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Compliance in current and historical events

Must-read OCCRP investigative project reports

The Organized Crime and Corruption Reporting Project (OCCRP) is an investigative reporting organization which focuses on organized crime and corruption. The consortium operates worldwide to publish the results of cross-border investigations into criminal enterprises that are often very complex. In many cases the OCCRP reporters are “following the money” to uncover and publicize bribery, tax fraud, and other crimes that are intimately connected to banking institutions and powerful politicians or state-sponsored organizations.

  • Game of Control (2008-2009) – This investigation centered on the involvement of organized crime in owning football clubs. A deeper look at the business of football in Eastern Europe and the former Soviet Union showed a network extending all around the world that enabled criminal businesspeople to hide their illicit activities by laundering money through football clubs they own, skimming transfer fees for players, and using shell companies for tax evasion and concealment of funds. The investigation uncovered evidence of game rigging, use of stadium property for organized crime operations, and even murders of club leaders linked to Bulgarian organized crime. 
  • The Big Bet (2009) – In this report, the OCCRP looked at the expansion of the gambling industry in Eastern Europe. Countries in the region were providing incentives for the gambling industry to come to stimulate local economies and increase tax revenues for governments, but along with the casinos come all the problems of organized crime and corruption. This investigation probed into the abusive practices of governments in these countries which fail to regulate the gambling industry sufficiently and do not enforce proper taxation, instead accepting bribes to look the other way, and not ensure that the public in these countries receives their share of the benefit from the huge revenues these companies make. 
  • The Panama Papers (2016) – The Panama Papers project was one of the biggest stories in money laundering investigation of recent years. The OCCRP worked on the project in collaboration with the International Consortium of Investigative Journalists and Suddeutsche Zeitung, the German newspaper which received a cache of documents from Mossack Fonseca, an offshore services provider in Panama. These documents provided the evidence of the illicit activities concealed in offshore companies set up by Mossack Fonseca, including tax evasion, fraud, and money laundering. Many of the world’s wealthiest people – politicians and businesspeople, criminals and not – were named in these documents. These included Russian, Azerbaijanim and Ukrainian politicians and their families.
  • The Russian Laundromat (2014-2017) – The OCCRP exposed a vast financial fraud scheme enabling money laundering out of Russia and into Europe through Moldavia. More than $20.8 billion was funnelled out of Russia via this mechanism. By tracking the money down to the accounts all over the world where it ended up, the project exposed systemic bribery and activities in the gray area of the Moldovan legal and supervisory system. Some of the world’s largest banking institutions – among 732 banks in 96 countries and including Dankse Bank, Bank of China, HSBC, UBS, RBS, Nordea, Credit Suisse, Citibank, and Deustche Bank – had this illicit money in their accounts. 
  • The Azerbaijani Laundromat (2017) – The most recent of the OCCRP’s reports, like the Russian Laundromat, this details a criminal money laundering operation that used UK-registered shell companies to move $2.9 billion from from Azerbaijan into Europe. This money came from a secret slush fund of Azerbaijani elites used to bribe officials, buy luxury items, and enrich themselves while Azerbaijani human rights were under ongoing assault and citizens were deprived of funds used by their government for their own illicit purposes. Danske Bank was again mentioned as a major banking institution which processed these transactions through their accounts without sufficient due diligence controls to expose the source. This investigation is ongoing and the subsequent movement of the funds and their uses will continue to be revealed. 

OCCRP has become one of the most respected and awarded non-profit media organizations in the world in the decade it has been publishing investigative reports. This is for good reason, as its work has led to the freezing or seizure of billions of dollars of assets, arrest warrants and firings, and closures of shell or illicit companies connected to criminal enterprises. The insights of these investigations cast a powerful light on the mechanisms of corruption which still have a strong hold on business and political organizations all over the world.

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Best Practices

Key compliance culture values for promoting employee integrity

Employee integrity is the cornerstone value for establishing organizational integrity, and therefore for the success of any compliance program. As fundamental as employee integrity is, it is also complex, elusive, and affected by a huge array of factors and influences. Perceptions and biases can defeat individual intentions for ethical behavior. External forces on the decision-making process and the impact of management in a complicated organizational structure and business world can defeat incentives for integrity and honesty.

What can a compliance program do to address the need for employee integrity in a world which presents so many obstacles and hindrances to developing and maintaining this trait? Compliance professionals should be the organizational standard bearers for encouraging good people to do good things and limiting access of the occasional bad people to do bad things. This message can be very simple and should focus on reinforcing positive perceptions of corporate values and leadership expectations so that employees aspire to model their own character within this.

  • Openness: Transparency and honest, active communication are crucial to the success of a compliance program. Employees must see that openness of communication and transparent reporting and sharing are highly valued. Open communication is directly linked to reduction of reputational risk and perceptions of greater honesty. Establishing a culture where employees feel it is encouraged or expected to speak up and speak out requires management to be meaningfully open, accessible, and relatable. In an environment where employees feel that all behavior and performance can be discussed openly, they will also be aware that it will all be noticed, and therefore will feel positive pressure to meet best expectations for integrity.
  • Clarity: Clarity of expectations and perceptions is essential for a culture of integrity. As with all objectives for compliance culture at an organization, norms and values must be clear and consistent across all employee populations. Communicating different or confusing messages, or giving information that impacts everyone to only some and leaving others out to hear it indirectly, is disastrous for imbedding ethical traits in an organization. Clarity promotes understanding and discussion, both of which are necessary for employees to take up the cultural objectives of the organization as their own.
  • Leadership: Tone at the top is just the first step. Leadership should be encouraged as a professional competency at all levels in the organizations, so that advocacy for the compliance culture can take root everywhere. Employees need to see leaders speaking up about the importance of integrity, but they individually also need to feel they are in the position to speak up themselves, and will be looked upon as vested with responsibility for their own integrity and choices in everyday ethical dilemmas.
  • Trust: Trust is the most simple factor for encouraging integrity in organizations, and indeed in all interactions and relationships, and it is also one of the most difficult and fraught qualities to meaningfully establish and maintain. Trust is constantly threatened and questioned. It cannot be given automatically and still have meaning, but it must be given confidently and with expectation that it will be received in return. Investments in mutual trust cannot be forced or demanded. The pain of having colleagues or managers who are not trustworthy can cause deep damage in teams and organizations and impede individual development. The only solution to this is to see trust as a reward and an ongoing evaluation, and to embrace frank and open dialogs which can help to resolve prior mistrust and discourage future violations.
  • Engagement: Engagement discussions usually focus on employees, but the quest for achieving it starts with management. Employees should see that management follows up, takes integrity seriously by individually espousing all the values, responds visibly to problems and complaints, and confronts issues boldly and confidently. Management engagement in the compliance culture should embrace professional skepticism and pursue public accountability. When employees see this, then they are empowered in turn to engage with their direct managers, peers, and direct reports to have discussions about integrity matters and to demonstrate all the traits that support ethical decision-making.

Modelling the key values of a compliance culture to create strong organizational drivers for integrity should be the focus of the conduct objectives of every compliance program. The fundamental message should be that performance and behavior linked to demonstrating integrity will be encouraged and appreciated.

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This week preview

This week on Compliance Culture

Be sure to visit Compliance Culture this week for posts on these topics.

  • Monday: Promoting employee integrity
  • Tuesday: OCCRP investigative reporting highlights
  • Wednesday: TravelBird’s corporate cultural values
  • Thursday: Design ethics in technology
  • Friday: The Office and non-compliance

Don’t miss it!

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Last week round-up

Last week on Compliance Culture

Check out last week’s posts on Compliance Culture, in case you missed or want to revisit them.

Many thanks for reading!

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Compliance in popular culture

Selected TED/TEDx talks by Dan Ariely on honesty, motivation, and choice

Dan Ariely is a professor of psychology and behavioral economics. He is well-known for his books in these fields as well as for his popular and admired TED talks. Ariely is an extremely effective communicator because his observations incorporate both psychology and business, blending the internal and external motivators for behavior. In this spirit, Ariely is able to debunk assumptions about conduct and provide explanations for instincts, two powerful sets of insights for compliance and ethics.

  • Meaning in Labor: Perhaps people’s assumptions about why we work and what we value most in our work cultures are wrong. Maturing from an idea that most people would rather not work and only do so to make money helps to show that a search for meaning (much as described by Holocaust survivor and psychologist Viktor Frankl in his work on existential analysis) is the most powerful and provocative driver of human labor and achievement. Simply put, meaning gives motivation, and having a purpose to the work performed encourages people to invest in it. The idea of giving purposeful work a priority that is equal to or even sometimes greater than profitable work is novel and challenging. However, this speaks directly to the importance of a robust compliance culture and a corporate identity that promotes ethical decision-making and acting with integrity. These values drive meaningful engagement and therefore can contribute to a more positive working environment and sustainable business.

 

  • Money Changes Everything: Taking the suggestion of the importance of meaning as the true driver behind human behavior (both inside and outside of work) forward, what then is the true impact of money? Clearly the power of money is a timeless and universal notion, but perhaps its actual effect on human behavior is not so straightforward. Money changes the tone of all interactions; adding the financial element to these relationships is transformative and perhaps demotivating. Therefore how do people’s decision-making processes and motivations change between their conduct in their private life, where money is not inherently a factor, and work life, where everyone is paid to be engaged together? Interestingly, this talk was delivered at Burning Man, where exchange of money is mostly not permitted.

 

  • The Unexpected Joys and Problems with Creation: The sense of accomplishment from successfully problem-solving and completing a difficult task may actually be the key motivation behind doing challenging or unpleasant things. The harder something is to do, the prouder people feel about persisting and doing it. Further, the sense that other people will feel this pride too or that the difficult work can benefit others is also a motivating factor. Not only does the altruistic sentiment make people more motivated, it may also make them more honest, as the force of “prosocial behavior” encourages people to engage in better behavior for a common good. This has obvious implications for compliance; a corporate culture which positions integrity and ethics as a core value and rewards it visibly will speak collectively to all these motivations and therefore drive productivity and engagement.

 

  • Self Control: Another important and interesting area of Ariely’s scholarship is in the study of self control. Self control can often be the interference between our long-term goals and our short-term desires, or our internal instincts and the external factors they face. Facing the trade-offs implied by these dichotomies is challenging. This often leads to over-emphasizing present impact of the decision-making over the future consequences. Encouraging people to consider and not discount the considerations of the future is very important for directing the impulse of self control into a more balanced and sustainable influence.

 

  • Temptations and Self Control: Continuing on the theme of struggling to balance current interests with more remote future outcomes, this lecture encourages people to understand what creates the gap in their self control. With this insight in mind, the trade-off becomes more manageable to consider in a more holistic way. Motivations to value future priorities or avoid future problems could include targeted rewards and using rationality against instinct to adjust gain-loss perceptions. This is easily applicable in the corporate environment, where performance evaluations and business strategies should be designed with both short and long term effect analyses in mind. This way, growth will be sustainable and values will be maintained.

 

Ariely’s presentations on people’s choices – including whether to lie or cheat, or not to – go directly to the meaning of why people do what they do, and what factors exist that may change or impact that. Organizational and individual integrity can be sourced back to these motivations for honesty and self-control, and therefore the studied application of Ariely’s insights to a compliance and ethics program is very valuable.

Categories
Trends in business compliance

Round-up on compliance issues in sports

Sports and business are close partners all over the world. From this intimate relationship between athletics and commerce comes a huge variety of compliance issues. Huge revenues are made by individuals and organizations connected to all sorts of sporting events, ranging from professional leagues in the United States to the Olympics or other international competitions, and everything in between. For fans, there are demands from all directions for their attention and money. For organizations such as league administrations and companies that work servicing the sports industry, ethical issues are aplenty in their consumer and trade practices.

  • Doping has been a hot topic in competitive sports since the public controversies over the use of performance-enhancing substances in baseball in the 1990s and early 2000s. Since then, revelations surrounding high-profile athletes and even national athletic programs that have engaged in doping have been unrelenting. The one constant is that testing and ongoing oversight programs seem to be unable to effectively eliminate doping practices. Agencies charged with oversight over doping testing are often insufficiently supervised or resourced. In the meantime, the doping trade is continually innovating and moving into new markets, such as Ethiopia:  Inside the doping hotspot of Ethiopia: dodgy testing and EPO over the counter
  • The summer’s heavily reported-on transfer of Neymar from FC Barcelona to Paris Saint-Germain has opened up the black box of transfer protocol among elite football players and their clubs and managers. Uefa, European football’s governing body, faced tremendous public, club, and league pressure to scrutinize the trade and contract negotiations for fair play considerations. As record-breaking deals are being made by clubs, transfer rules and good faith conduct in those deals are being questioned more closely than ever:  Record Neymar transfer threatens to shake up elite football
  • The system of discipline employed by the NCAA is well-known by all college football fans. These disciplinary actions range from probation from eligibility and bans from playing in championship bowl games to restrictions on recruiting and reductions in scholarship funding. However, is this discipline fairly applied or effective in reducing or eliminating future violations? Public opinion has long been that the NCAA singles out certain institutions for sanctions while turning a blind eye to others, possibly based upon how much attention the discipline will get in the media – so is the real purpose of the discipline not really deterrence, but just naming and shaming? The efficacy of the discipline in doing much more than causing embarrassment is uncertain, throwing the whole enforcement scheme into question:  How Damaging is Probation?
  • The NFL has been the subject of ongoing academic and medical criticism for its handling of the medical issues surrounding repetitive head injuries suffered by players. Studies in brains from deceased players indicate overwhelming evidence of damage consistent with chronic traumatic encephalopathy (CTE), a disease which impats the brain with devastating consequences, similar to Alzheimer’s. The NFL has historically pushed back against the evidence and even refused to let players see their medical records, with their defensive motivations clear – football is big business, and if people are afraid to let kids play football, or feel it is immoral to do so, because of concussion issues, then the future of that business is in doubt:  Head Games: The Moral Calculus of Football and CTE
  • As sports and business go together, so do sports and another major revenue exploiter: gambling. While the rules of athletic bodies often prevent players from gambling to avoid match-setting, it can’t be ignored that the tone of much of the culture around watching sports, at least, is dominated by betting companies. Gambling advertising regulations in sport are certain to be considered in response to the obvious commercial pressures that come from these advertisements which are splashed all over stadium interiors and television broadcasts:  High stakes for gambling firms as pressure grows to curb role in sport

Like the markets and the economies of the world, sports are becoming increasingly globalized as well. As athletes move around the world from one country to the next to work and compete, and as business standards are translated across cultures, expectations and norms become all the more complicated. The business of sports is sure to be a growth area for compliance considerations as the entertainment aspect of athletics continues to expand.

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Compliance and ethics business case studies

Patagonia’s social responsibility and targeted political engagement as corporate values

The famous outdoor industry retailer Patagonia has a bold and defining mission statement: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.” In this, a company which makes its profits off selling products to people who wish to explore and enjoy the outdoors has linked its strategy, growth, and indeed reason for existing, to respecting and protecting that environment. Patagonia’s reputation has been cultivated in the public eye to carefully coincide with this intention.

In recent times, however, Patagonia has grown much more quickly than its previously modest expectations, pursuing revenues wherever consumer demand takes the company and stepping up their competition. This has been driven largely by the fact that consumers who have an affinity for the environment and its protection also, logically, are interested in driving their spending power toward companies that they feel share this value. Millennial customers are highly motivated by companies which model social, cultural, and, especially relevant in the case of Patagonia, environmental values. With the vast array of consumer choices that the retail industry offers, both in products and in outlets to purchase these products, cheapest price or easiest availability is no longer the only or the loudest driver of buying power.

Patagonia has hereby achieved the special mix of corporate ambition and conscience. The company is not just an outdoors products retailer, though it still may be thought of as that by many. Instead, it has grown into a green venture capital fund, a food producer, book and film publisher, and a political activism organization that is willing to take on the US government on environmental protection and conservation causes.

Being a company that believes in something, and being rewarded with consumer loyalty, interest, and purchasing power for it, is a powerful message for compliance programs. Creating a serious, genuine corporate image based on values and then selling that image to customers as much as any other product is a huge ambition and a dynamic identity for the organization. Companies must develop corporate cultures which drive what they do with a specificity beyond pursuing sales and dominating product markets. They must recruit leaders who embody this, reinforce this honestly with their employees, and offer integrity in this message to the consumers who will trust them with their loyalty in return.

Hereby, companies such as Patagonia can become not only revenue leaders in their industries but also corporate role models to their peers and competitors. While seeking to directly motivate positive change at the publicly traded titans of industry may be biting off too much to chew, organizations can grow themselves strategically so that their own corporate impact is bigger and better.

In Patagonia’s case, relying on direct-to-consumer business via their own stores and website means that they can take their growth and values ambitions directly to their customers and feed-forward based upon the reception they receive. This is a powerful engagement opportunity for a brand and building a political and social consciousness that is informed by it means that the company can shape itself into the type of organization its customers admire and with which they want to be associated. While Patagonia cannot force political action or change at the highest level on its own, as a company it can be forward-looking and progressive in a time when its consumers appreciate and desire these values. Hopefully, Patagonia can also be an example to other companies to raise the competitive standard for corporate cultures and relevant, genuine social responsibility as a core business value. If that is effectively accomplished, then productive change for the collective can be well within reach.

For more about the power of Patagonia’s corporate social conscious, check out Abe Streep’s story on Outside Online.

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Compliance in current and historical events

The changing nature of, and expectations for, trust

Discussions of trust and honesty are popping up everywhere in the public discourse. From disputes over what constitutes “fake news” to discussions involving “alternative facts,” the current culture is obsessed with the struggle to determine what’s really real. Who can be believed, and why? How does anyone know for sure? The objective of establishing trust in an environment where the goalpost of the truth seems to be constantly in motion is challenging and even frustrating. However, in such an atmosphere, a flight to quality for integrity in ethical character and decision-making is needed more than ever.

  • The ubiquity of the internet makes it a powerful force in the overall assessment of trust in society. Concerns about security and privacy are a constant in the remote digital interactions of the internet, where much can be done and said anonymously. Advancements in technology promise to embed the internet and its connections further into the daily experiences of individuals and organizations. But does the internet hurt or help trust? At the very least, it seems that the nature of trust will be seen as evermore fluid, as the internet empowers the world yet suffers from countless security insufficiencies that set credibility and honesty on edge:  The Fate of Online Trust in the Next Decade
  • Compliance programs that are overly rules-based, focusing on preventing behavior defined as criminal or illegal and fine-tuned by enforcement standards, may prove inadequate for restoring trust in institutions. The public does not want to see that unethical behavior is only a problem if it involves breaking an existing rule or law. Indeed, a huge part of the compliance discipline is the aspirational aspect, where the controls seek to address the discrepancy that can exist between what is legal and what an organization wants to consider acceptable. Rather than going heavy on the rules-based approach, a values-based approach can be much more meaningful, giving the reassurance that the compliance program seeks to identify root causes and inspire ethical conduct, rather than just enforce rules and protect management from liability:  ‘Criminalized’ compliance may backfire in quest for better Wall Street cultures
  • Ten years on from the start of the global financial crisis in 2008, many observers are left underwhelmed by assessing the true change that has happened in its aftermath. Fundamental shifts in conduct and business practices were needed to truly reform the financial services sector and make the supervisory efforts over it effective. A major challenge in the recovery from the crisis was how to make the system more resilient, to withstand another crisis the same as or worse than before. However, perhaps more important was the effort to restore public trust in the industry, which could only be accomplished by taking a deep dive into the causes of the crisis and doing hard work across many organizations to address the reasons why and why not forever. While the regulators have made lots of new rules, and banks have been publicly shamed and put through the rigors of new testing and requirements that are seemingly without end, the markets don’t seem to trust that anything has really changed for the better – and maybe the public shouldn’t believe it either:  Markets Don’t Trust Banks, and They’re Right
  • So how to restore that public trust which has been violated and lost? Stronger governance is the first step, to weed out the problems which still exist and will take time to address effectively, like corruption, cybersecurity, and differences in reporting regimes. Injecting clarity into a truly integrated system which is more consistent and allows for comprehensive monitoring will help also to let the public know that supervisors are looking in the right places. These system overhauls and others should help to create markets and networks which are more likely to foster and support financial stability in the future:  Ten Powerful Actions To Restore Public Trust And Confidence In The Global Economy
  • As the advancements of technology constantly outpace regulatory and legal frameworks intended to control them, what implications do biometrics innovations have for trust? Data privacy concerns prevent many people from engaging in newer technologies, but what will happen when traditional authentication of identity is no longer available? Social media, AI such as facial recognition, and other advanced means of identification and verification are on their way, and all the problems of inclusion, access, and security that challenge their trustworthiness are coming with them:  The evolution of identity: trust, inclusivity, biometrics and beyond

Organizations must grapple with the fluid nature of trust and the expectations around it, in order to have any hope of inspiring trust and faith as cultural norms both inside and outside the office.

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Best Practices

Creating employee awareness for cybersecurity risk management

Cybersecurity is one of the major risk areas for businesses of all sizes and a frequent examination and enforcement priority for regulators. The challenges posed by cybersecurity are diverse and serious – data privacy, breaches of sensitive customer or employee information, business continuity, reputational risk due to information leaks or data loss, physical and financial damage to IT network or infrastructure, and more.

Addressing these threats posed by possible cyberattacks or security weaknesses is very important for organizations, but all protective measures rely upon engagement of employees in accomplishing this objective. Obtaining this engagement requires effective communication to employees to raise their awareness and encourage their understanding of the daily objective at hand.

  • Make relevant policies accessible, relatable, and easy to understand: In order for employees to understand their responsibilities in a cybersecurity program, the governing policies and procedures must be simple and straightforward. The policies should be easy to locate on the organization’s intranet or in the policies manual or employee handbook. They should be written in plain English and provide the essential information and guidance necessary for employees to understand what they must do to protect the company and themselves. Individual objectives and obligations should be highlighted and reinforced by line managers.
  • Connect cybersecurity program to stakeholder commitments: For all employees who are not IT professionals, the risks inherent to and controls necessary for cybersecurity may seem abstract. However, there are fundamental organizational values which can be concretely attached to the objectives of a cybersecurity program. Taking the privacy of customer and/or employee data seriously is not an esoteric concept; this is important to every employee on a personal level. Being trustworthy and transparent about this goal, likewise, is something everyone can support for the good of the organization. Establish a connection between the goals of the cybersecurity program and the company’s stakeholders such as customers, business partners, and regulators/supervisors. Emphasizing these duties will enable employees to see how important cybersecurity controls are to those relationships.
  • Set expectations for personal responsibility: As with all compliance risk topics, the tone at the top is critical to establishing the mood in the middle and the buzz at the bottom. Employees will not become prioritize a topic unless leadership clearly and sensibly advocates for its importance. Senior management should express that each person working in an organization has individual accountability for protecting the company from cybersecurity risks and attacks. An employee’s responsibilities may seem minor or not worth publicizing, but these practical measures are often the most fundamental in keeping the organization’s IT systems secure.
  • Emphasize conduct and basic good practices: Every compliance program begins at the beginning. The building blocks of security protections must be strong starting at the most fundamental measures. Advanced protocols and encryption methods are not the message to take to the general employee population. Rather, focus on their own individual conduct and best daily practices, such as caution with data handling to avoid human error like inadvertent e-mails or lost devices and files. It is imperative that the workforce understands and takes responsibility for managing these simple, widespread risks from their own behavior.
  • Publicize successes and take action on failures: The organizational message of open seriousness about cybersecurity risks should be consistent. When there are successes – such as proactive identification and remediation of a security weakness without a data breach, or improvement in employee conduct around reporting phishing emails – publicize them and discuss them. Positive reinforcement is key. However, when there are failures – such as the detection of an unauthorized intrusion or a string of employees losing laptops and flash drives – then these too should be communicated broadly and acted upon promptly. In this case it is not negative reinforcement but rather directed analysis to improve in the areas which current evidence shows need the most work.

With all the broad landscape of cybersecurity risks in view, and the methods and objectives of cyberattackers evolving continually, control frameworks for cybersecurity will remain an ongoing project in compliance programs.   Creating and maintaining basic employee awareness of and sensitivity to these risks is crucial to ensure that all other controls can be as effective as possible

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This week preview

This week on Compliance Culture

Be sure to visit Compliance Culture this week for posts on these topics.

  • Monday: Employee awareness and cybersecurity
  • Tuesday: The current status of trust
  • Wednesday: Patagonia and the branding of social responsibility
  • Thursday: Compliance and sports
  • Friday: Insights by Dan Ariely on honesty, motivation, and choice

Don’t miss it!