Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Selected Dirty Money episodes for corporate compliance

Dirty Money is a documentary series that premiered on Netflix in January 2018.  The series focuses on different case studies of corporate corruption.  The documentaries delve into the political and cultural causes behind the key events in each case, motivations of the individuals involved, and the way that society has been impacted by these situations, some of which remain under investigation or legal challenge.  While all the episodes are interesting to study for general themes of corporate compliance and/or ethical culture and organizational integrity, four of the episodes are especially relevant.


Round-up on anti-money laundering compliance

The practice of money laundering takes on many forms, all with the objective of transferring money earned from illegal activities into the legal financial system for further use.  These various strategies for transferring profits from theft, drug sales, bribery, or other illicit activities are all targeted for the criminals to gain access to legitimate banking and from there use the money for mainstream activities such as investing, shopping, or buying property.


Round-up on compliance issues with GDPR implementation

GDPR – the General Data Protection Regulation – is intended to establish a stronger, unified system of protection of personal data for individuals and businesses within the European Union. GDPR was adopted directly by the European Parliament, the Council of the European Union, and the European Commission on April 27, 2016. Following a two-year transition period, GDPR will become directly binding and enforceable as of May 25, 2018.

GDPR is an improvement upon the 1995 Data Protection Directive, intended to enhance control by individuals over their own personal data and accountability for organizations in how they collect, handle, and maintain it. The Data Protection Directive was implemented by individual law in each of the EU nations and therefore created a patchwork of standards and practices varying between the member states.   GDPR therefore is intended to simplify and integrate requirements in a more cohesive and competent supervisory model.


Round-up on FCC compliance

This is the seventh in a series of seven posts about regulatory compliance priorities and enforcement trends.  The first post was about the Commodity Futures Trading Commission (CFTC).  The second post was about the Federal Trade Commission (FTC).  The third post was about the Securities & Exchange Commission (SEC).  The fourth post was about the Food & Drug Administration (FDA).  The fifth post was about the U.S. Department of Agriculture (USDA).  Last week’s post was about the Environmental Protection Agency (EPA).  Finally, today’s post, the final one, will be about the Federal Communications Commission (FCC).

The U.S. Federal Communications Commission (FCC) is the US regulator charged with supervising interstate communications via the mediums of radio, television, wire, satellite, and cable.  The FCC was created by the Communications Act of 1934 to replace the Federal Radio commission, a predecessor regulator with jurisdiction over radio only, and incorporate the telecommunications regulation responsibilities of the Interstate Commerce Commission, in recognition of the advancement of communication and broadcasting technologies.

The modern FCC has six main operating objectives: providing affordable access to broadband internet; maintaining a competitive framework for communications services providers; ensuring the efficiency and efficacy of spectrum (radio); setting media regulations which encourage digitalisation, competition, and diversity; cooperating with public safety and homeland security crisis communications; and contributing to ongoing modernization of the FCC itself as innovation evolves.  Within these objectives, the FCC sets media policy pertaining to broadcast, cable, and satellite television and broadcast radio regarding content, indecency, ownership, and transition to digital.  Interstate telecommunications services including landed telephone, internet, mobile services, and a variety of other radio and broadcasting networks and databases are also within the FCC’s purview.

Certainly the biggest story in recent years involving the FCC has been the changes to the Obama-era Net Neutrality rule.  For a basic but thorough explanation of Net Neutrality, recent changes to its regulatory handling, and the various interests at stake, check out this QuickTake from Bloomberg.

  • Cooperation with the FTC: In the aftermath of the rollback of net neutrality protections ensured by the FCC in its December 2017 vote, much of the regulatory attention has been on assurances that the FTC will step into the gap to pick up on vital enforcement efforts.  The two agencies have agreed to a memorandum of understanding on their collaboration with each other, much of which appears to be based on pre-Net Neutrality classifications which established shared jurisdictions for the FCC and the FTC.  The details of this plan, however, both in its depth and its ultimate application, remain to be seen:  FCC and FTC outline how they’ll cooperate after net neutrality vote   
  • Legal engagement with states: Facing regulatory rollback at the federal level and judging legislative action to be unlikely, some states have started to consider creating their own legal frameworks in absence of a higher supervisory authority providing oversight. California is one state which has been vocal about wanting to fill the regulatory gap created by federal rollbacks by creating state systems to establish accountability, and the topic of Net Neutrality is a hot-button one for states to get involved.  Because the FCC’s order bars states from making their own overt rules about Net Neutrality, lawmakers will need to get creative about using their resources and existing regulatory authority to capture broadband internet service providers (ISPs) in their jurisdiction to force constructive compliance:  In the Wake of the FCC’s Net Neutrality Repeal, California Eyes Its Own Net Neutrality Law  
  • …And cities: California is far from the only state spurred into action by the Net Neutrality change, as over 20 states have mounted various challenges to the decision and/or efforts of their own to require ISPs doing business in their states to observe Net Neutrality.  Cities are engaged also, with New York City officials considering the ways the city can enforce the principles of Net Neutrality on its own:  States and Cities Keep the Battle for Net Neutrality Alive 
  • Corporate political engagement: Changes in regulatory position and public policy on topics of great consumer interest are practical candidates on which corporations can engage and take political position. The Net Neutrality repeal was not only controversial but provoked a wide range of emotional and intellectual reactions from the public.  So, it’s an interesting and compelling corporate social responsibility (CSR) tactic for many companies to engage politically about Net Neutrality and thereby enhance their relevance to and credibility with current and prospective customers.  Burger King got a lot of attention for doing so not only boldly but informatively:  Why is Burger King better at explaining net neutrality than the FCC?  

Post-Net Neutrality rule-making, the FCC will likely seek a new alignment on a broad variety of issues impacting its wide mandate.  As demonstrated by the diverse range of priority topics below, the FCC will have a full regulatory agenda for 2018, and rehabilitation of its public image and its processes through which it engages with consumers, lawmakers, and stakeholders, will be a top priority for the agency.  As discussed in this article, the challenges are inherent in rebounding from 2017 and setting a fresh set of priorities for 2018.

As this series on regulatory enforcement and compliance interests has shown, whatever the current rhetoric on the proper reach of supervision may be, these agencies will always have a huge impact on life and business.  Whether this is through regulatory expansion, delay and inaction, or rollback, the choices made on regulatory agendas have sweeping influence on topics as diverse as investor protection, public health and safety, the environment, consumer rights, and all areas of the securities and financial markets.



MiFID II conduct principles and markets integrity

MiFID II – the second Markets in Financial Instruments Directive – became law across the European Union on January 3, 2018.  It’s intended to overhaul the entire supervisory framework for financial sector organizations who are in the EU, have clients in the EU, or wish to have access to or establish equivalency for the markets there.  Its predecessor law, MiFID I, became law in 2004 and was judged to have not stood the test of time in the aftermath of the global financial crisis.  Therefore the seven year drafting process – from 2010 to 2007 – that culminates in MiFID II implementation this year is aimed to set a higher regulatory standard for investment banks, broker-dealers, and other institutional market participants and their employees.

Much of the attention about MiFID II implementation has focused on the burden to organizations from financial costs, human capital and efforts, and changes in commercial strategy that will be required for firms to work toward compliance with the new laws.  The laws are thousands of pages long and touch nearly every area of the financial services markets.  Some of the major areas of focus in MiFID II are investment research, transaction reporting, and brokerage compensation arrangements.  However, the far reach of banking and securities markets activities into the economy means that laws intended to govern this sector have a broad and dramatic scope as well.


Travel safety and regulation

Travel safety is one of the most important objectives of the overall supervisory agenda.  Consumer protection and public safety intersect in this topic.  Keeping travellers away from harm and maintaining safe and orderly routes and equipment should be the top priority of any commercial entity providing transportation to consumers.  At the same time, companies working in the transportation sector look to legal and regulatory requirements to set minimum standards for safety infrastructure and motivate investments in technology and human capital improvements.  Regulatory action, or inaction, can therefore have a huge impact on protective measures and responses to threats to safety taken by companies such as airlines, rail transit operators, and private transportation providers.


Round-up on EPA compliance

This is the sixth in a series of seven posts about regulatory compliance priorities and enforcement trends.  The first post was about the Commodity Futures Trading Commission (CFTC).  The second post was about the Federal Trade Commission (FTC).  The third post was about the Securities & Exchange Commission (SEC).  The fourth post was about the Food & Drug Administration (FDA).  Last week’s post was about the U.S. Department of Agriculture (USDA).  Today’s post will be about the Environmental Protection Agency (EPA).  Finally, the seventh post, on Thursday February 1, will be about the Federal Communications Commission (FCC).

The U.S. Environmental Protection Agency (EPA) is the US regulator charged with supervising and enforcing federal laws concerning human health and the environment.  The USDA was created in 1970 by an order of President Richard Nixon in the course of an executive reorganization that consolidated a number of offices and councils that were created by the National Environmental Policy Act of 1969.  The EPA has never been formally elevated to executive cabinet status but is often accorded this rank operationally anyway. 


Round-up on USDA compliance

This is the fifth in a series of seven posts about regulatory compliance priorities and enforcement trends.  The first post was about the Commodity Futures Trading Commission (CFTC).  The second post was about the Federal Trade Commission (FTC).  The third post was about the Securities & Exchange Commission (SEC).  Last week’s post was about the Food & Drug Administration (FDA).  Today’s post will be about the U.S. Department of Agriculture (USDA).  Next week’s post, on Thursday January 25, will be about the Environmental Protection Agency (EPA).  Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).


Round-up on FDA compliance

This is the fourth in a series of seven posts about regulatory compliance priorities and enforcement trends.  The first post was about the Commodity Futures Trading Commission (CFTC).  The second post was about the Federal Trade Commission (FTC).  Last week’s post was about the Securities & Exchange Commission (SEC).  Today’s post will be about the Food & Drug Administration (FDA).  Next week, on Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA).  On Thursday January 25, the post will be about the Environmental Protection Agency (EPA).  Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).

The Food & Drug Administration (FDA) is the US regulator charged with supervising and enforcing federal  laws concerning food, tobacco, dietary supplements, medications and medical treatments and devices, cosmetics, and animal and veterinary products, among other related products and devices related to public health and food safety concerns.  The FDA was created in 1938 by the Federal Food, Drug and Cosmetic Act, which gave the FDA oversight on food, drugs, and cosmetics and now constitutes of the major bodies of federal securities law it is responsible for enforcing.  Other significant statutes within the purview of the FDA – either wholly or partially, in collaboration with other federal supervisory and regulatory entities – include the Public Health Service Act (from 1944, concerning the prevention of foreign communicable diseases within the US) and the Controlled Substances Act (from 1971, creating federal US drug policy).

The food, medical, and veterinary products that fall under the regulatory purview of the FDA represent a significant proportion of the consumer goods imported into, purchased within and used in the United States, meaning that the FDA has broad reach into people’s everyday lives and therefore wide oversight duties to ensure adequate protections.  Food, drugs, cosmetics, and vitamin supplements are the largest categories of consumer products regulated by the FDA.  The FDA’s regulatory powers are broad in scope, including a huge array of business practices, from development, testing, and manufacturing to advertising, labeling, marketing, sales, and supply chain safety.  Enforcement of standards, oversight and monitoring of practices, approval of products, and handling of violations gives the FDA a heavy footprint in its covered industries.

  • Homeopathic drugs: The mandate of the FDA to regulate a variety of medicines and related treatments extends to addressing homeopathic drugs.  These products are widely available to consumers but previously have been lightly regulated.  Given burgeoning consumer protection concerns due to public harm from products that do not have any value as medical treatment and can in fact injure people or make them sick, the FDA is planning to take a more active role in the homeopathic drugs market.  Since the 1980s, the FDA has had a policy of not using the full weight of its enforcement authority with homeopathic drugs because their impacts were thought to be so minor that they could not be dangerous.  However, as more people have started using these homeopathic remedies, the risks and need for protection, especially for infants, children, and elderly people, have grown.  Last year children were sickened and even died from using homeopathic teething remedies sold at CVS due to poisoning from belladonna, which the medicines contained in dangerous proportions.  Testing, approval, oversight practices, or some combination of the above are apparently necessary for ensuring that these products do not hurt people, contain the ingredients they are supposed to in the amounts they should, and can provide medical benefit to support the health-related claims made by the manufacturers to consumers:  FDA to target ‘potentially harmful, unproven’ homeopathic drugs under new proposal
  • Cryotherapy: On a similar note, cryotherapy – immersion in a chamber cooled to as low as -132 degrees Celsius to treat inflammation and all kinds of other ailments and discomforts – has been spreading in popularity and caught the attention of the FDA.  Cryotherapy is often billed as a kind of spa treatment and has won the endorsement of athletes and celebrities for its health benefits.  However, the FDA has reacted skeptically to these claims, especially as people have been injured by unprofessional service providers or attempts to administer cryotherapy “treatments” to themselves.  If people continue to view cryotherapy and other popular science type activities and procedures as giving them some medical or curative benefit, which seems likely, then the need for the FDA to intervene by setting standards and providing oversight will grow alongside the popularity:  The spread of cryotherapy
  • Opioid epidemic: The FDA is well-positioned to contribute to efforts in containing the public health emergency of opioid drug abuse.  The FDA is responsible for overseeing both the number of prescriptions issued and the introduction of drugs to curb and treat addiction.  Overhaul of the system in which opioids are prescribed, and the rationale behind the length of prescriptions, is in the reform jurisdiction of the FDA.  This system would likely be funded by the pharmaceutical companies that make opioids, similar to what is already done to pay for other similar programs covered by the FDA’s enforcement authority.  Prescription intervention as well as the expedition of new versions of drugs to treat addiction will be priorities of the FDA on its upcoming regulatory agenda:  FDA plans to curb prescriptions to fight opioid epidemic
  • Gene therapy: Apart from approval of drugs, the FDA is also tasked with approving medical treatments.  Gene therapy has been a hot topic in bioethics for years, with questions about the use of stem or other cells from humans having dogged the technology’s development for years, but having promising treatments for genetic diseases now finally in its pipeline.  The FDA recently approved the first genetic therapy for an inherited disease, a rare form of childhood blindness.  The price of the approved treatment is currently astronomical, at almost $1 million, but the hope is that the FDA approval will open the door for further development that could lead to lower prices and improved benefits over a lifetime.  FDA openness and speed in considering and approving these technologies will certainly have an encouraging impact on the innovation within the field and the introduction of further treatments using gene therapy and improving upon knowledge and practices around it:  FDA approves first gene therapy for an inherited disease  
  • Food safety and recalls: Finally, the FDA’s food safety and recall programs may be an active area for reform and extended consumer protections going forward.  The FDA’s broad authority for food safety inspections has been critiqued in the past for culminating in uneven enforcement efforts.  Most recently, the Office of the Inspector General at the Department of Health and Human Services and the Government Accountability Office have both exposed shortcomings in the FDA’s enforcement of food safety policies.  Inspections, follow-up on food safety violations, and supervision of and collaboration with state-level regulatory personnel have all been found lacking:  Watchdog audits fire warning shots at the FDA’s food safety program

Addressing these deficiencies in the oversight process, and following with substantive improvement in the food recall process, has major implications for consumer safety.  The recall process in particular is crucial for ensuring that any gaps from the production and distribution processes oversight that are not filled, are caught before contaminated and dangerous food and supplements are sold to consumers.  However, audits have found that the recall process is not up to muster, indicating that they take way too long to kick off and that the FDA does not do enough to compel companies to cooperate with their warning letters and issue recalls:  The FDA Is Still Scary Slow at Food Recalls

Be sure to check back next week for a round-up on USDA regulatory compliance.


Fraud in sports: Doping scandals

This is the fifth and final post in a series of five posts on the topic of fraud in sports.  The first post, from December 5, was about cheating in marathons and how incidences of it are exposed, investigated, and disclosed to the public.  The second post, on December 12, was about fraud and falsification among thru-hikers within the long-distance hiking community.  The third post, from December 19, was about fraud in sports from gambling and betting.  Last week’s post focused on fraud in sports via game/match fixing. Today’s post will be about major doping scandals in different sports and will discuss the ways some very high-profile athletes cheated by doping, how their uses of performance enhancing drugs were supported or not identified by various institutions, and how individuals impacted for various reasons by doping have dealt with this in the aftermath.

Doping has been a controversial topic in the sports world for decades, as scandals over the use of performance-enhancing substances in various athletic programs have recurred unrelentingly.  Revelations of doping by athletes, both on their own and as part of national athletic programs that have sponsored and aided them in taking drugs to artificially aid their performance, have been in the news constantly.  Heroes from sports have been knocked off their public pedestals as the truth of their cheating and drug use has been revealed.  Olympians and world champions have lost their medals and records, while state athletic systems have put the chances of future athletes, now innocent of any wrongdoing, of competing on the world state at risk because of prior systematic unethical decision-making.  Athletes who competed “clean” have been robbed of their moments of glory and missed out on professional opportunities they would have had, if they had not been bested by other athletes competing unfairly while taking performance-enhancing drugs.  Sponsors have invested in athletes based upon unreliable, misrepresented statistics.  Above all, the integrity of the game for other participants as well as spectators has been impaired and thrown into great doubt and uncertainty.

The ways athletes dope are as varied as the sports and events in which the fraud takes place.  The one reliable fact about the fraudulent use of performance-enhancing drugs in professional sports is that ongoing administrative efforts to test for it and oversee institutional protections against it are seriously lacking.  Regulatory bodies, whether part of the athletic programs or connected to national programs or international organizations, are often inadequately supervised, incompetent for the task, or insufficiently resourced.  Until major change takes place in the control frameworks and supervisory structures which exist to protect the integrity of sports from cheating and dishonesty, doping scandals will continue to undermine the credibility of athletic programs and events.

  • The Russia doping scandal has been in the news unrelentingly for several years, stemming from accusations of state-sponsored doping during the 2014 Winter Olympics in Sochi, Russia.  Claims of systematic doping in Russia, supported by the state system there which for decades has been well-known as one of the most intense and involved national programs in the world, have dogged the state officials, the athletes both from past delegations and with future ambitions of competing, and the International Olympic Committee (IOC).  After investigations which have been dogged every step of the way with unreliable information from state-sponsored anti-doping testing centers and repeated discrediting of various athletes from past Olympics, the IOC decided to ban Russia from sending an official delegation to the 2018 Winter Olympics in Pyeongchang, South Korea.  Russian athletes will still be eligible to attend as neutral delegates, but pride of representing their country or the opportunity to stand on a medal podium for it will not be possible.  This story will continue to unfold and promises to hold only further dishonor and disappointment on many sides:  Russia doping scandal
  • For sure the continuing drama with Russia’s state sport system will go on right away, as Russia is hosting the 2018 World Cup.  This creates an uncomfortable situation for FIFA.  In the aftermath of the IOC banning Russia from the 2018 Winter Olympics under the cloud of doping suspicions, public outcry has grown for FIFA to consider banning or punishing Russia in the 2018 World Cup as well.  This is a considerably more awkward proposition, as Russia is the host of the upcoming 2018 World Cup, and FIFA is no stranger to its own controversies from legal accusations of corruption and bribery by its officials in various countries.  It is difficult for FIFA to ignore that the current controversy around Russia stems from when Russia hosted the Olympics in 2014.  Russia hosting the World Cup in 2018, then, is fraught with concerns about integrity of game play if the host country fields a team.  Barring the Russian delegation from competing in an event their country is hosting is hard to imagine, but may be just the sort of consequence that could make necessary change begin to take root:  After IOC Bans Russia From Winter Olympics, FIFA Has To Decide About World Cup
  • Despite his once-storied history as a cyclist, cancer survivor, and inspiring public figure, Lance Armstrong is best-known now for something much less honorable.  His enduring legacy as of now is of having doped for years, evaded being caught by any testing efforts, denied it constantly and extremely publicly, and then faded from the public eye upon convincingly being exposed as a cheater and a liar.  While much has been written about the puzzling and complex psychology of someone who would pull off such a brazen and persistent fraud while holding himself out as the paragon of honesty and motivation for achievement, one of the more interesting questions has always been how he got away with it for so long.  It was definitely a team effort, and subsequent reports have shown that indeed Armstrong and those who supported him and benefited from his ongoing performance created a wide-spread doping program in which they studied and exploited weaknesses in the anti-doping system and brazenly avoided detection and testers:  Report Describes How Armstrong and His Team Eluded Doping Tests

Years after his precipitous fall from grace, Armstrong is seeking to rehabilitate himself in the public eye by doing a podcast and seeking a return to his position as the foremost expert in Tour de France inside knowingly and cycling expertise.  With his race victories erased by the disclosure of his doping that got him to them, Armstrong is seeking both a platform and an identity, and wants to connect both to the sport in which he was once an idol.  However, the dishonesty of his eminence in the Tour de France while he was cheating to sustain his achievements make it difficult to imagine redemption or even revisionist acceptance of his actions to bring visibility to the sport of cycling:  Lance Armstrong: ‘A man with no platform is a lost man’ 

  • Chris Fromme is a successor to Lance Armstrong in the world of professional cycling. For years, cycling has been tormented by disclosures of doping and the impact of drug abuse on the sport.  Athletes have been discredited and records vacated seemingly without end.  Fromme is one of the stars of a cycling squad, Team Sky, which is very vocal about their zero-tolerance policy for doping and their commitment to clean racing.  So, if his drug test results that indicate he’s doped are upheld, he could be subject to a yearlong ban and major reputational risk for both himself and his team.  Fromme is arguably the biggest superstar in cycling since Armstrong, so if he ends up discredited too, then professional cycling will have a major existential crisis on its hands.  An overhaul of cycling’s doping rules and enforcement practices to improve and simplify doping regulations could both improve credibility and ensure more transparency and clarity in the system in the future:   The Only Solution To The Chris Froome Problem Is The One Cycling Will Never Accept
  • Like cycling, track and field is another sport which has been oppressively troubled by allegations of doping and dishonesty.  Athletes in track and field were disproportionately impacted by the Russian doping scandal as it unfolded during the 2016 Summer Olympics in Rio, Brazil and showed that the world records, qualification times, and even prior medal-winning races lacked integrity due to the participation of athletes who were on drugs.  Many track and field stars, including some whose own careers had been negatively impacted by dopers who won medals and impacted sponsorship and professional chances they should have had, thought this was the moment for reform in anti-doping supervision and regulation.  However, this change has not come, and the opinion of athletes in the sport is unanimously that current drug testing schemes and rules are inconsistent and insufficient, do not work or represent the interests of athletes, and are therefore not fair to anyone:  We Asked Veteran Track & Field Athletes How To Possibly Fix The Doping Problem

One possible solution which has been bandied about is a reset of the annual records in track and field events to reflect only those from after 2005, which is when new anti-doping standards in track and field were implemented.  This may be an attempt at radical fairness, but it may be too much about optics and not enough about substance, and therefore not the right move to truly address and promote credibility in the sport: Track And Field May Scrap Its Records Because Of Doping Scandals. Is That A Good Idea?  Newer testing technologies, re-testing of old results to catch and bring to justice prior cheaters, and cultural encouragement of whistleblowers could all be better to improve the odds of catching sports dopers or discouraging them from cheating at all:  Sports Doping Cheats Fear Whistle-Blowers and Retests

If you enjoyed this series, look back to the ethical leadership in sports coaching series from last year.  Check out the last post in that series, which includes links to all the previous in the set.  In March, a new series on sports and ethics will begin, this time focused on integrity in game play and discussing topics such as the ethics of tanking, referee bias, penalty embellishment, and much more.