US regulators get tough on foreign firms

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LONDON – US regulators are cracking down on corruption, money laundering and financing terror, said Ellen Zimiles, chief executive officer of Daylight Forensic & Advisory, financial crime compliance consultants, in a speech at the British Bankers’ Association annual financial crime conference.

Regulators are pushing on with the increasingly tough application of the US Foreign Corrupt Practices Act (FCPA) – a piece of post-Watergate legislation that had been gathering dust until given a new lease of life with the introduction of Sarbanes-Oxley.

The FCPA was designed to investigate financial corruption and crime committed by non-US firms trading through American depository receipts on US exchanges. As the breadth of financial crime has become increasingly international, so US regulators have widened their net and are increasingly enforcing the rules.

“There has been a lack of focus on corruption,” said Zimiles, who went on to emphasis the shift in regulatory attention to fighting financial crime alongside increased regulatory expectation and enforcement activity.

“The prevalence of fraud, money laundering and corruption is rising, with the shift in global wealth to emerging economies, accelerated proliferation of technology and global migration,” said Zimiles.

For firms doing business across borders, Zimiles underlined the importance of carrying out detailed risk analyses for those jurisdictions with higher risks of financial crime. She specifically warned of corruption in India, Mexico and South Korea, and money laundering and terrorist financing risks in Russia, China and Brazil.

Zimiles also highlighted the great political and cultural diversity of risk analysis, citing examples such as the US State Department moving Iraq off the list of terrorist safe havens, and German firms’ readiness to do business in the Baltic states, while the US regards them a far riskier environment.

The risk of being caught out is increasing, said Zimiles. The reputational, legal and financial risks are enormous, as demonstrated by the fallout from the US Justice Department and Securities Exchange Commission (SEC) investigation into bribery allegations against British defence firm BAE Systems relating to payments to senior Saudi officials on contracts selling fighter jets and other weapons systems. BAE shares plunged 11% when the investigation was announced, while the UK government remains under pressure to renew its own investigation, which was cancelled on national security grounds.

Oil services company Baker Hughes has also been targeted by the FCPA – the firm paid a record $44 million fine after admitting it had bribed officials in Kazakhstan, Angola, Russia, Nigeria and elsewhere.

German electronics firm Siemens is also under US investigation, having already settled with German prosecutors by paying a fine of €201 million and an additional €179 million to the tax authorities because it improperly deducted foreign payments as business expenses.

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