Do Your Homework to Meet Regulatory Demands

The global regulatory environment is heating up – and not just because it's summer. As government enforcement actions capture headlines, corporate leaders are rightfully concerned about whether their due-diligence strategy can hold up to the increased scrutiny. Richard Girgenti, KPMG LLP's National and Americas leader for Forensic Advisory Services, wrote in an article in Metropolitan Corporate Counsel recently, that the rapid and ongoing nature of regulatory changes, the array of agencies involved in bringing enforcement actions and the aggressiveness with which they are enforcing such actions are resulting in "record fines and penalties, class action lawsuits, lost earnings and reputation damage." Girgenti would know, having more than three decades of experience – not just in advising organizations but in conducting investigations and overseeing policies on the enforcement agency side of the coin. So, what does he see as some of the top of mind issues for corporate leaders who want to stay out of hot water with regulators?

Three Enforcement Areas that Demand Enhanced Due Diligence

  1. Anti-bribery and Corruption: Don't be deceived by the fact that there were fewer Foreign Corrupt Practices Act (FCPA) enforcement actions in 2014 than in 2012 – penalties and settlements are on the rise. According to the SEC, 2014 FCPA actions resulted in approximately $520 million more in penalties or settlements than were levied in 2013, when that figure was a mere $172 million. Even more worrying, the number of ongoing FCPA investigations has increased and, notes Girgenti, "we are witnessing an intensified focus by regulators on individuals and compliance gatekeepers."
  2. Anti-money Laundering: Whenever money changes hands, regulators are watching. And it's not just cash that is under scrutiny. Virtual currencies are making headlines too. Earlier this year, cointelegraph.com reported that the Swiss Financial Market Supervisory Authority, FINMA, had "… released a warning about the 'increased money laundering risk' posed by Bitcoin, along with similar financial technologies and business practices and suggests 'stronger due diligence.'" Why is that significant? Because only a year earlier, the FINMA had discounted virtual currencies as an insignificant risk.
  3. Sanctions Regimes: Trade sanctions continue to be widely used as foreign policy tools. Even as Cuba is opening up and talks with Iran on its nuclear program have reached an accord, Russian involvement in the Ukraine and cyberattacks of North Korean origin mean that companies must be aware of an ever-changing array of sanctions and politically exposed persons (PEPs).

The risks associated with the above enforcement areas travel beyond the four walls of your company to include the third parties on whom you rely – customers, partners, suppliers and other third-party agents acting on your behalf. What's more – the focus of enforcement is expanding across industries and organizations both small and large. To address these challenges and mitigate third-party risk, companies need robust due-diligence and ongoing monitoring processes that look beyond credit scores and watch lists to assess risk over time and maintain an auditable trail that demonstrates their commitment to regulatory compliance. Could your current process stand up to the test? 

Mark Dunn, Segment Leader, Entity Due Diligence and Monitoring, LexisNexis

Mark Dunn is the Segment Leader for entity Due Diligence & Monitoring at LexisNexis. He is responsible for product management and development of the LexisNexis Business Insight Solutions due diligence applications. He is the spokesman on anti-money laundering, anti-bribery and corruption and sanctions compliance. He is also responsible for helping to shape the LexisNexis Risk and Compliance strategy and business development. He is a regular speaker at industry events and has written extensively for industry journals.