final Conflict Minerals Obstacle Awaits: Form SD

March 04, 2014

As companies wrap up the first round of conflict minerals reporting, due to the Securities and Exchange Commission on June 2, many are now turning to the actual filing, Form SD, and finding difficulties. The form relies heavily on narrative that could be tricky to complete. "The key parts of the form are free-flow writing, not checking a box to say you did something," says Kirsten Wallerstedt, senior regulatory analyst for data management company 3E.
 

More Companies Disclosing Measures of Realized and Realizable Pay

March 04, 2014

If you're not familiar with the new compensation metrics—realized and realizable pay—you should be; more and more companies are using them to provide investors with what they consider a more realistic picture of what their top executives are really earning. "As long as they're telling the story properly, it's appropriate to show another measure of pay," says David Eaton, vice president of proxy research firm Glass Lewis.
 

FATCA Could Snarl Many Non-Financials in Its Nets Too

March 04, 2014

The Foreign Account Tax Compliance Act, better known as FATCA, takes effect on July 1. Despite recent guidance from the IRS and the Treasury, tax experts say many financial firms aren't prepared to comply, and some non-financial global companies may not even realize they have entities that fall under the law. "The rules are drafted broadly and can include a range of plans, including pension plans," says David Moldenhauer, a partner at law firm Clifford Chance.
 

FTC Bolsters Enforcement of EU-U.S. Safe Harbor Framework

March 04, 2014

The Federal Trade Commission is cracking down on companies that falsely certify compliance with the United States and EU safe harbor framework on data protection. In the first six weeks of 2014, the FTC entered into 13 settlements to resolve violations where companies falsely claimed compliance with the safe harbor, compared to none last year. More details inside.
 

Companies Still Winning Most Appeals to Exclude Shareholder Proposals

February 25, 2014

Proxy season is fast upon us, and so too is the yearly battle between shareholder activists and companies over what shareholder resolutions can be left off the ballot. Despite warnings of a pro-investor SEC, companies appear to be winning appeals for no-action letters so far this year that allow them to ignore shareholder proposals. The SEC has issued them for nearly two-thirds of requests. More inside.
 

Dodd-Frank Act Still a Work in Progress

February 25, 2014

It's been three and a half years since the Dodd-Frank Act was signed into law and still several efforts are underway to change or repeal certain provisions, including the Volcker Rule and rules on conflict minerals disclosure. Though it remains a work in progress, some say it is already working. "We are much less prone to the irresponsible risk taking we saw before," says Barney Frank, former Congressman and an architect of the law.
 

What the Future of Goodwill Impairment Might Look Like

February 25, 2014

Goodwill has long been one of the great intangibles on the corporate balance sheet. Now FASB is considering how to overhaul the migraine-inducing chore of testing goodwill for impairment. The implications for corporate accounting—and corporate mergers—could be significant. "Clearly there are some things that can be done to simplify the test," says Mark Beilstein of KPMG. "But there's a tradeoff. Do the benefits outweigh the cost?"
 

Why Compliance Reporting to GC Still Exists

February 25, 2014

Enforcement agencies have pushed companies for years to separate their legal and compliance roles—yet at a steady minority of companies, that's not the case. We caught up with three compliance bosses (including some who, yes, also serve as general counsel) to ask why that is. "Every general counsel has, right in the heart of their responsibilities, the responsibility for compliance," says Tom Bishop, general counsel and chief compliance officer at Georgia Power. More inside.
 

Principled Performance: Aligning the Vision

, February 25, 2014

Just about all but the most corrupt companies want to achieve results while preserving integrity, but getting there is another story. It often involves integrating and orchestrating information and functions that, in many organizations, are fragmented and siloed. In our latest installment of our GRC Illustrated Series, we provide tips on aligning the organization to achieve a holistic, harmonized vision of principled performance.
 

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Top Global GRC Risks
Sponsored by NAVEX Global


Thought Leadership

Data: The Tail That Wags the Stress Test
Sponsored by Trillium Software


Conflict Minerals Webcast Series
Sponsored by 3e Co., iPoint, Schulte Roth & Zabel and Source Intelligence


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