Regulation and investigations remain among the primary concerns of businesses. In this briefing, we provide an overview of some of the key global and regional regulatory issues which global businesses will face in 2015.
The challenge of managing multi-jurisdictional regulatory investigations Global businesses will continue to be challenged in relation to co-ordination and strategy in connection with investigations involving multiple regulators. An understanding of the underlying framework is critical.
Changing expectations in relation to co-operation The expectations of regulators across the globe in relation to the assistance provided by corporates to facilitate proceedings against individuals is subject to change. The US Department of Justice, for example, has signalled that it will expect corporates to be proactive in providing evidence to support proceedings against individuals. Similarly, in the UK the Serious Fraud Office continues to promote self-reporting.
Negotiating and reaching global settlements with multiple regulators Cross-border co-operation between international regulators is now the norm, underpinned by formal agreements in many cases. However, in 2015 we are likely to see further examples of tensions between regulators in connection with achieving global settlements, with each regulator having their own priorities and political pressures. By extension, it will become increasingly complex for business to navigate their way to multi-jurisdictional settlements.
Enhanced focus on senior management Across the globe, governments and regulatory agencies will focus on bringing senior executives to account for their conduct in the context of regulatory failures by corporates under their control.
Impact of previously agreed global settlements Global settlements may be restricted by the terms of previous settlements (for example, pre-existing Deferred Prosecution Agreements (“DPAs”)) in trying to achieve a cross-border resolution with multiple regulators.
The emergence of regulators Significant enforcement is no longer solely the preserve of the United States regulators. Recent activity against global corporates by government agencies in China, the Netherlands and Brazil, for example, indicates that businesses and senior management must be aware of the changing political and regulatory dynamics in the counties in which they do business. We expect this trend to continue.
Navigating economic sanctions The economic sanctions framework is complex and fast-moving in response to political change. There seems little indication at this stage that relations with Russia will thaw sufficiently to allow a return to normal business trading. Businesses in the financial institutions, energy and transport sectors, for example, will continue to work through some complex issues in connection with the impact of Russian sanctions, including establishing and enhancing relevant compliance frameworks. We may see investigations and enforcement in connection with breaches of this complex framework. Proposed changes in relation to the United States’ relationship with Cuba may also bring challenges.
Energy Challenges with energy generation capacity will likely lead to regulatory development, particularly in relation to independent power producers and integration of electricity generation by residential and commercial producers into the power grid. The African continent remains one of the fastest growing regions in the world and energy development (and accompanying regulation) is central to that growth. Shale gas exploration will remain a key regulatory issue in South Africa and across the continent.
Resource nationalism The assertion by governments of control over natural resources located in their territory will continue to be a key regulatory concern in line with the recent increases in investment in mining and commodities.
Focus on public interest factors in merger reviews There will be further focus on public interest factors (including employment issues) in merger reviews.
Prosecution and litigation arising out of cartel activity In relation to prohibited practices, the authorities will continue to be active in prosecuting cartels, particularly in the construction industry, which may lead to civil damages claims.
Focus on anti-money laundering and anti-corruption Corporates will continue to face regulatory challenges, particularly in relation to increased regulation and enforcement of anti-corruption and anti-money laundering regulations. These challenges are acute for businesses expanding into Africa.
Continuing reforms in China Continuing reforms in China will gradually reduce the government’s involvement in economic activities allowing for more new entrants into this fast growing economic market.
Increased enforcement by Chinese regulators In 2014, we witnessed heightened enforcement activities particularly on corruption and competition issues against a number of well-known global brands in the region. We see this phenomenon expanding into other areas in 2015 as the regulators become more experienced and sophisticated in their approach.
Exposure for senior management Senior management will continue to be put on the spot in the coming year. A number of recent landmark cases resulted in criminal convictions and lengthy sentences for directors and senior management. For example, a Court in Singapore recently handed down two high-profile decisions convicting senior managers of multi-national corporations of criminal corruption for procuring secret profits through intricate schemes. It also held that a director’s duties include an active duty to exercise reasonable diligence to ensure that the company does not engage in corrupt practices. Pro-active government activity: Indonesia and Thailand The election of President Joko Widodo in Indonesia who campaigned on an anti-corruption platform has set the course for anti-corruption initiatives in 2015. His decision to have the Corruption Eradication Commission screen his cabinet nominees prior to their appointment is an example of the significance that he will attach to the graft-fighting agency. The prime minister General Prayuth Chan-ocha of Thailand has commenced a comprehensive crackdown against corruption which will likely continue into 2015.
Opportunities and challenges: Myanmar The opening up of Myanmar has led to multinational corporations rushing to set up operations in the previously cloistered country. However, the lack of transparency, embryonic investment laws and the pervasive presence of the military in private enterprise give rise to regulatory and risk management challenges ahead.
Enhanced focus on enforcement against senior executives and management The report of the UK Parliamentary Committee on Banking Standards (PCBS) (June 2013) criticised the existing “approved persons” regime stating that “a lack of personal responsibility has been common place throughout the industry. Senior figures have continued to shelter behind an accountability firewall.” The creation of the senior managers’ regime, certification regime and new conduct rules are a significant milestone in UK regulatory reform as is the creation of a new criminal penalty for making a decision which causes an institution to fail (see briefing)
Enhanced use of the range of enforcement tools, including DPAs We expect the UK Serious Fraud Office to continue to pursue its agenda in encouraging corporates to self-disclose issues. Mirroring the practice in the United States, the SFO is likely to seek to agree to DPAs which will comprise large financial penalties and the imposition of corporate monitors.
Technical transition: Regulatory reform in Europe Whilst the global financial crisis may be receding there will be no let-up in the pace of regulatory change. From an EU perspective an important part of 2015 will be technical transition, making sure the nuts and bolts of regulatory reform are right, with work in particular continuing on the implementing measures of MiFID II, MiFIR and MAR (see regulatory calendar).
Opportunities and challenges: MiFID II and MiFIR MiFID II and MiFIR were published in the Official Journal of the EU on June 12, 2014, and entered into force twenty days later. The publication of the texts started the countdown to the new regime’s implementation, which takes place on January 3, 2017. Whilst this date may seem some time away there is much for firms to do. Current challenges for the industry include getting to grips with the substantial proposals presented by ESMA in its papers on implementing measures. (See our slides and briefing notes)
Whistleblowing Whistleblowing continues to be a key driver of regulatory investigations. The UK government has proposed that they will, this year, improve their guidance on whistleblowing and create a model whistleblowing policy.
Germany: proposed new criminal code increases exposure for corporates A Minister of Justice from the federal state of North Rhine Westphalia has proposed a new criminal code which will extend criminal liability to corporates. German criminal law is currently only applicable to natural persons due to the principle of personal guilt. Commentators suggest that fines imposed on corporates under the current regulatory framework (OWiG) have been predictable and lacking in deterrent effect. The proposed introduction of corporate criminal liability should encourage companies to implement credible and reliable compliance structures and to monitor and investigate closely conduct and behaviour within their organisation. In larger companies in Germany, it has already become common practice to have investigations carried out by independent, external law firms. The draft law, which is currently being debated in committee, is expected to brought before the Bundesrat (a legislative body that represents the sixteen Länder (federal states) of Germany at the national level, during 2015.
The emergence of the DFSA as a global player For the past few years, the Dubai Financial Services Authority (DFSA) has been positioning itself as a robust, trust-worthy, well run regulator that deserves global recognition. We expect that in 2015, we will witness the DFSA handing out fines, censures and other punishments to non-compliant Dubai International Financial Centre (DIFC) entities and individuals on a scale more akin to those handed out in London or New York.
Focus on sanctions Notwithstanding the UAE’s close geographical proximity to Iran and its historical trading links, the UAE Central Bank has robustly implemented both US and UN sanctions against Iran. It will be interesting to see what approach the UAE Central Bank as well as the US, UN and EU adopt in 2015.
Potential debarment from public contracts: Canada A new emerging trend that will likely gain momentum in 2015 is the requirement by an increasing number of private sector companies that subcontractors and business partners provide certifications or covenants that they have not engaged in a range of activities including bribery, competition law offences and tax code violations. A broader range of public sector entities, such as government-owned export finance banks are also now requiring anti-corruption certifications. As a result, even companies that do not do business with public sector entities will need to put in place compliance programmes and very careful if negotiating settlements with enforcement authorities.
Continued expansion of investigatory methods: United States In a variety of investigations, including insider trading and anti-corruption, the US Department of Justice has used investigatory methods that were once generally reserved for non-“white collar” crimes, including the use of undercover witnesses and wiretapping. We expect that the use of such methods will continue and expand as the DOJ refines its use of these methods in other white collar cases.
Shift in best practice in anti-corruption compliance As companies continue to strive to have anti-corruption compliance programmes that balance effective detection and prevention of improper conduct with efficient use of limited resources, we expect that best practices will move towards addressing the following components: a move away from FCPA centric to global anti-corruption compliance; increased integration of compliance and business throughout the organisation; greater focus on compliance budgets and risk analysis.