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.

Tips for conducting compliance investigations

The task of a compliance officer is not to “set it and forget it.” Apart from planning and advising on risk management strategies, and monitoring business implementation of the attendant policies and procedures, compliance professionals must remain vigilant about the potential for violations. Internal compliance violations can run the causal gamut – they could be because of internal controls failures, unwitting omissions due to lack of awareness, or outright misconduct and malfeasance.

Compliance officers should approach an investigation into a compliance exception thoughtfully and with careful preparation. If the planning for or administration of the investigation is flawed from the beginning then the investigation results will not be reliable. In many fields, such as scientific research, planning investigation tactics and strategy is a discipline all of its own, demanding special expertise in statistical methodology standards.

For purposes of the internal investigations of compliance officers, a common-sense approach, focused on fairness and transparency, can take the place of technical expertise in conducting informal internal investigations that will still generate reliable and meaningful results. Compliance professionals should keep the following fundamental themes in mind when designing an investigation effort:

  • Reject foregone conclusions: Compliance investigation inquiries can be sensitive and intimidating. Most people do not want to do the wrong thing and will be worried or even frightened by the possibility that they have broken rules or regulations. They will fear that their jobs are at risk or worry about the reputation of the company due to the misconduct. Therefore, take the investigation seriously, even if its scope is limited or it’s routine. Don’t decide the outcome before the information is gathered. Investigations should be motivated by intellectual curiosity, in the case of annual or planned investigations, or, in the case of ad-hoc or event-driven investigations, an objective desire to protect and promote integrity, which knows no master.
  • Work carefully: Sloppiness and poor preparation will doom an investigation from the beginning. Compliance professionals should work carefully and check their work as they go along. Simple errors such as directing queries to the wrong recipients or asking for information that is out of scope of the investigation can cause a terrible impression with stakeholders and disrupt the efforts of the investigation.   Communication is key, and information communicated to all parties throughout the investigation should be accurate, clear, and appropriate at all times.
  • Give support, not interference: Compliance often collaborates with other functions such as HR, Legal, and Risk; this collaboration should be encouraged, not complicated or avoided. In planning investigation strategy, work together with partners and stakeholders whenever possible (legal privilege and confidentiality, where it applies, must of course always be respected). Sharing information helps to make conclusions stronger and to avoid inefficient duplication of efforts.
  • Follow through with enforcement when misconduct is evidenced: Investigations are toothless when the results are just put on a shelf and forgotten. Enforcement action must come next, and in every outcome, there is appropriate follow-up. In instances where misconduct is discovered, whether it is from negligence or intentional wrongdoing, disciplinary action should be taken with concrete consequences. Substantive structural changes should be made also the risk control framework to seek to prevent or identify earlier the non-compliant behaviour whenever possible. Punishing the wrongdoer is not enough; addressing the root causes of the wrong-doing has to happen too.
  • Feed-forward when no malpractice is discovered: Not every investigation will be an open and shut case where there are good people and bad people and everything wraps up neatly. It may be that the investigation yields no evidence that anything material happened. It’s also possible that the investigation would show some unrelated deficiencies, such as in communication strategies or employee awareness. Finally, the investigation could produce inadvertent lessons for the compliance officer him or herself to take back to a future risk assessment and planning session. Whatever these conclusions are, don’t discard them just because they don’t lead to a punitive action. Feed them forward into risk controls improvements and future compliance program efforts.

Compliance officers who consider the above suggestions in planning their own investigation strategy will be focused on obtaining neutral, credible information. They will communicate clearly and engage stakeholders supportively. Enforcement actions stemming from the investigation efforts will be pro-active and productive. With these approaches, compliance officers can establish credibility and effectiveness in conducting internal investigations.

Must-read ICIJ investigative project reports

The International Consortium of Investigative Journalists (ICIJ) is an independent, international network of over 200 investigative journalists in more than 70 countries worldwide. Their reporting focuses on international crime, corruption, and transparency of political and financial power held by governments and corporations. ICIJ works worldwide with local media partners to publish complex investigative reports often focusing on organizational corruption at the highest levels of power and the impact their activities have on people and communities in their home countries as well as in the developing world.

Like this blog’s earlier feature on the work of the Organized Crime and Corruption Reporting Project (OCCRP), reporters associated with ICIJ often follow highly complicated financial trails at major banking institutions and supporting organizations in the financial services industry, in order to uncover tax evasion, theft of national assets, bribery, and other financial crimes.

  • Luxembourg Leaks (2014): This blog has previously discussed the Luxembourg Leaks in the feature post on whistleblowers in the financial services industry. This investigative report was based on documents provided to ICIJ by, among others, a French employee of the Big 4 accounting firm PricewaterhouseCoopers. The ensuing investigation showed that Big 4 firms were facilitating registration of multinational companies in Luxembourg in order to evade local taxes and take advantage of banking secrecy laws that would prevent disclosure of even the existence of their offshore accounts to their home countries. Companies named in these papers included IKEA’s Australian operations, Pepsi, Disney, and the Koch Brothers’ business empire. 
  • Swiss Leaks (2015): Continuing in the vein of uncovering undisclosed accounts and financial arrangements maintained under the protection of a banking secrecy regime, this investigation revealed HSBC Private Bank (Suisse) maintained banking relationships with clients connected to arms trafficking, blood diamonds, and bribery. Many of the clients serviced by HSBC were connected to discredited political regimes in countries such as Egypt, Tunisia, and Syria. These were clients who due to their illegal or sanctioned activity would not be accepted for banking services in other countries. The documents showed that HSBC not only accepted them but repeatedly assured them that their wealth would be shielded from tax authorities or other inquiring government entities. 
  • Evicted and Abandoned (2016): This investigation ran an external audit on projects funded by the World Bank and determined that many of them were in complete non-compliance with the bank’s own policies, causing physical and economical harm to the people it purported to support. The International Finance Corporation, which provides private sector loans on behalf of the World Bank, has given financing to governments and corporations accused of egregious human rights violations. In some cases these financing activities continued after evidence of the violations was made public. Funds from World Bank projects were misappropriated and diverted by local governments to fund violent and harmful campaigns against the people who were supposed to be helped, and social and environmental impact was disregarded in funding projects. 
  • The Panama Papers (2016): Receiving widespread media attention and igniting local investigations in many countries and by many financial institutions, the Panama Papers project was one of the biggest stories in money laundering investigation of recent years. ICIJ worked on this project in collaboration with OCCRP and Suddeutsche Zeitung, the German media organization which originally received the cache of documents from Mossack Fonseca, a trust company in Panama that facilitated legal incorporation of offshore shell entities for many of the world’s wealthiest people and powerful political figures. Many of these shell entities were later involved in illegal activities including tax evasion, fraud, and money laundering. 
  • The Paradise Papers (2017): The most recent of ICIJ’s reports, like the Paradise Papers, this details the facilitation of secret financial arrangements by offshore service providers, this time including one of the world’s most high-profile law firms working in this industry. This time the focus was on legal incorporations in Bermuda, Singapore, and Mauritius. The Paradise Papers differ somewhat from the Panama Papers in that they do not purport to uncover widespread illegal activity, but rather legal activity that is secret or inconsistent with representations otherwise made to the public. Political figures in the US, the UK and Canada, and their donors or other financial supporters, were included this time with information exposing their previously undisclosed offshore arrangements and ownership stakes. The Paradise Papers also provided great detail on the “tax engineering” of many major companies, including Apple, Nike, Allergan, and commodities giant Glencore.   While currently legal, it is expected that the public controversy over these increasingly “creative” tax arrangements may lead to deeper regulatory inquiry as to whether they should remain legitimate practices going forward. 

Like OCCRP, ICIJ has become a highly-regarded media organization in the twenty years since its formation. The work that the journalists of ICIJ do to investigate and expose corruption and crime is critical for the effort to enforce expectations that those in positions of power be held accountable for their actions, which even if legal, can be ethically unacceptable and abusive of the people they purport to serve. These investigations serve a crucial public service in exposing both criminal activity and legal arrangements which nonetheless may not meet society’s standards for transparency or lead later to the facilitation of illegal activity.

Interesting cases of retractions by scientific journals from Retraction Watch

Retraction Watch is a blog that started in 2010 with the objective of publicizing, studying, and contributing to the investigation of retractions in scientific journals of academic research and writing. The validity of academic papers is often held to a vaulted status because of the famed system of vetting through peer review and editorial boards before publication. Identifying mistakes in this context, then, whether through inadvertent technical errors, minor or major, or some intentional misrepresentation or fraudulent conduct, is an interesting and necessary practice in order to uphold academic integrity.

Hundreds of these retractions, many minor but some major or related to malfeasance, occur per year. Thorough investigation and discussion of these issues is important for creating and upholding high standards for integrity for all involved parties – researchers, their communities, the journals where they publish, the academic and general media, and supervisory bodies which are charged with oversight responsibilities over them all.

  • Insufficient controls in review process – “The Case for Colonialism,” Third World Quarterly (2017): This article, by Bruce Gilley, a political science professor at Portland State University, intended to position the history of Western colonialism as basically a reputational problem. This perspective is rooted in a view that said Western colonialism was generally helpful to and necessary for indigenous peoples. Early defences of the publication were on the grounds that the journal does not want to stifle pieces because they are controversial. In response to the publication of this article and the protest provoked by it, fifteen members of the editorial board of Third World Quarterly have now stepped down. Their letter of resignation cites concerns about the peer-review process which they believe that the article did not pass procedurally or substantively. Their criticism was not levelled with the goal of restricting free speech but rather in interests of upholding a high academic standard and honesty in the process.
  • Privacy and consent – “On Separating One from the Other: Images of a Developing Self,” British Journal of Psychotherapy (2016): By nature, articles in medical journals contain very sensitive information about people. As their experiences they had as patients are turned into observations about subjects, does the reasonable expectation of privacy shift at all? Of course, inherent in publishing an article is making the information in it public. People may be okay with having their private clinical information anonymized and shared with the noble objective of contributing to science, but comfort levels with that may change depending on the audience. Patient privacy expectations differ if the publication is available to professionals only or if it may be accessed or shared by anyone, including the public. 
  • Failure to disclose conflict of interest – “Prognostication of Uveal Melanoma: A Work In Progress,” JAMA Ophthalmology (2016): Funding of research and improper disclosure of conflicts of interest related to it is an ongoing concern in many academic areas. For example, it has been suggested that one of the root causes of the 2008 global financial crisis is that economists and other academics writing and speaking publicly made inaccurate or misleading assertions about the health of the global economic system that were motivated by their (unreported) ties to corporate or political entities. Similarly, in scientific research papers reporting on the efficacy of medical treatments and even sometimes recommending specific therapies, may have been funded by pharmaceutical industry entities, raising reasonable questions about the veracity of the papers when the author does not disclose this potential or perceived conflict of interest.   
  • Code of ethics for editorial boards – rejecting papers for ethical concerns (2016): Journals receive submissions which describe work that has already been done, presumably with the permission of the appropriate supervisory authorities when necessary, but sometimes editorial boards may still have lingering “right or wrong” concerns about the work considered or methods used. Journals do not have a universal standard on their handling of articles that are connected to projects that had harmful or destructive methodologies in gathering their data. Some journal representatives feel that the burden does not lie on the journal to retroactively judge the assessment of the supervisory bodies approving and overseeing the research studies. Others feel journals have a moral imperative to set their own progressive standards for ethics in research. 
  • Scientific misconduct – handling of unethical behavior (2011): In some cases a long history of unethical practices emerges in the investigation of research methods for possible retraction of scientific papers. Frank Sauer, a biochemist at University of California Riverside, was accused of misconduct via an anonymous e-mail. The subsequent investigation led to the retraction of numerous papers and the discovery that he had intentionally edited or falsified images used in his work. The university found that some of this behavior was negligent whereas other misconduct was intentional. In this case the investigative committee did not recommend that Sauer be fired but rather go through a variety of other punishments including a publishing ban, freezing merit pay raises, and remedial ethics training. 

Reporting work like that of Retraction Watch helps to show a rare view of this part of the academic process as well as shed light on the outcome of public- or investor-funded research that sometimes may end up discredited due to fraud or misuse of said funds. Disclosing and investigating these practices can be important in raising the standards of not only research itself where needed but also the vetting of work and investigation of possible improprieties to the benefit of the public and other members of the academic research community.

Round-up on counterfeiting of consumer goods

Counterfeiters have existed for time immemorial. Ever since the concept of value was introduced by exchange of money and the idea of authenticity or identity first became established, fraudsters have aimed to produce fake money and forged documentation. Following the counterfeit money were unauthorized copies of the products that the money could purchase, a trade which has become ubiquitous and sometimes even represents a larger market than that for the authentic item.

With the spread of globalization, a diverse range of counterfeit products are sold and bought all over the world. Sometimes this is without any attempt by the seller to deceive, with the fake product offered to a consumer who willingly buys a bootleg or replica copy. Others are to customers who think they are purchasing the real thing, often from a very expensive or luxury brand or of a very popular and desired item.

No matter the intent behind the transaction, commerce in counterfeit items is growing all the time and presents many dilemmas for corporate investigators and law enforcement in identifying the fraudulent practices and protecting both brands from this illicit trade while preventing consumers, wittingly or otherwise, from engaging in it.

  • Most of the world’s counterfeit items are produced and manufactured in China – enough so that the trade in these fraudulent goods is a $400 billion industry, by some accounts representing as much as 10% of China’s GDP. This is a striking paradox, as many authentic items such as Nike shoes and Apple iPhones are produced practically alongside knockoff versions of the same. While the traditional logic is that counterfeit goods are part of the assumed risk of doing manufacturing business in China, corporations are actively trying to take control via clever action against fraudsters. Brand protection efforts include hiring private investigators to find and seize fake goods and try to navigate the complicated, labyrinthine underground of the Chinese counterfeiting industry:  To Catch a Counterfeiter
  • South Korea has joined China as one of the major world centers for counterfeit activity. However, unlike many of the goods which come from China, which are low-quality replicas that make unconvincing fakes to the educated consumer, the market in South Korea is knowingly demanding for “copycat brands.” These consumer desire is driven by the prevalence of streetwear fashion which replicates items worn by celebrities and seen on the internet from brands which are not easily purchased or even available in South Korea. In order to answer customers’ requests to be up on these global trends, counterfeiters are making high-quality fakes to sell to the fashion savvy who might not even care whether their items are real, as long as they are able to access the desired style:  Why South Korea Is the Home of Counterfeit Culture
  • More than what’s in a name – what’s in a set of parentheses? For years Costco has sold rings advertised on their in-store signage as “Tiffany” rings. There is no affiliation between the rings sold by the wholesale giant and those available at the specialty jewellery retailer Tiffany & Co. While Costco made no claim that it was selling imitations of the Tiffany & Co. rings, Tiffany alleges that calling the rings “Tiffany” on the signage was a false identification, and that consumers could have been misinformed and mistakenly purchased the rings believing they were Tiffany & Co. A judge has ruled that Tiffany is entitled to almost $20 million in damages and interest from Costco for this marketing scheme, indicating that “Tiffany” is not to be used a generic term to describe the setting of a ring to consumers, as Costco alleged it was intending to do:  Costco owes Tiffany more than $19 million for selling counterfeit rings 
  • Counterfeit goods in the apparel market are well-known, everyone having seen before the ubiquitous fake Louis Vuitton and other designer bags that brands have been fighting against for years. Another area in fashion where fakes are becoming prevalent is makeup. The black market in the beauty industry is growing all the time, with counterfeiters making and selling popular products to satisfy demand when the real ones sell out quickly, aren’t available in certain markets, or are highly priced. The safe and hygienic production of makeup is a very complicated business, involving health standards, inspections, and scientific processes, which fraudsters do not typically invest time or money to replicate along with the products. Consumers having gotten sick and injured from using these fake makeup products which are often ordered online or bought in the discount shopping districts where knockoff handbags used to be the main fare. Especially concerning is that many people purchase these fake cosmetics in bulk, to fraudulently resell online as the real thing or to use on unsuspecting clients as makeup artists:  We Went Inside Beauty’s Black Market & It’s Worse Than You Think
  • Equally concerning to consumer protection and safety as fake cosmetics is the growing prevalence of knockoff wine. The Chinese market is participating in rising prices and demand in a hot retail wine market, for auction buyers, home drinkers, and restaurant suppliers alike. Along with these eager buyers, as always, come the sellers of counterfeit and contraband products. Fake imported wines abound in China. On high-ticket wines, empty bottles of the real thing are actually sold on the black market and then re-filled with fake wine to be sold to unaware purchasers. Aside from damaging the high-end market with a flood of counterfeit wines, there are also concerns for the average consumer. Sometimes dangerous ingredients and chemicals are added to cheap wine to change the color or taste in order to fool consumers, who can then get sick from the doctored alcohol:  China Is Facing An Epidemic Of Counterfeit And Contraband Wine

Companies and governments worldwide are doing their most to crackdown on the illegal production and manufacture of counterfeit goods, and to prevent the sale of these products to consumers. This is an effort which requires international cooperation and a constant pursuit to stay up to date in the counterfeiters’ methods in order to attack and prevent their attempts. Consumer protection and brand value to corporations are both at risk in the continued spread of these illicit practices and products.

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.

Round-up on compliance investigation and enforcement trends

Keeping up to date on developments in compliance investigation and enforcement priorities is important for planning compliance programs and setting strategic agendas. In a constantly changing regulatory environment, continuing education is a must. Recent developments suggest that regulators are regrouping and preparing new priorities, while companies are trying to contend with regulations and avoid looming legal challenges.

  • Prosecution of white-collar criminals is at an all-time low as some companies appear to be considered “too big to jail” and risk-adverse trial strategy rules the day:  Why Corrupt Bankers Avoid Jail
  • Airbnb, possibly setting precedent for other “shared economy” companies without traditional regulatory compliance frameworks, looks to pre-emptively contend with legal challenges by striking deals with municipalities:  Airbnb Tries to Clear Away Political and Legal Challenges in New York and San Francisco
  • The ECJ may declare Uber a transportation company later this year, opening the tech giant to much stricter regulatory scrutiny; in anticipation, Uber has withdrawn from some EU member states where the regulatory burden already overwhelms its appetite for the market: Europe’s Top Court Leaning Towards Dealing Uber a Big Regulatory Blow
  • HSBC, amidst negotiations with the U.S. Department of Justice as it is under investigation for its role in the bond market pre-2008 crisis, is concerned over regulatory gaps in the global financial market that may be unpredictably fragmented by Brexit, in which cooperation between regulators and investigators could become more problematic:  HSBC chief sounds alarm over financial regulation and Brexit
  • Amid mounting prosecutorial pressure and investigation efforts worldwide, a guilty plea and cooperation from ex-Credit Suisse Banker:  Ex-Credit Suisse Banker Helping U.S. After Tax Guilty Plea
  • Scandal at Wells Fargo continues to unfurl its tentacles into new areas of the bank’s business, now reaching into auto loan customers who were charged for unauthorized car insurance; previous attempts at punishment or reform now seem insufficient in light of the scope and scale of the wrongdoing, upping the ante on what is considered justice in corporate crime:  Give Wells Fargo the Corporate Death Penalty

This summer’s trends indicate diminished enforcement efforts, regulators regroup and try to ascertain a new approach to holding corporate criminals accountable for their ethical lapses, in light of previous attempts failing to adequately discourage wrongdoers. In the meantime, companies finding themselves cornered by regulatory pressures hope to gain time to comply or the blessing to continue as-is by negotiating agreements or reaching settlements with regulators.