Cybersecurity, Bribery Top Topics in SEC Filings
References to both cybersecurity and antibribery risks in regulatory filings by public companies have increased in the past year, according to a new analysis from business-intelligence firm Intelligize.
The "Managing Risk Better in 2013" white paper, released on Thursday, compares those disclosures filed with the Securities and Exchange Commission between January and June of 2013 to those filed in the second half of 2012.
References to cybersecurity concerns—increasingly a top focus of regulators and lawmakers—numbered more than 800 so far this year, a 106 percent increase compared to the preceding six-month period.
When breaking out the filings by industry, Intelligize noted more references to cybersecurity as a risk factor in disclosures by the telecommunications industry than in any other. Telecom companies accounted for 21 percent of cybersecurity references in SEC filings, followed by computer and online services (19 percent), consumer products (15 percent), and financial services (12 percent).
Cybersecurity mentions also appeared among real estate and business services companies (12 percent), manufacturing and construction firms (5 percent), and natural resources and food outfits (5 percent).
The range of companies bringing up cybersecurity in their SEC filings shows that “it’s much broader now as a discussion topic, and it’s something on the minds of executives across industries,” says Gurinder Sangha, the CEO of Intelligize, which provides analytics and tracking services for regulatory filings. The firm’s clients include one-third of Dow Jones Industrial Average components, according to Sangha.
U.S. companies have come under pressure from the SEC to disclose their cybersecurity risks, as the agency has issued guidance and sent individual comment letters to corporations on the subject. Analyzing the discussion topics within filings can be educational for companies, Sangha tells CorpCounsel.com, “but it also leads to internal discussions on how a company's peers are addressing and tackling similar, challenging issues.”
In an example of a recent 10-Q filing cited in the white paper, “Central Hudson Gas & Electric Corporation disclosed that it had recently experienced a cyberattack in which confidential customer information may have been exposed to an unauthorized third party.”
The company said it initiated an investigation into the attack, alerted customers and regulatory agencies, and also “offered free credit monitoring services to customers who may have been impacted,” according to the paper.
References to the Foreign Corrupt Practices Act (FCPA), which prohibits U.S.-listed companies from paying bribes to win business overseas, have also spiked this year. According to the Intelligize paper, “there have been over 2,000 references to the FCPA in companies’ SEC filings in the past six months. This represents a 33 percent increase compared to FCPA references in the previous six-month period.”
Just last month the French oil and gas company Total S.A. agreed to settle charges of FCPA violations with U.S. regulators to the tune of $398 million. In another FCPA matter involving Ralph Lauren Corporation and Argentine officials, the SEC “chose not to charge the company because it promptly and fully reported violations on its own initiatives, just two weeks after learning of the bribes,” the paper notes. Ralph Lauren paid disgorgement and fines totaling about $1.5 million.
Additionally, the paper highlights discussions by companies of corporate taxes and offshore holdings—a topic that’s generated controversy for Apple Inc. and is being debated in Congress. “In order to avoid association with tax avoidance, many companies have taken the initiative to disclose information about tax repatriation in their SEC reports,” according to Intelligize.
Both Hewlett-Packard and Google have discussed repatriation of cash reserves in recent filings.
HP, for example, acknowledged that it held substantial amounts of cash overseas and that it retains “favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world,” according to the paper, which quotes HP’s filing directly.
For its part, Google said in a March disclosure that out of the company’s $50.1 billion in cash and securities, $31.1 billion is held by foreign subsidiaries.
“Google stated that it intended to keep these funds outside of the U.S. rather than repatriate them to fund U.S. operations,” the paper says. “Using Intelligize’s SEC Checker, it has been found that many other companies use similar language of retaining cash in overseas jurisdictions in order to ‘satisfy liquidity requirements.’ ”