This past Sept. 11 commemorated the 15th anniversary of the terrorist attacks on the World Trade Center, the Pentagon and the aborted hijacking of United Airlines Flight 93. A war on terror began then and continues today; little has been the same since.
Richard Girgenti and Timothy Hedley, in their new book, “The New Era of Regulatory Enforcement: A Comprehensive Guide for Raising the Bar to Manage Risk,” chronicle how the regulatory enforcement landscape changed after 9/11 and how it has changed as the result of events that followed, including the financial reporting crisis uncovered within days of the attacks. Just as 9/11 brought about the Patriot Act, the financial reporting crisis gave rise to Sarbanes-Oxley, and the 2008 recession led to the passage of Dodd-Frank. These events had an even greater impact since they came at a time defined by increased globalization, the emergence of developing economies and a proliferation of digital data and technological innovation.
The book is a collaborative effort that provides an analysis of the challenges faced by companies and individuals tasked with ensuring compliance in this new environment. Its two principal authors provide an interesting contrast in backgrounds. Richard Girgenti, KPMG’s forensics leader for the Americas, is a former prosecutor in the Manhattan District Attorney’s Office and state commissioner and director of criminal justice. Hedley, a forensics partner at KPMG, has a doctorate in accounting. Many of the contributing authors are attorneys, who have diverse legal backgrounds—Teresa Pesce (Southern District U.S. Attorney’s Office); John Caruso (Eastern District U.S. Attorney’s Office); Charlie Steele (main Justice, the FBI and Office of Foreign Assets Control); and Pamela Parizek and Howard Scheck (Securities and Eschange Commission). This variation provides a broad view of the challenges that companies face, which is especially appropriate given that the book is intended for a wide range of professionals, from attorneys advising their clients, to those who sit on corporate boards and in the C-suite.
The book is an ambitious undertaking and serves as a comprehensive guide rather than a detailed legal analysis. In the introduction, Girgenti sets out the objective to answer four questions:
• What are the critical risks areas that have given rise to government enforcement?
• What are the policies that have driven enforcement activity and the government’s expectations for a company’s compliance program?
• What are the strategies and techniques that are part of the government’s evolving and growing arsenal?
• What can companies do to avoid the risks created in this new environment and effectively respond when misconduct inevitably occurs?
Chapter One describes the series of events and factors that have led to the new era of regulatory enforcement. Chapter Two provides a compliance framework that synthesizes the available guidance to manage the regulatory risks in the current environment.
With this background, the book changes course and delves into targeted discussions of bribery and corruption, money laundering, trade sanctions, market abuse and manipulation, insider trading, financial reporting fraud, offshore tax evasion and unfair and deceptive consumer practices. While each of these chapters provides detailed guidance suitable for someone generally familiar with each topic, given the complexity of the subject, one could easily envision an entire book devoted to any one topic.
The chapter on bribery and corruption discusses the anti-bribery efforts globally focusing on the UK, Brazil and China. For an organization attempting to apply a comprehensive, global approach to anti-bribery, the authors show how the compliance framework could be applied.
In the aftermath of 9/11, anti-money laundering enforcement became a key weapon in the war against terrorist financing. The chapter discusses the expansion of enforcement activities beyond traditional financial institutions to include the alternative investment industry, investment advisers, money service businesses, cyber currency companies (e.g. bitcoins), innovative payment technologies (e.g. smart phone payments) and retail companies offering financing. The chapter on anti-money laundering is followed by a related chapter on economic and trade sanctions, which provides a brief history of sanctions as a tool of foreign policy and the risks international businesses face.
For those who followed the LIBOR and FOREX scandals and the numerous insider trading cases that dominated the business news, the chapter on market manipulation and insider trading provides a detailed discussion of these topics. The chapter is technical but provides the reader with a road map for how misconduct can be detected and investigated.
In the years since the passage of Sarbanes-Oxley, there were few headlines of fraud in financial reporting. More recently, Mary Jo White, the outgoing chair of the SEC, has with renewed vigor applied a “broken windows” approach to SEC enforcement. The chapter on financial reporting provides a useful analysis on how companies can effectively respond to the risk of financial reporting fraud.
One of the outcomes of the financial recession and the passage of Dodd-Frank was the creation of the Consumer Financial Protection Bureau (CFPB). Most readers were likely unfamiliar with the CFPB until the recent scandal involving Wells Fargo’s sales practices. The chapter on consumer fraud provides the reader with a history of government activity in protecting consumers from deceptive and abusive practices, particularly those practices involving mortgage lending and securitization that contributed to the 2008 recession.
The chapter on off-shore tax evasion discusses, in detail, the continuing enforcement efforts by the U.S. government to reign in tax shelters and the challenges posed to financial institutions in doing so.
The final two chapters of the book provide a high-level overview of the variety of risks that the health care and life sciences industries face. The chapters on health care describe government enforcement efforts designed to encourage higher quality care at lower cost, and to combat fraudulent billing practices. The chapter on life sciences also focuses on how the government has attempted to reshape industry practices in developing and marketing drugs.
Girgenti and Hedley have indeed provided attorneys and those with risk-related responsibilities with a comprehensive guide for “The New Era of Regulatory Enforcement.” It is an original and ambitious effort.