Round-up on CFTC compliance

The Commodity Futures Trading Commission (CFTC) is the US regulator charged with supervisory authority over the futures and option markets. Created in 1974 by the Commodities Futures Trading Act, the CFTC is an independent regulatory agency with the purpose to monitor and protect the markets by prohibiting fraudulent activity or other misconduct and to control against risk from these. In the aftermath of the 2008 global financial crisis and the markets reforms which were implemented during the economic recovery, the CFTC has played a more prominent role in the largely unregulated general derivatives (contracts that derive their value from the performance of an underlying entity, such as an asset, index, or interest rate) and specifically, swaps (derivative contracts where two counterparties exchange cash flows of each other’s financial instruments) markets, to encourage transparency and gradually move toward a more stringent supervisory framework.

The CFTC’s principal mission is to ensure the successful and efficient operations of the futures markets, by keeping competition fair and preventing market abuse or other threats to financial integrity and efficacy. As the futures markets and particularly the derivatives and swaps markets are very international, the CFTC collaborates heavily with international partners and oversees a huge variety of diverse financial institutions and service providers, including exchanges, clearing houses, dealers, and commodity pool operators.

The CFTC has often been seen as the smaller, less powerful or prominent cousin agency to the Securities and Exchange Commission (SEC). However, as the CFTC refines its position within the financial regulatory landscape of the global markets and within the US economy, certain issues and emphases have emerged which distinguish the CFTC.

  • Bitcoin: The CFTC made headlines in November 2017 in paving the way for CME Group and Cboe Global Markets Inc to trade bitcoin futures contracts. Investors and markets professionals all over the world have been waiting for the first regulatory verdicts in the US on how cryptocurrencies markets may be handled. The CFTC has answered this boldly, indicating a permissive attitude toward the trading practices coupled with a strict expectation for robust monitoring and reporting to enable oversight of the famously volatile and active bitcoin trading markets. The CFTC had already declared in 2015 that it would treat bitcoin as a commodity, and the ensuing years have shown US financial regulators struggling to agree on what the cryptocurrency is in terms of financial markets and what risks and protections might be applicable for those wishing to invest or speculate in it. The CFTC has chosen to give the futures trading a yellow light, allowing it to go ahead with a cautious eye toward the intense enforcement and investor protection needs that could arise and obtaining assurances from the exchanges that they will proactively cooperate and share the necessary data with the CFTC: Bitcoin Futures Are Coming and Regulators Are Racing to Catch Up
  • Whistleblowers: While far outpaced by the SEC’s much more well-known and publicized whistleblower program, the CFTC’s program was created at the same time as the SEC’s, by the post-financial crisis Dodd-Frank Act in 2010. In 2017, while still modest in comparison to the SEC, the CFTC is having a banner year for payments of whistleblower rewards. These rewards come from sanctions imposed by the CFTC due to validated whistleblower claims against CFTC-covered organizations. This represents a reporting increase by whistleblowers to the CFTC of 70 percent over 2016, indicating that whistleblowers are recognizing the value of the CFTC as an enforcement body. Therefore this uptrend in handling of whistleblower claims could likely continue: Why Wall Street Should Worry About the CFTC Whistleblower Program
  • Deregulation: The overall trend in the US is toward a preference for fewer or more efficient and targeted regulations. This is a clear reversal especially in the financial markets, where in the years after the global financial crisis the momentum was toward more complex and far-reaching regulatory and supervisory oversight on the economy and market participants. This was a reasonable and necessary response to not only the recession but the numerous and varied financial scandals and frauds that were uncovered and damaged the markets and society’s trust in the financial systems. These risks and root causes of misconduct and abuse are still present, so balancing a regulatory posture which prefers a lighter touch against the need for investor protector and facilitation of transparent and equitable markets is a challenge for all regulatory agencies, including the CFTC: CFTC Enforcement Actions Drop Sharply in 2017
  • MiFID II: The revised Markets in Financial Instruments Directive, or MiFID II, is a wide-sweeping set of EU financial regulatory rules coming into effect in January 2018. These new regulations will have huge impact on the way banks and other financial institutions interact with and make money from the markets. While these are European laws, the globality of the markets means that regulators and market participants all over the world are contending with how to handle these new supervisory guidelines. The Futures Industry Association (FIA) has been actively lobbying the CFTC on behalf of its members, including large banks such as Goldman Sachs and Morgan Stanley, to confirm that the new European requirements will not bring expensive new limitations in the US as well: Wall Street Has New MiFID Migraine, Now in Futures Market
    In continuation of this, one important area in which the CFTC has already been deal-making with the EU in anticipation of the approaching MiFID II application is with derivatives trading venues. The European Commission and the CFTC have agreed upon mutual recognition of trading venues so that those in the United States can benefit from an equivalence decision recognizing them as eligible for compliance with MiFID II requirements by virtue of their satisfaction of CFTC requirements: EU and CFTC Implement Mutual Recognition of Derivatives Trading Venues
  • Blockchain: Apart from regulating bitcoin as a commodity, the CFTC hopes to benefit from the technology that underlies cryptocurrencies, blockchain. The CFTC has voluminous amounts of data from the diverse market platofrms and service providers that it supervises and has historically struggled to parse and study these huge troves of data efficiently and meaningfully. The CFTC hopes that the reporting reliability, transparency, and information security offered by the ledger technology blockchain can enable better review and analysis of this data. Traditional procurement requirements have often dogged attempts to implement more advanced or emerging technologies, but one of the priorities of the CFTC and other US government agencies currently is to leverage innovation such as from financial technology (fintech), regulatory technology (regtech), and supervisory technology (suptech): CFTC Looks to Blockchain to Transform How It Monitors Markets

Check back in the future for more posts which will focus on the investigatory and enforcement priorities and interests of different regulatory organizations or initiatives. Namely, on December 28, there will be a round-up on US Federal Trade Commission (FTC) compliance. On January 16, the post will be about EU implementation of the General Data Protection Regulation (GPPR), major privacy ad data protection regulation by the European Parliament and Council of the European Union coming into effect in 2018.

Compliance and social media influencers

Influencer marketing has become a major trend in the advertising industry with the increasing dominance of social media and blog networks in the media landscape. With influencer marketing, brands and their advertising agencies identify the individuals to whom certain demographic groups look to for suggestions on trends or products and services to purchase. These individuals, referred to as “influencers,” then share or produce editorial content for their followers (the people who like or connect to them on social media networks) or engage in the brand’s marketing activities.

Through these sorts of campaigns, both the brands and the influencers hope to gain a non-traditional advantage in appealing to a wider audience. From the brand perspective, they get creative and incredibly targeted content that is produced on a bespoke basis for very specific consumers who are already engaged and interested in the channel through which the content is shared. Through the detailed metrics that are abundantly available via social media and blogs, advertisers can determine which campaigns were successful in spurring either interest or actual sales. From the influencer perspective, they get opportunities to generate paid content and engage with their followers and fans in a novel way. Relationships with brands can be very lucrative for influencers, especially if they become long-term, and can drive significant, much-desired traffic for blogs and social media posts that brings attention to other content the influencer has to offer.

From the above, it is evident that along with all the opportunity comes a complex set of interests which may end up in conflict or give rise to concerns about business practices and accuracy of representations and disclosures. For influencers in particular, blurring the line between the position a follower or a fan, which is even on some networks referred to colloquially as a “friend,” and the position of a customer or a referral, complicates an informal relationship where few duties are owed. Instead, these interactions can occasionally be viewed as a commercial relationship where much more responsibility exists and can be potentially breached.

  • In the United States, the Federal Trade Commission (FTC) is one of those regulators who is contemplating stronger restraints in the practices of influencer marketing. The main area of the FTC’s concern centers on disclosure of the relationships between brands and blogger influencers. Without full, clear disclosures, consumers cannot make reliable, informed choices about purchases they may be influenced to make due to influencer marketing content. The FTC hopes to protect customers from being misled or ripped off entirely by influencer marketing that is targeted to them without providing them with the necessary disclosures for them to make ethical and financially-wise decisions. The FTC has already informed influencers and advertisers that disclosure of relationships between them must be “clear and conspicuous,” with posts that paid promotions clearly indicated as such so that they are not lost within the influencer’s unpaid content that engaging with would not lead to a directly-linked commercial interaction. These regulations have been around for some time, but the extra enthusiasm for enforcing them protectively will have a much bigger impact on the market going forward: Regulating influencers: What retailers need to know about the regulatory crackdown
  • The SEC also has influencer marketing on its regulatory enforcement docket. This is an interesting clash of social media advertising etiquette and investor protection priorities. Companies offering trading of cryptocurrencies have begun to rely on celebrities for endorsements. Much of influencer marketing is done in “testimonial” style, so this medium lends well to a celebrity sharing his or her preferences with thousands or millions of followers. When that preference is for a cryptocurrency investment, however, the endorsement may run afoul of proper disclosure expectations. These regulatory expectations for cryptocurrencies are still evolving, as the market for initial coin offerings (ICOs) is in its infancy still and nearly everything that happens with cryptocurrencies is new, with its impact on banking, the markets, and investors unproven as of yet. Central banks and regulators have taken wildly different approaches in different countries to handling demand for and developments in cryptocurrencies. In the US, this approach has been cautious and restrained, but one area in which the supervisors have not been quiet has been to protect potential investors from advertisements without appropriate disclosures: SEC warns celebrities over endorsing ICOs without proper disclosure
  • Brands and influencers aren’t the only ones who may need to meet a higher disclosure standard when it comes to advertisements that aren’t immediately identifiable as such. Hidden marketing on social media sites as just as insidious as the political advertising that has received so much attention in the press recently. As Congress pushes social media platforms like Facebook to make clearer disclosures about and take more monitoring and control responsibility for the advertisements that appear on their sites, the need to build in protections against deceptive actions by marketers and their partners is urgent as well: It’s not just Facebook’s Russian ads: Hidden advertising is pervasive and growing
  • Social media compliance enforcement will be a major priority for the FTC in this regulatory environment. It should be expected that even within regulatory rollbacks in other areas, the FTC will continue to pay attention to possible non-compliant social media posts and advertisers and their related influencers could be subject to formal enforcement actions. Compared to some other industries like banking or pharmaceuticals, advertising agencies are subject to a relatively sparse supervisory agenda. This light regulatory touch may change dramatically if the FTC chooses to extend and entrench investigation and enforcement efforts on influencer marketing. This is worrying for the influencers as well, who are even less likely than advertising agencies or marketing divisions of brands to have fully-formed compliance programs and to be ready to have the record-keeping and other regulatory controls they may need in place and up to speed: How to Comply with FTC Social Media ‘Influencer’ Rules
  • For more on influencer marketing and the way that brands, advertisers, and influencers may use it to spread content in the future, check out this 2018 forecast for possible trends in the practice, which will in turn dictate the ensuing regulatory priorities, from Forbes: The Influencer Marketing Trends That Will Dominate 2018

Given these potential developments and risks, it is definitely not premature to direct appropriate and pro-active compliance attention to the cultivation and use of influencer marketing networks. Regulatory and supervisory entities are already starting to consider cracking down on various marketing activities in this sphere, and enforcement of disclosure and reporting standards will become robust and should be aided by proper control frameworks.

 

Fraud in sports: Thru-hiking fakers

This is the second in a series of five posts on the topic of fraud in sports. The first post, from December 5, was about marathon cheaters and how they are publicly investigated and exposed. Today’s post will be about imposters and scammers in the world of thru-hiking, a hard-core and tight-knit community of athletes who long-distance hike with the objective of completing a major trail end-to-end at once. Next Tuesday’s post, on December 19, will discuss fraud in sports gambling schemes, including those committed by players and to induce people into fraudulent investment vehicles. On December 26, the next to last post will be about game fixing, describing conspiracies by players to throw games or systemic spying and cheating operations by teams and coaches. The final post in the series, on January 2, will discuss fraud in sports via doping scandals, such as in the Olympics and the Tour de France.

Thru-hiking is the endeavor of hiking a long-distance trail in full within one hiking season. In the United States, there are three main trails where these attempts are made: the Appalachian Trail, the Pacific Crest Trail, and the Continental Divide Trail. Thru-hiking these trails can take months, passing through all kinds of remote trail and difficult weather conditions, and requiring immense planning and preparation to do so safely and with proper equipment, provisions, and support. Adjacent to thru-hiking is section-hiking, in which hikers complete parts of the same trails methodically over a longer period of time. Because of the intense nature of this activity, and the survivalist needs of the participants who camp rough along the trail and crowd-source information about conditions and news from both the outside world and further down the trail, tightly bonded communities of hikers form.

In this insular community comes a lot of trust and reliance on people’s credibility and honesty. People share materials, hike sections relying on each other’s planning and information about conditions, help each other when they are out of money or food, and generally work together to stay safe and make progress in their individual and collective efforts in the thru-hiking process. In such an intimate social group, reliance on honesty creates unfortunate opportunities for people to commit fraud and carry out scams. Sometimes these acts of dishonesty take advantage of other hikers, whereas others falsify accomplishments or misrepresent setting records.

  • In summer 2017, the story of an inspiring thru-hiker began making the rounds on social media, even receiving publicity in the press and coverage on television news. Stacey Kozel was portrayed as a hero for completing both the Appalachian Trail and the Pacific Crest Trail as a paraplegic with lupus. Unable to use her legs unassisted, Kozel relied on specially-designed braces that allowed her to not only walk, but miraculously walk long distances. However, much like the case of marathon cheaters, the online community of thru-hikers and those who support and follow them soon became skeptical to her claims about her achievements. Thru-hikers operate on a quasi-honor system, without a self-regulatory organization to administer verification and investigation efforts when individuals proclaim that they have completed hikes or set records. However, a robust independent community exists on forums online and that community relies upon much of the same data used by marathon runner authenticators – GPS data, photographs, witnesses, and other real-time physical evidence. No one could remember seeing Kozel on most of the trail, and encounters she should have had with other hikers in rest and communal areas were totally lacking. The photographs of Kozel were mostly only taken at trailheads or other area relatlvely easy to access by driving and then walking a short distance. Kozel reiterated her claims that she did the thru-hikes, but did not stand up to continued scrutiny, and she subsequently removed most of the coverage of her purported hike from the internet. One of Kozel’s possible motivations for pretending to do the hike could have been to get publicity for her leg braces, as she stated that she wanted to be an inspirational user of them and to encourage insurance companies to cover them: How Did No One Notice This Inspirational Hiker On The Pacific Crest Trail?
  • Taking the endurance sport of thru-hiking to an all-new level, there are some individuals who take an ultra-marathon approach to completing the trial. These people aim not only to complete the trial in one go, already an audacious task, but to do so as quickly as possible, in pursuit of a record known as Fastest Known Time (FKT). In 2016, Kaiha Bertollini claimed to have set a huge FKT on the Appalachian Trail. Her announcement of her achievement was shortly followed by major doubts and dissension. Bertollini did not have a support crew, was seen drinking and smoking on the trail or even taking “zero days” where she did not hike at all despite her claim of a lightening-fast finish time, and did not produce the proof and documentation demanded by the community, claiming that her phone that held the evidence was broken. Claiming an achievement like a FKT without the requisite evidence in the 21st century, with the community’s obsessive demand for proof and data easily satisfied by all the recording capabilities technology affords, is sure to arouse criticism and mistrust: The Problem with Claiming a Fastest Known Time in the 21st Century
  • Further in the challenges of the concept of validating FKTs, the popular doubts about claims of setting records suggests that there may be some need for a more robust and reliable authentication system. As the sport grows in popularity and recognition, the unofficial arbiters of the records may need to become at least somewhat more official. In their early days, ultramarathons were plagued by the same questions about reliability of their results, as informality and athlete-driven timekeeping reigned. However, most ultramarathons now are governed by some administrative entity or a race organization, and they typically have reliable, consistent rules about the type of data that is accepted to substantiate authenticate and prevent concerns about alteration or falsification. The time could be near for thru-hiking and FKT attempters to follow suit: We Need to Re-Evaluate the Fixation with Fastest Known Times
  • On a different note, one of the reasons why most people know anything all about thru-hiking or about the trails on which it happens is because there have been several very popular books and film adaptations about the attempts of amateurs to join the sport. Two of the most famous of these books (with movies based on both) are Bill Bryson’s “A Walk in the Woods” and Cheryl Strayed’s “Wild.” These books, depicting thru-hiking attempts on the Appalachian Trail and the Pacific Crest Trail respectively, are both bestsellers and have fascinated readers with their depictions of the authors’ amusing and emotional attempts to immerse into the lifestyle of the thru-hiker. However, a careful contemplation by a real thru-hiker would lead anyone to likely conclude that neither of these authors truly thru-hiked or accurately depicted the experience of having done so. In all cases, the authors wrote interesting, engaging books, mostly appealing emotionally to the readers by retelling the tales of their lack of preparation and overwhelmed reactions to the hike. In the end, they often had to reduce their efforts and could not meet their ambitions. Their books are more about this than they are about actually thru-hiking, and therefore they may reproduce conversations or thoughtful revelations truthfully, but the descriptions of the trails themselves, which induce many other amateur hikers to embark on journeys of their own, are perhaps not so faithful: Why the Most Popular Hiking Memoirs Don’t Go the Distance
  • Finally, a tale of an imposter scammer who chose the trusting and supportive community of thru-hiking to execute his cons: Jeff Caldwell is a serial scammer who operated for many years in the outdoor community, posing as a thru-hiker and taking advantage of fellow thru-hikers and people to whom he appealed because of this identification. He used his false accomplishments as a thru-hiker to pull off romance scams. He claimed he had completed what is known in the thru-hiking world as the Triple Crown – thru-hiking the Pacific Crest Trail, the Continental Divide Trail, and the Appalachian Trail. These assumed bona fides gave him credibility in the community and made his victims easier to befriend and defraud: Inside the Mind of Thru-Hiking’s Most Devious Con Man

Check back next week, Tuesday December 19, for the third post in this series of five, which will be about fraud in sports as illustrated in sports gambling.

7 Habits for compliance professionals

Stephen R. Covey was one of the most prominent authors of leadership, self-improvement, and motivational books and speeches of the 20th century. Though the businessman, author, educator, and speaker passed away in 2012, his well-known writings are still influential and insightful for the current generation of managers, students, and thinkers. The teachings from Covey’s books can be applied in many fields of life – business, family, religion, and community, lending heavily to his continued popularity with a wide variety of people. Not simply positioned as self-help, Covey emphasized ethics and distinct definitions of both values and principles, as separate concepts that independently influence people’s behaviors and decision-making.

Due to these emphases, Covey’s writing is specifically interesting and useful for compliance professionals looking for a novel way to approach imbedding into a corporate culture both individual values – which one could see as ethics or morality – and organizational principles – which one could see as compliance program requirements and goals. Covey’s teachings often touch upon the value of inner success, rejecting external competitive measures as the true sign of achievement in favor of emphasizing personal mission statements and progressive goal-setting to allow an individual or an organization to go from immature dependence, through self-sufficient independence, into the higher state of functioning interdependence with others. This strategic vision has a high affinity with the sort of planning compliance officers must do to encourage a successful culture of compliance.

Arguably, Covey’s best-known book is the worldwide best-seller The 7 Habits of Highly Effective People. This book is not only a worldwide best-seller that gains new fans every year for its simple and timeless insights on how to work toward, achieve, and sustain inner success, but it is also the Covey book which is most applicable for compliance professionals to study and take into consideration in the course of their work.

Taken individually, each of the 7 Habits endorses values and principles and encourages conduct in support of those, which are useful for compliance risk awareness both in planning program priorities by the compliance officer as well as encouraging awareness and fostering integrity for individuals and organizations.

Steven R. Covey’s famous 7 Habits, annotated with suggestions for their applicability to corporate compliance and ethics programs, are as follows:

  1. Be Proactive – This is the first of three Habits that focus on maturing from dependence to independence, a process also referred to by Covey as self-mastery. This Habit introduces the concepts of Circle of Influence, one’s effective community – in a business perspective, partners, stakeholders, and clients or served parties – and Circle of Concern, where problems happen and dysfunction or distrust can stymy success and achievement.
  2. Begin with the End in Mind – Simply put, this Habit calls upon individuals and organizations to be devoted planners. Once the plan is set, apply with dedication to following it, in on-going and careful review of its efficacy and currency. Planning is a fundamental component of any successful compliance program. Setting goals and priorities for the program is necessary to encourage informed business buy-in and checking these goals and priorities on a continuous basis helps to keep them grounded in reality and responsive to evolving business and regulatory demands.
  3. Put First Things First – This Habit identifies the difference between leadership and management, a crucial dichotomy for the encouragement of both ethical leadership and adequate supervision, which are equally necessary in order to model conduct expectations and ensure progress in one’s mission. Covey says that leadership in society requires personal vision and for the individual to embrace the importance of character ethic, or internal personal qualities such as ethics, honesty, and loyalty, rather than personality ethic, or external personal qualities such as popularity or other short-term human interaction traits.
  4. Think WinWin – This is the first of three Habits that focus on interdependence, offering tips for working with others. In a service function such as compliance, working together effectively to establish a consistent and open relationship-based approach to risk management is crucial. Likewise, it is important for individuals to appreciate the importance of interdependence also, to see that their individual actions are significant in the overall scheme of the compliance program and to appreciate the importance of accountability, driving them to discuss dilemmas and enhance understanding. Finally, from an organizational perspective interdependence is also very important, driving home the cultural significance of corporate social responsibility and even political engagement in establishing corporate values and creating an identity and purpose in society.
  5. See First to Understand, Then to be Understood – This Habit focuses on the importance of listening for genuine understanding in order to build trust and promote personal credibility. Of particular importance are the Greek philosophy concepts of Ethos, the trust individuals inspire or in Covey’s words their Emotional Bank Accounts; Pathos, aligning and communicating with others and their own emotional trust; and Logos, the reasoning that must be included in communicating with and considering the trustworthiness of others, while projecting your own. Check back in the future for an blog post dedicated to the important concept of Emotional Bank Accounts.
  6. Synergize – This Habit reinforces the key interdependent competency of teamwork. Set goals together and achieve and maintain them together as well. In compliance terms, establishing trust and transparency as key values requires a cooperative commitment to supporting these individual values in the organizational principles that are established, be it via a corporate mission statement or through business strategy and growth plans.
  7. Sharpen the Saw – This final Habit focuses on personal and interpersonal continuous improvement. Balance is key to contended success in both life and business; no achievement attained with disrespect for resources it requires can be sustainable. In order to be truly successful, renewal and sustainability are the most important priorities. Continuous improvement for a compliance program or a company’s corporate values requires continuing risk re-assessments and a rolling plan for how to implement and refine compliance planning and communication.

For an in-depth look at Stephen R. Covey’s work and legacy, check out this official website maintained by the Covey Family. And for an entertaining take on the book, watch this animated book review of The 7 Habits of Highly Effective People.

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!

Compliance in Black Mirror

Black Mirror is a very popular US-UK television science fiction series. It originally aired on Channel 4 in the UK and is now released and broadcasted by the subscription video streaming service Netflix. The series is anthology-style, with short seasons of stand-alone episodes which are like mini films. Most of the episodes of the series touch upon the dominance of and overreach into human life by technology, such as social media, AI, and other advanced, immersive systems and devices. The take offered is quite dramatic, often delving deeply into adverse psychological and sociological effects on modern society, taking a dark and even dystopian perspective.

While all the episodes of Black Mirror do depict a future reality, it is an immediate and accessible reality impacted by technology exceeding that which is currently possible but not so much as to be unthinkable. Indeed, the title of the show, Black Mirror, refers to current technology which is increasingly ubiquitous and addictive – television screens, computer monitors, and smartphone displays. The show both entices with the idea that many of these technological advancements could be convenient or novel or life-enhancing, while also warning that the obsessive and addictive aspects of technology could cause great harm and disruption if not developed and managed thoughtfully and carefully with the risks well in mind.

  • “The Entire History of You” (Series 1, Episode 3): In this episode, a couple struggling with mistrust and insinuations of infidelity make disastrous use of a common biometric – a “grain” implant everyone has that records everything they see, hear, and do. The recordings on the implants can be replayed via “re-dos.” This is used for surveillance purposes by security and management, as the memories can be played to an external video monitor for third parties to watch. Individuals can also watch the re-dos from their implants directly in their eyes, which allows them to repeatedly watch re-dos, often leading them to question and analyse the sincerity and credibility of people with whom they interact. People can also erase the records from their implants, altering the truthfulness of the recordings. This troubles the status of trust and honesty in society which has already in contemporary life been eroded by the influence of the internet.

 

 

 

  • “Be Right Back” (Series 2, Episode 1): In this episode, Martha is mourning her boyfriend, Ash, who died in a car accident. As she struggles to deal with his loss, her friend who has lso lost a partner recommends an online service that allows people to stay in touch with dead loved ones. The service crawls the departed person’s e-mail and social media profiles to create a virtual version of the person. After the machine learning advances enough by consuming and trying enough communications, it can also digest videos and photos by graduating from chatting via instant message to replicating the deceased’s voice and talking on the phone. At its most advanced, the service even allows a user to create an android version of the deceased that resembles him or her in every physical aspect and imitates the elements of the dead person’s personality that can be discovered by the online record. However, in all this there is no consideration given to the data privacy of the deceased person or to his or her consent to be exposed to machine learning and replicated in this manner, including even the physical android form.

 

 

  • “Nosedive” (Series 3, Episode 1): This is one of the most popular, critically-acclaimed episodes of the series, and one of the obvious reasons for this is that it focuses on social media and how it impacts friendships and interactions. The addictive aspects of social media in current times are already a hot topic in design ethics, driving people to question whether social media networks like Facebook or Twitter are good for the people who use them, and where to locate the line between entertainment and a fun way to connect and share, versus a platform with a potentially dark and abusive impact on users. In this episode, everyone is on social media and is subject to receiving ratings from virtually everyone they encounter. These ratings determine people’s standing both on social media and in the real world as well – controlling access to jobs, customer service, housing, and much more. Anxieties and aspirations about ratings drive everything people do and all the choices they make. “Addictive” has been met and surpassed, with social media having an absolutely pervasive impact in everyone’s lives.

 

 

  • “San Junipero” (Series 3, Episode 4): One of the most universally loved episodes of Black Mirror, San Junipero depicts the titular beach town which mysteriously appears to shift in time throughout the decades. Kelly and Yorkie both visit the town and have a romance. San Junipero turns out to be a simulated reality which exists only “on the cloud,” where people who are at the end of their lives or who have already died can visit to live in their prime again, forever if they so choose. In the real world, Kelly is elderly and in hospice care, while Yorkie is a comatose quadriplegic. Both eventually chose to be euthanized and uploaded to San Junipero to be together forever, after getting married first so that Kelly can give legal authorization to Yorkie to pass over. The bioethical considerations of such a reality are clear – in this society, assisted suicide is a legal normalcy, and part of patient care is planning one’s method of death and treatment path after death, which digitalization being a real option. All of the San Junipero simulations exist on huge servers, and judging by how many lights are flickering in the racks this seems to be a popular practice – but what about cybersecurity and information security of the simulations? What if the servers were hacked or damaged? This gives a new meaning to humanity and places an entirely different type of pressure on making sure that technology is used safely and the data stored on it is protected.

 

 

  • “Men Against Fire” (Series 3, Episode 5): This episode concerns the future of warfare in a post-apocalyptic world. Soldiers all have a biometric implant called MASS that augments reality, enhances their senses, and provides virtual reality experiences. One soldier’s implant begins to malfunction and he soon learns that the MASS is in fact altering his senses so that he will not see individuals he is told are enemy combatants as people. It turns out that the soldier is part of a eugenics program practicing worldwide genocide and the MASS is being used to deceive the solders and turn them into autonomous weapons who murder on command due to the augmentations and alterations to reality by the MASS. This storyline falls cannily close to many current concerns about the adoption of autonomous weapons that are not directed or monitored by humans, which are nearly within technological capability to be created and are the subject of international calls for appropriate supervision of and restraint in their development.

 

 

Black Mirror offers many interesting scenarios for analysis of and study by compliance and ethics professionals considering risk management related to the use of technology in organizations and society. As described above, surveillance, data privacy, consent, design ethics, autonomous weapons and other AI, bioethics, and cybersecurity are just a sampling of the issues invoked by episodes of the series.

Round-up on bioethics in medicine

Bioethics is a field of ethical thought and theory which focuses its debate on the relationship between society and biological sciences. These two sets of interests intersect and collide very frequently in medicine, where the impact of scientific advancement on people can be truly a life or death matter. Researchers, doctors, hospital organizations, medical service and product providers, and patients themselves all contend with bioethical dilemmas. With the ever-evolving advancement of AI and other technologies, medicine, like almost all areas of human life is being transformed and along with it, the ethical choices and challenges present are changing too.

  • As previously discussed in this blog’s coverage of whistleblowers in the pharmaceutical industry, the sales and marketing of prescription drugs is a practice full of risks for fraud and misconduct. Pharmaceutical companies paying or otherwise influencing doctors to recommend and prescribe their products to their patients is ripe for conflicts of interest issues. Doctors who might prescribe medication for any reason other than the most appropriate treatment protocol and wellness outlook for their patients, to whom they owe a high standard of professional care, pose great risk of causing both intentional and negligent harm. The risk of this is exceptionally troublesome when the doctors have histories of fraud or misconduct.  Payments from pharmaceutical companies to doctors are legal and not unusual, but they are also certainly controversial and pose significant bioethical challenges to appropriate patient care. In this case, there is definitely a call for compliance controls and ethical decision-making incentives, in that the conduct not against any law or regulation but may certainly run afoul of society’s expectations or medical institutions’ business values:  Drugmaker paid doctors with problem records to promote its pill
  • Traditional Chinese medicine, which uses herbs, plant, and animal parts to make teas or soups, has been relied upon as a popular remedy for centuries. While the practices of clinics offering these ingredients and instructions for using them as cures have been largely unchanged all this time, in recent years technological innovation has reached even into these farthest corners of medical practice. Some of these old-fashioned recipes have gotten a modern variation, turning them from culinary creations to formulations for injectable drugs. The risk lies in the possibility that the patient taking the drug might have an adverse reaction, as the injectable versions of these drugs contain many different compounds, making diagnosing an allergy or contamination very difficult. As major companies enter this market estimated at $13 billion in sales value, doctors are prescribing drugs that are largely unregulated, untested, and unknown. This presents a huge regulatory challenge to ensure public safety and to set supervisory standards for prescription and administration of the drugs:  Patient Deaths Show Darker Side of Modern Chinese Medicine
  • Recently an elderly, unconscious patient showed up in Miami, Florida hospital with a shocking tattoo that read “DO NOT RESCUSCITATE.” Doctors and nurses found themselves struggling to resolve the ethical dilemma of determining their patient’s true desire for care and to what extent. In the state of Florida, an order to not resuscitate (DNR) is valid only if it is completed on an official form and printed on the designated yellow paper. This patient did end up having such a legal form, so when his condition deteriorated eventually, the valid DNR was honored. However, doctors did debate what reaction, if any, they owed to the tattoo and the patient’s evident choice to make his DNR wishes emphatically clear. The medical team in question here provided basic care, sought ethics advice, and got the support system of social workers involved to make a collaborative, respectful patient care plan. The question of what would motivate a patient to have such a tattoo, however, and the wide variety of medical and legal reactions it can provoke, presents an interesting bioethical dilemma in end-of-life care: What to Do When a Patient Has a ‘Do Not Resuscitate’ Tattoo
  • Continuing on this theme of patient care at the end of life, another compelling bioethical dilemma is in the provision of non-essential treatment in hospice. In this case, a patient wanted eye surgery to restore his vision for the last days of his life. He desired comfort, independence, and reconnection with his family before he died that being able to see again could uniquely give to him. Some care providers, however, would not find it acceptable to perform surgery on someone who would die only a few weeks later, incurring costs and risks to provide ultimately unnecessary treatment. The question of when and why to provide this sort of treatment to hospice patients has arguments for cost and efficiency on one side and dignity and compassion on the other: Should Eye Surgeons Fulfill A Dying Man’s Wish To See His Family?
  • During all surgeries and medical treatments, there is an ever-present risk that something could go wrong and the professionals performing the procedure will need to stray from the expected protocol. While this is done in the best interests of treatment success and preventing harm or even saving lives, these interventions present difficult challenges to consent and control. In the scenario of childbirth, these concerns are especially fraught: Doctors who ignore consent are traumatizing women during childbirth

The moral and ethical questions posed in the evolving practice of medicine are and will continue to be the subject of frequent popular debate. Medical care providers confront these issues in their work and standards for and expectations of patient care are impacted by decision-making on these bioethical dilemmas. To build upon the commentary here, check back on December 21 for a post on bioethics issues in scientific research.

Compliance and MLMs

Although multi-level marketing companies (MLMs) have been selling products and services via “distributor” networks for years, they have shot to prominence in the aftermath of the 2008 global financial crisis. In reaction to long-term unemployment or under-employment and systemic, structural changes to the labor market in many communities, non-traditional workforces such as the non-employee, commission-only participants in MLMs have become more common than ever before in the United States.

MLMs all determine their own compensation scheme and marketing and recruitment strategies, but they do share some similarities with the way they brand themselves and communicate. They operate in diverse industries, from nutrition and fitness/wellness to fashion apparel to jewelry to housewares, but they all are organized around a pyramid-shape commission system, where participants at the top recruit and make residual income from the participants below them on a sliding scale. These business also all rely heavily on worth of mouth marketing, both to sell the products or services on offer as well as to recruit new participants to fill out the levels of the pyramid.

Because of this operation style, MLM participants are expected to promote the products and the company itself very eagerly, often expressing the financial freedom and flexibility that the non-traditional working arrangement has granted them in unstable times and portraying the MLM company as a self-employment or entrepreneurship opportunity. These portrayals are particularly effective with the aid of social media and are prevalent in communities where social connection and employment consistency may be hard to achieve and sustain, such as stay-at-home parents, military spouses, or people who need to work from home for medical or personal reasons.

While some MLMs certainly do offer popular products and present an opportunity for participants to earn at least some income, studies have shown that most participants make no money from their involvement or even lose money due to sunken costs of inventory and personal products they buy and do not or cannot sell. Questions are rampant as to whether many MLMs are pyramid schemes, scams that purport to sell products or services but really just recruit members in order for them to recruit other members.   These schemes are often illegal and seen by many as immoral due to the misleading or even fraudulent representations made to participants to get them to spend money, join, and continue making investments.

  • As noted above, one root cause of the popularity of MLMs in the current economy is the struggle of many communities for economic opportunity post-financial crisis. Rural communities, for example, were especially hard-hit by the crisis and have not experienced a fully-realized economic recovery in the following years. To these individuals, joining an MLM appeals because it promises freedom for family time, quick income, and an “American dream” lifestyle that is otherwise far out of reach. This version of the MLM business model is laser-targeted to women in these rural areas who did not work before the financial crisis or don’t work now and seek economic freedom and community, as well as the allure of fun products such as nail decals or whimsically patterned leggings. These companies hawk a message of women’s empowerment and female entrepreneurialism matched with a do-it-yourself dream of financial success. Unfortunately, many of these people enter into these businesses by getting into debt and are never able to recoup their initial investment let alone make money for it that could justify the effort and hours spent. Most disconcertingly, many of the participants enter without any risk disclosure from the MLM company:  Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis
  • This New Yorker piece goes into greater detail about the ways that MLMs play up the aspirational nature of their branding to recruit participants who join unaware of the attendant possible risks. In this case, companies such as DoTerra market aromatic oils to which all kinds of medicinal properties are ascribed without any regulatory or legal legitimacy to reinforce this. Participants in these MLMs often claim that their suffering from psychology, physical, and other medical problems have been almost miraculously addressed by using the products they are selling. The companies operate in a gray area of not giving medical advice but nonetheless suggesting that the products can help with health or lifestyle problems, creating an echo chamber where customers and participants assure themselves that they are both sick and able to be cured by buying expensive essential oils and other homeopathic, non-regulated products: How Essential Oils Became the Cure for Our Age of Anxiety 
  • Here’s yet another perspective on how female participants have been manipulated through MLM company marketing and social media to stake their financial well-being on unattainable goals of personal enfranchisement and economic success. In their efforts to reach toward these goals, participants often find themselves instead in over their heads, without proper training or sufficient expertise selling products that are not regulated, effective, or sometimes even safe:  How Women Making Men Rich Has Been Misbranded As Feminism
  • MLM participants aren’t only at danger of fraud, misrepresentation, and other risks from the companies for which they are sellers. In a commercial market run by independent sellers and conducted via person to person sales, often online and even on social media, sellers are vulnerable to disputes with customers. Buyers can be fraudulent or even predatory and sellers often find themselves out on both the product and their money. MLMs such as LuLaRoe often do not step in to intervene on behalf of their representatives, who have a consultancy relationship with the company and therefore are not afforded the same protections as employees might be. The style of selling is overwhelmingly casual, social marketing conducted via comments on pictures on social media or at parties, making direct salespeople especially susceptible to scammers:  Do MLMs Protect Their Online Sellers From Fraud?
  • Since 2012, hedge fund manager Bill Ackman has been embroiled in an ongoing dispute with Herbalife. Ackman has spent years shorting Herbalife in hopes that its stock price will be driven to zero by public and regulatory identification of the company of a pyramid scheme. Due at least in part to the publicity generated by Ackman and likeminded individuals, in 2016 Herbalife settled with the Federal Trade Commission to resolve their charges that the company had made deceptive disclosures to distributors who lost money. As part of the FTC settlement, Herbalife agreed to provide evidence that its products are being sold to actual customers and not just participants within the pyramid who are funding their own involvement and keeping the façade going to recruit new people underneath them. The standard this settlement sets for the MLM industry, should the FTC keep pace with investigation and enforcement priorities in this, could greatly complicate the way these companies operate: Herbalife Deal Poses Challenges For The Industry

To find out more about MLMs, how they have become so ubiquitous in today’s employment market, and the risks they pose to participants and the economy in general, check out the great piece from a 2016 episode of Last Week Tonight with John Oliver.

Fraud in sports: Marathon cheaters

This is the first of a five-part series discussing fraud in sports. This starts with today’s post which will discuss runners who have been publicly exposed as cheaters in marathons. Next Tuesday’s post will be about imposters and scammers in the world of thru-hiking, a popular endurance sport where people long-distance trail hike in areas like the Appalachian Trail in the Eastern United States or the Pacific Crest Trail which stretches from California to Washington. On Tuesday December 19, the third post will be about sports fraud via gambling, including betting by players and illicit investment schemes. The fourth post on December 26 will be about game fixing, such as the Black Sox Scandal in which several players on the Chicago White Sox conspired to throw the World Series. The fifth and final post, on January 2, will be about major doping scandals, including Lance Armstrong and allegations of systematic doping by the Russian Olympics delegation.

Marathon cheating is a phenomenon that has both fascinated and infuriated running commentators. In a community which is fixated on qualifying times, personal bests, and self-identifications as hobbyist or elite runners which can be separated by mere seconds of pace time, honesty about runner times and speeds is sacred.   In this context, runners who cut courses short, falsify results, or claim publicity for false achievements, undermine the most fundamental measures of success in the marathon running world.

  • In the 1980 Boston Marathon, Rosie Ruiz, a 26-year old New Yorker, finished first among the female runners with an impressive time of just over two hours and thirty minutes. In the face of her amazing accomplishment, Rosie was nonplussed and composed – probably because she cut the course and did not run the 26.2 miles. Ruiz had her medal revoked when other runners stated that they witnessed her running onto the course at mile 25. It turned out that she exited the marathon course near the beginning and took the subway there, where she re-entered and claimed a false victory. Upon investigation, it was discovered that Ruiz’s Boston qualification time, run in the 1979 New York Marathon (her only other marathon before), was fake also, achieved because Ruiz again cut most of the course by riding the subway to re-enter near the end. Ruiz’s fraud rocked the marathon running community, in which road racers had a strong honor code that they felt was pure and safe from cheating that had afflicted sports with equipment or environments that could be altered or adjusted for cheating: Backtalk; 20 Years Later, the Legend of Rosie Ruiz Endures
  • Kip Litton intended to be well-known far outside of his social circles in Clarkston, Michigan as a champion marathoner. However, he has gained notoriety for a different accomplishment in marathon running entirely: prolific misrepresentation of his results and of races run. As Litton shot to the head of the pack in a number of small marathons, his fellow runners became confused by and curious about his quick rise to the top. By investigating race photographs and triangulating his likely performance based upon verifiable race times and per mile paces from previous chip-timed runs, other runners discovered that Litton was falsifying his performance. He was able to pull off this fraud by strategically picking races where he could cut courses or claim to have run qualifying times without even participating at all. The evidence of Litton’s misconduct assembled by the amateur investigators is fascinating and pathological in its devotion to his fraud, even amid Litton’s disqualifications from various races after inconsistencies were pointed out to directors: Marathon Man 
  • Social media has provided a fertile environment for inventive marathon cheating. Legitimate runners who share photos showing their bibs, the identifying numbers that runners wear pinned to their chests or backs during the race, have had those photos stolen and used for bib replication. Runners then use the fake bibs to “bandit,” or run incognito and illicitly, at races. This could be to avoid paying registration fees, to falsify qualifying records, for a prank, or for a creative type of identity theft. As discussed above, the runner community is vigilantly self-policing, and the fascination with these bandits leads to far-reaching vigilante investigations and reporting to race administrators to “out” cheaters:  Inside the Weird World of Social Media Marathon Cheating 
  • The 2017 Mexico City Marathon was mired in scandal when almost 6,000 runners, nearly 20% of the field of 29,000 runner, were disqualified for cheating. Investigation showed that many runners missed timing mats. Others, however, blatantly cut the course, either by riding the subway (harkening back to Rosie Ruiz in New York in 1979 and Boston in 1980) or “bib mules,” runners who wear bibs intended for other runners who do not compete at all, in order to falsify their results (typically to post a qualifying time for Boston or another exclusive race). What exactly happened in Mexico City remains unclear, but it seems to have been a combination of opportunistic runners who took advantage of technological difficulties or shortcomings at the race, and runners cutting the course short by missing timing mats. Such a dramatic disqualification rate should lead the Mexico City organizers and indeed anyone who is behind setting up and administrating a major race event to take a deep look at their internal controls and ensure that future races are set up to diminish the possibilities for going off-course or bandit running:  What the Hell Happened at the Mexico City Marathon?
  • For runners who achieve their results legitimately, race day represents many months or even years of hard efforts brought to fruition. Therefore, for serious runners, cheating and falsifying results is a real insult to all of their work and cheapens the prestige they seek of a credible accomplishment. Therefore many marathon runners who are active in the online communities such as the LetsRun forums take their annoyance or offense at this perceived dishonesty to the next level, launching widespread investigations into uncovering and calling out impropriety. Many runners who do not cheat see those who have cut courses or faked times bragging online, promoting themselves via social media, and their outrage at these actions speaks to the philosophical morality of running. At its most elemental level, and despite the many data-driven external successes one can achieve in the sport, running is a pursuit of internal success, a battle within the self for endurance and accomplishment. Cheating hinders and harms this. People who investigate and call out cheaters hope that they are working as deterrents to runner dishonesty as well as acting as a sort of informal self-regulatory organization for the running community: How to Catch a Marathon Cheat  

For a lot more fascinating examples of and insight into marathon cheating, check out the site Marathon Investigation. Run by Derek Murphy, a business analyst, marathoner, and running fan, the site is a comprehensive survey of impropriety and cheating at marathons all over the world. It offers a really compelling look into the analytical and research aspects of investigating and tracking potential cheaters by using historical data, GPS records, published running times, maps, race photos, and much more publicly available data. For more about Murphy and his motivations and methods, read this profile.

Check back next week, Tuesday December 12, for the second post in this series of five, which will be about fraud in sports as illustrated by thru-hiking fakers and scammers.