A SEC bounty for whistleblowers on corporate corruption. As a corporation, director or shareholder, are you ready?

So a few weeks ago I wrote about WikiLeaks and how they’ll allow for whistleblowers to come forward and be protected.  Well, now it appears that the Wall Street Reform and Consumer Protection Act (known as the Dodd-Frank Act waiting to pass the US Senate) will simply bring the issue of corruption and bribery a little more into the light.  According to John Keefe, a lawyer with Goodmans LLP in Toronto, this act has two provisions that will enhance the ability of the U.S. Securities and Exchange Commission (SEC) to go after companies anywhere in the world accused of fraud or paying bribes.

Accordingly, the reforms include an extraordinary clause that would reward whistleblowers that report bribery or fraud allegations to the SEC, enticing them with a bounty of 10 to 30% of the fines that result from the subsequent investigations.  In last year’s Siemens case, where we saw $1.6B (US) in fines were paid to US and German authorities, the whistleblower would have earned up to $240 million!

According to Mr. Keefie, another provision of the act gives more power to American prosecutors to go after companies with little or no US presence.  It gives the SEC the power to pursue cases that include securities fraud or bribery, provided there is either some “conduct in the United States that constitutes significant steps in furtherance of violation” or the alleged violation “has a foreseeable substantial effect within the United States”.   He continues to say that under the new law, it seems that if a foreign company with no links to the United States paid a bribe to a foreign official, edging out an American firm bidding for the same contract, US courts could still take action.  Mr. Keefe’s ultimate message is that Canadian companies (and I would suggest their shareholders) better pay attention as the costs of bribery allegations are enormous.  Quoting the American Lawyer magazine, he highlights that Siemens paid $275 million in legal fees on top of it’s fines.  As a shareholder, should we care that $275-million has been paid to defend a company against bribery and corruption?

Given the changing winds in technology and media, they are now offering a never-before seen level of  transparency of corporate actions.  As a shareholder, are you ready to assess this potential risk to your portfolio?  Should you?  Those in the field of sustainable investing would clearly say “Yes”.

Earlier this year, a coalition of 20 pension fund investors and fund managers with $1.7 trillion of assets under management, came together to press major companies (notably in the defence and construction sectors) to reveal their management policies on bribery and corruption.  The campaign said it had contacted 21 major companies in the defence, construction and other sectors in 14 countries to reveal the measures they have in place to avoid bribery and corruption in business with their suppliers.  They asked the companies if their anti-corruption management systems adheres to the international reporting frameworks developed by the International Corporate Governance Network (ICGN) and the United National Global Compact.  Why would they care?  According to George Dallas, director of corporate governance at F&C

“As investors, we believe that bribery and corruption are incompatible with good corporate governance and harmful to the creation of value.”

As a corporation have you given any consideration to this issue?  Is it just part of business?  As a member of the board of these corporations, do you have an anti-corruption policy in place?  Has it been tested?  As a shareholder of said companies, are you taking such into consideration?

All in all, this issue could be costly to some corporations, both globally and domestically.  Are you ready?  Are you protected?  Sounds like the SEC is ready to help pay the price to see it happen.

(excerpts from John Keefe from Globe and Mail article by Jeff Gray on August 18, 2010 “Wall Street reforms could snare Canadian firms”)

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