- With FCPA Cases Rising, Your Company Needs a Plan
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Posted on May 10th 2012, by K2 Global New York Office
The financial page of this week’s New Yorker touches on an area of U.S. law that has grown significantly over the past few years: the Foreign Corrupt Practices Act, or FCPA. As companies continue to expand, often into emerging markets and markets in which bribery and other forms of illicit facilitation payments are a cultural norm, both DOJ and SEC enforcement have grown increasingly aggressive in their investigations and prosecutions of bribery. The result: companies are now forced to proactively evaluate, prevent and mitigate their own potential exposure to corruption.
We at K2 Global have seen more companies looking to evaluate and update policies, procedures and relationships in order to mitigate risk. We call this developing a “First to Know” capability.
According to Trace International’s 2011 annual FCPA report, formal cases brought by the DOJ and SEC have steadily risen over the past decade. The number of cases brought in the U.S. is particularly noteworthy when compared with the number of cases brought in all other countries:
For companies working in sectors such as natural resources, defense, and health care, the risk of potential corruption is especially high, as these industries typically operate in regions with high levels of corruption. Companies need not only be diligent about compliance procedures in historically less stable regions (South America, the Middle East, Africa), but must also be vigilant in such economic powerhouses as Russia, China and India. According to Transparency’s 2011 “Corruptions Perceptions Index” these three countries received ratings of 2.4, 3.6 and 3.1, respectively, on a 1-10 corruption scale where 0 is very corrupt and 10 is very clean (for reference, the U.S. scored a 7.1).
So, how can companies protect themselves from DOJ and/or SEC action? First and foremost, stricter internal controls must be implemented; anti-corruption compliance procedures must be created and, critically, employees must be trained to identify, deter and report any potential violations.
Instituting internal controls is only the beginning. Companies must also conduct rigorous due diligence on sub-contractors; accounting audits must be done in specific regions and for specific types of projects; and the changes must be made from the top down.
Only through this multi-faceted, vigilant approach can a company reasonably expect to be “the first to know” when a potential bribery or corruption issue has arisen. By not taking measure of your current limitations—and realistic steps necessary to mitigate bribery—companies expose themselves to significant liability.
As we’ve seen recently with Wal-Mart and countless examples in the past few years, turning a blind eye or allowing bribery to continue because it’s “good for business” is no longer “good for business.” Regulators are imposing larger fines and criminal penalties. To safeguard your company and be in the best position to combat these issues, building a “first to know” capability is the best defense.
- Data Security Experts in Despair Over Network Breaches
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Posted on March 28th 2012, by K2 Global New York Office
The Wall Street Journal interviewed Shawn Henry, the departing head of the FBI’s cybersecurity efforts, who expressed profound pessimism about the private sector’s ability to protect the nation’s infrastructure on its own without greater intervention. “We’re not winning,” Henry told the WSJ.
Others were even more pessimistic. James A. Lewis, a senior fellow on cybersecurity at the Center for Strategic and International Studies, said “I think we’ve lost the opening battle [with hackers].” Mr. Lewis said he didn’t believe there was a single secure, unclassified computer network in the U.S.
“In many cases, the skills of the adversaries are so substantial that they just leap right over the fence, and you don’t ever hear an alarm go off,” [Henry] said. Companies “need to be hunting inside the perimeter of their network,” he added. [...] Mr. Henry said FBI agents are increasingly coming across data stolen from companies whose executives had no idea their systems had been accessed.
“We have found their data in the middle of other investigations,” he said. “They are shocked and, in many cases, they’ve been breached for many months, in some cases years, which means that an adversary had full visibility into everything occurring on that network, potentially.”
Mr. Henry said that while many company executives recognize the severity of the problem, many others do not, and that has frustrated him. But even when companies build up their defenses, their systems are still penetrated, he said. [...] He said their most valuable data should be kept off the network altogether. He cited the recent case of a hack on an unidentified company in which he said 10 years worth of research and development, valued at more than $1 billion, was stolen by hackers.
U.S. Outgunned in Hacker War (Wall Street Journal)
- Chinese Power Struggle Reveals Mysterious Death of Briton
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Posted on March 27th 2012, by K2 Global New York Office
China’s ruling elites have been forced into a difficult situation over the actions of Politburo member Bo Xilai who was recently implicated in the death of a British citizen who lived in China and had been associated with Bo. Neil Heywood died in Chongqing last year of “excessive drinking”—even though friends say he did not drink—and his body was quickly cremated. The Wall Street Journal has broken several stories in the last few days on the matter:
Mr. Heywood’s death is one of the events in the drama surrounding the fall of the Communist Party chief in Chongqing, Bo Xilai, whose dismissal this month has thrown Chinese politics into turmoil.
Suspicions about Mr. Heywood’s death were raised by Wang Lijun, the former Chongqing police chief who triggered the political drama, The Wall Street Journal reported Sunday. Mr. Wang, who sought refuge from Mr. Bo in the U.S. Consulate in Chengdu on Feb. 6, claimed to have fallen out with Mr. Bo after discussing with him his belief that Mr. Heywood was poisoned, according to people familiar with the matter. He also claimed Mr. Heywood had been involved in a business dispute involving Mr. Bo’s wife, Gu Kailai, according to one of those people.
US officials denied Wang asylum because they were unwilling to provoke an international incident over the matter but they did persuade Wang to turn himself over to representatives of the central government. Wang has been taken to Beijing for questioning. The incident caused the British government to demand a new investigation into Heywood’s death on Sunday.
On Monday, a spokesman for China’s Foreign Ministry and local Chongqing officials said they were unaware of the situation regarding Mr. Heywood. The lack of a clear, consistent line from official media and spokespeople in China usually indicates lower-level officials are waiting for the party leadership to make a collective decision about how to handle a given situation, according to political analysts.
The Wall Street Journal offers some further background on Wang and Bo, specifically the allegations against Bo that seem to be unravelling his position of power:
Mr. Wang directed a crackdown on organized crime in Chongqing that Chinese legal experts criticized for playing fast and loose with the law. Other commentators accused Mr. Bo of using the sweep as a cover to put in place mafia leaders loyal to himself. Business people have alleged that they were accused of being gangsters so that their assets could be expropriated.
A few of these tycoons have considerable political clout themselves. For instance, Zhang Mingyu is a delegate to the National People’s Congress, but that didn’t stop the Chongqing police from detaining him in Beijing during the legislature’s session earlier this month. Mr. Zhang says he has information to prove Police Chief Wang’s collusion with the head of organized crime in the city, who also runs the largest financial firm. Li Jun, a businessman who lost his $700 million company and now lives abroad, says he was tortured by the police and military for three months for a false confession.
The issue appears to have come to light because Bo Xilai was removed as Party Secretary for Chongqing on Friday, according to the Los Angeles Times and his strongest supporter on the Politburo was notably absent from an order recalling 3300 security personnel to Beijing for retraining:
State media reported this week that 3,300 party cadres from the security apparatus would be sent to Beijing for ideological retraining. The order was unusual enough, but even more so was the fact that the report omitted mention of internal security czar Zhou Yongkang, who heads the Political and Legislative Affairs Committee that is recalling the cadres.
Zhou, a member of the Politburo Standing Committee and until now one of the most powerful men in China, had been the committee’s strongest backer of Bo Xilai, the Communist Party secretary of Chongqing who was removed from his post last week. Some overseas Chinese-language Internet sites carried wild (and unsubstantiated) rumors that Zhou and Bo, a popular figure among Maoist traditionalists, had tried to stage a coup.
A level of edginess was apparent this week in the unusually large security presence in central Beijing, complete with armed SWAT teams in some subway stations.
Mystery Deepens in Death of Briton in China (Wall Street Journal)
China’s Local Tyrants (Wall Street Journal)
China Coup Rumors May Be Wild, But Tension is Real (Los Angeles Times)
- Dodd-Frank Introduces Supply Chain Risk
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Posted on March 26th 2012, by K2 Global New York Office
A recent New York Times article revealed a little known but far-reaching provision in the Dodd-Frank financial overhaul law that covers the use of materials mined in the Democratic Republic of Congo. According to the law, which are still subject to a great deal of lobbying and contention between companies and regulators, any publicly traded company using columbite-tantalite, cassiterite, wolframite, or gold in a way that is “necessary to the function or production of a product” must report whether those minerals come from the DCG.
As Edward Wyatt points out in the story, corporations with a wide array of product lines and extended or complicated supply chains will incur substantial costs vetting for these materials and their sources:
There is little agreement on what it will cost companies to comply. The agency estimates companies will have to spend $71 million to comply with its regulations.
The National Association of Manufacturers estimates the regulations will cost $9 billion to $16 billion. Whatever the answer, part of the burden would fall on a given company’s supply chain — companies, that is, that are very likely not to be covered by the regulation’s reporting requirements, which cover only publicly traded companies.
Irma Villarreal, chief securities counsel for Kraft Foods, said during the S.E.C. roundtable that Kraft produced 40,000 distinct products and used 100,000 suppliers, creating a Herculean task of auditing supply chains for conflict minerals.
Use of ‘Conflict Minerals’ Gets More Scrutiny From U.S. (New York Times)
- Jeremy Kroll on CNBC’s Fast Money
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Posted on March 19th 2012, by K2 Global New York Office
Jeremy Kroll appeared on CNBC today in a Fast Money segment called “Managing Risk: Trends & Troubles”. You can watch the video here.
- Jules Kroll Donates to John Jay College
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Posted on March 19th 2012, by K2 Global New York Office
Dow Jones covers the announcement of Jules B. Kroll’s gift to John Jay College in New York:
The 70-year-old chairman and co-founder of New York-based K2 Global Consulting LLC and chairman and chief executive of Kroll Bond Ratings, Inc., is giving $2 million in support of the college. The atrium of John Jay’s new building on 59th Street, which opened last fall, will be named for Mr. Kroll and his wife, Lynn. The donation is scheduled to be announced Friday. [...]
Though he isn’t an alumnus of John Jay, a school of the City University of New York, Mr. Kroll been involved with the college for six years and presently serves as chairman of the John Jay Foundation board of directors. He says he initially became involved because of the leadership of John Jay’s president, Jeremy Travis.
One of Mr. Kroll’s primary motivations for giving to the school was an interest in supporting the minority population of John Jay.
“I didn’t feel that I had ever done enough for the minority community in my other work,” he says. John Jay serves some 15,000 students, of which 40% are Latino and 25% African-American. [...]
The donation from the Krolls is a lead gift in a $50 million capital campaign that coincides with John Jay’s 50th anniversary in 2014. So far, $30.8 million has been raised.
A Solid Shot at Success (DowJones/Wall Street Journal)
- K2 is Looking for a Communications and Marketing Director
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Posted on February 24th 2012, by K2 Global New York Office
K2 seeks a Communications & Marketing Director for the US market who has held management-level responsibilities at financial, information services, management consulting or business-to-business services firms. The ideal candidate can think strategically but is also hands-on, execution-oriented and operationally savvy. Strong writing skills and comfort with Web content management, e-mail administration, and metrics analytics tools are crucial. The individual must have event management experience and a strong comfort level in coordinating media and public relations activities. The position is based in K2’s New York office.
The Director’s responsibilities will range from brand management to sales support and event management, and will include the following:
Creating awareness:
- Web site maintenance and strategy
- Media relations
- Blog production management
- Corporate promotion, communication tools, newsletters
- PR campaigns, publicity, sponsorships
- Creation and adaptation of marketing collateral
- Creation and execution of e-mail campaigns
- Social media strategy and execution
- Event Management
- Private events
- External events (speaking opportunities, industry trade conferences, press conferences)
Sales activity planning:
- Strategic Memberships
- Mailings
- Product and service collateral
- Sales pitch support
- Corporate Image, visual guidelines, logos, templates, Policy and Procedure Manual
- Prospect database oversight
- Mailing list oversight
- Pipeline and lead generation tracking and reporting
- Statistics and analysis
- Interoffice K2 team visit planning
Please send your resume, salary requirements and other relevant details to employment@k2global.net. Subject of inquiry should be Marcomm NY.
- Jeremy Kroll featured in the Financial Times
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Posted on November 2nd 2011, by K2 Global New York Office
Jeremy was recently interviewed by the Financial Times for their “Executive MBA” series. Check out the article, “Risk and Reward“, over at FT.com.
- K2 Global August Newsletter: How Well Do You Know Your Data?
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Posted on August 17th 2011, by K2 Global New York Office
In case you haven’t received it yet, below is our August newsletter, entitled “How Well Do You Know Your Data?” If you’d like to subscribe, please click here.
Dear Friend:
The story of your business is almost certainly coded in the data you produce. Information sources like social media activities, log files, communication records, documents generated by legal and regulatory proceedings, or related Web content help to form the foundation of your operations.
Hidden within these massive data sets are risk indicators that aren’t visible to the naked eye. Inevitably, the day will come when your board of directors, your legal counsel, investors, or regulatory agencies will ask you how you plan to detect and eradicate these dormant risks before they contaminate your organization.
Traditional ways to attack this problem focus on technologies like e-discovery, enterprise search, or analytics packages. That’s a start, but these approaches tend to be reactive. Truly innovative technologies, like those we work with and develop at K2, take analysis a step further to create context, filter out distractions, and prevent risks from ever forming.
Technology doesn’t do it alone, of course; the right level of human oversight and creativity is just as important.
For example, in a recent case we conducted relationship mapping exercises to augment a traditional due diligence investigation. This helped our client, an asset management firm, more accurately understand its employees’ and consultants’ connections to sources of non-public information.
In this case, we could not rely solely on the raw results provided by our analytics technology. Our analysts and subject matter experts needed to put in the legwork to understand which relationships or transactions merited further investigation, which were merely interesting, and which were of less concern to our client.
This combination of technological and human intelligence yields the rich narrative we share during the course of a client engagement. Since we are a truly objective third party, we tell the facts as we see them. Our reporting is not tainted by preconceived notions, emotional attachments or internal, previously-established loyalties to an individual or investment.
We know that you may not always like the story we have to tell you. In all likelihood, however, it will be a story you need to hear to protect your company. Some of our most appreciative and loyal clients are those who hire us to help wash away their preconceived ideas about what’s going on in their own shops – in effect, to rewrite the stories they’ve been telling themselves, or to reveal the stories they’ve never heard.
If you’d like to talk more about how our approach might help secure your business, please send us a note or call us at 212-694-7000.
Best,
Jeremy Kroll
CEO and Co-Founder
K2 Global Consulting N.A., LLC
www.k2global.netP.S. - I am pleased to announce that Philip Sherman has joined K2 as our new Chief Financial & Administrative Officer. Phil has an abundance of experience in both financial and operating roles, having served as CFO of ACA Financial Guarantee Corporation and EVP & CFO of Reliance Insurance Company and also SVP and Group Controller at Reliance Group Holdings for many years. Phil began his career at Deloitte & Touche. We are excited to have him as part of our team.
- K2 Global New York Hosts Breakfast Event
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Posted on April 27th 2011, by K2 Global New York Office
As part of K2 Global’s ongoing effort to help our clients examine emerging issues around risk from fresh perspectives, K2 Global has launched a series of breakfast events focusing on Risk Management.
The first event took place on April 26th and addressed the regulatory landscape, emerging risks, and solutions around Insider Trading. Of particular focus were the challenges that employee relationships, expert networks, and social technologies present for hedge funds and the financial industry. Jeremy Kroll moderated a discussion with panelists:
- Jules Kroll, Co-Founder, K2 Global Consulting
- Giovanni Prezioso, Partner, Cleary Gottlieb, Washington, D.C., former General Counsel of the Securities and Exchange Commission
- Stuart Kaswell, Executive Vice President & Managing Director, General Counsel, Managed Funds Association, Greenwich, C.T.
- Jason Golub, Director & Chief Compliance Officer, K2 Global ConsultingIn attendance were compliance officers, fund managers, and private equity professionals from some of the largest and most innovative organizations on the East Coast.
The K2 Global Risk Management series will continue throughout the year; if you would like to be informed of future events, please let us know by signing up below:
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